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 September 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 by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X
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 September 30, 2005
Common stock, without par value 6,222,395,687
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
Condensed Consolidated Statement of Income
3
Three months and nine months ended September 30, 2005 and 2004
Condensed Consolidated Balance Sheet
4
As of September 30, 2005 and December 31, 2004
Condensed Consolidated Statement of Cash Flows
5
Nine months ended September 30, 2005 and 2004
Notes to Condensed Consolidated Financial Statements
6-20
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
21-27
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
28
Item 4.
Controls and Procedures
PART II. OTHER INFORMATION
Legal Proceedings
28-29
Unregistered Sales of Equity Securities and Use of Proceeds
30
Item 6.
Exhibits
31
Signature
32
Index to Exhibits
33
-2-
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(millions of dollars)
Three Months Ended
Nine Months Ended
September 30,
2005
2004
REVENUES AND OTHER INCOME
Sales and other operating revenue (1) (2)
$
96,731
74,854
262,828
210,134
Income from equity affiliates
3,080
1,219
5,957
3,487
Other income
906
302
2,551
1,049
Total revenues and other income
100,717
76,375
271,336
214,670
COSTS AND OTHER DEDUCTIONS
Crude oil and product purchases (2)
52,345
37,047
136,334
100,572
Production and manufacturing expenses
6,537
5,721
19,089
16,932
Selling, general and administrative expenses
3,765
3,372
10,724
9,946
Depreciation and depletion
2,513
2,431
7,582
7,154
Exploration expenses, including dry holes
248
388
635
789
Interest expense
73
459
373
557
Excise taxes (1)
8,160
7,045
22,913
19,975
Other taxes and duties
10,850
10,179
31,504
30,274
Income applicable to minority and preferred interests
174
199
468
495
Total costs and other deductions
84,665
66,841
229,622
186,694
INCOME BEFORE INCOME TAXES
16,052
9,534
41,714
27,976
Income taxes
6,132
3,854
16,294
11,066
NET INCOME
9,920
5,680
25,420
16,910
NET INCOME PER COMMON SHARE (dollars)
1.60
0.88
4.04
2.60
NET INCOME PER COMMON SHARE
- ASSUMING DILUTION (dollars)
1.58
4.00
2.59
DIVIDENDS PER COMMON SHARE (dollars)
0.29
0.27
0.85
0.79
(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.
8,439
6,467
23,106
18,500
-3-
CONDENSED CONSOLIDATED BALANCE SHEET
Sept. 30,
Dec. 31,
ASSETS
Current assets
Cash and cash equivalents
29,240
18,531
Cash and cash equivalents - restricted (note 4)
4,604
Notes and accounts receivable - net
26,193
25,359
Inventories
Crude oil, products and merchandise
9,577
8,136
Materials and supplies
1,399
1,351
Prepaid taxes and expenses
3,717
2,396
Total current assets
74,730
60,377
Property, plant and equipment - net
107,094
108,639
Investments and other assets
27,897
26,240
TOTAL ASSETS
209,721
195,256
LIABILITIES
Current liabilities
Notes and loans payable
2,331
3,280
Accounts payable and accrued liabilities
39,055
31,763
Income taxes payable
9,489
7,938
Total current liabilities
50,875
42,981
Long-term debt
6,126
5,013
Deferred income tax liability
20,525
21,092
Other long-term liabilities
24,305
24,414
TOTAL LIABILITIES
101,831
93,500
Commitments and contingencies (note 4)
SHAREHOLDERS' EQUITY
Benefit plan related balances
(732
)
(1,014
Common stock, without par value:
Authorized:
9,000 million shares
Issued:
8,019 million shares
5,176
5,067
Earnings reinvested
154,420
134,390
Accumulated other nonowner changes in equity
Cumulative foreign exchange translation adjustment
1,451
3,598
Minimum pension liability adjustment
(2,347
(2,499
Unrealized gains on stock investments
0
428
Common stock held in treasury:
1,797 million shares at September 30, 2005
(50,078
1,618 million shares at December 31, 2004
(38,214
TOTAL SHAREHOLDERS' EQUITY
107,890
101,756
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
The number of shares of common stock issued and outstanding at September 30, 2005 and
December 31, 2004 were 6,222,395,687 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
6,226
4,155
All other items - net
(1,480
24
Net cash provided by operating activities
37,748
28,243
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment
(9,940
(8,579
Sales of subsidiaries, investments, and property, plant and equipment
4,580
1,952
Increase in restricted cash and cash equivalents (note 4)
(4,602
Other investing activities - net
(2,019
209
Net cash used in investing activities
(7,379
(11,020
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to long-term debt
61
371
Reductions in long-term debt
(83
(113
Additions/(reductions) in short-term debt - net
(993
(244
Cash dividends to ExxonMobil shareholders
(5,390
(5,158
Cash dividends to minority interests
(229
(177
Changes in minority interests and sales/(purchases)
of affiliate stock
(351
(151
Net ExxonMobil shares acquired
(11,985
(6,235
Net cash used in financing activities
(18,970
(11,707
Effects of exchange rate changes on cash
(690
(34
Increase/(decrease) in cash and cash equivalents
10,709
5,482
Cash and cash equivalents at beginning of period
10,626
CASH AND CASH EQUIVALENTS AT END OF PERIOD
16,108
SUPPLEMENTAL DISCLOSURES
Income taxes paid
15,104
8,492
Cash interest paid
361
219
-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 September 2005 meeting, the Emerging Issues Task Force (EITF) reached a consensus on 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 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.
ExxonMobil currently 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). The EITF consensus will result in the Corporation's accounts "Sales and other operating revenue" and "Crude oil and product purchases" on the Consolidated Statement of Income being reduced by associated amounts with no impact on net income. All operating segments will be impacted by this change, but the largest effects are in the Downstream. The EITF consensus will become effective for new arrangements entered into, and modifications or renewals of existing agreements, beginning no later than the second quarter of 2006.
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"
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3.
Suspended Exploratory Well Costs
Effective July 1, 2005, the Corporation adopted Financial Accounting Standards Board Staff Position FAS 19-1 (FSP 19-1), "Accounting for Suspended Well Costs." FSP 19-1 amended 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. There were no capitalized exploratory well costs charged to expense upon the adoption of FSP 19-1.
Prior to the adoption of FSP 19-1, ExxonMobil carried as an asset the cost of drilling exploratory wells that found sufficient quantities of reserves to justify their completion as producing wells if the required capital expenditure was made and drilling of additional exploratory wells was under way or firmly planned for the near future. Once exploration activities demonstrated that sufficient quantities of commercially producible reserves had been discovered, continued capitalization was dependent on project reviews, which took place at least annually, to ensure that satisfactory progress toward ultimate development of the reserves was being achieved. Exploratory well costs not meeting these criteria were charged to expense.
The two tables below provide details of the changes in the balance of suspended exploratory well costs as well as an aging summary of those costs.
Nine Months
Ended
Change in capitalized suspended
exploratory well costs
Beginning balance at January 1
1,070
1,093
1,193
Additions pending the determination of proved reserves
207
139
217
Charged to expense
(55)
(98
(238
Reclassifications to wells, facilities and equipment
based on the determination of proved reserves
(40)
(92
(123
Foreign exchange / Other
11
44
Ending balance
Period end capitalized suspended
Capitalized for a period of one year or less
246
Capitalized for a period of between one and five years
502
510
453
Capitalized for a period of between five and ten years
188
172
162
Capitalized for a period of greater than 10 years
257
249
261
Capitalized for a period greater than one year
947
931
876
Total
-7-
Exploration activity often involves drilling multiple wells, over a number of years, to fully evaluate a project. The table below provides a numerical breakdown of the number of projects with suspended exploratory well costs which had their first capitalized well drilled in the preceding 12 months and those that have had exploratory well costs capitalized for a period greater than 12 months.
Number of projects with first capitalized well drilled
in the preceding 12 months
20
8
13
Number of projects that have exploratory well costs
capitalized for a period greater than 12 months
59
76
79
69
89
Of the 59 projects that have exploratory well costs capitalized for a period greater than twelve months as of September 30, 2005, 18 projects have drilling in the preceding 12 months or exploratory activity planned in the next two years, while the remaining 41 projects are those with completed exploratory activity progressing toward development. The table below provides additional detail for those 41 projects which total $623 million dollars.
Country / Project
Sept. 30, 2005
Years Wells Drilled
Comment
Angola
Marimba
2001
Development in progress on first phase of Marimba deepwater project with proved reserves booked; development of second phase awaiting capacity in existing/planned infrastructure.
Mavacola
12
2001-2002
Development awaiting capacity in existing/planned infrastructure; planned subsea tieback to floating production system; submission of Declaration of Commerciality in 2005.
Mondo
2000-2003
Planned subsea tieback to floating production system; initial project funding in 2003; Declaration of Commerciality approved by government in 2003; project funding is anticipated in 2005 or 2006.
Orquidea/Violeta
6
1999-2001
Planned subsea tieback to floating production system; high-resolution 3-D seismic survey in 2004; further technical evaluation and reservoir studies were conducted in 2005.
Saxi/Batuque
Planned subsea tieback to floating production system; initial project funding in 2003; Declaration of Commerciality approved by government in 2005.
Australia
Gorgon/Jansz
1980-2003
Gorgon and Jansz resources to be developed as integrated LNG project; land access rights for onshore plant secured in 2003; co-venturers have agreed to combine these resources and redistribute their equity interests, with governmental approval of this plan anticipated by year-end 2005; initial project funding and engineering began in 2005.
Kipper/East Pilchard
10
1986-2001
Bass Strait project in design phase; planned tie-in to existing platform; initial Kipper funding began in 2005 following execution of Memorandum of Understanding between co-venturers; development of East Pilchard phase awaiting capacity in existing/planned infrastructure.
Whiptail
Progressing development concept with planned subsea tieback to existing Bass Strait platform.
Canada
Hebron
1999-2000
Progressing development concept with co-venturer following resolution of the Joint Operating Agreement in 2005; recent efforts focused on further technical evaluation of wells and reservoir using seismic reprocessing and well core analysis; initial project funding and engineering began in 2005.
Terra Nova
Drilling plans to develop far east area of field have been approved by provincial authority in 2005.
-8-
Indonesia
Cepu
41
1998-2001
Progressing license term extension and commercial agreements with the Government of Indonesia; a Memorandum of Understanding and a Production Sharing Contract have been signed and other agreements are progressing; initial project funding and engineering began in 2001, with development anticipated upon conclusion of negotiations.
Natuna
118
1981-1983
Intent to proceed to the next phase of development communicated to government in 2004; discussions with government on near-term development work plans are in progress; further technical evaluation and gas marketing activities progressed in 2005.
Nigeria
Etoro/Isobo
9
Offshore satellite development which will tie back to an existing production facility.
Other
(5 projects)
15
Actively pursuing development of several additional offshore satellite discoveries which will tie back to existing production facilities.
Norway
Lavrans
1995-1999
Development awaiting capacity in existing/planned infrastructure; planned subsea tieback to existing floating production system; evaluation of phased ullage filling scenarios progressing.
Skarv/Idun
1998-2002
Planned subsea tieback to floating production system; export infrastructure and development plan agreed to with partners in 2005; submission of Plan of Development to the government anticipated in 2006; initial project funding and engineering began in 2005.
(4 projects)
7
1992-2002
Progressing several smaller North Sea developments expected to result in proved reserve additions over next few years.
Papua New Guinea
Hides
35
1993-1998
Early engineering studies complete; negotiations with customers on sales terms are in progress; initial project funding and engineering began in 2004; reservoir pressure data acquired in 2005.
Russia
Sakhalin-1, Phase 3
26
1996-1998
Actively progressing third phase of the Sakhalin-1 project to utilize capacity in facilities and infrastructure in Phase 1; Phase 1 development underway with first production in 2005; production testing program planned in 2006 to gather additional reservoir data.
United Kingdom
Merganser
1995
Planned subsea tieback to existing U.K. North Sea facilities; project funding anticipated in 2005 or 2006.
Puffin
38
1981-1986
Development awaiting capacity in existing infrastructure; planned tieback to existing U.K. North Sea production facility.
Starling
(2 projects)
2002-2003
United States
Point Thomson
1977-1980
Progressing development option consisting of tie-in to proposed Alaska gas pipeline; negotiations of gas pipeline fiscal terms with state of Alaska ongoing; conceptual engineering planned for 2006.
Various
(9 projects)
37
1979-2004
Projects primarily awaiting capacity in existing or planned infrastructure.
Total (41 projects)
$623
-9-
4.
Litigation and Other Contingencies
Litigation
A variety of claims have been made against ExxonMobil and certain of its consolidated subsidiaries in a number of pending lawsuits and tax disputes. The Corporation accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated. The Corporation does not record liabilities when the likelihood that the liability has been incurred is probable but the amount cannot be reasonably estimated, or when the liability is believed to be only reasonably possible or remote. ExxonMobil will continue to defend itself vigorously in these matters. Based on a consideration of all relevant facts and circumstances, the Corporation does not believe the ultimate outcome of any currently pending lawsuit against ExxonMobil will have a materially adverse effect upon the Corporation's operations or financial condition.
A number of lawsuits, including class actions, were brought in various courts against Exxon Mobil Corporation and certain of its subsidiaries relating to the accidental release of crude oil from the tanker Exxon Valdez in 1989. The vast majority of the compensatory claims have been resolved. All of the punitive damage claims were consolidated in the civil trial that began in May 1994.
In that trial, on September 24, 1996, the United States District Court for the District of Alaska entered a judgment in the amount of $5 billion in punitive damages to a class composed of all persons and entities who asserted claims for punitive damages from the Corporation as a result of the Exxon Valdez grounding. ExxonMobil appealed the judgment. On November 7, 2001, the United States Court of Appeals for the Ninth Circuit vacated the punitive damage award as being excessive under the Constitution and remanded the case to the District Court for it to determine the amount of the punitive damage award consistent with the Ninth Circuit's holding. The Ninth Circuit upheld the compensatory damage award, which has been paid. On December 6, 2002, the District Court reduced the punitive damage award from $5 billion to $4 billion. Both the plaintiffs and ExxonMobil appealed that decision to the Ninth Circuit. The Ninth Circuit panel vacated the District Court's $4 billion punitive damage award without argument and sent the case back for the District Court to reconsider in light of the recent U.S. Supreme Court decision in Campbell v. State Farm. On January 28, 2004, the District Court reinstated the punitive damage award at $4.5 billion plus interest. ExxonMobil and the plaintiffs have appealed the decision to the Ninth Circuit. The Corporation has posted a $5.4 billion letter of credit.
On January 29, 1997, a settlement agreement was concluded resolving all remaining matters between the Corporation and various insurers arising from the Valdez accident. Under terms of this settlement, ExxonMobil received $480 million. Final income statement recognition of this settlement continues to be deferred in view of uncertainty regarding the ultimate cost to the Corporation of the Valdez accident. Management believes that the likelihood of the 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
-10-
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 to the Alabama Supreme Court. 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 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 Supreme 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-controversy 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.
-11-
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. On October 11, 2005, the United States Supreme Court denied certiorari on the appeal. In light of the U.S. Supreme Court's action the Corporation will recognize a positive after-tax earnings impact of approximately $390 million in fourth quarter 2005 results.
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 September 30, 2005
Equity
Company
Third Party
Obligations
Guarantees of excise taxes and custom duties
under reciprocal arrangements
1,048
Other guarantees
2,305
338
2,643
1,386
3,691
The Corporation and certain of its consolidated subsidiaries were contingently liable at September 30, 2005 for $3,691 million, primarily relating to guarantees for notes, loans and performance under contracts. This included $1,048 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 $2,305 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 September 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.
-12-
5.
Nonowner Changes in Shareholders' Equity
Changes in other nonowner changes in equity
Foreign exchange translation adjustment
203
559
(2,147
(179
152
Unrealized gains/(losses) on stock investments
85
Reclassification adjustment for gain on sale of
stock investment included in net income
(428
Total nonowner changes in shareholders' equity
10,275
6,324
22,997
16,639
6.
Earnings Per Share
Net income (millions of dollars)
Weighted average number of common shares
outstanding (millions of shares)
6,241
6,464
6,304
6,505
Net income per common share (dollars)
- ASSUMING DILUTION
Effect of employee stock-based awards
62
57
outstanding - assuming dilution
6,303
6,508
6,361
6,542
Net income per common share
- assuming dilution (dollars)
-13-
7.
Annuity Benefits and Other Postretirement Benefits
Annuity Benefits - U.S.
Components of net benefit cost
Service cost
81
254
230
Interest cost
150
151
469
455
Expected return on plan assets
(154
(155
(484
(462
Amortization of actuarial loss/(gain)
and prior service cost
67
71
214
Net pension enhancement and
curtailment/settlement expense
45
94
133
Net benefit cost
542
570
Annuity Benefits - Non-U.S.
82
284
253
193
198
619
593
(175
(170
(589
(506
101
93
314
274
1
2
216
630
644
Other Postretirement Benefits
18
17
52
43
77
80
227
218
(10
(29
(28
51
128
136
401
-14-
8.
Disclosures about Segments and Related Information
EARNINGS AFTER INCOME TAX
Upstream
1,671
1,173
4,413
3,564
Non-U.S.
5,678
2,756
12,898
8,224
Downstream
1,109
2,753
1,310
1,019
840
2,849
2,052
Chemical
70
329
905
595
402
680
1,813
1,585
All other
(109
(211
(420
Corporate total
SALES AND OTHER OPERATING REVENUE (1) (2)
1,470
1,442
4,713
4,323
6,585
3,921
17,066
12,338
26,026
18,284
67,768
52,041
54,966
43,837
149,910
121,676
2,853
2,808
8,946
7,633
4,814
4,557
14,402
12,101
23
22
(1) Includes excise taxes
(2) Includes amounts in sales and other operating
revenue for purchases/sales contracts with
the same counterparty
INTERSEGMENT REVENUE
1,922
1,677
5,396
4,808
8,782
5,843
21,832
15,400
2,732
2,130
7,230
5,768
12,067
8,310
30,578
22,096
1,920
1,368
4,997
3,604
1,680
1,126
4,372
3,115
225
240
-15-
9.
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 September 30, 2005) of Exxon Capital Corporation and the deferred interest debentures due 2012 ($1,356 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 September 30, 2005
Revenues and other income
Sales and other operating revenue,
including excise taxes
3,465
-
93,266
9,197
(9
3,085
(9,193
255
651
Intercompany revenue
9,632
14
76,063
(85,723
22,549
173,065
(94,916
Costs and other deductions
Crude oil and product purchases
8,565
125,338
(81,558
Production and manufacturing
expenses
1,754
6,061
(1,279
Selling, general and administrative
578
3,327
(140
344
2,168
Exploration expenses, including dry
holes
210
707
40
2,089
(2,767
Excise taxes
10,843
Income applicable to minority and
preferred interests
11,993
158,370
(85,744
Income before income taxes
10,556
(35
14,695
(9,172
636
5,502
(26
9,193
-16-
Condensed consolidated statement of income for three months ended September 30, 2004
3,240
71,614
5,488
1,216
(5,487
111
191
6,395
51,628
(58,037
15,234
124,649
(63,524
6,106
86,128
(55,187
1,660
5,327
(1,267
525
2,921
(75
349
2,081
315
683
34
1,260
(1,526
10,175
9,400
115,451
(58,055
5,834
(2
(27
9,198
(5,469
154
(1
3,711
(17
5,487
Condensed consolidated statement of income for nine months ended September 30, 2005
11,260
251,568
23,272
(23,271
564
1,987
24,412
36
201,023
(225,508
59,508
460,535
(248,779
22,696
327,907
(214,269
5,031
17,969
(3,913
1,776
9,315
(368
1,011
6,568
115
520
1,795
5,462
(7,013
31,489
32,439
422,611
(225,563
27,069
19
(82
37,924
(23,216
1,649
14,666
(54
23,258
-17-
Condensed consolidated statement of income for nine months ended September 30, 2004
9,571
200,563
15,639
3,486
(15,648
264
785
17,311
139,442
(156,790
42,785
344,276
(172,438
16,410
232,660
(148,498
4,912
15,781
(3,763
1,484
8,665
(206
1,062
6,088
615
1,016
3,771
(4,348
30,264
25,068
25
102
318,314
(156,815
17,717
(78
25,962
(15,623
807
(31
10,292
(47
15,670
-18-
Condensed consolidated balance sheet as of September 30, 2005
13,671
15,569
Cash and cash equivalents - restricted
2,194
23,999
1,253
9,723
10,976
1,914
1,781
23,636
51,072
15,548
92
91,454
159,753
458
396,907
(529,221
Intercompany receivables
10,522
1,069
1,723
374,522
(387,836
Total assets
209,459
1,161
2,203
913,955
(917,057
Notes and loan payables
2,254
3,322
35,731
9,481
3,389
47,466
160
1,431
4,274
Deferred income tax liabilities
2,650
27
263
17,585
5,788
18,489
Intercompany payables
89,481
134
383
297,838
Total liabilities
101,569
358
2,088
385,652
(354
103,803
(103,467
Other shareholders' equity
(46,530
424,500
(425,754
Total shareholders' equity
803
528,303
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
394
407,597
(408,776
791
488,977
-19-
Condensed consolidated statement of cash flows for nine months ended September 30, 2005
Cash provided by/(used in) operating
activities
2,940
74
35,544
(835
Cash flows from investing activities
Additions to property, plant and
equipment
(999
(8,941
Sales of long-term assets
220
4,360
Increase in restricted cash and cash
equivalents
Net intercompany investing
18,762
21
(129
(18,820
166
All other investing, net
(2,020
Net cash provided by/(used in)
investing activities
17,984
(25,421
Cash flows from financing activities
Additions/(reductions) in short-term
debt - net
(1,060
Cash dividends
835
Net ExxonMobil shares sold/(acquired)
Net intercompany financing activity
(50
(20
161
(91
All other financing, net
75
(580
financing activities
(17,308
55
(2,336
669
Effects of exchange rate changes
on cash
Increase/(decrease) in cash and cash
3,616
(4
7,097
Condensed consolidated statement of cash flows for nine months ended September 30, 2004
5,665
(6
25,207
(2,633
(802
(7,777
360
1,592
11,583
(24
(11,723
6,539
(17,699
(106
(7
2,633
(174
(328
(11,393
(2,803
2,459
811
4,671
-20-
Management's Discussion and Analysis of Financial Condition
and Results of Operations
FUNCTIONAL EARNINGS SUMMARY
Third Quarter
First Nine Months
Net Income (U.S. GAAP)
Corporate and financing
Special items included in net income
Non-U.S. Upstream
Gain on Dutch gas restructuring
1,620
U.S. Downstream
Allapattah lawsuit provision
(550
(200
Non-U.S. Downstream
Gain on sale of Sinopec investment
310
Non-U.S. Chemical
REVIEW OF THIRD QUARTER AND FIRST NINE MONTHS 2005 RESULTS
Exxon Mobil Corporation estimated third quarter 2005 net income of $9,920 million ($1.58 per share) increased $4,240 million from the third quarter of 2004. Third quarter 2005 net income included a gain of $1,620 million from the restructuring of the Corporation's interest in the Dutch gas transportation business ("Gasunie"), while third quarter 2004 included a special charge of $550 million for the Allapattah lawsuit provision.
Third quarter 2005 results were adversely impacted by hurricanes Katrina and Rita, with U.S. production volumes down 50 thousand oil-equivalent barrels per day and additional costs of approximately $45 million before tax. ExxonMobil's earnings in the third quarter reflect the impact of the relatively volatile industry environment on commodity prices and industry margins. Reduced volumes and higher costs will also impact the fourth quarter.
_____________________________________________
Net income of $25,420 million ($4.00 per share) for the first nine months of 2005 increased $8,510 million from the first nine months of 2004, with improvements in all segments of the business. Net income for the first nine months 2005 included a $1,620 million special gain related to Gasunie, a $460 million positive impact from the sale of the Corporation's stake in Sinopec, and a special charge of $200 million for the Allapattah lawsuit provision. Net income for the first nine months of 2004 included a $550 million special charge for the Allapattah lawsuit provision.
-21-
Upstream earnings
7,349
3,929
11,788
Upstream earnings in the third quarter 2005 were $7,349 million, up $3,420 million from the third quarter of 2004 reflecting higher crude oil and natural gas realizations and the $1,620 gain on the Dutch gas restructuring.
On an oil-equivalent basis, production decreased by 4.7 percent from the third quarter of 2004. Excluding the impact of hurricanes Katrina and Rita, divestments, and entitlement effects, production decreased 1 percent.
Liquids production of 2,447 kbd (thousands of barrels per day) was 58 kbd lower. Higher production from new fields in West Africa was more than offset by the impact of mature field decline, hurricanes Katrina and Rita, maintenance activities, as well as entitlement and divestment impacts.
Third quarter natural gas production decreased to 7,724 mcfd (millions of cubic feet per day) compared with 8,488 mcfd last year. Higher volumes from projects in Qatar and the U.K. were more than offset by the impact of mature field decline, hurricanes Katrina and Rita, maintenance activities, as well as entitlement and divestment impacts.
Earnings from U.S. Upstream operations were $1,671 million, $498 million higher than last year's third quarter. Non-U.S. Upstream earnings of $5,678 million were up $1,302 million from 2004 before the Gasunie gain.
Upstream earnings of $17,311 million for the first nine months of 2005 increased $5,523 million from 2004 due to higher liquids and natural gas realizations and the $1,620 gain on the Dutch gas restructuring, partly offset by lower production.
On an oil-equivalent basis, production decreased 4.5 percent from the first nine months of last year. Excluding the impact of hurricanes Katrina and Rita, divestments and entitlement effects, production decreased by 2 percent from the first nine months of last year.
Liquids production of 2,486 kbd decreased by 87 kbd from 2004. Higher production from new fields in West Africa and the North Sea was more than offset by mature field decline, the impact of hurricanes Katrina and Rita, as well as entitlement effects and divestment impacts.
Natural gas production of 9,061 mcfd, decreased 614 mcfd from 2004. Higher volumes from projects in Qatar and the U.K. were more than offset by mature field decline, the impact of hurricanes Katrina and Rita, maintenance activity, and the impact of divestments.
Earnings from U.S. Upstream operations for the first nine months of 2005 were $4,413 million, an increase of $849 million. Earnings outside the U.S. of $12,898 million were up $3,054 million from 2004 before the Gasunie gain.
-22-
Downstream earnings
2,128
851
5,602
3,362
Downstream earnings were $2,128 million, up $1,277 million from the third quarter 2004, reflecting higher refining margins partly offset by weaker marketing margins and the absence of the Allapattah lawsuit provision in the prior year period. Petroleum product sales were 8,217 kbd, 25 kbd lower than last year's third quarter.
U.S. Downstream third quarter 2005 earnings of $1,109 million were up $1,098 million, including the absence of the Allapattah lawsuit provision. Non-U.S. Downstream earnings of $1,019 million were $179 million higher than last year's third quarter.
Downstream earnings of $5,602 million increased $2,240 million from the first nine months of 2004 reflecting stronger worldwide refining margins, partly offset by weak marketing margins, and a smaller Allapattah lawsuit provision in 2005. Petroleum product sales of 8,235 kbd compared with 8,131 kbd in the first nine months of 2004.
U.S. Downstream earnings were $2,753 million, up $1,443 million. Non-U.S. Downstream earnings were $2,849 million, $487 million higher than last year before the Sinopec gain.
Chemical earnings
472
1,009
2,718
2,180
Chemical earnings were $472 million, down $537 million from the same quarter a year ago with reduced margins due to increased feedstock costs. Prime product sales of 6,955 kt (thousands of metric tons) were down 162 kt from last year's third quarter.
Chemical earnings of $2,718 million for the first nine months of 2005 were up $388 million, before the Sinopec gain, due to improved margins partly offset by lower volumes. Prime product sales were 20,485 kt, down 354 kt from 2004.
-23-
All other segments earnings
Corporate and financing expenses in the third quarter of $29 million decreased by $80 million mainly due to higher interest income.
Corporate and financing expenses of $211 million for the first nine months of 2005 decreased by $209 million mainly due to higher interest income.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes
4,602
Total cash and cash equivalents (at end of period)
33,844
20,710
Cash flow from operations and asset sales
Net cash provided by operating activities (U.S. GAAP)
15,767
9,453
Sales of subsidiaries, investments and property,
plant and equipment
754
16,521
10,023
42,328
30,195
Because of the ongoing nature of our asset management and divestment program, we believe
it is useful for investors to consider sales proceeds together with cash provided by operating
activities when evaluating cash available for investment in the business and financing activities.
Total cash and cash equivalents, including the $4.6 billion of restricted cash, was $33.8 billion at the end of the third quarter of 2005.
Cash provided by operating activities totaled $37,748 million for the first nine months of 2005, an increase of $9,505 million versus $28,243 million in the same period last year reflecting higher net income. Major sources of funds were net income of $25,420 million and non-cash provisions of $7,582 million for depreciation and depletion. Cash provided by operating activities totaled $15,767 million in the third quarter of 2005, an increase of $6,314 million from the 2004 period. For additional details, see the Condensed Consolidated Statement of Cash Flows on page 5.
Investing activities for the first nine months of 2005 used net cash of $7,379 million compared to $11,020 million in the prior year. Spending for additions to property, plant and equipment increased $1,361 million to $9,940 million. Proceeds from asset divestments of $4,580 million in 2005 increased $2,628 million, including almost $1.4 billion from the sale of the Corporation's interest in Sinopec. As discussed in note 4 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 $4,602 million. Other investing activities reflect net additional investments and advances in 2005 compared to collections of advances in 2004.
-24-
Cash flow from operations and asset sales in the third quarter 2005 increased $6.5 billion to $16.5 billion, including asset sales of $0.8 billion. Cash flow from operations and asset sales in the first nine months of 2005 was $42.3 billion, including $4.6 billion from asset sales, an increase of $12.1 billion from the 2004 period.
Net cash used in financing activities of $18,970 million in the first nine months of 2005 compared to $11,707 million in the 2004 period reflecting higher levels of purchases of ExxonMobil shares and debt reductions in the current year.
During the third quarter of 2005, Exxon Mobil Corporation purchased 91 million shares of its common stock for the treasury at a gross cost of $5,535 million. These purchases included $5.0 billion to reduce the number of shares outstanding, a $1.5 billion increase from the $3.5 billion of share reduction purchases in the second quarter. The balance of the purchases offset shares issued in conjunction with company benefit plans and programs. Shares outstanding were reduced from 6,305 million at the end of the second quarter to 6,222 million at the end of the third quarter. During the first nine months of 2005, shares outstanding were reduced by 2.8 percent as the Corporation purchased 219 million shares of its common stock for the treasury at a gross cost of $12,872 million, including $11.0 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.
The Corporation distributed a total of $6.8 billion to shareholders in the third quarter, and $16.4 billion in the first nine months of 2005, through dividends and share purchases to reduce shares outstanding.
Total debt of $8.5 billion at September 30, 2005 was comparable to year-end 2004. The Corporation's debt to total capital ratio was 7.0 percent at the end of the third 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 4 to the unaudited condensed consolidated financial statements. On October 11, 2005, the United States Supreme Court denied certiorari on the appeal filed by Saudi Basic Industries Corporation (SABIC) in connection with litigation related to joint venture license agreements. In light of the U.S. Supreme Court's action the Corporation will recognize a positive after-tax earnings impact of approximately $390 million in fourth quarter 2005 results. There are no other 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.
-25-
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 transaction of $1,620 million was reported in third quarter 2005 results.
TAXES
Taxes
All other taxes and duties
11,544
10,791
33,700
32,186
25,836
21,690
72,907
63,227
Effective income tax rate
41.8
%
41.9
41.5
41.4
Income, excise and all other taxes for the third quarter of 2005 of $25,836 million were up $4,146 million compared to 2004. In the third quarter of 2005 income tax expense was $6,132 million and the effective income tax rate was 41.8 percent, compared to $3,854 million and 41.9 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 nine months of 2005 of $72,907 million were up $9,680 million compared to the prior year. Income tax expense for the first nine months was $16,294 million and the effective income tax rate was 41.5 percent, compared to $11,066 million and 41.4 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)
3,586
2,877
10,076
8,421
646
600
1,747
1,734
485
434
60
63
4,414
3,634
12,368
10,652
ExxonMobil continued its active investment program in the third quarter, spending $4,414 million on capital and exploration projects, bringing the nine months year-to-date spending to $12,368 million, an increase of $1,716 million versus 2004. Our disciplined project management systems remain a competitive advantage, delivering new supplies of crude oil and natural gas to the global market.
The Corporation expects the level of capital and exploration spending to be about $18 billion in 2005 compared to $15 billion in 2004.
-26-
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.
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; severe weather events; 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.
-27-
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information about market risks for the nine months ended September 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 September 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
Regarding previously reported matters, the Corporation, the U.S. Environmental Protection Agency ("EPA") and the U.S. Department of Justice have reached a settlement of matters stemming from the EPA's New Source Review Enforcement Initiative. In this enforcement initiative, the EPA had issued various Notices of Violation and Findings of Violations ("NOVs") alleging violations of the Clean Air Act at the Corporation's refineries in Baytown and Beaumont, Texas; Chalmette, Louisiana (owned by Chalmette Refining, LLC, which is operated and 50-percent owned by wholly-owned subsidiaries of the Corporation); Baton Rouge, Louisiana; and Joliet, Illinois. The global settlement of these NOVs and certain other environmental claims (including a previously reported Violation Notice issued by the Illinois Environmental Protection Agency on August 22, 2003) consists of two consent decrees, one involving Exxon Mobil Corporation and ExxonMobil Oil Corporation and the other involving Chalmette Refining, LLC, filed in the U.S. District Court for the Northern District of Illinois and the U.S. District Court for the Eastern District of Louisiana, respectively, on October 11, 2005. The consent decrees include an aggregate penalty amount of $8.7 million and supplemental environmental projects totaling $9.7 million. Additionally, the decrees include emission limits and other environmental requirements with respect to the above refineries, as well as the Billings, Montana and Torrance, California refineries, some of which will require capital investments over the next several years. The consent decrees are subject to public comment as well as approval of the two courts where the decrees are filed.
Regarding a matter reported in the Corporation's Form 10-Q for the first quarter of 2005, ExxonMobil Oil Corporation ("EMOC") and the Montana Department of Environmental Quality ("MDEQ") signed an agreed consent order effective October 5, 2005, relating to a March 31, 2005, Enforcement Action for Air Quality Violation. The MDEQ had alleged that EMOC's Billings, Montana refinery violated particulate matter emissions limits and had opacity exceedances in violation of the Montana Environmental Protection Act and the Clean Air Act. Pursuant to the terms of the consent order, EMOC has paid a civil penalty in the amount of $133,000.
-28-
In another previously reported matter, EMOC and the Attorney General of the State of Illinois entered into an Agreed Final Order on August 18, 2005, relating to case captioned "People of the State of Illinois, ex rel. James E. Ryan, Attorney General of the State of Illinois, and ex rel. James W. Glasgow, State's Attorney for Will County, Illinois v. Mobil Oil Corporation". In the case, the state alleged that a July 2, 1999, release of water and gas from the coker unit of EMOC's Joliet, Illinois refinery violated several provisions of the Illinois Environmental Protection Act, created a public nuisance and violated a 1998 Consent Order. Under the Agreed Final Order, EMOC agreed to pay a penalty of $150,000, fund four supplemental environmental projects at a total cost of $110,000, and pay $21,846 in past government costs.
Regarding another previously reported matter, the Corporation and the EPA filed a Consent Agreement and Final Order ("CAFO") on October 7, 2005, which resolves all issues in the EPA's August 13, 2004, complaint captioned "In the Matter of ExxonMobil Chemical Company, Baytown, Texas". The Complaint arose out of an inspection at the Corporation's Baytown Chemical Plant in August 1999, and alleged various violations of the Clean Air Act. Under the CAFO, the Corporation will make a cash payment of $17,325, with the remainder of the $69,300 penalty to be offset by the performance of a supplemental environmental project.
A settlement agreement has been entered into by the Louisiana Department of Environmental Quality and Chalmette Refining, LLC regarding previously reported Consolidated Compliance Orders and Notices of Potential Penalty ("NOPPs") issued in connection with the Chalmette refinery (which is operated and fifty-percent owned by wholly-owned subsidiaries of the Corporation). The NOPPs alleged non-compliance with Louisiana's environmental laws and regulations, including unauthorized discharges of pollutants to the air or water, violation of release reporting requirements, violations of fugitive emissions and other monitoring regulations, and failure to adequately maintain certain pollution control devices. Under the terms of the settlement, Chalmette has agreed to donate air monitoring equipment valued at approximately $800,000 to the State of Louisiana. No penalty was assessed. The settlement terms were published in October and are subject to a public comment period and approvalby the Louisiana Attorney General's office.
Refer to the relevant portions of note 4 on pages 10 through 12 of this Quarterly Report on Form 10-Q for further information on legal proceedings.
-29-
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
ISSUER PURCHASE OF EQUITY SECURITIES FOR QUARTER ENDED SEPTEMBER 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
July, 2005
20,685,141
$59.15
August, 2005
35,225,870
$59.28
September, 2005
35,131,124
$63.28
91,042,135
$60.79
(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.
-31-
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: November 4, 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
-33-