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, 2008
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 a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer X
Accelerated filer
Non-accelerated filer
Smaller reporting company
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 June 30, 2008
Common stock, without par value 5,194,003,020
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008
TABLE OF CONTENTS
Page
Number
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
Condensed Consolidated Statement of Income
3
Three and six months ended June 30, 2008 and 2007
Condensed Consolidated Balance Sheet
4
As of June 30, 2008 and December 31, 2007
Condensed Consolidated Statement of Cash Flows
5
Six months ended June 30, 2008 and 2007
Notes to Condensed Consolidated Financial Statements
6-15
Item 2.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
16-21
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
22
Item 4.
Controls and Procedures
PART II. OTHER INFORMATION
Legal Proceedings
22-23
Unregistered Sales of Equity Securities and Use of Proceeds
23
Submission of Matters to a Vote of Security Holders
24-26
Item 6.
Exhibits
26
Signature
27
Index to Exhibits
28
-2-
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(millions of dollars)
Three Months Ended
Six Months Ended
June 30,
2008
2007
REVENUES AND OTHER INCOME
Sales and other operating revenue (1)
$
133,776
95,059
246,999
179,233
Income from equity affiliates
2,983
2,015
5,792
3,930
Other income (2)
1,313
1,276
2,135
2,410
Total revenues and other income
138,072
98,350
254,926
185,573
COSTS AND OTHER DEDUCTIONS
Crude oil and product purchases
76,695
47,627
137,666
87,669
Production and manufacturing expenses
10,066
7,678
18,959
14,961
Selling, general and administrative expenses
4,389
3,788
8,191
7,180
Depreciation and depletion
3,090
2,994
6,194
5,936
Exploration expenses, including dry holes
338
353
680
625
Interest expense
107
96
237
199
Sales-based taxes (1)
9,538
7,810
17,970
15,094
Other taxes and duties
11,418
9,888
22,124
19,479
Income applicable to minority interests
225
188
507
438
Total costs and other deductions
115,866
80,422
212,528
151,581
INCOME BEFORE INCOME TAXES
22,206
17,928
42,398
33,992
Income taxes
10,526
7,668
19,828
14,452
NET INCOME
11,680
10,260
22,570
19,540
NET INCOME PER COMMON SHARE (dollars)
2.25
1.85
4.30
3.49
NET INCOME PER COMMON SHARE
- ASSUMING DILUTION (dollars)
2.22
1.83
4.25
3.45
DIVIDENDS PER COMMON SHARE (dollars)
0.40
0.35
0.75
0.67
(1) Sales-based taxes included in sales and other
operating revenue
(2) Includes $62 million gain from sale of non-U.S. investment,
net of related $143 million foreign exchange loss
(81
)
0
The information in the Notes to Condensed Consolidated Financial Statements
is an integral part of these statements.
-3-
CONDENSED CONSOLIDATED BALANCE SHEET
Dec. 31,
ASSETS
Current assets
Cash and cash equivalents
38,968
33,981
Marketable securities
732
519
Notes and accounts receivable - net
41,820
36,450
Inventories
Crude oil, products and merchandise
13,513
8,863
Materials and supplies
2,348
2,226
Prepaid taxes and expenses
6,601
3,924
Total current assets
103,982
85,963
Property, plant and equipment - net
124,925
120,869
Investments and other assets
37,851
35,250
TOTAL ASSETS
266,758
242,082
LIABILITIES
Current liabilities
Notes and loans payable
2,310
2,383
Accounts payable and accrued liabilities
60,262
45,275
Income taxes payable
14,661
10,654
Total current liabilities
77,233
58,312
Long-term debt
7,327
7,183
Deferred income tax liabilities
24,299
22,899
Other long-term liabilities
33,073
31,926
TOTAL LIABILITIES
141,932
120,320
Commitments and contingencies (note 3)
SHAREHOLDERS' EQUITY
Common stock, without par value:
Authorized:
9,000 million shares
Issued:
8,019 million shares
4,904
4,933
Earnings reinvested
247,111
228,518
Accumulated other comprehensive income
Cumulative foreign exchange translation adjustment
9,689
7,972
Postretirement benefits reserves adjustment
(5,842
(5,983
Common stock held in treasury:
2,825 million shares at June 30, 2008
(131,036
2,637 million shares at December 31, 2007
(113,678
TOTAL SHAREHOLDERS' EQUITY
124,826
121,762
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
The number of shares of common stock issued and outstanding at June 30, 2008 and
December 31, 2007 were 5,194,003,020 and 5,381,795,265, respectively.
-4-
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Changes in operational working capital, excluding cash and debt
7,286
(366
All other items - net
(1,212
494
Net cash provided by operating activities
34,838
25,604
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment
(8,851
(6,892
Sales of subsidiaries, investments, and property, plant and equipment
1,572
1,673
Other investing activities - net
(1,489
(1,104
Net cash used in investing activities
(8,768
(6,323
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to long-term debt
36
99
Reductions in long-term debt
(53
(75
Additions/(reductions) in short-term debt - net
(215
246
Cash dividends to ExxonMobil shareholders
(3,977
(3,786
Cash dividends to minority interests
(142
Changes in minority interests and sales/(purchases)
of affiliate stock
(319
Tax benefits related to stock-based awards
150
Common stock acquired
(18,226
(16,043
Common stock sold
622
Net cash used in financing activities
(22,204
(19,161
Effects of exchange rate changes on cash
1,121
595
Increase/(decrease) in cash and cash equivalents
4,987
715
Cash and cash equivalents at beginning of period
28,244
CASH AND CASH EQUIVALENTS AT END OF PERIOD
28,959
SUPPLEMENTAL DISCLOSURES
Income taxes paid
15,927
12,382
Cash interest paid
337
-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 2007 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.
Fair Value Measurements
Effective January 1, 2008, the Corporation adopted the Financial Accounting Standards Board's (FASB) Statement No. 157 (FAS 157), “Fair Value Measurements” for financial assets and liabilities that are measured at fair value and nonfinancial assets and liabilities that are measured at fair value on a recurring basis. FAS 157 defines fair value, establishes a framework for measuring fair value when an entity is required to use a fair value measure for recognition or disclosure purposes and expands the disclosures about fair value measurements. The initial application of FAS 157 is limited to the Corporation's investments in derivative instruments and some debt and equity securities. The fair value measurements for these instruments are based on quoted prices or observable market inputs. The value of these instruments is immaterial to the Corporation's financial statements and the related gains or losses from periodic measurement at fair value are de minimis.
On January 1, 2009, the Corporation will adopt FAS 157 for nonfinancial assets and liabilities that are not measured at fair value on a recurring basis. The application of FAS 157 to the Corporation's nonfinancial assets and liabilities will mostly be limited to the recognition and measurement of nonmonetary exchange transactions, asset retirement obligations and asset impairments. The Corporation does not expect the adoption to have a material impact on the Corporation’s financial statements.
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. Management has regular litigation reviews, including updates from corporate and outside counsel, to assess the need for accounting recognition or disclosure of these contingencies. The Corporation accrues an undiscounted liability for those contingencies where the incurrence of a loss is probable and the amount can be reasonably estimated. If a range of amounts can be reasonably estimated and no amount within the range is a better estimate than any other amount, then the minimum of the range is accrued. 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. For contingencies where an unfavorable outcome is reasonably possible and which are sig nificant, the Corporation discloses the nature of the contingency and, where feasible, an estimate of the possible loss. ExxonMobil will continue to defend itself vigorously in these matters. Based on a consideration of all relevant facts and circumstances, the Corporation does not believe the ultimate outcome of any currently pending lawsuit against ExxonMobil will have a materially adverse effect upon the Corporation’s operations or financial condition.
-6-
A number of lawsuits, including class actions, were brought in various courts against Exxon Mobil Corporation and certain of its subsidiaries relating to the accidental release of crude oil from the tanker Exxon Valdez in 1989. All the compensatory claims have been resolved and paid. All of the punitive damage claims were consolidated in the civil trial that began in 1994. The first judgment from the United States District Court for the District of Alaska in September 1996 was in the amount of $5 billion. Several appeals resulted in a reduction in the award to $2.5 billion by the Ninth Circuit. In October 2007, the U.S. Supreme Court granted ExxonMobil’s petition for a writ of certiorari.
On June 25, 2008, the U. S. Supreme Court vacated the $2.5 billion punitive damage award previously entered by the Ninth Circuit Court of Appeals and remanded the case to the Circuit Court with an instruction that punitive damages in the case may not exceed a maximum amount of $507.5 million. Exxon Mobil Corporation recorded an after tax charge of $290 million in the second quarter of 2008 reflecting the maximum amount of the punitive damages. In early July, the plaintiffs filed a brief with the Supreme Court requesting interest on the punitive damage award from September 1996. ExxonMobil filed a brief opposing interest for the period prior to the Supreme Court decision in June 2008. While it is reasonably possible that a liability for interest may be ordered by the court, it is not possible to predict the ultimate outcome or to reasonably estimate the potential liability.
Other Contingencies
As of June 30, 2008
Equity
Other
Company
Third Party
Obligations
Total
Total guarantees
5,841
922
6,763
The Corporation and certain of its consolidated subsidiaries were contingently liable at June 30, 2008, for $6,763 million, primarily relating to guarantees for notes, loans and performance under contracts. Included in this amount were guarantees by consolidated affiliates of $5,841 million, representing ExxonMobil’s share of obligations of certain equity companies. These guarantees are not reasonably likely to have a material effect on the Corporation’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
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, 2008, 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.
In accordance with a nationalization decree issued by Venezuela’s president in February 2007, by May 1, 2007, a subsidiary of the Venezuelan National Oil Company (PdVSA) assumed the operatorship of the Cerro Negro Heavy Oil Project. This Project had been operated and owned by ExxonMobil affiliates holding a 41.67 percent ownership interest in the Project. The decree also required conversion of the Cerro Negro Project into a “mixed enterprise” and an increase in PdVSA’s or one of its affiliate’s ownership interest in the Project, with the stipulation that if ExxonMobil refused to accept the terms for the formation of the mixed enterprise within a specified period of time, the government would “directly assume the activities” carried out by the joint venture. ExxonMobil refused to accede to the terms proffered by PdVSA, and on June 27, 2007, the government expropriated ExxonMobil’s 41.67 pe rcent interest in the Cerro Negro Project.
-7-
To date, discussions with Venezuelan authorities have not resulted in an agreement on the amount of compensation to be paid to ExxonMobil. On September 6, 2007, ExxonMobil filed a Request for Arbitration with the International Centre for Settlement of Investment Disputes. ExxonMobil has also filed an arbitration under the rules of the International Chamber of Commerce against PdVSA and a PdVSA affiliate for breach of their contractual obligations under certain Cerro Negro Project agreements. At this time, the net impact of this matter on the Corporation’s consolidated financial results cannot be reasonably estimated. However, the Corporation does not expect the resolution to have a material effect upon the Corporation’s operations or financial condition. ExxonMobil’s remaining net book investment in Cerro Negro producing assets is about $750 million.
4.
Comprehensive Income
Other comprehensive income
(net of income taxes)
Foreign exchange translation adjustment
86
1,225
1,563
1,648
Adjustment for foreign exchange translation
loss included in net income
154
(excluding amortization)
(83
(167
(234
(575
Amortization of postretirement benefits reserves
adjustment included in net periodic benefit costs
186
214
375
415
Total comprehensive income
12,023
11,532
24,428
21,028
5.
Earnings Per Share
Net income (millions of dollars)
Weighted average number of common shares
outstanding (millions of shares)
5,201
5,555
5,252
5,603
Net income per common share (dollars)
- ASSUMING DILUTION
Effect of employee stock-based awards
60
65
59
62
outstanding - assuming dilution
5,261
5,620
5,311
5,665
Net income per common share
- assuming dilution (dollars)
-8-
6.
Pension and Other Postretirement Benefits
Pension Benefits - U.S.
Components of net benefit cost
Service cost
93
191
190
Interest cost
182
172
364
344
Expected return on plan assets
(229
(212
(458
(422
Amortization of actuarial loss/(gain)
and prior service cost
67
118
134
Net pension enhancement and
curtailment/settlement cost
43
48
87
95
Net benefit cost
151
168
302
341
Pension Benefits - Non-U.S.
114
112
227
221
305
247
606
484
(317
(270
(635
(533
109
111
210
223
2
9
213
209
410
404
Other Postretirement Benefits
30
57
129
98
(22
(8
(34
(23
72
80
156
158
207
200
416
402
-9-
7.
Disclosures about Segments and Related Information
EARNINGS AFTER INCOME TAX
Upstream
United States
2,034
1,222
3,665
2,399
Non-U.S.
7,978
4,731
15,132
9,595
Downstream
293
1,745
691
2,584
1,265
2,033
2,721
Chemical
102
204
386
550
585
809
1,329
1,699
All other
(577
(99
(666
Corporate total
SALES AND OTHER OPERATING REVENUE (1)
2,010
1,436
3,774
2,798
8,989
5,303
17,388
10,796
36,066
25,645
64,524
46,905
75,667
53,472
140,184
101,113
4,170
3,460
7,822
6,649
6,870
5,740
13,299
10,964
8
(1) Includes sales-based taxes
INTERSEGMENT REVENUE
3,072
1,780
5,633
3,343
17,260
11,670
32,141
22,265
5,241
3,561
9,102
6,343
21,406
12,885
37,949
23,826
3,177
2,217
5,605
3,914
2,670
2,166
5,102
3,688
71
90
138
169
8.
Unrecognized Tax Benefits
It is reasonably possible that settlements will be reached with tax jurisdictions within the next twelve months on various issues that could result in a 15 to 20 percent reduction of the $5.2 billion year-end 2007 balance of unrecognized tax benefits. This reduction in unrecognized tax benefits would not have a material effect on the Corporation's earnings or effective income tax rate.
-10-
9.
Condensed Consolidating Financial Information Related to Guaranteed Securities Issued by Subsidiaries
Exxon Mobil Corporation has fully and unconditionally guaranteed the deferred interest debentures due 2012 ($1,826 million long-term at June 30, 2008) and the debt securities due 2008-2011 ($39 million long-term and $13 million short-term) of SeaRiver Maritime Financial Holdings, Inc., a 100 percent owned subsidiary of Exxon Mobil Corporation.
The following condensed consolidating financial information is provided for Exxon Mobil Corporation, as guarantor, and for SeaRiver Maritime Financial Holdings, Inc., as issuer, as an alternative to providing separate financial statements for the issuer. The accounts of Exxon Mobil Corporation and SeaRiver Maritime Financial Holdings, Inc. are presented utilizing the equity method of accounting for investments in subsidiaries.
SeaRiver
Exxon Mobil
Maritime
Consolidating
Corporation
Financial
and
Parent
Holdings
All Other
Eliminating
Guarantor
Inc.
Subsidiaries
Adjustments
Consolidated
Condensed consolidated statement of income for three months ended June 30, 2008
Revenues and other income
Sales and other operating revenue,
including sales-based taxes
5,214
-
128,562
11,765
(3
2,977
(11,756
Other income
100
1,213
Intercompany revenue
15,052
11
132,434
(147,497
32,131
265,186
(159,253
Costs and other deductions
15,519
203,434
(142,258
Production and manufacturing
expenses
2,293
9,210
(1,437
Selling, general and administrative
1,194
3,401
(206
379
2,711
Exploration expenses, including dry
holes
271
739
52
3,019
(3,703
Sales-based taxes
16
11,402
20,207
243,211
(147,604
Income before income taxes
11,924
(44
21,975
(11,649
244
(15
10,297
(29
11,678
-11-
Condensed consolidated statement of income for three months ended June 30, 2007
4,142
90,917
10,151
(1
1,999
(10,134
1,216
9,467
25
85,939
(95,431
23,820
24
180,071
(105,565
8,619
127,760
(88,752
1,833
7,155
(1,310
681
3,311
(204
397
2,597
42
311
1,570
51
3,844
(5,369
9,877
13,153
162,853
(95,635
10,667
(27
17,218
(9,930
407
(9
7,270
(18
9,948
Condensed consolidated statement of income for six months ended June 30, 2008
P>
9,729
237,270
22,833
(2
5,775
(22,814
125
26,652
245,034
(271,714
59,339
490,089
(294,528
27,369
370,676
(260,379
4,204
17,539
(2,784
1,896
6,714
(419
772
5,422
146
534
1,933
105
6,529
(8,330
31
22,093
36,351
447,984
(271,912
22,988
(79
42,105
(22,616
418
19,437
(52
22,668
-12-
Condensed consolidated statement of income for six months ended June 30, 2007
7,999
171,234
19,318
6
3,903
(19,297
282
2,128
17,748
163,828
(181,627
45,347
341,093
(200,924
16,499
240,006
(168,836
3,547
13,947
(2,533
1,272
6,297
(389
785
5,151
142
483
3,016
101
7,332
(10,250
19,455
25,285
308,203
(182,008
20,062
32,890
(18,916
522
(17
18,943
-13-
Condensed consolidated balance sheet as of June 30, 2008
115
38,853
5,484
39,279
(2,959
1,429
14,432
15,861
506
6,095
7,534
99,391
16,350
108,575
210,047
471
430,995
(603,662
Intercompany receivables
16,876
2,023
465,530
(484,429
Total assets
250,807
2,510
1,104,491
(1,091,050
Notes and loan payables
13
2,147
3,939
56,323
17,620
4,089
76,090
275
1,865
5,187
1,643
22,457
11,704
21,369
Intercompany payables
108,270
383
375,776
Total liabilities
125,981
2,460
500,879
(487,388
(519
114,253
(113,734
Other shareholders' equity
(122,285
569
489,359
(489,928
Total shareholders' equity
50
603,612
Total liabilities and
shareholders' equity
Condensed consolidated balance sheet as of December 31, 2007
1,393
32,588
3,733
34,338
(1,623
1,198
9,891
11,089
373
3,551
6,697
80,887
16,291
104,578
208,283
413
427,046
(600,492
14,577
1,961
437,433
(453,971
245,848
2,376
1,049,944
(1,056,086
2,367
3,038
1
42,236
12,277
3,041
14
56,880
276
1,766
5,141
1,829
212
20,858
11,308
20,618
107,632
382
345,957
124,086
2,374
449,454
(455,594
(467
114,037
(113,570
(106,756
469
486,453
(486,922
600,490
-14-
Condensed consolidated statement of cash flows for six months ended June 30, 2008
Cash provided by/(used in) operating
activities
22,935
21
34,334
(22,452
Cash flows from investing activities
Additions to property, plant and
equipment
(835
(8,016
Sales of long-term assets
1,474
Net intercompany investing
(2,008
(122
All other investing, net
Net cash provided by/(used in)
investing activities
(2,745
(6,070
Cash flows from financing activities
Additions/(reductions) in short-term
debt - net
147
(362
Cash dividends
22,452
Net ExxonMobil shares sold/(acquired)
(17,788
Net intercompany financing activity
68
(69
All other financing, net
(357
(100
(207
financing activities
(21,468
(23,120
22,283
Effects of exchange rate changes
on cash
Increase/(decrease) in cash and cash
equivalents
(1,278
6,265
Condensed consolidated statement of cash flows for six months ended June 30, 2007
1,135
39
24,879
(449
(622
(6,270
1,517
18,178
(35
(18,189
46
17,712
(24,046
40
206
449
(15,421
(4
(46
(461
(224
(18,930
(630
403
798
-15-
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
Valdez litigation
(290
REVIEW OF SECOND QUARTER AND FIRST SIX MONTHS 2008 RESULTS
ExxonMobil's reported second quarter net income was a record $11,680 million, up 14 percent from the second quarter of 2007. Net income included an after tax special charge of $290 million reflecting the $508 million maximum punitive damages set by the recent Supreme Court ruling in the Valdez litigation. Record crude oil and natural gas realizations were partly offset by lower refining and chemical margins, lower production volumes and higher operating costs. Earnings per share of $2.22 were up 21 percent reflecting the strong earnings and the impact of the continuing share purchase program.
__________________________________________________________
Net income for the first six months of 2008 of $22,570 million was a record and increased $3,030 million or 16 percent from 2007 reflecting higher crude oil and natural gas realizations. Earnings per share increased 23 percent to $4.25, reflecting strong business results and the continued reduction in the number of shares outstanding.
Upstream earnings
10,012
5,953
18,797
11,994
Upstream earnings in the second quarter of 2008 were $10,012 million, up $4,059 million from the second quarter of 2007. Record crude oil and natural gas realizations increased earnings approximately $6.1 billion. Lower sales volumes decreased earnings about $1.7 billion. Higher operating costs and increased taxes also reduced earnings.
On an oil-equivalent basis, production decreased 8 percent from the second quarter of 2007. Excluding impacts related to the Venezuela expropriation, the Nigeria labor strike and lower entitlement volumes (including price and spend impacts and PSC net interest reductions), production was down about 3 percent.
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Liquids production totaled 2,393 kbd (thousands of barrels per day), down 275 kbd from the second quarter of 2007. Excluding the Venezuela expropriation, the Nigeria labor strike and lower entitlement volumes, liquids production was down just over 2 percent, as increased production from projects in west Africa and the North Sea was more than offset by mature field decline and higher maintenance activity.
Second quarter natural gas production was 8,448 mcfd (millions of cubic feet per day), down 285 mcfd from 2007. Higher European demand and new production volumes from project additions in the North Sea were more than offset by mature field decline and increased maintenance activity.
Earnings from U.S. Upstream operations were $2,034 million, $812 million higher than the second quarter of 2007. Non-U.S. Upstream earnings were $7,978 million, up $3,247 million from last year.
Upstream earnings for the first six months of 2008 were a record $18,797 million, up $6,803 million from 2007. Record high crude oil and natural gas realizations increased earnings approximately $10.5 billion. Lower sales volumes reduced earnings about $2.5 billion. Higher taxes, increased operating costs and lower gains on asset sales decreased earnings approximately $1.2 billion.
On an oil-equivalent basis, production decreased 7 percent from last year. Excluding impacts related to the Venezuela expropriation, the Nigeria labor strike and lower entitlement volumes, production was down 2 percent.
Liquids production of 2,431 kbd decreased 276 kbd from 2007. Excluding the Venezuela expropriation, the Nigeria labor strike and lower entitlement volumes, liquids production was down 3 percent as field decline in mature areas more than offset project volume increases.
Natural gas production of 9,333 mcfd decreased 86 mcfd from 2007. Higher volumes from North Sea and Qatar projects and higher European demand were more than offset by mature field decline.
Earnings from U.S. Upstream operations for 2008 were $3,665 million, an increase of $1,266 million. Earnings outside the U.S. were $15,132 million, $5,537 million higher than 2007.
Downstream earnings
1,558
3,393
2,724
5,305
Downstream earnings in the second quarter of 2008 of $1,558 million were down $1,835 million from the second quarter of 2007 as lower margins reduced earnings by $1.9 billion, driven by significantly lower worldwide refining margins. Petroleum product sales of 6,775 kbd were 199 kbd lower than last year's second quarter, mainly reflecting asset sales and lower demand.
U.S. Downstream earnings were $293 million, down $1,452 million from the second quarter of 2007. Non-U.S. Downstream earnings of $1,265 million were $383 million lower.
Downstream earnings in the first six months of 2008 of $2,724 million were $2,581 million lower than 2007. Lower worldwide refining and marketing margins decreased earnings approximately $2.9 billion while higher operating costs reduced earnings about $300 million. Improved refinery operations increased earnings about $600 million. Petroleum product sales of 6,798 kbd decreased from 7,085 kbd in 2007, mainly reflecting asset sales.
U.S. Downstream earnings were $691 million, down $1,893 million. Non-U.S. Downstream earnings were $2,033 million, $688 million lower than last year.
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Chemical earnings
687
1,013
1,715
2,249
Chemical earnings in the second quarter of 2008 of $687 million were $326 million lower than the second quarter of 2007. Lower margins, which reduced earnings approximately $500 million, were partly offset by favorable foreign exchange and tax effects. Prime product sales of 6,718 kt (thousands of metric tons) in the second quarter of 2008 were 179 kt lower than the prior year.
Chemical earnings in the first six months of 2008 of $1,715 million decreased $534 million from 2007. Lower margins, which decreased earnings approximately $800 million, were partly offset by favorable foreign exchange and tax effects. Prime product sales of 13,296 kt were down 406 kt from 2007.
Corporate and financing earnings
Corporate and financing expenses in the second quarter of 2008 of $577 million increased from 2007 by $188 million mainly due to tax items and lower interest income and included $290 million for the Valdez litigation charge.
Corporate and financing expenses in the first six months of 2008 of $666 million increased by $368 million mainly due to lower interest income, higher corporate costs and tax items and included $290 million for the Valdez litigation charge.
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LIQUIDITY AND CAPITAL RESOURCES
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes
Cash and cash equivalents - restricted
4,604
Total cash and cash equivalents (at end of period)
33,563
Cash flow from operations and asset sales
Net cash provided by operating activities (U.S. GAAP)
13,418
11,318
Sales of subsidiaries, investments and property,
plant and equipment
1,159
12,453
36,410
27,277
Because of the ongoing nature of our asset management and divestment program, we believe
it is useful for investors to consider asset 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 of $39.0 billion at the end of the second quarter of 2008 compared to $33.6 billion, including the $4.6 billion of restricted cash, at the end of the second quarter of 2007.
Cash provided by operating activities totaled $34,838 million for the first six months of 2008, $9,234 million higher than 2007. The major source of funds was net income of $22,570 million, adjusted for the noncash provision of $6,194 million for depreciation and depletion, both of which increased. The effects of higher prices and the timing of payments of accounts and other payables, of collection of accounts receivable and the timing of income taxes payable added to cash provided by operating activities. For additional details, see the Condensed Consolidated Statement of Cash Flows on page 5.
Investing activities for the first six months of 2008 used net cash of $8,768 million compared to $6,323 million in the prior year. Spending for additions to property, plant and equipment increased $1,959 million to $8,851 million. Proceeds from asset divestments of $1,572 million in 2008 were similar to the prior year.
Cash flow from operations and asset sales in the second quarter of 2008 of $14.6 billion, including asset sales of $1.2 billion, was $2.1 billion higher than in the second quarter of 2007. Cash flow from operations and asset sales for the first six months of 2008 of $36.4 billion, including $1.6 billion from asset sales, was $9.1 billion higher than in the comparable 2007 period.
Net cash used in financing activities of $22,204 million in the first six months of 2008 increased $3,043 million, reflecting a higher level of purchases of shares of ExxonMobil stock.
During the second quarter of 2008, Exxon Mobil Corporation purchased 98 million shares of its common stock for the treasury at a gross cost of $8.8 billion. These purchases included $8.0 billion to reduce the number of shares outstanding, with the balance used to offset shares issued in conjunction with the company's benefit plans and programs. Shares outstanding were reduced 1.7 percent from 5,284 million at the end of the first quarter to 5,194 million at the end of the second quarter.
Gross share purchases in the first six months of 2008 were $18.2 billion, reducing shares outstanding by 3.5 percent. 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.
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The Corporation distributed a total of $10.1 billion to shareholders in the second quarter of 2008 through dividends of $2.1 billion and share purchases to reduce shares outstanding of $8.0 billion, an increase of 12 percent or $1.1 billion versus the second quarter of 2007. The Corporation distributed a total of $20.0 billion to shareholders in the first six months of 2008 through dividends and share purchases to reduce shares outstanding, an increase of $2.2 billion versus 2007. Year to date dividends per share of $0.75 increased 12 percent.
Total debt of $9.6 billion at June 30, 2008, was the same as at year-end 2007. The Corporation's debt to total capital ratio was 6.9 percent at the end of the second quarter of 2008 compared to 7.1 percent at year-end 2007.
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.
In accordance with a nationalization decree issued by Venezuela’s president in February 2007, by May 1, 2007, a subsidiary of the Venezuelan National Oil Company (PdVSA) assumed the operatorship of the Cerro Negro Heavy Oil Project. This Project had been operated and owned by ExxonMobil affiliates holding a 41.67 percent ownership interest in the Project. The decree also required conversion of the Cerro Negro Project into a “mixed enterprise” and an increase in PdVSA’s or one of its affiliate’s ownership interest in the Project, with the stipulation that if ExxonMobil refused to accept the terms for the formation of the mixed enterprise within a specified period of time, the government would “directly assume the activities” carried out by the joint venture. ExxonMobil refused to accede to the terms proffered by PdVSA, and on June 27, 2007, the government expropriated ExxonMobil’s 41.67 percent interest in the Cerro Negro Project .
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, 2008, affiliates of Exxon Mobil Corporation completed the sale of their interests in the natural gas transport business in northern Germany. This transaction does not affect the exploration, production and natural gas sale and storage activities conducted by ExxonMobil affiliates in Germany. The positive after-tax earnings of this transaction of approximately $1.6 billion will be reported in third quarter 2008 results.
TAXES
All other taxes and duties
12,297
10,665
23,904
21,073
32,361
26,143
61,702
50,619
Effective income tax rate
49
%
44
Income, sales-based and all other taxes and duties for the second quarter of 2008 of $32,361 million were higher than 2007. In the second quarter of 2008 income tax expense increased to $10,526 million and the effective income tax rate was 49 percent, compared to $7,668 million and 44 percent, respectively, in the prior year period. The change in the effective income tax rate reflects an increased share of total income from the non-U.S. Upstream segment. Sales-based taxes and all other taxes and duties increased in 2008 reflecting higher prices and foreign exchange.
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Income, sales-based and all other taxes and duties for the first six months of 2008 of $61,702 million were higher than 2007. In the first six months of 2008, income tax expense increased to $19,828 million and the effective income tax rate was 49 percent, compared to $14,452 million and 44 percent, respectively, in the prior year period. The change in the effective income tax rate reflects an increased share of total income from the non-U.S. Upstream segment. Sales-based taxes and all other taxes and duties increased in 2008 reflecting higher prices and foreign exchange.
CAPITAL AND EXPLORATION EXPENDITURES
Upstream (including exploration expenses)
5,257
3,866
9,352
7,335
904
874
1,731
1,405
797
1,363
495
12
15
6,970
5,039
12,461
9,261
In the second quarter of 2008, ExxonMobil increased investments across all business lines to help meet global demand for crude oil, natural gas and finished products. Capital and exploration expenditures increased to $7.0 billion, up 38 percent from the second quarter of 2007.
Capital and exploration expenditures for the first six months of 2008 were $12.5 billion, an increase of 35 percent versus 2007.
Capital and exploration expenditures for full year 2007 were $20.9 billion and are expected to range from $25 billion to $30 billion for the next several years. Actual spending could vary depending on the progress of individual projects.
RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In December 2007, the FASB issued Statement No. 160 (FAS 160), “Noncontrolling Interests in Consolidated Financial Statements – an Amendment of ARB No. 51.” FAS 160 changes the accounting and reporting for minority interests, which will be recharacterized as noncontrolling interests and classified as a component of equity. FAS 160 must be adopted by the Corporation no later than January 1, 2009. FAS 160 requires retrospective adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of FAS 160 will be applied prospectively. The Corporation does not expect the adoption of FAS 160 to have a material impact on the Corporation’s financial statements.
FORWARD-LOOKING STATEMENTS
Statements in this report relating to future plans, projections, events or conditions are forward-looking statements. Actual results, including project plans, could differ materially due to changes in long-term oil or gas prices or other market conditions affecting the oil and gas industry; political events or disturbances; reservoir performance; the outcome of commercial negotiations; wars and acts of terrorism or sabotage; changes in technical or operating conditions; and other factors discussed under the heading "Factors Affecting Future Results" on our website and in Item 1A of ExxonMobil's 2007 Form 10-K. We assume no duty to update these statements as of any future date.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information about market risks for the six months ended June 30, 2008, does not differ materially from that discussed under Item 7A of the registrant's Annual Report on Form 10-K for 2007.
Item 4. Controls and Procedures
As indicated in the certifications in Exhibit 31 of this report, the Corporation’s chief executive officer, principal financial officer and principal accounting officer have evaluated the Corporation’s disclosure controls and procedures as of June 30, 2008. Based on that evaluation, these officers have concluded that the Corporation’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Corporation in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is accumulated and communicated to them in a manner that allows for timely decisions regarding required disclosures and are effective in ensuring that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. There were no changes during the Corporation's last fiscal quart er that materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting.
Item 1. Legal Proceedings
On February 16, 2007, the South Coast Air Quality Management District (AQMD) issued a Notice of Violation (NOV) alleging that a hole in the roof of one of the Torrance Refinery's waste water/recovery oil tanks violated certain AQMD rules and applicable facility permit conditions. As part of a larger settlement of 10 other AQMD notices of violation on May 13, 2008, the AQMD and ExxonMobil Oil Corporation agreed to resolve the alleged violations in this NOV with a penalty payment of $320,000. Each of the other ten NOVs had an associated penalty of less than $100,000, resulting in a total penalty amount of $469,500 for settlement of all 11 NOVs.
On May 20, 2008, the Illinois Attorney General and Illinois EPA filed a civil complaint against ExxonMobil Oil Corporation in the Circuit Court of Will County, Illinois, alleging that the Joliet Refinery violated certain air emission regulations and caused petroleum sheens at the facility wharf, in violation of federal and State of Illinois requirements. The Complaint includes eight counts alleging a total of five water related violations and 12 air related violations. The air emission events relate to several electrical power outages suffered at the refinery during the period 2005 through 2007. The Complaint seeks a civil penalty in excess of $100,000. The Complaint also seeks an Order requiring ExxonMobil to conduct “an independent engineering evaluation of the adequacy of the Refinery’s power system" and to undertake “the necessary corrective action to permanently eliminate source areas” of petrole um contamination in the wharf area.
As previously reported, the Texas Commission on Environmental Quality (TCEQ) issued a Notice of Enforcement and Proposed Agreed Order on November 22, 2006, alleging that the Company's Beaumont Refinery violated provisions of the Texas Health and Safety Code and the Texas Water Code. The allegations related to permit and reporting requirements applicable to certain of the refinery's aboveground storage tanks. The TCEQ initially proposed a penalty of $136,200. The matter has been resolved as of July 10, 2008. The TCEQ agreed to eliminate throughput and emissions exceedance allegations and added one allegation for late submittal of a Permit by Rule. ExxonMobil agreed to pay a total of $55,200, with half of that amount to be paid as a penalty and half to be paid to fund a Supplemental Environmental Project for retrofit/replacement of Jefferson County heavy vehicles. The agreed order is expected to be signed in the nex t several months.
The U.S. Environmental Protection Agency (EPA) and U.S. Department of Justice (DOJ) have alleged certain violations of Clean Air Act air permitting requirements and air quality rules associated with certain storage tanks and loading racks at ExxonMobil affiliates' Cabras Terminal (Guam) and Saipan Terminal (Saipan). No formal complaint has been filed in this matter, but the EPA and DOJ have indicated that they will seek corrective action and penalties in excess of $100,000 to resolve the matter.
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On April 14, 2008, ExxonMobil executed a Compliance Order on Consent with the Colorado Department of Public Health and Environment (CDPHE) to resolve an enforcement action relating to excess air emissions events at the Piceance Creek Unit Gas Plant. The issues were identified during agency inspections and internal reviews in 2006 and 2007. The Company also self-disclosed an issue associated with emissions that were not reflected in the air permit, but discovered during testing. As part of the settlement, ExxonMobil agreed to pay a total penalty settlement amount of $738,430 and also agreed to install and operate a thermal oxidizer to control emissions of volatile organic compounds consistent with state and federal air permitting requirements. The settlement amount consists of two components: i) $285,500 as an administrative penalty, of which $228,400 may be offset via performance of one or more supplemental environmental proj ects, and ii) $452,930 as an economic benefit penalty.
Refer to the relevant portions of note 3 on pages 6 and 7 of this Quarterly Report on Form 10-Q for further information on legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchase of Equity Securities for Quarter Ended June 30, 2008
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, 2008
33,222,013
$91.01
May, 2008
31,689,114
$90.64
June, 2008
32,736,859
$87.51
97,647,986
$89.72
(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 the Company's 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 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of shareholders on May 28, 2008, the following proposals were voted upon. Percentages are based on the total of the shares voted For and either Withheld or voted Against, as appropriate.
Concerning Election of Directors
Votes
Nominees
Cast For
Withheld
Michael J. Boskin
4,261,202,105
95.1%
218,251,360
Larry R. Faulkner
4,338,082,660
96.8%
141,370,805
William W. George
4,357,013,761
97.3%
122,439,704
James R. Houghton
4,310,463,918
96.2%
168,989,547
Reatha Clark King
4,327,173,349
96.6%
152,280,116
Marilyn Carlson Nelson
4,331,867,232
96.7%
147,586,233
Samuel J. Palmisano
4,358,570,442
120,883,023
Steven S Reinemund
4,340,093,996
96.9%
139,359,469
Walter V. Shipley
4,353,963,941
97.2%
125,489,524
Rex W. Tillerson
4,343,542,327
97.0%
135,911,138
Edward E. Whitacre, Jr.
4,358,483,138
120,970,327
Concerning Ratification of Independent Auditors
Votes Cast For:
4,309,316,861
98.0%
Votes Cast Against:
89,936,431
2.0%
Abstentions:
80,200,173
Broker Non-Votes:
Concerning Shareholder Proposals Prohibited
94,563,822
2.8%
3,293,199,805
153,137,758
938,552,080
Concerning Director Nominee Qualifications
118,326,019
3.4%
3,322,211,694
100,363,672
Concerning Board Chairman and CEO
1,361,080,211
39.5%
2,081,307,709
60.5%
98,513,465
Concerning Shareholder Return Policy
162,879,474
4.7%
3,272,308,929
95.3%
105,712,982
Concerning Shareholder Advisory Vote on Executive Compensation
1,361,229,410
40.7%
1,981,102,514
59.3%
198,569,461
Concerning Executive Compensation Report
368,484,255
10.9%
3,025,097,742
89.1%
147,319,388
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Concerning Incentive Pay Recoupment
428,405,781
12.5%
3,010,622,412
87.5%
101,873,192
Concerning Corporate Sponsorships Report
287,651,144
9.7%
2,688,298,219
90.3%
564,952,022
Concerning Political Contributions Report
843,964,133
27.6%
2,211,647,378
72.4%
485,289,874
Concerning Amendment of EEO Policy
1,296,428,500
39.6%
1,975,180,175
60.4%
269,292,710
Concerning Community Environmental Impact
327,559,000
10.8%
2,700,516,909
89.2%
512,825,476
Concerning ANWR Drilling Report
252,395,955
8.4%
2,737,719,520
91.6%
550,785,910
Concerning Greenhouse Gas Emissions Goals
922,633,711
30.9%
2,066,475,554
69.1%
551,792,120
Concerning CO2 Information at the Pump
211,432,634
7.0%
2,819,336,182
93.0%
510,132,569
Concerning Climate Change and Technology Report
314,453,997
10.4%
2,709,207,016
89.6%
517,240,372
Concerning Energy Technology Report
284,241,536
9.4%
2,739,669,008
90.6%
516,990,841
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Concerning Renewable Energy Policy
805,429,204
27.5%
2,128,479,852
72.5%
606,992,329
For additional information, see the registrant's definitive proxy statement dated April 10, 2008, "Item 1 - Election of Directors" (beginning on page 12) and the items beginning with "Item 2 - Ratification of Independent Auditors", on page 47, through "Item 19 - Renewable Energy Policy", ending on page 73.
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
Financial Officer.
31.3
Accounting 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 Financial Officer.
32.3
Principal Accounting Officer.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 5, 2008
By: /s/ Patrick T. Mulva
Name: Patrick T. Mulva
Title: Vice President, Controller and
Principal Accounting Officer
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INDEX TO EXHIBITS
Certification (pursuant to Securities Exchange Act Rule 13a-14(a)) by
Chief Executive Officer.
Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Principal
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