Business Context and Reporting Period
Company: Exxon Mobil Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2004
Reporting Scope: Results for the third quarter and the first nine months of 2004 compared to the same periods in 2003.
Key Financial Metrics
| Metric (Millions of Dollars) | Q3 2004 | Q3 2003 | 9M 2004 | 9M 2003 |
|---|---|---|---|---|
| Revenues and Other Income | $76,375 | $59,841 | $214,670 | $180,786 |
| Net Income | $5,680 | $3,650 | $16,910 | $14,860 |
| Diluted EPS | $0.88 | $0.55 | $2.59 | $2.22 |
| Operating Cash Flow (9M) | N/A | $28,243 | $21,699 | |
| Investing Cash Flow (9M) | ($11,020) | ($7,706) | ||
| Financing Cash Flow (9M) | N/A | ($11,707) | ($10,636) | |
| Total Debt (Sept 30, 2004) | $10,100 (Current: $4,913; Long-term: $5,196) | |||
| Cash and Equivalents (Sept 30, 2004) | $16,108 (Unrestricted); $4,602 (Restricted) |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 27.6% in Q3 2004 and 18.7% for the first nine months compared to 2003, driven primarily by significantly higher crude oil and natural gas prices.
- Profitability: Net income rose 55.6% in Q3 and 13.8% for the first nine months. The 9M 2003 comparison includes a $1.7 billion one-time gain from the Ruhrgas share transfer and a $550 million positive accounting adjustment, whereas 2004 results include a $550 million charge for the Allapattah lawsuit.
- Segment Performance:
- Upstream: Earnings increased due to higher realizations and production growth (liquids up 1% in Q3, 3% in 9M). Non-U.S. upstream earnings were the primary driver.
- Downstream: Q3 earnings were impacted by the $550 million lawsuit provision. Excluding this, earnings improved due to stronger refining margins and higher throughput.
- Chemical: Recorded earnings of $1.0 billion in Q3, a 439% increase year-over-year, driven by improved margins and volumes.
- Capital Expenditures: Total capital and exploration spending for the first nine months was $10.65 billion, slightly down from $11.17 billion in the prior year period.
Guidance, Outlook, Risks, and Unusual Items
- Unusual Items:
- Allapattah Lawsuit: A $550 million after-tax charge was recorded in Q3 2004 related to a class-action lawsuit regarding gasoline overcharges. The Supreme Court granted review of a specific issue regarding class membership.
- Accounting Changes: No cumulative effect of accounting change in 2004. The 2003 period included a $550 million positive impact from the adoption of FAS 143 (Asset Retirement Obligations).
- Litigation Risks:
- Exxon Valdez: A $4.5 billion punitive damage award (plus interest) was reinstated by the District Court in Jan 2004. ExxonMobil has appealed and posted a $5.4 billion letter of credit. Management believes the likelihood of the judgment being upheld is remote.
- Alabama Royalty Dispute: A $3.5 billion punitive damage award was reduced from $11.8 billion. ExxonMobil has appealed and posted a $4.5 billion supersedeas bond, pledging $4.6 billion in restricted cash/securities.
- Environmental: Recent settlements include a $3.65 million settlement with New York regarding a spill and a $515,000 penalty with the EPA regarding Utah production units.
- Outlook: Management expects to invest at a similar level to 2003 (over $15 billion annually) for the next couple of years. Production growth plans remain on track. A restructuring of the Dutch gas transportation business (Gasunie) is expected to finalize by mid-2005 with a net compensation of 1.4 billion Euros.
- Share Repurchases: The company purchased 65 million shares in Q3 and 157 million shares in the first nine months of 2004 to offset benefit plan issuances and reduce shares outstanding.
Investor Verification Checklist
- Litigation Exposure: Verify the status of the Exxon Valdez and Alabama royalty appeals, specifically the potential impact of the $4.5 billion and $3.5 billion punitive damage awards on future cash flows.
- Allapattah Provision: Confirm the final liability amount following the U.S. Supreme Court's review of the class-action membership criteria.
- Restricted Cash: Note that $4.6 billion of cash is restricted as collateral for the Alabama litigation bond and is not available for general operations.
- Commodity Sensitivity: Assess the sustainability of current earnings given the heavy reliance on higher crude oil and natural gas prices for the reported revenue growth.
- Capital Allocation: Monitor the balance between high capital spending ($10.6B in 9M) and share repurchases ($6.2B in 9M) to ensure liquidity remains robust.
