Business Context and Reporting Period
Company: Exxon Mobil Corporation
Filing Type: Form 10-K (Annual Report)
Reporting Period: Fiscal year ended December 31, 2002
Business Overview: ExxonMobil is a major integrated energy company engaged in the exploration, production, transportation, and sale of crude oil and natural gas (Upstream); the manufacture, transportation, and sale of petroleum products (Downstream); and the manufacture and marketing of petrochemicals (Chemicals). The company operates in the United States and approximately 200 other countries and territories.
Key Financial Metrics
| Metric | 2002 | 2001 | Change |
|---|---|---|---|
| Sales and Operating Revenue | $200,949 million | $208,715 million | (3.7%) |
| Net Income | $11,460 million | $15,320 million | (25.2%) |
| Net Income Per Share (Diluted) | $1.68 | $2.21 | (24.0%) |
| Cash Flow from Operations | $21,268 million | $22,889 million | (7.1%) |
| Total Assets | $152,644 million | $143,174 million | +6.6% |
| Long-Term Debt | $6,655 million | $7,099 million | (6.3%) |
| Total Debt | $10,748 million | $10,802 million | (0.5%) |
| Debt to Capital Ratio | 12.2% | 12.4% | -0.2 pts |
| Return on Average Capital Employed | 13.5% | 17.8% | -4.3 pts |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased by approximately 4% to $205 billion, driven primarily by lower worldwide refining and marketing margins and lower natural gas realizations.
- Earnings Decrease: Net income fell by $3.86 billion (25%) to $11.46 billion. Earnings excluding merger effects, discontinued operations, and special items decreased by $4.03 billion.
- Segment Performance:
- Upstream: Earnings decreased primarily due to lower natural gas prices, particularly in North America, though higher crude oil realizations provided a partial offset. Oil-equivalent production was flat year-over-year.
- Downstream: Earnings dropped significantly by $2.9 billion to $1.3 billion due to substantially lower refining and marketing margins globally.
- Chemicals: Earnings increased by $123 million (excluding 2001 extraordinary gains) due to record prime product sales volumes, despite weak worldwide margins.
- Discontinued Operations: The company reported $449 million in earnings from discontinued operations, primarily reflecting a $400 million gain on the sale of its Chilean copper business and Colombian coal operations.
- Merger Expenses: Merger implementation activities reduced earnings by $275 million in 2002, down from $525 million in 2001.
Guidance, Outlook, and Risks
- Capital Expenditures: Capital and exploration expenditures totaled $14.0 billion in 2002, an increase of 13% from 2001. Upstream spending rose 18% due to major projects in Africa, Canada, and Azerbaijan.
- Environmental Costs: Worldwide environmental costs were $2.34 billion in 2002. Costs are projected to increase to approximately $2.5 billion in 2003 and 2004, driven by capital projects for low-sulfur motor fuel technology.
- Reserves: Proved oil and gas reserves totaled 21.1 billion oil-equivalent barrels at year-end 2002. The company replaced 119% of reserves produced (including sales) and 120% excluding sales.
- Legal Contingencies:
- Exxon Valdez: A District Court reduced the punitive damages award from $5 billion to $4 billion; the case remains on appeal to the Ninth Circuit. The company has posted a $4.8 billion letter of credit.
- Alabama Royalty Dispute: The Alabama Supreme Court vacated a $3.5 billion jury verdict, sending the case back for a new trial.
- Louisiana NORM Case: A jury awarded $1.06 billion in damages; the company has appealed.
- Market Risks: The company notes that earnings are affected by volatile crude oil and natural gas prices, political instability, and regulatory changes. It maintains a "triple-A" credit rating and views its financial strength as a competitive advantage.
Key Facts for Investor Verification
- Dividend Payout: Cash dividends per common share increased to $0.92 in 2002, representing a 54% payout ratio.
- Share Repurchases: The company purchased 127 million shares of common stock for treasury at a gross cost of $4.8 billion in 2002.
- Accounting Changes: The company is adopting FAS 143 (Asset Retirement Obligations) effective January 1, 2003, which will change the method of accruing site restoration costs and result in an after-tax income adjustment of approximately $600 million.
- Employee Count: Regular employees decreased to 92.5 thousand at year-end 2002, down from 97.9 thousand in 2001.
- Working Capital: Working capital stood at $5.1 billion with a current ratio of 1.15.