XOM

Business Context and Reporting Period

Company: Exxon Mobil Corporation
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2006
Reporting Status: Large accelerated filer; not a shell company.
Shares Outstanding: 5,832,488,445 as of September 30, 2006.

Key Financial Metrics

Note: Total Debt calculated as Notes/loans payable ($2,125M) + Long-term debt ($6,464M). Cash excludes restricted cash of $4,604M.

Material Changes vs. Prior Period

• Profitability: Net income for the third quarter increased 6% ($570 million) and for the first nine months increased 15% ($3,830 million) compared to the prior year periods. Earnings per share (diluted) rose 12% for the quarter and 22% for the nine-month period, driven by strong earnings and a reduction in shares outstanding.
• Segment Performance:
  • Upstream: Earnings increased due to higher crude oil and natural gas realizations and a 7% increase in production (oil-equivalent basis). Non-U.S. Upstream earnings were significantly higher, excluding a $1.62 billion special gain from Dutch gas restructuring present in 2005.
  • Downstream: Earnings improved due to stronger worldwide marketing margins, partially offset by weaker refining margins and lower throughput due to divestments.
  • Chemical: Earnings surged 186% in the quarter and 15% for the nine months, reflecting stronger margins and volumes.
• Accounting Changes: Effective January 1, 2006, the company adopted EITF Issue No. 04-13, resulting in the net reporting of purchases and sales of inventory with the same counterparty. This reduced reported revenues and costs but had no impact on net income.
• Share Repurchases: The company aggressively reduced shares outstanding, purchasing 126 million shares in Q3 2006 at a gross cost of $8.4 billion. Total repurchases for the first nine months were $21.2 billion.

Guidance, Outlook, and Risks

• Capital Spending Outlook: The Corporation expects capital and exploration spending to be approximately $20 billion for the full year 2006, compared to $18 billion in 2005.
• Dividends: Dividends per common share were $0.32 for the quarter and $0.96 for the nine months ended September 30, 2006.
• Legal Contingencies:
  • Exxon Valdez: A $4.5 billion punitive damage judgment (plus interest) remains under appeal. The company has posted a $5.4 billion letter of credit and believes the likelihood of the judgment being upheld is remote.
  • Alabama Royalty Dispute: A $3.5 billion punitive damage judgment is under appeal. The company has posted a $4.5 billion supersedeas bond and believes the likelihood of the judgment being upheld is remote.
  • Allapattah Litigation: A settlement of $1.075 billion (pre-tax) was approved and paid in the second quarter of 2006.
• Regulatory Risks: The company is evaluating the impact of FASB Interpretation No. 48 (uncertain tax positions) and FAS 158 (pension accounting), with adoption required by January 1, 2007, and December 31, 2006, respectively. FAS 158 is estimated to reduce shareholders' equity by approximately $3.8 billion upon adoption.

Investor Verification Checklist

• Verify the impact of the EITF 04-13 accounting change on revenue and cost comparability with prior years.
• Confirm the status and potential financial exposure of the Exxon Valdez and Alabama royalty litigation appeals.
• Assess the sustainability of current crude oil and natural gas realizations driving Upstream earnings.
• Review the company's capital allocation strategy, specifically the balance between $20 billion in planned capital spending and $23.8 billion in shareholder distributions (dividends and buybacks) for the first nine months.
• Monitor the adoption of FAS 158 and its effect on reported shareholders' equity in the upcoming annual report.