Form 10-Q
Table of Contents

 

 

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, 2010

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

incorporation or organization)

 

(I.R.S. Employer

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    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, 2010
Common stock, without par value    5,091,804,265

 

 

 


Table of Contents

EXXON MOBIL CORPORATION

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010

TABLE OF CONTENTS

 

          Page
Number
PART I. FINANCIAL INFORMATION   

Item 1.

   Financial Statements   

Condensed Consolidated Statement of Income
Three and six months ended June 30, 2010 and 2009

   3

Condensed Consolidated Balance Sheet
As of June 30, 2010 and December 31, 2009

   4

Condensed Consolidated Statement of Cash Flows
Six months ended June 30, 2010 and 2009

   5

Condensed Consolidated Statement of Changes in Equity
Six months ended June 30, 2010 and 2009

   6

Notes to Condensed Consolidated Financial Statements

   7

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations    25

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk    31

Item 4.

   Controls and Procedures    31
PART II. OTHER INFORMATION   

Item 1.

   Legal Proceedings    31

Item 1A.

   Risk Factors    32

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds    32

Item 6.

   Exhibits    33

Signature

   34

Index to Exhibits

   35

 

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Table of Contents

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

EXXON MOBIL CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF INCOME

(millions of dollars)

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
      
     2010    2009     2010    2009

REVENUES AND OTHER INCOME

          

Sales and other operating revenue (1)

   $ 89,693    $ 72,167      $ 176,730    $ 134,295

Income from equity affiliates

     2,244      1,583        4,781      3,053

Other income

     549      707        1,226      1,137
                            

Total revenues and other income

     92,486      74,457        182,737      138,485
                            

COSTS AND OTHER DEDUCTIONS

          

Crude oil and product purchases

     48,469      36,903        95,254      64,697

Production and manufacturing expenses

     8,376      8,029        16,811      16,008

Selling, general and administrative expenses

     3,607      3,519        7,121      6,967

Depreciation and depletion

     3,366      3,004        6,646      5,797

Exploration expenses, including dry holes

     407      490        1,093      841

Interest expense

     40      343        95      450

Sales-based taxes (1)

     6,946      6,216        13,761      12,122

Other taxes and duties

     8,569      8,436        17,182      16,236
                            

Total costs and other deductions

     79,780      66,940        157,963      123,118
                            

Income before income taxes

     12,706      7,517        24,774      15,367

Income taxes

     4,960      3,571        10,453      6,719
                            

Net income including noncontrolling interests

     7,746      3,946        14,321      8,648

Net income/(loss) attributable to noncontrolling interests

     186      (4     461      148
                            

Net income attributable to ExxonMobil

   $ 7,560    $ 3,950      $ 13,860    $ 8,500
                            

Earnings per common share (dollars)

   $ 1.61    $ 0.82      $ 2.94    $ 1.74

Earnings per common share - assuming dilution (dollars)

   $ 1.60    $ 0.81      $ 2.93    $ 1.73

Dividends per common share (dollars)

   $ 0.44    $ 0.42      $ 0.86    $ 0.82

 

          

(1)    Sales-based taxes included in sales and other operating revenue

   $ 6,946    $ 6,216      $ 13,761    $ 12,122

The information in the Notes to Condensed Consolidated Financial Statements

is an integral part of these statements.

 

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Table of Contents

EXXON MOBIL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

(millions of dollars)

 

     June 30,
2010
    Dec. 31,
2009
 

ASSETS

    

Current assets

    

Cash and cash equivalents

   $ 13,252      $ 10,693   

Marketable securities

     15        169   

Notes and accounts receivable - net

     29,206        27,645   

Inventories

    

Crude oil, products and merchandise

     10,439        8,718   

Materials and supplies

     3,000        2,835   

Other current assets

     6,304        5,175   
                

Total current assets

     62,216        55,235   

Investments, advances and long-term receivables

     32,642        31,665   

Property, plant and equipment - net

     188,069        139,116   

Other assets, including intangibles, net

     8,141        7,307   
                

Total assets

   $ 291,068      $ 233,323   
                

LIABILITIES

    

Current liabilities

    

Notes and loans payable

   $ 2,946      $ 2,476   

Accounts payable and accrued liabilities

     45,454        41,275   

Income taxes payable

     9,421        8,310   
                

Total current liabilities

     57,821        52,061   

Long-term debt

     17,486        7,129   

Postretirement benefits reserves

     17,143        17,942   

Deferred income tax liabilities

     34,283        23,148   

Other long-term obligations

     18,968        17,651   
                

Total liabilities

     145,701        117,931   
                

Commitments and contingencies (note 3)

    

EQUITY

    

Common stock, without par value:

    

Authorized: 9,000 million shares

    

Issued: 8,019 million shares

     9,002        5,503   

Earnings reinvested

     286,745        276,937   

Accumulated other comprehensive income

    

Cumulative foreign exchange translation adjustment

     2,051        4,402   

Postretirement benefits reserves adjustment

     (8,886     (9,863

Unrealized gain/(loss) on cash flow hedges

     80        0   

Common stock held in treasury:

    

2,927 million shares at June 30, 2010

     (148,820  

3,292 million shares at December 31, 2009

       (166,410
                

ExxonMobil share of equity

     140,172        110,569   

Noncontrolling interests

     5,195        4,823   
                

Total equity

     145,367        115,392   
                

Total liabilities and equity

   $ 291,068      $ 233,323   
                

The number of shares of common stock issued and outstanding at June 30, 2010 and December 31, 2009 were 5,091,804,265 and 4,726,922,580, respectively.

The information in the Notes to Condensed Consolidated Financial Statements

is an integral part of these statements.

 

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EXXON MOBIL CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(millions of dollars)

 

     Six Months Ended
June 30,
 
    
     2010     2009  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income including noncontrolling interests

   $ 14,321      $ 8,648   

Depreciation and depletion

     6,646        5,797   

Changes in operational working capital, excluding cash and debt

     2,068        (992

All other items - net

     (754     (2,346
                

Net cash provided by operating activities

     22,281        11,107   
                

CASH FLOWS FROM INVESTING ACTIVITIES

    

Additions to property, plant and equipment

     (11,400     (10,238

Sales of subsidiaries, investments, and property, plant and equipment

     852        911   

Other investing activities - net

     303        (386
                

Net cash used in investing activities

     (10,245     (9,713
                

CASH FLOWS FROM FINANCING ACTIVITIES

    

Additions to long-term debt

     33        145   

Reductions in long-term debt

     (16     (20

Additions/(reductions) in short-term debt - net

     (697     (350

Cash dividends to ExxonMobil shareholders

     (4,052     (4,020

Cash dividends to noncontrolling interests

     (139     (133

Changes in noncontrolling interests

     (2     (124

Tax benefits related to stock-based awards

     28        55   

Common stock acquired

     (4,063     (13,098

Common stock sold

     111        185   
                

Net cash used in financing activities

     (8,797     (17,360
                

Effects of exchange rate changes on cash

     (680     105   
                

Increase/(decrease) in cash and cash equivalents

     2,559        (15,861

Cash and cash equivalents at beginning of period

     10,693        31,437   
                

Cash and cash equivalents at end of period

   $ 13,252      $ 15,576   
                

SUPPLEMENTAL DISCLOSURES

    

Income taxes paid

   $ 9,487      $ 8,540   

Cash interest paid

   $ 294      $ 195   

NON-CASH TRANSACTIONS

    

The Corporation acquired all the outstanding equity of XTO Energy Inc. in an all-stock transaction valued at $24,659 million (see note 9).

The information in the Notes to Condensed Consolidated Financial Statements

is an integral part of these statements.

 

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EXXON MOBIL CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(millions of dollars)

 

     ExxonMobil Share of Equity     Noncontrolling
Interest
    Total Equity  
     Common
Stock
    Earnings
Reinvested
    Accumulated
Other
Compre-
hensive
Income
    Common
Stock
Held in
Treasury
    ExxonMobil
Share of
Equity
     

Balance as of December 31, 2008

   $ 5,314      $ 265,680      $ (9,931   $ (148,098   $ 112,965      $ 4,558      $ 117,523   

Amortization of stock-based awards

     364              364          364   

Tax benefits related to stock- based awards

     12              12          12   

Other

     (430           (430       (430

Net income for the period

       8,500            8,500        148        8,648   

Dividends - common shares

       (4,020         (4,020     (133     (4,153

Foreign exchange translation adjustment

         1,530          1,530        94        1,624   

Postretirement benefits reserves adjustment

         (530       (530     (4     (534

Amortization of postretirement benefits reserves adjustment included in periodic benefit costs

         682          682        22        704   

Acquisitions at cost

           (13,098     (13,098     (124     (13,222

Dispositions

           617        617          617   
                                                        

Balance as of June 30, 2009

   $ 5,260      $ 270,160      $ (8,249   $ (160,579   $ 106,592      $ 4,561      $ 111,153   
                                                        

Balance as of December 31, 2009

   $ 5,503      $ 276,937      $ (5,461   $ (166,410   $ 110,569      $ 4,823      $ 115,392   

Amortization of stock-based awards

     365              365          365   

Tax benefits related to stock- based awards

     10              10          10   

Other

     (396           (396     12        (384

Net income for the period

       13,860            13,860        461        14,321   

Dividends - common shares

       (4,052         (4,052     (139     (4,191

Foreign exchange translation adjustment

         (2,351       (2,351     (13     (2,364

Postretirement benefits reserves adjustment

         363          363        27        390   

Amortization of postretirement benefits reserves adjustment included in periodic benefit costs

         614          614        26        640   

Change in fair value of cash flow hedges

         80          80          80   

Acquisitions at cost

           (4,063     (4,063     (2     (4,065

Issued for XTO merger

     3,520            21,139        24,659          24,659   

Other dispositions

           514        514          514   
                                                        

Balance as of June 30, 2010

   $ 9,002      $ 286,745      $ (6,755   $ (148,820   $ 140,172      $ 5,195      $ 145,367   
                                                        
     Six Months Ended June 30, 2010           Six Months Ended June 30, 2009  

Common Stock Share Activity

   Issued     Held in
Treasury
    Outstanding           Issued     Held in
Treasury
    Outstanding  
     (millions of shares)           (millions of shares)  

Balance as of December 31

     8,019        (3,292     4,727          8,019        (3,043     4,976   

Acquisitions

       (61     (61         (183     (183

Issued for XTO merger

       416        416           

Other dispositions

       10        10            13        13   
                                                  

Balance as of June 30

     8,019        (2,927     5,092          8,019        (3,213     4,806   
                                                  

The information in the Notes to Condensed Consolidated Financial Statements

is an integral part of these statements.

 

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Table of Contents

EXXON MOBIL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Summary of Accounting Policies and Basis of Financial Statement Preparation

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 2009 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.

Derivative Instruments. The Corporation historically made limited use of derivative instruments. The Corporation does not engage in speculative derivative activities or derivative trading activities, nor does it use derivatives with leveraged features. When the Corporation does enter into derivative transactions, it is to offset exposures associated with interest rates, foreign currency exchange rates and hydrocarbon prices that arise from existing assets, liabilities and forecasted transactions. For derivatives designated as cash flow hedges, the Corporation’s activity is intended to manage the price risk posed by physical transactions.

The Corporation records all derivatives on the balance sheet at fair value. The change in fair value of derivatives designated as fair value hedges is recognized in earnings, offset by the change in fair value of the hedged item. The change in fair value of derivatives designated as cash flow hedges is recorded in other comprehensive income and recognized in earnings when the hedged transaction is recognized in earnings. The change in fair value of derivatives not designated as hedging instruments is recognized in earnings. Any ineffectiveness between the derivative and the hedged item is recorded in earnings.

Hedge effectiveness is reviewed at least quarterly and is generally based on the most recent relevant correlation between the derivative and the item hedged. Hedge ineffectiveness is calculated based on the difference between the change in fair value of the derivative and change in cash flow or fair value of the items hedged. If it is determined that a derivative is no longer highly effective, hedge accounting is then discontinued and the change in fair value since inception that is on the balance sheet either as other comprehensive income for cash flow hedges, or the underlying hedged item for fair value hedges, is recorded in earnings.

Fair Value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Hierarchy Levels 1, 2 or 3 are terms for the priority of inputs to valuation techniques used to measure fair value. Hierarchy Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Hierarchy Level 2 inputs are inputs other than quoted prices included within Level 1 that are directly or indirectly observable for the asset or liability. Hierarchy Level 3 inputs are inputs that are not observable in the market.

Goodwill. Goodwill is the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill is evaluated for impairment on at least an annual basis.

Stock-Based Awards. The Corporation recognizes compensation expense for stock-based awards through amortization of the grant-date fair value over the requisite service period for each award.

 

2. Accounting Changes

Effective January 1, 2010, ExxonMobil adopted the authoritative guidance for variable-interest entities (VIEs). The guidance requires the enterprise to qualitatively assess if it is the primary beneficiary of the VIE and, if so, the VIE must be consolidated. The adoption of the guidance did not have a material impact on the Corporation’s financial statements.

 

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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 significant, 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.

Other Contingencies

 

     As of June 30, 2010
     Equity
Company
Obligations
   Other
Third Party
Obligations
   Total
     (millions of dollars)

Total guarantees

   $ 5,650    $ 3,036    $ 8,686

The Corporation and certain of its consolidated subsidiaries were contingently liable at June 30, 2010, for $8,686 million, primarily relating to guarantees for notes, loans and performance under contracts. Included in this amount were guarantees by consolidated affiliates of $5,650 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, 2010, 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 the government, and on June 27, 2007, the government expropriated ExxonMobil’s 41.67 percent interest in the Cerro Negro Project.

 

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On September 6, 2007, affiliates of ExxonMobil filed a Request for Arbitration with the International Centre for Settlement of Investment Disputes (ICSID) invoking ICSID jurisdiction under Venezuela’s Investment Law and the Netherlands-Venezuela Bilateral Investment Treaty. The ICSID Tribunal issued a decision on June 10, 2010, finding that it had jurisdiction to proceed on the basis of the Netherlands-Venezuela Bilateral Investment Treaty. An affiliate of 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. Both arbitration proceedings continue. 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

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2010     2009     2010     2009  
     (millions of dollars)  

Net income including noncontrolling interests

   $ 7,746      $ 3,946      $ 14,321      $ 8,648   

Other comprehensive income (net of income taxes)

        

Foreign exchange translation adjustment

     (1,847     3,035        (2,364     1,624   

Postretirement benefits reserves adjustment (excluding amortization)

     178        (492     390        (534

Amortization of postretirement benefits reserves adjustment included in net periodic benefit costs

     312        354        640        704   

Change in fair value of cash flow hedges

     80        0        80        0   
                                

Comprehensive income including noncontrolling interests

     6,469        6,843        13,067        10,442   

Comprehensive income attributable to noncontrolling interests

     127        242        501        260   
                                

Comprehensive income attributable to ExxonMobil

   $ 6,342      $ 6,601      $ 12,566      $ 10,182   
                                

 

5. Earnings Per Share

 

     Three Months Ended
June 30,
   Six Months Ended
June 30,
     2010    2009    2010    2009

EARNINGS PER COMMON SHARE

           

Net income attributable to ExxonMobil (millions of dollars)

   $ 7,560    $ 3,950    $ 13,860    $ 8,500

Weighted average number of common shares outstanding (millions of shares)

     4,716      4,851      4,720      4,896

Earnings per common share (dollars)

   $ 1.61    $ 0.82    $ 2.94    $ 1.74

EARNINGS PER COMMON SHARE - ASSUMING DILUTION

           

Net income attributable to ExxonMobil (millions of dollars)

   $ 7,560    $ 3,950    $ 13,860    $ 8,500

Weighted average number of common shares outstanding (millions of shares)

     4,716      4,851      4,720      4,896

Effect of employee stock-based awards

     13      20      13      20
                           

Weighted average number of common shares outstanding - assuming dilution

     4,729      4,871      4,733      4,916
                           

Earnings per common share - assuming dilution (dollars)

   $ 1.60    $ 0.81    $ 2.93    $ 1.73

The anti-dilutive options to purchase shares that have been excluded were de minimis.

 

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6. Pension and Other Postretirement Benefits

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2010     2009     2010     2009  
     (millions of dollars)  

Pension Benefits - U.S.

        

Components of net benefit cost

        

Service cost

   $ 114      $ 106      $ 224      $ 209   

Interest cost

     200        202        399        404   

Expected return on plan assets

     (182     (164     (363     (328

Amortization of actuarial loss/(gain) and prior service cost

     133        174        264        347   

Net pension enhancement and curtailment/settlement cost

     126        121        253        242   
                                

Net benefit cost

   $ 391      $ 439      $ 777      $ 874   
                                

Pension Benefits - Non-U.S.

        

Components of net benefit cost

        

Service cost

   $ 113      $ 100      $ 236      $ 203   

Interest cost

     283        275        579        536   

Expected return on plan assets

     (242     (216     (494     (421

Amortization of actuarial loss/(gain) and prior service cost

     160        177        325        344   

Net pension enhancement and curtailment/settlement cost

     0        0        1        0   
                                

Net benefit cost

   $ 314      $ 336      $ 647      $ 662   
                                

Other Postretirement Benefits

        

Components of net benefit cost

        

Service cost

   $ 28      $ 23      $ 52      $ 50   

Interest cost

     108        104        211        214   

Expected return on plan assets

     (11     (2     (20     (18

Amortization of actuarial loss/(gain) and prior service cost

     46        58        108        129   
                                

Net benefit cost

   $ 171      $ 183      $ 351      $ 375   
                                

 

7. Financial and Derivative Instruments

Financial Instruments

The fair value of financial instruments is determined by reference to observable market data and other valuation techniques as appropriate. The only category of financial instruments where the difference between fair value and recorded book value is of significance is long-term debt. The estimated fair value of total long-term debt, including capitalized lease obligations, was $18.1 billion and $7.7 billion, at June 30, 2010 and December 31, 2009, respectively, as compared to recorded book values of $17.5 billion and $7.1 billion at June 30, 2010 and December 31, 2009, respectively.

Derivative Instruments

The Corporation’s size, strong capital structure, geographic diversity and the complementary nature of the Upstream, Downstream and Chemical businesses reduce the Corporation’s enterprise-wide risk from changes in interest rates, currency rates and commodity prices. As a result, the Corporation historically made limited use of derivatives to mitigate the impact of such changes. The Corporation does not engage in speculative derivative activities or derivative trading activities nor does it use derivatives with leveraged features.

 

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When the Corporation does enter into derivative transactions, it is to offset exposures associated with interest rates, foreign currency exchange rates and hydrocarbon prices that arise from existing assets, liabilities and forecasted transactions. For derivatives designated as cash flow hedges, the Corporation’s activity is intended to manage the price risk posed by physical transactions.

The estimated fair value of derivative instruments outstanding is summarized below. Derivative instruments of $995 million acquired as a result of the XTO merger are included in June 30, 2010, amounts and once the current positions settle, these programs will be discontinued.

 

     Not Designated as a Hedge     Fair Value Hedge    Cash Flow Hedge    Total Derivatives  
     June 30,
2010
   Dec. 31,
2009
    June 30,
2010
    Dec. 31,
2009
   June 30,
2010
   Dec. 31,
2009
   June 30,
2010
   Dec. 31,
2009
 
     (millions of dollars)  

Other current assets

   $ 49    $ 30      $ 1      $ 20    $ 949    $ 0    $ 999    $ 50   

Other assets

     4      0        0        0      74      0      78      0   
                                                           

Total assets

     53      30        1        20      1,023      0      1,077      50   
                                                           

Accounts payable and accrued liabilities

     24      54        15        1      32      0      71      55   

Other long-term obligations

     2      0        0        0      3      0      5      0   
                                                           

Total liabilities

     26      54        15        1      35      0      76      55   
                                                           

Total net asset/(liability)

   $ 27    $ (24   $ (14   $ 19    $ 988    $ 0    $ 1,001    $ (5
                                                           

The fair value measurement hierarchy level associated with the Corporation’s derivative instruments is summarized below.

 

     June 30, 2010     December 31, 2009  
     Quoted Prices in
Active Markets for
Identical Assets

(Level 1)
   Significant Other
Observable Inputs

(Level 2)
    Quoted Prices in
Active Markets for
Identical Assets

(Level 1)
    Significant Other
Observable Inputs

(Level 2)
 
     (millions of dollars)  

Commodity derivative instruments

   $ 1    $ 1,015      $ (23   $ (2

Foreign currency exchange instruments

   $ 0    $ (15   $ 0      $ 20   

The Corporation’s fair value measurement of its derivative instruments includes Level 1 inputs for derivatives that are traded directly on the NYMEX and Level 2 inputs for derivatives that are determined by either market prices on an active market for similar assets or by prices quoted by a broker or other market-corroborated prices.

For the three months and six months ended June 30, 2010, the before tax earnings impact of the Corporation’s derivative activity, net of the fair value change of physical commitments associated with fair value hedges, was a gain of $24 million and $33 million, respectively, versus a loss of $87 million and $88 million for the three months and six months ended June 30, 2009, respectively.

 

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The principal commodity futures contracts and swap agreements acquired as part of the XTO merger that are in place as of June 30, 2010, are summarized below. These derivative contracts are designated and qualify for cash flow hedge accounting. The Corporation will receive the cash flow related to these derivative contracts at the prices indicated below. However, the amount of gain or loss realized from these contracts will be limited to the change in fair value of the derivative instruments from the acquisition date.

 

Product

  

Production Period

   Volume    Weighted Average
NYMEX Price
          (millions of cubic feet daily)    (per thousand cubic feet)

Natural Gas

   July - December 2010    1,250    $7.49
   January - December 2011    250    $7.02
          (thousands of barrels daily)    (per barrel)

Crude Oil

   July - December 2010    70    $95.70

The Corporation believes that there are no material market or credit risks to the Corporation’s financial position, results of operations or liquidity as a result of the derivative activities described above.

 

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8. Disclosures about Segments and Related Information

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2010     2009     2010     2009  
     (millions of dollars)  

EARNINGS AFTER INCOME TAX

        

Upstream

        

United States

   $ 865      $ 813      $ 1,956      $ 1,173   

Non-U.S.

     4,471        2,999        9,194        6,142   

Downstream

        

United States

     440        (15     380        337   

Non-U.S.

     780        527        877        1,308   

Chemical

        

United States

     685        79        1,224        162   

Non-U.S.

     683        288        1,393        555   

All other

     (364     (741     (1,164     (1,177
                                

Corporate total

   $ 7,560      $ 3,950      $ 13,860      $ 8,500   
                                

SALES AND OTHER OPERATING REVENUE (1)

        

Upstream

        

United States

   $ 1,081      $ 753      $ 2,347      $ 1,574   

Non-U.S.

     5,950        5,101        12,258        10,277   

Downstream

        

United States

     23,700        18,853        45,513        34,046   

Non-U.S.

     49,883        41,238        98,740        77,223   

Chemical

        

United States

     3,425        2,317        6,822        4,165   

Non-U.S.

     5,649        3,897        11,042        7,000   

All other

     5        8        8        10   
                                

Corporate total

   $ 89,693      $ 72,167      $ 176,730      $ 134,295   
                                

 

(1)    Includes sales-based taxes

        

INTERSEGMENT REVENUE

        

Upstream

        

United States

   $ 1,944      $ 1,615      $ 4,088      $ 2,819   

Non-U.S.

     9,314        7,250        18,866        13,826   

Downstream

        

United States

     3,650        2,568        7,034        4,237   

Non-U.S.

     12,254        9,525        25,211        16,404   

Chemical

        

United States

     2,614        1,834        4,922        3,055   

Non-U.S.

     2,117        1,647        4,154        2,931   

All other

     68        72        138        143   

 

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9. Acquisition of XTO Energy Inc.

Description of the Transaction

On June 25, 2010, ExxonMobil acquired XTO Energy Inc. (XTO) by merging a wholly-owned subsidiary of ExxonMobil with and into XTO (the “merger”), with XTO continuing as the surviving corporation and wholly-owned subsidiary of ExxonMobil. XTO is involved in the exploration for, production of, and transportation and sale of crude oil and natural gas. XTO’s asset base, technical capabilities and operating expertise together with ExxonMobil’s extensive research and development expertise, project management and operational skills, global scale and financial capacity, should enable effective development of additional supplies of unconventional oil and gas resources.

At the effective time of the merger, each share of XTO common stock was converted into the right to receive 0.7098 shares of common stock of ExxonMobil (the “Exchange Ratio”), with cash being paid in lieu of any fractional shares of ExxonMobil stock. Also at the effective time, each outstanding option to purchase XTO common stock was converted into an option to purchase a number of shares of ExxonMobil stock based on the Exchange Ratio, and each outstanding restricted stock award and performance stock award of XTO was converted into a restricted stock award or performance stock award, as applicable, of ExxonMobil stock based on the Exchange Ratio.

The components of the consideration transferred follow:

 

     (millions of dollars)

Consideration attributable to stock issued (1) (2)

   $ 24,480

Consideration attributable to converted stock options (2)

     179
      

Total consideration transferred

   $ 24,659
      

 

  (1) The fair value of the Corporation’s common stock on the acquisition date was $59.10 per share based on the closing value on the NYSE. The Corporation issued 416 million shares of stock previously held in treasury. The treasury stock issued, based on the average cost, was valued at $21,139 million. The excess of the fair value of the consideration transferred over the cost of treasury stock issued was $3,520 million and was included in common stock without par value.

 

  (2) The portion of the fair value of XTO converted stock-based awards attributable to pre-merger employee service was part of consideration. The remaining fair value of the awards will be recognized in future periods over the requisite service period.

Recording of Assets Acquired and Liabilities Assumed

The transaction was accounted for using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date.

The following table summarizes the assets acquired and liabilities assumed:

 

     (millions of dollars)  

Cash and cash equivalents

   $ 47   

Notes and accounts receivable

     925   

Inventories

     170   

Other current assets (1)

     911   

Investments, advances and long-term receivables

     52   

Property, plant and equipment (2)

     47,300   

Identifiable intangible assets (3)

     493   

Goodwill (4)

     39   

Other assets (1)

     75   
        

Total assets acquired

   $ 50,012   
        

Notes and loans payable (5)

   $ 1,026   

Accounts payable and accrued liabilities (1) (6)

     1,788   

Income taxes payable

     (199

Long-term debt (5)

     10,574   

Postretirement benefits reserves

     65   

Deferred income tax liabilities (6)

     11,204   

Other long-term obligations (1)

     895   
        

Total liabilities assumed

   $ 25,353   
        

Net assets acquired

   $ 24,659   
        

 

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  (1) Derivatives were measured using Level 1 inputs for derivatives that are traded directly on the NYMEX and Level 2 inputs for derivatives that are determined by either market prices on an active market for similar assets or by prices quoted by a broker or other market-corroborated prices.

 

  (2) Property, plant and equipment were measured primarily using an income approach. The fair value measurements of the oil and gas assets were based, in part, on significant inputs not observable in the market and thus represent a Level 3 measurement. The significant inputs included XTO resources, assumed future production profiles, commodity prices (mainly based on observable market inputs), risk adjusted discount rate of 7.0 percent, inflation of 2.0 percent and assumptions on the timing and amount of future development and operating costs. The property, plant and equipment additions were segmented to the Upstream business, with substantially all of the assets in the United States.

 

  (3) Identifiable intangible assets and other assets were measured using a combination of an income approach and a market approach (Level 3). Identifiable intangible assets will be amortized over 20 years.

 

  (4) Goodwill was the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill was recognized in the Upstream reporting unit. Goodwill is not amortized and is not deductible for tax purposes.

 

  (5) Long-term debt was recognized mainly at market rates at closing (Level 1). Long-term debt at closing was as follows:

 

     (millions of dollars)

Bank Debt:

  

Commercial Paper

   $ 175

Term loan due April 1, 2013, 0.775%

     500

Term loan due February 5, 2013, 0.697%

     100

Senior Notes:

  

5.000% due 2010 includes premium of $1

     251

7.500% due 2012 includes premium of $39

     389

5.900% due 2012 includes premium of $51

     601

6.250% due 2013 includes premium of $51

     451

4.625% due 2013 includes premium of $31

     431

5.750% due 2013 includes premium of $66

     566

4.900% due 2014 includes premium of $45

     545

5.000% due 2015 includes premium of $40

     388

5.300% due 2015 includes premium of $53

     453

5.650% due 2016 includes premium of $58

     458

6.250% due 2017 includes premium of $138

     874

5.500% due 2018 includes premium of $108

     880

6.500% due 2018 includes premium of $209

     1,209

6.100% due 2036 includes premium of $101

     692

6.750% due 2037 includes premium of $379

     1,778

6.375% due 2038 includes premium of $155

     859
      

Total Debt

   $ 11,600

Less: Current portion

     1,026
      

Long-term Debt

   $ 10,574
      

The amounts of long-term debt maturing in each of the four years after December 31, 2010, in millions of dollars, are: 2011 – $0, 2012 – $900, 2013 – $1,300 and 2014 – $500.

During the quarter ended June 30, 2010, the commercial paper was repaid. Following the end of the second quarter, XTO term loans of $600 million were repaid and XTO fixed-rate bonds with a book value of $2.5 billion were repurchased via tender offers.

 

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  (6) Deferred income taxes reflect the temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. The deferred income taxes recorded as part of the XTO merger were:

 

     (millions of dollars)  

Property, plant and equipment

   $ 12,238   

Other

     367   
        

Total deferred tax liabilities

   $ 12,605   
        

Asset retirement obligations

   $ (324

Other

     (769
        

Total deferred tax assets

   $ (1,093
        

Net deferred tax liabilities

   $ 11,512   
        

Deferred income tax (assets) and liabilities are included in the table summarizing assets acquired and liabilities assumed as shown below.

 

     (millions of dollars)

Accounts payable and accrued liabilities

   $ 308

Deferred income tax liabilities

     11,204
      

Net deferred tax liabilities

   $ 11,512
      

Actual and Pro Forma Impact of Merger

The revenues and earnings for XTO included in the Corporation’s condensed consolidated statement of income for the three months and six months ended June 30, 2010, were de minimis.

Transaction-related costs were expensed as incurred. The Corporation recognized less than $15 million in transaction costs related to the merger in the six months ended June 30, 2010.

The following table presents pro forma information for the Corporation as if the merger of XTO had occurred at the beginning of each year presented:

 

     Three Months Ended
June 30,
   Six Months Ended
June 30,
     2010    2009    2010    2009
     (millions of dollars, except per share amounts)

Revenues

   $ 91,196    $ 73,608    $ 179,949    $ 137,058

Net income attributable to ExxonMobil

   $ 7,372    $ 3,757    $ 13,672    $ 8,118

Earnings per common share (dollars)

   $ 1.45    $ 0.72    $ 2.67    $ 1.53

Earnings per common share – assuming dilution (dollars)

   $ 1.44    $ 0.71    $ 2.66    $ 1.52

The historical financial information was adjusted to give effect to the pro forma events that were directly attributable to the merger and factually supportable. The unaudited pro forma consolidated results are not necessarily indicative of what our consolidated results of operations actually would have been had we completed the merger on January 1, 2010, or on January 1, 2009. In addition, the unaudited pro forma consolidated results do not purport to project the future results of operations of the combined company. The unaudited pro forma consolidated results reflect pro forma adjustments for the elimination of deferred gains and

 

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losses recognized in earnings for derivatives outstanding at the beginning of the year presented, additional depreciation expense related to the fair value adjustment to property, plant and equipment acquired, additional amortization expense related to the fair value of identifiable intangible assets acquired, capitalization of interest expense and applicable income tax impacts.

Incentive Program

Under the terms of the merger agreement, outstanding XTO stock-based awards were converted into ExxonMobil stock-based awards based on the merger exchange ratio. The converted XTO awards, granted under XTO’s 1998 or 2004 Stock Incentive Plans, include restricted stock awards, stock options and performance stock awards. The grant date for the converted XTO awards is considered to be the effective date of the merger for purposes of calculating fair value. Compensation cost for the converted XTO awards will be recognized in income over the requisite service period. The maximum term of the XTO awards is ten years under the 1998 plan and seven years under the 2004 plan. No additional awards will be issued under either XTO plan. In connection with the closing of the merger, the Corporation also made new grants of restricted stock under the Corporation’s 2003 Incentive Program to certain current or former XTO employees as described in more detail below.

Restricted Stock

Long-term incentive awards totaling 4,206 thousand of restricted (nonvested) common stock were granted in association with the XTO merger. This included the granting of 1,423 thousand of restricted common stock awards under the Corporation’s 2003 Incentive Program and 2,783 thousand of converted XTO restricted common stock awards. Compensation cost for the restricted stock awards is based on the price of the stock at the date of grant. During the applicable restriction periods, the shares may not be sold or transferred and are subject to forfeiture. Otherwise, holders of restricted stock awards generally have all voting, dividend and other rights of other common stockholders.

The majority of the awards granted under the Corporation’s 2003 Incentive Program have graded vesting periods, with 50 percent of the shares in each award vesting after three years and the remaining 50 percent vesting after seven years. In addition, awards granted to certain former senior executives of XTO in connection with consulting agreements negotiated as part of the merger have vesting periods of one year for 50 percent of the award and of two or three years for the remaining 50 percent of the award, depending on the actual term of the consulting engagements.

The majority of the converted XTO awards vest in three installments over a period of three years or three and a half years after the initial grant. The remainder of converted XTO awards which were granted to certain senior XTO employees will vest on the first anniversary of the effective date of the merger.

The following table summarizes information about the merger related restricted stock awards issued.

 

Restricted Stock    Shares    Fair Value at
Date of Grant
   Weighted
Average
Grant-Date Fair
Value per Share
     (thousands)    (millions of dollars)     

Awards granted under 2003

        

Incentive Program

   1,423    $ 85    $ 59.67

Converted XTO awards

   2,783    $ 165    $ 59.13

Unrecognized compensation cost of $175 million related to the restricted stock awards detailed above is expected to be recognized over a weighted average period of 3.1 years.

 

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Performance Stock

The Corporation granted 157 thousand of converted XTO performance stock awards. Compensation cost for the performance stock awards is based on the estimated grant date fair values. The XTO performance stock awards vest depending on the achievement of certain XTO common stock price thresholds. Upon conversion of these awards to ExxonMobil performance stock awards in connection with the merger, the performance thresholds were adjusted to equivalent market price thresholds for common stock of the Corporation. The performance stock awards are subject to forfeiture if the performance criteria are not met within the maximum term. Otherwise, holders of performance stock awards generally have all voting, dividend and other rights of other common stockholders. The table below shows the number of shares and vesting prices of these converted performance stock awards.

 

Performance Stock

Awards

  

Vesting Price

(in thousands)     
55    $ 70.45
51    $ 108.49
51    $ 119.76

The following table summarizes information about the merger related performance stock awards issued.

 

Performance stock    Shares   

Fair Value
at Date of

Grant

  

Weighted Average
Grant-Date Fair
Value per Share

     (thousands)    (millions of dollars)     

Converted XTO awards

   157    $  5    $  30.64

Unrecognized compensation cost of $4 million related to the performance stock awards detailed above is expected to be recognized over a weighted average period of 1.2 years.

Stock Options

The Corporation granted 12,393 thousand of converted XTO stock options as a result of the XTO merger. The converted XTO stock option awards are accounted for under current authoritative guidance which requires the measurement and recognition of compensation expense based on estimated grant date fair values. The stock options granted by XTO generally vest and become exercisable ratably over a three-year period, and may include a provision for accelerated vesting when the common stock price reaches specified levels. Some stock option tranches vest only when the common stock price reaches specified levels. Upon conversion of these stock options to ExxonMobil stock options in connection with the merger, the performance thresholds were adjusted to equivalent market price thresholds for common stock of the Corporation. The table below shows the terms under which the converted XTO stock option awards vest.

 

Unvested Stock Options

  

Vesting Term/Price

(in thousands)     
206    Ratably over 3 years
190    $   70.45
189    $   76.08
    1    $   77.49
307    $ 126.80

 

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The following table summarizes information about the merger related stock options issued.

 

Stock Options    Shares   

Fair Value

at Date of

Grant

   Average
Exercise
Price
   Weighted  Average
Remaining
Contractual Term
     (thousands)    (millions of dollars)          

Converted XTO awards

   12,393    $  182    $   55.15    3.6 years

Exercisable

   11,500    $  176    $   53.36    3.4 years

The intrinsic value for these stock options is $129 million. Unrecognized compensation cost of $3 million related to the non-vested stock options detailed above is expected to be recognized over a weighted average period of 1.3 years.

Estimated Fair Value of Grants

For restricted stock grants, the fair value was equal to the price of the common stock on the grant date. For the converted XTO stock options and performance stock, the Corporation used a Monte Carlo simulation model to estimate fair value. The Monte Carlo simulation model requires inputs for the risk-free interest rate, dividend yield, volatility, contract term, target vesting price, post-vesting turnover rate and suboptimal exercise factor. Expected life, derived vesting period and fair value are outputs of this model.

The risk-free interest rate is based on the constant maturity nominal rates of U.S. Treasury securities with remaining lives throughout the contract term on the day of the grant. The dividend yield is the expected common stock annual dividend yield over the expected life of the option or performance stock, expressed as a percentage of the stock price on the date of grant. The volatility factors are based on a combination of both the historical volatilities of ExxonMobil’s stock and the implied volatility of traded options on ExxonMobil common stock. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by certain employees who receive stock option grants, and subsequent events are not indicative of the reasonableness of the original fair value estimates.

The total estimated fair value calculated at acquisition for the converted XTO stock-based awards was $352 million.

Fair values were determined using the following assumptions:

 

Weighted average expected term (years)

   2.5

Range of risk-free interest rates

   0.1% - 2.6%

Weighted average risk-free interest rates

   0.9%

Dividend yield

   3.0%

Weighted average volatility

   28.5%

Range of volatility

   22.5% - 33.6%

 

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Table of Contents
10. 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 ($2,267 million long-term at June 30, 2010) and the debt securities due 2010-2011 ($13 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.

 

     Exxon Mobil
Corporation
Parent
Guarantor
     SeaRiver
Maritime
Financial
Holdings
Inc.
     All Other
Subsidiaries
     Consolidating
and
Eliminating
Adjustments
     Consolidated  
     (millions of dollars)  

Condensed consolidated statement of income for three months ended June 30, 2010

  

Revenues and other income

              

Sales and other operating revenue, including sales-based taxes

   $ 3,854       $ —         $ 85,839       $ —         $ 89,693   

Income from equity affiliates

     7,375         —           2,215         (7,346      2,244   

Other income

     235         —           314         —           549   

Intercompany revenue

     9,600         1         80,955         (90,556      —     
                                            

Total revenues and other income

     21,064         1         169,323         (97,902      92,486   
                                            

Costs and other deductions

              

Crude oil and product purchases

     10,541         —           125,956         (88,028      48,469   

Production and manufacturing expenses

     1,832         —           7,849         (1,305      8,376   

Selling, general and administrative expenses

     736         —           3,049         (178      3,607   

Depreciation and depletion

     440         —           2,926         —           3,366   

Exploration expenses, including dry holes

     53         —           354         —           407   

Interest expense

     64         62         975         (1,061      40   

Sales-based taxes

     —           —           6,946         —           6,946   

Other taxes and duties

     7         —           8,562         —           8,569   
                                            

Total costs and other deductions

     13,673         62         156,617         (90,572      79,780   
                                            

Income before income taxes

     7,391         (61      12,706         (7,330      12,706   

Income taxes

     (169      (22      5,151         —           4,960   
                                            

Net income including noncontrolling interests

     7,560         (39      7,555         (7,330      7,746   

Net income attributable to noncontrolling interests

     —           —           186         —           186   
                                            

Net income attributable to ExxonMobil

   $ 7,560       $ (39    $ 7,369       $ (7,330    $ 7,560   
                                            

 

-20-


Table of Contents
     Exxon Mobil
Corporation
Parent
Guarantor
     SeaRiver
Maritime
Financial
Holdings
Inc.
     All Other
Subsidiaries
     Consolidating
and
Eliminating
Adjustments
     Consolidated  
     (millions of dollars)  

Condensed consolidated statement of income for three months ended June 30, 2009

  

Revenues and other income

              

Sales and other operating revenue,

including sales-based taxes

   $ 2,633       $ —         $ 69,534       $ —         $ 72,167   

Income from equity affiliates

     4,271         (3      1,560         (4,245      1,583   

Other income

     440         —           267         —           707   

Intercompany revenue

     7,441         1         64,665         (72,107      —     
                                            

Total revenues and other income

     14,785         (2      136,026         (76,352      74,457   
                                            

Costs and other deductions

              

Crude oil and product purchases

     7,511         —           98,426         (69,034      36,903   

Production and manufacturing expenses

     1,913         —           7,458         (1,342      8,029   

Selling, general and administrative expenses

     560         —           3,128         (169      3,519   

Depreciation and depletion

     361         —           2,643         —           3,004   

Exploration expenses, including dry holes

     77         —           413         —           490   

Interest expense

     597         56         1,272         (1,582      343   

Sales-based taxes

     —           —           6,216         —           6,216   

Other taxes and duties

     (43      —           8,479         —           8,436   
                                            

Total costs and other deductions

     10,976         56         128,035         (72,127      66,940   
                                            

Income before income taxes

     3,809         (58      7,991         (4,225      7,517   

Income taxes

     (141      (21      3,733         —           3,571   
                                            

Net income including noncontrolling interests

     3,950         (37      4,258         (4,225      3,946   

Net income attributable to noncontrolling interests

     —           —           (4      —           (4
                                            

Net income attributable to ExxonMobil

   $ 3,950       $ (37    $ 4,262       $ (4,225    $ 3,950   
                                            

Condensed consolidated statement of income for six months ended June 30, 2010

  

Revenues and other income

              

Sales and other operating revenue, including sales-based taxes

   $ 7,787       $ —         $ 168,943       $ —         $ 176,730   

Income from equity affiliates

     13,587         —           4,729         (13,535      4,781   

Other income

     297         —           929         —           1,226   

Intercompany revenue

     19,086         2         161,601         (180,689      —     
                                            

Total revenues and other income

     40,757         2         336,202         (194,224      182,737   
                                            

Costs and other deductions

              

Crude oil and product purchases

     20,341         —           250,591         (175,678      95,254   

Production and manufacturing expenses

     3,769         —           15,653         (2,611      16,811   

Selling, general and administrative expenses

     1,466         —           6,001         (346      7,121   

Depreciation and depletion

     858         —           5,788         —           6,646   

Exploration expenses, including dry holes

     128         —           965         —           1,093   

Interest expense

     132         123         1,929         (2,089      95   

Sales-based taxes

     —           —           13,761         —           13,761   

Other taxes and duties

     15         —           17,167         —           17,182   
                                            

Total costs and other deductions

     26,709         123         311,855         (180,724      157,963   
                                            

Income before income taxes

     14,048         (121      24,347         (13,500      24,774   

Income taxes

     188         (45      10,310         —           10,453   
                                            

Net income including noncontrolling interests

     13,860         (76      14,037         (13,500      14,321   

Net income attributable to noncontrolling interests

     —           —           461         —           461   
                                            

Net income attributable to ExxonMobil

   $ 13,860       $ (76    $ 13,576       $ (13,500    $ 13,860   
                                            

 

-21-


Table of Contents
     Exxon Mobil
Corporation
Parent
Guarantor
     SeaRiver
Maritime
Financial
Holdings
Inc.
     All Other
Subsidiaries
     Consolidating
and
Eliminating
Adjustments
     Consolidated  
     (millions of dollars)  

Condensed consolidated statement of income for six months ended June 30, 2009

  

Revenues and other income

              

Sales and other operating revenue, including sales-based taxes

   $ 4,800       $ —         $ 129,495       $ —         $ 134,295   

Income from equity affiliates

     9,023         4         3,010         (8,984      3,053   

Other income

     585         —           552         —           1,137   

Intercompany revenue

     13,306         2         117,300         (130,608      —     
                                            

Total revenues and other income

     27,714         6         250,357         (139,592      138,485   
                                            

Costs and other deductions

              

Crude oil and product purchases

     12,585         —           176,277         (124,165      64,697   

Production and manufacturing expenses

     3,879         —           14,752         (2,623      16,008   

Selling, general and administrative expenses

     1,218         —           6,096         (347      6,967   

Depreciation and depletion

     728         —           5,069         —           5,797   

Exploration expenses, including dry holes

     132         —           709         —           841   

Interest expense

     958         111         2,894         (3,513      450   

Sales-based taxes

     —           —           12,122         —           12,122   

Other taxes and duties

     (34      —           16,270         —           16,236   
                                            

Total costs and other deductions

     19,466         111         234,189         (130,648      123,118   
                                            

Income before income taxes

     8,248         (105      16,168         (8,944      15,367   

Income taxes

     (252      (41      7,012         —           6,719   
                                            

Net income including noncontrolling interests

     8,500         (64      9,156         (8,944      8,648   

Net income attributable to noncontrolling interests

     —           —           148         —           148   
                                            

Net income attributable to ExxonMobil

   $ 8,500       $ (64    $ 9,008       $ (8,944    $ 8,500   
                                            

 

-22-


Table of Contents
     Exxon Mobil
Corporation
Parent
Guarantor
     SeaRiver
Maritime
Financial
Holdings
Inc.
     All Other
Subsidiaries
     Consolidating
and
Eliminating
Adjustments
     Consolidated  
     (millions of dollars)  

Condensed consolidated balance sheet as of June 30, 2010

  

Cash and cash equivalents

   $ 603       $ —         $ 12,649       $ —         $ 13,252   

Marketable securities

     —           —           15         —           15   

Notes and accounts receivable - net

     2,608         25         27,389         (816      29,206   

Inventories

     1,576         —           11,863         —           13,439   

Other current assets

     427         —           5,877         —           6,304   
                                            

Total current assets

     5,214         25         57,793         (816      62,216   

Property, plant and equipment - net

     18,327         —           169,742         —           188,069   

Investments and other assets

     231,569         473         454,154         (645,413      40,783   

Intercompany receivables

     22,621         2,407         444,579         (469,607      —     
                                            

Total assets

   $ 277,731       $ 2,905       $ 1,126,268       $ (1,115,836    $ 291,068   
                                            

Notes and loan payables

   $ 6       $ 13       $ 2,927       $ —         $ 2,946   

Accounts payable and accrued liabilities

     2,874         —           42,580         —           45,454   

Income taxes payable

     —           —           10,237         (816      9,421   
                                            

Total current liabilities

     2,880         13         55,744         (816      57,821   

Long-term debt

     296         2,280         14,910         —           17,486   

Postretirement benefits reserves

     8,961         —           8,182         —           17,143   

Deferred income tax liabilities

     869         131         33,283         —           34,283   

Other long-term obligations

     5,163         —           13,805         —           18,968   

Intercompany payables

     119,390         382         349,835         (469,607      —     
                                            

Total liabilities

     137,559         2,806         475,759         (470,423      145,701   
                                            

Earnings reinvested

     286,745         (770      117,827         (117,057      286,745   

Other ExxonMobil equity

     (146,573      869         527,487         (528,356      (146,573
                                            

ExxonMobil share of equity

     140,172         99         645,314         (645,413      140,172   

Noncontrolling interests

     —           —           5,195         —           5,195   
                                            

Total equity

     140,172         99         650,509         (645,413      145,367   
                                            

Total liabilities and equity

   $ 277,731       $ 2,905       $ 1,126,268       $ (1,115,836    $ 291,068   
                                            

Condensed consolidated balance sheet as of December 31, 2009

  

Cash and cash equivalents

   $ 449       $ —         $ 10,244       $ —         $ 10,693   

Marketable securities

     —           —           169         —           169   

Notes and accounts receivable - net

     2,050         —           25,858         (263      27,645   

Inventories

     1,202         —           10,351         —           11,553   

Other current assets

     313         —           4,862         —           5,175   
                                            

Total current assets

     4,014         —           51,484         (263      55,235   

Property, plant and equipment - net

     18,015         —           121,101         —           139,116   

Investments and other assets

     199,317         473         446,788         (607,606      38,972   

Intercompany receivables

     19,637         2,257         442,903         (464,797      —     
                                            

Total assets

   $ 240,983       $ 2,730       $ 1,062,276       $ (1,072,666    $ 233,323   
                                            

Notes and loan payables

   $ 43       $ 13       $ 2,420       $ —         $ 2,476   

Accounts payable and accrued liabilities

     2,779         —           38,496         —           41,275   

Income taxes payable

     —           2         8,571         (263      8,310   
                                            

Total current liabilities

     2,822         15         49,487         (263      52,061   

Long-term debt

     279         2,157         4,693         —           7,129   

Postretirement benefits reserves

     8,673         —           9,269         —           17,942   

Deferred income tax liabilities

     818         151         22,179         —           23,148   

Other long-term obligations

     5,286         —           12,365         —           17,651   

Intercompany payables

     112,536         382         351,879         (464,797      —     
                                            

Total liabilities

     130,414         2,705         449,872         (465,060      117,931   
                                            

Earnings reinvested

     276,937         (694      109,603         (108,909      276,937   

Other ExxonMobil equity

     (166,368      719         497,978         (498,697      (166,368
                                            

ExxonMobil share of equity

     110,569         25         607,581         (607,606      110,569   

Noncontrolling interests

     —           —           4,823         —           4,823   
                                            

Total equity

     110,569         25         612,404         (607,606      115,392   
                                            

Total liabilities and equity

   $ 240,983       $ 2,730       $ 1,062,276       $ (1,072,666    $ 233,323   
                                            

 

-23-


Table of Contents
     Exxon Mobil
Corporation
Parent
Guarantor
     SeaRiver
Maritime
Financial
Holdings
Inc.
     All Other
Subsidiaries
     Consolidating
and
Eliminating
Adjustments
     Consolidated  
     (millions of dollars)  

Condensed consolidated statement of cash flows for six months ended June 30, 2010

  

Cash provided by/(used in) operating activities

   $ 30,671       $ 1       $ (3,039    $ (5,352    $ 22,281   
                                            

Cash flows from investing activities

              

Additions to property, plant and equipment

     (1,234      —           (10,166      —           (11,400

Sales of long-term assets

     319         —           533         —           852   

Net intercompany investing

     (21,586      (151      21,383         354         —     

All other investing, net

     —           —           303         —           303   
                                            

Net cash provided by/(used in) investing activities

     (22,501      (151      12,053         354         (10,245
                                            

Cash flows from financing activities

              

Additions to long-term debt

     —           —           33         —           33   

Reductions in long-term debt

     —           —           (16      —           (16

Additions/(reductions) in short-term debt - net

     (40      —           (657      —           (697

Cash dividends

     (4,052      —           (5,352      5,352         (4,052

Net ExxonMobil shares sold/(acquired)

     (3,952      —           —           —           (3,952

Net intercompany financing activity

     —           —           204         (204      —     

All other financing, net

     28         150         (141      (150      (113
                                            

Net cash provided by/(used in) financing activities

     (8,016      150         (5,929      4,998         (8,797
                                            

Effects of exchange rate changes on cash

     —           —           (680      —           (680
                                            

Increase/(decrease) in cash and cash equivalents

   $ 154       $ —         $ 2,405       $ —         $ 2,559   
                                            

Condensed consolidated statement of cash flows for six months ended June 30, 2009

  

Cash provided by/(used in) operating activities

   $ (2,130    $ 1       $ 13,424       $ (188    $ 11,107   
                                            

Cash flows from investing activities

              

Additions to property, plant and equipment

     (1,321      —           (8,917      —           (10,238

Sales of long-term assets

     97         —           814         —           911   

Net intercompany investing

     17,178         (151      (17,349      322         —     

All other investing, net

     —           —           (386      —           (386
                                            

Net cash provided by/(used in) investing activities

     15,954         (151      (25,838      322         (9,713
                                            

Cash flows from financing activities

              

Additions to long-term debt

     —           —           145         —           145   

Reductions in long-term debt

     —           —           (20      —           (20

Additions/(reductions) in short-term debt - net

     3         —           (353      —           (350

Cash dividends

     (4,020      —           (188      188         (4,020

Net ExxonMobil shares sold/(acquired)

     (12,913      —           —           —           (12,913

Net intercompany financing activity

     —           —           172         (172      —     

All other financing, net

     55         150         (257      (150      (202
                                            

Net cash provided by/(used in) financing activities

     (16,875      150         (501      (134      (17,360
                                            

Effects of exchange rate changes on cash

     —           —           105         —           105   
                                            

Increase/(decrease) in cash and cash equivalents

   $ (3,051    $ —         $ (12,810    $ —         $ (15,861
                                            

 

-24-


Table of Contents

EXXON MOBIL CORPORATION

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

FUNCTIONAL EARNINGS SUMMARY

 

     Second Quarter     First Six Months  

Earnings (U.S. GAAP)

   2010     2009     2010     2009  
     (millions of dollars)  

Upstream

        

United States

   $ 865      $ 813      $ 1,956      $ 1,173   

Non-U.S.

     4,471        2,999        9,194        6,142   

Downstream

        

United States

     440        (15     380        337   

Non-U.S.

     780        527        877        1,308   

Chemical

        

United States

     685        79        1,224        162   

Non-U.S.

     683        288        1,393        555   

Corporate and financing

     (364     (741     (1,164     (1,177
                                

Net Income attributable to ExxonMobil (U.S. GAAP)

   $ 7,560      $ 3,950      $ 13,860      $ 8,500   
                                

Earnings per common share (dollars)

   $ 1.61      $ 0.82      $ 2.94      $ 1.74   

Earnings per common share - assuming dilution (dollars)

   $ 1.60      $ 0.81      $ 2.93      $ 1.73   

Special items included in earnings

        

Corporate and financing
Valdez litigation

   $ 0      $ (140   $ 0      $ (140

References in this discussion to total corporate earnings mean net income attributable to ExxonMobil (U.S. GAAP) from the income statement. Unless otherwise indicated, references to earnings, special items, Upstream, Downstream, Chemical and Corporate and Financing segment earnings, and earnings per share are ExxonMobil’s share after excluding amounts attributable to noncontrolling interests.

REVIEW OF SECOND QUARTER 2010 RESULTS

ExxonMobil’s focus on operational excellence continues to deliver strong results. Second quarter earnings were $7.6 billion, up 91 percent from second quarter of last year reflecting higher crude oil realizations, improved downstream margins, and strong chemical results. Second quarter 2009 earnings included a special charge of $140 million for interest related to the Valdez punitive damages award. Earnings for the second quarter of 2010 did not include any special items.

The Corporation’s second quarter 2010 earnings and production volumes included de minimis amounts for the period from June 25 to June 30 resulting from the merger with XTO Energy Inc. which closed on June 25, 2010.

We continued our focus on investing for the future with capital and exploration spending of $13.4 billion year to date, up 9 percent from the first half of last year.

Over $3 billion was returned to shareholders in the second quarter through dividends and share purchases to reduce shares outstanding.

 

 

Earnings in the first six months of 2010 of $13,860 million ($2.93 per share) increased $5,360 million from 2009.

Earnings were up 63 percent from 2009. Earnings for 2009 included a special charge of $140 million for interest related to the Valdez punitive damages award. Earnings for the first half of 2010 did not include any special items.

 

-25-


Table of Contents
     Second Quarter    First Six Months
     2010    2009    2010    2009
     (millions of dollars)

Upstream earnings

           

United States

   $ 865    $ 813    $ 1,956    $ 1,173

Non-U.S.

     4,471      2,999      9,194      6,142
                           

Total

   $ 5,336    $ 3,812    $ 11,150    $ 7,315
                           

Upstream earnings in the second quarter of 2010 were $5,336 million, up $1,524 million from the second quarter of 2009. Higher crude oil and natural gas realizations drove the improvement and increased earnings by $1.6 billion.

On an oil-equivalent basis, production increased 8 percent from the second quarter of 2009. Excluding the impacts of entitlement volumes, OPEC quota effects and divestments, production was up about 10 percent.

Liquids production totaled 2,325 kbd (thousands of barrels per day), down 21 kbd from the second quarter of 2009. Excluding the impacts of entitlement volumes, OPEC quota effects and divestments, liquids production was up 1 percent, as increased production from projects in Qatar and Kazakhstan more than offset net field decline.

Second quarter natural gas production was 10,025 mcfd (millions of cubic feet per day), up 1,984 mcfd from 2009, driven by project ramp-ups in Qatar and higher demand in Europe, partly offset by net field decline.

Earnings from U.S. Upstream operations were $865 million, $52 million higher than the second quarter of 2009. Non-U.S. Upstream earnings were $4,471 million, up $1,472 million from last year.

 

 

Upstream earnings in the first six months of 2010 were $11,150 million, up $3,835 million from 2009. Higher net realizations increased earnings approximately $4 billion. The favorable impact of higher volumes of $0.4 billion was partially offset by higher operating costs of $0.3 billion.

On an oil-equivalent basis, production for the first six months of 2010 was up 6 percent compared to the same period in 2009. Excluding the impacts of entitlement volumes, OPEC quota effects and divestments, production was up 8 percent.

Liquids production for the first six months of 2010 of 2,370 kbd decreased 41 kbd compared with 2009. Excluding the impacts of entitlement volumes, OPEC quota effects and divestments, liquids production was flat with 2009, as new volumes from project ramp-ups in Qatar and Kazakhstan were offset by net field decline.

Natural gas production for the first six months of 2010 of 10,852 mcfd increased 1,744 mcfd from 2009, driven by higher volumes from Qatar projects and higher demand in Europe.

Earnings for the first six months of 2010 from U.S. Upstream operations were $1,956 million, an increase of $783 million. Earnings outside the U.S. were $9,194 million, up $3,052 million.

 

     Second Quarter     First Six Months
     2010    2009     2010    2009
     (millions of dollars)

Downstream earnings

          

United States

   $ 440    $ (15   $ 380    $ 337

Non-U.S.

     780      527        877      1,308
                            

Total

   $ 1,220    $ 512      $ 1,257    $ 1,645
                            

Second quarter 2010 Downstream earnings of $1,220 million were up $708 million from second quarter of 2009. Higher industry refining and marketing margins increased earnings by $780 million. Volumes and product mix effects increased earnings by $170 million while other factors, mainly unfavorable foreign exchange impacts, decreased earnings by $240 million. Petroleum product sales of 6,241 kbd were 246 kbd lower than last year’s second quarter, mainly reflecting lower demand.

Earnings from the U.S. Downstream were $440 million, up $455 million from the second quarter of 2009. Non-U.S. Downstream earnings of $780 million were $253 million higher than last year.

 

 

 

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Downstream earnings for the first six months of 2010 of $1,257 million were $388 million lower than 2009. Lower refining margins decreased earnings by $0.5 billion. Unfavorable foreign exchange impacts of $0.4 billion were offset by improved marketing margins, and favorable sales volume mix and refining operations effects. Petroleum product sales of 6,193 kbd decreased 268 kbd, mainly reflecting lower demand.

U.S. Downstream earnings were $380 million, up $43 million from first six months of 2009. Non-U.S. Downstream earnings were $877 million, $431 million lower than last year.

 

     Second Quarter    First Six Months
     2010    2009    2010    2009
     (millions of dollars)

Chemical earnings

           

United States

   $ 685    $ 79    $ 1,224    $ 162

Non-U.S.

     683      288      1,393      555
                           

Total

   $ 1,368    $ 367    $ 2,617    $ 717
                           

Second quarter 2010 Chemical earnings of $1,368 million were $1,001 million higher than the second quarter of 2009. Stronger margins improved earnings by $840 million and higher sales volumes increased earnings by $120 million. Second quarter prime product sales of 6,496 kt (thousands of metric tons) were 229 kt higher than the prior year primarily due to improved global demand.

 

 

Chemical earnings of $2,617 million increased $1,900 million from the first six months of 2009. Stronger margins increased earnings by approximately $1.4 billion while higher volumes increased earnings about $0.3 billion. Prime product sales of 12,984 kt were up 1,190 kt from 2009.

 

     Second Quarter     First Six Months  
     2010     2009     2010     2009  
     (millions of dollars)  

Corporate and financing earnings

   $ (364   $ (741   $ (1,164   $ (1,177

Special items included in earnings

        

Corporate and financing
Valdez litigation

   $ 0      $ (140   $ 0      $ (140

Corporate and financing expenses were $364 million during the second quarter of 2010, down $377 million due mainly to favorable tax items and the absence of the Valdez litigation charge.

 

 

Corporate and financing expenses were $1,164 million for the first six months of 2010, down $13 million from 2009 due to the absence of the Valdez litigation charge offset by a tax charge related to the U.S. health care legislation during the first half of 2010.

 

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LIQUIDITY AND CAPITAL RESOURCES

 

     Second Quarter    First Six Months  
     2010    2009    2010     2009  
     (millions of dollars)  

Net cash provided by/(used in)

          

Operating activities

         $ 22,281      $ 11,107   

Investing activities

           (10,245     (9,713

Financing activities

           (8,797     (17,360

Effect of exchange rate changes

           (680     105   
                      

Increase/(decrease) in cash and cash equivalents

         $ 2,559      $ (15,861
                      

Cash and cash equivalents (at end of period)

         $ 13,252      $ 15,576   

Cash flow from operations and asset sales

          

Net cash provided by operating activities (U.S. GAAP)

   $ 9,235    $ 2,197    $ 22,281      $ 11,107   

Sales of subsidiaries, investments and property, plant and equipment

     428      770      852        911   
                              

Cash flow from operations and asset sales

   $ 9,663    $ 2,967    $ 23,133      $ 12,018   
                              

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 $13.3 billion at the end of the second quarter of 2010 compared to $15.6 billion at the end of the second quarter of 2009.

Cash provided by operating activities totaled $22.3 billion for the first six months of 2010, $11.2 billion higher than 2009. The major source of funds was net income including noncontrolling interests of $14.3 billion, adjusted for the noncash provision of $6.6 billion for depreciation and depletion, both of which increased. Changes in operational working capital added to cash flows in 2010. All other items net in 2009 included $3.9 billion of pension fund contributions. For additional details, see the Condensed Consolidated Statement of Cash Flows on page 5.

Investing activities for the first six months of 2010 used net cash of $10.2 billion compared to $9.7 billion in the prior year. Spending for additions to property, plant and equipment increased $1.2 billion to $11.4 billion.

Cash flow from operations and asset sales in the second quarter of 2010 of $9.7 billion, including asset sales of $0.4 billion, increased $6.7 billion from the comparable 2009 period. Cash flow from operations and asset sales in the first six months of 2010 of $23.1 billion, including asset sales of $0.9 billion, were up $11.1 billion from 2009.

Net cash used in financing activities of $8.8 billion in the first six months of 2010 was $8.6 billion lower reflecting a lower level of purchases of shares of ExxonMobil stock. The Corporation’s acquisition of all the outstanding equity of XTO Energy Inc. was a non-cash, all-stock transaction valued at $24.7 billion.

During the second quarter of 2010, Exxon Mobil Corporation purchased 24 million shares of its common stock for the treasury at a gross cost of $1.6 billion. These purchases included over $1 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. As a result of regulatory requirements, no open market purchases of shares were made during the proxy solicitation period for the XTO transaction. Including 416 million shares issued in connection with the XTO merger, shares outstanding increased from 4,698 million at the end of the first quarter to 5,092 million at the end of the second quarter. 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 to shareholders a total of over $3 billion in the second quarter of 2010 through dividends and share purchases to reduce shares outstanding.

Total debt of $20.4 billion at June 30, 2010, which included $11.4 billion of debt in connection with the XTO acquisition, compared to $9.6 billion at year-end 2009. The Corporation’s debt to total capital ratio was 12.3 percent at the end of the second quarter of 2010 compared to 7.7 percent at year-end 2009.

 

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Although the Corporation issues long-term debt from time to time and maintains a revolving commercial paper program, internally generated funds are expected to cover the majority of its net near-term financial requirements. Effective with the closing of the merger, XTO’s long-term debt securities were unconditionally guaranteed by ExxonMobil. The guarantees may be revoked by the Corporation under certain conditions. Following the end of the second quarter, XTO term loans of $600 million were repaid and XTO fixed-rate bonds with a book value of $2.5 billion were repurchased via tender offers. The Corporation expects to consider additional opportunities to restructure XTO debt where economic.

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.

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 the government, and on June 27, 2007, the government expropriated ExxonMobil’s 41.67 percent interest in the Cerro Negro Project.

On September 6, 2007, affiliates of ExxonMobil filed a Request for Arbitration with the International Centre for Settlement of Investment Disputes (ICSID) invoking ICSID jurisdiction under Venezuela’s Investment Law and the Netherlands-Venezuela Bilateral Investment Treaty. The ICSID Tribunal issued a decision on June 10, 2010, finding that it had jurisdiction to proceed on the basis of the Netherlands-Venezuela Bilateral Investment Treaty. An affiliate of 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. Both arbitration proceedings continue. 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.

TAXES

 

     Second Quarter     First Six Months  
     2010     2009     2010     2009  
     (millions of dollars)  

Income taxes

   $ 4,960      $ 3,571      $ 10,453      $ 6,719   

Effective income tax rate

     43     50     46     47

Sales-based taxes

     6,946        6,216        13,761        12,122   

All other taxes and duties

     9,244        9,124        18,593        17,713   
                                

Total

   $ 21,150      $ 18,911      $ 42,807      $ 36,554   
                                

Income, sales-based and all other taxes and duties for the second quarter of 2010 of $21,150 million were higher than 2009. In the second quarter of 2010 income tax expense increased to $4,960 million reflecting the higher level of earnings and the effective income tax rate was 43 percent, compared to $3,571 million and 50 percent, respectively, in the prior year period. Sales-based taxes and all other taxes and duties increased in 2010 reflecting higher prices and foreign exchange effects.

 

 

Income, sales-based and all other taxes and duties for the first six months of 2010 of $42,807 million were higher than 2009. In the first six months of 2010 income tax expense increased to $10,453 million reflecting the higher level of earnings and the effective income tax rate was 46 percent, compared to $6,719 million and 47 percent, respectively, in the prior year period. Sales-based taxes and all other taxes and duties increased in 2010 reflecting higher prices and foreign exchange effects.

 

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CAPITAL AND EXPLORATION EXPENDITURES

 

     Second Quarter    First Six Months
     2010    2009    2010    2009
     (millions of dollars)

Upstream (including exploration expenses)

   $ 5,342    $ 4,905    $ 10,888    $ 9,271

Downstream

     584      817      1,258      1,463

Chemical

     558      830      1,172      1,588

Other

     35      10      78      14
                           

Total

   $ 6,519    $ 6,562    $ 13,396    $ 12,336
                           

Capital and exploration expenditures in the second quarter 2010 were $6.5 billion, down 1 percent from the second quarter of 2009. The capital and exploration expenditures related to XTO included in the Corporation’s second quarter 2010 results were de minimis.

 

 

ExxonMobil continued its focus on investing for the future with capital and exploration spending of $13.4 billion in the first six months of 2010, up 9 percent from 2009. Capital and exploration expenditures for full year 2009 were $27.1 billion. Capital and exploration expenditures 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.

ACQUISITION OF XTO ENERGY INC.

On June 25, 2010, following approval by the stockholders of XTO Energy Inc. (“XTO”), ExxonMobil acquired XTO by merging a wholly-owned subsidiary of ExxonMobil with and into XTO (the “merger”), with XTO continuing as the surviving corporation and wholly-owned subsidiary of ExxonMobil.

At the effective time of the merger, each share of XTO common stock was converted into the right to receive 0.7098 shares of common stock of ExxonMobil (the “Exchange Ratio”), with cash being payable in lieu of any fractional shares of ExxonMobil stock. Also at the effective time, each outstanding option to purchase XTO common stock was converted into an option to purchase a number of shares of ExxonMobil stock based on the Exchange Ratio, and each outstanding restricted stock award and performance stock award of XTO was converted into a restricted stock award or performance stock award, as applicable, of ExxonMobil stock based on the Exchange Ratio. In connection with the merger, 416 million shares were issued at closing. An additional 12 million shares were reserved for issuance for stock option awards.

XTO’s reported year-end 2009 proved reserves of 2.5 billion oil-equivalent barrels include shale gas, tight gas, coal-bed methane and shale oil, in addition to conventional oil and gas. ExxonMobil reported year-end 2009 proved reserves of 23.0 billion oil-equivalent barrels. The XTO portfolio complements ExxonMobil’s unconventional gas resource and acreage holdings in the United States, Canada, Germany, Poland, Indonesia and Argentina.

XTO’s reported 2009 production was 2,342 mcfd gas and 87 kbd liquids. ExxonMobil’s reported 2009 production was 9,273 mcfd gas and 2,387 kbd liquids. Through the first half of 2010, XTO’s production has averaged 2,423 mcfd gas and 85 kbd liquids.

FORWARD-LOOKING STATEMENTS

Statements in this report relating to future plans, projections, events or conditions are forward-looking statements. Actual results, including benefits resulting from the XTO transaction; project plans, costs, timing, and capacities; capital and exploration expenditures; and share purchase levels, could differ materially due to factors including: our ability to integrate the businesses of XTO and ExxonMobil effectively; changes in long-term oil or gas prices or other market or economic conditions affecting the oil and gas industry; unforeseen technical difficulties; 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” in the “investors” section of our website and in Item 1A of ExxonMobil’s 2009 Form 10-K and Form 10-Q for the quarterly period ended June 30, 2010. 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, 2010, does not differ materially from that discussed under Item 7A of the registrant’s Annual Report on Form 10-K for 2009. With respect to derivatives activities, the Corporation believes that there are no material market or credit risks to the Corporation’s financial position, results of operations or liquidity as a result of the derivatives activities described in Note 7. The Corporation does not engage in speculative derivative activities or derivative trading activities and does not use derivatives with leveraged features. Credit risk associated with the Corporation’s derivative position is mitigated by several factors including the number, quality and financial limits placed on derivative counterparties. Additionally, the XTO derivative contracts are expected to be substantially reduced by year-end 2010.

 

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, 2010. 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 quarter that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

In April 2010, the Texas Commission on Environmental Quality (“TCEQ”) demanded a penalty of $135,000 for Notices of Violation issued in January and February 2010 relating to six alleged violations of air emission regulations at the Beaumont Refinery. Settlement discussions are ongoing with the TCEQ.

On December 21, 2009, prior to the Corporation’s acquisition of XTO Energy Inc., the Texas Commission on Environmental Quality issued a Notice of Violation to XTO alleging violations of air emission regulations as a result of an unauthorized flaring of natural gas at XTO facilities in Yoakum County, Texas, between July 29, 2008 and May 4, 2009 and the untimely filing of a report of the event. TCEQ has proposed a penalty of $237,247. Settlement discussions with TCEQ are ongoing.

Regarding a matter previously reported in the Corporation’s Form 10-Q for the second quarter of 2008, two ExxonMobil affiliates, Mobil Oil Guam, Inc. and Mobil Oil Mariana Islands, Inc., have entered into a Consent Decree with the U.S. Environmental Protection Agency and the U.S. Department of Justice (DOJ) to resolve certain alleged violations of the Clean Air Act air permitting requirements and air quality rules associated with certain storage tanks and loading racks at the Cabras Terminal (Guam) and Saipan Terminal (Saipan). The DOJ lodged the executed Consent Decree in federal District Court in Guam on April 16, 2010, and the court entered the Consent Decree on July 27, 2010. The parties have agreed to a $2.4 million cash settlement and corrective action to resolve the case.

Regarding a matter previously reported in the Corporation’s Form 10-Q for the second quarter of 2009, on June 28, 2010, the Corporation and two of its affiliates (ExxonMobil Oil Corporation and ExxonMobil Pipeline Company) entered into a Settlement Agreement with the Massachusetts Department of Environmental Protection and the State Attorney General regarding certain allegations of violations of air permit requirements and provisions of the Clean Air Act between 2000 and 2008 at the Everett and Springfield terminals in Massachusetts. The settlement includes a penalty payment of $2.9 million and a $200,000 cash payment to the Chelsea Collaborative for a supplemental environmental project. Certain corrective actions also will be undertaken at the Everett and Springfield terminals.

 

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As reported the Corporation’s Form 10-Q for the first quarter of 2010, in the matter, In re Exxon Mobil, Corp. Derivative Litigation, on April 30, 2010, the District Court of Dallas County, Texas, granted the defendants’ special exceptions due to the plaintiffs’ failure 1) to make a pre-suit demand on the Board of Directors, or 2) to plead facts sufficient to excuse such a demand. The trial court gave the plaintiffs until June 1, 2010, to re-file their pleading to allege with specificity a legally sufficient basis to excuse the plaintiffs’ failure to make a pre-suit demand on the Board. The plaintiffs failed to timely replead and agreed that the case should be dismissed. On July 20, 2010, the court issued an order dismissing the case.

Refer to the relevant portions of note 3 on pages 8 and 9 of this Quarterly Report on Form 10-Q for further information on legal proceedings.

 

Item 1A. Risk Factors

Information about risk factors does not differ materially from the discussion found in Item 1A of the registrant’s Annual Report on Form 10-K for 2009. Recent events in the Gulf of Mexico illustrate the magnitude of the operational risks inherent in oil and gas exploration and production activities, as well as the potential to incur substantial financial liabilities if those risks are not effectively managed. The ability to insure such risks is limited by the capacity of the applicable insurance markets, which may not be sufficient to cover the likely cost of a major adverse operating event such as a deepwater well blowout. Accordingly, ExxonMobil’s primary focus is on prevention, including through our rigorous Operations Integrity Management System. Our future results will depend on the continued effectiveness of these efforts.

The Gulf of Mexico spill may result in changes to U.S. federal and state laws and regulations which would have the effect of increasing the cost of, and reducing available opportunities for, offshore exploration and production.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchase of Equity Securities for Quarter Ended June 30, 2010

 

 

    

Period

   Total Number
Of Shares
Purchased
   Average
Price Paid
per Share
   Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
   Maximum Number
Of Shares that May
Yet Be Purchased
Under the Plans or
Programs
 

April, 2010

   12,961,778    68.52    12,961,778   

May, 2010

   8,659,639    64.40    8,659,639   

June, 2010

   2,090,627    58.43    2,090,627   
               

Total

   23,712,044    66.12    23,712,044    (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. In its most recent earnings release dated July 29, 2010, the Corporation stated that third quarter 2010 share purchases to reduce shares outstanding are anticipated to equal $3 billion. 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 Financial Officer.
31.3    Certification (pursuant to Securities Exchange Act Rule 13a-14(a)) by Principal Accounting Officer.
32.1    Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Chief Executive Officer.
32.2    Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Principal Financial Officer.
32.3    Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Principal Accounting Officer.
101    Interactive Data Files.

 

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EXXON MOBIL CORPORATION

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.

 

    EXXON MOBIL CORPORATION
Date: August 4, 2010     By:   /s/    Patrick T. Mulva
     

Name:   Patrick T. Mulva

Title:      Vice President, Controller and Principal Accounting Officer

 

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INDEX TO 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    Certification (pursuant to Securities Exchange Act Rule 13a-14(a)) by Principal Accounting Officer.
32.1    Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Chief Executive Officer.
32.2    Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Principal Financial Officer.
32.3    Section 1350 Certification (pursuant to Sarbanes-Oxley Section 906) by Principal Accounting Officer.
101    Interactive Data Files.

 

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Certification - Chief Executive Officer

EXHIBIT 31.1

Certification by Rex W. Tillerson

Pursuant to Securities Exchange Act Rule 13a-14(a)

I, Rex W. Tillerson, certify that:

 

  1. I have reviewed this quarterly report on Form 10-Q of Exxon Mobil Corporation;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2010

 

/s/ Rex W. Tillerson

Rex W. Tillerson

Chief Executive Officer

Certification - Principal Financial Officer

EXHIBIT 31.2

Certification by Donald D. Humphreys

Pursuant to Securities Exchange Act Rule 13a-14(a)

I, Donald D. Humphreys, certify that:

 

  1. I have reviewed this quarterly report on Form 10-Q of Exxon Mobil Corporation;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 4, 2010

 

/s/ Donald D. Humphreys

Donald D. Humphreys

Senior Vice