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, 2011

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, 2011
Common stock, without par value    4,862,114,833

 

 

 


Table of Contents

EXXON MOBIL CORPORATION

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011

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, 2011 and 2010

     3   

Condensed Consolidated Balance Sheet
As of June 30, 2011 and December 31, 2010

     4   

Condensed Consolidated Statement of Cash Flows
Six months ended June 30, 2011 and 2010

     5   

Condensed Consolidated Statement of Changes in Equity
Six months ended June 30, 2011 and 2010

     6   

Notes to Condensed Consolidated Financial Statements

     7   

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations      18   

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk      23   

Item 4.

   Controls and Procedures      23   
PART II. OTHER INFORMATION   

Item 1.

   Legal Proceedings      23   

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds      24   

Item 6.

   Exhibits      24   

Signature

     25   

Index to Exhibits

     26   

 

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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,
 
     2011      2010      2011      2010  

REVENUES AND OTHER INCOME

           

Sales and other operating revenue (1)

   $ 121,394       $ 89,693       $ 230,645       $ 176,730   

Income from equity affiliates

     3,720         2,244         7,547         4,781   

Other income

     372         549         1,298         1,226   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues and other income

     125,486         92,486         239,490         182,737   
  

 

 

    

 

 

    

 

 

    

 

 

 

COSTS AND OTHER DEDUCTIONS

           

Crude oil and product purchases

     69,447         48,469         129,944         95,254   

Production and manufacturing expenses

     10,322         8,376         19,842         16,811   

Selling, general and administrative expenses

     3,681         3,607         7,308         7,121   

Depreciation and depletion

     3,881         3,366         7,642         6,646   

Exploration expenses, including dry holes

     592         407         926         1,093   

Interest expense

     45         40         74         95   

Sales-based taxes (1)

     8,613         6,946         16,529         13,761   

Other taxes and duties

     10,286         8,569         19,689         17,182   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total costs and other deductions

     106,867         79,780         201,954         157,963   
  

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

     18,619         12,706         37,536         24,774   

Income taxes

     7,721         4,960         15,725         10,453   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income including noncontrolling interests

     10,898         7,746         21,811         14,321   

Net income attributable to noncontrolling interests

     218         186         481         461   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income attributable to ExxonMobil

   $ 10,680       $ 7,560       $ 21,330       $ 13,860   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per common share (dollars)

   $ 2.19       $ 1.61       $ 4.33       $ 2.94   

Earnings per common share - assuming dilution (dollars)

   $ 2.18       $ 1.60       $ 4.32       $ 2.93   

Dividends per common share (dollars)

   $ 0.47       $ 0.44       $ 0.91       $ 0.86   

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

   $ 8,613       $ 6,946       $ 16,529       $ 13,761   

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 BALANCE SHEET

(millions of dollars)

 

     June 30,
2011
    Dec. 31,
2010
 

ASSETS

    

Current assets

    

Cash and cash equivalents

   $ 8,287      $ 7,825   

Cash and cash equivalents – restricted

     246        628   

Marketable securities

     1,754        2   

Notes and accounts receivable – net

     35,331        32,284   

Inventories

    

Crude oil, products and merchandise

     15,762        9,852   

Materials and supplies

     3,286        3,124   

Other current assets

     7,639        5,269   
  

 

 

   

 

 

 

Total current assets

     72,305        58,984   

Investments, advances and long-term receivables

     35,241        35,338   

Property, plant and equipment – net

     209,807        199,548   

Other assets, including intangibles, net

     8,851        8,640   
  

 

 

   

 

 

 

Total assets

   $ 326,204      $ 302,510   
  

 

 

   

 

 

 

LIABILITIES

    

Current liabilities

    

Notes and loans payable

   $ 4,365      $ 2,787   

Accounts payable and accrued liabilities

     57,853        50,034   

Income taxes payable

     12,315        9,812   
  

 

 

   

 

 

 

Total current liabilities

     74,533        62,633   

Long-term debt

     12,123        12,227   

Postretirement benefits reserves

     20,257        19,367   

Deferred income tax liabilities

     37,193        35,150   

Other long-term obligations

     20,263        20,454   
  

 

 

   

 

 

 

Total liabilities

     164,369        149,831   
  

 

 

   

 

 

 

Commitments and contingencies (note 2)

    

EQUITY

    

Common stock, without par value:

    

Authorized: 9,000 million shares

    

Issued: 8,019 million shares

     9,352        9,371   

Earnings reinvested

     315,733        298,899   

Accumulated other comprehensive income

    

Cumulative foreign exchange translation adjustment

     6,950        5,011   

Postretirement benefits reserves adjustment

     (9,781     (9,889

Unrealized gain/(loss) on cash flow hedges

     32        55   

Common stock held in treasury:

    

3,157 million shares at June 30, 2011

     (166,735  

3,040 million shares at December 31, 2010

       (156,608
  

 

 

   

 

 

 

ExxonMobil share of equity

     155,551        146,839   

Noncontrolling interests

     6,284        5,840   
  

 

 

   

 

 

 

Total equity

     161,835        152,679   
  

 

 

   

 

 

 

Total liabilities and equity

   $ 326,204      $ 302,510   
  

 

 

   

 

 

 

The number of shares of common stock issued and outstanding at June 30, 2011 and December 31, 2010 were 4,862,114,833 and 4,978,538,898, 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,
 
     2011     2010  

CASH FLOWS FROM OPERATING ACTIVITIES

    

Net income including noncontrolling interests

   $ 21,811      $ 14,321   

Depreciation and depletion

     7,642        6,646   

Changes in operational working capital, excluding cash and debt

     1,078        2,068   

All other items – net

     (786     (754
  

 

 

   

 

 

 

Net cash provided by operating activities

     29,745        22,281   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

    

Additions to property, plant and equipment

     (14,863     (11,400

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

     2,838        852   

Additional investments and advances

     (2,949     (302

Additions to marketable securities

     (1,754     (4

Other investing activities – net

     871        609   
  

 

 

   

 

 

 

Net cash used in investing activities

     (15,857     (10,245
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

    

Additions to long-term debt

     249        33   

Reductions in long-term debt

     (43     (16

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

     1,182        (697

Cash dividends to ExxonMobil shareholders

     (4,496     (4,052

Cash dividends to noncontrolling interests

     (152     (139

Changes in noncontrolling interests

     (12     (2

Tax benefits related to stock-based awards

     171        28   

Common stock acquired

     (11,165     (4,063

Common stock sold

     452        111   
  

 

 

   

 

 

 

Net cash used in financing activities

     (13,814     (8,797
  

 

 

   

 

 

 

Effects of exchange rate changes on cash

     388        (680
  

 

 

   

 

 

 

Increase/(decrease) in cash and cash equivalents

     462        2,559   

Cash and cash equivalents at beginning of period

     7,825        10,693   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 8,287      $ 13,252   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURES

    

Income taxes paid

   $ 13,547      $ 9,487   

Cash interest paid

   $ 262      $ 294   

NON-CASH TRANSACTIONS

The Corporation acquired all the outstanding equity of XTO Energy Inc. in an all-stock transaction valued at $24,659 million in 2010.

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

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   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of December 31, 2010

   $ 9,371      $ 298,899      $ (4,823   $ (156,608   $ 146,839      $ 5,840      $ 152,679   

Amortization of stock-based awards

     383              383          383   

Tax benefits related to stock-based awards

     133              133          133   

Other

     (535           (535     (4     (539

Net income for the period

       21,330            21,330        481        21,811   

Dividends - common shares

       (4,496         (4,496     (152     (4,648

Foreign exchange translation adjustment

         1,939          1,939        173        2,112   

Postretirement benefits reserves adjustment

         (492       (492     (73     (565

Amortization of postretirement benefits reserves adjustment included in periodic benefit costs

         600          600        31        631   

Change in fair value of cash flow hedges

         10          10          10   

Realized (gain)/loss from settled cash flow hedges included in net income

         (33       (33       (33

Acquisitions at cost

           (11,165     (11,165     (12     (11,177

Dispositions

           1,038        1,038          1,038   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as of June 30, 2011

   $ 9,352      $ 315,733      $ (2,799   $ (166,735   $ 155,551      $ 6,284      $ 161,835   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     Six Months Ended June 30, 2011           Six Months Ended June 30, 2010  

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        (3,040     4,979          8,019        (3,292     4,727   

Acquisitions

       (136     (136         (61     (61

Issued for XTO merger

               416        416   

Other dispositions

       19        19            10        10   
  

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 

Balance as of June 30

     8,019        (3,157     4,862          8,019        (2,927     5,092   
  

 

 

   

 

 

   

 

 

     

 

 

   

 

 

   

 

 

 

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. 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 2010 Annual Report on Form 10-K. In the opinion of the Corporation, the information furnished herein reflects all known accruals and adjustments necessary for a fair statement of the results for the periods reported herein. All such adjustments are of a normal recurring nature. The Corporation’s exploration and production activities are accounted for under the “successful efforts” method.

 

2. 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, financial condition, or financial statements taken as a whole.

On June 30, 2011, a state district court jury in Baltimore County, Maryland returned a verdict against Exxon Mobil Corporation in Allison, et al v. Exxon Mobil Corporation, a case involving an accidental 26,000 gallon gasoline leak at a suburban Baltimore service station. The verdict included approximately $497 million in compensatory damages and approximately $1.0 billion in punitive damages in a finding that ExxonMobil fraudulently misled the plaintiff-residents about the events leading up to the leak, the leak’s discovery, and the nature and extent of any groundwater contamination. ExxonMobil believes the verdict is not justified by the evidence and that the amount of the award is grossly excessive and unconstitutional. ExxonMobil’s post trial motion to overturn the punitive damages verdict is pending before the trial court. In the event ExxonMobil is not granted relief from the verdict, it will appeal the decision following entry of final judgment. In a prior trial involving the same leak, the jury awarded plaintiff-residents compensatory damages but decided against punitive damages. That case is on appeal. The ultimate outcome of this litigation is not expected to have a material adverse effect upon the Corporation’s operations, financial condition, or financial statements taken as a whole.

Other Contingencies

 

     As of June 30, 2011  
     Equity
Company
Obligations
     Other
Third Party
Obligations
     Total  
     (millions of dollars)  

Total guarantees

   $ 6,433       $ 3,185       $ 9,618   

The Corporation and certain of its consolidated subsidiaries were contingently liable at June 30, 2011, for $9,618 million, primarily relating to guarantees for notes, loans and performance under contracts. Included in this amount were guarantees by consolidated affiliates of $6,433 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.

 

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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, 2011, 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.

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. The ICSID arbitration proceeding is continuing and a hearing on the merits is currently scheduled for the first quarter of 2012. An affiliate of ExxonMobil has also filed an arbitration under the rules of the International Chamber of Commerce (ICC) against PdVSA and a PdVSA affiliate for breach of their contractual obligations under certain Cerro Negro Project agreements. A hearing on the merits of the ICC arbitration concluded in September 2010 and the parties have filed post-hearing briefs. 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.

 

3. Comprehensive Income

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  
     (millions of dollars)  

Net income including noncontrolling interests

   $ 10,898      $ 7,746      $ 21,811      $ 14,321   

Other comprehensive income (net of income taxes)

        

Foreign exchange translation adjustment

     778        (1,847     2,112        (2,364

Postretirement benefits reserves adjustment (excluding amortization)

     (160     178        (565     390   

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

     321        312        631        640   

Change in fair value of cash flow hedges

     7        80        10        80   

Realized (gain)/loss from settled cash flow hedges included in net income

     (14     0        (33     0   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income including noncontrolling interests

     11,830        6,469        23,966        13,067   

Comprehensive income attributable to noncontrolling interests

     293        127        612        501   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income attributable to ExxonMobil

   $ 11,537      $ 6,342      $ 23,354      $ 12,566   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

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4. Earnings Per Share

 

     Three Months Ended
June 30,
     Six Months Ended
June 30,
 
     2011      2010      2011      2010  

Earnings per common share

           

Net income attributable to ExxonMobil (millions of dollars)

   $ 10,680       $ 7,560       $ 21,330       $ 13,860   

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

     4,906         4,716         4,934         4,720   

Earnings per common share (dollars)

   $ 2.19       $ 1.61       $ 4.33       $ 2.94   

Earnings per common share—assuming dilution

           

Net income attributable to ExxonMobil (millions of dollars)

   $ 10,680       $ 7,560       $ 21,330       $ 13,860   

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

     4,906         4,716         4,934         4,720   

Effect of employee stock-based awards

     6         13         7         13   
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted average number of common shares outstanding - assuming dilution

     4,912         4,729         4,941         4,733   
  

 

 

    

 

 

    

 

 

    

 

 

 

Earnings per common share - assuming dilution (dollars)

   $ 2.18       $ 1.60       $ 4.32       $ 2.93   

 

- 9 -


Table of Contents
5. Pension and Other Postretirement Benefits

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  
     (millions of dollars)  

Pension Benefits - U.S.

        

Components of net benefit cost

        

Service cost

   $ 124      $ 114      $ 249      $ 224   

Interest cost

     198        200        396        399   

Expected return on plan assets

     (193     (182     (385     (363

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

     124        133        247        264   

Net pension enhancement and curtailment/settlement cost

     101        126        202        253   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net benefit cost

   $ 354      $ 391      $ 709      $ 777   
  

 

 

   

 

 

   

 

 

   

 

 

 

Pension Benefits - Non-U.S.

        

Components of net benefit cost

        

Service cost

   $ 146      $ 113      $ 285      $ 236   

Interest cost

     323        283        639        579   

Expected return on plan assets

     (296     (242     (586     (494

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

     193        160        377        325   

Net pension enhancement and curtailment/settlement cost

     0        0        0        1   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net benefit cost

   $ 366      $ 314      $ 715      $ 647   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other Postretirement Benefits

        

Components of net benefit cost

        

Service cost

   $ 38      $ 28      $ 64      $ 52   

Interest cost

     101        108        204        211   

Expected return on plan assets

     (12     (11     (22     (20

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

     49        46        106        108   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net benefit cost

   $ 176      $ 171      $ 352      $ 351   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

-10-


Table of Contents
6. 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 notable is long-term debt. The estimated fair value of total long-term debt, including capitalized lease obligations, was $12.6 billion at June 30, 2011, and $12.8 billion at December 31, 2010, as compared to recorded book values of $12.1 billion at June 30, 2011, and $12.2 billion at December 31, 2010. The fair value hierarchy for long-term debt is primarily Level 1 (quoted prices for identical assets in active markets).

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 makes 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.

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 and recorded on the balance sheet was a net asset of $155 million and $172 million at June 30, 2011, and at December 31, 2010, respectively. This is the amount that the Corporation would have received from third parties if these derivatives had been settled in the open market. Assets and liabilities associated with derivatives are predominantly recorded either in “Other current assets” or “Accounts payable and accrued liabilities”. The June 30, 2011, net asset balance includes the Corporation’s outstanding cash flow hedge position, acquired as a result of the June 2010 XTO merger, of $114 million. As the current cash flow hedge positions settle, these programs will be discontinued. The fair value hierarchy for derivative instruments is primarily Level 2 (either market prices for similar assets in active markets or prices quoted by a broker or other market-corroborated prices).

The Corporation recognized a before-tax gain related to derivative instruments of $39 million and $59 million during the three month and six month periods ended June 30, 2011, and $24 million and $33 million during the three month and six month periods ended June 30, 2010. Income statement effects associated with derivatives are recorded either in “Sales and other operating revenue” or “Crude oil and product purchases”. Of the amount stated above for the six month period ended June 30, 2011, cash flow hedges resulted in a before-tax gain of $56 million. The ineffective portion of derivatives designated as hedges is de minimis.

The principal natural gas futures contracts and swap agreements acquired as part of the XTO merger that are in place as of June 30, 2011, will expire at the end of 2011. The associated volume of natural gas is 250 mcfd at a weighted average NYMEX price of $7.02 per thousand cubic feet. These derivative contracts qualify for cash flow hedge accounting. The Corporation will receive the cash flow related to these derivative contracts at the price indicated above. However, the amount of the income statement gain or loss realized from these contracts will be limited to the change in fair value of the derivative instruments from the acquisition date of XTO.

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.

 

-11-


Table of Contents
7. Disclosures about Segments and Related Information

 

     Three Months Ended
June 30,
    Six Months Ended
June 30,
 
     2011     2010     2011     2010  
     (millions of dollars)  

EARNINGS AFTER INCOME TAX

        

Upstream

        

United States

   $ 1,449      $ 865      $ 2,728      $ 1,956   

Non-U.S.

     7,092        4,471        14,488        9,194   

Downstream

        

United States

     734        440        1,428        380   

Non-U.S.

     622        780        1,027        877   

Chemical

        

United States

     625        685        1,294        1,224   

Non-U.S.

     696        683        1,543        1,393   

All other

     (538     (364     (1,178     (1,164
  

 

 

   

 

 

   

 

 

   

 

 

 

Corporate total

   $ 10,680      $ 7,560      $ 21,330      $ 13,860   
  

 

 

   

 

 

   

 

 

   

 

 

 

SALES AND OTHER OPERATING REVENUE (1)

        

Upstream

        

United States

   $ 3,629      $ 1,081      $ 6,915      $ 2,347   

Non-U.S.

     8,705        5,950        17,583        12,258   

Downstream

        

United States

     32,038        23,700        59,575        45,513   

Non-U.S.

     65,960        49,883        125,151        98,740   

Chemical

        

United States

     4,129        3,425        7,776        6,822   

Non-U.S.

     6,926        5,649        13,634        11,042   

All other

     7        5        11        8   
  

 

 

   

 

 

   

 

 

   

 

 

 

Corporate total

   $ 121,394      $ 89,693      $ 230,645      $ 176,730   
  

 

 

   

 

 

   

 

 

   

 

 

 

(1)    Includes sales-based taxes

        

INTERSEGMENT REVENUE

        

Upstream

        

United States

   $ 2,598      $ 1,944      $ 4,957      $ 4,088   

Non-U.S.

     12,873        9,314        25,178        18,866   

Downstream

        

United States

     5,115        3,650        9,645        7,034   

Non-U.S.

     19,632        12,254        36,133        25,211   

Chemical

        

United States

     3,502        2,614        6,318        4,922   

Non-U.S.

     2,685        2,117        5,135        4,154   

All other

     62        68        126        138   

 

-12-


Table of Contents
8. 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 ($2,525 million long-term at June 30, 2011) and the debt securities due 2011 ($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, 2011

  

Revenues and other income

              

Sales and other operating revenue, including sales-based taxes

   $ 4,811       $ —         $ 116,583       $ —         $ 121,394   

Income from equity affiliates

     9,169         (9      3,697         (9,137      3,720   

Other income

     26         —           346         —           372   

Intercompany revenue

     14,473         1         116,608         (131,082      —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues and other income

     28,479         (8      237,234         (140,219      125,486   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Costs and other deductions

              

Crude oil and product purchases

     13,577         —           184,103         (128,233      69,447   

Production and manufacturing expenses

     2,003         —           9,745         (1,426      10,322   

Selling, general and administrative expenses

     707         —           3,154         (180      3,681   

Depreciation and depletion

     425         —           3,456         —           3,881   

Exploration expenses, including dry holes

     47         —           545         —           592   

Interest expense

     87         69         1,151         (1,262      45   

Sales-based taxes

     —           —           8,613         —           8,613   

Other taxes and duties

     11         —           10,275         —           10,286   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total costs and other deductions

     16,857         69         221,042         (131,101      106,867   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

     11,622         (77      16,192         (9,118      18,619   

Income taxes

     942         (26      6,805         —           7,721   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income including noncontrolling interests

     10,680         (51      9,387         (9,118      10,898   

Net income attributable to noncontrolling interests

     —           —           218         —           218   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income attributable to ExxonMobil

   $ 10,680       $ (51    $ 9,169       $ (9,118    $ 10,680   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

-13-


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, 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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Condensed consolidated statement of income for six months ended June 30, 2011

  

Revenues and other income

              

Sales and other operating revenue, including sales-based taxes

   $ 9,058       $ —         $ 221,587       $ —         $ 230,645   

Income from equity affiliates

     20,323         (13      7,492         (20,255      7,547   

Other income

     56         —           1,242         —           1,298   

Intercompany revenue

     26,701         2         224,389         (251,092      —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total revenues and other income

     56,138         (11      454,710         (271,347      239,490   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Costs and other deductions

              

Crude oil and product purchases

     27,683         —           347,874         (245,613      129,944   

Production and manufacturing expenses

     3,880         —           18,734         (2,772      19,842   

Selling, general and administrative expenses

     1,437         —           6,223         (352      7,308   

Depreciation and depletion

     811         —           6,831         —           7,642   

Exploration expenses, including dry holes

     111         —           815         —           926   

Interest expense

     141         137         2,190         (2,394      74   

Sales-based taxes

     —           —           16,529         —           16,529   

Other taxes and duties

     20         —           19,669         —           19,689   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total costs and other deductions

     34,083         137         418,865         (251,131      201,954   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income before income taxes

     22,055         (148      35,845         (20,216      37,536   

Income taxes

     725         (51      15,051         —           15,725   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income including noncontrolling interests

     21,330         (97      20,794         (20,216      21,811   

Net income attributable to noncontrolling interests

     —           —           481         —           481   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income attributable to ExxonMobil

   $ 21,330       $ (97    $ 20,313       $ (20,216    $ 21,330   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

-14-


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, 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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

-15-


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, 2011

  

     

Cash and cash equivalents

   $ 644       $ —         $ 7,643       $ —         $ 8,287   

Cash and cash equivalents - restricted

     15         —           231         —           246   

Marketable securities

     —           —           1,754         —           1,754   

Notes and accounts receivable - net

     3,045         24         33,159         (897      35,331   

Inventories

     2,057         —           16,991         —           19,048   

Other current assets

     393         —           7,246         —           7,639   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total current assets

     6,154         24         67,024         (897      72,305   

Property, plant and equipment - net

     19,241         —           190,566         —           209,807   

Investments and other assets

     277,635         445         480,710         (714,698      44,092   

Intercompany receivables

     16,319         2,634         576,166         (595,119      —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 319,349       $ 3,103       $ 1,314,466       $ (1,310,714    $ 326,204   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Notes and loans payable

   $ 1,917       $ 13       $ 2,435       $ —         $ 4,365   

Accounts payable and accrued liabilities

     3,250         —           54,603         —           57,853   

Income taxes payable

     —           —           13,212         (897      12,315   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total current liabilities

     5,167         13         70,250         (897      74,533   

Long-term debt

     295         2,525         9,303         —           12,123   

Postretirement benefits reserves

     10,116         —           10,141         —           20,257   

Deferred income tax liabilities

     751         85         36,357         —           37,193   

Other long-term obligations

     4,675         —           15,588         —           20,263   

Intercompany payables

     142,794         382         451,943         (595,119      —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     163,798         3,005         593,582         (596,016      164,369   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Earnings reinvested

     315,733         (945      152,098         (151,153      315,733   

Other ExxonMobil equity

     (160,182      1,043         562,502         (563,545      (160,182
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

ExxonMobil share of equity

     155,551         98         714,600         (714,698      155,551   

Noncontrolling interests

     —           —           6,284         —           6,284   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total equity

     155,551         98         720,884         (714,698      161,835   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities and equity

   $ 319,349       $ 3,103       $ 1,314,466       $ (1,310,714    $ 326,204   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Condensed consolidated balance sheet as of December 31, 2010

  

Cash and cash equivalents

   $ 309       $ —         $ 7,516       $ —         $ 7,825   

Cash and cash equivalents - restricted

     371         —           257         —           628   

Marketable securities

     —           —           2         —           2   

Notes and accounts receivable - net

     2,104         —           30,346         (166      32,284   

Inventories

     1,457         —           11,519         —           12,976   

Other current assets

     239         —           5,030         —           5,269   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total current assets

     4,480         —           54,670         (166      58,984   

Property, plant and equipment - net

     18,830         —           180,718         —           199,548   

Investments and other assets

     255,005         458         462,893         (674,378      43,978   

Intercompany receivables

     18,186         2,457         528,405         (549,048      —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 296,501       $ 2,915       $ 1,226,686       $ (1,223,592    $ 302,510   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Notes and loans payable

   $ 1,042       $ 13       $ 1,732       $ —         $ 2,787   

Accounts payable and accrued liabilities

     2,987         —           47,047         —           50,034   

Income taxes payable

     —           3         9,975         (166      9,812   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total current liabilities

     4,029         16         58,754         (166      62,633   

Long-term debt

     295         2,389         9,543         —           12,227   

Postretirement benefits reserves

     9,660         —           9,707         —           19,367   

Deferred income tax liabilities

     642         107         34,401         —           35,150   

Other long-term obligations

     5,632         —           14,822         —           20,454   

Intercompany payables

     129,404         382         419,262         (549,048      —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     149,662         2,894         546,489         (549,214      149,831   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Earnings reinvested

     298,899         (848      132,357         (131,509      298,899   

Other ExxonMobil equity

     (152,060      869         542,000         (542,869      (152,060
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

ExxonMobil share of equity

     146,839         21         674,357         (674,378      146,839   

Noncontrolling interests

     —           —           5,840         —           5,840   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total equity

     146,839         21         680,197         (674,378      152,679   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities and equity

   $ 296,501       $ 2,915       $ 1,226,686       $ (1,223,592    $ 302,510   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

-16-


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, 2011

  

  

Cash provided by/(used in) operating activities

   $ 3,739       $ 2       $ 26,577       $ (573    $ 29,745   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flows from investing activities

              

Additions to property, plant and equipment

     (1,337      —           (13,526      —           (14,863

Sales of long-term assets

     163         —           2,675         —           2,838   

Net intercompany investing

     13,258         (177      (13,484      403         —     

All other investing, net

     (1,323      —           (2,509      —           (3,832
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net cash provided by/(used in) investing activities

     10,761         (177      (26,844      403         (15,857
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flows from financing activities

              

Additions to long-term debt

     —           —           249         —           249   

Reductions in long-term debt

     —           —           (43      —           (43

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

     873         —           309         —           1,182   

Cash dividends

     (4,496      —           (572      572         (4,496

Net ExxonMobil shares sold/(acquired)

     (10,713      —           —           —           (10,713

Net intercompany financing activity

     —           —           227         (227      —     

All other financing, net

     171         175         (164      (175      7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net cash provided by/(used in) financing activities

     (14,165      175         6         170         (13,814
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Effects of exchange rate changes on cash

     —           —           388         —           388   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Increase/(decrease) in cash and cash equivalents

   $ 335       $ —         $ 127       $ —         $ 462   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

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   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

-17-


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)

   2011     2010     2011     2010  
     (millions of dollars)  

Upstream

        

United States

   $ 1,449      $ 865      $ 2,728      $ 1,956   

Non-U.S.

     7,092        4,471        14,488        9,194   

Downstream

        

United States

     734        440        1,428        380   

Non-U.S.

     622        780        1,027        877   

Chemical

        

United States

     625        685        1,294        1,224   

Non-U.S.

     696        683        1,543        1,393   

Corporate and financing

     (538     (364     (1,178     (1,164
  

 

 

   

 

 

   

 

 

   

 

 

 

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

   $ 10,680      $ 7,560      $ 21,330      $ 13,860   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per common share (dollars)

   $ 2.19      $ 1.61      $ 4.33      $ 2.94   

Earnings per common share - assuming dilution (dollars)

   $ 2.18      $ 1.60      $ 4.32      $ 2.93   

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 2011 RESULTS

ExxonMobil recorded strong results during the second quarter of 2011, while investing at a record level of over $10 billion to develop new supplies of energy to meet growing world demand.

Second quarter earnings of $10.7 billion were up 41 percent from the second quarter of 2010, reflecting higher crude oil and natural gas realizations, improved Downstream results and continued strength in Chemicals. First half 2011 earnings of $21.3 billion increased 54 percent over the first half of 2010.

In the second quarter, capital and exploration expenditures were a record $10.3 billion, up 58 percent from the second quarter of 2010.

The Corporation returned over $7 billion to shareholders in the second quarter through dividends and share purchases to reduce shares outstanding.

 

 

Earnings in the first six months of 2011 of $21,330 million increased $7,470 million, or 54 percent, from 2010. Earnings per share - assuming dilution increased 47 percent to $4.32.

 

-18-


Table of Contents
     Second Quarter      First Six Months  
     2011      2010      2011      2010  
     (millions of dollars)  

Upstream earnings

           

United States

   $ 1,449       $ 865       $ 2,728       $ 1,956   

Non-U.S.

     7,092         4,471         14,488         9,194   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 8,541       $ 5,336       $ 17,216       $ 11,150   
  

 

 

    

 

 

    

 

 

    

 

 

 

Upstream earnings in the second quarter of 2011 were $8,541 million, up $3,205 million from the second quarter of 2010. Higher liquids and natural gas realizations increased earnings by $3.6 billion. Production mix and volume effects decreased earnings by $480 million.

On an oil-equivalent basis, production increased 10 percent from the second quarter of 2010. Excluding the impacts of entitlement volumes, OPEC quota effects and divestments, production was up over 12 percent.

Liquids production totaled 2,351 kbd (thousands of barrels per day), up 26 kbd from the second quarter of 2010. Excluding the impacts of entitlement volumes, OPEC quota effects and divestments, liquids production was up 4 percent, as increased production in Qatar, the U.S. and Iraq more than offset field decline.

Second quarter natural gas production was 12,267 mcfd (millions of cubic feet per day), up 2,242 mcfd from the second quarter of 2010, driven by additional U.S. unconventional gas volumes and project ramp-ups in Qatar.

Earnings from U.S. Upstream operations were $1,449 million, $584 million higher than the second quarter of 2010. Non-U.S. Upstream earnings were $7,092 million, up $2,621 million from last year.

 

 

Upstream earnings in the first six months of 2011 were $17,216 million, up $6,066 million from 2010. Higher crude oil and natural gas realizations increased earnings by $6.2 billion. Production mix and volume effects decreased earnings by $710 million, while all other items, mainly gains from asset sales, increased earnings by $600 million.

On an oil-equivalent basis, production in the first six months of 2011 was up 10 percent compared to the same period in 2010. Excluding the impacts of entitlement volumes, OPEC quota effects and divestments, production was up 12 percent.

Liquids production in the first six months of 2011 of 2,375 kbd increased 5 kbd compared with 2010. Excluding the impacts of entitlement volumes, OPEC quota effects and divestments, liquids production was up 3 percent, as higher volumes from Qatar and the U.S. more than offset field decline.

Natural gas production in the first six months of 2011 of 13,390 mcfd increased 2,538 mcfd from 2010, driven by additional U.S. unconventional gas volumes and project ramp-ups in Qatar.

Earnings in the first six months of 2011 from U.S. Upstream operations were $2,728 million, an increase of $772 million. Earnings outside the U.S. were $14,488 million, up $5,294 million.

 

     Second Quarter      First Six Months  
     2011      2010      2011      2010  
     (millions of dollars)  

Downstream earnings

           

United States

   $ 734       $ 440       $ 1,428       $ 380   

Non-U.S.

     622         780         1,027         877   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,356       $ 1,220       $ 2,455       $ 1,257   
  

 

 

    

 

 

    

 

 

    

 

 

 

Second quarter 2011 Downstream earnings of $1,356 million were up $136 million from the second quarter of 2010. Margins increased earnings by $60 million. Positive volume and mix effects increased earnings by $150 million, while all other items decreased earnings by $70 million. Petroleum product sales of 6,331 kbd were 27 kbd higher than last year’s second quarter.

Earnings from the U.S. Downstream were $734 million, up $294 million from the second quarter of 2010. Non-U.S. Downstream earnings of $622 million were $158 million lower than last year.

 

-19-


Table of Contents

 

Downstream earnings in the first six months of 2011 of $2,455 million increased $1,198 million from 2010. Margins increased earnings by $510 million. Positive volume and mix effects increased earnings by $520 million, while all other items, mainly favorable foreign exchange effects, increased earnings by $170 million. Petroleum product sales of 6,299 kbd increased 49 kbd from 2010.

U.S. Downstream earnings in the first six months of 2011 were $1,428 million, up $1,048 million from 2010. Non-U.S. Downstream earnings were $1,027 million, $150 million higher than last year.

 

     Second Quarter      First Six Months  
     2011      2010      2011      2010  
     (millions of dollars)  

Chemical earnings

           

United States

   $ 625       $ 685       $ 1,294       $ 1,224   

Non-U.S.

     696         683         1,543         1,393   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,321       $ 1,368       $ 2,837       $ 2,617   
  

 

 

    

 

 

    

 

 

    

 

 

 

Second quarter 2011 Chemical earnings of $1,321 million were $47 million lower than the second quarter of 2010. Improved margins increased earnings by $120 million, while lower sales volumes decreased earnings by $90 million. Other items, mainly unfavorable tax effects, decreased earnings by $80 million. Second quarter prime product sales of 6,181 kt (thousands of metric tons) were 315 kt lower than last year’s second quarter.

 

 

Chemical earnings in the first six months of 2011 of $2,837 million were $220 million higher than 2010. Stronger margins increased earnings by $470 million, while lower volumes decreased earnings by $60 million. Other items, including unfavorable tax effects and higher maintenance expenses, decreased earnings by $190 million. Prime product sales of 12,503 kt were down 481 kt from 2010.

 

     Second Quarter     First Six Months  
     2011     2010     2011     2010  
     (millions of dollars)  

Corporate and financing earnings

   $ (538   $ (364   $ (1,178   $ (1,164

Corporate and financing expenses were $538 million during the second quarter of 2011, up $174 million from the second quarter of 2010 due to the absence of favorable 2010 tax items.

 

 

Corporate and financing expenses were $1,178 million for the first six months of 2011, up $14 million from 2010.

 

-20-


Table of Contents

LIQUIDITY AND CAPITAL RESOURCES

 

     Second Quarter      First Six Months  
     2011      2010      2011     2010  
     (millions of dollars)  

Net cash provided by/(used in)

          

Operating activities

         $ 29,745      $ 22,281   

Investing activities

           (15,857     (10,245

Financing activities

           (13,814     (8,797

Effect of exchange rate changes

           388        (680
        

 

 

   

 

 

 

Increase/(decrease) in cash and cash equivalents

         $ 462      $ 2,559   
        

 

 

   

 

 

 

Cash and cash equivalents (at end of period)

         $ 8,287      $ 13,252   

Cash and cash equivalents – restricted (at end of period)

           246        0   
        

 

 

   

 

 

 

Total cash and cash equivalents (at end of period)

         $ 8,533      $ 13,252   
        

 

 

   

 

 

 

Cash flow from operations and asset sales

          

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

   $ 12,889       $ 9,235       $ 29,745      $ 22,281   

Sales of subsidiaries, investments and property, plant and equipment

     1,497         428         2,838        852   
  

 

 

    

 

 

    

 

 

   

 

 

 

Cash flow from operations and asset sales

   $ 14,386       $ 9,663       $ 32,583      $ 23,133   
  

 

 

    

 

 

    

 

 

   

 

 

 

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 $8.5 billion at the end of the second quarter of 2011 compared to $13.3 billion at the end of the second quarter of 2010.

Cash provided by operating activities totaled $29.7 billion for the first six months of 2011, $7.5 billion higher than 2010. The major source of funds was net income including noncontrolling interests of $21.8 billion, adjusted for the noncash provision of $7.6 billion for depreciation and depletion, both of which increased. Changes in operational working capital added $1.1 billion to cash flows in 2011. For additional details, see the Condensed Consolidated Statement of Cash Flows on page 5.

Investing activities for the first six months of 2011 used net cash of $15.9 billion compared to $10.2 billion in the prior year. Spending for additions to property, plant and equipment increased $3.5 billion to $14.9 billion. Proceeds from the sale of subsidiaries, investments, and property, plant and equipment increased $2.0 billion to $2.8 billion. Additional investments and advances increased $2.6 billion to $2.9 billion and additions to marketable securities were $1.8 billion.

Cash flow from operations and asset sales in the second quarter of 2011 of $14.4 billion, including asset sales of $1.5 billion, increased $4.7 billion from the comparable 2010 period. Cash flow from operations and asset sales in the first six months of 2011 of $32.6 billion, including asset sales of $2.8 billion, was up $9.5 billion from 2010.

Net cash used in financing activities of $13.8 billion in the first six months of 2011 was $5.0 billion higher than 2010, primarily reflecting a higher level of purchases of shares of ExxonMobil stock.

During the second quarter of 2011, Exxon Mobil Corporation purchased 67 million shares of its common stock for the treasury at a gross cost of $5.5 billion. These purchases included $5 billion to reduce the number of shares outstanding, with the balance used to offset shares issued in conjunction with the company’s benefit plans and programs. Shares outstanding decreased from 4,926 million at the end of the first quarter to 4,862 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 $7.3 billion in the second quarter of 2011 through dividends and share purchases to reduce shares outstanding.

Total debt of $16.5 billion at June 30, 2011 compared to $15.0 billion at year-end 2010. The Corporation’s debt to total capital ratio was 9.2 percent at the end of the second quarter of 2011 compared to 9.0 percent at year-end 2010.

 

-21-


Table of Contents

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.

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. Additionally, the Corporation continues to evaluate opportunities to enhance its business portfolio through acquisitions of assets or companies, and enters into such transactions from time to time. Key criteria for evaluating acquisitions include potential for future growth and attractive current valuations. Acquisitions may be made with cash, shares of the Corporation’s common stock, or both.

Litigation and other contingencies are discussed in note 2 to the unaudited condensed consolidated financial statements.

TAXES

 

     Second Quarter     First Six Months  
     2011     2010     2011     2010  
     (millions of dollars)  

Income taxes

   $ 7,721      $ 4,960      $ 15,725      $ 10,453   

Effective income tax rate

     45     43     46     46

Sales-based taxes

     8,613        6,946        16,529        13,761   

All other taxes and duties

     11,175        9,244        21,491        18,593   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 27,509      $ 21,150      $ 53,745      $ 42,807   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income, sales-based and all other taxes and duties for the second quarter of 2011 of $27,509 million were $6,359 million higher than the second quarter of 2010. Income tax expense increased $2,761 million to $7,721 million reflecting the higher level of earnings and a higher effective tax rate which was 45 percent compared to 43 percent in the prior year period. Sales-based taxes and all other taxes and duties increased in 2011 reflecting higher prices.

 

 

Income, sales-based and all other taxes and duties for the first six months of 2011 of $53,745 million were $10,938 million higher than the comparable period in 2010. Income tax expense increased $5,272 million to $15,725 million reflecting the higher level of earnings. The effective tax rate was 46 percent in both periods. Sales-based taxes and all other taxes and duties increased in 2011 reflecting higher prices.

CAPITAL AND EXPLORATION EXPENDITURES

 

     Second Quarter      First Six Months  
     2011      2010      2011      2010  
     (millions of dollars)  

Upstream (including exploration expenses)

   $ 9,436       $ 5,342       $ 16,336       $ 10,888   

Downstream

     484         584         934         1,258   

Chemical

     352         558         801         1,172   

Other

     34         35         56         78   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 10,306       $ 6,519       $ 18,127       $ 13,396   
  

 

 

    

 

 

    

 

 

    

 

 

 

In the second quarter of 2011, capital and exploration expenditures were a record $10.3 billion, up 58 percent from the second quarter of 2010.

 

 

Capital and exploration expenditures were a record $18.1 billion in the first six months of 2011, up 35 percent from the first half of 2010. ExxonMobil continues with plans to invest between $33 billion and $37 billion per year over the next several years to develop new energy supplies to meet growing world demand. Actual spending could vary depending on the progress of individual projects.

 

-22-


Table of Contents

FORWARD-LOOKING STATEMENTS

Statements relating to future plans, projections, events or conditions are forward-looking statements. Actual results, including project plans, costs, timing, and capacities; capital and exploration expenditures; and share purchase levels, could differ materially due to factors including: 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 2010 Form 10-K. We assume no duty to update these statements as of any future date.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Information about market risks for the six months ended June 30, 2011, does not differ materially from that discussed under Item 7A of the registrant’s Annual Report on Form 10-K for 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, 2011. 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

The New Mexico Environment Department (NMED) is evaluating potential enforcement for alleged violations of the New Mexico Air Quality Control Act and implementing regulations for failure to obtain appropriate permits or registrations for compressor engines and other equipment located at XTO Energy Inc. operating sites within the state. By notice dated May 4, 2011, the NMED has indicated that it intends to seek a penalty in excess of $100,000 to resolve this matter.

Refer to the relevant portions of note 2 on pages 7 and 8 of this Quarterly Report on Form 10-Q for further information on legal proceedings.

 

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

Issuer Purchase of Equity Securities for Quarter Ended June 30, 2011

 

 

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, 2011

     19,040,697       $ 85.14         19,040,697      

May, 2011

     23,061,621       $ 82.40         23,061,621      

June, 2011

     24,873,065       $ 80.02         24,873,065      
  

 

 

       

 

 

    

Total

     66,975,383       $ 82.29         66,975,383         (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 28, 2011, the Corporation stated that third quarter 2011 share purchases to reduce shares outstanding are anticipated to equal $5 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.

 

Item 6. Exhibits

 

Exhibit

 

Description

3(i)   Restated Certificate of Incorporation, as restated November 30, 1999, and as further amended effective June 20, 2001.
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, 2011

    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

3(i)   Restated Certificate of Incorporation, as restated November 30, 1999, and as further amended effective June 20, 2001.
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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Restated Certificate of Incorporation

Exhibit 3(i)

RESTATED

CERTIFICATE OF INCORPORATION

of

EXXON MOBIL CORPORATION

(As Amended Effective June 20, 2001)

Exxon Mobil Corporation, a corporation organized and existing under the laws of the State of New Jersey, restates and integrates its Certificate of Incorporation, as heretofore restated and amended, to read in full as herein set forth:

FIRST. The name of the corporation is:

EXXON MOBIL CORPORATION

SECOND. The address of the corporation’s registered office is 830 Bear Tavern Road, West Trenton, New Jersey 08628-1020. The name of the corporation’s registered agent at such address, upon whom process against the corporation may be served, is Corporation Service Company.

THIRD. The purposes for which the corporation is organized are to engage in any or all activities within the purposes for which corporations now or at any time hereafter may be organized under the New Jersey Business Corporation Act and under all amendments and supplements thereto, or any revision thereof or any statute enacted to take the place thereof, including but not limited to the following:

(1) To do all kinds of mining, manufacturing and trading business; transporting goods and merchandise by land or water in any manner; to buy, sell, lease and improve lands; to build houses, structures, vessels, cars, wharves, docks and piers; to lay and operate pipelines; to erect and operate telegraph and telephone lines and lines for conducting electricity; to enter into and carry out contracts of every kind pertaining to its business; to acquire, use, sell and grant licenses under patent rights; to purchase or otherwise acquire, hold, sell, assign and transfer shares of capital stock and bonds or other evidences of indebtedness of corporations, and to exercise all the privileges of ownership including voting upon the securities so held; to carry on its business and have offices and agencies therefor in all parts of the world; and to hold, purchase, mortgage and convey real estate and personal property within or without the State of New Jersey;

(2) To engage in any activities encompassed within this Article Third directly or through a subsidiary or subsidiaries and to take any and all acts deemed appropriate to promote the interests of such subsidiary or subsidiaries, including, without limiting the foregoing, the following: making contracts and incurring liabilities for the benefit of such subsidiary or subsidiaries; transferring or causing to be transferred to any such subsidiary or


subsidiaries assets of this corporation; guaranteeing dividends on any shares of the capital stock of any such subsidiary; guaranteeing the principal and interest or either of the bonds, debentures, notes or other evidences of indebtedness issued or obligations incurred by any such subsidiary or subsidiaries; securing said bonds, debentures, notes or other evidences of indebtedness so guaranteed by mortgage of or security interest in the property of this corporation; and contracting that said bonds, debentures, notes or other evidences of indebtedness so guaranteed, whether secured or not, may be convertible into shares of this corporation upon such terms and conditions as may be approved by the board of directors;

(3) To guarantee the bonds, debentures, notes or other evidences of indebtedness issued, or obligations incurred, by any corporation, partnership, limited partnership, joint venture or other association in which this corporation at the time such guarantee is made has a substantial interest or where such guarantee is otherwise in furtherance of the interests of this corporation; and

(4) To exercise as a purpose or purposes each power granted to corporations by the New Jersey Business Corporation Act or by any amendment or supplement thereto or by any statute enacted to take the place thereof, insofar as such powers authorize or may hereafter authorize corporations to engage in activities.

FOURTH. The aggregate number of shares which the corporation shall have authority to issue is nine billion two hundred million (9,200,000,000) shares, divided into two hundred million (200,000,000) shares of preferred stock without par value and nine billion (9,000,000,000) shares of common stock without par value.

(1) The board of directors of the corporation is authorized at any time or from time to time (i) to divide the shares of preferred stock into classes and into series within any class or classes of preferred stock; (ii) to determine for any such class or series its designation, relative rights, preferences and limitations; (iii) to determine the number of shares in any such class or series (including a determination that such class or series shall consist of a single share); (iv) to increase the number of shares of any such class or series previously determined by it and to decrease such previously determined number of shares to a number not less than that of the shares of such class or series then outstanding; (v) to change the designation or number of shares, or the relative rights, preferences and limitations of the shares, of any theretofore established class or series no shares of which have been issued; and (vi) to cause to be executed and filed without further approval of the shareholders such amendment or amendments to the Restated Certificate of Incorporation as may be required in order to accomplish any of the foregoing. In particular, but without limiting the generality of the foregoing, the board of directors is authorized to determine with respect to the shares of any class or series of preferred stock:

(a) whether the holders thereof shall be entitled to cumulative, non-cumulative or partially cumulative dividends or to no dividends and, with respect to shares entitled to dividends, the dividend rate or rates (which may be fixed or variable and may be made dependent upon facts ascertainable outside of the Restated Certificate of Incorporation) and any other terms and conditions relating to such dividends;

(b) whether the holders thereof shall be entitled to receive dividends payable on a parity with or subordinate or in preference to the dividends payable on any other class or series of shares of the corporation;

 

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(c) whether, and if so to what extent and upon what terms and conditions, the holders thereof shall be entitled to preferential rights upon the liquidation of, or upon any distribution of the assets of, the corporation;

(d) whether, and if so upon what terms and conditions, such shares shall be convertible into other securities;

(e) whether, and if so upon what terms and conditions, such shares shall be redeemable;

(f) the terms and amount of any sinking fund provided for the purchase or redemption of such shares; and

(g) the voting rights, if any, to be enjoyed by such shares and the terms and conditions for the exercise thereof.

(2) Each holder of shares of common stock shall be entitled to one vote for each share of common stock held of record by such holder on all matters on which holders of shares of common stock are entitled to vote.

(3) No holder of any shares of common or preferred stock of the corporation shall have any right as such holder (other than such right, if any, as the board of directors in its discretion may determine) to purchase, subscribe for or otherwise acquire any unissued or treasury shares, or any option rights, or securities having conversion or option rights, of the corporation now or hereafter authorized.

(4) The relative voting, dividend, liquidation and other rights, preferences and limitations of the shares of the class of preferred stock designated “Class A Preferred Stock” and the class of preferred stock designated “Class B Preferred Stock” are as set forth in this Article FOURTH and in Exhibit A to this Restated Certificate of Incorporation.

FIFTH. The following is a list of the names and residences of the original shareholders, and of the number of shares held by each:

 

H.M. Flagler    of New York City,    One share.
Paul Babcock, Jr.    of Jersey City,    One share.
James McGee    of Plainfield, New Jersey,    One share.
Thos. C. Bushnell    of Morristown, New Jersey,    One share.
John D. Rockefeller    of Cleveland, Ohio,    }
Wm. Rockefeller    of New York City,    }
J.A. Bostwick    of New York City,    }
John D. Archbold    of New York City,    }
O.H. Payne    of Cleveland, Ohio,    }
Wm. G. Warden    of Philadelphia, Pa.,    }
Benj. Brewster    of New York City,    }
Chas. Pratt    of Brooklyn, N.Y.,    }
and H.M. Flagler    of New York City.    }

 

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Trustees of Standard Oil Trust, twenty-nine thousand nine hundred and ninety-six shares (29,996), of which twenty-one thousand seven hundred and twenty-four shares (21,724) were issued for property purchased and necessary for the business of this corporation.

SIXTH. The number of directors of the corporation as of November 30, 1999 is 19 and their names and business office addresses are:

 

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Dr. Michael J. Boskin

Hoover Institution

Stanford University

Stanford, California 94305-6010

 

Mr. René Dahan

5959 Las Colinas Boulevard

Irving, Texas 75039-2298

 

Mr. William T. Esrey

Sprint Corporation

2330 Shawnee Mission Pkwy.

Westwood, Kansas 66205

 

Mr. Donald V. Fites

100 N. E. Adams Street

Peoria, IL 61629-9210

 

Mr. Jess Hay

Chase Tower

2200 Ross Avenue

Dallas, Texas 75201-2764

 

Mr. Charles A. Heimbold, Jr.

Bristol-Myers Squibb Company

345 Park Avenue

New York, NY 10154-0037

 

Mr. James R. Houghton

80 East Market Street

Corning, New York 14830

 

Mr. William R. Howell

6501 Legacy Drive

Plano, Texas 75024-3698

 

Mrs. Helene L. Kaplan

Skadden, Arps, Slate, Meagher & Flom

919 Third Avenue

New York, NY 10022-3897

 

Dr. Reatha Clark King

General Mills Foundation

One General Mills Boulevard

Minneapolis, Minnesota 55426

  

Mr. Phillip E. Lippincott

P.O. Box 2159

Park City, Utah 84060

 

Mr. Harry J. Longwell

5959 Las Colinas Boulevard

Irving, Texas 75039-2298

 

Mrs. Marilyn Carlson Nelson

Carlson Companies, Inc.

1405 Xenium Lane North

Plymouth, Minnesota 55441

 

Mr. J. Richard Munro

Time Warner Cable

290 Harbor Drive

Stamford, CT 06902

 

Mr. Lucio A. Noto

5959 Las Colinas Boulevard

Irving, TX 75039-2298

 

Mr. Lee R. Raymond

5959 Las Colinas Boulevard

Irving, Texas 75039-2298

 

Mr. Eugene A. Renna

5959 Las Colinas Boulevard

Irving, Texas 75039-2298

 

Mr. Walter V. Shipley

The Chase Manhattan Corporation

270 Park Avenue

New York, New York 10017-2070

 

Mr. Robert E. Wilhelm

5959 Las Colinas Boulevard

Irving, Texas 75039-2298

 

 

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SEVENTH. The number of directors at any time may be increased or diminished by vote of the board of directors, and in case of any such increase the board of directors shall have power to elect each such additional director to hold office until the next succeeding annual meeting of shareholders and until his successor shall have been elected and qualified.

The board of directors, by the affirmative vote of a majority of the directors in office, may remove a director or directors for cause where, in the judgment of such majority, the continuation of the director or directors in office would be harmful to the corporation and may suspend the director or directors for a reasonable period pending final determination that cause exists for such removal.

The board of directors from time to time shall determine whether and to what extent, and at what times and places, and under what conditions and regulations, the accounts and books of the corporation, or any of them, shall be open to the inspection of the shareholders; and no shareholder shall have any right of inspecting any account or book or document of the corporation, except as conferred by statute or authorized by the board of directors, or by a resolution of the shareholders.

EIGHTH. The following action may be taken by the affirmative vote of a majority of the votes cast by the holders of shares of the corporation entitled to vote thereon:

(1) The adoption by the shareholders of a proposed amendment of the certificate of incorporation of the corporation;

(2) The adoption by the shareholders of a proposed plan of merger or consolidation involving the corporation;

(3) The approval by the shareholders of a sale, lease, exchange, or other disposition of all, or substantially all, the assets of the corporation otherwise than in the usual and regular course of business as conducted by the corporation; and

(4) Dissolution.

NINTH. Except as otherwise provided by statute or by this certificate of incorporation or the by-laws of the corporation as in each case the same may be amended from time to time, all corporate powers may be exercised by the board of directors. Without limiting the foregoing, the board of directors shall have power, without shareholder action:

(1) To authorize the corporation to purchase, acquire, hold, lease, mortgage, pledge, sell and convey such property, real, personal and mixed, without as well as within the State of New Jersey, as the board of directors may from time to time determine, and in payment for any property to issue, or cause to be issued, shares of the corporation, or bonds, debentures, notes or other obligations or evidence of indebtedness thereof secured by pledge, security interest or mortgage, or unsecured; and

(2) To authorize the borrowing of money, the issuance of bonds, debentures, notes and other obligations or evidences of indebtedness of the corporation, secured or unsecured, and the inclusion of provisions as to redeemability and convertibility into shares of

 

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stock of the corporation or otherwise, and, as security for money borrowed or bonds, debentures, notes and other obligations or evidences of indebtedness issued by the corporation, the mortgaging or pledging of any property, real, personal, or mixed, then owned or thereafter acquired by the corporation.

TENTH. To the full extent from time to time permitted by law, no director or officer of the corporation shall be personally liable to the corporation or its shareholders for damages for breach of any duty owed to the corporation or its shareholders. Neither the amendment or repeal of this Article, nor the adoption of any provision of this certificate of incorporation inconsistent with this Article, shall eliminate or reduce the protection afforded by this Article to a director or officer of the corporation with respect to any matter which occurred, or any cause of action, suit or claim which but for this Article would have accrued or arisen, prior to such amendment, repeal or adoption.

 

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EXHIBIT A

PART I

Class A Preferred Stock

Section 1. Designation and Amount; Special Purpose Restricted Transfer Issue.

(A) The shares of this class of preferred stock shall be designated as “Class A Preferred Stock” (referred to herein as the “Class A Preferred Stock”) and the aggregate number of shares constituting such class which the Corporation shall have the authority to issue is 16,500,000. The shares of this class shall have a stated value of $61.50 per share (the “Stated Value”).

(B) Shares of Class A Preferred Stock shall be issued only to a trustee acting on behalf of the Plan (as defined in Section 9(F)(vii)). In the event of any transfer of shares of Class A Preferred Stock to any person other than the Corporation or the trustee of the Plan, the shares of Class A Preferred Stock so transferred, upon such transfer and without any further action by the Corporation or the holder, shall be automatically converted into shares of the Corporation’s Common Stock without par value (the “Common Stock”) pursuant to Section 5 hereof and no such transferee shall have any of the voting powers, preferences and relative, participating, optional or special rights ascribed to shares of Class A Preferred Stock hereunder but, rather, only the powers and rights pertaining to the Common Stock into which such shares of Class A Preferred Stock shall be so converted. In the event of such a conversion, the transferee of the shares of Class A Preferred Stock shall be treated for all purposes as the record holder of the shares of Common Stock into which such shares of Class A Preferred Stock have been automatically converted as of the date of such transfer; provided, however, that the pledge of Class A Preferred Stock as collateral under any credit agreement for the financing or refinancing of the initial purchase of the Class A Preferred Stock by the Plan shall not constitute a transfer for purposes of this Section 1. Certificates representing shares of Class A Preferred Stock shall be legended to reflect such restrictions on transfer. Notwithstanding the foregoing provisions of this Section 1 (B), shares of Class A Preferred Stock (i) upon allocation to the account of a participant in the Plan, shall be converted into shares of Common Stock pursuant to Section 5 hereof and the shares of Common Stock issued upon such conversion may be transferred by the holder thereof as permitted by law and (ii) shall be redeemable by the Corporation upon the terms and conditions provided by Sections 6, 7 and 8 hereof.

Section 2. Dividends and Distributions.

(A) Subject to the provisions for adjustment hereinafter set forth, the holders of shares of Class A Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds available under applicable law and the Certificate of Incorporation, cumulative cash dividends (“Preferred Dividends”) in an amount per share equal to $4.68 per annum and no more, payable (x) monthly in arrears, one-twelfth on the 20th day of each month, commencing on July 20, 1989 and ending on June 20, 1990, and thereafter (y) quarterly in arrears, one-quarter on the 20th day of each March, June, September and December in each year (each such monthly and quarterly date a “Dividend Payment Date”), to holders of record at the start of business on such Dividend Payment Date. In the event that any Dividend Payment Date shall occur on any day other than a “Business Day” (as defined in Section 9(F)(i)),

 

8


the dividend payment due on such Dividend Payment Date shall be paid on the Business Day immediately succeeding such Dividend Payment Date. Preferred Dividends shall begin to accrue on outstanding shares of Class A Preferred Stock from the date of issuance of such shares of Class A Preferred Stock. Preferred Dividends shall accrue on a daily basis whether or not the Corporation shall have earnings or surplus at the time. Preferred Dividends accrued after the date of issuance for any period less than a full monthly or quarterly period, as the case may be, between Dividend Payment Dates shall be computed on the basis of a 360-day year consisting of twelve 30-day months and such a proportional dividend shall accrue for the period from the date of issuance until the end of the dividend payment period in which such issuance occurs. Accumulated but unpaid Preferred Dividends shall accumulate as of the Dividend Payment Date on which they first become payable, but no interest shall accrue on accumulated but unpaid Preferred Dividends.

(B) So long as any Class A Preferred Stock shall be outstanding, no dividend shall be declared or paid or set apart for payment on any other class of stock ranking on a parity with the Class A Preferred Stock as to dividends (“Parity Stock”), unless there shall also be or have been declared and paid or set apart for payment on the Class A Preferred Stock dividends ratably in proportion to the respective amounts of dividends (a) accumulated and unpaid through all dividend payment periods for the Class A Preferred Stock ending on or before the dividend payment date of such Parity Stock and (b) accumulated and unpaid on such Parity Stock through the dividend payment period on such Parity Stock next preceding such dividend payment date. So long as any Class A Preferred Stock shall be outstanding, in the event that full cumulative dividends on the Class A Preferred Stock have not been declared and paid or set apart for payment for all prior dividend payment periods, the Corporation shall not declare or pay or set apart for payment any dividends or make any other distributions on, or make any payment on account of the purchase, redemption or other retirement of, any other class of stock or series thereof of the Corporation ranking as to dividends junior to the Class A Preferred Stock (“Junior Stock”) until full cumulative and unpaid dividends on the Class A Preferred Stock shall have been paid or declared and set apart for payment; provided, however, that the foregoing shall not apply to (i) any dividend payable solely in any shares of any Junior Stock, or (ii) the acquisition of shares of any Junior Stock either (x) pursuant to any employee or director incentive or benefit plan or arrangement (including any employment, severance or consulting agreement) of the Corporation or any subsidiary of the Corporation heretofore or hereafter adopted or (y) in exchange solely for shares of any other Junior Stock.

Section 3. Voting Rights. The holders of shares of Class A Preferred Stock shall have the following voting rights:

(A) The holders of Class A Preferred Stock shall be entitled to vote on all matters submitted to a vote of the holders of Common Stock of the Corporation, voting together as one class with the holders of Common Stock and any other class or series of preferred stock so voting as one class. Each share of the Class A Preferred Stock shall entitle the holder thereof to a number of votes equal to the number of shares of Common Stock into which such share of Class A Preferred Stock could be converted pursuant to the first sentence of Section 5(A) hereof on the record date for determining the shareholders entitled to vote, rounded to the nearest one-tenth of a vote; it being understood that whenever the “Conversion Ratio” (as defined in Section 5 hereof) is adjusted pursuant to Section 9 hereof, the voting rights of the Class A Preferred Stock shall also be similarly adjusted.

 

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(B) Except as otherwise required by law, holders of Class A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock or any other class or series of preferred stock) for the taking of any corporate action.

Section 4. Liquidation, Dissolution or Winding-Up.

(A) Upon any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, the holders of Class A Preferred Stock shall be entitled to receive out of assets of the Corporation which remain after satisfaction in full of all valid claims of creditors of the Corporation and which are available for payment to shareholders, and subject to the rights of the holders of any class of stock of the Corporation ranking senior to or on a parity with the Class A Preferred Stock in respect of distributions upon liquidation, dissolution or winding-up of the Corporation, before any amount shall be paid or distributed among the holders of Common Stock or any other class of stock ranking junior to the Class A Preferred Stock in respect of distributions upon liquidation, dissolution or winding-up of the Corporation, liquidating distributions in an aggregate amount of $61.50 per share of Class A Preferred Stock plus an amount equal to all accrued and unpaid dividends thereon to the date fixed for distribution, and no more. If upon any liquidation, dissolution or winding-up of the Corporation, the amounts payable with respect to the Class A Preferred Stock and any other class of stock ranking as to any such distribution on a parity with the Class A Preferred Stock are not paid in full, the holders of the Class A Preferred Stock and such other class of stock shall share ratably in any distribution of assets in proportion to the full respective preferential amounts to which they are entitled. After payment of the full amount to which they are entitled as provided by the foregoing provisions of this Section 4(A), the holders of shares of Class A Preferred Stock shall not be entitled to any further right or claim to any of the remaining assets of the Corporation.

(B) Neither the merger, consolidation or combination of the Corporation with or into any other corporation, nor the sale, lease, transfer or other exchange of all or any portion of the assets of the Corporation (or any purchase or redemption of some or all of the shares of any class or series of stock of the Corporation), shall be deemed to be a dissolution, liquidation or winding-up of the affairs of the Corporation for purposes of this Section 4, but the holders of Class A Preferred Stock shall nevertheless be entitled in the event of any such transaction to the rights provided by Section 8 hereof.

(C) Written notice of any voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, stating the payment date or dates when, and the place or places where, the amounts distributable to holders of Class A Preferred Stock and any other class or series of preferred stock in such circumstances shall be payable, and stating that, except in the case of Class A Preferred Stock represented by uncertificated shares, such payment will be made only after the surrender (or submission for notation of any partial payment) of such holder’s certificates representing shares of Class A Preferred Stock, shall be given by first class mail, postage prepaid, mailed not less than twenty (20) days prior to any payment date stated therein, to the holders of Class A Preferred Stock, at the address shown on the books of the Corporation or any transfer agent for the Class A Preferred Stock.

 

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Section 5. Conversion into Common Stock.

(A) A holder of shares of Class A Preferred Stock shall be entitled at any time, but not later than the close of business on the Redemption Date (as hereinafter defined) of such shares pursuant to Section 6, 7 or 8 hereof, to cause any or all of such shares to be converted into a number of shares of Common Stock for each share of Class A Preferred Stock which initially shall be one and which shall be adjusted as hereinafter provided (and, as so adjusted, is hereinafter sometimes referred to as the “Conversion Ratio”). In addition to the foregoing and subject to Section 5(B) hereof, a holder of shares of Class A Preferred Stock upon allocation of such shares to the account of a participant in the Plan shall be required to convert each such share of Class A Preferred Stock into the greater of (i) that number of shares of Common Stock which shall be the quotient obtained by dividing the Stated Value of each share of Class A Preferred Stock by the greater of (x) $15 divided by the Conversion Ratio or (y) the average of the high and low sales prices for a share of Common Stock on the trading day next preceding the Conversion Date (as hereinafter defined) on which one or more sales of shares of Common Stock occur, all as reported on the Composite Tape (as hereinafter defined), or (ii) that number of shares of Common Stock equal to the Conversion Ratio. The Corporation’s determination in good faith in respect of the number of shares to be issued upon any and all conversions pursuant to the preceding sentence shall be conclusive.

(B) Any holder of shares of Class A Preferred Stock desiring or required to convert such shares into shares of Common Stock shall surrender the certificate or certificates representing the shares of Class A Preferred Stock being converted, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto) in case of a request for registration in a name other than that of such holder, at the offices of the Corporation or the transfer agent for the Common Stock accompanied by written notice of conversion. Such notice of conversion shall specify (i) the number of shares of Class A Preferred Stock to be converted, and the name or names in which such holder wishes the certificate or certificates for Common Stock and for any shares of Class A Preferred Stock not to be so converted to be issued (or the name or names in which ownership of such shares is to be registered in the event that they are to be uncertificated), (ii) the address or addresses to which such holder wishes delivery to be made of such new certificates to be issued upon such conversion, and (iii) whether the conversion is being effected pursuant to the second sentence of Section 5(A) hereof.

(C) A conversion of shares of Class A Preferred Stock into shares of Common Stock pursuant to Section 5(A) shall be effective immediately before the close of business on the day of the later of (i) the surrender to the Corporation of the certificate or certificates for the shares of Class A Preferred Stock to be converted, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto) in case of a request for registration in a name other than that of such holder and (ii) the giving of the notice of conversion as provided herein (the “Conversion Date”). On and after such Conversion Date, the person or persons entitled to receive the Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock.

(D) Promptly after the Conversion Date for shares of Class A Preferred Stock to be converted, the Corporation or the transfer agent for the Common Stock shall issue and send by hand delivery (with receipt to be acknowledged) or by first class mail, postage prepaid, to the holder of such shares or to such holder’s designee, at the address designated by such holder, a

 

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certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled upon conversion. In the event that there shall have been surrendered a certificate or certificates representing shares of Class A Preferred Stock only part of which are to be converted, the Corporation or the transfer agent for the Common Stock shall issue and deliver to such holder or such holder’s designee a new certificate or certificates representing the number of shares of Class A Preferred Stock which shall not have been converted.

(E) The Corporation shall not be obligated to deliver to holders of Class A Preferred Stock any fractional share or shares of Common Stock issuable upon any conversion of such shares of Class A Preferred Stock, but in lieu thereof may make a cash payment in respect thereof in any manner permitted by law. The determination in good faith by the Corporation of the amount of any such cash payments shall be conclusive.

(F) The Corporation shall at all times reserve and keep available out of its authorized and unissued and/or treasury Common Stock solely for issuance upon the conversion of shares of Class A Preferred Stock as herein provided, free from any preemptive rights, the maximum number of shares of Common Stock as shall from time to time be issuable upon the conversion of all shares of Class A Preferred Stock then outstanding.

Section 6. Redemption at the Option of the Corporation.

(A) The Class A Preferred Stock shall be redeemable, in whole or in part, at the option of the Corporation at any time at the Stated Value, plus an amount equal to all accrued and unpaid dividends thereon to the date fixed for redemption (the close of business on such date being referred to as the “Redemption Date”); provided that such redemption may be made on or after December 20, 1990 and prior to July 20, 1995 only if (i) the Corporation shall have requested that the trustee of the Plan repay the indebtedness incurred by such trustee to purchase the shares of Class A Preferred Stock and (ii) either (x) Section 404(k) of the Code (as hereinafter defined) is repealed or amended or the Internal Revenue Service or the Treasury Department promulgates a Revenue Ruling or Regulation or a federal Court of Appeals issues a decision involving the Corporation, at any time on or after December 20, 1990 and prior to July 20, 1995 with the effect that less than 100% of the dividends payable on the shares of any capital stock of the Corporation including, without limitation, Class A Preferred Stock or Common Stock held in the Plan is deductible by the Corporation, when paid to participants in the Plan or their beneficiaries or used to repay indebtedness as described in Section 404(k) of the Code, from its gross income for purposes of determining its liability for the federal income tax imposed by Section 11 of the Code or (y) the Code is amended at any time on or after December 20, 1990 and prior to July 20, 1995 (other than to change the rate of any existing tax imposed by the Code) or the Internal Revenue Service or the Treasury Department promulgates a Revenue Ruling or Regulation or a federal Court of Appeals issues a decision involving the Corporation, with the effect that the Corporation’s liability for the alternative minimum tax imposed by Section 55 of the Code, the general federal income tax imposed by Section 11 of the Code or any other tax hereafter imposed by the Code is increased solely by reason of its claiming a deduction in respect of dividends paid on the shares of any capital stock of the Corporation including, without limitation, Class A Preferred Stock or Common Stock held in the Plan in a manner consistent with Section 404(k) of the Code. Payment of the redemption price shall be made by the Corporation in cash or shares of Common Stock or a combination thereof, as permitted by paragraph (C) of this Section 6. From and after the Redemption Date, dividends on shares of Class A Preferred Stock called for redemption will cease to accrue, such shares will no longer be

 

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deemed to be outstanding and all rights in respect of such shares of the Corporation shall cease, except the right to receive the redemption price. No interest shall accrue at the redemption price after the Redemption Date. If less than all of the outstanding shares of Class A Preferred Stock are to be redeemed, the Corporation shall either redeem a portion of the shares of each holder determined pro rata based on the number of shares held by each holder or shall select the shares to be redeemed by lot or as may be otherwise determined by the Board of Directors of the Corporation.

(B) Unless otherwise required by law, notice of redemption pursuant to paragraph (A) of this Section 6 will be sent to the holders of Class A Preferred Stock at the address shown on the books of the Corporation or any transfer agent for the Class A Preferred Stock by first class mail, postage prepaid, mailed not less than thirty (30) days nor more than sixty (60) days prior to the Redemption Date. Such Class A Preferred Stock shall continue to be entitled to the conversion rights provided in Section 5 hereof through such Redemption Date. Each such notice shall state: (i) the Redemption Date; (ii) the total number of shares of the Class A Preferred Stock to be redeemed and, if fewer than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (iii) the redemption price and the intended form of payment; (iv) the place or places where certificates for such shares are to be surrendered for payment of the redemption price; (v) that dividends on the shares to be redeemed will cease to accrue on such Redemption Date; and (vi) a summary of the conversion rights of the shares to be redeemed, the period within which conversion rights may be exercised, and the Conversion Ratio in effect at the time. Upon surrender of the certificate for any shares so called for redemption and not previously converted (or upon giving the notice of redemption in the case of uncertificated shares), but not earlier than the Redemption Date, the Corporation shall pay to the holder of such shares or its designee the redemption price set forth pursuant to this Section 6.

(C) The Corporation, at its option, may make payment of the redemption price required upon redemption of shares of Class A Preferred Stock pursuant to Section 6 or 7 hereof in cash or in shares of Common Stock or in a combination of such shares and cash, any such shares of Common Stock to be valued for such purpose at their Fair Market Value (as defined in Section 9(F)(iii)) on the Redemption Date. Any shares of Common Stock so issued or delivered (or issued or delivered pursuant to Section 7) shall be deemed to have been issued or delivered to the holder of the Class A Preferred Stock as of the Redemption Date and such holder shall be deemed to have become the record holder thereof as of the Redemption Date.

Section 7. Other Redemption Rights.

Shares of Class A Preferred Stock shall be redeemed by the Corporation for cash or, if the Corporation so elects, in shares of Common Stock, or a combination of such shares and cash (any such shares of Common Stock to be valued for such purpose in accordance with Section 6(C)), at a redemption price equal to the Stated Value plus accrued and unpaid dividends thereon to the date fixed for redemption, at the option of the holder, at any time and from time to time upon notice to the Corporation given not less than five (5) Business Days prior to the Redemption Date fixed by the holder in such notice (i) in the event that the Plan is determined by the Internal Revenue Service not to be qualified within the meaning of Sections 401(a) and 4975(e)(7) of the Internal Revenue Code of 1986, as amended from time to time (the “Code”) or (ii) in the event that the Plan is terminated in accordance with its terms.

 

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Section 8. Consolidation, Combination, Merger, Etc.

(A) In the event that the Corporation shall consummate any consolidation, combination, merger or substantially similar transaction, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged solely for or changed, reclassified or converted solely into stock of any successor or resulting corporation (including the Corporation) that constitutes “qualifying employer securities” with respect to a holder of Class A Preferred Stock within the meaning of Section 409(1) of the Code and Section 407(d)(5) of the Employee Retirement Income Security Act of 1974, as amended, or any successor provisions of law, and, if applicable, for a cash payment in lieu of fractional shares, if any, the shares of Class A Preferred Stock of such holder shall in connection therewith be exchanged for or converted into preferred stock of such successor or resulting corporation, having in respect of such corporation insofar as possible the same powers, preferences and relative, participating, optional or other special rights (including the redemption rights provided by Sections 6, 7 and 8 hereof), and the qualifications, limitations or restrictions thereon, that the Class A Preferred Stock had immediately prior to such transaction, except that after such transaction each share of the Class A Preferred Stock shall be convertible, otherwise on the terms and conditions provided by Section 5 hereof, into the number and kind of qualifying employer securities so receivable by a holder of the number of shares of Common Stock into which such shares of Class A Preferred Stock could have been converted pursuant to the first sentence of Section 5(A) hereof immediately prior to such transaction; provided, however, that if by virtue of the structure of such transaction, a holder of Common Stock is required to make an election with respect to the nature and kind of consideration to be received in such transaction, such holder of shares of Class A Preferred Stock shall be entitled to make an equivalent election as to the nature and kind of consideration it shall receive, and if such election cannot practicably be made by the holders of the Class A Preferred Stock, then the shares of Class A Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be convertible into or exchangeable for the aggregate amount of qualifying employer securities (payable in like kind and proportion) receivable by a holder of the number of shares of Common Stock into which such shares of Class A Preferred Stock could have been converted immediately prior to such transaction if such holder of Common Stock failed to exercise any rights of election to receive any kind or amount of qualifying employer securities receivable upon such transaction (provided that, if the kind or amount of qualifying employer securities receivable upon such transaction is not the same for each non-electing share, then the kind and amount of qualifying employer securities receivable upon such transaction for each such non-electing share shall be the kind and amount so receivable per share by a plurality of the non-electing shares). The conversion rights of the class of preferred stock of such successor or resulting corporation for which the Class A Preferred Stock is exchanged or into which it is converted, shall successively be subject to adjustments pursuant to Section 9 hereof after any such transactions as nearly equivalent as practicable to the adjustments provided for by such Section prior to such transaction. The Corporation shall not consummate any such merger, consolidation or similar transaction unless the successor or resulting corporation shall have agreed to recognize and honor the rights of the holders of Class A Preferred Stock set forth in this Section 8(A).

(B) In the event that the Corporation shall consummate any consolidation, combination, merger or substantially similar transaction, pursuant to which the outstanding shares of Common Stock are by operation of law exchanged for or changed, reclassified or converted into other stock or securities or cash or any other property, or any combination thereof,

 

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other than solely qualifying employer securities (as referred to in Section 8(A)) and cash payments, if applicable, in lieu of fractional shares, outstanding shares of Class A Preferred Stock shall, without any action on the part of the Corporation or any holder thereof (but subject to Section 8(C)), be deemed to have been converted pursuant to the first sentence of Section 5(A) hereof immediately prior to the consummation of such merger, consolidation, combination or similar business combination transaction into the number of shares of Common Stock into which such shares of Class A Preferred Stock could have been converted pursuant to the first sentence of Section 5(A) hereof at such time so that each share of Class A Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in like kind and proportion) receivable by a holder of the number of shares of Common Stock into which such share of Class A Preferred Stock could have been converted pursuant to the first sentence of Section 5(A) hereof immediately prior to such transaction; provided, however, that if by virtue of the structure of such transaction, a holder of Common Stock is required to make an election with respect to the nature and kind of consideration to be received in such transaction, the holder of Class A Preferred Stock shall be entitled to make an equivalent election as to the kind of consideration it shall receive, and if such election cannot practicably be made by the holders of the Class A Preferred Stock, then the shares of Class A Preferred Stock shall, by virtue of such transaction and on the same terms as apply to the holders of Common Stock, be converted into or exchanged for the aggregate amount of stock, securities, cash or other property (payable in like kind and proportion) receivable by a holder of the number of shares of Common Stock into which such shares of Class A Preferred Stock could have been converted immediately prior to such transaction if such holder of Common Stock failed to exercise any rights of election as to the kind or amount of stock, securities, cash or other property receivable upon such transaction (provided that, if the kind or amount of stock, securities, cash or other property receivable upon such transaction is not the same for each non-electing share, then the kind and amount of stock, securities, cash or other property receivable upon such transaction for each such non-electing share shall be the kind and amount so receivable per share by a plurality of the non- electing shares).

(C) In the event the Corporation shall enter into any agreement providing for any consolidation, combination, merger or substantially similar transaction described in Section 8(B), then the Corporation shall as soon as practicable thereafter (and in any event at least twenty (20) Business Days before consummation of such transaction) give notice of such agreement and the material terms thereof to each holder of Class A Preferred Stock and each holder shall have the right to elect, by written notice to the Corporation, to receive, upon consummation of such transaction (if and when such transaction is consummated), from the Corporation or the successor of the Corporation, in redemption and retirement of such Class A Preferred Stock, a cash payment equal to the amount payable in respect of shares of Class A Preferred Stock upon redemption pursuant to Section 6(A) hereof as if the date of the consummation of such transaction was the Redemption Date. No such notice of redemption shall be effective unless given to the Corporation prior to the close of business on the second Business Day prior to consummation of such transaction, unless the Corporation or the successor of the Corporation shall waive such prior notice, but any notice of redemption so given prior to such time may be withdrawn by notice of withdrawal given to the Corporation prior to the close of business on the second Business Day prior to consummation of such transaction.

 

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Section 9. Anti-dilution Adjustments.

(A) In the event the Corporation shall, at any time or from time to time while any of the shares of the Class A Preferred Stock are outstanding, (i) pay a dividend or make a distribution in respect of the Common Stock in shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock or (iii) combine the outstanding shares of Common Stock into a smaller number of shares, in each case whether by reclassification of shares, recapitalization of the Corporation (including a recapitalization effected by a merger or consolidation to which Section 8 hereof does not apply) or otherwise, the Conversion Ratio in effect immediately prior to such action shall be adjusted by multiplying such Conversion Ratio by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock outstanding immediately before such event. An adjustment made pursuant to this Section 9(A) shall be given effect, upon payment of such a dividend or distribution, as of the record date for the determination of shareholders entitled to receive such dividend or distribution (on a retroactive basis) and in the case of a subdivision or combination shall become effective immediately as of the effective date thereof.

(B) In the event the Corporation shall, at any time or from time to time while any shares of Class A Preferred Stock are outstanding, issue rights, options or warrants to all holders of its outstanding Common Stock, without any charge to such holders, entitling them (for a period expiring within forty-five (45) days after the record date mentioned below) to subscribe for or purchase shares of Common Stock at a price per share which is more than 2% lower at the record date mentioned below than the then Current Market Price per share of Common Stock, the Conversion Ratio in effect immediately prior to such action shall, subject to paragraphs (D) and (E) of this Section 9, be adjusted by multiplying such Conversion Ratio by a fraction (i) the numerator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of additional shares of Common Stock issued upon exercise thereof, and (ii) the denominator of which shall be the number of shares of Common Stock outstanding on the date of issuance of such rights, options or warrants plus the number of shares which the aggregate offering price of the total number of shares of Common Stock so issued would purchase at the then Current Market Price per share of Common Stock. Such adjustment shall be made whenever such rights, options or warrants have expired, and shall become effective retroactively immediately after the record date for the determination of shareholders entitled to receive such rights, options or warrants on the basis of the number of rights, options or warrants actually exercised.

(C) In the event the Corporation shall, at any time or from time to time while any of the shares of Class A Preferred Stock are outstanding, make an Extraordinary Distribution (as defined in Section 9(F)(ii)) in respect of the Common Stock, whether by dividend, distribution, reclassification of shares or recapitalization of the Corporation (other than a recapitalization or reclassification effected by a merger, combination or consolidation to which Section 8 hereof applies), the Conversion Ratio in effect immediately prior to such Extraordinary Distribution shall, subject to paragraphs (D) and (E) of this Section 9, be adjusted by multiplying such Conversion Ratio by a fraction, the numerator of which shall be the product of (i) the number of shares of Common Stock outstanding immediately before such Extraordinary Distribution and (ii) the Fair Market Value of a share of Common Stock on the Valuation Date (as defined in Section 9(F)(vi)) with respect to an Extraordinary Distribution, and the

 

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denominator of which shall be (i) the product of (x) the number of shares of Common Stock outstanding immediately before such Extraordinary Distribution and (y) the Fair Market Value of a share of Common Stock on the Valuation Date with respect to an Extraordinary Distribution, minus (ii) the Fair Market Value of the Extraordinary Distribution on the Valuation Date. The Corporation shall send each holder of Class A Preferred Stock notice of its intent to make any Extraordinary Distribution at the same time as, or as soon as practicable after, such intent is first communicated (including by announcement of a record date in accordance with the rules of the principal stock exchange on which the Common Stock is listed or admitted to trading) to holders of Common Stock. Such notice shall indicate the intended record date and the amount and nature of such dividend or distribution, and the Conversion Ratio in effect at such time.

(D) Notwithstanding any other provisions of this Section 9, the Corporation shall not be required to make any adjustment of the Conversion Ratio unless such adjustment would require an increase or decrease of at least one percent (1%) in the Conversion Ratio. Any lesser adjustment shall be carried forward and shall be made no later than the time of, and together with, the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least one percent (1%) in the Conversion Ratio.

(E) The Corporation shall be entitled to make such additional adjustments in the Conversion Ratio, in addition to those required by the foregoing provisions of this Section 9, as shall be necessary in order that any dividend or distribution in shares of capital stock of the Corporation, subdivision, reclassification or combination of shares of stock of the Corporation or any recapitalization of the Corporation shall not be taxable to holders of the Common Stock.

(F) For purposes of this Exhibit A, the following definitions shall apply:

(i) “Business Day” shall mean each day that is not a Saturday, Sunday or a day which state or federally chartered banking institutions in New York are required or authorized to be closed.

(ii) “Extraordinary Distribution” shall mean any dividend or other distribution (effected while any of the shares of Class A Preferred Stock are outstanding) of (x) cash to the extent that such dividend or distribution when added to the amount of all cash dividends and distributions paid during the preceding period of twelve (12) calendar months exceeds fifteen percent (15%) of the aggregate Fair Market Value of all shares of Common Stock outstanding on the declaration date for such Extraordinary Distribution and/or (y) any shares of capital stock of the Corporation (other than shares of Common Stock), other securities of the Corporation, evidences of indebtedness of the Corporation or any other person or any other property (including shares of any subsidiary of the Corporation), or any combination thereof, but excluding rights, options or warrants to which Section 9(B) refers (without regard to the subscription or purchase price provided for therein).

(iii) “Fair Market Value” shall mean, as to shares of Common Stock or any other class of publicly traded capital stock or securities of the Corporation or any other issuer which are publicly traded, the average of the Current Market Prices of such shares or securities for each day of the Adjustment Period. The “Fair Market Value” of any security which is not publicly traded or of any other property shall mean the fair

 

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value thereof as determined by an independent investment banking or appraisal firm experienced in the valuation of such securities or property, which firm shall be selected in good faith by the Board of Directors of the Corporation or a committee thereof, or, if no such investment banking or appraisal firm is in the good faith judgment of the Board of Directors or such committee available to make such determination, as determined in good faith by the Board of Directors of the Corporation or such committee.

(iv) “Current Market Price” of publicly traded shares of Common Stock or any other class of capital stock or other security of the Corporation or any other issuer shall mean (I) the last reported sales price, regular way, or, if no sale takes place on such day, the average of the reported closing bid and asked prices, regular way, in either case as reported on the Composite Tape for New York Stock Exchange transactions (the “Composite Tape”) or, (II) if such security is not listed or admitted to trading on the New York Stock Exchange (the “NYSE”), on the principal national securities exchange on which such security is listed or admitted to trading or, (III) if not listed or admitted to trading on any national securities exchange, on the National Market System of the National Association of Securities Dealers, Inc. Automated Quotation System (“NASDAQ National Market System”) or, (IV) if such security is not quoted on the NASDAQ National Market System, the average of the closing bid and asked prices on each such day in the over-the-counter market as reported by NASDAQ or, (V) if bid and asked prices for such security on each such day shall not have been reported through NASDAQ, the average of the bid and asked prices for such day as furnished by any NYSE member firm regularly making a market in such security selected for such purposes by the Board of Directors of the Corporation or a committee thereof, in each case, on each trading day during the Adjustment Period; provided, however, in determining the Current Market Price, the value (as reasonably determined by the Board of Directors of the Corporation or a committee thereof) of any “due-bill” or similar instrument which is then associated with a share of Common Stock or any other class of capital stock or other security, shall be deducted.

(v) “Adjustment Period” shall mean the period of five (5) consecutive trading days preceding, and including, the date as of which the Fair Market Value of a security is to be determined.

(vi) “Valuation Date” with respect to an Extraordinary Distribution shall mean the date that is five (5) Business Days prior to the record date for such Extraordinary Distribution.

(vii) “Plan” shall mean collectively the Corporation’s Thrift and ESOP plans and its Thrift and ESOP Trust.

(G) Whenever an adjustment to the Conversion Ratio and the related voting rights of the Class A Preferred Stock is required pursuant hereto, the Corporation shall forthwith deliver to the transfer agent(s) for the Common Stock and the Class A Preferred Stock and file with the Secretary of the Corporation, a statement signed by an officer of the Corporation stating the adjusted Conversion Ratio determined as provided herein, and the voting rights (as appropriately adjusted), of the Class A Preferred Stock. Such statement shall set forth in reasonable detail such facts as shall be necessary to show the reason and the manner of computing such adjustment including any determination of Fair Market Value involved in such

 

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computation. Promptly after each adjustment to the Conversion Ratio and the related voting rights of the Class A Preferred Stock, the Corporation shall mail a notice thereof and of the then prevailing Conversion Ratio to each holder of Class A Preferred Stock.

Section 10. Ranking; Cancellation of Shares.

(A) The Class A Preferred Stock shall rank senior to the Common Stock as to the payment of dividends and senior to the Common Stock as to the distribution of assets on liquidation, dissolution and winding-up of the Corporation, and, unless otherwise provided in the Certificate of Incorporation, as the same may be amended, the Class A Preferred Stock shall rank on a parity with all other classes or series of the Corporation’s preferred stock, as to payment of dividends and the distribution of assets on liquidation, dissolution or winding-up.

(B) Any shares of Class A Preferred Stock acquired by the Corporation by reason of the conversion or redemption of such shares as provided hereby, or otherwise so acquired, shall be cancelled as shares of Class A Preferred Stock and restored to the status of authorized but unissued shares of preferred stock of the Corporation, undesignated as to classes or series, and may thereafter be reissued as part of a new class or series of such preferred stock as permitted by law.

Section 11. Miscellaneous.

(A) All notices referred to herein shall be in writing, and all notices hereunder shall be deemed to have been given upon the earlier of receipt thereof or three (3) Business Days after the mailing thereof if sent by registered mail (unless first class mail shall be specifically permitted for such notice under the terms of this Exhibit A) with postage prepaid, addressed: (i) if to the Corporation, to its office at 5959 Las Colinas Boulevard, Irving, TX 75039 (Attention: Treasurer) or to the transfer agent (if any) for the Class A Preferred Stock or (ii) if to any holder of the Class A Preferred Stock or the Common Stock, as the case may be, to such holder at the address of such holder as listed in the stock record books of the Corporation (which may include the records of any transfer agent for the Class A Preferred Stock or the Common Stock, as the case may be) or (iii) to such other address as the Corporation shall have designated by notice similarly given.

(B) In the event that, at any time as a result of an adjustment made pursuant to Section 8 or 9, the holder of any share of the Class A Preferred Stock upon thereafter surrendering such shares for conversion shall become entitled to receive any shares or other securities of the Corporation other than shares of Common Stock, the Conversion Ratio in respect of such other shares or securities so receivable upon conversion of shares of Class A Preferred Stock shall thereafter be adjusted, and shall be subject to further adjustment from time to time, in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock contained in Sections 8 or 9, and the provisions of each of the other Sections hereof with respect to the Common Stock shall apply on like or similar terms to any such other shares or securities. Any determination in good faith by the Corporation as to any adjustment of the Conversion Ratio pursuant to this Section 11 (B) shall be conclusive.

(C) The Corporation shall pay any and all issuance, stock transfer and documentary stamp taxes that may be payable in respect of any issuance or delivery of shares of Class A Preferred Stock or Common Stock or other securities issued upon conversion of Class A

 

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Preferred Stock pursuant hereto or certificates representing such shares or securities. The Corporation shall not, however, be required to pay any such tax which may be payable in respect of any transfer involved in the issuance or delivery of shares of Common Stock or other securities in a name other then that in which the shares of Class A Preferred Stock with respect to which such shares or other securities are issued or delivered were registered, or in respect of any payment to any person with respect to any such shares or securities other than a payment to the registered holder thereof, and shall not be required to make any such issuance, delivery or payment unless and until the person otherwise entitled to such issuance, delivery or payment has paid to the Corporation the amount of any such tax for issuance, transfer or documentary stamp taxes or has established, to the satisfaction of the Corporation, that such tax has been paid or is not payable.

(D) In the event that a holder of shares of Class A Preferred Stock shall not by written notice designate the name in which (i) shares of Common Stock or (ii) any other securities in accordance with this Exhibit A, to be issued upon conversion of such shares should be registered or to whom payment upon redemption of shares of Class A Preferred Stock should be made or the address to which the certificate or certificates representing such shares, or such payment, should be sent, the Corporation shall be entitled to register such shares, and make such payment, in the name of the holder of such Class A Preferred Stock as shown on the records of the Corporation and to send the certificate or certificates representing such shares, or such payment, to the address of such holder shown on the records of the Corporation.

(E) Unless otherwise provided in the Certificate of Incorporation, as the same may be amended, all payments of (x) dividends upon the shares of any class of stock and upon any other class of stock ranking on a parity with such first class of stock with respect to such dividends shall be made pro rata, so that amounts paid per share on such first class of stock and such other class of stock shall in all cases bear to each other the same ratio that the required dividends then payable per share on the shares of such first class of stock and such other class of stock bear to each other and (y) distributions on voluntary or involuntary dissolution, liquidation or winding-up or otherwise made upon the shares of any class of stock and upon any other class of stock ranking on a parity with such first class of stock with respect to such distributions shall be made pro rata, so that amounts paid per share on such first class of stock and such other class of stock shall in all cases bear to each other the same ratio that the required distributions then payable per share on the shares of such first class of stock and such other class of stock bear to each other.

(F) The Corporation may appoint, and from time to time discharge and change, a transfer agent for the Class A Preferred Stock. Upon any such appointment or discharge of a transfer agent, the Corporation shall send notice thereof by first class mail, postage prepaid, to each holder of record of Class A Preferred Stock. So long as there is a transfer agent for a class of stock, a holder thereof shall give any notices to the Corporation required hereunder to the transfer agent at the address of the transfer agent last given by the Corporation.

(G) If the Corporation and the holder so agree, any shares of Class A Preferred Stock or any shares of Common Stock into which the shares of Class A Preferred Stock shall be converted, may be uncertificated shares, provided that the names of the holders of all uncertificated shares and the number of such shares held by each holder shall be registered at the offices of the Corporation or the transfer agent for such shares. In the event that any shares shall be uncertificated, all references herein to the surrender or issuance of stock certificates shall have no application to such uncertificated shares.

 

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PART II

Class B Preferred Stock

1. Designation and Issuance

(A) The shares of such class shall be designated CLASS B PREFERRED STOCK (hereinafter referred to as “Class B Preferred Stock”) and the number of shares constituting such class shall be 165,800. Such number of shares may be increased or decreased by resolution of the Board of Directors, but no such decrease shall reduce the number of shares of Class B Preferred Stock to a number less than that of the shares then outstanding plus the number of shares issuable upon exercise of any rights, options or warrants or upon conversion of outstanding securities issued by the Corporation. All shares of Class B Preferred Stock redeemed or purchased by the Corporation shall be retired and shall be restored to the status of authorized but unissued shares of preferred stock without designation.

(B) Shares of Class B Preferred Stock shall be issued only to a trustee or trustees acting on behalf of an employee stock ownership trust or plan or other employee benefit plan (“Plan”) of Mobil Corporation or Mobil Oil Corporation (collectively, “Mobil Oil”). In the event of any sale, transfer or other disposition (hereinafter a “transfer”) of shares of Class B Preferred Stock to any person other than (x) any trustee or trustees of the Plan and (y) any pledgee of such shares acquiring such shares as security for any loan or loans made to the Plan or to any trustee or trustees acting on behalf of the Plan, the shares of Class B Preferred Stock so transferred, upon such transfer and without any further action by the Corporation or the holder shall be automatically converted into shares of the Common Stock (as defined in Section 10) at the Conversion Price (as hereinafter defined) and on the terms otherwise provided for the conversion of shares of Class B Preferred Stock into shares of Common Stock pursuant to Section 5 hereof and no such transferee shall have any of the voting powers, preferences and relative, participating, optional or special rights ascribed to shares of Class B Preferred Stock hereunder but, rather, only the powers and rights pertaining to the Common Stock into which such shares of Class B Preferred Stock shall be so converted, provided, however, that in the event of a foreclosure or other realization upon shares of Class B Preferred Stock pledged as security for any loan or loans made to the Plan or to the trustee or the trustees acting on behalf of the Plan, the pledged shares so foreclosed or otherwise realized upon shall (subject to the holder’s right of redemption set forth in Section 7(B) hereof) be automatically converted into shares of Common Stock at the Conversion Price and on the terms otherwise provided for conversions of shares of Class B Preferred Stock into shares of Common Stock pursuant to Section 5 hereof. In the event of such a conversion, such transferee shall be treated for all purposes as the record holder of the shares of Common Stock into which the Class B Preferred Stock shall have been converted as of the date of such conversion. Certificates representing shares of Class B Preferred Stock shall be legended to reflect such restrictions on transfer. Notwithstanding the foregoing provisions of this Section 1, shares of Class B Preferred Stock (i) may be converted into shares of Common Stock as provided by Section 5 hereof and the shares of Common Stock issued upon such conversion may be transferred by the holder thereof as permitted by law and (ii) shall be redeemable by the Corporation upon the terms and conditions provided by Sections 6, 7 and 8 hereof.

 

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2. Dividends and Distributions.

(A)(1) Subject to the provisions for adjustment hereinafter set forth, the holders of shares of Class B Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors out of funds legally available therefor, cash dividends (“Regular Preferred Dividends”) in an amount per share initially equal to $300 per share per annum, subject to adjustment from time to time as hereinafter provided, and no more, except as provided in Section 2(A)(2) (such amount, as adjusted from time to time, being hereinafter referred to as the “Regular Preferred Dividend Rate”), payable semiannually in arrears, one-half on the last day of February, and one-half on the last day of August of each year (each a “Dividend Payment Date”) to holders of record at the start of business on such Dividend Payment Date. The first dividend payable on each share of Cla