-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UhYKFkSA6QYQC6yT3MI/Oewjeve+umAvw1mmi36N5nwyOLjaQhdeokUDxBRGXR52 Ns8Rn/HI11R+mxKvk6hfHQ== 0000067182-99-000002.txt : 19990513 0000067182-99-000002.hdr.sgml : 19990513 ACCESSION NUMBER: 0000067182-99-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOBIL CORP CENTRAL INDEX KEY: 0000067182 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 132850309 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07555 FILM NUMBER: 99617797 BUSINESS ADDRESS: STREET 1: 3225 GALLOWS RD CITY: FAIRFAX STATE: VA ZIP: 22037-0001 BUSINESS PHONE: 7038463000 MAIL ADDRESS: STREET 1: 3225 GALLOWS ROAD CITY: FAIRFAX STATE: VA ZIP: 22037-0001 10-Q 1 FIRST QUARTER MOBIL CORPORATION FORM 10Q - ----------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549-1004 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 Commission file number 1-7555 MOBIL CORPORATION (Exact name of registrant as specified in its charter) Delaware 13-2850309 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3225 Gallows Road, Fairfax, VA. 22037-0001 (Address of principal executive offices) (Zip Code) (703) 846-3000 Registrant's telephone number 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 . The number of shares outstanding of the registrant's common stock, all of which comprise a single class with a $1.00 par value, as of April 30, 1999, the latest practicable date, was 782,527,660. - ----------------------------------------------------------------- MOBIL CORPORATION Form 10-Q Quarterly Report March 31, 1999 TABLE OF CONTENTS ---------------------------------------------------------------- PART I - FINANCIAL INFORMATION Page Item 1. Condensed Consolidated Financial Statements Consolidated Statement of Income for the Three Months Ended March 31, 1998 and 1999 ... 1 Consolidated Balance Sheet at December 31, 1998 and March 31, 1999 ...................... 2 Consolidated Statement of Cash Flows for the Three Months Ended March 31, 1998 and 1999 ... 3 Notes to Condensed Consolidated Financial Statements ................................... 5 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition .......... 7 Item 3. Quantitative and Qualitative Disclosures About Market Risk ............................. 16 PART II - OTHER INFORMATION Item 1. Legal Proceedings ............................... 16 Item 2. Changes in Securities ........................... 17 Item 3. Defaults Upon Senior Securities ................. 17 Item 4. Submission of Matters to a Vote of Security Holders ....................................... 18 Item 5. Other Information ............................... 18 Item 6. Exhibits and Reports on Form 8-K ................ 18 SIGNATURE ................................................. 19 EXHIBIT INDEX ............................................. 19 Exhibit 12. Computation of Ratio of Earnings to Fixed Charges .................................. 20 ---------------------------------------------------------------------------- PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements MOBIL CORPORATION CONSOLIDATED STATEMENT OF INCOME (In millions, except per-share amounts) For the Three Months Ended March 31, ----------------- 1998 1999 ------- ------- Revenues Sales and services (a) ..................................... $13,388 $11,991 Income from equity affiliates .............................. 126 83 Income from asset sales, interest and other ................ 116 109 ------- ------- Total Revenues ........................................... 13,630 12,183 ------- ------- Costs and Expenses Crude oil, products and operating supplies and expenses .................................... 8,403 7,410 Exploration expenses ....................................... 74 91 Selling and general expenses ............................... 934 799 Depreciation, depletion and amortization ................... 599 597 Interest and debt discount expense ......................... 93 82 Taxes other than income taxes (a) .......................... 2,293 2,493 Income taxes ............................................... 529 247 ------- ------- Total Costs and Expenses ................................. 12,925 11,719 ------- ------- Net Income ................................................... $ 705 $ 464 ======= ======= Net Income Per Common Share .................................. $ 0.88 $ 0.58 ======= ======= Net Income Per Common Share -- assuming dilution ............. $ 0.86 $ 0.58 ======= ======= Dividends Per Common Share ................................... $ 0.57 $ 0.57 ======= ======= - ---------------- (a) Includes excise and state gasoline taxes of ............................................... $ 1,351 $ 1,432 The accompanying notes are an integral part of these condensed consolidated financial statements. MOBIL - 1 - MOBIL CORPORATION CONSOLIDATED BALANCE SHEET (In millions) Dec. 31, Mar. 31, ASSETS 1998 1999 Current Assets Cash and cash equivalents ................................ $ 714 $ 757 Accounts and notes receivable ............................ 5,518 5,522 Inventories .............................................. 1,911 1,952 Prepaid expenses and other current assets ................ 520 565 Deferred income taxes .................................... 68 71 ------- ------- Total Current Assets ................................... 8,731 8,867 Investments and Long-Term Receivables ...................... 8,490 8,331 Properties, Plants and Equipment, at cost................... 48,681 48,930 Less: Accumulated Depreciation, Depletion and Amortization . 23,954 24,147 ------- ------- Net Properties, Plants and Equipment ....................... 24,727 24,783 Deferred Charges and Other Assets .......................... 806 815 ------- ------- Total Assets ........................................... $42,754 $42,796 ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term debt .......................................... $ 3,982 $ 4,811 Accounts payable ......................................... 3,707 3,564 Accrued liabilities ...................................... 2,943 2,775 Income, excise, state gasoline and other taxes payable ... 1,986 2,063 Deferred income taxes .................................... 328 291 ------- ------- Total Current Liabilities .............................. 12,946 13,504 Long-Term Debt ............................................. 3,719 3,741 Reserves for Employee Benefits ............................. 2,060 1,998 Accrued Restoration, Removal and Environmental Costs ....... 1,011 1,002 Deferred Credits and Other Noncurrent Obligations .......... 1,021 798 Deferred Income Taxes ...................................... 3,254 3,106 Minority Interest in Subsidiary Companies .................. 373 372 ------- ------- Total Liabilities ...................................... 24,384 24,521 ------- ------- Shareholders' Equity Preferred stock (ESOP-related) -- shares issued and outstanding: 164,986 at December 31, 1998 and 162,725 at March 31, 1999 .............................. 641 633 Unearned employee compensation and benefit plan trust ............................................. (668) (658) Common stock -- $1.00 par value; shares authorized: 1,200,000,000; shares issued: 897,947,485 at December 31, 1998 and 899,327,950 at March 31, 1999 ................. 898 899 Capital surplus .......................................... 1,649 1,687 Earnings retained in the business ........................ 20,534 20,541 Accumulated other nonowners' equity ...................... (1,058) (1,201) Common stock held in treasury, at cost -- shares: 117,414,000 at December 31, 1998 and 117,414,000 at March 31, 1999 ......................................... (3,626) (3,626) ------- ------- Total Shareholders' Equity ............................. 18,370 18,275 ------- ------- Total Liabilities and Shareholders' Equity ................. $42,754 $42,796 ======= ======= The accompanying notes are an integral part of these condensed consolidated financial statements. MOBIL - 2 - MOBIL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS (In millions) For the Three Months Ended March 31, ------------------- 1998 1999 ------- ------- Cash Flows from Operating Activities Net Income ......................................... $ 705 $ 464 Adjustments to reconcile to net cash from operating activities: Depreciation, depletion and amortization ....... 599 597 Deferred income taxes .......................... (42) (134) Earnings less than dividends from equity affiliates ............................ 13 16 Exploration expenses (includes noncash charges: 1998-$6; 1999-$14) ................. 74 91 Gain on sales of properties, plants and equipment and other assets ................... (33) (11) Increase in working capital items............... (779) (331) Other, net ..................................... 19 (14) ------- ------- Net Cash from Operating Activities ................... 556 678 ------- ------- Cash Flows from Investing Activities Capital and exploration expenditures ............... (756) (885) Proceeds from sales of properties, plants and equipment and other assets ....................... 98 26 Payments attributable to investments and long-term receivables ............................ (147) (264) ------- ------- Net Cash Used in Investing Activities ................ (805) (1,123) ------- ------- Cash Flows from Financing Activities Cash dividends ..................................... (458) (457) Proceeds from borrowings having original terms greater than three months .................. 52 482 Repayments of borrowings having original terms greater than three months .................. (441) (760) Increase in other borrowings ....................... 1,172 1,177 Increase (decrease) in minority interest ........... 3 (1) Proceeds from issuance of common stock ............. 38 39 Purchase of common stock for treasury .............. (206) - ------- ------- Net Cash Provided by Financing Activities ............ 160 480 ------- ------- Effect of Exchange Rate Changes on Cash and Cash Equivalents ................................... 7 8 ------- ------- Net (Decrease) Increase in Cash and Cash Equivalents . (82) 43 Cash and Cash Equivalents - Beginning of Period ...... 820 714 ------- ------- Cash and Cash Equivalents - End of Period ............ $ 738 $ 757 ======= ======= The accompanying notes are an integral part of these condensed consolidated financial statements. MOBIL - 3 - MOBIL CORPORATION SEGMENT INFORMATION (In millions) For the Three Months Ended March 31, ------------------- 1998 (1) 1999 ------- ------- Revenues by Segment Exploration & Producing -- Third Party ............... $ 1,603 $ 1,338 -- Intersegment............... 745 608 Marketing & Refining -- Third Party ............... 11,288 10,253 -- Intersegment............... 247 86 Chemical -- Third Party ............... 702 546 -- Intersegment............... 70 65 Corporate and Other .................................... 37 46 Intersegment Elimination ............................... (1,062) ( 759) ------- ------- Total Revenues ......................................... $13,630 $12,183 ======= ======= (1) Prior year data reclassified to conform with current year presentation. Investment Spending Capital and Exploration Expenditures Exploration & Producing - United States .......... $ 98 $ 79 - International .......... 501 668 Marketing & Refining - United States .......... 60 40 - International .......... 43 35 Chemical ............................................... 26 42 Corporate and Other .................................... 28 21 ------ ------ Total Capital and Exploration Expenditures ............. 756 885 ------ ------ Cash Investments in Equity Companies ................... 97 344 ------ ------ Total Investment Spending .............................. $ 853 $ 1,229 ====== ======= Memo: Exploration expenses charged to income, included above: - United States .......... $ 17 $ 23 - International .......... 57 68 ------ ------ $ 74 $ 91 ====== ====== Note: Results of operations by segment are presented on page 7. MOBIL - 4 - NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Financial Statements The condensed consolidated financial statements of Mobil Corporation (Mobil) included herein are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Although certain information normally included in financial statements prepared in accordance with generally accepted accounting principles has been condensed or omitted, Mobil believes that the disclosures are adequate to make the information presented not misleading. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements, the notes thereto and the financial statement schedule included or incorporated by reference in Mobil's Annual Report on Form 10-K for its fiscal year ended December 31, 1998. The condensed consolidated financial statements included herein reflect all normal recurring adjustments that, in the opinion of management, are necessary for a fair presentation. The results for interim periods are not necessarily indicative of trends or of results to be expected for a full year. 2. Changes in Nonowners' Equity The components of changes in nonowners' equity, net of related tax for the three months ended March 31, 1998 and 1999, respectively, are as follows: (In millions) For the Three Months Ended March 31, ------------------- 1998 1999 ------- ------- Net Income .................................... $ 705 $ 464 Foreign currency translation adjustments ...... 22 143 ----- ----- Changes in nonowners' equity .................. $ 727 $ 607 ===== ===== MOBIL - 5 - 3. Supplementary Cash Flow Data The table below details the components of the line "Increase in working capital items" which is shown in the Consolidated Statement of Cash Flows on page 3. The impact of changes in foreign currency translation rates has been removed from these amounts. Therefore, these amounts do not agree with the differences that could be derived from the Consolidated Balance Sheet amounts shown on page 2. (In millions) For the Three Months Ended March 31, -------------------- 1998 1999 ----- ----- Changes in Working Capital Items (Increases)/decreases Accounts and notes receivable ................. $ 421 $(118) Inventories ................................... (104) ( 58) Prepaid expenses and other current assets ..... (202) ( 50) Accounts payable .............................. (584) ( 54) Accrued liabilities ........................... (200) (144) Income, excise, state gasoline and other taxes payable ......................... (110) 93 ----- ----- Increase in working capital items ............. $(779) $(331) ===== ===== 4. Net Income per Share (In millions, except for per-share amounts; number of shares in thousands) For the Three Months Ended March 31 -------------------- 1998 1999 ----- ----- Net Income .............................................. $ 705 $ 464 Less: dividends on preferred stock ...................... 13 12 ------- ------- Adjusted net income applicable to common shares ......... $ 692 $ 452 ======= ======= Weighted average number of basic common shares outstanding ........................................... 782,117 773,733 ======= ======= Net income per common share ............................. $ 0.88 $ 0.58 ======= ======= Net Income .............................................. $ 705 $ 464 Less: additional contribution to ESOP ................... 1 1 Less: Stock Appreciation Rights compensation (expense) income ................................ 4 - ------- ------- Adjusted net income applicable to common shares ......... $ 700 $ 463 ======= ======= Weighted average number of basic common shares outstanding ........................................... 782,117 773,733 Issuable on assumed exercise of stock options ........... 11,373 13,143 Assumed conversion of preferred stock ................... 17,000 16,352 ------- ------- Total .............................................. 810,490 803,228 ======= ======= Net income per common share -- assuming dilution ........ $ 0.86 $ 0.58 ======= ======= MOBIL - 6 - Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition. RESULTS OF OPERATIONS REPORTED EARNINGS First Quarter Incr./ (In millions) ------------- 1998 1999 (Decr.) ----- ----- ----- Exploration & Producing -- United States .............................. $ 80 $ 23 $( 57) -- International .............................. 310 208 (102) ----- ----- ----- Total Exploration & Producing ..................... 390 231 (159) ----- ----- ----- Marketing & Refining -- United States .............................. 86 90 4 -- International .............................. 229 201 (28) ----- ----- ----- Total Marketing & Refining ........................ 315 291 ( 24) ----- ----- ----- Chemical .......................................... 67 6 (61) Corporate and Financing (a)........................ (67) (64) 3 ----- ----- ----- Net Income ........................................ $ 705 $ 464 $(241) ===== ===== ===== - -------------------------------------------------------------------------------- OPERATING EARNINGS First Quarter Incr./ (Adjusted for Special Items) -------------- (In millions) 1998 1999 (Decr.) ------ ------ ------ Exploration & Producing -- United States .............................. $ 80 $ 23 $( 57) -- International .............................. 310 208 (102) ----- ----- ----- Total Exploration & Producing ..................... 390 231 (159) ----- ----- ----- Marketing & Refining -- United States .............................. 86 90 4 -- International .............................. 239 201 (38) ----- ----- ----- Total Marketing & Refining ........................ 325 291 ( 34) ----- ----- ----- Chemical .......................................... 67 6 (61) Corporate and Financing (a)........................ (67) (57) 10 ----- ----- ----- Operating Income Before Special Items.............. 715 471 (244) Special Items ..................................... (10) ( 7) 3 ----- ----- ----- Net Income ........................................ $ 705 $ 464 $(241) ===== ===== ===== (a) Corporate and Financing includes corporate administrative expenses, net financing expense and other items. SPECIAL ITEMS First Quarter (In millions) ------------- 1998 1999 ----- ----- Restructuring ................................... $ (10) $ - Exxon Mobil merger-related costs ................ - (7) ------ ------ Total Special Items ........................... $ (10) $ ( 7) ====== ====== MOBIL - 7 - CONSOLIDATED RESULTS OVERVIEW FIRST QUARTER 1999 COMPARED WITH FIRST QUARTER 1998 Consolidated first quarter 1999 net income was $464 million, or $0.58 per share, down from $705 million, or $0.86 per share, last year. This year's first quarter net income included a $7 million charge for Exxon Mobil merger-related costs, while last year's first quarter net income included a charge of $10 million for implementation costs associated with the BP European alliance. Excluding special items, operating earnings of $471 million decreased $244, or 34%, from last year. In the first quarter, all of Mobil's businesses experienced a significant deterioration in industry fundamentals versus the same quarter last year. However, improved performance due to self-help programs (i.e., volume growth, performance improvements, and expense control) contributed about $125 million, helping to offset the deterioration in industry fundamentals. In the Upstream, earnings were impacted by lower worldwide crude oil and natural gas prices. Crude oil prices were down about $2.70 per barrel, while natural gas declined approximately $0.45 per thousand cubic feet. Production volumes were down about 4% versus the same period in 1998 as higher volumes from Eastern Canada (Hibernia), Equatorial Guinea, Kazakhstan (Tengiz) and Nigeria (Oso NGL project) were more than offset by the impact of anticipated contractual reductions in Indonesia, natural field declines in mature areas such as the U.S. and the North Sea, and operational problems in Australia and Canada. Downstream earnings were somewhat lower as higher sales volumes and favorable refinery and expense performance offset most of the impact from weaker margins in all enclaves. In the U.S., product trade sales were up over 4%, while the international area improved by about 2%. In Chemical, earnings were down significantly, reflecting lower polyethylene and paraxylene margins. Earnings were also hurt by downtime associated with the tie-in of the Beaumont olefins expansion/upgrading project. When the project achieves full design rate, ethylene capacity at Beaumont will be increased by about 45% to over 1.8 billion pounds per year. Worldwide revenues of $12,183 million were $1,447 million lower than last year. This decrease was primarily due to the effects of significantly lower worldwide average crude oil, natural gas and petroleum product prices. Petrochemical prices were also lower. Income from equity affiliates decreased primarily due to lower crude oil, natural gas and petrochemical prices. Crude oil, products and operating supplies and expenses decreased $993 million to $7,410 million. The decrease was primarily due to significantly lower worldwide average crude oil, natural gas and petroleum product prices. Selling and general expenses decreased $135 million to $799 million primarily due to the benefits of self-help initiatives. Taxes other than income taxes increased $200 million to $2,493 million, due to the impact of increased sales volume activity in the United States and Japan. Income tax expense decreased $282 million principally due to this quarter's lower level of pre-tax income and a shift in earnings from upstream to downstream operations that have a lower effective tax rate. Additionally, as crude prices decline, taxes associated with Mobil's fixed margin production decrease as a percent of pre-tax income, which also contributes to a lower tax rate. MOBIL - 8 - CONSOLIDATED RESULTS OVERVIEW - continued Exploration and Producing Exploration & Producing operating earnings of $231 million were $159 million lower than last year's $390 million. In the United States, earnings of $23 million decreased $57 million due primarily to the impact of lower crude oil and natural gas prices and lower volumes from natural field declines which more than offset lower operating expenses. International earnings of $208 million were $102 million lower, due mainly to the significant decline in crude oil and natural gas prices. Production was down as higher volumes from Eastern Canada (Hibernia), Equatorial Guinea, Kazakhstan (Tengiz) and Nigeria (Oso NGL project) were more than offset by the impact of anticipated contractual reductions in Indonesia, natural field declines in mature areas such as the North Sea, and operational problems in Australia and Canada. Exploration and Producing Selected Operating Data First Three Months Incr./ (Decr.) ------ 1998 1999 Vol.% ----- ----- ------ Net Crude Oil and NGL Production (TBD) - United States ..................... 240 243 3 1 - International ..................... 681 714 33 5 ----- ----- --- Total ........................... 921 957 36 4 ===== ===== === Net Natural Gas Production (MMCFD) - United States ..................... 1,123 902 (221)(20) - International ..................... 3,576 3,190 (386)(11) ----- ----- --- Total ........................... 4,699 4,092 (607)(13) ===== ===== === TOTAL NET PRODUCTION (TBDOE) ....................... 1,772 1,698 ( 74)( 4) ===== ===== === MOBIL - 9 - CONSOLIDATED RESULTS OVERVIEW - concluded Marketing and Refining Marketing & Refining operating earnings of $291 million were $34 million lower than in 1998. Operating earnings in the United States were $90 million, $4 million above last year. The unfavorable impacts of lower industry margins and the narrowing of the light/heavy crude spread were more than offset by substantially lower scheduled refinery downtime, strong sales performance and lower operating expenses. International earnings of $201 million were $38 million lower than in 1998. In Europe, despite additional benefits from the BP alliance, earnings were down as a result of weaker margins for both refining and marketing. Earnings were flat in Asia-Pacific and other International M&R operations, as the impact of lower integrated margins were offset by our initiatives programs and increased sales volumes, including record volumes in Japan and significantly higher levels in Africa. Marketing and Refining Selected Operating Data First Three Months Incr./ (Decr.) 1998 1999 Vol. % ----- ----- --- -- Petroleum Product Sales (TBD) (a) - United States ......................... 1,360 1,468 108 8 - International (b) ..................... 1,968 2,019 51 3 ----- ----- --- Total ............................. 3,328 3,487 159 5 ===== ===== === Refinery Runs (TBD) - United States (c)...................... 900 781 (119)(13) - International (b) ..................... 1,302 1,318 16 1 ----- ----- ---- Total ............................. 2,202 2,099 (103)( 5) ===== ===== ==== (a) Includes supply/other sales. (b) Includes Mobil's share for the European alliance with BP. (c) Decrease in refinery runs due to the sale of the 155 TBD Paulsboro refinery in September, 1998. Chemical Chemical earnings of $6 million were $61 million lower than last year as a result of lower polyethylene and paraxylene margins as well as downtime associated with the tie-in of the Beaumont olefins expansion/upgrading project. Corporate and Financing Corporate and Financing expenses of $57 million were $10 million lower than in the first quarter of 1998 primarily due to the timing of expenses and other one-time items. MOBIL - 10 - DISCUSSION OF FINANCIAL CONDITION At March 31, 1999, total current assets of $8,867 million were $136 million higher than at year-end 1998. Cash and cash equivalents increased $43 million. Inventories increased, up $41 million, mainly due to a volume increase resulting from seasonal builds in light products. A $45 million increase in prepaid expenses resulted from an annual pattern of prepayments made in the first quarter. Total debt of Mobil and its subsidiaries was $8,552 million at March 31, 1999, up $851 million from year-end 1998. The debt-to-capitalization ratio was 31% at March 31, 1999, up from 29% at year-end 1998. Deferred credits and other noncurrent obligations decreased $223 million during the first quarter, 1999 primarily due to payments related to Mobil's investment in Kazakhstan. Shareholders' equity fell $95 million during the first three months of 1999. Earnings retained in the business was essentially the same as income offset common and preferred stock dividends. Accumulated other nonowners' equity decreased $143 million due to the effects of the strengthening U.S. dollar relative to local currencies in certain countries in which Mobil has significant operations. Return on average shareholders' equity, based on net income, was 7.7% for the twelve month period ended March 31, 1999, compared with 9.0% for the calendar year 1998. Return on average capital employed, based on net income, for the twelve month period ended March 31, 1999 was 6.6%, compared with 7.7% for the calendar year 1998. Whenever external financing is needed, Mobil and its subsidiary companies have ready access to multiple capital markets, including significant bank credit lines. At March 31, 1999, Mobil had effective shelf registration statements on file with the SEC permitting the offer and sale of $1,815 million of debt securities. Shelf registrations allowing the issuance of U.S. $1.7 billion of Euro-Medium-Term Notes and bonds having a principal amount of 30 billion Japanese yen were also in place. Restructuring In 1998, Mobil implemented new restructuring programs in Australia and New Zealand, and in Latin America, to integrate fuels and lubes operations. Mobil recorded a provision of $50 million ($41 million after tax). The balance in the reserve at March 31, 1999 was $26 million. The reduction was mainly due to cash outlays. In 1997, Mobil and BP announced that the alliance would implement a major restructuring of its lubricant oil refining business. Mobil recorded reserves in 1997 of $86 million ($82 million after tax). The amount remaining in the reserve at March 31, 1999 was $32 million. The reduction was due to cash outlays. MOBIL - 11 - Restructuring--concluded Also during 1997, Mobil initiated two major cost savings initiatives in Asia-Pacific--one in Japan in response to the deregulated business environment and the other in Australia. At that time, Mobil recorded reserves of $172 million ($107 million after tax). The amount remaining in the reserves at March 31, 1999 was $26 million. The reduction was due to cash outlays. Year 2000 Project Mobil is engaged in a company-wide effort (Project) to address the issues that are likely to arise if computer programs and embedded computer chips are unable to properly recognize dates in and after the year 2000. The Project is focused on three main areas: the information technology (IT) systems in Mobil's computers and computer software, including those that are linked to the systems of third parties; the non-IT systems embedded in equipment that controls or monitors Mobil's operating assets; and Mobil's business relationships with third parties (referred to herein as external agents). The thrust of the Project is to address those of Mobil's IT systems, non-IT systems and relationships with external agents which Mobil judges to be materially important to Mobil. These systems or relationships, referred to herein as materially important, are those whose failure for year 2000 reasons would likely: put the safety of individuals at risk; lead to damage to property or the environment; put in jeopardy the value of Mobil's name or intellectual property; or trigger a significant adverse consequence to Mobil's financial performance or condition. Project work dealing with IT systems and Project work dealing with non-IT systems has the following three phases: (1) inventory and assessment: inventorying all of Mobil's systems (including those that are linked to third parties), identifying those of Mobil's systems that are not year 2000 compliant, and making judgments as to which of Mobil's systems (both compliant and non-compliant) would likely be materially important; (2) strategy and planning: developing strategies and plans for (a) remediating, upgrading or replacing all non-compliant systems (except those whose failure would, in Mobil's judgment, have an insignificant impact on Mobil's operations) and (b) testing all systems judged to be materially important, and estimating the costs of implementing these strategies and executing these plans; and (3) execution: implementing the strategies and executing the plans. Project work dealing with relationships with external agents has the following three phases: (1) inventory and assessment: inventorying Mobil's relationships with external agents and making judgments as to which of those relationships would likely be materially important; (2) communication and evaluation: sending letters and questionnaires to those external agents whose relationships are judged to be materially important to elicit information about the plans and actions of those external agents to achieve timely year 2000 readiness, and evaluating the information so obtained; and (3) follow up: contacting external agents with whom Mobil has already communicated to obtain further assurance that such external agents will achieve timely year 2000 readiness. Additional Project work, discussed below, involves identifying scenarios involving failures for year 2000 reasons of materially important IT and non-IT systems or materially important relationships with external agents and developing contingency plans for mitigating the impact of such failures. MOBIL - 12 - Year 2000 Project--continued The inventory and assessment and the strategy and planning phases of the work dealing with IT systems are complete. The execution phase of this work involves both application and infrastructure repair and systems upgrades and replacements. Application and infrastructure repair involves: the remediation and testing of non-compliant code; the remediation, replacement and testing of computing infrastructure and telecommunications devices; and the upgrading and testing of end user applications. The application and infrastructure repair work, which is being performed by both Mobil personnel and third parties specializing in resolving year 2000 issues, is expected to be completed by June 30, 1999, and Mobil estimates that approximately 95% of the projects comprising this work had been completed as of March 31, 1999. The systems upgrade and replacement work consists of the implementation of a major integrated enterprise software system in North America (which would have been implemented regardless of year 2000 considerations) and numerous other systems. All of this work is expected to be essentially completed by June 30, 1999. Based on calculations that reflect successful attainment of milestones, Mobil estimates that approximately 95% of the major integrated enterprise software system implementation project had been completed as of March 31, 1999. Mobil estimates that approximately 77% of the projects comprising the work to upgrade and replace other systems had been completed as of March 31, 1999. The inventory and assessment and the strategy and planning phases of the work dealing with non-IT systems are essentially complete. The execution phase of this work, much of which is being performed by the vendors of the products involved, is expected to be completed by June 30, 1999, and Mobil estimates that approximately 68% of the projects comprising this work had been completed as of March 31, 1999. This brought the percentage of year 2000 compliant non-IT systems in Mobil's inventory of materially important non-IT systems to approximately 92% as of that date. The inventory and assessment phase of the work dealing with relationships with external agents is complete. The communication and evaluation phase of this work is also complete, with all external agents whose relationships Mobil judges to be materially important having been contacted as of March 31, 1999. As of the same date, approximately 77% of the external agents contacted had responded. The follow-up phase of this work (which will include contacting again those external agents from whom responses have not yet been received and developing contingency plans relating to those external agents whose responses raise issues or who do not respond) will be undertaken on a continuous, ongoing basis through the end of 1999 by the teams developing contingency plans in the business units, discussed below under "Risks and Contingency Plans." Cost The costs associated with the Project (all on a pre-tax basis) are being spent over a three-year period. There are two categories of these costs: (1) costs that are being incurred solely to achieve year 2000 compliance and (2) costs that are being incurred to install new systems that improve business functionality and in many cases concurrently provide year 2000 compliance. Mobil estimates that the costs to be incurred solely to achieve year 2000 compliance will total approximately $185 million (which includes about $20 million for contingencies which will only be spent if unforeseen repairs are required in late 1999 and/or early 2000), of which the costs of dealing with IT systems are expected to be about $168 million and the costs of dealing with MOBIL -13 - Year 2000 Project--continued non-IT systems are expected to be about $17 million (the costs of dealing with relationships with external agents are expected to be minimal). As of March 31, 1999, about $132 million of the total costs estimated to be incurred solely to achieve year 2000 compliance had been expended. Mobil estimates that the costs to be incurred for new systems that improve business functionality and in many cases concurrently provide year 2000 compliance will total approximately $280 million, and as of March 31, 1999, about $233 million of these costs had been expended, of which $84 million was expensed as incurred and approximately $149 million was capitalized. All Project costs are being funded with cash flows from operations. The $185 million which Mobil estimates will be expended solely to achieve year 2000 compliance represents less than 15% of Mobil's estimated total IT budget for the period covered by the Project. This entire amount is being expensed as it is incurred. Of the $280 million which Mobil estimates will be expended on new systems that improve business functionality and in many cases concurrently provide year 2000 compliance, approximately $105 million is being expensed as it is incurred and approximately $175 million is being capitalized. As a result of the Project, certain IT projects to improve business functionality have been reprioritized and accelerated while other such IT projects have been deferred. As a consequence, expenditures during the period covered by the Project on IT systems that will improve business functionality will actually be greater than the expenditures that would have been made on such systems had there been no Project. Accordingly, the deferral of IT work due to the Project will not have a material adverse effect on Mobil's results of operations or financial condition. Risks and Contingency Plans The failure or failures for year 2000 reasons of materially important systems or relationships with external agents could have a material adverse effect on Mobil's results of operations, liquidity and/or financial condition. For example, if, for year 2000 reasons, a utility company were to be unable to supply electricity to a Mobil refinery for an extended period, the refinery would have to be shut down for that period, which could result in substantial losses of production, sales and income. Mobil believes that the Project work described above dealing with materially important IT systems and non-IT systems will, when completed, serve to reduce very substantially the risk that such systems will fail for year 2000 reasons. Mobil has no way of ensuring, however, that external agents whose relationships with Mobil are judged to be materially important (e.g., utilities, telecommunications providers and transportation providers) will be timely year 2000 compliant. The failure or failures of systems for year 2000 reasons could also give rise to liability to third parties. Mobil has not yet attempted to assess the potential for such liability, and hence cannot say whether such liability presents a material risk independent of the risk that such failure or failures could have a material adverse effect on Mobil's results of operations, liquidity and/or financial condition. To minimize the risks associated with the year 2000 issue referred to in the second preceding paragraph, Mobil has begun work (1) to identify scenarios involving possible failures for year 2000 reasons of materially important systems and relationships with external agents and (2) to develop contingency plans for mitigating the impact of these scenarios. Mobil operates a portfolio of diverse businesses which have facilities and operations throughout the world MOBIL -14 - Year 2000 Project--concluded and are managed regionally. Mobil believes that the most reasonably likely worst case scenarios, should they occur, will be encountered at facilities or operations located in one or more of these regions. Accordingly, a risk-based contingency planning process has been developed for execution by each business unit in its unique operating environment, focusing on its business-specific risks. Contingency planning project leaders were trained in the process during the first six weeks of 1999. Teams in the business units will develop and implement contingency plans with a target completion date of September 30, 1999. Mobil also plans to adapt its existing crisis response model to encompass failures for year 2000 reasons of materially important systems or relationships with external agents. The work described in the preceding paragraph will be focused on risks, scenarios and contingency plans involving materially important systems and relationships with external agents. There are, however, an almost infinite number of additional risks which are simply not assessable and for which, therefore, contingency plans cannot be developed. These are the risks of failure for year 2000 reasons of one or more systems or relationships with external agents which, individually, Mobil does not judge to be materially important but whose failure could trigger a cascade of other failures for year 2000 reasons, the combination of which could be materially important or could prevent Mobil from implementing contingency plans it has developed. Such a combination of failures could also have a material adverse effect on Mobil's results of operations, liquidity and/or financial condition. Forward-Looking Statements Relating to the Year 2000 The foregoing discussion about the year 2000 issue includes a number of forward-looking statements, which are based on Mobil's best assumptions and estimates as of the date hereof. These include, without limitation, statements concerning: Mobil's estimated timetables for completing the not-yet-completed phases of the Project work; Mobil's estimates of the percentages of the work that remains to be performed to complete such phases; Mobil's estimated timetable for identifying scenarios involving possible failures for year 2000 reasons of materially important systems and relationships with external agents and the development and implementation of contingency plans for mitigating the impacts of these scenarios; and Mobil's estimates of the costs of (1) completing the not-yet-completed phases of the Project and (2) identifying possible year 2000 failure scenarios and developing and implementing contingency plans for mitigating the impacts of these. Actual results could differ materially from the estimates expressed in such forward-looking statements, due to a number of factors. These factors, which are not necessarily all the key factors that could cause such differences, include the following: Mobil's failure to judge accurately which of Mobil's systems and relationships with external agents are materially important; Mobil's inability to obtain and retain the staff and third-party assistance necessary to complete the not-yet-completed phases of the Project in accordance with Mobil's estimated timetables; the inability of such staff and third parties (1) to locate and correct all non-year 2000 compliant computer code in materially important systems and test such corrected code and (2) to install and test upgrades or new systems containing year 2000-compliant computer code, all in accordance with Mobil's estimated timetables; unforeseen costs of completing Project work; Mobil's inability or failure to identify significant year 2000 issues not now contemplated; and the failure of external agents to achieve timely year 2000 readiness. MOBIL - 15 - Forward-Looking Statements Written reports and oral statements made from time to time by Mobil contain "forward-looking statements." Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and by their use of words such as "goals," "expects," "plans," "believes," "estimates," "forecasts," "projects," "intends" and other words of similar meaning. Such statements are likely to address Mobil's earnings, return on capital employed, capital expenditures, debt-to-capitalization ratio, dividend increases, project implementation, production growth, reserve replacement, sales growth and expense reductions. They are based on management's then-current information, assumptions, plans, expectations, estimates and projections about the petroleum and chemical industries. However, such statements are not guarantees of future performance, and actual results and outcomes may differ materially from what is expressed depending on a variety of factors, many of which are outside Mobil's control. Among the factors that could cause actual outcomes or results to differ materially from what is expressed in these forward-looking statements are changes in the demand for, supply of, and market prices of crude oil, refined products, natural gas and petrochemicals; changes in refining margins and marketing margins; success in partnering, in implementing oil, natural gas and petrochemical projects, and in implementing internal plans; reliability of operating facilities; effects of environmental regulations; success of commercial negotiations; and domestic and international political and economic conditions. Item 3. Quantitative and Qualitative Disclosures About Market Risk. Mobil has fixed and floating rate U.S. and foreign currency denominated debt. Mobil's benchmark for interest rates is 100% floating rate. Mobil uses interest rate swaps, cross-currency interest rate swaps, futures, forward exchange contracts and option contracts to manage its debt portfolio toward the established benchmark. These instruments have the effect of changing the interest rate with the objective of minimizing Mobil's borrowing costs. The value at risk as measured against the above management-defined benchmark for interest rate risk was $4 million at December 31, 1998 and $26 million at March 31, 1999. The increase in the value at risk was due to termination of interest rate swaps which had been entered into to convert cash flows from fixed rate debt to floating debt. PART II - OTHER INFORMATION Item 1. Legal Proceedings. Environmental Litigation. Mobil periodically receives notices from the Environmental Protection Agency (EPA) or equivalent agencies at the state level that Mobil is a "potentially responsible party" under Superfund or equivalent state legislation with respect to various waste disposal sites. The majority of these sites are either still under investigation by the EPA or the state agencies concerned, or under remediation, or both. In certain instances, Mobil and other MOBIL - 16 - Item 1. Legal Proceedings--concluded potentially responsible parties have been named in court or administrative proceedings by federal or state agencies seeking the cleanup of these sites. The relief normally sought in the proceedings is the payment by the potentially responsible parties of the costs of removing hazardous substances from, and remediating, the sites in question. Mobil has also been named as a defendant in various suits brought by private parties alleging injury from disposal of wastes at these sites. The ultimate impact of these proceedings on the business or accounts of Mobil cannot be predicted at this time due to the large number of other potentially responsible parties and the speculative nature of cleanup cost estimates, but based on our long experience in managing environmental matters, we do not anticipate that the aggregate level of future remediation costs will increase above recent levels so as to materially and adversely affect our consolidated financial position or liquidity. On March 18, 1999, a previously-reported matter, in which the EPA had filed an administrative complaint with the USEPA hearing clerk, was settled with the filing of a Consent Agreement and Consent Order. The EPA had alleged that the operations of Mobil Oil Corporation's Beaumont, Texas refinery had violated the Clean Air Act by reason of alleged violations of the New Source Performance Standard ("NSPS") requirements for petroleum storage tanks and alleged violations of fugitive emission requirements under the NSPS and the National Emissions Standards for Hazardous Air Pollutants, and had sought a penalty of $158,000. The matter was settled with the payment of a $79,000 penalty. During the first quarter of 1999, California's Santa Barbara County Air Pollution Control District ("SBAPCD") referred a matter to the Santa Barbara District Attorney after Mobil Oil Corporation and the SBAPCD were unable to settle the matter via a mutual settlement process. The SBAPCD had issued Notices of Violations to Mobil Oil Corporation alleging violations of local and state air quality regulations relating to pressure decay testing and air to liquid ratio testing at fourteen Mobil Oil Corporation service stations in Santa Barbara County in 1997, 1998 and 1999. No complaint has yet been filed but the amount of the penalty that might be sought could exceed $100,000. The foregoing proceedings are not of material importance in relation to Mobil's accounts and are described in compliance with SEC rules requiring disclosure of such proceedings although not material. Other Than Environmental Litigation. Mobil and its subsidiaries are engaged in various litigations and have a number of unresolved claims pending. While the amounts claimed are substantial and the ultimate liability in respect of such litigations and claims cannot be determined at this time, Mobil is of the opinion that such liability, to the extent not provided for through insurance or otherwise, is not likely to be of material importance in relation to its accounts. Mobil has provided in its accounts for items and issues not yet resolved based on management's best judgement. Item 2. Changes in Securities. None. Item 3. Defaults Upon Senior Securities. None. MOBIL - 17 - Item 4. Submission of Matters to a Vote of Security Holders. None Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. Exhibits. The following exhibits are filed with this report: 12. Computation of Ratio of Earnings to Fixed Charges 27. Financial Data Schedule Reports on Form 8-K. Mobil filed the following Current Reports on Form 8-K during and subsequent to the end of the first quarter: Date of 8-K Description of 8-K January 27, 1999 Submitted a copy of the Mobil News Release dated January 27, 1999, reporting Mobil's estimated earnings for the fourth quarter and full year 1998. April 23, 1999 Submitted a copy of the Mobil News Release dated April 23, 1999, reporting Mobil's estimated earnings for the first quarter of 1999. May 6, 1999 Submitted a copy of the Mobil New Release dated May 6, 1999, reporting Mobil and Exxon announced expectation of antitrust review completion. MOBIL - 18 - 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. REGISTRANT MOBIL CORPORATION BY /S/ STEVEN L. DAVIS NAME AND TITLE Steven L. Davis, Controller; Principal Accounting Officer DATE May 12, 1999 EXHIBIT INDEX EXHIBIT SUBMISSION MEDIA - ------- ---------------- 12. Computation of Ratio of Earnings Electronic to Fixed Charges 27. Financial Data Schedule Electronic MOBIL - 19 - EX-12 2 RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12. MOBIL CORPORATION COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (In millions) Three Months Ended Year Ended December 31, Mar.31, ------------------------------------------ -------- 1994 1995 1996 1997 1998 1999 ------ ------ ------ ------ ------ ------ Income Before Change in Accounting Principle ....$1,759 $2,376 $2,964 $3,272 $1,704 $ 464 Add: Income taxes .............. 1,919 2,015 3,147 3,093 1,356 247 Portion of rents representative of interest factor ......... 340 368 376 346 317 79 Interest and debt discount expense ........ 461 467 455 428 451 82 Earnings (greater) less than distributions from equity affiliates........ (40) (51) 153 (59) 329 16 ------ ------ ------ ------ ------ ------ Income as Adjusted ........$4,439 $5,175 $7,095 $7,080 $4,157 $ 888 ====== ====== ====== ====== ====== ====== Fixed Charges: Interest and debt discount expense ........$ 461 $ 467 $ 455 $ 428 $ 451 $ 82 Capitalized interest ...... 37 47 78 101 74 28 Portion of rents representative of interest factor ......... 340 368 376 346 317 79 ------ ------ ------ ------ ------ ------ Total Fixed Charges .......$ 838 $ 882 $ 909 $ 875 $ 842 $ 189 ====== ====== ====== ====== ====== ====== Ratio of Earnings to Fixed Charges ........... 5.3 5.9 7.8 8.1 4.9 4.7 ====== ====== ====== ====== ====== ====== Note: For the years ended December 31, 1994, 1995, 1996, 1997 and 1998 and the three months ended March 31, 1999, Fixed Charges exclude $37 million, $28 million, $24 million, $29 million, $25 million and $8 million, respectively, of interest expense attributable to debt issued by the Mobil Oil Corporation Employee Stock Ownership Plan Trust and guaranteed by Mobil. MOBIL - 20 - EX-27 3
5 ARTICLE 5 FINANCIAL DATA SCHEDULE (FDS) FOR PERIOD ENDED MARCH 31, 1999 10-Q This schedule contains summary financial information extracted from the March 31, 1999 Form 10-Q, and is qualified in its entirety by reference to such financial statements. 0000067182 JOYCE NICHOLS 1,000,000 3-MOS DEC-31-1999 MAR-31-1999 757 0 5,522 0 1,952 8,867 48,930 24,147 42,796 13,504 3,741 0 633 899 16,743 42,796 11,991 12,183 7,410 8,007 2,584 0 82 711 247 464 0 0 0 464 0.58 0.58 SALES AND TOTAL REVENUES INCLUDE $1,432 MILLION OF EXCISE AND STATE GASOLINE TAXES
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