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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 September 30, 1998
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 October 30, 1998,
the latest practicable date, was 779,844,738.
------------------------------------------------------------
<PAGE>
MOBIL CORPORATION
Form 10-Q
Quarterly Report
September 30, 1998
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION Page
Item 1. Condensed Consolidated Financial Statements
Consolidated Statement of Income for the
Three and Nine Months Ended
September 30, 1997 and 1998................... 1
Consolidated Balance Sheet at December 31, 1997
and September 30, 1998 ....................... 2
Consolidated Statement of Cash Flows for the
Nine Months Ended September 30, 1997 and 1998. 3
Notes to Condensed Consolidated Financial
Statements ................................... 4
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition .......... 6
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ................................ 19
Item 2. Changes in Securities ............................ 20
Item 3. Defaults Upon Senior Securities .................. 20
Item 4. Submission of Matters to a Vote of Security
Holders ........................................ 20
Item 5. Other Information ................................ 21
Item 6. Exhibits and Reports on Form 8-K ................. 21
SIGNATURE .................................................. 22
EXHIBIT INDEX .............................................. 23
Exhibit 11. Computation of Earnings per Common Share ..... 24
Exhibit 12. Computation of Ratio of Earnings to Fixed
Charges .................................... 26
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<PAGE>
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|For the Nine Months
Ended September 30,|Ended September 30,
--------------------|------------------
|
1997 1998| 1997 1998
--------- -------|-------- -------
Revenues |
Sales and services (a) ................... $15,950 $12,878| $48,257 $39,289
Income from equity affiliates ............ 143 204| 412 385
Income from asset sales, interest |
and other .............................. 304 404| 663 675
------- -------| ------- -------
|
Total Revenues ......................... 16,397 13,486| 49,332 40,349
------- -------| ------- -------
Costs and Expenses |
Crude oil, products and operating |
supplies and expenses .................. 10,159 8,261| 31,158 24,738
Exploration expenses ..................... 105 185| 262 356
Selling and general expenses ............. 1,057 854| 2,999 2,727
Depreciation, depletion and amortization . 590 633| 1,848 1,853
Interest and debt discount expense ....... 142 227| 331 350
Taxes other than income taxes (a) ........ 2,682 2,486| 7,794 7,217
Income taxes ............................. 770 331| 2,372 1,252
------- -------| ------- -------
Total Costs and Expenses ............... 15,505 12,977| 46,764 38,493
------- -------| ------- -------
Net Income ................................. $ 892 $ 509| $ 2,568 $ 1,856
======= =======| ======= =======
|
Net Income Per Common Share ................ $ 1.12 $ 0.64| $ 3.21 $ 2.33
======= =======| ======= =======
Assuming Dilution ........................ $ 1.09 $ 0.63| $ 3.15 $ 2.28
======= =======| ======= =======
Dividends Per Common Share ................. $ 0.53 $ 0.57| $ 1.59 $ 1.71
======= =======| ======= =======
|
|
|
- -------------- |
|
(a) Includes excise and state gasoline |
taxes of ............................. $ 1,486 $ 1,429| $ 4,432 $ 4,323
The accompanying notes are an integral part of these
condensed consolidated financial statements.
MOBIL - 1 -
<PAGE>
MOBIL CORPORATION
CONSOLIDATED BALANCE SHEET
(In millions)
Dec. 31, Sept. 30,
ASSETS 1997 1998
------- -------
Current Assets
Cash and cash equivalents ................................ $ 820 $ 1,256
Accounts and notes receivable ............................ 5,952 5,249
Inventories .............................................. 2,156 2,241
Prepaid expenses and other current assets ................ 623 789
Deferred income taxes .................................... 171 252
------- -------
Total Current Assets ................................... 9,722 9,787
Investments and Long-Term Receivables ...................... 8,479 8,242
Properties, Plants and Equipment ........................... 49,630 50,573
Less: Accumulated Depreciation, Depletion and Amortization . 25,074 25,667
------- -------
Net Properties, Plants and Equipment ....................... 24,556 24,906
Deferred Charges and Other Assets .......................... 802 762
------- -------
Total Assets ........................................... $43,559 $43,697
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt .......................................... $ 2,994 $ 4,104
Accounts payable ......................................... 4,418 3,555
Accrued liabilities ...................................... 2,794 2,828
Income, excise, state gasoline and other taxes payable ... 1,906 2,092
Deferred income taxes .................................... 309 269
------- -------
Total Current Liabilities .............................. 12,421 12,848
Long-Term Debt ............................................. 3,670 3,957
Reserves for Employee Benefits ............................. 1,745 1,787
Accrued Restoration, Removal and Environmental Costs ....... 1,072 1,099
Deferred Credits and Other Noncurrent Obligations .......... 1,274 1,004
Deferred Income Taxes ...................................... 3,535 3,526
Minority Interest in Subsidiary Companies .................. 381 396
------- -------
Total Liabilities ...................................... 24,098 24,617
------- -------
Shareholders' Equity
Preferred stock (ESOP-related) -- shares issued and
outstanding: 171,093 at December 31, 1997 and
166,791 at September 30, 1998 .......................... 665 648
Unearned employee compensation and benefit plan trust .... (329) (678)
Common stock -- $1.00 par value; shares authorized:
1,200,000,000; shares issued: 894,308,872 at
December 31, 1997 and 896,866,909 at September 30, 1998. 894 897
Capital surplus .......................................... 1,549 1,617
Earnings retained in the business ........................ 20,661 21,142
Cumulative foreign exchange translation adjustment ....... (821) (920)
Common stock held in treasury, at cost -- shares:
110,945,100 at December 31, 1997 and 117,414,000 at
September 30, 1998 ..................................... (3,158) (3,626)
------- -------
Total Shareholders' Equity ............................. 19,461 19,080
------- -------
Total Liabilities and Shareholders' Equity ................. $43,559 $43,697
======= =======
The accompanying notes are an integral part of these
condensed consolidated financial statements.
MOBIL - 2 -
<PAGE>
MOBIL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
For the Nine Months
Ended September 30,
-------------------
1997 1998
------- -------
Cash Flows from Operating Activities
Net Income ......................................... $ 2,568 $ 1,856
Adjustments to reconcile to net cash from
operating activities:
Depreciation, depletion and amortization ....... 1,848 1,853
Deferred income taxes .......................... 313 (141)
Earnings (greater) less than distributions from
equity affiliates ............................ (104) 98
Exploration expenses (includes noncash
charges: 1997-$17; 1998-$18) ................ 262 356
Gain on sales of properties, plants and
equipment and other assets ................... (289) (179)
Increase in working capital items .............. (19) (139)
Other, net ..................................... 249 (49)
------- -------
Net Cash from Operating Activities ................... 4,828 3,655
------- -------
Cash Flows from Investing Activities
Capital and exploration expenditures ............... (2,957) (3,206)
Proceeds from sales of properties, plants and
equipment and other assets ....................... 622 705
Payments attributable to investments and
long-term receivables ............................ (414) (381)
------- -------
Net Cash Used in Investing Activities ................ (2,749) (2,882)
------- -------
Cash Flows from Financing Activities
Cash dividends ..................................... (1,290) (1,375)
Proceeds from borrowings having original
terms greater than three months .................. 804 961
Repayments of borrowings having original
terms greater than three months .................. (1,693) (821)
Increase in other borrowings ....................... 608 1,286
Increase in minority interest ..................... 66 24
Proceeds from issuance of common stock ............. 66 71
Purchase of common stock for treasury .............. (363) (468)
------- -------
Net Cash Used in Financing Activities ................ (1,802) (322)
------- -------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents ................................... (21) (15)
------- -------
Net Increase in Cash and Cash Equivalents ............ 256 436
Cash and Cash Equivalents - Beginning of Period ...... 808 820
------- -------
Cash and Cash Equivalents - End of Period ............ $ 1,064 $ 1,256
======= =======
- -------------------------------------------------------------------------------
Memo:
Net cash from operating activities .................. $ 4,828 $ 3,655
Net cash used in investing activities ............... (2,749) (2,882)
Cash dividends ...................................... (1,290) (1,375)
------- -------
Excess/(Shortfall) of cash from operating activities
over investing activities and dividends ........... $ 789 $( 602)
======= =======
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these
condensed consolidated financial statements.
MOBIL - 3 -
<PAGE>
MOBIL CORPORATION
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, 1997.
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 Nonowner Equity
Beginning in the first quarter of 1998, compliance with FAS 130, Reporting
Comprehensive Income was required. In accordance with the requirements of this
standard, the components of changes in nonowner equity, net of related tax
for the three months and nine months ended September 30, 1997 and 1998, are as
follows:
- --------------------------------------------------------------------------------
(In millions) Three Months | Nine Months
Ended Sept.30, | Ended Sept.30,
-------------- --------------
1997 1998 | 1997 1998
------ ------ | ------ ------
Net Income ...................................$ 892 $ 509 | $2,568 $1,856
Foreign currency translation adjustments ..... (321) 74 | (526) (99)
----- ----- | ----- -----
Changes in nonowner equity ...................$ 571 $ 583 | $2,042 $1,757
===== ===== | ===== =====
-----------------------------------------------------------------------------
MOBIL - 4 -
<PAGE>
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 Nine Months
Ended September 30,
--------------------
1997 1998
Changes in Working Capital Items
(Increases)/decreases
Accounts and notes receivable ................. $ 796 $ 674
Inventories ................................... (102) (183)
Prepaid expenses and other current assets ..... (180) (176)
Accounts payable .............................. (328) (741)
Accrued liabilities ........................... 43 88
Income, excise, state gasoline and
other taxes payable ......................... (248) 199
----- --------
Increase in working capital items ............. $ (19) $ (139)
===== =======
----------------------------------------------------------------------
4. New Accounting Standard
Effective January 1, 1998, Mobil adopted Statement of Position (SOP) 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use, which requires the capitalization of certain costs related to the
development or purchase of computer software. Prior to adopting this new policy,
Mobil expensed the cost of all computer software. Amounts expensed in prior
years are not required to be capitalized.
MOBIL - 5 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
RESULTS OF OPERATIONS
-------------------------------------------------------------------------------
REPORTED EARNINGS Third Quarter | First Nine Months
(In millions)
______________ Incr./|_______________ Incr./
(Decr.)| (Decr.)
1997 1998 | 1997 1998
---- ---- ----- ---- ---- ------
Petroleum Operations |
E&P - United States ........... $ 160 $ 9 $(151)|$ 511 $ 133 $ (378)
- International ........... 313 147 (166)| 1,114 648 (466)
----- ----- ----- |------ ------ ------
Total E&P ..................... 473 156 (317)| 1,625 781 (844)
----- ----- ----- |------ ------ ------
M&R - United States ........... 230 179 ( 51)| 382 459 77
- International ........... 116 183 67 | 496 622 126
----- ----- ----- |------ ------ ------
Total M&R ..................... 346 362 16 | 878 1,081 203
----- ----- ----- |------ ------ ------
Total Petroleum ................. 819 518 (301)| 2,503 1,862 (641)
|
Chemical ........................ 155 41 (114)| 331 166 (165)
Corporate and Financing (a)...... (82) (50) 32 | (266) (172) 94
----- ----- ----- |------ ------ ------
Net Income ...................... $ 892 $ 509 $(383)|$2,568 $1,856 $ (712)
===== ===== ===== |====== ====== ======
-------------------------------------------------------------------------------
OPERATING EARNINGS Third Quarter | First Nine Months
(Adjusted for Special Items) ______________ Incr./|________________ Incr./
(In millions) (Decr.)| (Decr.)
1997 1998 | 1997 1998
---- ---- ----- ---- ---- ------
Petroleum Operations |
E&P - United States ........... $ 123 $ 38 $ (85)|$ 474 $ 162 $ (312)
- International ........... 317 92 (225)| 1,118 593 (525)
----- ----- ----- |------ ------ ------
Total E&P ..................... 440 130 (310)| 1,592 755 (837)
----- ----- ----- |------ ------ ------
M&R - United States ........... 340 179 ( 61)| 392 459 67
- International ........... 209 197 ( 12)| 627 659 32
----- ----- ----- |------ ------ ------
Total M&R ..................... 449 376 ( 73)| 1,019 1,118 99
----- ----- ----- |------ ------ ------
Total Petroleum ................. 889 506 (383)| 2,611 1,873 (738)
|
Chemical ........................ 102 41 (61)| 278 166 (112)
Corporate and Financing (a)...... (84) (50) 34 | (268) (172) 96
----- ----- ----- |------ ------ ------
Income Excluding Special Items... 907 497 (410)| 2,624 1,867 (754)
Special Items (table on page 7) . (15) 12 27 | (53) (11) 42
----- ----- ----- |------ ------ ------
Net Income ...................... $ 892 $ 509 $(383)|$2,568 $1,856 $ (712)
===== ===== ===== |====== ====== ======
-------------------------------------------------------------------------------
(a) Corporate and Financing includes corporate administrative expenses, net
financing expense and other items.
MOBIL - 6 -
<PAGE>
_______________________________________________________________________________
SPECIAL ITEMS Third Quarter | First Nine Months
(In millions) |
1997 1998 | 1997 1998
---- ---- ---- ----
|
Asset Sales........................ $ 140 $ 55 | $ 140 $ 55
Restructurings .................... $ (72) $ (14) | $(110) $ (37)
Federal Royalty Settlement ........ - $ (29) | - $ (29)
Employee Performance Award ........ $ (50) - | $ (50) -
Litigation ........................ $ (33) - | $ (33) -
----- ----- | ----- -----
Total Special Items ............... $ (15) $ 12 | $ (53) $ (11)
===== ===== ===== =====
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REVENUES BY SEGMENT Third Quarter | First Nine Months
(In millions) Incr./ | Incr./
(Decr.) | (Decr.)
1997 1998 % | 1997 1998 %
---- ---- ----- ---- ---- ----
|
Exploration & Producing ... $ 1,664 $ 1,194 (28) | $ 5,490 $ 4,237 (23)
Marketing & Refining ...... 13,762 11,480 (17) | 41,156 33,877 (18)
Chemical .................. 868 589 (32) | 2,465 1,945 (21)
Other ..................... 103 223 117 | 221 290 31
------- ------- | ------- -------
Total Revenues .......... $16,397 $13,486 (18) | $49,332 $40,349 (18)
======= ======= | ======= =======
- --------------------------------------------------------------------------------
CONSOLIDATED RESULTS OVERVIEW
THIRD QUARTER 1998 COMPARED WITH THIRD QUARTER 1997
Consolidated third quarter net income was $509 million, a decrease of $383
million from the $892 million reported for the third quarter of 1997. Earnings
per common share, assuming dilution, for the third quarter of 1998 were $0.63,
compared with $1.09 for the third quarter of 1997. This year's third quarter net
income included a net special benefit of $12 million, as the gain on a European
upstream asset sale was largely offset by charges related to a U.S. Federal
royalty settlement and on-going implementation expenses associated with the
Mobil-British Petroleum (BP) downstream alliance in Europe. Excluding special
items from both periods, third quarter 1998 operating earnings of $497 million
decreased $410 million, or 45%.
Virtually all of Mobil's businesses experienced sharp declines in industry
fundamentals in this year's third quarter. Crude oil prices were down about $6
per barrel and natural gas prices trended lower, particularly for LNG; U.S.
downstream margins were off and Asia Pacific downstream margins continued to be
under pressure; petrochemical margins also weakened considerably. Mobil's
self-help programs to reduce costs, grow volumes and improve performance
contributed about $55 million, lessening the adverse impact of the weak
fundamentals.
In the Upstream, lower worldwide crude oil and natural gas prices impacted
earnings by about $250 million. Additionally, Mobil's third quarter production
was almost 2% below last year, as increased volumes from Canada, Kazakhstan,
Equatorial Guinea, and new volumes from the Nigerian Oso NGL project were more
than offset by cutbacks in OPEC quotas, which primarily impacted Mobil's
Nigerian operations; the effects of scheduled maintenance in Mobil's European
operations; and the impact of storms on U.S. Gulf of Mexico production.
MOBIL - 7 -
<PAGE>
CONSOLIDATED RESULTS OVERVIEW - continued
Also, in line with the planned 1998 investment program, exploration expense
was higher in the third quarter, following Mobil's typical pattern of increased
exploration spending in the second half of the year. This year's third quarter
saw higher spending versus the comparable period last year due to increased
drilling and seismic activity in the U.S., as well as in Mobil's New Ventures
areas.
In the Downstream, trade sales growth in the U.S. continued. Also, refinery
performance was strong despite a scheduled turnaround at Joliet. Benefits from
the BP downstream alliance and stronger margins generated improved European
earnings versus last year. In Asia Pacific downstream, initiatives programs
helped cushion the unfavorable earnings impact of lower margins resulting from
the economic downturn in the region. Worldwide lube earnings were higher,
benefiting from improved margins due to lower feedstock costs and ongoing
initiatives.
In Chemical, earnings were down significantly reflecting lower polyethylene
and paraxylene margins.
Worldwide revenues in the third quarter of 1998 of $12,878 million were
$3,072 million lower than revenues in the third quarter of 1997, reflecting the
effects of significantly lower worldwide average crude oil and average natural
gas prices, and lower petroleum product prices. Petrochemical prices were also
lower. These decreases were somewhat offset by the effects of higher overall
worldwide sales volumes.
Crude oil, products and operating supplies and expenses decreased by $1,898
million to $8,261 million, primarily due to significantly lower worldwide crude
oil and petroleum product prices, slightly offset by higher volume-related
expenses. Exploration expenses were higher, in line with the planned 1998
spending program. Selling and general expenses decreased $203 million to $854
million, due to benefits from cost reduction initiatives. Taxes other than
income taxes decreased $196 million to $2,486 million, mainly due to the effects
of lower hydrocarbon and product sales prices. Income tax expense decreased $439
million to $331 million, due to a 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 our fixed
margin production decline both in total and as a percent of pre-tax income.
FIRST NINE MONTHS 1998 COMPARED WITH FIRST NINE MONTHS 1997
Mobil's first nine months 1998 net income was $1,856 million, compared with
$2,568 million for the same period of 1997. This year's results included net
special charges of $11 million with gains on asset sales more than offset by the
U.S. Federal royalty settlement and expenses related to implementation of the
Mobil-BP European alliance. First nine months 1997 net income included special
charges of $53 million, reflecting various restructuring charges, certain net
litigation charges and an accrual for a one-time performance award to employees,
partly offset by gains on various asset sales.
MOBIL - 8 -
<PAGE>
CONSOLIDATED RESULTS OVERVIEW - continued
Excluding special items, first nine months operating earnings of $1,867
million were down $754 million, or 29%, from the comparable period of 1997. The
decline was primarily due to the significant drop in worldwide crude
oil and natural gas prices, lower downstream margins in Asia-Pacific, and lower
petrochemical margins, partly offset by stronger downstream margins in Europe
and benefits from self-help initiatives.
Nine month 1998 revenues of $39,289 million were $8,968 million lower than
revenues in the same period of 1997, primarily due to the effects of lower
average worldwide crude oil, natural gas and petroleum product prices.
Petrochemical prices were also lower. These decreases were partly offset by the
effects of higher overall sales volumes.
Crude oil, products and operating supplies and expenses decreased in the first
nine months of 1998 by $6,420 million to $24,738 million, primarily due to lower
worldwide average crude oil and petroleum product prices, slightly offset by
higher volume-related expenses. Selling and general expenses decreased $272
million to $2,727 million, primarily due to expense reductions associated with
cost saving initiatives, partly offset by growth-related expenses in new venture
areas. Taxes other than income taxes decreased $577 million to $7,217 million,
due to the impact of lower average hydrocarbon and product sales prices. Income
tax expense decreased $1,120 million from 1997 due to a 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 our fixed margin production decline both in total and as a
percent of pre-tax income.
MOBIL - 9 -
<PAGE>
Exploration and Producing
- --------------------------------------------------------------------------------
Exploration and Producing
Selected Operating Data Third Quarter First Nine Months
Incr./(Decr.) Incr./(Decr.)
------------- --------------
1997 1998 Vol. % 1997 1998 Vol. %
---- ---- ---- ----- ---- ---- ----- ---
Net Crude Oil and NGL |
Production (TBD) - U.S. .. 246 236 (10) (4)| 243 239 ( 4) (2)
- Intl. . 692 685 ( 7) (1)| 673 681 8 1
----- ----- ----- | ----- ----- -----
Total .................... 938 921 (17) (2)| 916 920 4 -
===== ===== ===== | ===== ===== =====
Net Natural Gas |
Production (MMCFD) - U.S. .. 1,124 1,091 (33) (3)| 1,156 1,111 (45) (4)
- Intl.(a) 3,092 3,035 (57) (2)| 3,364 3,226 (138) (4)
----- ----- ----- | ----- ----- -----
Total .................... 4,216 4,126 (90) (2)| 4,520 4,337 (183) (4)
===== ===== ===== | ===== ===== =====
TOTAL NET PRODUCTION (TBDOE).. 1,702 1,669 (33) (2)| 1,735 1,706 (29) (2)
===== ===== ===== | ===== ===== =====
- -------------------------------------------------------------------------------
(a) Year-to-date production reflects a downward restatement of production in
Indonesia in the first quarter of 1998.
THIRD QUARTER 1998 COMPARED WITH THIRD QUARTER 1997
Exploration and Producing net income of $156 million was $317 million lower
than in the third quarter of last year.
In the United States, net income was $9 million, down $151 million from last
year due primarily to lower crude oil and natural gas prices. This year's
results included a special charge of $29 million for a U.S. Federal royalty
settlement. Last year's results for the same period included a net special
benefit of $37 million as gains from assets sales more than offset litigation
charges and an accrual for a one-time performance award to employees. The
unfavorable impacts of lower production of 16 TBDOE, approximately half of which
was the result of storms in the Gulf of Mexico, and higher exploration expenses,
were offset by self-help initiatives.
International net income of $147 million was $166 million lower than in 1997,
due mainly to a significant decline in crude oil and natural gas prices and
higher exploration expense. This year's results included a special benefit of
$55 million for a European asset sale. Third quarter, 1997 results included a
special charge of $4 million for a one-time performance award to employees.
Volumes were down slightly as increases in Canada, Equatorial Guinea and
Kazakhstan were more than offset by reductions due to OPEC production
constraints, mainly in Nigeria; the effects of scheduled maintenance programs in
Europe; natural field declines in Europe and Australia; slightly lower
Indonesian LNG sales; and non-core asset sales in Australia.
FIRST NINE MONTHS 1998 COMPARED WITH FIRST NINE MONTHS 1997
Exploration and Producing net income of $781 million was $844 million lower
than last year. The decrease was mainly due to lower crude oil and natural gas
prices. The effects of higher liquids volumes in Canada, Equatorial Guinea and
Australia were more than offset by the effects of OPEC constraints, and the
deferral of LNG cargoes from Indonesia. Additionally, U.S. natural gas
production was lower, reflecting some operational problems earlier in the year,
non-core asset sales and natural field declines. Growth-related expenses were
somewhat higher in new venture areas.
MOBIL - 10 -
<PAGE>
Marketing and Refining
Marketing and Refining Third Quarter First Nine Months
Selected Operating Data Incr./(Decr.) Incr./(Decr.)
1997 1998 Vol. % 1997 1998 Vol. %
----- ----- --- -- ----- ----- --- --
Petroleum Product
Sales (TBD)(a)- U.S. ...... 1,467 1,486 19 1 | 1,424 1,434 10 -
- Intl.(b) .. 1,966 2,001 35 2 | 1,910 1,960 50 3
----- ----- --- | ----- ----- ---
Total .................. 3,433 3,487 54 2 | 3,334 3,394 60 2
===== ===== === | ===== ===== ===
|
Refinery Runs (TBD) |
- U.S. ...... 1,009 869 (140)(14)| 950 903 (47) (5)
- Intl.(b)(c) 1,294 1,244 ( 30)( 2)| 1,221 1,259 38 3
----- ----- --- | ----- ----- ---
Total .................. 2,303 2,113 (170)( 7)| 2,171 2,162 ( 9) -
===== ===== === | ===== ===== ===
(a) Includes supply/other sales
(b) Includes Mobil's share for the European alliance with BP.
(c) Third quarter, 1997 reflects a downward restatement
- --------------------------------------------------------------------------------
THIRD QUARTER 1998 COMPARED WITH THIRD QUARTER 1997
Marketing and Refining net income was $362 million in the third quarter of
1998 versus last year's net income of $346 million. This quarter's net income
included special charges of $14 million for implementation costs for the
Mobil-BP European alliance, while last year's net income included $103 million
for restructuring in Europe and Japan and a one-time performance award to
employees. Excluding special charges from both periods, operating earnings of
$376 million were $73 million lower than last year.
Net income in the United States was $179 million, $51 million below last year.
The unfavorable impact of lower industry margins, a scheduled turnaround at the
Joliet refinery and decreased refining volumes reflecting the formation of the
Chalmette refinery joint venture with a subsidiary of Venezuela's PDVSA late
last year were partially offset by the effects of increased trade sales
performance.
International net income of $183 million was $67 million higher than in 1997.
In Europe, earnings benefited from stronger integrated margins and initiatives
related to the Mobil-BP alliance. Earnings were lower in Asia Pacific as the
deterioration in both refining and marketing margins as well as unscheduled
downtime at the Adelaide, Australia refinery were only partially offset by
performance initiatives in the region, including sales volume growth. Other
international downstream earnings were favorably impacted by performance
improvements, including higher product sales in Africa and South America.
FIRST NINE MONTHS 1998 COMPARED WITH FIRST NINE MONTHS 1997
Marketing and Refining net income was $1,081 million for the first nine months
of 1998 compared with net income of $878 million last year. Excluding $37
million of special charges this year for implementation costs related to the
Mobil-BP alliance and $141 million of special charges last year for
implementation costs related to the Mobil-BP alliance, restructuring in Japan
and a one-time performance award to employees, operating earnings of $1,118
million were $99 million higher than last year. Earnings were higher due to the
MOBIL - 11 -
<PAGE>
Marketing and Refining -- concluded
effects of various restructuring initiatives, mostly in Asia-Pacific, higher
product sales volumes, strong refinery performance and benefits from the Mobil-
BP European alliance. Additionally, there were higher margins in the U.S.
and Europe, partly offset by lower margins in Asia-Pacific.
Chemical
THIRD QUARTER AND FIRST NINE MONTH COMPARISONS OF 1998 WITH 1997
Chemical income of $41 million in this year's third quarter was $61 million
lower than in the same period last year. In the first nine months of 1998,
Chemical income was $166 million compared with $331 million in the same period
last year. The decrease in both periods reflects significantly lower
polyethylene and paraxylene margins.
Corporate and Financing
THIRD QUARTER AND FIRST NINE MONTH COMPARISONS OF 1998 WITH 1997
Corporate and Financing expense was $50 million in the third quarter of 1998
compared with $82 million in the same period last year. For the first nine
months of 1998, Corporate and Financing expense was $172 million, $94 million
lower than last year. Decreases in both periods reflect the timing of expenses
and certain one-time favorable items.
ACCOUNTING STANDARDS
In September 1998, Financial Accounting Standard (FAS) 133, Accounting for
Derivative Instruments and Hedging Activities, was issued. Adoption of this
standard is required in the first quarter of 2000. FAS 133 requires that all
derivatives be recognized as either assets or liabilities and measured at fair
value. If certain conditions are met, a derivative may be specifically
designated as a hedge of risk exposure. Mobil is currently reviewing the
expected impact of FAS 133, which will depend on the derivatives outstanding
when it is adopted and is not expected to be significant.
DISCUSSION OF FINANCIAL CONDITION
Total current assets as of September 30, 1998 were $9,787 million, an increase
of $65 million from December 31, 1997. Accounts and notes receivable decreased
$703 million to $5,249 million, primarily due to the effects of lower average
crude oil, natural gas, petroleum products and petrochemical prices. This
decrease was partly offset by a higher level of Cash and cash equivalents.
Additionally, Prepaid expenses and other current assets were up due to the
timing of certain payments.
Total debt of Mobil and its subsidiaries was $8,061 million, $1,397 million
higher than year-end 1997, reflecting reduced earnings and higher working
capital requirements. The debt-to-capitalization ratio was 29% at September 30,
1998, up from 25% at year-end 1997.
During the first nine months of 1998, net cash generated from operating
activities was $3,655 million, $602 million less than the cash requirements for
investing activities and dividends. Refer to the table at the bottom of page 3.
MOBIL - 12 -
<PAGE>
DISCUSSION OF FINANCIAL CONDITION - continued
Accounts payable decreased $863 million primarily due to lower purchase prices
for crude oil and petroleum products.
Income, excise, state gasoline and other taxes payable increased $186 million
mainly due to the timing of certain tax payments partly offset by the effects of
lower average sales prices for hydrocarbons and petroleum products.
Shareholders' equity declined $381 million during the first nine months of
1998 primarily due to an increase of 6,468,900 shares of common stock held in
the treasury that were purchased on the open market under plans to offset the
dilutive effects of stock options and to implement a Board approved supplemental
share buyback program ($468 million) as well as the classification with unearned
employee compensation of a benefit plan trust holding 7,383,110 shares of common
stock ($377 million). These changes were partly offset by an increase of $481
million in earnings retained in the business.
Total investment spending for the third quarter of 1998 was $1,433 million, an
increase of $288 million from the
comparable period last year. For the first nine months of 1998, worldwide
investment spending was $3,793 million, compared with $3,437 million for the
year-earlier period.
- --------------------------------------------------------------------------------
INVESTMENT SPENDING
(In millions) Third Quarter First Nine Months
Capital and Exploration Expenditures 1997 1998 1997 1998
----- ----- ----- -----
Petroleum Operations |
Exploration & Producing - U.S. .... $ 117 $ 89 | $ 325 $ 361
- Intl. ... 714 793 | 1,809 2,059
Marketing & Refining - U.S. .... 72 95 | 224 258
- Intl. ... 107 85 | 351 198
Chemical ............................. 86 92 | 210 188
Other ................................ 7 44 | 38 142
------ ------ | ------ ------
Total Capital and Exploration |
Expenditures ................... $1,103 $1,198 | $2,957 $3,206
------ ------ | ------ ------
Cash Investments in Equity Companies . 42 235 | 480 587
------ ------ | ------ ------
Total Investment Spending $1,145 $1,433 | $3,437 $3,793
====== ====== | ====== ======
- ------------------------------ |
Memo: |
Exploration Expenses charged |
to income, included above |
- U.S. .... $ 12 $ 44 | $ 28 $ 93
- Intl. ... 93 141 | 234 263
------ ------ | ------ ------
Total Exploration Expenses ....... $ 105 $ 185 | $ 262 $ 356
====== ====== | ====== ======
- --------------------------------------------------------------------------------
Return on average capital employed for the twelve-month period ended September
30, 1998 was 10.6%, compared with 13.4% for the calendar year 1997. Return on
average shareholders' equity was 13.3% for the twelve-month period ended
September 30, 1998, compared with 17.0% for the calendar year 1997.
Whenever external financing is needed, Mobil and its subsidiary companies have
ready access to multiple capital markets, including significant bank credit
lines.
MOBIL - 13 -
<PAGE>
DISCUSSION OF FINANCIAL CONDITION - concluded
At September 30, 1998, 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. $1,520 million of
Euro-Medium-Term Notes and bonds having a principal amount of 30 billion
Japanese yen were also in place.
Current Developments
On July 15, 1998, the two-month extension granted by Perupetro for the
continued appraisal of the Camisea gas fields expired without agreement being
reached on issues related to the introduction of gas into the Peruvian market.
Mobil and its partner are currently evaluating their options to re-enter
negotiations with the government. In the event that Mobil does not go forward,
it would charge income approximately $125 million for the write-off of assets
and the recognition of exit costs.
Mobil has undertaken a review of the impact that the low worldwide crude oil
and natural gas prices may have on the recoverability of inventories and
properties, plants and equipment. This review may result in a non-cash
write-down of some of these assets in the fourth quarter of 1998. Such
write-down, if required, will not impact liquidity.
The Euro
On January 1, 1999, eleven European countries will establish fixed conversion
rates between their existing sovereign currencies ("legacy currencies") and
adopt the euro as their common legal currency. The euro and the legacy
currencies will each be legal tender for transactions beginning on January 1,
1999. Beginning January 1, 2002, the participating countries will issue
euro-denominated bills and coins and by July 1, 2002 each will withdraw its
sovereign currency and transactions thereafter will be conducted solely in
euros.
Earlier this year, Mobil conducted an assessment of the euro's impact on
Mobil's pan-European fuels and lubricants alliance with BP as well as other
Mobil business conducted in Europe and/or transacted in legacy currencies. The
assessment addressed such issues as providing customer assistance, handling
customer transactions in euro and legacy currencies, and modifying systems to
support transactions in euros. As a result of the assessment, plans to mitigate
the impact of the euro's introduction were developed, including plans for:
internal and external communications; training; and systems and process
redevelopments based on evolving business practices of customers, vendors,
employees, banks and public and government institutions. Steps are now being
taken to implement these plans.
Based upon Mobil's assessment of the impact of the euro on Mobil and the steps
Mobil is taking to deal with this impact, Mobil does not expect that the
introduction of the euro will have a significant negative impact on Mobil's
operations, results of operation, liquidity and/or financial condition. Mobil
estimates that approximately $30 million after-tax will be spent on euro-related
conversion processes from 1998 through 2002. These costs are being funded with
cash flows from operations.
MOBIL - 14 -
<PAGE>
The Euro - concluded
The foregoing discussion about the euro includes several 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
expectations as to the impact of the euro on Mobil and Mobil's estimate of the
cost of converting to the euro. Actual results, however, could differ materially
from those expressed in such forward-looking statements for a number of reasons,
including without limitation, the following: changes in the form of, and/or the
timetable for or regulatory details relating to the introduction of, the euro
from what Mobil has assumed; Mobil's inability to implement in a timely manner
its plans for dealing with the impact of the euro; and the inability or failure
of third parties with whom Mobil has significant euro-based relationships to
convert to the euro on a timely basis.
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 such as refineries, production facilities,
pipelines and marine vessels; and Mobil's business relationships with third
parties such as suppliers, customers, joint-venture companies and governments
(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
MOBIL - 15 -
<PAGE>
Year 2000 - continued
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.
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 with
extensive experience in resolving year 2000 issues, 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 September 30, 1998. 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 61% of the major integrated enterprise software
system implementation project had been completed as of September 30, 1998. Mobil
estimates that approximately 43% of the projects comprising the work to upgrade
and replace other systems had been completed as of September 30, 1998.
The inventory and assessment phase of the work dealing with non-IT systems is
essentially complete. The strategy and planning phase of this work is expected
to be completed by March 31, 1999, and Mobil estimates that it was approximately
72% complete as of September 30, 1998. 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 7% of the
projects comprising this work had been completed as of September 30, 1998.
The inventory and assessment phase of the work dealing with relationships with
external agents is essentially complete. The communication and evaluation phase
of this work is expected to be completed by March 31, 1999, and Mobil estimates
that approximately 65% of the suppliers whose relationships Mobil judges to be
materially important had been contacted and had responded as of September 30,
1998. The follow-up phase of this work will be undertaken on a continuous,
ongoing basis through the end of 1999, and consequently Mobil does not believe
that it would be meaningful to provide an estimate of the percentage of such
work that has been completed as of a particular date.
MOBIL - 16 -
<PAGE>
Year 2000 - continued
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 $200 million, of which the costs of dealing with IT
systems are expected to be about $178 million and the costs of dealing with
non-IT systems are expected to be about $22 million (the costs of dealing with
relationships with external agents are expected to be minimal). As of September
30, 1998, about $89 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
$290 million, and as of September 30, 1998, about $154 million of these costs
had been expended.
All Project costs are being funded with cash flows from operations. The $200
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 $290 million which Mobil estimates will be expended on new
systems that improve business functionality and in many cases concurrently
provide year 2000 compliance, approximately $110 million is being expensed as it
is incurred and approximately $180 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.
MOBIL - 17 -
<PAGE>
Year 2000 - continued
To minimize the risks associated with the year 2000 issue, 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. A key
aspect of this work will be to determine the most reasonably likely worst-case
scenarios, since the development of contingency plans for mitigating the impact
of these will have the highest priority. At this time, Mobil has not yet
identified specific most reasonably likely worst-case scenarios. Mobil believes,
however, that these scenarios will likely involve the failure for year 2000
reasons of one or more materially important relationships with external agents.
Work on identifying scenarios involving failures for year 2000 reasons and on
the development of contingency plans for mitigating their impact will intensify
over the next two quarters as the last phases of the Project work come to a
close and Mobil acquires additional and better information about potential year
2000 risks.
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 Issue
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
MOBIL - 18 -
<PAGE>
Year 2000 - concluded
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.
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.
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 potentially
responsible parties have been named in court or administrative proceedings by
federal or state agencies seeking the cleanup of these sites. 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
MOBIL - 19 -
<PAGE>
Legal Proceedings - concluded
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 August 27, 1998, the Department of Environmental Protection of the
Commonwealth of Massachusetts issued a draft Consent Order and Notice of
Violation alleging a number of air and waste regulatory violations relating to
the operations of nineteen Mobil Oil Corporation service stations in
Massachusetts, and seeking a penalty of $407,335. Settlement discussions are
underway.
On September 2, 1998, a previously reported matter, involving allegations by
Orange County, California that monitoring equipment to detect liquids in the
fiber trench systems that underlie 36 Mobil Oil Corporation service stations in
the County failed to comply with the rules therefor, was settled. The County had
indicated that to settle its complaint, it would require, inter alia, a penalty
payment of $100,000 per station, or a total of $3,600,000; under the settlement,
Mobil Oil Corporation agreed to (a) pay stipulated penalties of $500,000, (b)
pay stipulated costs of $250,000, (c) implement a workplan with modifications
and upgrades which exceed the requirements of the applicable regulations, (d)
make contributions to various environmental projects which will total $250,000,
and (e) dissolve a previous stipulated judgment entered into in 1995.
During the third quarter of 1998, Mobil Oil Corporation reached agreement with
the California Air Resources Board on a settlement of allegations of
under-additization at Mobil Oil Corporation's terminals in California. Under the
settlement, Mobil Oil Corporation agreed to pay a penalty of $150,000 and to
undertake a supplemental environmental project valued at $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.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
MOBIL - 20 -
<PAGE>
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits.
The following exhibits are filed with this report:
11. Computation of Earnings Per Common Share
12. Computation of Ratio of Earnings to Fixed Charges
27. Financial Data Schedule (electronic only)
Reports on Form 8-K.
Mobil filed the following Current Reports on Form 8-K during and subsequent
to the end of the third quarter:
Date of 8-K Description of 8-K
October 28, 1998 Submitted a copy of the Mobil News Release issued
October 28, 1998, reporting Mobil's estimated
earnings for the third quarter of 1998.
MOBIL - 21 -
<PAGE>
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 November 12, 1998
MOBIL - 22 -
<PAGE>
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
- ------- ----------------
11. Computation of Earnings Per Electronic
Common Share
12. Computation of Ratio of Earnings Electronic
to Fixed Charges
27. Financial Data Schedule Electronic
MOBIL - 23 -
<PAGE>
Exhibit 11.
MOBIL CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(In millions, except for per-share amounts;
number of shares in thousands)
For the Three Months
Ended September 30
___________________
1997 1998
________ ________
Net Income .................................................. $ 892 $ 509
Less: dividends on preferred stock .......................... 13 13
------- -------
Adjusted net income applicable to common shares ............. $ 879 $ 496
======= =======
Weighted average number of basic common shares outstanding .. 785,798 780,708*
======= =======
Net income per common share ................................. $ 1.12 $ 0.64
======= =======
Net Income .................................................. $ 892 $ 509
Less: additional contribution to ESOP ....................... 2 1
Less: Stock Appreciation Rights compensation
(expense) income .................................... (2) -
------- -------
Adjusted net income applicable to common shares ............. $ 892 $ 508
======= =======
Weighted average number of basic common shares outstanding .. 785,798 780,708*
Issuable on assumed exercise of stock options ............... 12,978 10,954
Assumed conversion of preferred stock ....................... 17,254 16,733
------- -------
Total .................................................. 816,030 808,395*
======= =======
Net income per common share -- assuming dilution ............ $ 1.09 $ 0.63
======= =======
___________
*Excludes 7,383,110 outstanding shares held by a benefit plan trust on
September 30, 1998 that are accounted for in a manner similar to treasury stock
due to a required change in accounting for shares held by such a trust on and
after that date.
MOBIL - 24 -
<PAGE>
Exhibit 11. (concluded)
MOBIL CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(In millions, except for per-share amounts;
number of shares in thousands)
For the Nine Months
Ended September 30,
-------------------
1997 1998
-------- --------
Net income .................................................$ 2,568 $ 1,856
Less dividends on preferred stock .......................... 39 38
-------- --------
Adjusted net income applicable to common shares ............$ 2,529 $ 1,818
======== ========
Weighted average number of basic common shares outstanding . 786,975 781,461*
======== ========
Net income per common share ................................$ 3.21 $ 2.33
======== ========
Net Income .................................................$ 2,568 $ 1,856
Less: additional contribution to ESOP ...................... 6 4
Less: Stock Appreciation Rights compensation
(expense) income ................................... (5) 4
-------- --------
Adjusted net income applicable to common shares ............$ 2,567 $ 1,848
======== ========
Weighted average number of basic common shares outstanding . 786,975 781,461*
Issuable on assumed exercise of stock options .............. 11,430 11,390
Assumed conversion of preferred stock....................... 17,376 16,863
-------- --------
Total ................................................... 815,781 809,714*
======== ========
Net income per common share -- assuming dilution ...........$ 3.15 $ 2.28
======== ========
___________
*Excludes 7,383,110 outstanding shares held by a benefit plan trust on September
30, 1998 that are accounted for in a manner similar to treasury stock due to a
required change in accounting for shares held by such a trust on and after that
date.
MOBIL - 25 -
<PAGE>
Exhibit 12.
MOBIL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions)
Nine
Months
Ended
Year Ended December 31, Sept.30,
__________________________________________ ________
1993 1994 1995 1996 1997 1998
______ ______ ______ ______ ______ ______
Income Before Change in
Accounting Principle .... $2,084 $1,759 $2,376 $2,964 $3,272 $1,856
Add:
Income taxes .............. 1,931 1,919 2,015 3,147 3,093 1,252
Portion of rents
representative of
interest factor ......... 339 340 368 376 346 260
Interest and debt
discount expense ........ 529(a) 461 467 455 428 350
Earnings less (greater)
than distributions from
equity affiliates........ 265 (40) (51) 153 (59) 98
------ ------ ------ ------ ------ ------
Income as Adjusted ........ $5,148 $4,439 $5,175 $7,095 $7,080 $3,816
====== ====== ====== ====== ====== ======
Fixed Charges:
Interest and debt
discount expense ........ $ 529(a) $ 461 $ 467 $ 455 $ 428 $ 350
Capitalized interest ...... 42 37 47 78 101 52
Portion of rents
representative of
interest factor ......... 339 340 368 376 346 260
------ ------ ------ ------ ------ ------
Total Fixed Charges ....... $ 910 $ 838 $ 882 $ 909 $ 875 $ 662
====== ====== ====== ====== ====== ======
Ratio of Earnings to
Fixed Charges ........... 5.7(a) 5.3 5.9 7.8 8.1 5.8
====== ====== ====== ====== ====== ======
Note:
For the years ended December 31, 1993, 1994, 1995, 1996 and 1997 and the nine
months ended September 30, 1998, Fixed Charges exclude $31 million, $37 million,
$28 million, $24 million, $29 million and $19 million, respectively, of interest
expense attributable to debt issued by the Mobil Oil Corporation Employee Stock
Ownership Plan Trust and guaranteed by Mobil.
(a) Excludes the favorable effect of $205 million of interest benefits
from the resolution of prior-period tax issues.
MOBIL - 26 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ART. 5 FINANCIAL DATA SCHEDULE (FDS) FOR PERIOD ENDED SEPTEMBER 30, 1998
This schedule contains summary financial information extracted from the
September 30, 1998 Form 10-Q, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000067182
<NAME> JOYCE NICHOLS
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,256
<SECURITIES> 0
<RECEIVABLES> 5,249
<ALLOWANCES> 0
<INVENTORY> 2,241
<CURRENT-ASSETS> 9,787
<PP&E> 50,573
<DEPRECIATION> 25,667
<TOTAL-ASSETS> 43,697
<CURRENT-LIABILITIES> 12,848
<BONDS> 3,957
0
648
<COMMON> 897
<OTHER-SE> 17,535
<TOTAL-LIABILITY-AND-EQUITY> 43,697
<SALES> 39,289<F1>
<TOTAL-REVENUES> 40,349<F1>
<CGS> 24,738
<TOTAL-COSTS> 26,591
<OTHER-EXPENSES> 7,573
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 350
<INCOME-PRETAX> 3,108
<INCOME-TAX> 1,252
<INCOME-CONTINUING> 1,856
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,856
<EPS-PRIMARY> 2.33
<EPS-DILUTED> 2.28
<FN>
<F1>SALES AND TOTAL REVENUES INCLUDE $4,323 MILLION OF EXCISE AND STATE
GASOLINE TAXES
</FN>
</TABLE>
