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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 June 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 July 31, 1998, the
latest practicable date, was 781,706,714.
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<PAGE>
MOBIL CORPORATION
Form 10-Q
Quarterly Report
June 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 Six Months Ended
June 30, 1997 and 1998 ....................... 1
Consolidated Balance Sheet at December 31, 1997
and June 30, 1998 ............................ 2
Consolidated Statement of Cash Flows for the
Six Months Ended June 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 ................................ 14
Item 2. Changes in Securities ............................ 15
Item 3. Defaults Upon Senior Securities .................. 15
Item 4. Submission of Matters to a Vote of Security
Holders ........................................ 15
Item 5. Other Information ................................ 16
Item 6. Exhibits and Reports on Form 8-K ................. 16
SIGNATURE .................................................. 18
EXHIBIT INDEX .............................................. 19
Exhibit 11. Computation of Earnings per Common Share ..... 20
Exhibit 12. Computation of Ratio of Earnings to Fixed
Charges .................................... 22
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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 Six Months
Ended June 30, | Ended June 30,
------------------ | -----------------
1997 1998 | 1997 1998
-------- ------- | -------- -------
Revenues |
Sales and services (a) ................. $16,372 $13,023 | $32,307 $26,411
Income from equity affiliates .......... 167 55 | 269 181
Income from asset sales, interest |
and other ............................ 210 155 | 359 271
------- ------- | ------- -------
|
Total Revenues ....................... 16,749 13,233 | 32,935 26,863
------- ------- | ------- -------
Costs and Expenses |
Crude oil, products and operating |
supplies and expenses ................ 10,531 8,074 | 20,999 16,477
Exploration expenses ................... 82 97 | 157 171
Selling and general expenses ........... 1,136 939 | 1,942 1,873
Depreciation, depletion and amortization 615 621 | 1,258 1,220
Interest and debt discount expense ..... 91 30 | 189 123
Taxes other than income taxes (a) ...... 2,706 2,438 | 5,112 4,731
Income taxes ........................... 738 392 | 1,602 921
------- ------- | ------- -------
Total Costs and Expenses ............. 15,899 12,591 | 31,259 25,516
------- ------- | ------- -------
Net Income ............................... $ 850 $ 642 | $ 1,676 $ 1,347
======= ======= | ======= =======
|
Net Income Per Common Share .............. $ 1.06 $ 0.81 | $ 2.10 $ 1.69
======= ======= | ======= =======
Assuming Dilution ...................... $ 1.04 $ 0.79 | $ 2.05 $ 1.65
======= ======= | ======= =======
Dividends Per Common Share ............... $ .53 $ .57 | $ 1.06 $ 1.14
======= ======= | ======= =======
|
|
|
- -------------- |
|
(a) Includes excise and state gasoline |
taxes of ........................... $ 1,524 $ 1,543 | $ 2,946 $ 2,894
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, June 30,
ASSETS 1997 1998
------- -------
Current Assets
Cash and cash equivalents ................................ $ 820 $ 1,057
Accounts and notes receivable ............................ 5,952 5,173
Inventories .............................................. 2,156 2,265
Prepaid expenses and other current assets ................ 623 658
Deferred income taxes .................................... 171 145
------- -------
Total Current Assets ................................... 9,722 9,298
Investments and Long-Term Receivables ...................... 8,479 8,620
Properties, Plants and Equipment ........................... 49,630 50,507
Less: Accumulated Depreciation, Depletion and Amortization . 25,074 25,711
------- -------
Net Properties, Plants and Equipment ....................... 24,556 24,796
Deferred Charges and Other Assets .......................... 802 782
------- -------
Total Assets ........................................... $43,559 $43,496
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt .......................................... $ 2,994 $ 4,620
Accounts payable ......................................... 4,418 3,412
Accrued liabilities ...................................... 2,794 2,406
Income, excise, state gasoline and other taxes payable ... 1,906 1,618
Deferred income taxes .................................... 309 223
------- -------
Total Current Liabilities .............................. 12,421 12,279
Long-Term Debt ............................................. 3,670 3,725
Reserves for Employee Benefits ............................. 1,745 1,733
Accrued Restoration, Removal and Environmental Costs ....... 1,072 1,079
Deferred Credits and Other Noncurrent Obligations .......... 1,274 1,240
Deferred Income Taxes ...................................... 3,535 3,538
Minority Interest in Subsidiary Companies .................. 381 394
------- -------
Total Liabilities ...................................... 24,098 23,988
------- -------
Shareholders' Equity
Preferred stock (ESOP-related) -- shares issued and
outstanding: 171,093 at December 31, 1997 and
168,206 at June 30, 1998 ............................... 665 654
Unearned employee compensation (ESOP-related) ............ (329) (310)
Common stock -- $1.00 par value; shares authorized:
1,200,000,000; shares issued: 894,308,872 at
December 31, 1997 and 896,363,501 at June 30, 1998 ..... 894 896
Capital surplus .......................................... 1,549 1,605
Earnings retained in the business ........................ 20,661 21,092
Cumulative foreign exchange translation adjustment ....... (821) (994)
Common stock held in treasury, at cost -- shares:
110,945,100 at December 31, 1997 and 114,733,800 at
June 30, 1998 .......................................... (3,158) (3,435)
------- -------
Total Shareholders' Equity ............................. 19,461 19,508
------- -------
Total Liabilities and Shareholders' Equity ................. $43,559 $43,496
======= =======
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 Six Months
Ended June 30,
-------------------
1997 1998
------- -------
Cash Flows from Operating Activities
Net Income ......................................... $ 1,676 $ 1,347
Adjustments to reconcile to net cash from
operating activities:
Depreciation, depletion and amortization ....... 1,258 1,220
Deferred income taxes .......................... 123 (37)
Earnings (greater) less than distributions from
equity affiliates ............................ (126) 128
Exploration expenses (includes noncash
charges: 1997-$14; 1998-$11) ................ 157 171
Gain on sales of properties, plants and
equipment and other assets ................... (80) (64)
Increase in working capital items .............. (645) (1,068)
Other, net (a).................................. 18 (48)
------- -------
Net Cash from Operating Activities ................... 2,381 1,649
------- -------
Cash Flows from Investing Activities
Capital and exploration expenditures ............... (1,854) (2,008)
Proceeds from sales of properties, plants and
equipment and other assets ....................... 220 170
Payments attributable to investments and
long-term receivables ............................ (330) (247)
------- -------
Net Cash Used in Investing Activities ................ (1,964) (2,085)
------- -------
Cash Flows from Financing Activities
Cash dividends ..................................... (861) (916)
Proceeds from borrowings having original
terms greater than three months .................. 491 620
Repayments of borrowings having original
terms greater than three months .................. (1,301) (588)
Increase in other borrowings ....................... 1,406 1,746
Increase in minority interest (a)................... 53 25
Proceeds from issuance of common stock ............. 55 58
Purchase of common stock for treasury .............. (163) (277)
------- -------
Net Cash (Used in) Provided by Financing Activities .. (320) 668
------- -------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents ................................... (18) 5
------- -------
Net Increase in Cash and Cash Equivalents ............ 79 237
Cash and Cash Equivalents - Beginning of Period ...... 808 820
------- -------
Cash and Cash Equivalents - End of Period ............ $ 887 $ 1,057
======= =======
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Memo:
Net cash from operating activities (a)............... $ 2,381 $ 1,649
Net cash used in investing activities ............... (1,964) (2,085)
Cash dividends ...................................... (861) (916)
------- -------
Shortfall of cash from operating activities over
investing activities and dividends ................ $ (444) $(1,352)
======= =======
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(a) Prior year data restated to conform with current year presentation.
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 six months ended June 30, 1997 and 1998, are as follows:
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(In millions) Three Months | Six Months
Ended June 30, | Ended June 30,
-------------- -------------
1997 1998 | 1997 1998
------ ------ | ------ ------
Net Income .................................. $ 850 $ 642 | $1,676 $1,347
Foreign currency translation adjustments .... 100 (195) | (205) (173)
----- ----- | ----- -----
Changes in nonowner equity .................. $ 950 $ 447 | $1,471 $1,174
===== ===== | ===== =====
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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 Six Months
Ended June 30,
--------------------
1997 1998
Changes in Working Capital Items
(Increases)/decreases
Accounts and notes receivable ................. $ 918 $ 672
Inventories ................................... (168) (180)
Prepaid expenses and other current assets ..... (169) (57)
Accounts payable .............................. (839) (905)
Accrued liabilities ........................... (121) (346)
Income, excise, state gasoline and
other taxes payable ......................... (266) (252)
----- --------
Increase in working capital items ............. $(645) $(1,068)
===== =======
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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.
5. Subsequent Event
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 evaluating options to approach the Peruvian
government and continue discussions. Mobil has invested $101 million in the
appraisal phase. In the event the project does not proceed, it is expected
that additional exit costs of $30-$50 million will be incurred.
MOBIL - 5 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
RESULTS OF OPERATIONS
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REPORTED EARNINGS Second Quarter |First Six Months
(In millions) ______________ Incr./|_________________ Incr./
(Decr.)| (Decr.)
1997 1998 | 1997 1998
---- ---- ----- ---- ----
Petroleum Operations |
E&P - United States ..........$ 127 $ 44 $ (83) | $ 351 $ 124 $ (227)
- International .......... 331 191 (140) | 801 501 (300)
----- ----- ----- | ------ ------ ------
Total E&P .................... 458 235 (223) | 1,152 625 (527)
----- ----- ----- | ------ ------ ------
M&R - United States .......... 194 194 - | 152 280 128
- International .......... 206 210 4 | 380 439 59
----- ----- ----- | ------ ------ ------
Total M&R .................... 400 404 4 | 532 719 187
----- ----- ----- | ------ ------ ------
Total Petroleum ................ 858 639 (219) | 1,684 1,344 (340)
|
Chemical ....................... 91 58 (33) | 176 125 (51)
Corporate and Financing (a)..... (99) (55) 44 | (184) (122) 62
----- ----- ----- | ------ ------ ------
Net Income .....................$ 850 $ 642 $(208) | $1,676 $1,347 $ (329)
===== ===== ===== | ====== ====== ======
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OPERATING EARNINGS Second Quarter |First Six Months
(Adjusted for Special Items) ______________ Incr./|_________________ Incr./
(In millions) (Decr.)| (Decr.)
1997 1998 | 1997 1998
---- ---- ----- ---- ----
Petroleum Operations |
E&P - United States ..........$ 127 $ 44 $ (83) | $ 351 $ 124 $ (227)
- International .......... 331 191 (140) | 801 501 (300)
----- ----- ----- | ------ ------ ------
Total E&P .................... 458 235 (223) | 1,152 625 (527)
----- ----- ----- | ------ ------ ------
M&R - United States .......... 194 194 - | 152 280 128
- International .......... 226 223 (3) | 418 462 44
----- ----- ----- | ------ ------ ------
Total M&R .................... 420 417 (3) | 570 742 172
----- ----- ----- | ------ ------ ------
Total Petroleum ................ 878 652 (226) | 1,722 1,367 (355)
|
Chemical ....................... 91 58 (33) | 176 125 (51)
Corporate and Financing (a)..... (99) (55) 44 | (184) (122) 62
----- ----- ----- | ------ ------ ------
Income Excluding Special Items.. 870 655 (215) | 1,714 1,370 (344)
Special Items (table on page 7) (20) (13) 7 | (38) (23) 15
----- ----- ----- | ------ ------ ------
Net Income .....................$ 850 $ 642 $(208) | $1,676 $1,347 $ (329)
===== ===== ===== | ====== ====== ======
-------------------------------------------------------------------------------
(a) Corporate and Financing includes corporate administrative expenses, net
financing expense and other items.
MOBIL - 6 -
<PAGE>
______________________________________________________________________________
SPECIAL ITEMS Second Quarter | First Six Months
(In millions) |
1997 1998 | 1997 1998
---- ---- ---- ----
|
Restructuring ..................... $ (20) $ (13) | $ (38) $ (23)
----- ----- | ----- -----
Total Special Items ............... $ (20) $ (13) | $ (38) $ (23)
===== ===== ===== =====
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- --------------------------------------------------------------------------------
REVENUES BY SEGMENT Second Quarter | First Six Months
(In millions) Incr./| Incr./
(Decr.)| (Decr.)
1997 1998 % | 1997 1998 %
---- ---- ----- ---- ---- ----
|
Exploration & Producing ... $ 1,695 $ 1,456 (14) | $ 3,826 $ 3,043 (20)
Marketing & Refining ...... 14,191 11,089 (22) | 27,394 22,397 (18)
Chemical .................. 790 657 (17) | 1,597 1,356 (15)
Other ..................... 73 31 (58) | 118 67 (43)
------- ------- | ------- -------
Total Revenues .......... $16,749 $13,233 (21) | $32,935 $26,863 (18)
======= ======= | ======= =======
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CONSOLIDATED RESULTS OVERVIEW
SECOND QUARTER 1998 COMPARED WITH SECOND QUARTER 1997
Consolidated second quarter net income was $642 million, a decrease of $208
million from the $850 million reported for the second quarter of 1997. Earnings
per common share, assuming dilution, for the second quarter of 1998 were $0.79,
compared with $1.04 for the second quarter of 1997. Special charges this year of
$13 million were for implementation expenses associated with the Mobil-British
Petroleum (BP) downstream alliance in Europe. The second quarter of 1997
included special charges of $20 million, also for BP alliance implementation
costs. Excluding special items from both periods, second quarter 1998 operating
earnings of $655 million decreased $215 million, or 25%.
Earnings in the second quarter were hurt by significantly lower crude oil
prices, down about $5 per barrel from the same period last year, as well as by
weak industry fundamentals in many of Mobil's businesses. International natural
gas prices trended lower, particularly for LNG; Asia-Pacific downstream margins,
both refining and marketing, weakened considerably; and petrochemical margins
remained under downward pressure. Considering these fundamentals, the company's
earnings held up fairly well due to about $90 million of benefits from self-help
initiatives. During the first six months, self-help has contributed almost $200
million to Mobil's 1998 earnings.
In the Downstream, self-help included continued growth in trade sales volumes,
strong refinery performance and contributions from on-going initiatives. In the
U.S., strong refinery performance and the effects of successful marketing
programs to increase gasoline sales contributed to record second quarter and six
months earnings. Benefits from the BP downstream alliance in Europe continued to
grow, and in Asia-Pacific, earnings were up despite significantly lower margins,
benefiting from numerous initiatives implemented over the last year and improved
refinery performance. Lube earnings were higher, benefiting from initiatives and
increased margins due to lower feedstock costs.
MOBIL - 7 -
<PAGE>
CONSOLIDATED RESULTS OVERVIEW - continued
In the Upstream, lower worldwide crude oil and international natural gas
prices reduced earnings by over $200 million. Additionally, Mobil's year-to-date
production was nearly 2% lower than during the same period last year, largely
due to temporary constraining factors. These factors include economic conditions
in Asia, which have resulted in the deferral of LNG cargoes from Indonesia, and
cutbacks in OPEC quotas, which primarily impact Mobil's Nigerian operations.
Longer term, the company's goal to grow production by an average of 4% per year
remains unchanged.
Worldwide revenues in the second quarter of 1998 of $13,233 million were
$3,516 million lower than revenues in the second quarter of 1997, reflecting the
effects of significantly lower worldwide average crude oil and international
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 and higher average U.S. natural gas
prices.
Crude oil, products and operating supplies and expenses decreased by $2,457
million to $8,074 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 the U.S., mainly due to a higher
level of deep-water Gulf of Mexico activity and a larger overall program this
year. Selling and general expenses decreased $197 million to $939 million, due
to timing of incurring certain expenses and benefits from cost reduction
initiatives. Depreciation, depletion and amortization expenses were about the
same in both periods as decreases related to the effects of equity accounting
for the Aera upstream alliance with Shell in June 1997 and the Chalmette
refinery alliance, formed late in 1997, were offset by the effects of new
capital projects. Interest and debt discount expense decreased $61 million
reflecting lower debt levels this year and certain favorable one-time items.
Taxes other than income taxes decreased $268 million to $2,438 million, mainly
due to the effects of lower hydrocarbon and product sales prices. Income tax
expense decreased $346 million to $392 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 SIX MONTHS 1998 COMPARED WITH FIRST SIX MONTHS 1997
Mobil's first half 1998 net income was $1,347 million, compared with $1,676
million for the same period of 1997. This year's results included special
charges of $23 million for expenses related to implementation of the Mobil-BP
European alliance. First half 1997 net income included special charges of $38
million, also for BP alliance implementation costs.
Excluding special items, first half operating earnings of $1,370 million were
down $344 million, or 20%, from the comparable period of 1997. The decline was
primarily due to the significant drop in worldwide crude oil and natural gas
prices and lower downstream margins in Asia-Pacific, partly offset by self-help
initiatives and stronger downstream margins in the U.S. and Europe. Self-help
included the overall favorable effects of volumes, excellent refinery
performance and benefits from the Mobil-BP European downstream alliance.
Additionally, Asia-Pacific downstream benefited from on-going restructuring
initiatives throughout the region.
MOBIL - 8 -
<PAGE>
CONSOLIDATED RESULTS OVERVIEW - continued
Six month 1998 revenues of $26,863 million were $6,072 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
effects of higher overall sales volumes.
Crude oil, products and operating supplies and expenses decreased in the first
half of 1998 by $4,522 million to $16,477 million compared with the same period
last year, primarily due to lower worldwide average crude oil and petroleum
product prices, slightly offset by higher volume-related expenses. Selling and
general expenses decreased $69 million to $1,873 million, primarily due to
expense reductions associated with cost saving initiatives, partly offset by
growth-related expenses in new venture areas. Depreciation, depletion and
amortization expenses were slightly lower as decreases related to the effects of
equity accounting for the Aera upstream alliance with Shell in June 1997 and the
Chalmette refinery alliance, formed late in 1997, were largely offset by new
capital projects. Interest and debt discount expense decreased $66 million
reflecting lower debt levels this year and certain one-time favorable items.
Taxes other than income taxes decreased $381 million to $4,731 million, due to
the impact of lower average hydrocarbon and product sales prices. Income tax
expense decreased $681 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 Second Quarter First Six Months
Incr./(Decr.) Incr./(Decr.)
------------- -------------
1997 1998 Vol. % 1997 1998 Vol. %
---- ---- ---- ---- ---- ---- ----- ---
Net Crude Oil and NGL |
Production (TBD) - U.S. .. 248 242 (6) (2)| 241 241 - -
- Intl. . 674 677 3 - | 664 679 15 2
----- ----- ----- |----- ----- -----
Total .................... 922 919 (3) - | 905 920 15 2
===== ===== ===== |===== ===== =====
Net Natural Gas |
Production (MMCFD) - U.S. .. 1,136 1,119 (17) (1)|1,172 1,121 (51) (4)
- Intl.(a) 3,259 3,074 (185) (6)|3,502 3,323 (179) (5)
----- ----- ----- |----- ----- -----
Total .................... 4,395 4,193 (202) (5)|4,674 4,444 (230) (5)
===== ===== ===== |===== ===== =====
TOTAL NET PRODUCTION (TBDOE).. 1,718 1,679 (39) (2)|1,752 1,725 (27) (2)
===== ===== ===== |===== ===== =====
- -------------------------------------------------------------------------------
(a) Year-to-date production reflects a downward restatement of Indonesia first
quarter 1998.
SECOND QUARTER 1998 COMPARED WITH SECOND QUARTER 1997
Exploration and Producing income of $235 million was $223 million lower than
in the second quarter of last year.
In the United States, income was $44 million, down $83 million, as
significantly lower crude oil prices and higher exploration expenses were only
partly offset by higher natural gas prices.
International income of $191 million was $140 million lower, primarily
reflecting a large decline in crude oil and natural gas prices. The effects of
higher liquids volumes in Canada, Equatorial Guinea and Australia were offset by
the effects of OPEC constraints, mainly in Nigeria, and the deferral of LNG
cargoes from Indonesia.
FIRST SIX MONTHS 1998 COMPARED WITH FIRST SIX MONTHS 1997
Exploration and Producing income of $625 million was $527 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, the deferral
of LNG cargoes from Indonesia and milder weather in Europe. Additionally, U.S.
natural gas production was lower, reflecting some operational problems earlier
in the year, prior period asset sales and field declines.
Growth-related expenses were somewhat higher in new venture areas.
MOBIL - 10 -
<PAGE>
Marketing and Refining
Marketing and Refining Second Quarter First Six Months
Selected Operating Data Incr./(Decr.) Incr./(Decr.)
1997 1998 Vol. % 1997 1998 Vol. %
----- ----- --- -- ----- ----- --- --
Petroleum Product
Sales (TBD)(a) - U.S. ... 1,449 1,452 3 - | 1,404 1,406 2 -
- Intl.(b) 1,831 1,915 84 5 | 1,887 1,941 54 3
----- ----- --- | ----- ----- ---
Total .................. 3,280 3,367 87 3 | 3,291 3,347 56 2
===== ===== === | ===== ===== ===
|
Refinery Runs (TBD) |
- U.S. ... 978 941 (37) (4)| 919 921 2 -
- Intl.(b) 1,139 1,224 85 7 | 1,185 1,259 74 6
----- ----- --- | ----- ----- ---
Total .................. 2,117 2,165 48 2 | 2,104 2,180 76 4
===== ===== === | ===== ===== ===
(a) Includes supply/other sales
(b) Includes Mobil's share for the European alliance with BP.
- --------------------------------------------------------------------------------
SECOND QUARTER 1998 COMPARED WITH SECOND QUARTER 1997
Marketing and Refining net income was $404 million in the second quarter of
1998 versus last year's income of $400 million. This quarter's results included
special charges of $13 million for implementation costs for the Mobil-BP
European alliance while last year's income included $20 million for BP alliance
implementation costs. Excluding special charges from both periods, operating
earnings of $417 million were $3 million lower than last year.
Operating earnings in the United States were $194 million, matching last
year's record second quarter results. This quarter's strong results were driven
by excellent operating performance, strong integrated margins and the effects of
various successful marketing programs. Gasoline trade sales were 6% higher than
last year and lube income was up due to improved margins and the effects of this
quarter's product mix.
International earnings of $223 million were $3 million lower than in 1997. In
Europe, earnings were higher due to stronger integrated margins and additional
benefits from the Mobil-BP alliance. Earnings were also stronger in
Asia-Pacific, despite the significant deterioration in both refining and
marketing margins. Earnings benefited from performance initiatives in the
region, improved refinery performance and higher trade sales volumes. Other
international earnings were negatively impacted by the scheduled turnaround at
Mobil's Yanbu, Saudi Arabia joint venture refinery and lower margins for product
exports from this facility.
FIRST SIX MONTHS 1998 COMPARED WITH FIRST SIX MONTHS 1997
Marketing and Refining net income was $719 million for the first six months of
1998 compared with net income of $532 million last year. Excluding $23 million
of special charges this year for implementation costs related to the Mobil-BP
alliance and $38 million of these charges last year, operating earnings of $742
million were $172 million higher than last year. Earnings were higher due to the
effects of various restructuring initiatives, mostly in Asia-Pacific, higher
product sales volumes, excellent refinery performance and benefits from the
Mobil-BP European alliance. Higher margins in the U.S. and Europe were partly
offset by lower margins in Asia-Pacific.
MOBIL - 11 -
<PAGE>
Chemical
SECOND QUARTER AND FIRST SIX MONTH COMPARISONS OF 1998 WITH 1997
Chemical income of $58 million was $33 million lower than last year's second
quarter. In the first six months of 1998, Chemical income was $125 million
compared with $176 million in the same period last year. The decrease in both
periods reflects lower polyethylene and paraxylene margins, partly offset by the
effect of higher volumes, lower expenses and improved plant reliability.
Corporate and Financing
SECOND QUARTER AND FIRST SIX MONTH COMPARISONS OF 1998 WITH 1997
Corporate and Financing expense was $55 million in the second quarter of 1998
compared with $99 million in the same period last year. For the first six months
of 1998, Corporate and Financing expense was $122 million, $62 million lower
than last year. Decreases in both periods reflect lower average net debt
balances and certain one-time favorable items.
ACCOUNTING STANDARDS
In June 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 June 30, 1998 were $9,298 million, a decrease of
$424 million from December 31, 1997. Accounts and notes receivable decreased
$779 million to $5,173 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, Inventories were up mainly due to timing of in-transit shipments
and a seasonal build of gas liquids, partly offset by currency effects.
Total debt of Mobil and its subsidiaries was $8,345 million, $1,681 million
higher than year-end 1997, reflecting reduced earnings and higher working
capital requirements. The debt-to-capitalization ratio was 30% at June 30, 1998,
up from 25% at year-end 1997.
During the first six months of 1998, net cash generated from operating
activities was $1,649 million, $1,352 million less than the cash requirements
for investing activities and dividends. Refer to the table at the bottom of page
3.
Accounts payable decreased $1,006 million primarily due to lower purchase
prices for crude oil and petroleum products.
Income, excise, state gasoline and other taxes payable decreased $288 million
mainly due to the effects of lower average sales prices for hydrocarbons and
petroleum products.
MOBIL - 12 -
<PAGE>
DISCUSSION OF FINANCIAL CONDITION - continued
Shareholders' equity rose $47 million during the first six months of 1998
primarily due to an increase of $431 million in earnings retained in the
business and an increase in capital surplus of $56 million. Largely offsetting
the increase in retained earnings were a net charge in the cumulative foreign
exchange translation adjustment account reflecting a strengthening U.S. dollar
in certain countries in which the company has significant operations ($173
million) and an increase in the cost of common stock held in the treasury as
3,788,700 shares were purchased on the open market to offset the dilutive
effects of stock options ($277 million).
Total investment spending for the second quarter of 1998 was $1,507 million,
an increase of $49 million from the comparable period last year. For the
first six months of 1998, worldwide investment spending was $2,360 million,
compared with $2,292 million for the year-earlier period.
- --------------------------------------------------------------------------------
INVESTMENT SPENDING
(In millions) Second Quarter First Six Months
Capital and Exploration Expenditures 1997 1998 1997 1998
----- ----- ----- -----
Petroleum Operations |
Exploration & Producing - U.S. .... $ 136 $ 174 | $ 208 $ 272
- Intl. ... 629 765 | 1,095 1,266
Marketing & Refining - U.S. .... 77 103 | 152 163
- Intl. ... 150 70 | 244 113
Chemical ............................. 70 70 | 124 96
Other ................................ 20 70 | 31 98
------ ------ | ------ ------
Total Capital and Exploration |
Expenditures ................... $1,082 $1,252 | $1,854 $2,008
------ ------ | ------ ------
Cash Investments in Equity Companies . 376 255 | 438 352
------ ------ | ------ ------
Total Investment Spending $1,458 $1,507 | $2,292 $2,360
====== ====== | ====== ======
---------------------------- |
Memo: |
Exploration Expenses charged |
to income, included above |
- U.S. .... $ 11 $ 32 | $ 16 $ 49
- Intl. ... 71 65 | 141 122
------ ------ | ------ ------
Total Exploration Expenses ....... $ 82 $ 97 | $ 157 $ 171
====== ====== | ====== ======
- --------------------------------------------------------------------------------
Return on average capital employed for the twelve-month period ended June 30,
1998 was 11.4%, compared with 13.4% for the calendar year 1997. Return on
average shareholders' equity was 15.1% for the twelve-month period ended June
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.
At June 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. $1,850 million of
Euro-Medium-Term Notes and bonds having a principal amount of 30 billion
Japanese yen were also in place.
MOBIL - 13 -
<PAGE>
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
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 May 15, 1998, a previously-reported proceeding, brought by the New Jersey
Department of Environmental Protection (the "New Jersey DEP"), was settled. The
New Jersey DEP had alleged, in an Administrative Order and Notice of Civil
Penalty Assessment received by Mobil Oil Corporation on May 2, 1996, that the
operations of Mobil Oil Corporation's Paulsboro, New Jersey refinery had
violated various Clean Air Act requirements. The New Jersey DEP had sought a
penalty of $153,000; the proceeding was settled by a payment of $90,000.
MOBIL - 14 -
<PAGE>
Legal Proceedings - concluded
The foregoing proceeding is not of material importance in relation to Mobil's
accounts and is 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.
At the Annual Meeting of the Shareholders of Mobil Corporation on May 14,
1998, the following matters were voted on:
Shareholders elected five directors for three-year terms expiring at the
Annual Meeting in 2001 and one director for the balance of a three-year term
expiring at the Annual Meeting in 2000. The vote tabulation for individual
directors was:
Directors Shares For Shares Withheld
--------- ---------- ---------------
Lewis M. Branscomb 656,044,763 9,515,505
Allen F. Jacobson 655,828,320 9,731,948
J. Richard Munro 656,601,823 8,958,445
Lucio A. Noto 656,730,604 8,829,664
Robert O. Swanson 656,929,651 8,630,617
Eugene A. Renna 656,964,605 8,595,663
Shareholders approved and ratified the appointment of Ernst & Young LLP as the
company's independent auditors by a vote of 660,164,055 for, 2,763,942 against,
and 2,632,271 abstentions.
A shareholder proposal to limit the authority of Mobil's Board of Directors to
issue preferred stock was defeated with 329,794,421 votes against, 239,353,830
in favor and 13,738,386 votes abstained.
A shareholder proposal calling for cumulative voting in the election of
Mobil's Directors was defeated with 428,683,295 votes against, 135,909,213 votes
in favor and 18,789,336 votes abstained.
MOBIL - 15 -
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders. -- concluded
A shareholder proposal calling for the Board of Directors to review and develop
investment guidelines for country selection was defeated with 515,475,714 votes
against, 37,406,109 votes in favor and 30,464,298 votes abstained.
The text of the above proposals is incorporated by reference to Items 3, 4,
and 5 of Mobil's definitive Proxy Statement dated March 23, 1998, filed with the
SEC pursuant to Regulation 14A on March 23, 1998.
Item 5. Other Information.
1999 Annual Meeting of Stockholders --
Deadlines for Stockholders' Proposals and for Stockholders' Nominations of
Directors
The 1999 Annual Meeting of Stockholders will be held on May 13, 1999.
Stockholders' proposals are eligible for consideration for inclusion in the
proxy statement for the 1999 Annual Meeting pursuant to SEC Rule 14a-8 if such
proposals are received by Mobil before the close of business on November 23,
1998.
Notices of stockholders' proposals submitted outside the processes of SEC Rule
14a-8 will be considered untimely, pursuant to the advance notice requirement
set forth in Article II, Section 1 of Mobil's By-Laws, unless such notices are
delivered to or mailed and received by Mobil during the period beginning on
February 12, 1999 and ending at the close of business on March 12, 1999.
Notices of stockholders' intent to nominate persons for election as directors
at the 1999 Annual Meeting will be considered untimely, pursuant to the advance
notice requirement set forth in Article III, Section 1 of Mobil's By-Laws,
unless such notices have been delivered to or mailed and received by Mobil not
later than the close of business on February 12, 1999.
The proposals and notices referred to above should be sent or given to the
Corporate Secretary, Mobil Corporation, 3225, Gallows Road, Fairfax, Virginia
22037-0001. Copies of Mobil's By-Laws, which set forth additional requirements
for notices of stockholders' proposals submitted outside the processes of SEC
Rule 14a-8 and for stockholders' nominations of persons for election as
directors at the 1999 Annual Meeting, may be obtained from the Corporate
Secretary.
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)
MOBIL - 16 -
<PAGE>
Reports on Form 8-K.
Mobil filed the following Current Reports on Form 8-K during and subsequent
to the end of the second quarter:
Date of 8-K Description of 8-K
April 9, 1998 Submitted a copy of the Mobil Corporation By-Laws, as
amended to February 27, 1998, and restated Financial Data
Schedules for the periods ended December 31, 1995 through
September 30, 1997.
April 22, 1998 Submitted a copy of the Mobil News Release issued April
22, 1998, reporting Mobil's estimated earnings for the first
quarter of 1998.
July 22, 1998 Submitted a copy of the Mobil News Release issued July 22,
1998, reporting Mobil's estimated earnings for the second
quarter of 1998.
MOBIL - 17 -
<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 August 13, 1998
MOBIL - 18 -
<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 - 19 -
<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 June 30
--------------------
1997 1998
-------- --------
Net Income ................................................. $ 850 $ 642
Less: dividends on preferred stock ......................... 13 12
------- -------
Adjusted net income applicable to common shares ............ $ 837 $ 630
======= =======
Weighted average number of basic common shares outstanding . 787,005 781,572
======= =======
Net income per common share ................................ $ 1.06 $ 0.81
======= =======
Net Income ................................................. $ 850 $ 642
Less: additional contribution to ESOP ...................... 2 1
Less: Stock Appreciation Rights compensation
(expense) income ................................... (2) -
------- -------
Adjusted net income applicable to common shares ............ $ 850 $ 641
======= =======
Weighted average number of basic common shares outstanding . 787,005 781,572
Issuable on assumed exercise of stock options .............. 11,267 12,682
Assumed conversion of preferred stock ...................... 17,371 16,857
------- -------
Total ................................................. 815,643 811,111
======= =======
Net income per common share -- assuming dilution ........... $ 1.04 $ 0.79
======= =======
MOBIL - 20 -
<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 Six Months
Ended June 30,
1997 1998
Net income ................................................ $ 1,676 $ 1,347
Less dividends on preferred stock ......................... 26 25
-------- --------
Adjusted net income applicable to common shares ........... $ 1,650 $ 1,322
======== ========
Weighted average number of basic common shares outstanding 787,574 781,843
Net income per common share ............................... $ 2.10 $ 1.69
======== ========
Net Income ................................................ $ 1,676 $ 1,347
Less: additional contribution to ESOP ..................... 4 3
Less: Stock Appreciation Rights compensation
(expense) income .................................. (3) 4
-------- --------
Adjusted net income applicable to common shares ........... $ 1,675 $ 1,340
======== ========
Weighted average number of basic common shares outstanding 787,574 781,843
Issuable on assumed exercise of stock options ............. 10,834 11,898
Assumed conversion of preferred stock ..................... 17,437 16,929
-------- --------
Total .................................................. 815,845 810,670
======== ========
Net income per common share -- assuming dilution .......... $ 2.05 $ 1.65
======== ========
MOBIL - 21 -
<PAGE>
Exhibit 12.
MOBIL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions)
Six
Months
Ended
Year Ended December 31, June 30,
------------------------------------------ --------
1993 1994 1995 1996 1997 1998
------ ------ ------ ------ ------ ------
Income Before Change in
Accounting Principle ... $2,084 $1,759 $2,376 $2,964 $3,272 $1,347
Add:
Income taxes ............. 1,931 1,919 2,015 3,147 3,093 921
Portion of rents
representative of
interest factor ........ 339 340 368 376 346 173
Interest and debt
discount expense ....... 529(a) 461 467 455 428 123
Earnings less (greater)
than distributions from
equity affiliates....... 265 (40) (51) 153 (59) 128
------ ------ ------ ------ ------ ------
Income as Adjusted ....... $5,148 $4,439 $5,175 $7,095 $7,080 $2,692
====== ====== ====== ====== ====== ======
Fixed Charges:
Interest and debt
discount expense ....... $ 529(a) $ 461 $ 467 $ 455 $ 428 $ 123
Capitalized interest ..... 42 37 47 78 101 34
Portion of rents
representative of
interest factor ........ 339 340 368 376 346 173
------ ------ ------ ------ ------ ------
Total Fixed Charges ...... $ 910 $ 838 $ 882 $ 909 $ 875 $ 330
====== ====== ====== ====== ====== ======
Ratio of Earnings to
Fixed Charges .......... 5.7(a) 5.3 5.9 7.8 8.1 8.2
====== ====== ====== ====== ====== ======
Note:
For the years ended December 31, 1993, 1994, 1995, 1996 and 1997 and the six
months ended June 30, 1998, Fixed Charges exclude $31 million, $37 million, $28
million, $24 million, $29 million and $12 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 - 22 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ARTICLE 5 FINANCIAL DATA SCHEDULE (FDS) FOR PERIOD ENDED JUNE 30, 1998 10-Q
This schedule contains summary financial information extracted from the
June 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,057
<SECURITIES> 0
<RECEIVABLES> 5,173
<ALLOWANCES> 0
<INVENTORY> 2,265
<CURRENT-ASSETS> 9,298
<PP&E> 50,507
<DEPRECIATION> 25,711
<TOTAL-ASSETS> 43,496
<CURRENT-LIABILITIES> 12,279
<BONDS> 3,725
0
654
<COMMON> 896
<OTHER-SE> 17,958
<TOTAL-LIABILITY-AND-EQUITY> 43,496
<SALES> 26,411<F1>
<TOTAL-REVENUES> 26,863<F1>
<CGS> 16,477
<TOTAL-COSTS> 17,697
<OTHER-EXPENSES> 4,902
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 123
<INCOME-PRETAX> 2,268
<INCOME-TAX> 921
<INCOME-CONTINUING> 1,347
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,347
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 1.65
<FN>
<F1>SALES AND TOTAL REVENUES INCLUDE $2,894 MILLION OF EXCISE AND STATE
GASOLINE TAXES
</FN>
</TABLE>
