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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 March 31, 1999
Commission file number 1-7555
MOBIL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-2850309
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3225 Gallows Road, Fairfax, VA. 22037-0001
(Address of principal executive offices) (Zip Code)
(703) 846-3000
Registrant's telephone number
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
The number of shares outstanding of the registrant's common stock, all of
which comprise a single class with a $1.00 par value, as of April 30, 1999, the
latest practicable date, was 782,527,660.
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MOBIL CORPORATION
Form 10-Q
Quarterly Report
March 31, 1999
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 Months Ended March 31, 1998 and 1999 ... 1
Consolidated Balance Sheet at December 31,
1998 and March 31, 1999 ...................... 2
Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 1998 and 1999 ... 3
Notes to Condensed Consolidated Financial
Statements ................................... 5
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition .......... 7
Item 3. Quantitative and Qualitative Disclosures
About Market Risk ............................. 16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ............................... 16
Item 2. Changes in Securities ........................... 17
Item 3. Defaults Upon Senior Securities ................. 17
Item 4. Submission of Matters to a Vote of Security
Holders ....................................... 18
Item 5. Other Information ............................... 18
Item 6. Exhibits and Reports on Form 8-K ................ 18
SIGNATURE ................................................. 19
EXHIBIT INDEX ............................................. 19
Exhibit 12. Computation of Ratio of Earnings to Fixed
Charges .................................. 20
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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
Ended March 31,
-----------------
1998 1999
------- -------
Revenues
Sales and services (a) ..................................... $13,388 $11,991
Income from equity affiliates .............................. 126 83
Income from asset sales, interest and other ................ 116 109
------- -------
Total Revenues ........................................... 13,630 12,183
------- -------
Costs and Expenses
Crude oil, products and operating
supplies and expenses .................................... 8,403 7,410
Exploration expenses ....................................... 74 91
Selling and general expenses ............................... 934 799
Depreciation, depletion and amortization ................... 599 597
Interest and debt discount expense ......................... 93 82
Taxes other than income taxes (a) .......................... 2,293 2,493
Income taxes ............................................... 529 247
------- -------
Total Costs and Expenses ................................. 12,925 11,719
------- -------
Net Income ................................................... $ 705 $ 464
======= =======
Net Income Per Common Share .................................. $ 0.88 $ 0.58
======= =======
Net Income Per Common Share -- assuming dilution ............. $ 0.86 $ 0.58
======= =======
Dividends Per Common Share ................................... $ 0.57 $ 0.57
======= =======
- ----------------
(a) Includes excise and state gasoline
taxes of ............................................... $ 1,351 $ 1,432
The accompanying notes are an integral part of these
condensed consolidated financial statements.
MOBIL - 1 -
<PAGE>
MOBIL CORPORATION
CONSOLIDATED BALANCE SHEET
(In millions)
Dec. 31, Mar. 31,
ASSETS 1998 1999
Current Assets
Cash and cash equivalents ................................ $ 714 $ 757
Accounts and notes receivable ............................ 5,518 5,522
Inventories .............................................. 1,911 1,952
Prepaid expenses and other current assets ................ 520 565
Deferred income taxes .................................... 68 71
------- -------
Total Current Assets ................................... 8,731 8,867
Investments and Long-Term Receivables ...................... 8,490 8,331
Properties, Plants and Equipment, at cost................... 48,681 48,930
Less: Accumulated Depreciation, Depletion and Amortization . 23,954 24,147
------- -------
Net Properties, Plants and Equipment ....................... 24,727 24,783
Deferred Charges and Other Assets .......................... 806 815
------- -------
Total Assets ........................................... $42,754 $42,796
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term debt .......................................... $ 3,982 $ 4,811
Accounts payable ......................................... 3,707 3,564
Accrued liabilities ...................................... 2,943 2,775
Income, excise, state gasoline and other taxes payable ... 1,986 2,063
Deferred income taxes .................................... 328 291
------- -------
Total Current Liabilities .............................. 12,946 13,504
Long-Term Debt ............................................. 3,719 3,741
Reserves for Employee Benefits ............................. 2,060 1,998
Accrued Restoration, Removal and Environmental Costs ....... 1,011 1,002
Deferred Credits and Other Noncurrent Obligations .......... 1,021 798
Deferred Income Taxes ...................................... 3,254 3,106
Minority Interest in Subsidiary Companies .................. 373 372
------- -------
Total Liabilities ...................................... 24,384 24,521
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Shareholders' Equity
Preferred stock (ESOP-related) -- shares issued and
outstanding: 164,986 at December 31, 1998 and
162,725 at March 31, 1999 .............................. 641 633
Unearned employee compensation and benefit
plan trust ............................................. (668) (658)
Common stock -- $1.00 par value; shares authorized:
1,200,000,000; shares issued: 897,947,485 at December 31,
1998 and 899,327,950 at March 31, 1999 ................. 898 899
Capital surplus .......................................... 1,649 1,687
Earnings retained in the business ........................ 20,534 20,541
Accumulated other nonowners' equity ...................... (1,058) (1,201)
Common stock held in treasury, at cost -- shares:
117,414,000 at December 31, 1998 and 117,414,000 at
March 31, 1999 ......................................... (3,626) (3,626)
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Total Shareholders' Equity ............................. 18,370 18,275
------- -------
Total Liabilities and Shareholders' Equity ................. $42,754 $42,796
======= =======
The accompanying notes are an integral part of these
condensed consolidated financial statements.
MOBIL - 2 -
<PAGE>
MOBIL CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
For the Three Months
Ended March 31,
-------------------
1998 1999
------- -------
Cash Flows from Operating Activities
Net Income ......................................... $ 705 $ 464
Adjustments to reconcile to net cash from
operating activities:
Depreciation, depletion and amortization ....... 599 597
Deferred income taxes .......................... (42) (134)
Earnings less than dividends from
equity affiliates ............................ 13 16
Exploration expenses (includes noncash
charges: 1998-$6; 1999-$14) ................. 74 91
Gain on sales of properties, plants and
equipment and other assets ................... (33) (11)
Increase in working capital items............... (779) (331)
Other, net ..................................... 19 (14)
------- -------
Net Cash from Operating Activities ................... 556 678
------- -------
Cash Flows from Investing Activities
Capital and exploration expenditures ............... (756) (885)
Proceeds from sales of properties, plants and
equipment and other assets ....................... 98 26
Payments attributable to investments and
long-term receivables ............................ (147) (264)
------- -------
Net Cash Used in Investing Activities ................ (805) (1,123)
------- -------
Cash Flows from Financing Activities
Cash dividends ..................................... (458) (457)
Proceeds from borrowings having original
terms greater than three months .................. 52 482
Repayments of borrowings having original
terms greater than three months .................. (441) (760)
Increase in other borrowings ....................... 1,172 1,177
Increase (decrease) in minority interest ........... 3 (1)
Proceeds from issuance of common stock ............. 38 39
Purchase of common stock for treasury .............. (206) -
------- -------
Net Cash Provided by Financing Activities ............ 160 480
------- -------
Effect of Exchange Rate Changes on Cash and
Cash Equivalents ................................... 7 8
------- -------
Net (Decrease) Increase in Cash and Cash Equivalents . (82) 43
Cash and Cash Equivalents - Beginning of Period ...... 820 714
------- -------
Cash and Cash Equivalents - End of Period ............ $ 738 $ 757
======= =======
The accompanying notes are an integral part of these
condensed consolidated financial statements.
MOBIL - 3 -
<PAGE>
MOBIL CORPORATION
SEGMENT INFORMATION
(In millions)
For the Three Months
Ended March 31,
-------------------
1998 (1) 1999
------- -------
Revenues by Segment
Exploration & Producing -- Third Party ............... $ 1,603 $ 1,338
-- Intersegment............... 745 608
Marketing & Refining -- Third Party ............... 11,288 10,253
-- Intersegment............... 247 86
Chemical -- Third Party ............... 702 546
-- Intersegment............... 70 65
Corporate and Other .................................... 37 46
Intersegment Elimination ............................... (1,062) ( 759)
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Total Revenues ......................................... $13,630 $12,183
======= =======
(1) Prior year data reclassified to conform with current year presentation.
Investment Spending
Capital and Exploration Expenditures
Exploration & Producing - United States .......... $ 98 $ 79
- International .......... 501 668
Marketing & Refining - United States .......... 60 40
- International .......... 43 35
Chemical ............................................... 26 42
Corporate and Other .................................... 28 21
------ ------
Total Capital and Exploration Expenditures ............. 756 885
------ ------
Cash Investments in Equity Companies ................... 97 344
------ ------
Total Investment Spending .............................. $ 853 $ 1,229
====== =======
Memo:
Exploration expenses charged to income, included above:
- United States .......... $ 17 $ 23
- International .......... 57 68
------ ------
$ 74 $ 91
====== ======
Note: Results of operations by segment are presented on page 7.
MOBIL - 4 -
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Financial Statements
The condensed consolidated financial statements of Mobil Corporation (Mobil)
included herein are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). Although certain
information normally included in financial statements prepared in accordance
with generally accepted accounting principles has been condensed or omitted,
Mobil believes that the disclosures are adequate to make the information
presented not misleading. The condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements, the notes
thereto and the financial statement schedule included or incorporated by
reference in Mobil's Annual Report on Form 10-K for its fiscal year ended
December 31, 1998.
The condensed consolidated financial statements included herein reflect all
normal recurring adjustments that, in the opinion of management, are necessary
for a fair presentation. The results for interim periods are not necessarily
indicative of trends or of results to be expected for a full year.
2. Changes in Nonowners' Equity
The components of changes in nonowners' equity, net of related tax for the
three months ended March 31, 1998 and 1999, respectively, are as follows:
(In millions) For the Three Months
Ended March 31,
-------------------
1998 1999
------- -------
Net Income .................................... $ 705 $ 464
Foreign currency translation adjustments ...... 22 143
----- -----
Changes in nonowners' equity .................. $ 727 $ 607
===== =====
MOBIL - 5 -
<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 Three Months
Ended March 31,
--------------------
1998 1999
----- -----
Changes in Working Capital Items
(Increases)/decreases
Accounts and notes receivable ................. $ 421 $(118)
Inventories ................................... (104) ( 58)
Prepaid expenses and other current assets ..... (202) ( 50)
Accounts payable .............................. (584) ( 54)
Accrued liabilities ........................... (200) (144)
Income, excise, state gasoline and
other taxes payable ......................... (110) 93
----- -----
Increase in working capital items ............. $(779) $(331)
===== =====
4. Net Income per Share
(In millions, except for per-share amounts; number of shares in thousands)
For the Three Months
Ended March 31
--------------------
1998 1999
----- -----
Net Income .............................................. $ 705 $ 464
Less: dividends on preferred stock ...................... 13 12
------- -------
Adjusted net income applicable to common shares ......... $ 692 $ 452
======= =======
Weighted average number of basic common shares
outstanding ........................................... 782,117 773,733
======= =======
Net income per common share ............................. $ 0.88 $ 0.58
======= =======
Net Income .............................................. $ 705 $ 464
Less: additional contribution to ESOP ................... 1 1
Less: Stock Appreciation Rights compensation
(expense) income ................................ 4 -
------- -------
Adjusted net income applicable to common shares ......... $ 700 $ 463
======= =======
Weighted average number of basic common shares
outstanding ........................................... 782,117 773,733
Issuable on assumed exercise of stock options ........... 11,373 13,143
Assumed conversion of preferred stock ................... 17,000 16,352
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Total .............................................. 810,490 803,228
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Net income per common share -- assuming dilution ........ $ 0.86 $ 0.58
======= =======
MOBIL - 6 -
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition.
RESULTS OF OPERATIONS
REPORTED EARNINGS First Quarter Incr./
(In millions) -------------
1998 1999 (Decr.)
----- ----- -----
Exploration & Producing
-- United States .............................. $ 80 $ 23 $( 57)
-- International .............................. 310 208 (102)
----- ----- -----
Total Exploration & Producing ..................... 390 231 (159)
----- ----- -----
Marketing & Refining
-- United States .............................. 86 90 4
-- International .............................. 229 201 (28)
----- ----- -----
Total Marketing & Refining ........................ 315 291 ( 24)
----- ----- -----
Chemical .......................................... 67 6 (61)
Corporate and Financing (a)........................ (67) (64) 3
----- ----- -----
Net Income ........................................ $ 705 $ 464 $(241)
===== ===== =====
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OPERATING EARNINGS First Quarter Incr./
(Adjusted for Special Items) --------------
(In millions) 1998 1999 (Decr.)
------ ------ ------
Exploration & Producing
-- United States .............................. $ 80 $ 23 $( 57)
-- International .............................. 310 208 (102)
----- ----- -----
Total Exploration & Producing ..................... 390 231 (159)
----- ----- -----
Marketing & Refining
-- United States .............................. 86 90 4
-- International .............................. 239 201 (38)
----- ----- -----
Total Marketing & Refining ........................ 325 291 ( 34)
----- ----- -----
Chemical .......................................... 67 6 (61)
Corporate and Financing (a)........................ (67) (57) 10
----- ----- -----
Operating Income Before Special Items.............. 715 471 (244)
Special Items ..................................... (10) ( 7) 3
----- ----- -----
Net Income ........................................ $ 705 $ 464 $(241)
===== ===== =====
(a) Corporate and Financing includes corporate administrative expenses, net
financing expense and other items.
SPECIAL ITEMS First Quarter
(In millions) -------------
1998 1999
----- -----
Restructuring ................................... $ (10) $ -
Exxon Mobil merger-related costs ................ - (7)
------ ------
Total Special Items ........................... $ (10) $ ( 7)
====== ======
MOBIL - 7 -
<PAGE>
CONSOLIDATED RESULTS OVERVIEW
FIRST QUARTER 1999 COMPARED WITH FIRST QUARTER 1998
Consolidated first quarter 1999 net income was $464 million, or $0.58 per
share, down from $705 million, or $0.86 per share, last year. This year's first
quarter net income included a $7 million charge for Exxon Mobil merger-related
costs, while last year's first quarter net income included a charge of $10
million for implementation costs associated with the BP European alliance.
Excluding special items, operating earnings of $471 million decreased $244, or
34%, from last year.
In the first quarter, all of Mobil's businesses experienced a significant
deterioration in industry fundamentals versus the same quarter last year.
However, improved performance due to self-help programs (i.e., volume growth,
performance improvements, and expense control) contributed about $125 million,
helping to offset the deterioration in industry fundamentals.
In the Upstream, earnings were impacted by lower worldwide crude oil and
natural gas prices. Crude oil prices were down about $2.70 per barrel, while
natural gas declined approximately $0.45 per thousand cubic feet. Production
volumes were down about 4% versus the same period in 1998 as higher volumes from
Eastern Canada (Hibernia), Equatorial Guinea, Kazakhstan (Tengiz) and Nigeria
(Oso NGL project) were more than offset by the impact of anticipated contractual
reductions in Indonesia, natural field declines in mature areas such as the U.S.
and the North Sea, and operational problems in Australia and Canada.
Downstream earnings were somewhat lower as higher sales volumes and favorable
refinery and expense performance offset most of the impact from weaker margins
in all enclaves. In the U.S., product trade sales were up over 4%, while the
international area improved by about 2%.
In Chemical, earnings were down significantly, reflecting lower polyethylene
and paraxylene margins. Earnings were also hurt by downtime associated with the
tie-in of the Beaumont olefins expansion/upgrading project. When the project
achieves full design rate, ethylene capacity at Beaumont will be increased by
about 45% to over 1.8 billion pounds per year.
Worldwide revenues of $12,183 million were $1,447 million lower than last
year. This decrease was primarily due to the effects of significantly lower
worldwide average crude oil, natural gas and petroleum product prices.
Petrochemical prices were also lower. Income from equity affiliates decreased
primarily due to lower crude oil, natural gas and petrochemical prices.
Crude oil, products and operating supplies and expenses decreased $993 million
to $7,410 million. The decrease was primarily due to significantly lower
worldwide average crude oil, natural gas and petroleum product prices.
Selling and general expenses decreased $135 million to $799 million primarily
due to the benefits of self-help initiatives. Taxes other than income taxes
increased $200 million to $2,493 million, due to the impact of increased sales
volume activity in the United States and Japan. Income tax expense decreased
$282 million principally due to this quarter's lower level of pre-tax income and
a shift in earnings from upstream to downstream operations that have a lower
effective tax rate. Additionally, as crude prices decline, taxes associated with
Mobil's fixed margin production decrease as a percent of pre-tax income, which
also contributes to a lower tax rate.
MOBIL - 8 -
<PAGE>
CONSOLIDATED RESULTS OVERVIEW - continued
Exploration and Producing
Exploration & Producing operating earnings of $231 million were $159 million
lower than last year's $390 million.
In the United States, earnings of $23 million decreased $57 million due
primarily to the impact of lower crude oil and natural gas prices and lower
volumes from natural field declines which more than offset lower operating
expenses.
International earnings of $208 million were $102 million lower, due mainly to
the significant decline in crude oil and natural gas prices. Production was down
as higher volumes from Eastern Canada (Hibernia), Equatorial Guinea, Kazakhstan
(Tengiz) and Nigeria (Oso NGL project) were more than offset by the impact of
anticipated contractual reductions in Indonesia, natural field declines in
mature areas such as the North Sea, and operational problems in Australia and
Canada.
Exploration and Producing
Selected Operating Data First Three Months
Incr./
(Decr.)
------
1998 1999 Vol.%
----- ----- ------
Net Crude Oil and NGL Production (TBD)
- United States ..................... 240 243 3 1
- International ..................... 681 714 33 5
----- ----- ---
Total ........................... 921 957 36 4
===== ===== ===
Net Natural Gas Production (MMCFD)
- United States ..................... 1,123 902 (221)(20)
- International ..................... 3,576 3,190 (386)(11)
----- ----- ---
Total ........................... 4,699 4,092 (607)(13)
===== ===== ===
TOTAL NET PRODUCTION (TBDOE) ....................... 1,772 1,698 ( 74)( 4)
===== ===== ===
MOBIL - 9 -
<PAGE>
CONSOLIDATED RESULTS OVERVIEW - concluded
Marketing and Refining
Marketing & Refining operating earnings of $291 million were $34 million lower
than in 1998.
Operating earnings in the United States were $90 million, $4 million above
last year. The unfavorable impacts of lower industry margins and the narrowing
of the light/heavy crude spread were more than offset by substantially lower
scheduled refinery downtime, strong sales performance and lower operating
expenses.
International earnings of $201 million were $38 million lower than in 1998. In
Europe, despite additional benefits from the BP alliance, earnings were down as
a result of weaker margins for both refining and marketing. Earnings were flat
in Asia-Pacific and other International M&R operations, as the impact of lower
integrated margins were offset by our initiatives programs and increased sales
volumes, including record volumes in Japan and significantly higher levels in
Africa.
Marketing and Refining
Selected Operating Data First Three Months
Incr./
(Decr.)
1998 1999 Vol. %
----- ----- --- --
Petroleum Product Sales (TBD) (a)
- United States ......................... 1,360 1,468 108 8
- International (b) ..................... 1,968 2,019 51 3
----- ----- ---
Total ............................. 3,328 3,487 159 5
===== ===== ===
Refinery Runs (TBD)
- United States (c)...................... 900 781 (119)(13)
- International (b) ..................... 1,302 1,318 16 1
----- ----- ----
Total ............................. 2,202 2,099 (103)( 5)
===== ===== ====
(a) Includes supply/other sales.
(b) Includes Mobil's share for the European alliance with BP.
(c) Decrease in refinery runs due to the sale of the 155 TBD Paulsboro refinery
in September, 1998.
Chemical
Chemical earnings of $6 million were $61 million lower than last year as a
result of lower polyethylene and paraxylene margins as well as downtime
associated with the tie-in of the Beaumont olefins expansion/upgrading project.
Corporate and Financing
Corporate and Financing expenses of $57 million were $10 million lower than in
the first quarter of 1998 primarily due to the timing of expenses and other
one-time items.
MOBIL - 10 -
<PAGE>
DISCUSSION OF FINANCIAL CONDITION
At March 31, 1999, total current assets of $8,867 million were $136 million
higher than at year-end 1998. Cash and cash equivalents increased $43 million.
Inventories increased, up $41 million, mainly due to a volume increase resulting
from seasonal builds in light products. A $45 million increase in prepaid
expenses resulted from an annual pattern of prepayments made in the first
quarter.
Total debt of Mobil and its subsidiaries was $8,552 million at March 31, 1999,
up $851 million from year-end 1998. The debt-to-capitalization ratio was 31% at
March 31, 1999, up from 29% at year-end 1998.
Deferred credits and other noncurrent obligations decreased $223 million
during the first quarter, 1999 primarily due to payments related to Mobil's
investment in Kazakhstan.
Shareholders' equity fell $95 million during the first three months of 1999.
Earnings retained in the business was essentially the same as income offset
common and preferred stock dividends. Accumulated other nonowners' equity
decreased $143 million due to the effects of the strengthening U.S. dollar
relative to local currencies in certain countries in which Mobil has significant
operations.
Return on average shareholders' equity, based on net income, was 7.7% for the
twelve month period ended March 31, 1999, compared with 9.0% for the calendar
year 1998. Return on average capital employed, based on net income, for the
twelve month period ended March 31, 1999 was 6.6%, compared with 7.7% for the
calendar year 1998.
Whenever external financing is needed, Mobil and its subsidiary companies have
ready access to multiple capital markets, including significant bank credit
lines.
At March 31, 1999, Mobil had effective shelf registration statements on file
with the SEC permitting the offer and sale of $1,815 million of debt securities.
Shelf registrations allowing the issuance of U.S. $1.7 billion of
Euro-Medium-Term Notes and bonds having a principal amount of 30 billion
Japanese yen were also in place.
Restructuring
In 1998, Mobil implemented new restructuring programs in Australia and New
Zealand, and in Latin America, to integrate fuels and lubes operations. Mobil
recorded a provision of $50 million ($41 million after tax). The balance in the
reserve at March 31, 1999 was $26 million. The reduction was mainly due to cash
outlays.
In 1997, Mobil and BP announced that the alliance would implement a major
restructuring of its lubricant oil refining business. Mobil recorded reserves in
1997 of $86 million ($82 million after tax). The amount remaining in the reserve
at March 31, 1999 was $32 million. The reduction was due to cash outlays.
MOBIL - 11 -
<PAGE>
Restructuring--concluded
Also during 1997, Mobil initiated two major cost savings initiatives in
Asia-Pacific--one in Japan in response to the deregulated business environment
and the other in Australia. At that time, Mobil recorded reserves of $172
million ($107 million after tax). The amount remaining in the reserves at March
31, 1999 was $26 million. The reduction was due to cash outlays.
Year 2000 Project
Mobil is engaged in a company-wide effort (Project) to address the issues that
are likely to arise if computer programs and embedded computer chips are unable
to properly recognize dates in and after the year 2000. The Project is focused
on three main areas: the information technology (IT) systems in Mobil's
computers and computer software, including those that are linked to the systems
of third parties; the non-IT systems embedded in equipment that controls or
monitors Mobil's operating assets; and Mobil's business relationships with third
parties (referred to herein as external agents). The thrust of the Project is to
address those of Mobil's IT systems, non-IT systems and relationships with
external agents which Mobil judges to be materially important to Mobil. These
systems or relationships, referred to herein as materially important, are those
whose failure for year 2000 reasons would likely: put the safety of individuals
at risk; lead to damage to property or the environment; put in jeopardy the
value of Mobil's name or intellectual property; or trigger a significant adverse
consequence to Mobil's financial performance or condition.
Project work dealing with IT systems and Project work dealing with non-IT
systems has the following three phases: (1) inventory and assessment:
inventorying all of Mobil's systems (including those that are linked to third
parties), identifying those of Mobil's systems that are not year 2000 compliant,
and making judgments as to which of Mobil's systems (both compliant and
non-compliant) would likely be materially important; (2) strategy and planning:
developing strategies and plans for (a) remediating, upgrading or replacing all
non-compliant systems (except those whose failure would, in Mobil's judgment,
have an insignificant impact on Mobil's operations) and (b) testing all systems
judged to be materially important, and estimating the costs of implementing
these strategies and executing these plans; and (3) execution: implementing the
strategies and executing the plans.
Project work dealing with relationships with external agents has the following
three phases: (1) inventory and assessment: inventorying Mobil's relationships
with external agents and making judgments as to which of those relationships
would likely be materially important; (2) communication and evaluation: sending
letters and questionnaires to those external agents whose relationships are
judged to be materially important to elicit information about the plans and
actions of those external agents to achieve timely year 2000 readiness, and
evaluating the information so obtained; and (3) follow up: contacting external
agents with whom Mobil has already communicated to obtain further assurance that
such external agents will achieve timely year 2000 readiness.
Additional Project work, discussed below, involves identifying scenarios
involving failures for year 2000 reasons of materially important IT and non-IT
systems or materially important relationships with external agents and
developing contingency plans for mitigating the impact of such failures.
MOBIL - 12 -
<PAGE>
Year 2000 Project--continued
The inventory and assessment and the strategy and planning phases of the work
dealing with IT systems are complete. The execution phase of this work involves
both application and infrastructure repair and systems upgrades and
replacements. Application and infrastructure repair involves: the remediation
and testing of non-compliant code; the remediation, replacement and testing of
computing infrastructure and telecommunications devices; and the upgrading and
testing of end user applications. The application and infrastructure repair
work, which is being performed by both Mobil personnel and third parties
specializing in resolving year 2000 issues, is expected to be completed by June
30, 1999, and Mobil estimates that approximately 95% of the projects comprising
this work had been completed as of March 31, 1999. The systems upgrade and
replacement work consists of the implementation of a major integrated enterprise
software system in North America (which would have been implemented regardless
of year 2000 considerations) and numerous other systems. All of this work is
expected to be essentially completed by June 30, 1999. Based on calculations
that reflect successful attainment of milestones, Mobil estimates that
approximately 95% of the major integrated enterprise software system
implementation project had been completed as of March 31, 1999. Mobil estimates
that approximately 77% of the projects comprising the work to upgrade and
replace other systems had been completed as of March 31, 1999.
The inventory and assessment and the strategy and planning phases of the work
dealing with non-IT systems are essentially complete. The execution phase of
this work, much of which is being performed by the vendors of the products
involved, is expected to be completed by June 30, 1999, and Mobil estimates that
approximately 68% of the projects comprising this work had been completed as of
March 31, 1999. This brought the percentage of year 2000 compliant non-IT
systems in Mobil's inventory of materially important non-IT systems to
approximately 92% as of that date.
The inventory and assessment phase of the work dealing with relationships with
external agents is complete. The communication and evaluation phase of this work
is also complete, with all external agents whose relationships Mobil judges to
be materially important having been contacted as of March 31, 1999. As of the
same date, approximately 77% of the external agents contacted had responded. The
follow-up phase of this work (which will include contacting again those external
agents from whom responses have not yet been received and developing contingency
plans relating to those external agents whose responses raise issues or who do
not respond) will be undertaken on a continuous, ongoing basis through the end
of 1999 by the teams developing contingency plans in the business units,
discussed below under "Risks and Contingency Plans."
Cost
The costs associated with the Project (all on a pre-tax basis) are being spent
over a three-year period. There are two categories of these costs: (1) costs
that are being incurred solely to achieve year 2000 compliance and (2) costs
that are being incurred to install new systems that improve business
functionality and in many cases concurrently provide year 2000 compliance. Mobil
estimates that the costs to be incurred solely to achieve year 2000 compliance
will total approximately $185 million (which includes about $20 million for
contingencies which will only be spent if unforeseen repairs are required in
late 1999 and/or early 2000), of which the costs of dealing with IT systems are
expected to be about $168 million and the costs of dealing with
MOBIL -13 -
<PAGE>
Year 2000 Project--continued
non-IT systems are expected to be about $17 million (the costs of dealing with
relationships with external agents are expected to be minimal). As of March 31,
1999, about $132 million of the total costs estimated to be incurred solely to
achieve year 2000 compliance had been expended. Mobil estimates that the costs
to be incurred for new systems that improve business functionality and in many
cases concurrently provide year 2000 compliance will total approximately $280
million, and as of March 31, 1999, about $233 million of these costs had been
expended, of which $84 million was expensed as incurred and approximately $149
million was capitalized.
All Project costs are being funded with cash flows from operations. The $185
million which Mobil estimates will be expended solely to achieve year 2000
compliance represents less than 15% of Mobil's estimated total IT budget for the
period covered by the Project. This entire amount is being expensed as it is
incurred. Of the $280 million which Mobil estimates will be expended on new
systems that improve business functionality and in many cases concurrently
provide year 2000 compliance, approximately $105 million is being expensed as it
is incurred and approximately $175 million is being capitalized.
As a result of the Project, certain IT projects to improve business
functionality have been reprioritized and accelerated while other such IT
projects have been deferred. As a consequence, expenditures during the period
covered by the Project on IT systems that will improve business functionality
will actually be greater than the expenditures that would have been made on such
systems had there been no Project. Accordingly, the deferral of IT work due to
the Project will not have a material adverse effect on Mobil's results of
operations or financial condition.
Risks and Contingency Plans
The failure or failures for year 2000 reasons of materially important systems
or relationships with external agents could have a material adverse effect on
Mobil's results of operations, liquidity and/or financial condition. For
example, if, for year 2000 reasons, a utility company were to be unable to
supply electricity to a Mobil refinery for an extended period, the refinery
would have to be shut down for that period, which could result in substantial
losses of production, sales and income. Mobil believes that the Project work
described above dealing with materially important IT systems and non-IT systems
will, when completed, serve to reduce very substantially the risk that such
systems will fail for year 2000 reasons. Mobil has no way of ensuring, however,
that external agents whose relationships with Mobil are judged to be materially
important (e.g., utilities, telecommunications providers and transportation
providers) will be timely year 2000 compliant.
The failure or failures of systems for year 2000 reasons could also give rise
to liability to third parties. Mobil has not yet attempted to assess the
potential for such liability, and hence cannot say whether such liability
presents a material risk independent of the risk that such failure or failures
could have a material adverse effect on Mobil's results of operations, liquidity
and/or financial condition.
To minimize the risks associated with the year 2000 issue referred to in the
second preceding paragraph, Mobil has begun work (1) to identify scenarios
involving possible failures for year 2000 reasons of materially important
systems and relationships with external agents and (2) to develop contingency
plans for mitigating the impact of these scenarios. Mobil operates a portfolio
of diverse businesses which have facilities and operations throughout the world
MOBIL -14 -
<PAGE>
Year 2000 Project--concluded
and are managed regionally. Mobil believes that the most reasonably likely worst
case scenarios, should they occur, will be encountered at facilities or
operations located in one or more of these regions. Accordingly, a risk-based
contingency planning process has been developed for execution by each business
unit in its unique operating environment, focusing on its business-specific
risks. Contingency planning project leaders were trained in the process during
the first six weeks of 1999. Teams in the business units will develop and
implement contingency plans with a target completion date of September 30, 1999.
Mobil also plans to adapt its existing crisis response model to encompass
failures for year 2000 reasons of materially important systems or relationships
with external agents.
The work described in the preceding paragraph will be focused on risks,
scenarios and contingency plans involving materially important systems and
relationships with external agents. There are, however, an almost infinite
number of additional risks which are simply not assessable and for which,
therefore, contingency plans cannot be developed. These are the risks of failure
for year 2000 reasons of one or more systems or relationships with external
agents which, individually, Mobil does not judge to be materially important but
whose failure could trigger a cascade of other failures for year 2000 reasons,
the combination of which could be materially important or could prevent Mobil
from implementing contingency plans it has developed. Such a combination of
failures could also have a material adverse effect on Mobil's results of
operations, liquidity and/or financial condition.
Forward-Looking Statements Relating to the Year 2000
The foregoing discussion about the year 2000 issue includes a number of
forward-looking statements, which are based on Mobil's best assumptions and
estimates as of the date hereof. These include, without limitation, statements
concerning: Mobil's estimated timetables for completing the not-yet-completed
phases of the Project work; Mobil's estimates of the percentages of the work
that remains to be performed to complete such phases; Mobil's estimated
timetable for identifying scenarios involving possible failures for year 2000
reasons of materially important systems and relationships with external agents
and the development and implementation of contingency plans for mitigating the
impacts of these scenarios; and Mobil's estimates of the costs of (1) completing
the not-yet-completed phases of the Project and (2) identifying possible year
2000 failure scenarios and developing and implementing contingency plans for
mitigating the impacts of these.
Actual results could differ materially from the estimates expressed in such
forward-looking statements, due to a number of factors. These factors, which are
not necessarily all the key factors that could cause such differences, include
the following: Mobil's failure to judge accurately which of Mobil's systems and
relationships with external agents are materially important; Mobil's inability
to obtain and retain the staff and third-party assistance necessary to complete
the not-yet-completed phases of the Project in accordance with Mobil's estimated
timetables; the inability of such staff and third parties (1) to locate and
correct all non-year 2000 compliant computer code in materially important
systems and test such corrected code and (2) to install and test upgrades or new
systems containing year 2000-compliant computer code, all in accordance with
Mobil's estimated timetables; unforeseen costs of completing Project work;
Mobil's inability or failure to identify significant year 2000 issues not now
contemplated; and the failure of external agents to achieve timely year 2000
readiness.
MOBIL - 15 -
<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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Mobil has fixed and floating rate U.S. and foreign currency denominated debt.
Mobil's benchmark for interest rates is 100% floating rate. Mobil uses interest
rate swaps, cross-currency interest rate swaps, futures, forward exchange
contracts and option contracts to manage its debt portfolio toward the
established benchmark. These instruments have the effect of changing the
interest rate with the objective of minimizing Mobil's borrowing costs.
The value at risk as measured against the above management-defined benchmark
for interest rate risk was $4 million at December 31, 1998 and $26 million at
March 31, 1999. The increase in the value at risk was due to termination of
interest rate swaps which had been entered into to convert cash flows from fixed
rate debt to floating debt.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Environmental Litigation.
Mobil periodically receives notices from the Environmental Protection Agency
(EPA) or equivalent agencies at the state level that Mobil is a "potentially
responsible party" under Superfund or equivalent state legislation with respect
to various waste disposal sites. The majority of these sites are either still
under investigation by the EPA or the state agencies concerned, or under
remediation, or both. In certain instances, Mobil and other
MOBIL - 16 -
<PAGE>
Item 1. Legal Proceedings--concluded
potentially responsible parties have been named in court or administrative
proceedings by federal or state agencies seeking the cleanup of these sites. The
relief normally sought in the proceedings is the payment by the potentially
responsible parties of the costs of removing hazardous substances from, and
remediating, the sites in question. Mobil has also been named as a defendant in
various suits brought by private parties alleging injury from disposal of wastes
at these sites. The ultimate impact of these proceedings on the business or
accounts of Mobil cannot be predicted at this time due to the large number of
other potentially responsible parties and the speculative nature of cleanup cost
estimates, but based on our long experience in managing environmental matters,
we do not anticipate that the aggregate level of future remediation costs will
increase above recent levels so as to materially and adversely affect our
consolidated financial position or liquidity.
On March 18, 1999, a previously-reported matter, in which the EPA had filed an
administrative complaint with the USEPA hearing clerk, was settled with the
filing of a Consent Agreement and Consent Order. The EPA had alleged that the
operations of Mobil Oil Corporation's Beaumont, Texas refinery had violated the
Clean Air Act by reason of alleged violations of the New Source Performance
Standard ("NSPS") requirements for petroleum storage tanks and alleged
violations of fugitive emission requirements under the NSPS and the National
Emissions Standards for Hazardous Air Pollutants, and had sought a penalty of
$158,000. The matter was settled with the payment of a $79,000 penalty.
During the first quarter of 1999, California's Santa Barbara County Air
Pollution Control District ("SBAPCD") referred a matter to the Santa Barbara
District Attorney after Mobil Oil Corporation and the SBAPCD were unable to
settle the matter via a mutual settlement process. The SBAPCD had issued Notices
of Violations to Mobil Oil Corporation alleging violations of local and state
air quality regulations relating to pressure decay testing and air to liquid
ratio testing at fourteen Mobil Oil Corporation service stations in Santa
Barbara County in 1997, 1998 and 1999. No complaint has yet been filed but the
amount of the penalty that might be sought could exceed $100,000.
The foregoing proceedings are not of material importance in relation to
Mobil's accounts and are described in compliance with SEC rules requiring
disclosure of such proceedings although not material.
Other Than Environmental Litigation.
Mobil and its subsidiaries are engaged in various litigations and have a
number of unresolved claims pending. While the amounts claimed are substantial
and the ultimate liability in respect of such litigations and claims cannot be
determined at this time, Mobil is of the opinion that such liability, to the
extent not provided for through insurance or otherwise, is not likely to be of
material importance in relation to its accounts.
Mobil has provided in its accounts for items and issues not yet resolved based
on management's best judgement.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
MOBIL - 17 -
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits.
The following exhibits are filed with this report:
12. Computation of Ratio of Earnings to Fixed Charges
27. Financial Data Schedule
Reports on Form 8-K.
Mobil filed the following Current Reports on Form 8-K during and subsequent to
the end of the first quarter:
Date of 8-K Description of 8-K
January 27, 1999 Submitted a copy of the Mobil News Release dated
January 27, 1999, reporting Mobil's estimated earnings
for the fourth quarter and full year 1998.
April 23, 1999 Submitted a copy of the Mobil News Release dated
April 23, 1999, reporting Mobil's estimated earnings
for the first quarter of 1999.
May 6, 1999 Submitted a copy of the Mobil New Release dated
May 6, 1999, reporting Mobil and Exxon announced
expectation of antitrust review completion.
MOBIL - 18 -
<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 May 12, 1999
EXHIBIT INDEX
EXHIBIT SUBMISSION MEDIA
- ------- ----------------
12. Computation of Ratio of Earnings Electronic
to Fixed Charges
27. Financial Data Schedule Electronic
MOBIL - 19 -
<PAGE>
Exhibit 12.
MOBIL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions)
Three
Months
Ended
Year Ended December 31, Mar.31,
------------------------------------------ --------
1994 1995 1996 1997 1998 1999
------ ------ ------ ------ ------ ------
Income Before Change in
Accounting Principle ....$1,759 $2,376 $2,964 $3,272 $1,704 $ 464
Add:
Income taxes .............. 1,919 2,015 3,147 3,093 1,356 247
Portion of rents
representative of
interest factor ......... 340 368 376 346 317 79
Interest and debt
discount expense ........ 461 467 455 428 451 82
Earnings (greater) less
than distributions from
equity affiliates........ (40) (51) 153 (59) 329 16
------ ------ ------ ------ ------ ------
Income as Adjusted ........$4,439 $5,175 $7,095 $7,080 $4,157 $ 888
====== ====== ====== ====== ====== ======
Fixed Charges:
Interest and debt
discount expense ........$ 461 $ 467 $ 455 $ 428 $ 451 $ 82
Capitalized interest ...... 37 47 78 101 74 28
Portion of rents
representative of
interest factor ......... 340 368 376 346 317 79
------ ------ ------ ------ ------ ------
Total Fixed Charges .......$ 838 $ 882 $ 909 $ 875 $ 842 $ 189
====== ====== ====== ====== ====== ======
Ratio of Earnings to
Fixed Charges ........... 5.3 5.9 7.8 8.1 4.9 4.7
====== ====== ====== ====== ====== ======
Note:
For the years ended December 31, 1994, 1995, 1996, 1997 and 1998 and the three
months ended March 31, 1999, Fixed Charges exclude $37 million, $28 million, $24
million, $29 million, $25 million and $8 million, respectively, of interest
expense attributable to debt issued by the Mobil Oil Corporation Employee Stock
Ownership Plan Trust and guaranteed by Mobil.
MOBIL - 20 -
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ARTICLE 5 FINANCIAL DATA SCHEDULE (FDS) FOR PERIOD ENDED MARCH 31, 1999 10-Q
This schedule contains summary financial information extracted from the March
31, 1999 Form 10-Q, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000067182
<NAME> JOYCE NICHOLS
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 757
<SECURITIES> 0
<RECEIVABLES> 5,522
<ALLOWANCES> 0
<INVENTORY> 1,952
<CURRENT-ASSETS> 8,867
<PP&E> 48,930
<DEPRECIATION> 24,147
<TOTAL-ASSETS> 42,796
<CURRENT-LIABILITIES> 13,504
<BONDS> 3,741
0
633
<COMMON> 899
<OTHER-SE> 16,743
<TOTAL-LIABILITY-AND-EQUITY> 42,796
<SALES> 11,991 <F1>
<TOTAL-REVENUES> 12,183 <F1>
<CGS> 7,410
<TOTAL-COSTS> 8,007
<OTHER-EXPENSES> 2,584
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 82
<INCOME-PRETAX> 711
<INCOME-TAX> 247
<INCOME-CONTINUING> 464
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 464
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.58
<FN>
<F1>SALES AND TOTAL REVENUES INCLUDE $1,432 MILLION OF EXCISE AND STATE
GASOLINE TAXES
</FN>
</TABLE>
