Cumulative effect of accounting change, net of income tax
—
—
—
—
550
Net income
$
40,610
$
39,500
$
36,130
$
25,330
$
21,510
Net income per common share
Income from continuing operations
$
7.36
$
6.68
$
5.76
$
3.91
$
3.16
Net income per common share – assuming dilution
Income from continuing operations
$
7.28
$
6.62
$
5.71
$
3.89
$
3.15
Cumulative effect of accounting change, net of income tax
—
—
—
—
0.08
Net income
$
7.28
$
6.62
$
5.71
$
3.89
$
3.23
Cash dividends per common share
$
1.37
$
1.28
$
1.14
$
1.06
$
0.98
Net income to average shareholders’ equity (percent)
34.5
35.1
33.9
26.4
26.2
Working capital
$
27,651
$
26,960
$
27,035
$
17,396
$
7,574
Ratio of current assets to current liabilities
1.47
1.55
1.58
1.40
1.20
Additions to property, plant and equipment
$
15,387
$
15,462
$
13,839
$
11,986
$
12,859
Property, plant and equipment, less allowances
$
120,869
$
113,687
$
107,010
$
108,639
$
104,965
Total assets
$
242,082
$
219,015
$
208,335
$
195,256
$
174,278
Exploration expenses, including dry holes
$
1,469
$
1,181
$
964
$
1,098
$
1,010
Research and development costs
$
814
$
733
$
712
$
649
$
618
Long-term debt
$
7,183
$
6,645
$
6,220
$
5,013
$
4,756
Total debt
$
9,566
$
8,347
$
7,991
$
8,293
$
9,545
Fixed-charge coverage ratio (times)
49.9
46.3
50.2
36.1
30.8
Debt to capital (percent)
7.1
6.6
6.5
7.3
9.3
Net debt to capital (percent)
(3)
(24.0
)
(20.4
)
(22.0
)
(10.7
)
(1.2
)
Shareholders’ equity at year end
$
121,762
$
113,844
$
111,186
$
101,756
$
89,915
Shareholders’ equity per common share
$
22.62
$
19.87
$
18.13
$
15.90
$
13.69
Weighted average number of common shares outstanding (millions)
5,517
5,913
6,266
6,482
6,634
Number of regular employees at year end (thousands)
(4)
80.8
82.1
83.7
85.9
88.3
CORS employees not included above (thousands)
(5)
26.3
24.3
22.4
19.3
17.4
(1)
Sales and other operating revenue includes sales-based taxes of $31,728 million for 2007, $30,381 million for 2006, $30,742 million for 2005, $27,263 million for 2004 and $23,855
million for 2003.
(2)
Sales and other operating revenue includes $30,810 million for 2005, $25,289 million for 2004 and $20,936 million for 2003 for purchases/sales contracts with the same
counterparty. Associated costs were included in Crude oil and product purchases. Effective January 1, 2006, these purchases/sales were recorded on a net basis with no resulting impact on net income. See note 1, Summary of Accounting Policies.
(3)
Debt net of cash, excluding restricted cash.
(4)
Regular employees are defined as active executive, management, professional, technical and wage employees who work full time or part time for the Corporation and are covered by
the Corporation’s benefit plans and programs.
(5)
CORS employees are employees of company-operated retail sites.
Listed below are definitions of several of ExxonMobil’s key business and financial performance
measures. These definitions are provided to facilitate understanding of the terms and their calculation.
CASH FLOW FROM OPERATIONS AND ASSET SALES
Cash flow from operations and asset sales is the sum of the net cash provided by operating activities and proceeds from sales of subsidiaries, investments
and property, plant and equipment from the Consolidated Statement of Cash Flows. This cash flow reflects the total sources of cash from both operating the Corporation’s assets and from the divesting of assets. The Corporation employs a
long-standing and regular disciplined review process to ensure that all assets are contributing to the Corporation’s strategic and financial objectives. Assets are divested when they are no longer meeting these objectives or are worth
considerably more to others. Because of the regular nature of this activity, we believe it is useful for investors to consider sales proceeds together with cash provided by operating activities when evaluating cash available for investment in the
business and financing activities, including shareholder distributions.
Cash flow from operations and asset sales
2007
2006
2005
(millions of dollars)
Net cash provided by operating activities
$
52,002
$
49,286
$
48,138
Sales of subsidiaries, investments and property, plant and equipment
4,204
3,080
6,036
Cash flow from operations and asset sales
$
56,206
$
52,366
$
54,174
CAPITAL EMPLOYED
Capital employed is a measure of net investment. When viewed from the perspective of how the capital is used by the businesses, it includes ExxonMobil’s net share of property, plant and equipment and other assets less liabilities,
excluding both short-term and long-term debt. When viewed from the perspective of the sources of capital employed in total for the Corporation, it includes ExxonMobil’s share of total debt and shareholders’ equity. Both of these views
include ExxonMobil’s share of amounts applicable to equity companies, which the Corporation believes should be included to provide a more comprehensive measure of capital employed.
Capital employed
2007
2006
2005
(millions of dollars)
Business uses: asset and liability perspective
Total assets
$
242,082
$
219,015
$
208,335
Less liabilities and minority share of assets and liabilities
Total current liabilities excluding notes and loans payable
(55,929
)
(47,115
)
(44,536
)
Total long-term liabilities excluding long-term debt and equity of minority and preferred shareholders in affiliated companies
(50,543
)
(45,905
)
(41,095
)
Minority share of assets and liabilities
(5,332
)
(4,948
)
(4,863
)
Add ExxonMobil share of debt-financed equity company net assets
3,386
2,808
3,450
Total capital employed
$
133,664
$
123,855
$
121,291
Total corporate sources: debt and equity perspective
Return on average capital employed (ROCE) is a performance measure ratio. From the perspective of the business segments, ROCE is annual business segment earnings divided by average business segment capital employed
(average of beginning and end-of-year amounts). These segment earnings include ExxonMobil’s share of segment earnings of equity companies, consistent with our capital employed definition, and exclude the cost of financing. The
Corporation’s total ROCE is net income excluding the after-tax cost of financing, divided by total corporate average capital employed. The Corporation has consistently applied its ROCE definition for many years and views it as the best measure
of historical capital productivity in our capital-intensive, long-term industry, both to evaluate management’s performance and to demonstrate to shareholders that capital has been used wisely over the long term. Additional measures, which are
more cash flow-based, are used to make investment decisions.
Return on average capital employed
2007
2006
2005
(millions of dollars)
Net income
$
40,610
$
39,500
$
36,130
Financing costs (after tax)
Gross third-party debt
(339
)
(264
)
(261
)
ExxonMobil share of equity companies
(204
)
(156
)
(144
)
All other financing costs – net
268
499
(35
)
Total financing costs
(275
)
79
(440
)
Earnings excluding financing costs
$
40,885
$
39,421
$
36,570
Average capital employed
$
128,760
$
122,573
$
116,961
Return on average capital employed – corporate total
Gas converted to oil-equivalent at 6 million cubic feet = 1 thousand barrels.
(2)
Includes amounts for sales-based taxes.
(3)
Gross profit equals sales and other operating revenue less estimated costs associated with products sold.
The price range of ExxonMobil common stock is as reported on the composite tape of the several U.S. exchanges where ExxonMobil common stock is traded. The principal
market where ExxonMobil common stock (XOM) is traded is the New York Stock Exchange, although the stock is traded on other exchanges in and outside the United States.
There were 566,565 registered shareholders of ExxonMobil common stock at December 31, 2007. At January 31, 2008, the registered shareholders of ExxonMobil common stock numbered 561,103.
On January 30, 2008, the Corporation declared a $0.35 dividend per common share, payable March 10, 2008.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Statements in this discussion regarding expectations, plans and future events or conditions are
forward-looking statements. Actual future results, including demand growth and energy source mix; capacity increases; production growth and mix; financing sources; the resolution of contingencies; the effect of changes in prices; interest rates and
other market conditions; and environmental and capital expenditures could differ materially depending on a number of factors, such as the outcome of commercial negotiations; changes in the supply of and demand for crude oil, natural gas, and
petroleum and petrochemical products; and other factors discussed herein and in Item 1A of ExxonMobil’s 2007 Form 10-K.
OVERVIEW
The following discussion and analysis of ExxonMobil’s financial results, as well as the accompanying financial
statements and related notes to consolidated financial statements to which they refer, are the responsibility of the management of Exxon Mobil Corporation. The Corporation’s accounting and financial reporting fairly reflect its straightforward
business model involving the extracting, manufacturing and marketing of hydrocarbons and hydrocarbon-based products. The Corporation’s business model involves the production (or purchase), manufacture and sale of physical products, and all
commercial activities are directly in support of the underlying physical movement of goods. Our consistent, conservative approach to financing the capital-intensive needs of the Corporation has helped ExxonMobil to sustain the “triple-A”
status of its long-term debt securities for 89 years.
ExxonMobil, with its resource base, financial strength, disciplined investment
approach and technology portfolio, is well-positioned to participate in substantial investments to develop new energy supplies. While commodity prices are volatile on a short-term basis and depend on supply and demand, ExxonMobil’s investment
decisions are based on our long-term business outlook, using a disciplined approach in selecting and pursuing the most attractive investment opportunities. The corporate plan is a fundamental annual management process that is the basis for setting
near-term operating and capital objectives in addition to providing the longer-term economic assumptions used for investment evaluation purposes. Volumes are based on individual field production profiles, which are also updated annually. Prices for
crude oil, natural gas and refined products are based on corporate plan assumptions developed annually by major region and are utilized for investment evaluation purposes. Potential investment opportunities are tested over a wide range of economic
scenarios to establish the resiliency of each opportunity. Once investments are made, a reappraisal process is completed to ensure relevant lessons are learned and improvements are incorporated into future projects.
BUSINESS ENVIRONMENT AND RISK ASSESSMENT
Long-Term Business Outlook
By 2030, the world’s population is projected to grow to approximately 8 billion, more than 20 percent higher than today’s level. Coincident with this population
increase, the Corporation expects worldwide economic growth to average close to 3 percent per year. This combination of population and economic growth is expected to lead to a primary energy demand increase of approximately 40 percent by 2030 versus
2005. The vast majority (~80 percent) of the increase is expected to occur in developing countries.
As demand rises, energy efficiency
will become increasingly important, with the rate of improvement projected to increase. Efficiency gains will result from anticipated improvements in the transportation and power generation sectors, driven by the introduction of new technologies, as
well as many other improvements that span the residential, commercial and industrial sectors. A wide variety of energy sources will be required to meet increasing global demand. Oil, gas and coal are expected to remain the predominant energy sources
with approximately 80 percent share of total energy. Oil and gas are projected to maintain close to a 60 percent share. These well-established fuel sources are the only ones with the versatility and scale to meet the majority of the world’s
growing energy needs over the outlook period. Nuclear power will likely be a growing option to meet electricity needs. Among renewable energy sources, wind, solar and biofuels are anticipated to grow rapidly at about 9 percent per year, reflecting
government subsidies and mandates. These energy sources are projected to reach approximately 2 percent of world energy by 2030, up from 0.5 percent currently.
Demand for liquid fuels is expected to grow at 1.3 percent per year from 2005 to 2030, primarily due to increasing transportation requirements, especially related to light- and heavy-duty vehicles. The global fleet of
light-duty vehicles will increase significantly, with related demand partly offset by improvements in fuel economy. Natural gas and coal are projected to grow at 1.7 and 0.9 percent per year, respectively, driven by rising needs for electric power
generation. The Corporation expects the liquefied natural gas (LNG) market to increase over 250 percent by 2030, with LNG imports helping to meet growing demand in Europe, North America and Asia. With equity positions in many of the largest remote
gas accumulations in the world, the Corporation is positioned to benefit from its technological advances in gas liquefaction, transportation and regasification that enable distant gas supplies to reach markets economically.
The Corporation anticipates that the world’s oil and gas resource base will grow not only from new discoveries, but also from increases to known
reserves. Technology will underpin these increases. The cost to develop these resources will be significant. According to the International Energy Agency, the investment required to meet total oil and gas energy needs worldwide through 2030 will be
about $380 billion per year, or about $9.5 trillion (measured in 2006 dollars) in total for 2006-2030.
Upstream
ExxonMobil continues to maintain a large portfolio of development and exploration opportunities, which enables the Corporation to be selective, optimizing total
profitability and mitigating overall political and technical risks. As future development projects bring new production online, the Corporation expects a shift in the geographic mix of its production volumes between now and 2012. Oil and natural gas
output from West Africa, the Caspian, the Middle East and Russia is expected to increase over the next five years based on current capital project execution plans. Currently, these growth areas account for 38 percent of the Corporation’s
production. By 2012, they are expected to generate about 50 percent of total volumes. The remainder of the Corporation’s production is expected to be sourced from established areas, including Europe, North America and Asia Pacific.
In addition to a changing geographic mix, there will also be a change in the type of opportunities from
which volumes are produced. Nonconventional production utilizing specialized technology such as arctic technology, deepwater drilling and production systems, heavy oil recovery processes and LNG is expected to grow from about 30 percent to over 40
percent of the Corporation’s output between now and 2012. The Corporation’s overall volume capacity outlook, based on projects coming onstream as anticipated, is for production capacity to grow over the period 2008-2012. However, actual
volumes will vary from year to year due to the timing of individual project start-ups, operational outages, reservoir performance, regulatory changes, asset sales, weather events, price effects under production sharing contracts and other factors
described in Item 1A of ExxonMobil’s 2007 Form 10-K.
Downstream
ExxonMobil’s Downstream is a large, diversified business with marketing and refining complexes around the world. The Corporation has a strong presence in mature markets as well as in growing areas, such as the
Asia Pacific region. The objective of ExxonMobil’s Downstream strategies is to position the Corporation to be the industry leader under a variety of market conditions. These strategies include maintaining best-in-class operations in all aspects
of the business, maximizing value from leading-edge technology, capitalizing on integration with other ExxonMobil businesses, and providing quality, valued products and services to the Corporation’s customers.
The downstream industry environment remains very competitive. Refining margins have been relatively strong over the past few years. However,
inflation-adjusted refining margins over the prior 20 years have declined at a rate of about 1 percent per year. The intense competition in the retail fuels market has similarly driven down inflation-adjusted margins by about 3 percent per year.
Refining margins are a function of the difference between what a refinery pays for its raw materials (primarily crude oil) and the market prices for the range of products produced (primarily gasoline, heating oil, diesel oil, jet fuel and fuel oil).
Crude oil and many products are widely traded with published prices, including those quoted on multiple exchanges around the world (e.g., New York Mercantile Exchange and IntercontinentalExchange). Prices for these commodities (crude and various
products) are determined by the global marketplace and are influenced by many factors, including global and regional supply/demand balances, inventory levels, refinery operations, import/export balances, seasonal demand, weather and political
climate.
ExxonMobil has an ownership interest in 38 refineries, located in 21 countries, with distillation capacity of 6.3 million
barrels per day and lubricant basestock manufacturing capacity of about 140 thousand barrels per day. ExxonMobil’s fuels and lubes marketing business portfolios include operations around the world, serving a globally diverse customer base.
ExxonMobil’s Downstream capital expenditures are focused on selective and resilient investments. These investments capitalize on the
Corporation’s world-class scale and integration, industry-leading efficiency, leading-edge technology and respected brands, enabling ExxonMobil to take advantage of attractive emerging-growth opportunities around the globe. For example, in
mid-2007, ExxonMobil along with our partners Saudi Aramco, Sinopec and the Fujian Province formed the only fully integrated refining, petrochemicals and fuels marketing venture with foreign participation in China. In addition, ExxonMobil
successfully started up several projects that produce lower-sulfur motor fuels, including gasoline projects in Japan and diesel projects in North America and Europe, with additional start-ups planned for 2008.
Chemical
The strength of the global economy supported continued
solid demand growth for petrochemicals in 2007. Strong economic and industrial production growth increased demand in Asia Pacific, particularly China. North American and European growth were moderate, similar to that of GDP. Overall the global
supply/demand balance remained tight, supporting continued strong margins despite higher feedstock costs.
ExxonMobil benefited from
continued operational excellence, as well as a portfolio of products that includes many of the largest-volume and highest-growth petrochemicals in the global economy. In addition to being a worldwide supplier of primary petrochemical products,
ExxonMobil Chemical also has a diverse portfolio of less-cyclical business lines. Chemical’s competitive advantages are achieved through its business mix, broad geographic coverage, investment discipline, integration of chemical capacity with
large refining complexes or Upstream gas processing, advantaged feedstock capabilities, leading proprietary technology and product application expertise.
REVIEW OF 2007 AND 2006 RESULTS
2007
2006
2005
(millions of dollars)
Net income (U.S. GAAP)
$
40,610
$
39,500
$
36,130
2007
Net
income in 2007 of $40,610 million was the highest ever for the Corporation, up $1,110 million from 2006. Net income for 2006 included a $410 million gain from the recognition of tax benefits related to historical investments in non-U.S. assets.
Earnings in 2007 were also at record levels for each business segment.
2006
Net income in 2006 of $39,500 million was up $3,370 million from 2005. Net income for 2006 included a $410 million gain from the recognition of tax benefits related to historical investments in non-U.S. assets.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Upstream
2007
2006
2005
(millions of dollars)
Upstream
United States
$
4,870
$
5,168
$
6,200
Non-U.S.
21,627
21,062
18,149
Total
$
26,497
$
26,230
$
24,349
2007
Upstream
earnings for 2007 totaled $26,497 million, an increase of $267 million from 2006. Higher liquids realizations were mostly offset by higher operating expenses and net unfavorable tax effects. Oil-equivalent production decreased 1 percent versus 2006,
including the Venezuela expropriation, divestments, OPEC quota effects and price and spend impacts on volumes. Excluding these impacts, total oil-equivalent production increased by 1 percent. Liquids production of 2,616 kbd (thousands of barrels per
day) decreased by 65 kbd from 2006. Production increases from new projects in West Africa and higher Russia volumes were offset by mature field decline and production sharing contract net interest reductions. Natural gas production of 9,384 mcfd
(millions of cubic feet per day) increased 50 mcfd from 2006. Higher volumes from projects in Qatar and the North Sea were mostly offset by mature field decline. Earnings from U.S. Upstream operations for 2007 were $4,870 million, a decrease of $298
million. Earnings outside the U.S. for 2007 were $21,627 million, an increase of $565 million.
2006
Upstream earnings for 2006 totaled $26,230 million, an increase of $1,881 million from 2005, including a $1,620 million gain related to the Dutch gas restructuring in
2005. Higher liquids and natural gas realizations were partly offset by higher operating expenses. Oil-equivalent production increased 4 percent versus 2005. Liquids production of 2,681 kbd increased by 158 kbd from 2005. Production increases from
new projects in West Africa and increased Abu Dhabi volumes were partly offset by mature field decline, entitlement effects and divestment impacts. Natural gas production of 9,334 mcfd increased 83 mcfd from 2005. Higher volumes from projects in
Qatar were partly offset by mature field decline. Earnings from U.S. Upstream operations for 2006 were $5,168 million, a decrease of $1,032 million. Earnings outside the U.S. for 2006 were $21,062 million, an increase of $2,913 million, including a
$1,620 million gain related to the Dutch gas restructuring in 2005.
Downstream
2007
2006
2005
(millions of dollars)
Downstream
United States
$
4,120
$
4,250
$
3,911
Non-U.S.
5,453
4,204
4,081
Total
$
9,573
$
8,454
$
7,992
2007
Downstream earnings totaled $9,573 million, an increase of $1,119 million from 2006. Improved worldwide refining operations and higher gains on asset sales, primarily outside the U.S., were partly offset by lower refining margins. Petroleum
product sales of 7,099 kbd decreased from 7,247 kbd in 2006, primarily due to divestment impacts. Refinery throughput was 5,571 kbd compared with 5,603 kbd in 2006, with the decrease again due to divestments. U.S. Downstream earnings of $4,120
million decreased by $130 million. Non-U.S. Downstream earnings of $5,453 million were $1,249 million higher than 2006.
2006
Downstream earnings totaled $8,454 million, an increase of $462 million from 2005, including a $310 million gain for the 2005 Sinopec share sale and a special charge of
$200 million related to the 2005 Allapattah lawsuit provision. Stronger worldwide refining and marketing margins were partly offset by lower refining throughput. Petroleum product sales of 7,247 kbd decreased from 7,519 kbd in 2005, primarily due to
lower refining throughput and divestment impacts. Refinery throughput was 5,603 kbd compared with 5,723 kbd in 2005. U.S. Downstream earnings of $4,250 million increased by $339 million, including a 2005 special charge related to the Allapattah
lawsuit provision. Non-U.S. Downstream earnings of $4,204 million were $123 million higher than 2005 earnings, which included a gain for the Sinopec share sale.
Chemical
2007
2006
2005
(millions of dollars)
Chemical
United States
$
1,181
$
1,360
$
1,186
Non-U.S.
3,382
3,022
2,757
Total
$
4,563
$
4,382
$
3,943
2007
Chemical
earnings totaled $4,563 million, an increase of $181 million from 2006. Increased 2007 earnings were driven by higher sales volumes and favorable foreign exchange effects partly offset by lower margins. Prime product sales were 27,480 kt (thousands
of metric tons), an increase of 130 kt. Prime product sales are total chemical product sales, including ExxonMobil’s share of equity-company volumes and finished-product transfers to the Downstream business. Carbon black oil and sulfur volumes
are excluded. U.S. Chemical earnings of $1,181 million decreased by $179 million. Non-U.S. Chemical earnings of $3,382 million were $360 million higher than 2006.
Chemical
earnings totaled $4,382 million, an increase of $439 million from 2005, including a $390 million gain from the favorable resolution of joint venture litigation in 2005 and a $150 million gain for the 2005 Sinopec share sale. Increased 2006 earnings
were driven by higher margins and increased sales volumes. Prime product sales were 27,350 kt, an increase of 573 kt. U.S. Chemical earnings of $1,360 million increased by $174 million. Non-U.S. Chemical earnings of $3,022 million were $265 million
higher than 2005 earnings, which included gains from the favorable resolution of joint venture litigation and the Sinopec share sale.
Corporate and
Financing
2007
2006
2005
(millions of dollars)
Corporate and financing
$
(23
)
$
434
$
(154
)
2007
Corporate and financing expenses were $23 million in 2007, compared to an earnings contribution of $434 million in 2006, which included a $410 million gain from tax benefits related to historical investments in non-U.S. assets.
2006
The corporate and financing segment contributed $434 million
to earnings in 2006, up $588 million from 2005, primarily due to a $410 million gain from tax benefits related to historical investments in non-U.S. assets and higher interest income.
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