01—Abstract
Summary
Summary of the 10-K filed March 26, 2003. Cited figures are marked; the original filing is the authoritative source.
ExxonMobil's 2002 results show a company still generating strong cash and maintaining its top credit rating, but with clearly weaker earnings.
Net income fell to $11.46 billiona from $15.32 billion in 2001, a 25% decline, driven mainly by lower natural gas realizations in upstream and sharply weaker refining and marketing margins downstream. Earnings excluding merger effects, discontinued operations and special items were $11.50 billion, down $4.03 billion year over year. Total revenue was $204.5 billion, down about 4% from 2001, and return on average capital employed dropped to 13.5% from 17.8%.
Balance sheet and cash generation remained strong. Cash from operations was $21.3 billionb and total debt was roughly flat at $10.7 billion, with a debt-to-capital ratio of 12.2% and a net debt-to-capital ratio of 4.4%. Long-term debt carries AAA/Aaa ratings.
Shareholders' equity rose to $74.6 billionc. The company paid $6.2 billion in dividends ($0.92 per share, a 54% payout) and repurchased $4.8 billion of stock, reducing shares outstanding to 6.70 billion. Capital and exploration spending rose to $14.0 billion, and firm capital commitments more than doubled to about $8.4 billion, mostly upstream projects outside the U.S. Investors should weigh several items.
The filing reports a $3.5 billiond Exxon Valdez punitive damages award reduced to $4 billion and under appeal, plus a $1 billion New Orleans NORM verdict under appeal and a Alabama royalty verdict vacated and returned for retrial. Management expects a roughly $600 million after-tax cumulative benefit from adopting FAS 143 on January 1, 2003, and about $600 million of income is anticipated in 2003 from the BEB/Ruhrgas transaction. Merger-related expenses have ended, and the company expects a cumulative $7 billion or more in pre-tax merger synergies.
02—Key points
Key Highlights
- Net income of $11.46 billion (EPS $1.69) fell 25% from $15.32 billion in 2001; earnings excluding merger effects and special items were $11.50 billion, down $4.03 billion.
- Upstream earnings were $9.6 billion, down about 11%, reflecting lower North American natural gas prices; the figure includes a $215 million one-time UK deferred-tax charge.
- Downstream earnings collapsed to $1.3 billion from a record $4.2 billion in 2001 on significantly weaker refining and marketing margins.
- Cash from operations of $21.3 billion covered $11.4 billion of capital spending and $6.2 billion of dividends, and the company bought back $4.8 billion of stock.
- Proved reserves reached 21.1 billion oil-equivalent barrels, with reserve replacement of 120% excluding sales (ninth straight year above 100%).
- Credit strength remained intact: debt-to-capital of 12.2%, net debt-to-capital of 4.4%, and AAA/Aaa ratings maintained for 84 years.
- Major legal exposure remains, including the Exxon Valdez punitive damages (reduced to $4 billion, under appeal), a $1 billion Louisiana NORM verdict under appeal, and a $3.5 billion Alabama royalty verdict vacated for retrial.
03—Questions
Frequently Asked Questions
Why did ExxonMobil's earnings decline in 2002?
The decline reflected lower natural gas realizations in upstream, particularly in North America, and significantly weaker worldwide refining and marketing margins downstream. Chemicals earnings were also roughly flat excluding 2001 one-time gains. Partly offsetting this were cost reductions of $1.1 billion from efficiency and merger-related initiatives.
Is the dividend and buyback program sustainable?
The company paid $0.92 per share, a 54% payout of 2002 net income, and bought back $4.8 billion of stock. Internally generated cash of $21.3 billion from operations covered these payments and capital spending, and management states that internal cash flow funds the majority of financing needs. Note that the payout ratio rose sharply because earnings fell.
What are the main legal risks disclosed?
The largest is the Exxon Valdez litigation, where the punitive damages award was reduced from $5 billion to $4 billion and is back before the Ninth Circuit; the company has posted a $4.8 billion letter of credit. Other notable matters include a $1 billion punitive award in a New Orleans NORM case under appeal and an Alabama royalty verdict that the state supreme court vacated for a new trial. Management does not expect these to have a materially adverse effect on operations or financial condition, but outcomes are not predictable.
How much is the company investing, and where?
Capital and exploration spending rose to $14.0 billion in 2002 from $12.3 billion, with upstream at $10.4 billion. Firm capital commitments rose to about $8.4 billion from $3.9 billion, mostly for upstream projects outside the U.S., with the largest single commitment a $1.8 billion Malaysia development. Downstream spending is increasing for low-sulfur motor fuels.
Does the 2003 outlook include any expected one-time items?
Yes. Adopting FAS 143 on January 1, 2003 is expected to add roughly $600 million of after-tax cumulative income. Net income from the BEB/Ruhrgas restructuring is also expected to be recognized in 2003 after regulatory review. Merger-related expenses will no longer be reported after 2002, since merger activities are complete.
04—Continue