þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 25-0996816 | |
(State of Incorporation) | (I.R.S. Employer Identification No.) |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o |
2
First Quarter Ended March 31, | ||||||||
(Dollars in millions, except per share data) | 2006 | 2005 | ||||||
Revenues and other income: |
||||||||
Sales and other operating revenues (including consumer excise taxes) |
$ | 12,998 | $ | 9,840 | ||||
Revenues from matching buy/sell transactions |
3,206 | 2,809 | ||||||
Sales to related parties |
312 | 283 | ||||||
Income from equity method investments |
92 | 40 | ||||||
Net gains on disposal of assets |
11 | 11 | ||||||
Other income |
19 | 27 | ||||||
Total revenues and other income |
16,638 | 13,010 | ||||||
Costs and expenses: |
||||||||
Cost of revenues (excludes items below) |
9,769 | 7,692 | ||||||
Purchases related to matching buy/sell transactions |
3,233 | 2,832 | ||||||
Purchases from related parties |
51 | 56 | ||||||
Consumer excise taxes |
1,165 | 1,084 | ||||||
Depreciation, depletion and amortization |
415 | 323 | ||||||
Selling, general and administrative expenses |
287 | 260 | ||||||
Other taxes |
149 | 105 | ||||||
Exploration expenses |
71 | 34 | ||||||
Total costs and expenses |
15,140 | 12,386 | ||||||
Income from operations |
1,498 | 624 | ||||||
Net interest and other financing costs |
24 | 32 | ||||||
Minority interests in income (loss) of: |
||||||||
Marathon Petroleum Company LLC |
| 70 | ||||||
Equatorial Guinea LNG Holdings Limited |
(3 | ) | (1 | ) | ||||
Income before income taxes |
1,477 | 523 | ||||||
Provision for income taxes |
693 | 199 | ||||||
Net income |
$ | 784 | $ | 324 | ||||
Per share information: |
||||||||
Net income per share basic |
$ | 2.15 | $ | 0.94 | ||||
Net income per share diluted |
$ | 2.13 | $ | 0.93 | ||||
Dividends paid per share |
$ | 0.33 | $ | 0.28 | ||||
3
March 31, | December 31, | |||||||
(Dollars in millions, except per share data) | 2006 | 2005 | ||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 1,269 | $ | 2,617 | ||||
Receivables, less allowance for doubtful accounts of $3 and $3 |
3,614 | 3,476 | ||||||
Receivables from United States Steel |
20 | 20 | ||||||
Receivables from related parties |
55 | 38 | ||||||
Inventories |
3,409 | 3,041 | ||||||
Other current assets |
218 | 191 | ||||||
Total current assets |
8,585 | 9,383 | ||||||
Investments and long-term receivables, less allowance for
doubtful accounts of $9 and $10 |
1,841 | 1,864 | ||||||
Receivables from United States Steel |
529 | 532 | ||||||
Property, plant and equipment, less accumulated depreciation,
depletion and amortization of $12,746 and $12,384 |
15,186 | 15,011 | ||||||
Goodwill |
1,307 | 1,307 | ||||||
Intangible assets, less accumulated amortization of $63 and $58 |
196 | 200 | ||||||
Other noncurrent assets |
160 | 201 | ||||||
Total assets |
$ | 27,804 | $ | 28,498 | ||||
Liabilities |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 5,194 | $ | 5,353 | ||||
Consideration payable under Libya re-entry agreement |
212 | 732 | ||||||
Payables to related parties |
108 | 82 | ||||||
Payroll and benefits payable |
286 | 344 | ||||||
Accrued taxes |
846 | 782 | ||||||
Deferred income taxes |
466 | 450 | ||||||
Accrued interest |
49 | 96 | ||||||
Long-term debt due within one year |
15 | 315 | ||||||
Total current liabilities |
7,176 | 8,154 | ||||||
Long-term debt |
3,687 | 3,698 | ||||||
Deferred income taxes |
2,033 | 2,030 | ||||||
Employee benefits obligations |
1,221 | 1,321 | ||||||
Asset retirement obligations |
750 | 711 | ||||||
Payable to United States Steel |
6 | 6 | ||||||
Deferred credits and other liabilities |
295 | 438 | ||||||
Total liabilities |
15,168 | 16,358 | ||||||
Minority interests in Equatorial Guinea LNG Holdings Limited |
471 | 435 | ||||||
Commitments and contingencies |
||||||||
Stockholders Equity |
||||||||
Common stock issued 367,280,367 and 366,925,852 shares (par value
$1 per share, 550,000,000 shares authorized) |
367 | 367 | ||||||
Common stock held in treasury, at cost 3,457,472 and 179,977 shares |
(245 | ) | (8 | ) | ||||
Additional paid-in capital |
5,116 | 5,111 | ||||||
Retained earnings |
7,068 | 6,406 | ||||||
Accumulated other comprehensive loss |
(141 | ) | (151 | ) | ||||
Unearned compensation |
| (20 | ) | |||||
Total stockholders equity |
12,165 | 11,705 | ||||||
Total liabilities and stockholders equity |
$ | 27,804 | $ | 28,498 | ||||
4
First Quarter Ended March 31, | ||||||||
(Dollars in millions) | 2006 | 2005 | ||||||
Increase (decrease) in cash and cash equivalents |
||||||||
Operating activities: |
||||||||
Net income |
$ | 784 | $ | 324 | ||||
Adjustments to reconcile to net cash provided from operating activities: |
||||||||
Deferred income taxes |
41 | 3 | ||||||
Minority interests in income (loss) of subsidiaries |
(3 | ) | 69 | |||||
Depreciation, depletion and amortization |
415 | 323 | ||||||
Pension and other postretirement benefits, net |
(92 | ) | 47 | |||||
Exploratory dry well costs and unproved property impairments |
34 | 12 | ||||||
Net gains on disposal of assets |
(11 | ) | (11 | ) | ||||
Changes in the fair value of long-term U.K. natural gas contracts |
(78 | ) | 57 | |||||
Equity method investments, net |
(59 | ) | (2 | ) | ||||
Changes in: |
||||||||
Current receivables |
(192 | ) | 2 | |||||
Inventories |
(366 | ) | (277 | ) | ||||
Current accounts payable and accrued expenses |
(173 | ) | (137 | ) | ||||
All other, net |
(60 | ) | (53 | ) | ||||
Net cash provided from operating activities |
240 | 357 | ||||||
Investing activities: |
||||||||
Capital expenditures |
(599 | ) | (556 | ) | ||||
Acquisitions |
(527 | ) | | |||||
Disposal of assets |
38 | 36 | ||||||
Investments loans and advances |
| (30 | ) | |||||
repayments of loans and advances |
87 | | ||||||
All other, net |
14 | 6 | ||||||
Net cash used in investing activities |
(987 | ) | (544 | ) | ||||
Financing activities: |
||||||||
Debt repayments |
(302 | ) | (2 | ) | ||||
Issuance of common stock |
8 | 39 | ||||||
Purchases of common stock |
(229 | ) | | |||||
Excess tax benefits from stock-based compensation arrangements |
10 | | ||||||
Dividends paid |
(121 | ) | (97 | ) | ||||
Contributions from minority shareholders
of Equatorial Guinea LNG Holdings Limited |
30 | 73 | ||||||
Net cash provided from (used in) financing activities |
(604 | ) | 13 | |||||
Effect of exchange rate changes on cash |
3 | (4 | ) | |||||
Net decrease in cash and cash equivalents |
(1,348 | ) | (178 | ) | ||||
Cash and cash equivalents at beginning of period |
2,617 | 3,369 | ||||||
Cash and cash equivalents at end of period |
$ | 1,269 | $ | 3,191 | ||||
5
1. | Basis of Presentation | |
These consolidated financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair presentation of the results for the periods reported. All such adjustments are of a normal recurring nature unless disclosed otherwise. These consolidated financial statements, including selected notes, have been prepared in accordance with the applicable rules of the Securities and Exchange Commission and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. Certain reclassifications of prior year data have been made to conform to 2006 classifications. These interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Marathon Oil Corporation (Marathon or the Company) 2005 Annual Report on Form 10-K. | ||
2. | New Accounting Standards | |
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 123 (Revised 2004), Share-Based Payment, (SFAS No. 123(R)) as a revision of SFAS No. 123, Accounting for Stock-Based Compensation. This statement requires entities to measure the cost of employee services received in exchange for an award of equity instruments based on the fair value of the award on the grant date. That cost is recognized over the period during which an employee is required to provide service in exchange for the award, usually the vesting period. In addition, awards classified as liabilities are remeasured at fair value each reporting period. Marathon had previously adopted the fair value method under SFAS No. 123 for grants made, modified or settled on or after January 1, 2003. | ||
Marathon adopted SFAS No. 123(R) as of January 1, 2006, for all awards granted, modified or cancelled after adoption, and for the unvested portion of awards outstanding at January 1, 2006. At the date of adoption, SFAS No. 123(R) requires that an assumed forfeiture rate be applied to any unvested awards and that awards classified as liabilities be measured at fair value. Prior to adopting SFAS No. 123(R), Marathon recognized forfeitures as they occurred and applied the intrinsic value method to awards classified as liabilities. The adoption did not have a significant impact on Marathons consolidated results of operations, financial position or cash flows. | ||
SFAS No. 123(R) also requires a company to calculate the pool of excess tax benefits (the APIC Pool) available to absorb tax deficiencies recognized subsequent to adopting the statement. In November 2005, the FASB issued FASB Staff Position No. 123R-3, Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards, to provide an alternative transition election (the short cut method) to account for the tax effects of share-based payment awards to employees. Marathon has elected the long-form method to determine its APIC Pool as of January 1, 2006. See Note 3 for the disclosures regarding share-based payments required by SFAS No. 123(R). | ||
Effective January 1, 2006, Marathon adopted SFAS No. 151, Inventory Costs an amendment of ARB No. 43, Chapter 4. This statement requires that items such as idle facility expense, excessive spoilage, double freight and re-handling costs be recognized as a current-period charge. The adoption did not have a significant effect on Marathons consolidated results of operations, financial position or cash flows. | ||
Effective January 1, 2006, Marathon adopted SFAS No. 154, Accounting Changes and Error Corrections A Replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS No. 154 requires companies to recognize (1) voluntary changes in accounting principle and (2) changes required by a new accounting pronouncement, when the pronouncement does not include specific transition provisions, retrospectively to prior periods financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. |
6
3. | Stock-Based Compensation Arrangements | |
Description of the Plans | ||
The Marathon Oil Corporation 2003 Incentive Compensation Plan (the Plan) authorizes the Compensation Committee of the Board of Directors of Marathon to grant stock options, stock appreciation rights, stock awards, cash awards and performance awards to employees. The Plan also allows Marathon to provide equity compensation to its non-employee directors. No more than 20,000,000 shares of common stock may be issued under the Plan, and no more than 8,500,000 of those shares may be used for awards other than stock options or stock appreciation rights. Shares subject to awards that are forfeited, terminated, expire unexercised, settled in cash, exchanged for other awards, tendered to satisfy the purchase price of an award, withheld to satisfy tax obligations or otherwise lapse become available for future grants. Shares issued as a result of stock option exercises and restricted stock grants are generally funded out of common stock held in treasury, except to the extent there are insufficient treasury shares, in which case new common shares are issued. | ||
The Plan replaced the 1990 Stock Plan, the Non-Officer Restricted Stock Plan, the Non-Employee Director Stock Plan, the deferred stock benefit provision of the Deferred Compensation Plan for Non-Employee Directors, the Senior Executive Officer Annual Incentive Compensation Plan and the Annual Incentive Compensation Plan (collectively, the Prior Plans). No new grants will be made from the Prior Plans. Any awards previously granted under the Prior Plans shall continue to vest and/or be exercisable in accordance with their original terms and conditions. | ||
Stock-Based Awards Under the Plans | ||
Marathons stock options represent the right to purchase shares of common stock at the fair market value of the common stock on the date of grant. Through 2004, certain options were granted with a tandem stock appreciation right, which allows the recipient to instead elect to receive cash and/or common stock equal to the excess of the fair market value of shares of common stock, as determined in accordance with the Plan, over the option price of the shares. Most stock options granted under the Plan vest ratably over a three-year period and all expire ten years from the date they are granted. | ||
Similar to stock options, stock appreciation rights (SARs) represent the right to receive a payment equal to the excess of the fair market value of shares of common stock on the date the right is exercised over the exercise price. In general, SARs that have been granted under the Plan are settled in shares of stock, vest ratably over a three-year period and have a maximum term of ten years from the date they are granted. | ||
In 2003 and 2004, the Compensation Committee granted stock-based performance awards to Marathons and MPCs officers under the Plan. The stock-based performance awards represent shares of common stock that are subject to forfeiture provisions and restrictions on transfer. Those restrictions may be removed if certain pre-established performance measures are met. The stock-based performance awards granted under the Plan generally vest at the end of a 36-month performance period if the performance targets are achieved and the recipient remains employed by Marathon at that date. | ||
In 2005, the Compensation Committee granted time-based restricted stock to the officers under the Plan. The restricted stock awards vest three years from the date of grant, contingent on the recipients continued employment. Prior to vesting, the restricted stock recipients have the right to vote such stock and receive dividends thereon. The nonvested shares are not transferable and are retained by Marathon until they vest. | ||
Marathon also grants restricted stock to certain non-officer employees and phantom stock units to certain international employees under the Plan (restricted stock awards) based on their performance within certain guidelines and for retention purposes. The restricted stock awards generally vest in one-third increments over a three-year period, contingent on the recipients continued employment. Prior to vesting, the restricted stock recipients have the right to vote such stock and receive dividends thereon. The nonvested shares are not transferable and are retained by Marathon until they vest. | ||
Marathon maintains an equity compensation program for its non-employee directors under the Plan. Prior to January 1, 2006, pursuant to the program, non-employee directors were required to defer 50 percent of their annual retainers in the form of common stock units. In addition, each non-employee director receives an annual grant of non-retainer common stock units under the Plan. The program also provided each non-employee director with a matching grant of up to 1,000 shares of common stock on his or her initial election to the Board if he or she purchased an equivalent number of shares within 60 days of joining the Board. Effective January 1, 2006, non-employee directors are no longer required to defer 50 percent of their annual retainers in the form of common stock units and the matching grant program was discontinued. |
7
Stock-Based Compensation Expense | ||
The fair values of stock options, stock options with tandem SARs and stock-settled SARs (stock option awards) are estimated on the date of grant using the Black-Scholes option pricing model. The model employs various assumptions, based on managements best estimates at the time of grant, which impact the fair value calculated and ultimately, the expense that is recognized over the life of the stock option award. Of the required assumptions, the expected life of the stock option award and the expected volatility of the Companys stock price have the most significant impact on the fair value calculation. Marathon has utilized historical data and analyzed current information which reasonably support these assumptions. | ||
The fair value of Marathons restricted stock awards is determined based on the fair market value of the Companys common stock on the date of grant. Prior to adoption of SFAS No. 123(R) on January 1, 2006, the fair values of Marathons stock-based performance awards were determined in the same manner as restricted stock awards. Under SFAS No. 123(R), on a prospective basis, these awards are required to be valued utilizing an option pricing model. No stock-based performance awards have been granted since May 2004. | ||
Effective January 1, 2006, Marathons stock-based compensation expense is recognized based on managements best estimate of the awards that are expected to vest, using the straight-line attribution method for all service-based awards with a graded vesting feature. If actual forfeiture results are different than expected, adjustments to recognized compensation expense may be required in future periods. Unearned stock-based compensation is charged to stockholders equity when restricted stock awards and stock-based performance awards are granted. Compensation expense is recognized over the balance of the vesting period and is adjusted if conditions of the restricted stock award or stock-based performance award are not met. Options with tandem SARs are classified as a liability and are remeasured at fair value each reporting period until settlement. | ||
Prior to January 1, 2006, Marathon recorded stock-based compensation expense over the stated vesting period for stock option awards that are subject to specific vesting conditions and specify (1) that an employee vests in the award upon becoming retirement eligible or (2) that the employee will continue to vest in the award after retirement without providing any additional service. Under SFAS No. 123(R), from the date of adoption, such compensation cost is recognized immediately for awards granted to retirement-eligible employees or over the period from the grant date to the retirement eligibility date if retirement eligibility will be reached during the stated vesting period. No stock option awards were granted during the quarter ended March 31, 2006, and therefore awards with such vesting terms did not impact stock-based compensation expense for the quarter. Marathon previously determined that the compensation expense determined under the current and previous approaches did not differ materially. | ||
During the quarters ended March 31, 2006 and 2005, total employee stock-based compensation expense was $23 million and $42 million. The total related income tax benefits were $9 million and $16 million. During the first quarter 2006, cash received upon exercise of stock option awards was $8 million. Tax benefits realized for deductions during the first quarter 2006 that were in excess of the stock-based compensation expense recorded for options exercised and other stock-based awards vested during the quarter totaled $10 million. No stock option awards were settled in cash during the first quarter 2006. | ||
Outstanding Stock-Based Awards | ||
The following is a summary of stock option award activity for the quarter ended March 31, 2006: |
Shares | Price (a) | |||||||
Outstanding at December 31, 2005 |
6,007,954 | $ | 36.51 | |||||
Granted |
| | ||||||
Exercised |
(357,265 | ) | $ | 30.04 | ||||
Canceled |
(27,848 | ) | $ | 44.58 | ||||
Outstanding at March 31, 2006 (b) |
5,622,841 | $ | 36.88 | |||||
(a) | Weighted-average exercise price. | |
(b) | Of the stock option awards outstanding as of March 31, 2006, 4,732,234 and 890,607 were outstanding under the 2003 Incentive Compensation Plan and 1990 Stock Plan, including 913,902 options with tandem SARs. |
8
The following table presents information on stock option awards at March 31, 2006: |
Outstanding | Exercisable | |||||||||||||||||||
Number | Weighted-Average | Weighted- | Number | Weighted- | ||||||||||||||||
Range of Exercise | of Shares | Remaining | Average | of Shares | Average | |||||||||||||||
Prices | Under Option | Contractual Life | Exercise Price | Under Option | Exercise Price | |||||||||||||||
$22.38 25.52 |
1,189,837 | 6.8 | $ | 25.50 | 670,209 | $ | 25.49 | |||||||||||||
$26.91 30.88 |
510,538 | 5.7 | $ | 28.38 | 498,872 | $ | 28.37 | |||||||||||||
$32.52 34.00 |
2,062,246 | 7.5 | $ | 33.49 | 759,603 | $ | 33.29 | |||||||||||||
$47.65 51.67 |
1,860,220 | 9.2 | $ | 50.25 | 13,600 | $ | 47.65 | |||||||||||||
Total |
5,622,841 | 7.7 | $ | 36.88 | 1,942,284 | $ | 29.43 | |||||||||||||
As of March 31, 2006 the aggregate intrinsic value of stock option awards outstanding was $221 million. The aggregate intrinisic value and weighted average remaining contractual life of stock option awards currently exercisable were $91 million and 6.4 years. As of March 31, 2006, the number of fully vested stock option awards and stock option awards expected to vest was 5,394,081. The weighted average exercise price and weighted average remaining contractual life of these stock option awards were $36.46 and 7.7 years and the aggregate intrinsic value was $214 million. | ||
No stock option awards were granted during the quarters ended March 31, 2006 and 2005. The total intrinsic value of stock option awards exercised during each of these quarters was $16 million. Of these amounts, $7 million in the first quarter 2006 and $11 million in the first quarter 2005 was related to options with tandem SARs. As of March 31, 2006, unrecognized compensation cost related to stock option awards was $16 million, which is expected to be recognized over a weighted average period of 1.4 years. | ||
The following is a summary of stock-based performance award and restricted stock award activity for the quarter ended March 31, 2006: |
Stock-Based | Weighted | Restricted | Weighted | |||||||||||||
Performance | Average Grant | Stock and | Average Grant | |||||||||||||
Awards | Date Fair Value | Units | Date Fair Value | |||||||||||||
Unvested at December 31, 2005 |
448,600 | $ | 29.93 | 985,556 | $ | 47.94 | ||||||||||
Granted |
67,848 | $ | 76.82 | 35,020 | $ | 76.68 | ||||||||||
Vested |
(273,448 | ) | $ | 38.30 | (123,626 | ) | $ | 37.96 | ||||||||
Forfeited |
| | (11,950 | ) | $ | 52.20 | ||||||||||
Unvested at March 31, 2006 |
243,000 | $ | 33.61 | 885,000 | $ | 50.61 | ||||||||||
During the quarters ended March 31, 2006 and 2005, the weighted average grant date fair value of restricted stock awards was $76.68 and $46.86. The total vesting date fair value of restricted stock awards that vested during the quarters ended March 31, 2006 and 2005 was $32 million and $6 million. Of these amounts, $21 million related to the vesting of the officer stock-based performance awards during the first quarter of 2006. As of March 31, 2006, there was $33 million of unrecognized compensation cost related to restricted stock awards which is expected to be recognized over a weighted average period of 2 years. |
9
4. | Computation of Income per Share | |
Basic net income per share is based on the weighted average number of common shares outstanding. Diluted net income per share assumes exercise of stock options, provided the effect is not antidilutive. |
First Quarter Ended March 31, | ||||||||||||||||
2006 | 2005 | |||||||||||||||
(Dollars in millions, except per share data) | Basic | Diluted | Basic | Diluted | ||||||||||||
Net income |
$ | 784 | $ | 784 | $ | 324 | $ | 324 | ||||||||
Shares of common stock outstanding (thousands): |
||||||||||||||||
Average number of common shares outstanding |
365,110 | 365,110 | 346,006 | 346,006 | ||||||||||||
Effect of dilutive securities |
| 3,270 | | 2,639 | ||||||||||||
Average common shares including dilutive effect |
365,110 | 368,380 | 346,006 | 348,645 | ||||||||||||
Per share: |
||||||||||||||||
Net income per share |
$ | 2.15 | $ | 2.13 | $ | 0.94 | $ | 0.93 | ||||||||
5. | Segment Information | |
Marathons operations consist of three reportable operating segments: |
1) | Exploration and Production (E&P) explores for, produces and markets crude oil and natural gas on a worldwide basis; | ||
2) | Refining, Marketing and Transportation (RM&T) refines, markets and transports crude oil and petroleum products, primarily in the Midwest, the upper Great Plains and southeastern United States; and | ||
3) | Integrated Gas (IG) markets and transports products manufactured from natural gas, such as liquid natural gas (LNG) and methanol, on a worldwide basis, and is developing other projects to link stranded natural gas resources with key demand areas. |
Effective January 1, 2006, Marathon revised its measure of segment income to include the effects of minority interests and income taxes related to the segments to facilitate comparison of segment results with Marathons peers. Income taxes were allocated to the segments using estimated effective rates for each segment. In addition, the results of activities primarily associated with the marketing of the Companys equity natural gas production, which had been presented as part of the Integrated Gas segment prior to 2006, are now included in the Exploration and Production segment as those activities are better aligned with E&P operations. Segment income amounts for all periods presented reflect these changes. |
Total | ||||||||||||||||
(Dollars in millions) | E&P | RM&T | IG | Segments | ||||||||||||
First Quarter Ended March 31, 2006 |
||||||||||||||||
Revenues: |
||||||||||||||||
Customer |
$ | 2,206 | $ | 13,890 | $ | 30 | $ | 16,126 | ||||||||
Intersegment (a) |
190 | 13 | | 203 | ||||||||||||
Related parties |
3 | 309 | | 312 | ||||||||||||
Segment revenues |
2,399 | 14,212 | 30 | 16,641 | ||||||||||||
Elimination of intersegment revenues |
(190 | ) | (13 | ) | | (203 | ) | |||||||||
Gain on long-term U.K. natural gas contracts |
78 | | | 78 | ||||||||||||
Total revenues |
$ | 2,287 | $ | 14,199 | $ | 30 | $ | 16,516 | ||||||||
Segment income |
$ | 477 | $ | 319 | $ | 8 | $ | 804 | ||||||||
Income from equity method investments |
53 | 26 | 13 | 92 | ||||||||||||
Depreciation, depletion and amortization (b) |
251 | 133 | 2 | 386 | ||||||||||||
Minority interests in income (loss) of subsidiaries
(b) |
| | (3 | ) | (3 | ) | ||||||||||
Provision for income taxes (b) |
489 | 204 | 5 | 698 | ||||||||||||
Capital expenditures (c) |
384 | 104 | 94 | 582 | ||||||||||||
10
Total | ||||||||||||||||
(Dollars in millions) | E&P | RM&T | IG | Segments | ||||||||||||
First Quarter Ended March 31, 2005 |
||||||||||||||||
Revenues: |
||||||||||||||||
Customer |
$ | 1,572 | $ | 11,073 | $ | 61 | $ | 12,706 | ||||||||
Intersegment (a) |
144 | 42 | | 186 | ||||||||||||
Related parties |
2 | 281 | | 283 | ||||||||||||
Segment revenues |
1,718 | 11,396 | 61 | 13,175 | ||||||||||||
Elimination of intersegment revenues |
(144 | ) | (42 | ) | | (186 | ) | |||||||||
Loss on long-term U.K. natural gas contracts |
(57 | ) | | | (57 | ) | ||||||||||
Total revenues |
$ | 1,517 | $ | 11,354 | $ | 61 | $ | 12,932 | ||||||||
Segment income |
$ | 334 | $ | 74 | $ | 22 | $ | 430 | ||||||||
Income from equity method investments |
5 | 17 | 18 | 40 | ||||||||||||
Depreciation, depletion and amortization (b) |
210 | 104 | 2 | 316 | ||||||||||||
Minority interests in income (loss) of subsidiaries
(b) |
| 67 | (1 | ) | 66 | |||||||||||
Provision for income taxes (b) |
212 | 68 | (5 | ) | 275 | |||||||||||
Capital expenditures (c) |
294 | 136 | 125 | 555 | ||||||||||||
(a) | Management believes intersegment transactions were conducted under terms comparable to those with unrelated parties. | |
(b) | Differences between segment totals and Marathon totals represent amounts related to corporate administrative activities and other unallocated items and are included in Items not allocated to segments, net of income taxes in the reconciliation below. | |
(c) | Differences between segment totals and Marathon totals represent amounts related to corporate administrative activities. |
The following reconciles segment income to net income as reported in Marathons consolidated statements of income: |
First Quarter Ended March 31, | ||||||||
(Dollars in millions) | 2006 | 2005 | ||||||
Segment income |
$ | 804 | $ | 430 | ||||
Items not allocated to segments, net of income taxes: |
||||||||
Gain (loss) on long-term U.K. natural gas contracts |
45 | (33 | ) | |||||
Corporate and other unallocated items |
(65 | ) | (73 | ) | ||||
Net income |
$ | 784 | $ | 324 | ||||
6. | Pensions and Other Postretirement Benefits | |
The following summarizes the components of net periodic benefit costs: |
First Quarter Ended March 31, | ||||||||||||||||
Pension Benefits | Other Benefits | |||||||||||||||
(Dollars in millions) | 2006 | 2005 | 2006 | 2005 | ||||||||||||
Service cost |
$ | 34 | $ | 31 | $ | 6 | $ | 5 | ||||||||
Interest cost |
32 | 27 | 10 | 10 | ||||||||||||
Expected return on plan assets |
(26 | ) | (23 | ) | | | ||||||||||
Amortization: |
||||||||||||||||
net transition gain |
| (1 | ) | | | |||||||||||
prior service costs (credits) |
1 | 1 | (3 | ) | (3 | ) | ||||||||||
actuarial loss |
13 | 15 | 2 | 2 | ||||||||||||
Net periodic benefit cost |
$ | 54 | $ | 50 | $ | 15 | $ | 14 | ||||||||
During the quarter ended March 31, 2006, Marathon made contributions of $148 million to its funded pension plans. Of this amount, $6 million related to foreign pension plans. Contributions made from the general assets of Marathon to cover current benefit payments related to unfunded pension and other postretirement benefit plans were $3 million and $9 million during the quarter. Marathon expects to make additional contributions to its funded pension plans of between $125 million and $195 million over the remainder of 2006. |
11
7. | Income Taxes | |
The provision for income taxes for interim periods is based on managements best estimate of the effective income tax rate expected to be applicable for the current year plus any adjustments arising from a change in the estimated amount of taxes related to prior periods. The effective income tax rate for the first quarter 2006 was 47 percent compared to 38 percent for first quarter 2005. The following is an analysis of the effective income tax rate for the periods presented: |
First Quarter Ended March 31, | ||||||||
2006 | 2005 | |||||||
Statutory U.S. income tax rate |
35 | % | 35 | % | ||||
Effects of foreign operations |
11 | | ||||||
State and local income taxes after federal income tax effects |
2 | 5 | ||||||
Other tax effects |
(1 | ) | (2 | ) | ||||
Effective income tax rate |
47 | % | 38 | % | ||||
8. | Comprehensive Income | |
The following sets forth Marathons comprehensive income for the periods indicated: |
First Quarter Ended March 31, | ||||||||
(Dollars in millions) | 2006 | 2005 | ||||||
Net income |
$ | 784 | $ | 324 | ||||
Other comprehensive income (loss), net of taxes: |
||||||||
Minimum pension liability adjustments |
10 | | ||||||
Change in fair value of derivative instruments |
| (6 | ) | |||||
Total Comprehensive income |
$ | 794 | $ | 318 | ||||
9. | Inventories | |
Inventories are carried at the lower of cost or market. The cost of inventories of crude oil, refined products and merchandise is determined primarily under the last-in, first-out (LIFO) method. |
March 31, | December 31, | |||||||
(Dollars in millions) | 2006 | 2005 | ||||||
Liquid hydrocarbons and natural gas |
$ | 1,435 | $ | 1,093 | ||||
Refined products and merchandise |
1,810 | 1,763 | ||||||
Supplies and sundry items |
164 | 185 | ||||||
Total, at cost |
$ | 3,409 | $ | 3,041 | ||||
10. | Property, Plant and Equipment | |
Exploratory well costs capitalized greater than one year after completion of drilling as of March 31, 2006 were $99 million, including $40 million added to this category during the first quarter 2006 for wells in Equatorial Guinea (Corona, Bococo and Gardenia), where Marathon is evaluating various development scenarios for the discoveries around the Alba Field, including plans that would integrate the resources into the Companys long-term LNG supply. |
12
11. | Commitments and Contingencies | |
Marathon is the subject of, or party to, a number of pending or threatened legal actions, contingencies and commitments involving a variety of matters, including laws and regulations relating to the environment. Certain of these commitments are discussed below. The ultimate resolution of these contingencies could, individually or in the aggregate, be material to Marathons consolidated financial statements. However, management believes that Marathon will remain a viable and competitive enterprise even though it is possible that these contingencies could be resolved unfavorably. | ||
Contract commitments At March 31, 2006 and December 31, 2005, Marathons contract commitments to acquire property, plant and equipment totaled $724 million and $668 million, respectively. During the first quarter of 2006, additional contract commitments were made related to the potential expansion of the Garyville, Louisiana refinery while the commitments related to the Equatorial Guinea LNG plant and the Alvheim project in Norway declined due to the continued construction progress on both projects. | ||
12. | Stock Repurchase Program | |
On January 29, 2006, Marathons Board of Directors authorized the repurchase of up to $2 billion of common stock over a period of two years. Such purchases will be made during this period as Marathons financial condition and market conditions warrant. Any purchases under the program may be in either open market transactions, including block purchases, or in privately negotiated transactions. The repurchase program does not include specific price targets or timetables, and is subject to termination prior to completion. Marathon will use cash on hand, cash generated from operations or cash from available borrowings to acquire shares. During the quarter ended March 31, 2006, Marathon acquired approximately 3.2 million common shares, at an acquisition cost of $229 million, which were recorded as common stock held in treasury in the consolidated balance sheet. | ||
13. | Supplemental Cash Flow Information |
First Quarter Ended March 31, | ||||||||
(Dollars in millions) | 2006 | 2005 | ||||||
Net cash provided from operating activities included: |
||||||||
Interest and other financing costs paid (net of amounts capitalized) |
$ | 74 | $ | 91 | ||||
Income taxes paid to taxing authorities (excluding excess tax
benefits on stock-based compensation in 2006) |
601 | 194 | ||||||
Commercial paper and revolving credit arrangements, net: |
||||||||
Borrowings |
$ | 197 | $ | | ||||
Repayments |
(197 | ) | | |||||
14. | MPC Receivables Purchase and Sale Facility | |
On July 1, 2005, MPC entered into a $200 million, three-year Receivables Purchase and Sale Agreement with certain purchasers. The program was structured to allow MPC to periodically sell a participating interest in pools of eligible accounts receivable. During the term of the agreement MPC was obligated to pay a facility fee of 0.12%. In the first quarter of 2006, the facility was terminated. No receivables were sold under the agreement during its term. |
13
15. | Accounting Standards Not Yet Adopted | |
In March 2006, the FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets An Amendment of FASB Statement No. 140. This statement amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, with respect to the accounting for separately recognized servicing assets and servicing liabilities. Adoption of SFAS No. 156 is required as of the beginning of an entitys first fiscal year that begins after September 15, 2006. Marathon does not expect adoption of this statement to have a significant effect on its consolidated results of operations, financial position or cash flows. | ||
In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial Instruments An Amendment of FASB Statements No. 133 and 140. SFAS No. 155 simplifies the accounting for certain hybrid financial instruments, eliminates the interim FASB guidance which provides that beneficial interests in securitized financial assets are not subject to the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, and eliminates the restriction on the passive derivative instruments that a qualifying special-purpose entity may hold. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entitys first fiscal year that begins after September 15, 2006. Marathon is currently studying the provisions of this Statement to determine the impact on its consolidated financial statements. | ||
In September 2005, the FASB ratified the consensus reached by the Emerging Issues Task Force (EITF) on Issue No. 04-13, Accounting for Purchases and Sales of Inventory with the Same Counterparty. The issue defines when a purchase and a sale of inventory with the same party that operates in the same line of business is recorded at fair value or considered a single non-monetary transaction subject to the fair value exception of APB Opinion No. 29. The purchase and sale transactions may be pursuant to a single contractual arrangement or separate contractual arrangements and the inventory purchased or sold may be in the form of raw materials, work-in-process, or finished goods. In general, two or more transactions with the same party are treated as one if they are entered into in contemplation of each other. The rules apply to new arrangements entered into in reporting periods beginning after March 15, 2006. The accounting for certain of the transactions that Marathon considers as matching buy/sell transactions will be affected by this consensus and therefore, upon adoption, these transactions will no longer be recorded on a gross basis. Management does not believe any impact on net income would be material. There will be no impact on cash flows from operations as a result of adoption. |
14
15
16
First Quarter Ended March 31, | ||||||||
(Dollars in millions) | 2006 | 2005 | ||||||
E&P |
$ | 2,399 | $ | 1,718 | ||||
RM&T |
14,212 | 11,396 | ||||||
IG |
30 | 61 | ||||||
Segment revenues |
16,641 | 13,175 | ||||||
Elimination of intersegment revenues |
(203 | ) | (186 | ) | ||||
Gain (loss) on long-term U.K. natural gas contracts |
78 | (57 | ) | |||||
Total revenues |
$ | 16,516 | $ | 12,932 | ||||
Items included in both revenues and costs and expenses: |
||||||||
Consumer excise taxes on petroleum products and merchandise |
1,165 | 1,084 | ||||||
Matching crude oil and refined product buy/sell transactions
settled in cash: |
||||||||
E&P |
11 | 36 | ||||||
RM&T |
3,195 | 2,773 | ||||||
Total buy/sell transactions included in revenues |
$ | 3,206 | $ | 2,809 | ||||
17
First Quarter Ended March 31, | ||||||||
2006 | 2005 | |||||||
Statutory U.S. income tax rate |
35 | % | 35 | % | ||||
Effects of foreign operations |
11 | | ||||||
State and local income taxes after federal income tax effects |
2 | 5 | ||||||
Other tax effects |
(1 | ) | (2 | ) | ||||
Effective income tax rate |
47 | % | 38 | % | ||||
18
First Quarter Ended March 31, | ||||||||
(Dollars in millions) | 2006 | 2005 | ||||||
E&P: |
||||||||
United States |
$ | 245 | $ | 177 | ||||
International |
232 | 157 | ||||||
E&P segment |
477 | 334 | ||||||
RM&T |
319 | 74 | ||||||
IG |
8 | 22 | ||||||
Segment income |
804 | 430 | ||||||
Items not allocated to segments, net of income taxes: |
||||||||
Gain (loss) on long-term U.K. natural gas contracts |
45 | (33 | ) | |||||
Corporate and other unallocated items |
(65 | ) | (73 | ) | ||||
Net income |
$ | 784 | $ | 324 | ||||
19
20
March 31, | December 31, | |||||||
(Dollars in millions) | 2006 | 2005 | ||||||
Long-term debt due within one year |
$ | 15 | $ | 315 | ||||
Long-term debt |
3,687 | 3,698 | ||||||
Total debt |
$ | 3,702 | $ | 4,013 | ||||
Cash |
$ | 1,269 | $ | 2,617 | ||||
Equity |
$ | 12,165 | $ | 11,705 | ||||
Calculation: |
||||||||
Total debt |
$ | 3,702 | $ | 4,013 | ||||
Minus cash |
1,269 | 2,617 | ||||||
Total debt minus cash |
2,433 | 1,396 | ||||||
Total debt |
3,702 | 4,013 | ||||||
Plus equity |
12,165 | 11,705 | ||||||
Minus cash |
1,269 | 2,617 | ||||||
Total debt plus equity minus cash |
$ | 14,598 | $ | 13,101 | ||||
Cash-adjusted debt-to-capital ratio |
17 | % | 11 | % | ||||
21
22
23
24
| to mitigate the price risk: |
o | between the time foreign and domestic crude oil and other feedstock purchases for refinery supply are priced and when they are actually refined into salable petroleum products, | ||
o | associated with anticipated natural gas purchases for refinery use, | ||
o | associated with freight on crude oil, feedstocks and refined product deliveries, and | ||
o | on fixed price contracts for ethanol purchases; |
| to protect the value of excess refined product, crude oil and liquefied petroleum gas inventories; | ||
| to protect margins associated with future fixed price sales of refined products to non-retail customers; | ||
| to protect against decreases in future crack spreads; | ||
| to take advantage of trading opportunities identified in the commodity markets. |
25
Incremental Decrease in IFO Assuming a | ||||||||||||||||
Hypothetical Price Change of (a): | ||||||||||||||||
(Dollars in millions) | 10% | 25% | ||||||||||||||
Commodity Derivative Instruments: (b)(c) |
||||||||||||||||
Crude oil (d) |
$ | 32 | (e) | $ | 86 | (e) | ||||||||||
Natural gas (d) |
67 | (e) | 167 | (e) | ||||||||||||
Refined products (d) |
2 | (e) | 9 | (e) | ||||||||||||
(a) | We remain at risk for possible changes in the market value of derivative instruments; however, such risk should be mitigated by price changes in the underlying hedged item. Effects of these offsets are not reflected in the sensitivity analyses. Amounts reflect hypothetical 10 percent and 25 percent changes in closing commodity prices, excluding basis swaps, for each open contract position at March 31, 2006. Included in the natural gas impact shown above are $77 million and $191 million related to the long-term U.K. natural gas contracts for hypothetical price changes of 10 percent and 25 percent, respectively. We evaluate our portfolio of derivative commodity instruments on an ongoing basis and add or revise strategies in anticipation of changes in market conditions and in risk profiles. We are also exposed to credit risk in the event of nonperformance by counterparties. The creditworthiness of counterparties is reviewed continuously and master netting agreements are used when practical. Changes to the portfolio after March 31, 2006, would cause future IFO effects to differ from those presented in the table. | |
(b) | The number of net open contracts for the E&P segment varied throughout first quarter 2006, from a low of 925 contracts near the beginning of March to a high of 1,634 contracts in mid-January, and averaged 1,266 for the quarter. The number of net open contracts for the RM&T segment varied throughout first quarter 2006, from a low of 3,867 contracts during mid-February to a high of 14,908 contracts at the beginning of January, and averaged 8,625 for the quarter. The derivative commodity instruments used and hedging positions taken will vary and, because of these variations in the composition of the portfolio over time, the number of open contracts by itself cannot be used to predict future income effects. | |
(c) | The calculation of sensitivity amounts for basis swaps assumes that the physical and paper indices are perfectly correlated. Gains and losses on options are based on changes in intrinsic value only. | |
(d) | The direction of the price change used in calculating the sensitivity amount for each commodity reflects that which would result in the largest incremental decrease in IFO when applied to the commodity derivative instruments used to hedge that commodity. | |
(e) | Price increase. |
26
First Quarter Ended March 31, | ||||||||
(Dollars in millions) | 2006 | 2005 | ||||||
Strategy: |
||||||||
Mitigate price risk |
$ | 4 | $ | (65 | ) | |||
Protect carrying values of excess inventories |
(16 | ) | (48 | ) | ||||
Protect margin on fixed price sales |
4 | 14 | ||||||
Protect crack spread values |
(3 | ) | (73 | ) | ||||
Subtotal, non-trading activities |
(11 | ) | (172 | ) | ||||
Trading activities |
5 | (31 | ) | |||||
Total net derivative losses |
$ | (6 | ) | $ | (203 | ) | ||
Incremental Increase in | ||||||||
(Dollars in millions) | Fair Value (b) | Fair Value (c) | ||||||
Financial assets (liabilities):(a) |
||||||||
Interest rate swap agreements |
$ | (36 | ) | $ | 13 | |||
Long-term debt, including that due within one year (d) |
(3,924 | ) | (152 | ) | ||||
(a) | Fair values of cash and cash equivalents, receivables, notes payable, accounts payable and accrued interest approximate carrying value and are relatively insensitive to changes in interest rates due to the short-term maturity of the instruments. Accordingly, these instruments are excluded from the table. | |
(b) | Fair value was based on market prices where available, or current borrowing rates for financings with similar terms and maturities. | |
(c) | Assumes a 10 percent decrease in the March 31, 2006 effective swap rate or a 10 percent decrease in the weighted average yield to maturity of our long-term debt at March 31, 2006, as appropriate. | |
(d) | See below for sensitivity analysis. |
27
28
First Quarter Ended March 31, | ||||||||
(Dollars in millions, except as noted) | 2006 | 2005 | ||||||
SEGMENT INCOME: |
||||||||
Exploration and Production |
||||||||
United States |
$ | 245 | $ | 177 | ||||
International |
232 | 157 | ||||||
E&P Segment |
477 | 334 | ||||||
Refining, Marketing and Transportation(a) |
319 | 74 | ||||||
Integrated Gas |
8 | 22 | ||||||
Segment Income |
804 | 430 | ||||||
Items not allocated to segments, net of income taxes: |
||||||||
Gain (loss) on long-term U.K. natural gas contracts |
45 | (33 | ) | |||||
Corporate and other unallocated items |
(65 | ) | (73 | ) | ||||
Net income |
$ | 784 | $ | 324 | ||||
CAPITAL EXPENDITURES: |
||||||||
Exploration and Production |
$ | 384 | $ | 294 | ||||
Refining, Marketing and Transportation(a) |
104 | 136 | ||||||
Integrated Gas(b) |
94 | 125 | ||||||
Corporate |
17 | 1 | ||||||
Total |
$ | 599 | $ | 556 | ||||
EXPLORATION EXPENSE: |
||||||||
United States |
$ | 28 | $ | 17 | ||||
International |
43 | 17 | ||||||
Total |
$ | 71 | $ | 34 | ||||
E&P OPERATING STATISTICS |
||||||||
Net Liquid Hydrocarbon Sales (mbpd) |
||||||||
United States |
80 | 72 | ||||||
Europe |
30 | 31 | ||||||
Africa |
72 | 36 | ||||||
Other International |
29 | 24 | ||||||
Total International |
131 | 91 | ||||||
Worldwide |
211 | 163 | ||||||
Net Natural Gas Sales (mmcfd)(c)(d) |
||||||||
United States |
561 | 570 | ||||||
Europe |
347 | 372 | ||||||
Africa |
88 | 83 | ||||||
Total International |
435 | 455 | ||||||
Worldwide |
996 | 1,025 | ||||||
Total Sales (mboepd) |
377 | 334 | ||||||
(a) | RM&T segment income for the first quarter of 2005 is net of $76 million pretax minority interest in MPC. RM&T capital expenditures include MPC at 100 percent. | |
(b) | Includes Equatorial Guinea LNG Holdings at 100 percent. | |
(c) | Amounts reflect sales after royalties, except for Ireland where amounts are before royalties. | |
(d) | Includes natural gas acquired for injection and subsequent resale of 40.6 mmcfd and 20.5 mmcfd in the first quarters of 2006 and 2005. Effective July 1, 2005, the methodology for allocating sales volumes between natural gas produced from the Brae complex and third-party natural gas production was modified, resulting in an increase in volumes representing natural gas acquired for injection and subsequent resale. |
29
First Quarter Ended March 31, | ||||||||
2006 | 2005 | |||||||
E&P
OPERATING STATISTICS (continued) |
||||||||
Average Realizations
(e) |
||||||||
Liquid Hydrocarbons ($ per bbl) |
||||||||
United States |
$ | 49.30 | $ | 38.47 | ||||
Europe |
62.14 | 45.34 | ||||||
Africa |
51.35 | 43.23 | ||||||
Other International |
37.39 | 24.79 | ||||||
Total International |
50.68 | 39.10 | ||||||
Worldwide |
$ | 50.16 | $ | 38.82 | ||||
Natural Gas ($ per mcf) |
||||||||
United States |
$ | 6.66 | $ | 4.95 | ||||
Europe |
7.66 | 5.05 | ||||||
Africa |
0.25 | 0.24 | ||||||
Total International |
6.16 | 4.17 | ||||||
Worldwide |
$ | 6.44 | $ | 4.60 | ||||
RM&T OPERATING STATISTICS |
||||||||
Refinery Runs (mbpd): |
||||||||
Crude oil refined |
898 | 922 | ||||||
Other charge and blend stocks |
249 | 172 | ||||||
Total |
1,147 | 1,094 | ||||||
Refined Product Yields (mbpd): |
||||||||
Gasoline |
645 | 576 | ||||||
Distillates |
290 | 292 | ||||||
Propane |
20 | 19 | ||||||
Feedstocks and special products |
108 | 116 | ||||||
Heavy fuel oil |
24 | 33 | ||||||
Asphalt |
75 | 72 | ||||||
Total |
1,162 | 1,108 | ||||||
Refined Products Sales Volumes (mbpd)(f) |
1,417 | 1,370 | ||||||
Matching buy/sell volumes included in refined product
sales volumes (mbpd) |
83 | 80 | ||||||
Refining and Wholesale Marketing Gross Margin (per gallon)(g) |
$ | 0.1137 | $ | 0.0685 | ||||
Number of SSA Retail Outlets |
1,635 | 1,659 | ||||||
SSA Gasoline and Distillate Sales (millions of gallons) |
776 | 745 | ||||||
SSA Gasoline and Distillate Gross Margin (per gallon) |
$ | 0.1055 | $ | 0.1058 | ||||
SSA Merchandise Sales |
$ | 610 | $ | 560 | ||||
SSA Merchandise Gross Margin |
$ | 148 | $ | 143 | ||||
(e) | Excludes all derivative gains and losses, including the effects of long-term U.K. natural gas contracts that are accounted for as derivatives. There were no equity production hedges in the first quarters of 2006 and 2005. | |
(f) | Total average daily volumes of all refined product sales to wholesale, branded and retail (SSA) customers. | |
(g) | Sales revenue less cost of refinery inputs, purchased products and manufacturing expenses, including depreciation. |
30
(a) | (b) | (c) | (d) | |||||||||||||
Total Number of | Approximate Dollar | |||||||||||||||
Shares Purchased | Value of Shares that | |||||||||||||||
Average Price | as Part of Publicly | May Yet Be | ||||||||||||||
Total Number of | Paid | Announced Plans | Purchased Under the | |||||||||||||
Period | Shares Purchased (a)(b) | per Share | or Programs (d) | Plans or Programs (d) | ||||||||||||
01/01/06 01/31/06 |
81,100 | $ | 76.82 | | $ | 2,000,000,000 | ||||||||||
02/01/06 02/28/06 |
413,804 | $ | 71.14 | 413,800 | $ | 1,970,563,160 | ||||||||||
03/01/06 03/31/06 |
2,788,847 | (c) | $ | 72.96 | 2,737,800 | $ | 1,770,839,546 | |||||||||
Total |
3,283,751 | $ | 72.83 | 3,151,600 |
(a) | 112,791 shares of restricted stock were delivered by employees to Marathon, upon vesting, to satisfy tax withholding requirements. | |
(b) | Under the terms of the transaction whereby Marathon acquired the minority interest in MPC and other businesses from Ashland Inc., Marathon paid Ashland Inc. shareholders cash in lieu of issuing fractional shares of Marathons common stock to which such holders would otherwise be entitled. Marathon acquired 6 shares due to acquisition share exchanges and Ashland Inc. share transfers pending at the closing of the transaction. | |
(c) | 19,354 shares were repurchased in open-market transactions to satisfy the requirements for dividend reinvestment under the Marathon Oil Corporation Dividend Reinvestment and Direct Stock Purchase Plan (the Dividend Reinvestment Plan) by the administrator of the Dividend Reinvestment Plan. Stock needed to meet the requirements of the Dividend Reinvestment Plan are either purchased in the open market or issued directly by Marathon. | |
(d) | On January 29, 2006, our Board of Directors authorized the repurchase of up to $2 billion of common stock over a period of two years. Such purchases will be made during this period as Marathons financial condition and market conditions warrant. Any purchases under the program may be in either open market transactions, including block purchases, or in privately negotiated transactions. The repurchase program does not include specific price targets or timetables, and is subject to termination prior to completion. |
31
1. | Votes regarding the persons elected to serve as Class I directors for a term expiring in 2009 were as follows: |
NOMINEE | VOTES FOR | VOTES WITHHELD | ||||||
Clarence P. Cazalot, Jr. |
306,764,458 | 15,827,069 | ||||||
David A. Daberko |
303,433,496 | 19,158,031 | ||||||
William L. Davis |
310,566,832 | 12,024,695 |
Continuing as Class II directors for a term expiring in 2007 are Charles F. Bolden, Jr., Charles R. Lee, Dennis H. Reilley and Thomas J. Usher. Continuing as Class III directors for a term expiring in 2008 are Shirley Ann Jackson, Philip Lader, Seth E. Schofield and Douglas C. Yearley. | ||
2. | PricewaterhouseCoopers LLP was ratified as the independent auditors for 2006. The voting results were as follows: |
VOTES FOR | VOTES AGAINST | VOTES ABSTAINED | ||||||||||
315,237,067 |
4,911,915 | 2,416,550 |
3. | The Board of Directors proposal to amend the Restated Certificate of Incorporation to declassify the Board of Directors was approved. The voting results were as follows: |
VOTES FOR | VOTES AGAINST | VOTES ABSTAINED | ||||||||||
316,615,678 |
3,100,505 | 2,838,147 |
4. | The Board of Directors proposal to amend the Restated Certificate of Incorporation to revise the purpose clause, eliminate the Series A Junior Preferred Stock and make other technical changes was approved. The voting results were as follows: |
VOTES FOR | VOTES AGAINST | VOTES ABSTAINED | ||||||||||
318,561,637 |
1,089,662 | 2,903,498 |
5. | The stockholder proposal to elect directors by a majority vote was approved. The proposal requested that the Board of Directors initiate the appropriate process to amend the Companys governance documents (certificate of incorporation or bylaws) to provide that a director nominee shall be elected by the affirmative vote of the majority of votes cast at an annual meeting of shareholders. The voting results were as follows: |
VOTES | VOTES | VOTES | BROKER | |||||||||||||||
FOR | AGAINST | ABSTAINED | NON-VOTES | |||||||||||||||
191,576,749 |
91,294,280 | 3,975,143 | 35,745,355 |
6. | The stockholder proposal for a simple majority vote of shareholders was approved. The proposal recommended that the Board of Directors take each step necessary for a simple majority vote to apply on each issue that can be subject to shareholder vote to the greatest extent possible. The voting results were as follows: |
VOTES | VOTES | VOTES | BROKER | |||||||||||||||
FOR | AGAINST | ABSTAINED | NON-VOTES | |||||||||||||||
236,460,419 |
47,119,626 | 3,265,194 | 35,746,288 |
32
3.1 (a)
|
Restated Certificate of Incorporation of Marathon Oil Corporation | |
3.1 (b)
|
Certificate of Amendment of Restated Certificate of Incorporation of Marathon Oil Corporation | |
3.2
|
By-Laws of Marathon Oil Corporation (incorporated by reference to Exhibit 3.2 to Marathon Oil Corporations Form 8-K, filed on April 28, 2006) | |
4.1
|
Amendment No. 1 dated as of May 4, 2006 to the Five-Year Credit Agreement dated as of May 20, 2004 among Marathon Oil Corporation, the Co-Agents and other Lenders party thereto, Bank of America, N.A., as Syndication Agent, Citibank, N.A. and Morgan Stanley Bank, as Documentation Agents, and JPMorgan Chase Bank, N.A, as Administrative Agent | |
12.1
|
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends | |
12.2
|
Computation of Ratio of Earnings to Fixed Charges | |
31.1
|
Certification of President and Chief Executive Officer pursuant to Rule 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934 | |
31.2
|
Certification of Senior Vice President and Chief Financial Officer pursuant to Rule 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934 | |
32.1
|
Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350 | |
32.2
|
Certification of Senior Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 |
33
MARATHON OIL CORPORATION | ||||||
By: | Michael K. Stewart | |||||
Michael K. Stewart | ||||||
Vice President, Accounting and Controller |
34
3.1 (a)
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Restated Certificate of Incorporation of Marathon Oil Corporation | |
3.1 (b)
|
Certificate of Amendment of Restated Certificate of Incorporation of Marathon Oil Corporation | |
3.2
|
By-Laws of Marathon Oil Corporation (incorporated by reference to Exhibit 3.2 to Marathon Oil Corporations Form 8-K, filed on April 28, 2006) | |
4.1
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Amendment No. 1 dated as of May 4, 2006 to the Five-Year Credit Agreement dated as of May 20, 2004 among Marathon Oil Corporation, the Co-Agents and other Lenders party thereto, Bank of America, N.A., as Syndication Agent, Citibank, N.A. and Morgan Stanley Bank, as Documentation Agents, and JPMorgan Chase Bank, N.A, as Administrative Agent | |
12.1
|
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends | |
12.2
|
Computation of Ratio of Earnings to Fixed Charges | |
31.1
|
Certification of President and Chief Executive Officer pursuant to Rule 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934 | |
31.2
|
Certification of Senior Vice President and Chief Financial Officer pursuant to Rule 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934 | |
32.1
|
Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350 | |
32.2
|
Certification of Senior Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 |