| Year | Year | Increase | Increase | |
| 2012 | 2011 | Amount | % | |
| mils $s | mils $s | mils $s | ||
| Pretax Income | 78,726 | 73,257 | 5,469 | 7% |
| Income Tax Expense | 31,045 | 31,051 | (6) | 0% |
| Net Income, Including Non-controlling Interests | 47,681 | 42,206 | 5,475 | 13% |
| …..To Non-controlling Interests | 2,801 | 1,146 | 1,655 | |
| …..To ExxonMobil | 44,880 | 41,060 | 3,820 | 9% |
| Earnings Per Share | $9.70 | $8.43 | $1.27 | 15% |
So, EPS growth, which drives common stock prices, increased 15%.
That's got to be really great, right?
Well, you ought to take a breath, and see just how ExxonMobil got this 15% EPS growth.
2012 Net Income attributable to ExxonMobil increased by a much lower 9%. Whoa, what's going on here?
Well, ExxonMobil has this massive stock buyback program. It spent more than $20 bil in 2012 in buying back its own common stock. Thus, its average number of common shares, the EPS denominator, decreased by more than 5%, thereby yielding a much higher EPS growth than earnings growth.
Is that fair? Well, actually not. Only major corporations and their stockholders get this massive economic benefit from common stock buybacks.
And major corporation executives, richly rewarded by huge stock options and by huge restricted stock unit benefits, obtain incredibly lucrative financial wealth enhancement from these stock buybacks, since EPS and EPS growth drive common stock prices.
Small businesses cannot get this same benefit from stock buybacks that large publicly-held corporations receive.
And employees of small businesses also can't benefit from stock buybacks.
So what should be done to make this a much fairer economic situation for everyone?
Well, I think that companies which buy back their common stock excessively should be paying a stiff financial fee to the US Government.
And the huge amount of money raised here by the US Government should be used to help resolve the horrible sequester problem the country's economy now faces.
But there's more to ExxonMobil's EPS growth.
When you compute ExxonMobil's effective income tax rates, they are 39.4% in annual 2012 vs 42.4% in 2011. Yeah, ExxonMobil decided to reduce its income tax rate by 3.0% in 2012.
So, that's not a big deal, is it?
Well, actually it is.
By using a 3.0% lower effective income tax rate, Exxon Mobil was able to increase its Net Income in 2012 by $2,362 mil, or 3.0% times $78,726 mil of Pretax Income in 2012.
But there's even a bigger deal here about ExxonMobil's 2012 earnings.
When you review its 10-Q filed with the SEC in the 2Q 2012, ExxonMobil's Other Income report line showed $10,967 mil in the 2Q 2012 as compared with only $372 mil in the 2Q 2011.
Whoa, what's with this $10,585 mil of additional Pretax Income?
Well, when you analyze its footnotes, you'll see that $6.5 bil of this $10.6 bil Total Other Income increase was from its Japan Restructuring.
Here's the precise footnote disclosure on this Japan restructuring that magically yielded this monster reported pretax earnings gain of $6.5 bil.
======================
10. Japan Restructuring
On June 1, 2012, the Corporation completed the restructuring of its Downstream and Chemical holdings in Japan. Under the restructuring, TonenGeneral Sekiyu K. K. (TG), a consolidated subsidiary owned 50 percent by the Corporation, purchased for $3.9 billion the Corporation's shares of a wholly-owned affiliate in Japan, EMG Marketing Godo Kaisha (previously known as ExxonMobil Yugen Kaisha), which resulted in TG acquiring approximately 200 million of its shares currently owned by the Corporation along with other assets. As a result of the restructuring, the Corporation's effective ownership of TG was reduced to approximately 22 percent and a gain of $6.5 billion was recognized. The gain is included in “Other income” partially offset by amounts included in “Income tax expense” and “Net income attributable to noncontrolling interests”.
On June 1, 2012, the Corporation completed the restructuring of its Downstream and Chemical holdings in Japan. Under the restructuring, TonenGeneral Sekiyu K. K. (TG), a consolidated subsidiary owned 50 percent by the Corporation, purchased for $3.9 billion the Corporation's shares of a wholly-owned affiliate in Japan, EMG Marketing Godo Kaisha (previously known as ExxonMobil Yugen Kaisha), which resulted in TG acquiring approximately 200 million of its shares currently owned by the Corporation along with other assets. As a result of the restructuring, the Corporation's effective ownership of TG was reduced to approximately 22 percent and a gain of $6.5 billion was recognized. The gain is included in “Other income” partially offset by amounts included in “Income tax expense” and “Net income attributable to noncontrolling interests”.
The gain
includes $1.9 billion of the Corporation's share of other comprehensive income
recycled into earnings (see note 3 below). The gain also includes remeasurement
of TG's shares that the Corporation continues to own to $0.7 billion, based on
TG's share price on the Tokyo Stock Exchange. The Corporation will account for
its remaining investment using the equity method.
===========================
And this $6.5 bil Pretax Gain is higher than ExxonMobil's Total Pretax Income increase of $5.5 bil in 2012.
OK, so that's the magical financial engineering for how ExxonMobil got a 15% EPS increase in annual 2012.
So, what about its 4Q 2012 results.
Here's a summary of key aspects of ExxonMobil's 4Q 2012 earnings, it just released this morning:
| Increase | Increase | |||
| 4Q 2012 | 4Q 2011 | Amount | % | |
| mils $s | mils $s | mils $s | ||
| Pretax Income | 17,700 | 17,041 | 659 | 4% |
| Income Tax Expense | 7,398 | 7,317 | 81 | 1% |
| Net Income, Including Non-controlling Interests | 10,302 | 9,724 | 578 | 6% |
| …..To Non-controlling Interests | 352 | 324 | 28 | |
| …..To ExxonMobil | 9,950 | 9,400 | 550 | 6% |
| Earnings Per Share | $2.20 | $1.97 | $0.23 | 12% |
Yeah, that's right, precisely half of ExxonMobil's 12% EPS growth for the 4Q 2012 was driven by its massive stock buybacks.
And yeah, ExxonMobil also again benefited from reducing its effective income tax rate in the 4Q 2012, from one of 42.9% in the 4Q 2011 to 41.8% in the 4Q 2012.
I think it would also be helpful to look a bit at ExxonMobil's earnings historically. Below here are the Earnings and EPS of ExxonMobil in the past decade:
| Year | Earnings | EPS |
| mils | ||
| 2002 | $11,460 | $1.69 |
| 2003 | $21,510 | $3.24 |
| 2004 | $25,330 | $3.91 |
| 2005 | $36,130 | $5.74 |
| 2006 | $39,500 | $6.64 |
| 2007 | $40,610 | $7.31 |
| 2008 | $45,220 | $8.70 |
| 2009 | $19,280 | $3.99 |
| 2010 | $30,460 | $6.24 |
| 2011 | $41,060 | $8.43 |
| 2012 | $44,880 | $9.70 |
Yeah, in the last seven of the Bush/Cheney Presidential years, ExxonMobil's Net Income grew by 295% from $11,460 mil in 2002 to $45,220 mil in 2008. And its EPS growth over this same seven-year period increased by a higher 415%.
Then the financial meltdown and worldwide deep recession hit, and in 2009, ExxonMobil's earnings plummeted. But look how ExxonMobil's earnings have rocketed since 2009, going from $19,280 mil to $44,880 mil, an increase of 133% in just the most recent three years. And its EPS growth in the most recent three years was an even higher 143%.
And ExxonMobil's EPS of $9.70 in 2012 is 11% higher than its previous high EPS of $8.70 earned in 2008.
Given the number and massive amount of tax subsidies that the US Congress has bestowed on ExxonMobil and other large oil companies, I think it only makes sense that Big Oil be a major contributor in helping solve the severe US Congress-driven sequester problem that the US economy is now faced with.
