FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
________ ________
Commission File Number 1-2256
EXXON CORPORATION
__________________________________________________________
(Exact name of registrant as specified in its charter)
NEW JERSEY 13-5409005
______________________________ _________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5959 Las Colinas Boulevard, Irving, Texas 75039-2298
_______________________________________________________________
(Address of principal executive offices) (Zip Code)
(972) 444-1000
__________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes X No .
___ ___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding as of September 30, 1999
_______________________________ ____________________________________
Common stock, without par value 2,427,785,330
EXXON CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
Page
Number
______
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Income 3
Three and nine months ended September 30, 1999 and 1998
Condensed Consolidated Balance Sheet 4
As of September 30, 1999 and December 31, 1998
Condensed Consolidated Statement of Cash Flows 5
Nine months ended September 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements 6-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 6. Exhibits and Reports on Form 8-K 19
Signature 20
Index to Exhibits 21
-2-
EXXON CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EXXON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(millions of dollars)
Three Months Ended Nine Months Ended
September 30, September 30,
__________________ _________________
REVENUE 1999 1998 1999 1998
____ ____ ____ ____
Sales and other operating revenue,
including excise taxes $32,775 $27,907 $88,010 $86,047
Earnings from equity interests and
other revenue 297 589 1,368 1,778
_______ _______ _______ _______
Total revenue 33,072 28,496 89,378 87,825
_______ _______ _______ _______
COSTS AND OTHER DEDUCTIONS
Crude oil and product purchases 14,867 10,973 37,265 34,463
Operating expenses 3,085 2,744 8,350 8,419
Selling, general and administrative
expenses 1,785 2,106 6,375 6,289
Depreciation and depletion 1,319 1,290 4,194 3,980
Exploration expenses, including dry holes 146 202 421 623
Interest expense 58 6 197 66
Excise taxes 3,760 3,395 10,718 10,449
Other taxes and duties 5,793 5,699 16,986 16,400
Income applicable to minority and
preferred interests 30 41 (31) 129
_______ _______ _______ _______
Total costs and other deductions 30,843 26,456 84,475 80,818
_______ _______ _______ _______
INCOME BEFORE INCOME TAXES 2,229 2,040 4,903 7,007
Income taxes 729 640 1,178 2,097
_______ _______ _______ _______
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 1,500 1,400 3,725 4,910
Cumulative effect of accounting
change - - - (70)
_______ _______ _______ _______
NET INCOME $ 1,500 $ 1,400 $ 3,725 $ 4,840
======= ======= ======= =======
NET INCOME PER COMMON SHARE (DOLLARS)
Before cumulative effect of
accounting change $ 0.62 $ 0.58 $ 1.54 $ 2.01
Cumulative effect of accounting
change - - - (0.03)
_______ _______ _______ _______
Net Income $ 0.62 $ 0.58 $ 1.54 $ 1.98
======= ======= ======= =======
NET INCOME PER COMMON SHARE
- ASSUMING DILUTION (DOLLARS)
Before cumulative effect of
accounting change $ 0.61 $ 0.58 $ 1.52 $ 1.99
Cumulative effect of accounting
change - - - (0.03)
_______ _______ _______ _______
Net Income $ 0.61 $ 0.58 $ 1.52 $ 1.96
======= ======= ======= =======
Dividends per common share $ 0.41 $ 0.41 $ 1.23 $ 1.23
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EXXON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(millions of dollars)
Sept. 30, Dec. 31,
1999 1998
_________ ________
ASSETS
Current assets
Cash and cash equivalents $ 1,151 $ 1,441
Other marketable securities 39 20
Notes and accounts receivable - net 10,778 9,512
Inventories
Crude oil, products and merchandise 4,220 4,896
Materials and supplies 675 709
Prepaid taxes and expenses 1,185 1,015
_______ _______
Total current assets 18,048 17,593
Property, plant and equipment - net 65,999 65,199
Investments and other assets 10,347 9,838
_______ _______
TOTAL ASSETS $94,394 $92,630
======= =======
LIABILITIES
Current liabilities
Notes and loans payable $ 4,820 $ 4,248
Accounts payable and accrued liabilities 15,410 13,825
Income taxes payable 1,349 1,339
_______ _______
Total current liabilities 21,579 19,412
Long-term debt 4,425 4,530
Annuity reserves, deferred credits and other liabilities 24,556 24,938
_______ _______
TOTAL LIABILITIES 50,560 48,880
_______ _______
SHAREHOLDERS' EQUITY
Preferred stock, without par value:
Authorized: 200 million shares
Outstanding: 1 million shares at Sept. 30, 1999 31
2 million shares at Dec. 31, 1998 105
Guaranteed LESOP obligation - (125)
Common stock, without par value:
Authorized: 3,000 million shares
Issued: 2,984 million shares 2,323 2,323
Earnings reinvested 55,312 54,575
Accumulated other nonowner changes in equity
Cumulative foreign exchange translation adjustment (1,040) (641)
Minimum pension liability adjustment (282) (282)
Common stock held in treasury:
556 million shares at Sept. 30, 1999 (12,510)
556 million shares at Dec. 31, 1998 (12,205)
_______ _______
TOTAL SHAREHOLDERS' EQUITY 43,834 43,750
_______ _______
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $94,394 $92,630
======= =======
The number of shares of common stock issued and outstanding at September 30,
1999 and December 31, 1998 were 2,427,785,330 and 2,427,787,109, respectively.
-4-
EXXON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(millions of dollars)
Nine Months Ended
September 30,
_________________
1999 1998
____ ____
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 3,725 $ 4,840
Depreciation and depletion 4,194 3,980
Changes in operational working capital, excluding
cash and debt 675 563
All other items - net (737) (31)
_______ _______
Net Cash Provided By Operating Activities 7,857 9,352
_______ _______
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (5,775) (5,835)
Sales of subsidiaries and property, plant and equipment 496 303
Other investing activities - net 72 (17)
_______ _______
Net Cash Used In Investing Activities (5,207) (5,549)
_______ _______
NET CASH GENERATION BEFORE FINANCING ACTIVITIES 2,650 3,803
_______ _______
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to long-term debt 10 7
Reductions in long-term debt (197) (116)
Additions/(reductions) in short-term debt - net 642 (244)
Cash dividends to Exxon shareholders (2,989) (3,014)
Cash dividends to minority interests (62) (62)
Changes in minority interests and sales/(purchases)
of affiliate stock 44 (95)
Acquisitions of Exxon shares - net (414) (2,236)
_______ _______
Net Cash Used In Financing Activities (2,966) (5,760)
_______ _______
Effects Of Exchange Rate Changes On Cash 26 10
_______ _______
Increase/(Decrease) In Cash And Cash Equivalents (290) (1,947)
Cash And Cash Equivalents At Beginning Of Period 1,441 4,047
_______ _______
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,151 $ 2,100
======= =======
SUPPLEMENTAL DISCLOSURES
Income taxes paid $ 1,169 $ 1,727
Cash interest paid $ 247 $ 463
-5-
EXXON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis Of Financial Statement Preparation
These unaudited condensed consolidated financial statements should be
read in the context of the consolidated financial statements and notes
thereto filed with the Securities and Exchange Commission in the
corporation's 1998 Annual Report on Form 10-K. In the opinion of the
corporation, the information furnished herein reflects all known
accruals and adjustments necessary for a fair statement of the results
for the periods reported herein. All such adjustments are of a normal
recurring nature. The corporation's exploration and production
activities are accounted for under the "successful efforts" method.
During the fourth quarter of 1998, Exxon de-consolidated the majority owned
power companies in Hong Kong and China. These financial statements reflect
the de-consolidation of these companies retroactive to January 1, 1998.
These affiliates are now accounted for as equity companies in compliance
with the Financial Accounting Standards Board Emerging Issues Task Force
ruling on Issue No. 96-16, which requires equity company reporting for a
majority owned affiliate when minority shareholders possess the right to
participate in significant management decisions. Exxon's 1998 net income
was not affected by the de-consolidation. The effect on Exxon's January 1,
1998 consolidated balance sheet related to the de-consolidation was a
decrease in total assets of $3.6 billion, including $4.2 billion of net
property, plant and equipment and a decrease in total liabilities of $3.6
billion, including $2.5 billion of short and long-term debt.
The American Institute of Certified Public Accountants' Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities", was
implemented in the fourth quarter of 1998, effective as of January 1, 1998.
This statement requires that costs of start-up activities and
organizational costs be expensed as incurred. The cumulative effect of this
accounting change on years prior to 1998 was a charge of $70 million (net
of $70 million income tax effect), or $0.03 per common share, that was
reflected in the first quarter of 1998. This new accounting requirement did
not have a significant effect on 1998 income before the cumulative effect
of the accounting change.
2. Recently Issued Statements of Financial Accounting Standards
In June 1998, the Financial Accounting Standards Board released Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities
Information." This statement establishes accounting and reporting
standards for derivative instruments. The statement requires that an
entity recognize all derivatives as either assets or liabilities in the
financial statements and measure those instruments at fair value, and it
defines the accounting for changes in the fair value of the derivatives
depending on the intended use of the derivative. As amended by Financial
Accounting Standards Board Statement No. 137 issued in June 1999,
Statement No. 133 must be adopted beginning no later than 2001. No
decision has been made as to whether the corporation will adopt this
standard before 2001. Adoption of this statement is not expected to have a
material effect upon the corporation's operations or financial condition.
-6-
EXXON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Litigation and Other Contingencies
A number of lawsuits, including class actions, were brought in various
courts against Exxon Corporation and certain of its subsidiaries relating
to the accidental release of crude oil from the tanker Exxon Valdez in
1989. Essentially all of these lawsuits have now been resolved or are
subject to appeal.
On September 24, 1996, the United States District Court for the District
of Alaska entered a judgment in the amount of $5.058 billion in the Exxon
Valdez civil trial that began in May 1994. The District Court awarded
approximately $19.6 million in compensatory damages to fisher plaintiffs,
$38 million in prejudgment interest on the compensatory damages and $5
billion in punitive damages to a class composed of all persons and
entities who asserted claims for punitive damages from the corporation as
a result of the Exxon Valdez grounding. The District Court also ordered
that these awards shall bear interest from and after entry of the
judgment. The District Court stayed execution on the judgment pending
appeal based on a $6.75 billion letter of credit posted by the
corporation. Exxon has appealed the judgment. Exxon has also appealed the
District Court's denial of its renewed motion for a new trial. The Ninth
Circuit heard oral arguments on the appeals on May 3, 1999. The
corporation continues to believe that the punitive damages in this case
are unwarranted and that the judgment should be set aside or substantially
reduced by the appellate courts.
On January 29, 1997, a settlement agreement was concluded resolving all
remaining matters between Exxon and various insurers arising from the
Valdez accident. Under terms of this settlement, Exxon received $480
million. Final income statement recognition of this settlement continues
to be deferred in view of uncertainty regarding the ultimate cost to the
corporation of the Valdez accident.
The ultimate cost to the corporation from the lawsuits arising from the
Exxon Valdez grounding is not possible to predict and may not be resolved
for a number of years.
In each of the years 1999, 1998 and 1997, $70 million in payments were
made under the October 8, 1991 civil agreement and consent decree with the
U.S. and Alaska governments. These payments were charged against the
provision that was previously established to cover the costs of the
settlement.
German and Dutch affiliated companies are the concessionaires of a natural
gas field subject to a treaty between the governments of Germany and the
Netherlands under which the gas reserves in an undefined border or common
area were to be shared equally. Entitlement to the reserves was to be
determined by calculating the amount of gas which could be recovered from
the area. Based on the final reserve determination, the German affiliate
received more gas than its entitlement. Arbitration proceedings, as
provided in the agreements, were conducted to resolve issues concerning
the compensation for the overlifted gas.
-7-
EXXON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
By final award, dated July 2, 1999, preceded by an interim award in 1996,
an arbitral tribunal established the full amount of the compensation for
the excess gas. This amount has now been paid, but the Dutch affiliate is
seeking to have the award set aside. Other substantive matters remain
outstanding, including recovery of royalties paid on such excess gas and
the taxes payable on the final compensation amount. The net financial
impact on the corporation of these items is not possible to predict at
this time. However, the ultimate outcome is not expected to have a
materially adverse effect upon the corporation's operations or financial
condition.
The U.S. Tax Court has decided the issue with respect to the pricing of
crude oil purchased from Saudi Arabia for the years 1979-1981 in favor of
the corporation. This decision is subject to appeal. Certain other issues
for the years 1979-1988 remain pending before the Tax Court. The ultimate
resolution of these issues is not expected to have a materially adverse
effect upon the corporation's operations or financial condition.
Claims for substantial amounts have been made against Exxon and certain of
its consolidated subsidiaries in other pending lawsuits, the outcome of
which is not expected to have a materially adverse effect upon the
corporation's operations or financial condition.
The corporation and certain of its consolidated subsidiaries are directly
and indirectly contingently liable for amounts similar to those at the
prior year-end relating to guarantees for notes, loans and performance
under contracts, including guarantees of non-U.S. excise taxes and customs
duties of other companies, entered into as a normal business practice,
under reciprocal arrangements.
Additionally, the corporation and its affiliates have numerous long-term
sales and purchase commitments in their various business activities, all
of which are expected to be fulfilled with no adverse consequences
material to the corporation's operations or financial condition.
The operations and earnings of the corporation and its affiliates
throughout the world have been, and may in the future be, affected from
time to time in varying degree by political developments and laws and
regulations, such as forced divestiture of assets; restrictions on
production, imports and exports; price controls; tax increases and
retroactive tax claims; expropriation of property; cancellation of
contract rights and environmental regulations. Both the likelihood of such
occurrences and their overall effect upon the corporation vary greatly
from country to country and are not predictable.
4. Nonowner Changes in Shareholders' Equity
The total nonowner changes in shareholders' equity for the three months
ended September 30, 1999 and 1998 were $2,059 million and $1,978 million,
respectively. The total nonowner changes in shareholders' equity for the
nine months ended September 30, 1999 and 1998 were $3,326 million and
$5,113 million, respectively. Total nonowner changes in shareholders'
equity include net income and the change in the cumulative foreign
exchange translation adjustment and minimum pension liability adjustment
components of shareholders' equity.
-8-
EXXON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. Earnings Per Share
Three Months Ended Nine Months Ended
September 30, September 30,
__________________ _________________
1999 1998 1999 1998
____ ____ ____ ____
(millions of dollars, except per share
amounts and shares in millions)
NET INCOME PER COMMON SHARE
Income before cumulative effect of
accounting change $1,500 $1,400 $3,725 $4,910
Less: Preferred stock dividends - (2) (3) (8)
______ ______ ______ ______
Income available to common shares $1,500 $1,398 $3,722 $4,902
====== ====== ====== ======
Weighted average number of common shares
outstanding 2,428 2,435 2,428 2,443
Net income per common share
Before cumulative effect of accounting
change $ 0.62 $ 0.58 $ 1.54 $ 2.01
Cumulative effect of accounting change - - - (0.03)
______ ______ ______ ______
Net income $ 0.62 $ 0.58 $ 1.54 $ 1.98
====== ====== ====== ======
NET INCOME PER COMMON SHARE
- ASSUMING DILUTION
Income before cumulative effect of
accounting change $1,500 $1,400 $3,725 $4,910
Weighted average number of common shares
outstanding 2,428 2,435 2,428 2,443
Plus: Issued on assumed exercise of
stock options 27 26 26 26
Plus: Assumed conversion of preferred
stock 1 4 1 4
______ ______ ______ ______
Weighted average number of common shares
outstanding 2,456 2,465 2,455 2,473
====== ====== ====== ======
Net income per common share
Before cumulative effect of accounting
change $ 0.61 $ 0.58 $ 1.52 $ 1.99
Cumulative effect of accounting change - - - (0.03)
______ ______ ______ ______
Net income $ 0.61 $ 0.58 $ 1.52 $ 1.96
====== ====== ====== ======
-9-
EXXON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. Disclosures about Segments and Related Information
Three Months Ended Nine Months Ended
September 30, September 30,
__________________ _________________
1999 1998 1999 1998
____ ____ ____ ____
(millions of dollars)
EARNINGS AFTER INCOME TAX
(Before the cumulative effect of
accounting change)
Exploration and Production
United States $ 451 $ 211 $ 856 $ 625
Non-U.S. 563 274 1,488 1,454
Refining and Marketing
United States 118 142 214 468
Non-U.S. 19 439 207 1,347
Chemicals
United States 187 181 545 579
Non-U.S. 116 120 337 391
All Other 46 33 78 46
_______ _______ _______ _______
Corporate Total $ 1,500 $ 1,400 $ 3,725 $ 4,910
======= ======= ======= =======
SALES AND OTHER OPERATING REVENUE
Exploration and Production
United States $ 655 $ 524 $ 1,689 $ 1,703
Non-U.S. 2,038 1,616 5,442 5,702
Refining and Marketing
United States 5,340 3,619 13,193 11,870
Non-U.S. 21,732 19,412 59,667 58,154
Chemicals
United States 1,381 1,119 3,668 3,542
Non-U.S. 1,399 1,407 3,726 4,446
All Other 230 210 625 630
_______ _______ _______ _______
Corporate Total $32,775 $27,907 $88,010 $86,047
======= ======= ======= =======
INTERSEGMENT REVENUE
Exploration and Production
United States $ 954 $ 603 $ 2,215 $ 1,887
Non-U.S. 878 606 2,201 1,913
Refining and Marketing
United States 470 346 1,165 1,094
Non-U.S. 650 539 1,676 1,599
Chemicals
United States 308 405 909 1,211
Non-U.S. 226 182 559 555
All Other 26 32 82 101
-10-
EXXON CORPORATION
7. Restructuring Charge
In the first quarter of 1999 the company recorded a $120 million after-tax
charge for the restructuring of Japanese refining and marketing operations
in its wholly owned Esso Sekiyu K.K. and 50.1 percent owned General Sekiyu
K.K. affiliates. The restructuring resulted in the reduction of
approximately 700 administrative, financial, logistics and marketing
service employee positions during the quarter. The Japanese affiliates
recorded a combined charge of $216 million (before tax) to selling, general
and administrative expenses for the employee related costs. Substantially
all cash expenditures anticipated in the restructuring provision have been
paid as of September 30, 1999. General Sekiyu also recorded a $211 million
(before tax) charge to depreciation and depletion for the write-off of
costs associated with the cancellation of a power plant project at the
Kawasaki terminal.
-11-
EXXON CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FUNCTIONAL EARNINGS SUMMARY
Third Quarter First Nine Months
_______________ __________________
1999 1998 1999 1998
____ ____ ____ ____
(millions of dollars)
Petroleum and natural gas
Exploration and production
United States $ 451 $ 211 $ 856 $ 625
Non-U.S. 563 274 1,488 1,454
Refining and marketing
United States 118 142 214 468
Non-U.S. 19 439 207 1,347
______ ______ ______ ______
Total petroleum and natural gas 1,151 1,066 2,765 3,894
Chemicals
United States 187 181 545 579
Non-U.S. 116 120 337 391
Other operations 108 102 290 294
Corporate and financing (62) (69) (212) (248)
______ ______ ______ ______
Earnings before accounting change $1,500 $1,400 $3,725 $4,910
Cumulative effect of accounting change 0 0 0 (70)
______ ______ ______ ______
NET INCOME $1,500 $1,400 $3,725 $4,840
====== ====== ====== ======
THIRD QUARTER 1999 COMPARED WITH THIRD QUARTER 1998
Exxon Corporation estimated third quarter 1999 net income of $1,500 million, up
7 percent from $1,400 million in the third quarter of 1998. On a per share
basis, quarterly net income was $0.61 per share compared to $0.58 per share in
last year's third quarter.
Exxon's net income of $1.5 billion increased $100 million from the third
quarter of 1998. The improvement was driven by higher crude prices, which were
up about $8 per barrel on average. Upstream earnings more than doubled compared
to last year's third quarter and represented the highest third quarter upstream
results in 15 years. Record chemicals sales volumes and reduced operating
expenses across the segments also benefited earnings. However, depressed
downstream margins in all geographic areas, weaker chemicals margins and lower
coal prices continued to negatively affect total results. Unfavorable foreign
exchange effects also lowered earnings. With the improvement in oil prices,
third quarter results exceeded the second quarter of 1999 by $295 million or 24
percent, in contrast to the seasonal earnings decline normally seen from the
second to the third quarter of each year.
-12-
EXXON CORPORATION
Third quarter crude oil prices were up about $5 per barrel from the second
quarter of this year. U.S. gas prices also improved almost $0.50 per kcf
(thousand cubic feet) from the second quarter. However, natural gas prices were
still depressed in Europe as the impact of rising crude and petroleum product
reference prices have not yet been reflected in contractual prices. As crude
prices increased rapidly during the quarter, downstream earnings decreased
substantially versus the same period last year, reflecting the inability to
raise product prices in line with rising crude prices. Downstream margins in
all markets were depressed. International downstream earnings were also
adversely affected by foreign exchange effects. As a result of these factors,
third quarter downstream earnings, excluding non-recurring items, were the
lowest quarterly results in over a decade. Chemicals earnings were up slightly,
as record quarterly sales volumes and lower operating expenses offset the
impact of higher feedstock costs which depressed margins. Earnings from other
operations also improved slightly due to higher copper prices and volumes and
lower operating expenses.
During the quarter, Exxon continued its active investment program, spending
nearly $2.0 billion on capital and exploration projects.
OTHER COMMENTS ON THIRD QUARTER COMPARISON
Exploration and production earnings benefited from rising crude oil prices,
which averaged about $8 per barrel more than the third quarter of 1998. Natural
gas prices were higher in the U.S., but were lower in Europe. Exploration and
producing expenses were reduced versus the prior year.
Liquids production decreased to 1,514 kbd (thousand barrels per day) compared
to 1,553 kbd in the third quarter of 1998, primarily due to lower liftings in
Alaska, Malaysia and Canada. The decline was partly offset by production from
new developments in the North Sea, the Gulf of Mexico and Azerbaijan. Fourth
quarter production is expected to increase due to the start-up of new
developments in Norway. Production from the Balder field began at the end of
September and the Jotun development started up at the end of October. Third
quarter natural gas production of 5,078 mcfd (million cubic feet per day) was
down 129 mcfd from the prior year.
Earnings from U.S. exploration and production were $451 million, an increase of
$240 million from last year. Outside the U.S., earnings from exploration and
production were $563 million, an increase of $289 million from the third
quarter of 1998.
Petroleum product sales of 5,431 kbd equaled last year's record third quarter
results. Downstream earnings declined as petroleum product prices were not
able to keep up with the steep increase in crude costs during the quarter.
Downstream earnings outside the U.S. were also adversely affected by
unfavorable foreign exchange effects.
In the U.S., refining and marketing earnings were $118 million, down $24
million from the prior year. Refining and marketing operations outside the U.S.
earned $19 million, a decrease of $420 million from 1998.
-13-
EXXON CORPORATION
Chemicals earnings were $303 million compared with $301 million in the same
quarter a year ago. Margins were compressed as feedstock costs increased faster
than product prices. Prime product sales volumes of 4,596 kt (thousand metric
tons) established a quarterly record and were 6 percent higher than the same
period a year ago. Chemicals operating expenses were reduced from the prior
year.
Earnings from other operations, including coal, minerals and power, totaled
$108 million, compared to $102 million in the third quarter of 1998. Earnings
improved on higher copper prices and volumes and continued reductions in
operating expenses.
Corporate and financing expenses of $62 million compared with $69 million in
the third quarter of last year.
During the third quarter of 1999, Exxon purchased 1.0 million shares of its
common stock for the treasury at a cost of $84 million, representing a
continuation of purchases to offset shares issued in conjunction with the
Company's benefit plans and programs. Purchases are made in open market and
negotiated transactions and may be discontinued at any time. As a consequence
of the proposed merger of Exxon and Mobil, the repurchase program to reduce the
number of Exxon shares outstanding was discontinued in December of 1998.
FIRST NINE MONTHS 1999 COMPARED WITH FIRST NINE MONTHS 1998
Net income was $3,725 million for the first nine months of 1999, a decrease of
23 percent from the $4,840 million earned in 1998. Net income for the first
nine months of 1999 included a $120 million charge for the restructuring of
Japanese operations, while the prior year period included a $70 million charge
relating to an accounting change. Excluding non-recurring items, net income for
the first nine months of 1999 declined 22 percent to $3,845 million or $1.57
per share, compared to $4,910 million or $1.99 per share last year.
Exploration and production earnings have increased due to the improvement in
crude prices. Crude oil realizations were up almost $3 per barrel versus the
first nine months of 1998. However, European gas prices were about 20 percent
lower than the previous year. Liquids production of 1,544 kbd compared to 1,595
kbd in the same period of 1998, primarily due to natural field declines, steps
to curtail marginal volumes in the low price environment of the first half of
the year and lower liftings in Canada. Partly offsetting this was increased
production from new developments in the North Sea, the Gulf of Mexico and
Azerbaijan. Worldwide natural gas production of 6,008 mcfd was essentially
unchanged from the prior year. Exploration and producing expenses were reduced
from prior year levels.
Earnings from U.S. exploration and production operations for the first nine
months were $856 million, an increase of $231 million from 1998. Outside the
U.S., exploration and production earnings were $1,488 million, up $34 million
from last year.
Petroleum product sales of 5,443 kbd increased 30 kbd over last year,
principally due to volume growth in North America. Earnings from U.S. refining
and marketing operations were $214 million, down $254 million from 1998,
reflecting the inability to pass through higher crude costs to the marketplace.
Outside the U.S., refining and marketing earnings for the first nine months,
excluding non-recurring items, decreased $1,020 million to $327 million, driven
by much lower margins, higher planned maintenance activities and unfavorable
foreign exchange effects. Reduced operating expenses provided some offset to
these factors.
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EXXON CORPORATION
Chemicals earnings totaled $882 million for the first nine months of 1999
compared with $970 million last year. Industry margins declined versus last
year due to lower product prices and higher feedstock costs. Prime product
sales volumes of 13,428 kt were a record for the first nine months and
increased 4 percent over last year. Chemicals earnings also benefited from
lower operating expenses.
Earnings from other operations totaled $290 million, a decrease of $4 million
from the first nine months of 1998, reflecting depressed copper and coal
prices, offset by reduced operating expenses and higher production volumes.
1999 year-to-date production volumes for copper and coal were at record levels.
Corporate and financing expenses decreased $36 million to $212 million,
reflecting lower tax-related charges. During the period, the company's
operating segments continued to benefit from the impact of lower effective tax
rates and the favorable resolution of tax-related issues.
Net cash generation before financing activities was $2,650 million in the first
nine months of 1999 versus $3,803 million in the same period last year.
Operating activities provided net cash of $7,857 million, a decrease of $1,495
million from the prior year influenced by lower net income. Investing
activities used net cash of $5,207 million or $342 million less than a year
ago, reflecting higher proceeds from asset sales.
Net cash used in financing activities was $2,966 million in the first nine
months of 1999 versus $5,760 million in the same period last year, the decrease
due to lower purchases of shares of Exxon common stock and an increase in the
debt level in the current year versus a reduction in the debt level in the
prior year period. During the first nine months of 1999, Exxon purchased 7.5
million shares of its common stock for the treasury at a cost of $579 million,
representing a continuation of purchases to offset shares issued in conjunction
with the Company's benefit plans and programs. As a consequence of the proposed
merger of Exxon and Mobil, the repurchase program to reduce the number of Exxon
shares outstanding was discontinued in December of 1998.
Capital and exploration expenditures in this year's first nine months were
$6,602 million versus $7,079 million a year ago.
Total debt of $9.2 billion at September 30, 1999 increased $0.5 billion from
year-end 1998. The corporation's debt to total capital ratio was 16.8 percent
at the end of the third quarter of 1999, compared to 16.2 percent at year-end
1998.
Over the twelve months ended September 30, 1999, return on average
shareholders' equity was 12.0 percent. Return on average capital employed,
which includes debt, was 10.3 percent over the same time period.
Although the corporation issues long-term debt from time to time and maintains
a revolving commercial paper program, internally generated funds cover the
majority of its financial requirements.
Litigation and other contingencies are discussed in note 3 to the unaudited
condensed consolidated financial statements. There are no events or
uncertainties known to management beyond those already included in reported
financial information that would indicate a material change in future operating
results or future financial condition.
The corporation, as part of its ongoing asset management program, continues to
evaluate its mix of assets for potential upgrade. Because of the ongoing nature
of this program, dispositions will continue to be made from time to time which
will result in either gains or losses.
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EXXON CORPORATION
YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define a specific year. Absent corrective actions, a
computer program that has date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failures or miscalculations causing disruptions to various activities and
operations.
The corporation initiated assessments in prior years to identify the work
efforts required to assure that systems supporting the business successfully
operate beyond the turn of the century. The scope of this work effort
encompasses business information systems, infrastructure, and technical and
field systems, including systems utilizing embedded technology, such as
microcontrollers. The program places particular emphasis on mission critical
systems, defined as those which could have a significant safety, environmental
or financial impact, should Year 2000 issues arise.
Plans for achieving Year 2000 compliance were finalized during 1997, and
implementation work has been underway since then. The initial phases of this
work, an inventory and assessment of potential problem areas in identified
mission critical systems, are complete. The modification and testing phases
related to identified mission critical systems are essentially complete.
Attention has also been focused on compliance attainment efforts of vendors and
others, including key system interfaces with customers and suppliers. Most key
suppliers and business partners have been contacted for clarification of their
Year 2000 plans and over 80 percent have confirmed that compliance plans are in
place. Follow-up discussions are being held with key suppliers when necessary
to gain satisfaction on their state of readiness. These reviews will continue
through 1999. Testing of critical third party products and services is
underway, including such areas as process control systems, credit card
processing, banking transactions and telecommunications.
Notwithstanding the substantive work efforts described above, the corporation
could potentially experience disruptions to some mission critical operations or
deliveries to customers as a result of Year 2000 issues, particularly in the
first few weeks of the year 2000. Such disruptions could include impacts from
potentially non-compliant systems utilized by suppliers, customers, government
entities or others. Given the diverse nature of Exxon's operations, the varying
state of readiness of different countries and suppliers, and the
interdependence of Year 2000 impacts, the potential financial impact or
liability associated with such disruptions cannot be reasonably estimated.
Exxon operating sites around the world, including those in developing
countries, are working with key suppliers in their respective countries to
address Year 2000 issues. In addition, Year 2000 Business Contingency
Guidelines are being used by operating organizations and affiliates, and
include specific reference to areas such as transportation, telecommunications
and utility services. Existing site contingency plans are being updated in
order to attempt to mitigate the extent of potential disruption to business
operations. This work is essentially complete with refinement of contingency
plans continuing through 1999.
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EXXON CORPORATION
Through September 30, 1999, about $225 million of costs had been incurred in
the corporation's efforts to achieve Year 2000 compliant systems. The total
cost to the corporation of achieving Year 2000 compliant systems is currently
estimated to be $230 to $250 million, primarily over the 1997-1999 timeframe,
and is not expected to be a material incremental cost impacting Exxon's
operations, financial condition or liquidity.
FORWARD-LOOKING STATEMENTS
Statements in this report regarding future events or conditions are forward-
looking statements. Actual results, including projections of liquids production
levels and the impact of the Year 2000 Issue, could differ materially due to,
among other things, factors discussed in this report and in Item 1 of the
corporation's most recent Annual Report on Form 10-K.
-17-
EXXON CORPORATION
SPECIAL ITEMS
_____________
Third Quarter First Nine Months
_________________ _____________________
1999 1998 1999 1998
____ ____ ____ ____
(millions of dollars)
REFINING & MARKETING
Non-U.S.
Restructuring $ 0 $ 0 $ (120) $ 0
TOTAL INCLUDED IN EARNINGS ______ ______ ______ ______
BEFORE ACCOUNTING CHANGE 0 0 (120) 0
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 0 0 0 (70)
______ ______ ______ ______
TOTAL INCLUDED IN NET INCOME $ 0 $ 0 $ (120) $ (70)
====== ====== ====== ======
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EXXON CORPORATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information about market risks for the nine months ended September 30,
1999 does not differ materially from that discussed under Item 7A of
the registrant's Annual Report on Form 10-K for 1998.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Refer to the relevant portions of Note 3 on pages 7 and 8 of this
Quarterly Report on Form 10-Q for information on legal proceedings.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 3(i) - Registrant's Restated Certificate of Incorporation, as
restated September 15, 1999.
Exhibit 27 - Financial Data Schedule (included only in the
electronic filing of this document).
b) Reports on Form 8-K
The registrant has not filed any reports on Form 8-K during the
quarter.
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EXXON CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EXXON CORPORATION
Date: November 12, 1999 /s/ DONALD D. HUMPHREYS
_______________________________________________
Donald D. Humphreys, Vice President, Controller
and Principal Accounting Officer
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EXXON CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX TO EXHIBITS
3(i). Registrant's Restated Certificate of Incorporation, as restated
September 15, 1999.
27. Financial Data Schedule (included only in the electronic filing of
this document).
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