Exxon Corporation 10-Q Summary: Period Ended September 30, 1998
Business Context and Reporting Period
This filing is a Quarterly Report (Form 10-Q) for Exxon Corporation covering the three and nine months ended September 30, 1998. The company operates globally in petroleum and natural gas exploration and production, refining and marketing, chemicals, and other operations. As of September 30, 1998, there were 2,431,229,690 shares of common stock outstanding.
Key Financial Metrics
| Metric | Q3 1998 | Q3 1997 | 9M 1998 | 9M 1997 |
|---|---|---|---|---|
| Total Revenue | $28,779M | $32,749M | $88,633M | $102,180M |
| Net Income | $1,400M | $1,820M | $4,910M | $5,960M |
| Diluted EPS | $0.58 | $0.73 | $1.99 | $2.37 |
| Operating Cash Flow (9M) | $9,644M (1998) vs $12,015M (1997) | |||
| Capital & Exploration Expenditures (9M) | $7,079M (1998) vs $6,279M (1997) | |||
| Total Debt | $9.55B (Sept 30, 1998) vs $9.95B (Dec 31, 1997) | |||
| Cash and Equivalents | $2.10B (Sept 30, 1998) vs $4.05B (Dec 31, 1997) | |||
| Debt to Capital Ratio | 17.2% (Sept 30, 1998) |
Material Changes vs. Prior Period
- Revenue and Profit Decline: Net income for Q3 1998 fell 23% to $1.4 billion, and for the first nine months, it declined 18% to $4.91 billion. This was primarily driven by crude oil prices averaging approximately $6 per barrel lower than the prior year and weaker natural gas prices.
- Segment Performance: Exploration and production earnings dropped significantly due to lower commodity prices. Conversely, downstream refining and marketing earnings increased 10% in Q3 due to improved marketing margins in the U.S. and Europe. Chemical earnings declined 14% due to lower margins and excess industry capacity.
- Share Repurchases: The company aggressively reduced share count, purchasing 37.5 million shares for $2.537 billion in the first nine months of 1998. This contributed to a reduction in outstanding shares from 2,456 million at year-end 1997 to 2,431 million.
- Cash Flow: Net cash provided by operating activities decreased by $2.37 billion year-over-year, influenced by lower net income and the absence of a prior-year insurance settlement. Net cash used in financing activities increased due to higher share repurchases and debt reductions.
Outlook, Risks, and Contingencies
- Guidance: Capital and exploration expenditures for 1998 are anticipated to increase about 10% over 1997 levels, excluding foreign exchange fluctuations, as the company pursues investment opportunities across major segments.
- Exxon Valdez Litigation: A $5.058 billion judgment (including $5 billion in punitive damages) remains on appeal. The company believes the punitive damages are unwarranted. The ultimate cost is unpredictable but a $6.75 billion letter of credit has been posted.
- Year 2000 Issue: The company estimates total costs to achieve Year 2000 compliance will be between $250 million and $275 million. While disruptions from non-compliant supplier systems are possible, the financial impact is not expected to be material.
- Other Legal: A settlement of $250,000 was agreed upon with the EPA regarding Clean Air Act violations at the Baytown refinery.
- Market Risks: Operations remain subject to political developments, price controls, and environmental regulations globally. Crude oil and natural gas prices remain volatile.
Investor Verification Checklist
- Verify the status and potential outcome of the Exxon Valdez punitive damages appeal.
- Monitor crude oil and natural gas price trends, as they are the primary drivers of earnings volatility.
- Assess the progress of Year 2000 compliance efforts and potential supply chain disruptions from third parties.
- Review the sustainability of downstream refining margins in the U.S. and Europe versus the weakness in Asia-Pacific.
- Confirm the company's ability to maintain its dividend ($0.410 per share in Q3) and share repurchase program amidst lower commodity prices.
