Exxon Corporation 10-Q Summary: Quarter Ended March 31, 1999
Business Context and Reporting Period
This filing covers the quarterly period ended March 31, 1999, for Exxon Corporation (pre-merger with Mobil). The company operates globally in exploration and production, refining and marketing, and chemicals. Financial statements reflect the de-consolidation of majority-owned power companies in Hong Kong and China, retroactive to January 1, 1998, in compliance with FASB rulings.
Key Financial Metrics
| Metric | Q1 1999 | Q1 1998 |
|---|---|---|
| Total Revenue | $26,884 million | $29,964 million |
| Net Income | $1,020 million | $1,820 million |
| Diluted EPS | $0.42 | $0.73 |
| Operating Cash Flow | $2,752 million | $3,015 million |
| Capital & Exploration Expenditures | $2,104 million | $2,023 million |
| Total Debt | $8,400 million | $8,800 million (approx. based on $0.4B decrease) |
| Cash and Equivalents | $1,385 million | $3,840 million |
| Debt to Total Capital Ratio | 15.8% | 16.2% (Year-end 1998) |
Material Changes vs. Prior Period
- Revenue Decline: Total revenue decreased by approximately 10% year-over-year, driven by lower crude oil prices (averaging $2.75/barrel lower) and reduced liquids production.
- Earnings Drop: Net income fell 44% to $1.02 billion. Excluding non-recurring items, adjusted earnings declined 40% to $1.14 billion.
- Segment Performance:
- Exploration & Production: Earnings dropped significantly due to lower commodity prices and production curtailments in low-price environments.
- Refining & Marketing: U.S. operations reported a loss of $28 million (vs. $100 million profit in 1998) due to weak margins. Non-U.S. results were impacted by a $120 million after-tax restructuring charge in Japan.
- Chemicals: Earnings declined 18% due to depressed global commodity prices and excess capacity.
- Production Volumes: Liquids production decreased to 1,564 kbd (from 1,624 kbd), while natural gas production increased 324 mcfd due to colder European weather.
Guidance, Outlook, and Risks
- Restructuring: A $120 million after-tax charge was recorded for restructuring Japanese refining and marketing operations, involving the reduction of approximately 700 positions and the write-off of a power plant project.
- Accounting Changes: The prior year included a $70 million charge for the cumulative effect of an accounting change regarding start-up costs; no such charge affected 1999 results.
- Legal Contingencies:
- Exxon Valdez: The company continues to appeal a $5.058 billion judgment (including $5 billion in punitive damages). The ultimate cost remains unpredictable.
- Other Litigation: Pending suits include a Clean Air Act settlement ($250,000 paid) and California groundwater contamination claims.
- Year 2000 Issue: Approximately $190 million has been incurred to date, with total costs estimated between $225 million and $250 million. Over 90% of mission-critical system modifications are complete, though disruptions from third-party vendors remain a risk.
- Share Repurchases: The program to reduce shares outstanding was discontinued in December 1998 due to the proposed merger with Mobil. The company purchased 2.4 million shares in Q1 1999 solely to offset benefit plan issuances.
Investor Verification Checklist
- Verify the status and potential financial impact of the Exxon Valdez punitive damages appeal.
- Monitor crude oil price trends and their effect on Q2 and full-year 1999 margins.
- Assess the progress of Year 2000 compliance for key suppliers and third-party vendors.
- Review the integration timeline and regulatory approval status of the proposed Exxon-Mobil merger.
- Track the resolution of the German-Dutch natural gas field arbitration.
