Exxon Corporation 10-Q Summary: Period Ended June 30, 1998
Business Context and Reporting Period
This filing is a Quarterly Report (Form 10-Q) for Exxon Corporation covering the three and six-month periods ended June 30, 1998. The company operates globally in petroleum and natural gas exploration and production, refining and marketing, chemicals, and other operations. As of June 30, 1998, there were 2,438,406,686 shares of common stock outstanding.
Key Financial Metrics
| Metric | Q2 1998 | Q2 1997 | YTD 1998 | YTD 1997 |
|---|---|---|---|---|
| Total Revenue | $29,626 million | $34,228 million | $59,854 million | $69,431 million |
| Net Income | $1,620 million | $1,965 million | $3,510 million | $4,140 million |
| Diluted EPS | $0.65 | $0.78 | $1.41 | $1.64 |
| Operating Cash Flow (YTD) | $6,037 million (vs. $8,119 million YTD 1997) | |||
| Total Debt | $9.484 billion (Current: $2.557B; Long-term: $6.927B) | |||
| Cash and Equivalents | $2.689 billion (vs. $4.047 billion at Dec 31, 1997) | |||
| Debt to Capital Ratio | 17.2% (vs. 17.8% at year-end 1997) |
Material Changes vs. Prior Period
- Revenue and Profit Decline: Net income decreased 18% in Q2 and 15% YTD compared to 1997. This was primarily driven by lower crude oil prices, which averaged approximately $5 per barrel lower in Q2 and $6 per barrel lower YTD.
- Segment Performance:
- Exploration & Production: Earnings declined due to lower oil and gas prices. Liquids production increased slightly (2% in Q2), but natural gas sales fell due to warmer weather in Europe.
- Refining & Marketing: Earnings increased 17% in Q2 due to higher industry refining margins in the U.S. and Europe and improved retail environments.
- Chemicals: Earnings dropped 25% in Q2 due to lower margins caused by excess industry capacity and a slowdown in Asian economies.
- Cash Flow: Net cash provided by operating activities decreased $2.1 billion YTD, influenced by lower net income and the absence of an insurance-related settlement recorded in the prior year.
- Share Repurchases: The company aggressively reduced share count, purchasing 28.6 million shares for $1.916 billion in the first half of 1998.
Guidance, Outlook, and Risks
- Capital Expenditures: Capital and exploration expenditures for 1998 are anticipated to increase approximately 10% over 1997 levels, excluding foreign exchange fluctuations.
- Year 2000 Compliance: The company estimates total costs to achieve Year 2000 compliance will be between $250 million and $300 million, primarily incurred between 1997 and 1999. This is not expected to materially impact operations or liquidity.
- Litigation (Exxon Valdez): A $5.058 billion judgment (including $5 billion in punitive damages) remains under 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 to stay execution.
- Other Contingencies: Pending arbitration regarding gas reserves between German and Dutch affiliates and U.S. Tax Court issues regarding crude oil pricing from 1979-1988. Management does not expect these to have a materially adverse effect.
Investor Verification Checklist
- Verify the status of the $5.058 billion Exxon Valdez judgment and the likelihood of appellate court reduction.
- Monitor crude oil price trends and their impact on the Exploration and Production segment margins.
- Review the progress of Year 2000 compliance testing and potential disruptions from third-party vendors.
- Assess the sustainability of downstream refining margins given the volatility in Asian markets.
- Confirm the company's ability to maintain its dividend ($0.410 per share in Q2) and share repurchase program amidst lower cash generation.
