Exxon Corporation 10-Q Summary: Quarter Ended September 30, 1999
Business Context and Reporting Period
This report covers the quarterly period ended September 30, 1999, for Exxon Corporation. The company operates globally in exploration and production, refining and marketing, and chemicals. The 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. The company is currently in the process of a proposed merger with Mobil Corporation.
Key Financial Metrics
| Metric | Q3 1999 | Q3 1998 | 9 Months 1999 | 9 Months 1998 |
|---|---|---|---|---|
| Total Revenue | $33,072 million | $28,496 million | $89,378 million | $87,825 million |
| Net Income | $1,500 million | $1,400 million | $3,725 million | $4,840 million |
| Diluted EPS | $0.61 | $0.58 | $1.52 | $1.96 |
| Operating Cash Flow | N/A | N/A | $7,857 million | $9,352 million |
| Capital Expenditures | ~$2,000 million | N/A | $5,775 million | $5,835 million |
| Total Debt | $9,245 million | N/A | $9,245 million | $8,778 million |
| Cash & Equivalents | $1,151 million | N/A | $1,151 million | $2,100 million |
Note: Debt figures represent the sum of current notes/loans and long-term debt as of Sept 30, 1999 ($4,820m + $4,425m) and Dec 31, 1998 ($4,248m + $4,530m).
Material Changes vs. Prior Period
- Quarterly Performance: Net income increased 7% to $1.5 billion, driven by crude oil prices averaging $8 per barrel higher than the prior year. Upstream earnings more than doubled, representing the highest third-quarter upstream results in 15 years.
- Year-to-Date Performance: Net income for the first nine months decreased 23% to $3.725 billion. This decline was influenced by a $120 million after-tax restructuring charge for Japanese operations and lower downstream margins.
- Segment Results:
- Exploration & Production: Earnings surged due to higher crude prices, despite a slight decrease in liquids production (1,514 kbd vs. 1,553 kbd).
- Refining & Marketing: Earnings declined significantly, particularly outside the U.S. ($19 million vs. $439 million), as product prices failed to keep pace with rising crude costs. Margins were depressed across all geographic areas.
- Chemicals: Earnings remained relatively flat ($303 million vs. $301 million) as record sales volumes offset compressed margins caused by higher feedstock costs.
- Restructuring: A $120 million after-tax charge was recorded in Q1 1999 for the restructuring of Japanese refining and marketing operations, involving the reduction of approximately 700 positions.
Outlook, Risks, and Contingencies
- Guidance: Management expects fourth-quarter production to increase due to the start-up of new developments in Norway (Balder and Jotun fields).
- Legal Contingencies: The company is appealing a $5.058 billion judgment (including $5 billion in punitive damages) related to the 1989 Exxon Valdez oil spill. The company believes the punitive damages are unwarranted. The ultimate cost remains unpredictable.
- Year 2000 Issue: The company has incurred approximately $225 million to date for Y2K compliance, with total estimated costs between $230 million and $250 million. While mission-critical systems are largely compliant, potential disruptions from third-party suppliers remain a risk.
- Market Risks: Operations are subject to political developments, price controls, and tax increases globally. Foreign exchange effects negatively impacted earnings in the third quarter.
Investor Verification Checklist
- Verify the status of the appeal regarding the $5 billion punitive damages in the Exxon Valdez litigation.
- Monitor the impact of the proposed Exxon-Mobil merger on future capital allocation and share repurchase programs (repurchases to reduce share count were discontinued in Dec 1998).
- Assess the sustainability of downstream margins given the lag between rising crude costs and product pricing.
- Review the progress of Year 2000 compliance testing for key suppliers and third-party interfaces.
- Confirm the timeline and production volumes for new developments in the North Sea and Gulf of Mexico.
