Exxon Corporation 10-Q Summary: Period Ended September 30, 1997
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, 1997. The company operates globally in petroleum and natural gas exploration and production, refining and marketing, and chemicals. Financial data for the prior year has been restated to reflect a two-for-one stock split effective March 14, 1997. During the third quarter, Exxon increased its ownership in General Sekiyu K.K. (GSK) to 50.1%, resulting in the consolidation of GSK retroactive to the beginning of the year.
Key Financial Metrics
| Metric | Q3 1997 | Q3 1996 | 9M 1997 | 9M 1996 |
|---|---|---|---|---|
| Total Revenue | $32,749 million | $33,321 million | $102,180 million | $96,737 million |
| Net Income | $1,820 million | $1,560 million | $5,960 million | $5,015 million |
| Net Income Per Share | $0.74 | $0.62 | $2.40 | $2.01 |
| Operating Cash Flow (9M) | $12,015 million (vs $10,200 million prior year) | |||
| Capital & Exploration Expenditures (9M) | $6,279 million (vs $6,612 million prior year) | |||
| Total Debt | $9.9 billion (Sept 30, 1997) | |||
| Cash and Equivalents | $4,781 million (Sept 30, 1997) | |||
| Debt to Capital Ratio | 17.8% (Sept 30, 1997) |
Material Changes vs. Prior Period
- Profitability: Net income for the third quarter increased 17% to a record $1.82 billion. For the first nine months, net income rose 19% to $5.96 billion, the highest in company history.
- Downstream Performance: Refining and marketing earnings more than doubled in the third quarter compared to 1996 due to improved industry margins in the U.S. and Europe. Petroleum product sales reached record levels.
- Upstream Performance: Exploration and production earnings were slightly lower or flat compared to the prior year. This was driven by crude oil prices averaging $2.50 per barrel lower in Q3 and $0.50 lower for the nine-month period, partially offset by higher natural gas sales volumes.
- Chemicals: Earnings increased slightly in Q3 despite weakening product prices and margins, driven by record sales volumes. Nine-month chemical earnings rose 12%.
- Share Repurchases: The company aggressively reduced shares outstanding, purchasing 31.3 million shares for $1.84 billion during the first nine months of 1997.
Outlook, Risks, and Contingencies
- Outlook: Management expects total capital and exploration activity for the full year 1997 to remain at similar levels to 1996. Internally generated funds are expected to cover the majority of financial requirements.
- Exxon Valdez Litigation: A $5.058 billion judgment (including $5 billion in punitive damages) remains on appeal. Exxon believes the punitive damages are unwarranted. The ultimate cost is unpredictable but a $6.75 billion letter of credit has been posted.
- Other Contingencies: Arbitration is ongoing regarding natural gas reserves shared between German and Dutch affiliates. The U.S. Tax Court ruled in Exxon's favor regarding crude oil pricing for 1979-1981, though this is subject to appeal. Management does not expect these matters to have a materially adverse effect on financial condition.
- Regulatory: A subsidiary settled a Clean Air Act violation with the EPA for a civil penalty of $294,200.
Investor Verification Checklist
- Verify the impact of the GSK consolidation on comparative revenue figures.
- Monitor the status of the Exxon Valdez appeal and potential changes to the $5 billion punitive damages liability.
- Track crude oil price volatility and its effect on upstream earnings versus downstream margin improvements.
- Confirm the sustainability of record petroleum product sales volumes in the face of global economic conditions.
- Review the progress of the German/Dutch natural gas arbitration for potential financial adjustments.
