FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to________
Commission File Number 1-2256
EXXON CORPORATION
__________________________________________________________
(Exact name of registrant as specified in its charter)
NEW JERSEY 13-5409005
_______________________________ ______________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5959 Las Colinas Boulevard, Irving, Texas 75039-2298
____________________________________________________________________
(Address of principal executive offices) (Zip Code)
(972) 444-1000
__________________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No .
___ ___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding as of March 31, 1998
_______________________________ ________________________________
Common stock, without par value 2,446,791,735
-1-
EXXON CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
TABLE OF CONTENTS
Page
Number
______
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Income 3
Three months ended March 31, 1998 and 1997
Condensed Consolidated Balance Sheet 4
As of March 31, 1998 and December 31, 1997
Condensed Consolidated Statement of Cash Flows 5
Three months ended March 31, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION
Item 2. Changes in Securities 13
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
-2-
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EXXON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(millions of dollars)
Three Months Ended
March 31,
__________________
1998 1997
_______ _______
REVENUE
Sales and other operating revenue,
including excise taxes $29,658 $34,720
Earnings from equity interests and other revenue 570 483
_______ _______
Total revenue 30,228 35,203
_______ _______
COSTS AND OTHER DEDUCTIONS
Crude oil and product purchases 12,100 15,427
Operating expenses 3,025 3,302
Selling, general and administrative expenses 2,011 2,030
Depreciation and depletion 1,388 1,395
Exploration expenses, including dry holes 184 165
Interest expense 67 76
Excise taxes 3,447 3,599
Other taxes and duties 5,167 5,563
Income applicable to minority and preferred interests 110 107
_______ _______
Total costs and other deductions 27,499 31,664
_______ _______
INCOME BEFORE INCOME TAXES 2,729 3,539
Income taxes 839 1,364
_______ _______
NET INCOME $ 1,890 $ 2,175
======= =======
Net income per common share (dollars) $ 0.77 $ 0.87
Net income per common share - assuming dilution (dollars)$ 0.76 $ 0.86
Average number common shares outstanding (millions) 2,451 2,484
Average number common shares outstanding - assuming
dilution (millions) 2,483 2,517
Dividends per common share $ 0.410 $ 0.395
Net income per share is based on net income less preferred stock
dividends and the weighted average number of outstanding common shares.
Net income per common share - assuming dilution is based on net income
and the weighted average number of outstanding common shares, including
the additional common shares that would have been outstanding if
dilutive potential common shares (incentive program stock and preferred
stock) had been issued.
-3-
EXXON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(millions of dollars)
March 31, Dec. 31,
1998 1997
_______ _______
ASSETS
Current assets
Cash and cash equivalents $ 3,841 $ 4,047
Other marketable securities 20 15
Notes and accounts receivable - net 9,967 10,702
Inventories
Crude oil, products and merchandise 4,466 4,725
Materials and supplies 743 762
Prepaid taxes and expenses 1,004 941
_______ _______
Total current assets 20,041 21,192
Property, plant and equipment - net 66,726 66,414
Investments and other assets 8,186 8,458
_______ _______
TOTAL ASSETS $94,953 $96,064
======= =======
LIABILITIES
Current liabilities
Notes and loans payable $ 2,753 $ 2,902
Accounts payable and accrued liabilities 13,573 14,683
Income taxes payable 2,250 2,069
_______ _______
Total current liabilities 18,576 19,654
Long-term debt 7,077 7,050
Annuity reserves, deferred credits and other liabilities 25,555 25,700
_______ _______
TOTAL LIABILITIES 51,208 52,404
_______ _______
SHAREHOLDERS' EQUITY
Preferred stock, without par value:
Authorized: 200 million shares
Outstanding: 3 million shares at Mar. 31, 1998 174
3 million shares at Dec. 31, 1997 190
Guaranteed LESOP obligation (225) (225)
Common stock, without par value:
Authorized: 3,000 million shares
Issued: 2,984 million shares 2,323 2,323
Earnings reinvested 53,096 52,214
Cumulative foreign exchange translation adjustment (1,148) (1,119)
Common stock held in treasury:
537 million shares at Mar. 31, 1998 (10,475)
527 million shares at Dec. 31, 1997 (9,723)
_______ _______
TOTAL SHAREHOLDERS' EQUITY 43,745 43,660
_______ _______
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $94,953 $96,064
======= =======
The number of shares of common stock issued and outstanding at
March 31, 1998 and December 31, 1997 were 2,446,791,735 and
2,456,315,299, respectively.
-4-
EXXON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(millions of dollars)
Three Months Ended
March 31,
__________________
1998 1997
_______ _______
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,890 $2,175
Depreciation and depletion 1,388 1,395
Changes in operational working capital, excluding
cash and debt (45) (210)
All other items - net (159) 1,206
_______ _______
Net Cash Provided By Operating Activities 3,074 4,566
_______ _______
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (1,709) (1,492)
Sales of subsidiaries and property, plant and equipment 125 55
Other investing activities - net 407 332
_______ _______
Net Cash Used In Investing Activities (1,177) (1,105)
_______ _______
NET CASH GENERATION BEFORE FINANCING ACTIVITIES 1,897 3,461
_______ _______
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to long-term debt 206 175
Reductions in long-term debt (69) (58)
Additions/(reductions) in short-term debt - net (323) 176
Cash dividends to Exxon shareholders (1,009) (986)
Cash dividends to minority interests (74) (75)
Changes in minority interests and sales /
(purchases) of affiliate stock (27) 4
Acquisitions of Exxon shares - net (797) (166)
_______ _______
Net Cash Used In Financing Activities (2,093) (930)
_______ _______
Effects Of Exchange Rate Changes On Cash (10) 31
_______ _______
Increase/(Decrease) In Cash And Cash Equivalents (206) 2,562
Cash And Cash Equivalents At Beginning Of Period 4,047 2,951
_______ _______
CASH AND CASH EQUIVALENTS AT END OF PERIOD $3,841 $5,513
======= =======
SUPPLEMENTAL DISCLOSURES
Income taxes paid $ 566 $ 703
Cash interest paid $ 350 $ 157
-5-
EXXON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis Of Financial Statement Preparation
These unaudited condensed consolidated financial statements should be
read in the context of the consolidated financial statements and notes
thereto filed with the S.E.C. in the corporation's 1997 Annual Report
on Form 10-K. In the opinion of the corporation, the information
furnished herein reflects all known accruals and adjustments necessary
for a fair statement of the results for the periods reported herein.
All such adjustments are of a normal recurring nature. The
corporation's exploration and production activities are accounted for
under the "successful efforts" method.
During the third quarter of 1997, the corporation increased its
ownership in General Sekiyu K.K. (GSK) from 49.0% to 50.1%. These
financial statements reflect the consolidation of GSK retroactive to
the beginning of 1997. GSK was previously accounted for as an equity
company. The January 1, 1997 balance sheet of GSK had total assets of
$3.9 billion and total liabilities of $3.2 billion. Consolidated net
income was unchanged as a result of the restatement of prior quarter
statements of income.
2. Recently Issued Statements of Financial Accounting Standards
In June 1997, the Financial Accounting Standards Board released Statement
No. 131, "Disclosures about Segments of an Enterprise and Related
Information." This statement requires disclosure of certain information
about operating segments and geographic areas of operation. This
statement, which will be adopted in 1998, will not have any effect upon
the corporation's consolidated financial condition or operations.
3. Litigations and Other Contingencies
A number of lawsuits, including class actions, were brought in various
courts against Exxon Corporation and certain of its subsidiaries relating
to the accidental release of crude oil from the tanker Exxon Valdez in
1989. Essentially all of these lawsuits have now been resolved or are
subject to appeal.
On September 24, 1996, the United States District Court for the District
of Alaska entered a judgment in the amount of $5.058 billion in the Exxon
Valdez civil trial that began in May 1994. The District Court awarded
approximately $19.6 million in compensatory damages to fisher plaintiffs,
$38 million in prejudgment interest on the compensatory damages and $5
billion in punitive damages to a class composed of all persons and
entities who asserted claims for punitive damages from the corporation as
a result of the Exxon Valdez grounding. The District Court also ordered
that these awards shall bear interest from and after entry of the
judgment. The District Court stayed execution on the judgment pending
appeal based on a $6.75 billion letter of credit posted by the
corporation. Exxon has appealed the judgment. A motion for new trial is
currently pending before the District Court and consideration of Exxon's
appeal is stayed pending resolution of that motion. The corporation
continues to believe that the punitive damages in this case are
unwarranted and that the judgment should be set aside or substantially
reduced by the appellate courts if the District Court does not grant
Exxon's pending motion for new trial.
-6-
EXXON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The ultimate cost to the corporation from the lawsuits arising from the
Exxon Valdez grounding is not possible to predict and may not be resolved
for a number of years.
German and Dutch affiliated companies are the concessionaires of a
natural gas field subject to a treaty between the governments of Germany
and the Netherlands under which the gas reserves in an undefined border
or common area are to be shared equally. Entitlement to the reserves is
determined by calculating the amount of gas which can be recovered from
this area. Based on the final reserve determination, the German
affiliate has received more gas than its entitlement. Arbitration
proceedings, as provided in the agreements, have been underway to
determine the manner of resolving the issues between the German and Dutch
affiliated companies.
On July 8, 1996, an interim ruling was issued establishing a provisional
compensation payment for the excess gas received. Additional compensation,
if any, remains subject to further arbitration proceedings or negotiation.
Other substantive matters remain outstanding, including recovery of
royalties paid on such excess gas and the taxes payable on the final
compensation amount. The net financial impact on the corporation is not
possible to predict at this time given these outstanding issues. However,
the ultimate outcome is not expected to have a materially adverse effect
upon the corporation's consolidated financial condition or operations.
The U.S. Tax Court has decided the issue with respect to the pricing of
crude oil purchased from Saudi Arabia for the years 1979-1981 in favor of
the corporation. This decision is subject to appeal. Certain other
issues for the years 1979-1988 remain pending before the Tax Court. The
ultimate resolution of these issues is not expected to have a materially
adverse effect upon the corporation's operations or financial condition.
Claims for substantial amounts have been made against Exxon and certain
of its consolidated subsidiaries in other pending lawsuits, the outcome
of which is not expected to have a materially adverse effect upon the
corporation's consolidated financial condition or operations.
The corporation and certain of its consolidated subsidiaries are directly
and indirectly contingently liable for amounts similar to those at the
prior year-end relating to guarantees for notes, loans and performance
under contracts, including guarantees of non-U.S. excise taxes and
customs duties of other companies, entered into as a normal business
practice, under reciprocal arrangements.
Additionally, the corporation and its affiliates have numerous long-term
sales and purchase commitments in their various business activities, all
of which are expected to be fulfilled with no adverse consequences
material to the corporation's operations or financial condition.
-7-
EXXON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The operations and earnings of the corporation and its affiliates
throughout the world have been, and may in the future be, affected from
time to time in varying degree by political developments and laws and
regulations, such as forced divestiture of assets; restrictions on
production, imports and exports; price controls; tax increases and
retroactive tax claims; expropriation of property; cancellation of
contract rights and environmental regulations. Both the likelihood of
such occurrences and their overall effect upon the corporation vary
greatly from country to country and are not predictable.
4. Nonowner Changes in Shareholders' Equity
Statement of Financial Accounting Standards (FAS) No. 130 "Reporting
Comprehensive Income" was implemented in January 1998. This statement
establishes standards for reporting and display of total nonowner changes
in shareholders' equity. For the corporation, total nonowner changes in
shareholders' equity include net income and the change in the cumulative
foreign exchange translation adjustment component of shareholders'
equity. The total nonowner changes in shareholders' equity for the three
months ended March 31, 1998 and 1997 were $1,861 million and $1,278
million, respectively. FAS 130 did not have any effect on the
corporation's consolidated financial condition or operations.
-8-
EXXON CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FUNCTIONAL EARNINGS SUMMARY
First Quarter
_________________
1998 1997
_______ _______
(millions of dollars)
Petroleum and natural gas
Exploration and production
United States $ 227 $ 554
Non-U.S. 683 890
Refining and marketing
United States 100 57
Non-U.S. 496 297
_______ _______
Total petroleum and natural gas 1,506 1,798
Chemicals
United States 232 192
Non-U.S. 142 118
Other operations 89 128
Corporate and financing (79) (61)
_______ _______
NET INCOME $1,890 $2,175
======= =======
FIRST QUARTER 1998 COMPARED WITH FIRST QUARTER 1997
Exxon Corporation estimated first quarter 1998 net income of $1,890
million, down 13 percent from $2,175 million in first quarter 1997. On
a per share basis, net income was $0.77 in the first quarter of 1998
compared to $0.87 in the prior year's quarter.
Exxon's net income of $1.9 billion was down $285 million or 13 percent,
reflecting weaker crude oil prices which on average were about $7 per
barrel or 33 percent lower than last year. This year's first quarter
results benefited from improved downstream margins, higher petroleum
product and chemicals sales, and lower unit operating expenses.
Crude oil prices weakened across the quarter, driven by the slowdown in
Asian economies, mild winter weather, and a surplus of crude oil
supplies. Liquids production was higher than first quarter 1997.
Natural gas sales and prices declined from 1997's first quarter due to
warmer weather in Europe and North America. In the downstream,
petroleum product sales increased in most geographic areas, achieving
the highest first quarter level since 1979. Earnings were up 68
percent, benefiting from higher industry refining margins in Europe and
the improved retail environment in the U.K. Chemicals earnings improved
as a result of record first quarter sales. Margins improved relative to
last year as declining commodity prices were offset by lower feedstock
costs. Earnings from other operations decreased relative to the prior
year due to lower copper and coal prices.
During the quarter, Exxon continued its active investment program,
spending over $2 billion on capital and exploration projects.
-9-
EXXON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OTHER COMMENTS ON FIRST QUARTER COMPARISON
Exploration and production earnings were adversely impacted by
substantially lower crude oil prices which have been under pressure and
falling since early in the fourth quarter of 1997, averaging about $7 per
barrel less than the first quarter of 1997. U.S. natural gas prices were
lower on average than last year in response to milder weather. European
gas realizations were lower due to the stronger U.S. dollar in 1998.
Liquids production of 1,627 kbd (thousand barrels per day) was up from
1,625 kbd in the first quarter of 1997. Production increases in Australia
and Malaysia, new developments in the North Sea, and initial production
from Azerbaijan were largely offset by lower volumes in the U.S. Worldwide
natural gas production of 7,224 mcfd (million cubic feet per day) was down
4 percent from 1997 due to the impact of warmer European weather and
corresponding lower demand.
Earnings from U.S. exploration and production were $227 million compared
with $554 million last year. Outside the U.S., earnings from exploration
and production were $683 million, versus $890 million in the first quarter
1997.
Petroleum product sales of 5,418 kbd increased 68 kbd from last year's
first quarter with higher volumes in North America, Latin America and
Europe. Sales volumes were lower in Asia-Pacific. Downstream earnings
benefited from higher European industry refining margins, improvement in
the U.K. retail market, stronger lube basestock margins, and higher Latin
American marketing margins. Turnaround impacts were also lower, reflecting
less planned maintenance in the U.S. compared to the first quarter 1997.
In the U.S., refining and marketing earnings were $100 million, up $43
million from the prior year. Refining and marketing operations outside the
U.S. earned $496 million, an increase of $199 million from 1997.
Chemical earnings were $374 million, up $64 million from the first quarter
1997. First quarter record prime product sales of 4,322 kt (thousand
metric tons) were 4 percent higher than the year ago period. Although most
commodity chemical prices were lower, overall margins improved somewhat
relative to last year as a result of lower feedstock costs.
Earnings from other operations, including coal, minerals and power, totaled
$89 million, compared to $128 million in the first quarter of 1997. Both
copper and coal prices decreased from last year. Corporate and financing
expenses of $79 million compared with $61 million in the first quarter of
last year.
Net cash generation before financing activities was $1,897 million in the
first three months of 1998 versus $3,461 million in the same period last
year. Operating activities provided net cash of $3,074 million, a decrease
of $1,492 million from 1997's first three months, influenced by lower net
income and the absence of an insurance settlement in 1997. Investing
activities used net cash of $1,177 million, $72 million more than the year
ago period on a higher level of capital investment.
-10-
EXXON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OTHER COMMENTS ON FIRST QUARTER COMPARISON
Net cash used in financing activities was $2,093 million in the first
quarter of 1998 versus $930 million in the same quarter last year. During
the first quarter of 1998, Exxon purchased 14.9 million shares of Exxon
common stock for the treasury at a cost of $942 million, representing a
continuation of purchases to offset shares issued in conjunction with the
company's benefit plans and programs, as well as the increased share
repurchases announced in the first quarter of 1997. Shares outstanding
were reduced from 2,456.3 million at the end of the fourth quarter of 1997
to 2,446.8 million at the end of the first quarter 1998. Purchases are
made in open market and negotiated transactions and may be discontinued at
any time.
Revenue for the first quarter of 1998 totaled $30,228 million compared to
$35,203 million in the first quarter 1997.
Capital and exploration expenditures totaled $2,023 million in the first
quarter 1998 compared to $1,790 million in last year's first quarter.
Capital and exploration expenditures in 1998, excluding foreign exchange
rate fluctuations, are anticipated to increase about 10 percent over 1997
as attractive investment opportunities continue to be developed in each of
the major business segments.
Total debt of $9.8 billion at March 31, 1998 decreased $0.1 billion from
year-end 1997. The corporation's debt to total capital ratio was 17.6
percent at the end of the first quarter of 1998, similar to year-end 1997.
Over the twelve months ended March 31, 1998, return on average
shareholders' equity was 18.7 percent. Return on average capital
employed, which includes debt, was 15.9 percent over the same time period.
Although the corporation issues long-term debt from time to time and
maintains a revolving commercial paper program, internally generated funds
cover the majority of its financial requirements.
Litigation and other contingencies are discussed in note 3 to the unaudited
condensed consolidated financial statements. There are no events or
uncertainties known to management beyond those already included in reported
financial information that would indicate a material change in future
operating results or future financial condition.
The corporation, as part of its ongoing asset management program, continues
to evaluate its mix of assets for potential upgrade. Because of the
ongoing nature of this program, dispositions will continue to be made from
time to time which will result in either gains or losses.
-11-
EXXON CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SPECIAL ITEMS
First Quarter
_______________
1998 1997
____ ____
(millions of dollars)
TOTAL 0 0
===== =====
-12-
EXXON CORPORATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information about market risks for the three months ended March 31, 1998
does not differ materially from that discussed under Item 7A of the
registrant's Annual Report on Form 10-K for 1997.
PART II. OTHER INFORMATION
Item 2. Changes in Securities
In accordance with the registrant's 1997 Nonemployee Director Restricted
Stock Plan, a newly elected nonemployee director was granted 4,000
shares of restricted stock on April 29, 1998. This grant is exempt from
registration under bonus stock interpretations such as the "no-action"
letter to Pacific Telesis Group (June 30, 1992).
_______ _______ _____
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibits 27 - Financial Data Schedule (included only in the
Electronic filing of this document).
b) Reports on Form 8-K
The registrant has not filed any reports on Form 8-K during the
quarter.
-13-
EXXON CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
EXXON CORPORATION
Date: May 13, 1998
/s/ DONALD D. HUMPHREYS
_______________________________________________
Donald D. Humphreys, Vice President, Controller
and Principal Accounting Officer
-14-
5
1,000,000
3-MOS
DEC-31-1998
MAR-31-1998
3,841
20
7,268
102
5,209
20,041
129,161
62,435
94,953
18,576
7,077
0
174
2,323
41,248
94,953
29,658
30,228
12,100
12,100
4,597
0
67
2,729
839
1,890
0
0
0
1,890
0.77
0.76
