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 June 30, 1999
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 June 30, 1999
_______________________________ _______________________________
Common stock, without par value 2,427,785,330
<PAGE>
EXXON CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
TABLE OF CONTENTS
Page
Number
______
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Income 3
Three and six months ended June 30, 1999 and 1998
Condensed Consolidated Balance Sheet 4
As of June 30, 1999 and December 31, 1998
Condensed Consolidated Statement of Cash Flows 5
Six months ended June 30, 1999 and 1998
Notes to Condensed Consolidated Financial Statements 6-11
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-18
Item 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 4. Submission of Matters to a Vote of Security Holders 19-20
Item 6. Exhibits and Reports on Form 8-K 21
Signature 22
<PAGE> -2-
EXXON CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EXXON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(millions of dollars)
<TABLE>
<CAPTION> Three Months Ended Six Months Ended
June 30, June 30,
__________________ ________________
1999 1998 1999 1998
REVENUE ____ ____ ____ ____
<S> <C> <C> <C> <C>
Sales and other operating revenue,
including excise taxes $28,894 $28,808 $55,235 $58,140
Earnings from equity interests and
other revenue 528 557 1,071 1,189
_______ _______ _______ _______
Total revenue 29,422 29,365 56,306 59,329
_______ _______ _______ _______
COSTS AND OTHER DEDUCTIONS
Crude oil and product purchases 12,192 11,390 22,398 23,490
Operating expenses 2,537 2,764 5,265 5,675
Selling, general and administrative
expenses 2,276 2,179 4,590 4,183
Depreciation and depletion 1,347 1,346 2,875 2,690
Exploration expenses, including dry holes 145 237 275 421
Interest expense 45 28 139 60
Excise taxes 3,599 3,607 6,958 7,054
Other taxes and duties 5,604 5,534 11,193 10,701
Income applicable to minority and
preferred interests 6 22 (61) 88
_______ _______ _______ _______
Total costs and other deductions 27,751 27,107 53,632 54,362
_______ _______ _______ _______
INCOME BEFORE INCOME TAXES 1,671 2,258 2,674 4,967
Income taxes 466 638 449 1,457
_______ _______ _______ _______
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 1,205 1,620 2,225 3,510
Cumulative effect of accounting
change - - - (70)
_______ _______ _______ _______
NET INCOME $ 1,205 $ 1,620 $ 2,225 $ 3,440
======= ======= ======= =======
NET INCOME PER COMMON SHARE (DOLLARS)
Before cumulative effect of
accounting change $ 0.50 $ 0.66 $ 0.92 $ 1.43
Cumulative effect of accounting
change - - - (0.03)
_______ _______ _______ _______
Net Income $ 0.50 $ 0.66 $ 0.92 $ 1.40
======= ======= ======= =======
NET INCOME PER COMMON SHARE
- ASSUMING DILUTION (DOLLARS)
Before cumulative effect of
accounting change $ 0.49 $ 0.65 $ 0.91 $ 1.41
Cumulative effect of accounting
change - - - (0.03)
_______ _______ _______ _______
Net Income $ 0.49 $ 0.65 $ 0.91 $ 1.38
======= ======= ======= =======
Dividends per common share $ 0.41 $ 0.41 $ 0.82 $ 0.82
</TABLE>
<PAGE> -3-
EXXON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(millions of dollars)
<TABLE>
<CAPTION> June 30, Dec. 31,
1999 1998
_______ _______
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 1,328 $ 1,441
Other marketable securities 20 20
Notes and accounts receivable - net 9,107 9,512
Inventories
Crude oil, products and merchandise 4,123 4,896
Materials and supplies 664 709
Prepaid taxes and expenses 1,187 1,015
_______ _______
Total current assets 16,429 17,593
Property, plant and equipment - net 65,002 65,199
Investments and other assets 9,804 9,838
_______ _______
TOTAL ASSETS $91,235 $92,630
======= =======
LIABILITIES
Current liabilities
Notes and loans payable $ 4,770 $ 4,248
Accounts payable and accrued liabilities 13,734 13,825
Income taxes payable 1,206 1,339
_______ _______
Total current liabilities 19,710 19,412
Long-term debt 4,497 4,530
Annuity reserves, deferred credits and other liabilities 24,199 24,938
_______ _______
TOTAL LIABILITIES 48,406 48,880
_______ _______
SHAREHOLDERS' EQUITY
Preferred stock, without par value:
Authorized: 200 million shares
Outstanding: 1 million shares at June 30, 1999 44
2 million shares at Dec. 31, 1998 105
Guaranteed LESOP obligation - (125)
Common stock, without par value:
Authorized: 3,000 million shares
Issued: 2,984 million shares 2,323 2,323
Earnings reinvested 54,807 54,575
Accumulated other nonowner changes in equity
Cumulative foreign exchange translation adjustment (1,599) (641)
Minimum pension liability adjustment (282) (282)
Common stock held in treasury:
556 million shares at June 30, 1999 (12,464)
556 million shares at Dec. 31, 1998 (12,205)
_______ _______
TOTAL SHAREHOLDERS' EQUITY 42,829 43,750
_______ _______
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $91,235 $92,630
======= =======
</TABLE>
The number of shares of common stock issued and outstanding at June 30, 1999
and December 31, 1998 were 2,427,785,330 and 2,427,787,109, respectively.
<PAGE> -4-
EXXON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(millions of dollars)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
________________
1999 1998
____ ____
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $2,225 $3,440
Depreciation and depletion 2,875 2,690
Changes in operational working capital, excluding
cash and debt 684 (302)
All other items - net (744) 16
______ ______
Net Cash Provided By Operating Activities 5,040 5,844
______ ______
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (4,082) (3,686)
Sales of subsidiaries and property, plant and equipment 441 260
Other investing activities - net 270 363
______ ______
Net Cash Used In Investing Activities (3,371) (3,063)
______ ______
NET CASH GENERATION BEFORE FINANCING ACTIVITIES 1,669 2,781
______ ______
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to long-term debt 1 5
Reductions in long-term debt (74) (96)
Additions/(reductions) in short-term debt - net 613 (240)
Cash dividends to Exxon shareholders (1,994) (2,013)
Cash dividends to minority interests (44) (45)
Changes in minority interests and sales/(purchases)
of affiliate stock 56 (66)
Acquisitions of Exxon shares - net (351) (1,653)
______ ______
Net Cash Used In Financing Activities (1,793) (4,108)
______ ______
Effects Of Exchange Rate Changes On Cash 11 (32)
______ ______
Increase/(Decrease) In Cash And Cash Equivalents (113) (1,359)
Cash And Cash Equivalents At Beginning Of Period 1,441 4,047
______ ______
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,328 $2,688
====== ======
SUPPLEMENTAL DISCLOSURES
Income taxes paid $ 766 $1,489
Cash interest paid $ 149 $ 381
</TABLE>
<PAGE> -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 Securities and Exchange Commission in the corporation's
1998 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 fourth quarter of 1998, Exxon de-consolidated the majority
owned power companies in Hong Kong and China. These financial statements
reflect the de-consolidation of these companies retroactive to January 1,
1998. These affiliates are now accounted for as equity companies in
compliance with the Financial Accounting Standards Board Emerging Issues
Task Force ruling on Issue No. 96-16, which requires equity company
reporting for a majority owned affiliate when minority shareholders
possess the right to participate in significant management decisions.
Exxon's 1998 net income was not affected by the de-consolidation. The
effect on Exxon's January 1, 1998 consolidated balance sheet related to
the de-consolidation was a decrease in total assets of $3.6 billion,
including $4.2 billion of net property, plant and equipment and a decrease
in total liabilities of $3.6 billion, including $2.5 billion of short and
long-term debt.
The American Institute of Certified Public Accountants' Statement of
Position 98-5, "Reporting on the Costs of Start-up Activities", was
implemented in the fourth quarter of 1998, effective as of January 1,
1998. This statement requires that costs of start-up activities and
organizational costs be expensed as incurred. The cumulative effect of
this accounting change on years prior to 1998 was a charge of $70 million
(net of $70 million income tax effect), or $0.03 per common share, that
was reflected in the first quarter of 1998. This new accounting
requirement did not have a significant effect on 1998 income before the
cumulative effect of the accounting change.
2. Recently Issued Statements of Financial Accounting Standards
In June 1998, the Financial Accounting Standards Board released Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities
Information." This statement establishes accounting and reporting
standards for derivative instruments. The statement requires that an
entity recognize all derivatives as either assets or liabilities in the
financial statements and measure those instruments at fair value, and it
defines the accounting for changes in the fair value of the derivatives
depending on the intended use of the derivative. As amended by Financial
Accounting Standards Board Statement No. 137 issued in June 1999,
Statement No. 133 must be adopted beginning no later than 2001. No
decision has been made as to whether the corporation will adopt this
standard before 2001. Adoption of this statement is not expected to have a
material effect upon the corporation's operations or financial condition.
<PAGE> -6-
EXXON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. Litigation 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. Exxon has also appealed the
District Court's denial of its renewed motion for a new trial. The Ninth
Circuit heard oral arguments on the appeals on May 3, 1999. 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.
On January 29, 1997, a settlement agreement was concluded resolving all
remaining matters between Exxon and various insurers arising from the
Valdez accident. Under terms of this settlement, Exxon received $480
million. Final income statement recognition of this settlement continues
to be deferred in view of uncertainty regarding the ultimate cost to the
corporation of the Valdez accident.
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.
In each of the years 1998, 1997 and 1996, $70 million in payments were
made under the October 8, 1991 civil agreement and consent decree with the
U.S. and Alaska governments. These payments were charged against the
provision that was previously established to cover the costs of the
settlement.
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 were to be shared equally. Entitlement to the reserves was to be
determined by calculating the amount of gas which could be recovered from
the area. Based on the final reserve determination, the German affiliate
received more gas than its entitlement. Arbitration proceedings, as
provided in the agreements, were conducted to resolve issues concerning
the compensation for the overlifted gas.
<PAGE> -7-
EXXON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
By final award, dated July 2, 1999, preceded by an interim award in 1996,
an arbitral tribunal established the full amount of the compensation for
the excess gas. This amount has now been paid. While this final arbitral
ruling on compensation is important, 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 of these items is not possible to predict at
this time. However, the ultimate outcome is not expected to have a
materially adverse effect upon the corporation's operations or financial
condition.
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 operations or financial condition.
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.
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
The total nonowner changes in shareholders' equity for the three months
ended June 30, 1999 and 1998 were $922 million and $1,344 million,
respectively. The total nonowner changes in shareholders' equity for the
six months ended June 30, 1999 and 1998 were $1,267 million and $3,135
million, respectively. Total nonowner changes in shareholders' equity
include net income and the change in the cumulative foreign exchange
translation adjustment and minimum pension liability adjustment components
of shareholders' equity.
<PAGE> -8-
EXXON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. Earnings Per Share
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
__________________ ________________
1999 1998 1999 1998
____ ____ ____ ____
<S> <C> <C> <C> <C>
(millions of dollars, except per share
amounts and shares in millions)
NET INCOME PER COMMON SHARE
Income before cumulative effect of
accounting change $1,205 $1,620 $2,225 $3,510
Less: Preferred stock dividends (1) (3) (3) (6)
______ ______ ______ ______
Income available to common shares $1,204 $1,617 $2,222 $3,504
====== ====== ====== ======
Weighted average number of common shares
outstanding 2,428 2,443 2,428 2,447
Net income per common share
Before cumulative effect of accounting
change $ 0.50 $ 0.66 $ 0.92 $ 1.43
Cumulative effect of accounting change - - - (0.03)
______ ______ ______ ______
Net income $ 0.50 $ 0.66 $ 0.92 $ 1.40
====== ====== ====== ======
NET INCOME PER COMMON SHARE
- ASSUMING DILUTION
Income before cumulative effect of
accounting change $1,205 $1,620 $2,225 $3,510
Weighted average number of common shares
outstanding 2,428 2,443 2,428 2,447
Plus: Issued on assumed exercise of
stock options 27 28 25 26
Plus: Assumed conversion of preferred
stock 2 4 2 4
______ ______ ______ ______
Weighted average number of common shares
outstanding 2,457 2,475 2,455 2,477
====== ====== ====== ======
Net income per common share
Before cumulative effect of accounting
Change $ 0.49 $ 0.65 $ 0.91 $ 1.41
Cumulative effect of accounting change - - - (0.03)
______ ______ ______ ______
Net income $ 0.49 $ 0.65 $ 0.91 $ 1.38
====== ====== ====== ======
</TABLE>
<PAGE> -9-
EXXON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6. Disclosures about Segments and Related Information
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
__________________ ________________
1999 1998 1999 1998
____ ____ ____ ____
<S> <C> <C> <C> <C>
(millions of dollars)
EARNINGS AFTER INCOME TAX
(Before the cumulative effect of
accounting change)
Exploration and Production
United States $ 269 $ 187 $ 405 $ 414
Non-U.S. 500 497 925 1,180
Refining and Marketing
United States 124 226 96 326
Non-U.S. 34 412 188 908
Chemicals
United States 200 166 358 398
Non-U.S. 74 129 221 271
All Other 4 3 32 13
_______ _______ _______ _______
Corporate Total $ 1,205 $ 1,620 $ 2,225 $ 3,510
======= ======= ======= =======
SALES AND OTHER OPERATING REVENUE
Exploration and Production
United States $ 552 $ 583 $ 1,034 $ 1,179
Non-U.S. 1,708 1,791 3,404 4,086
Refining and Marketing
United States 4,403 4,107 7,853 8,251
Non-U.S. 19,626 19,467 37,935 38,742
Chemicals
United States 1,184 1,168 2,287 2,423
Non-U.S. 1,207 1,482 2,327 3,039
All Other 214 210 395 420
_______ _______ _______ _______
Corporate Total $28,894 $28,808 $55,235 $58,140
======= ======= ======= =======
INTERSEGMENT REVENUE
Exploration and Production
United States $ 712 $ 611 $ 1,261 $ 1,284
Non-U.S. 649 688 1,323 1,307
Refining and Marketing
United States 472 396 695 748
Non-U.S. 583 515 1,026 1,060
Chemicals
United States 330 437 601 806
Non-U.S. 195 182 333 373
All Other 28 37 56 69
</TABLE>
<PAGE> -10-
EXXON CORPORATION
7. Restructuring Charge
In the first quarter of 1999 the company recorded a $120 million after-tax
charge for the restructuring of Japanese refining and marketing operations
in its wholly owned Esso Sekiyu K.K. and 50.1 percent owned General Sekiyu
K.K. affiliates. The restructuring resulted in the reduction of
approximately 700 administrative, financial, logistics and marketing
service employee positions during the quarter. The Japanese affiliates
recorded a combined charge of $216 million (before tax) to selling,
general and administrative expenses for the employee related costs. Cash
outlays of $140 million were charged against this provision through
June 30, 1999. General Sekiyu also recorded a $211 million (before tax)
charge to depreciation and depletion for the write-off of costs
associated with the cancellation of a power plant project at the Kawasaki
terminal.
<PAGE> -11-
EXXON CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FUNCTIONAL EARNINGS SUMMARY
<TABLE>
<CAPTION>
Second Quarter First Six Months
________________ __________________
1999 1998 1999 1998
____ ____ ____ ____
<S> <C> <C> <C> <C>
(millions of dollars)
Petroleum and natural gas
Exploration and production
United States $ 269 $ 187 $ 405 $ 414
Non-U.S. 500 497 925 1,180
Refining and marketing
United States 124 226 96 326
Non-U.S. 34 412 188 908
______ ______ ______ ______
Total petroleum and natural gas 927 1,322 1,614 2,828
Chemicals
United States 200 166 358 398
Non-U.S. 74 129 221 271
Other operations 85 103 182 192
Corporate and financing (81) (100) (150) (179)
______ ______ ______ ______
Earnings before accounting change $1,205 $1,620 $2,225 $3,510
Cumulative effect of accounting change 0 0 0 (70)
______ ______ ______ ______
NET INCOME $1,205 $1,620 $2,225 $3,440
====== ====== ====== ======
</TABLE>
SECOND QUARTER 1999 COMPARED WITH SECOND QUARTER 1998
Exxon Corporation estimated second quarter 1999 net income of $1,205 million,
down from $1,620 million in the second quarter of 1998. On a per share basis,
second quarter 1999 net income declined 25 percent to $0.49.
Exxon's net income of $1.2 billion was down $415 million from the second
quarter of 1998. Depressed refining margins and weaker natural gas prices
drove the decline in earnings. Weaker chemical margins, lower copper and coal
prices, and unfavorable foreign exchange effects also lowered earnings. This
year's second quarter results benefited from higher crude oil prices,
increased chemical sales volumes and reduced operating expenses in all
segments. Although second quarter results declined, Exxon's absolute level of
net income has remained healthy over the last two years despite very weak
industry conditions. With the improvement in oil prices, second quarter net
income increased 18 percent from the first quarter of 1999, in contrast to the
seasonal earnings decline that we usually see from the first to the second
quarter of each year.
<PAGE> -12-
EXXON CORPORATION
Second quarter crude oil prices recovered over $4 per barrel from the 20-year
lows experienced in the first quarter and were up about $2 per barrel from the
second quarter of last year. Natural gas prices were lower in the U.S. and
were much lower in Europe reflecting the impact and lag of declining petroleum
product reference prices and weaker local currencies. Overall, gas prices
outside of North America were 16 percent lower than the prior year and were at
their lowest level in over a decade. Liquids production declined from the
second quarter of 1998. As crude prices increased, downstream earnings
decreased substantially versus the same period last year, reflecting the
inability to raise product prices as rapidly as crude prices increased.
Refining margins in all major markets were depressed and international
downstream earnings were also adversely affected by weaker marketing margins
and a stronger U.S. dollar. Chemicals earnings were down slightly, as lower
prices and higher feedstock costs depressed commodity margins. Chemicals
earnings benefited from record second quarter sales volumes and lower
operating expenses. Earnings from other operations were down slightly as lower
copper and coal prices were largely offset by reduced operating expenses.
During the quarter, Exxon continued its active investment program, spending
$2.5 billion on capital and exploration projects.
OTHER COMMENTS ON SECOND QUARTER COMPARISON
Exploration and production earnings benefited from rising crude oil prices,
averaging about $2 per barrel more than the second quarter of 1998. Natural
gas prices were lower in the U.S. and were much lower in Europe. Exploration
and producing expenses were reduced versus the prior year.
Liquids production decreased to 1,512 kbd (thousand barrels per day) compared
to 1,609 kbd in the second quarter of 1998, primarily due to natural field
declines and lower liftings in Alaska. The decline was partly offset by
production from new developments in the North Sea and Azerbaijan. Natural gas
production of 5,542 mcfd (million cubic feet per day) was essentially
unchanged from the prior year.
Earnings from U.S. exploration and production were $269 million compared with
$187 million last year. Outside the U.S., earnings from exploration and
production were $500 million, versus $497 million in the second quarter of
1998.
Petroleum product sales of 5,406 kbd were essentially even with last year's
record second quarter. Downstream earnings declined due to a significant drop
in worldwide refining margins. Downstream earnings outside the U.S. were also
adversely affected by higher scheduled maintenance, lower marketing margins
and unfavorable foreign exchange effects.
In the U.S., refining and marketing earnings were $124 million, down $102
million from the prior year. Refining and marketing operations outside the
U.S. earned $34 million, a decrease of $378 million from 1998.
Chemicals earnings were $274 million compared with $295 million in the same
quarter a year ago. Margins were compressed by lower commodity prices and
higher feedstock costs. Prime product sales volumes of 4,455 kt (thousand
metric tons) established a quarterly record.
<PAGE> -13-
EXXON CORPORATION
Earnings from other operations, including coal, minerals and power, totaled
$85 million, compared to $103 million in the second quarter 1998. Both copper
and international coal prices were lower.
Corporate and financing expenses of $81 million compared with $100 million in
the second quarter of last year, reflecting lower tax-related charges.
During the second quarter of 1999, Exxon purchased 4.1 million shares of Exxon
common stock for the treasury at a cost of $325 million, representing a
continuation of purchases to offset shares issued in conjunction with the
company's benefit plans and programs. Purchases are made in open market and
negotiated transactions and may be discontinued at any time. As a consequence
of the proposed merger of Exxon and Mobil, the repurchase program to reduce
the number of Exxon shares outstanding was discontinued in December 1998.
FIRST SIX MONTHS 1999 COMPARED WITH FIRST SIX MONTHS 1998
Net income was $2,225 million in the first half of 1999, a decrease of 35
percent from the $3,440 million earned in 1998. Net income for the first half
of 1999 included a $120 million charge for the restructuring of Japanese
operations, while the prior year period included a $70 million charge relating
to an accounting change. Excluding non-recurring items, first half 1999 net
income declined 33 percent to $2,345 million or $0.96 per share, compared to
$3,510 million or $1.41 per share last year.
Exploration and production earnings declined due to the significant drop in
gas prices in the U.S. and Europe. Crude oil realizations were up slightly
versus the first half of 1998. Liquids production of 1,539 kbd compared to
1,616 kbd in the first half of 1998, primarily due to natural field declines
and steps to curtail marginal volumes in the low price environment of the
first quarter. Partly offsetting this was increased production from new
developments in the North Sea and Azerbaijan. With the anticipated start-up of
two North Sea developments in the second half of the year, full year liquids
production levels for 1999 should be similar to 1998. Worldwide natural gas
production of 6,527 mcfd was up 145 mcfd from 1998 due to colder European
weather. Exploration and producing expenses were reduced from prior year
levels.
Earnings from U.S. exploration and production operations for the first six
months were $405 million, a decrease of $9 million from 1998. Outside the
U.S., exploration and production earnings were $925 million, down $255 million
from last year, largely due to lower gas prices.
Petroleum product sales of 5,449 kbd increased 44 kbd over last year,
principally due to volume growth in North America. Earnings from U.S. refining
and marketing operations were $96 million, down $230 million from 1998,
reflecting the significant deterioration in industry refining margins and
higher planned maintenance activities. Outside the U.S., first half 1999
refining and marketing earnings, excluding non-recurring items, decreased $600
million to $308 million, driven by much lower refining margins, weaker
marketing margins and higher planned maintenance activities.
Chemicals earnings totaled $579 million in the first half of 1999 compared
with $669 million last year. Industry commodity prices and margins have
declined from last year's levels. Prime product sales volumes of 8,832 kt were
a first half record and increased 3 percent from last year.
<PAGE> -14-
EXXON CORPORATION
Earnings from other operations totaled $182 million, a decrease of $10 million
from the first half of 1998, reflecting depressed copper and coal prices,
offset by reduced operating expenses. Corporate and financing expenses
decreased $29 million to $150 million, reflecting lower tax-related charges.
During the period, the company's operating segments continued to benefit from
the impact of lower effective tax rates and the favorable resolution of tax-
related issues.
Net cash generation before financing activities was $1,669 million in the
first six months of 1999 versus $2,781 million in the same period last year.
Operating activities provided net cash of $5,040 million, a decrease of $804
million from the prior year, influenced by lower net income. Investing
activities used net cash of $3,371 million or $308 million more than a year
ago, reflecting a higher level of capital investment.
Net cash used in financing activities was $1,793 million in the first six
months of 1999 versus $4,108 million for the year-ago period, the decrease due
to lower purchases of shares of Exxon common stock and an increase in the debt
level in the current year versus a reduction in the debt level in the prior
year period. During the first half of 1999, Exxon purchased 6.4 million shares
of its common stock for the treasury at a cost of $495 million, representing a
continuation of purchases to offset shares issued in conjunction with the
Company's benefit plans and programs.
Capital and exploration expenditures in this year's first half were $4,620
million versus $4,526 million a year ago.
Total debt of $9.3 billion at June 30, 1999 increased $0.5 billion from year-
end 1998. The corporation's debt to total capital ratio was 17.2 percent at
the end of the second quarter of 1999, compared to 16.2 percent at year-end
1998.
Over the twelve months ended June 30, 1999, return on average shareholders'
equity was 12.0 percent. Return on average capital employed, which includes
debt, was 10.2 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.
<PAGE> -15-
EXXON CORPORATION
YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define a specific year. Absent corrective actions,
a computer program that has date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failures or miscalculations causing disruptions to various activities and
operations.
The corporation initiated assessments in prior years to identify the work
efforts required to assure that systems supporting the business successfully
operate beyond the turn of the century. The scope of this work effort
encompasses business information systems, infrastructure, and technical and
field systems, including systems utilizing embedded technology, such as
microcontrollers. The program places particular emphasis on mission critical
systems, defined as those which could have a significant safety, environmental
or financial impact, should Year 2000 issues arise.
Plans for achieving Year 2000 compliance were finalized during 1997, and
implementation work has been underway since then. The initial phases of this
work, an inventory and assessment of potential problem areas, have been
essentially completed. Modification and testing phases continue, with more
than 95 percent of required system modifications to mission critical systems
completed. Some work is continuing into 1999, including final testing of some
systems and scheduled implementation of new systems with Year 2000 impacts.
Attention has also been focused on compliance attainment efforts of vendors
and others, including key system interfaces with customers and suppliers.
Most key suppliers and business partners have been contacted for clarification
of their Year 2000 plans and over three-fourths have confirmed that compliance
plans are in place. Follow-up discussions are being held with key suppliers
when necessary to gain satisfaction on their state of readiness. These reviews
will continue through 1999. Testing of critical third party products and
services is underway, including such areas as process control systems, credit
card processing, banking transactions and telecommunications.
Notwithstanding the substantive work efforts described above, the corporation
could potentially experience disruptions to some mission critical operations
or deliveries to customers as a result of Year 2000 issues, particularly in
the first few weeks of the year 2000. Such disruptions could include impacts
from potentially non-compliant systems utilized by suppliers, customers,
government entities or others. Given the diverse nature of Exxon's operations,
the varying state of readiness of different countries and suppliers, and the
interdependence of Year 2000 impacts, the potential financial impact or
liability associated with such disruptions cannot be reasonably estimated.
Exxon operating sites around the world, including those in developing
countries, are working with key suppliers in their respective countries to
address Year 2000 issues. In addition, Year 2000 Business Contingency
Guidelines are being used by all operating organizations and affiliates, and
include specific reference to areas such as transportation, telecommunications
and utility services. Existing site contingency plans are being updated in
order to attempt to mitigate the extent of potential disruption to business
operations. This work is essentially complete with refinement of contingency
plans continuing through 1999.
<PAGE> -16-
EXXON CORPORATION
Through June 30, 1999, about $210 million of costs had been incurred in the
corporation's efforts to achieve Year 2000 compliant systems. The total cost
to the corporation of achieving Year 2000 compliant systems is currently
estimated to be $225 to $250 million, primarily over the 1997-1999 timeframe,
and is not expected to be a material incremental cost impacting Exxon's
operations, financial condition or liquidity.
FORWARD-LOOKING STATEMENTS
Statements in this report regarding future events or conditions are forward-
looking statements. Actual results, including projections of liquids
production levels and the impact of the Year 2000 Issue, could differ
materially due to, among other things, factors discussed in this report and in
Item 1 of the corporation's most recent Annual Report on Form 10-K.
<PAGE> -17-
EXXON CORPORATION
SPECIAL ITEMS
_____________
<TABLE>
<CAPTION>
Second Quarter First Six Months
________________ __________________
1999 1998 1999 1998
____ ____ ____ ____
<S> <C> <C> <C> <C>
(millions of dollars)
REFINING & MARKETING
Non-U.S.
Restructuring $ 0 $ 0 $ (120) $ 0
TOTAL INCLUDED IN EARNINGS ______ ______ ______ ______
BEFORE ACCOUNTING CHANGE 0 0 (120) 0
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 0 0 0 (70)
______ ______ ______ ______
TOTAL INCLUDED IN NET INCOME $ 0 $ 0 $ (120) $ (70)
====== ====== ====== ======
</TABLE>
<PAGE> -18-
EXXON CORPORATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information about market risks for the six months ended June 30, 1999
does not differ materially from that discussed under Item 7A of the
registrant's Annual Report on Form 10-K for 1998.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Refer to the relevant portions of Note 3 on pages 7 through 8 of this
Quarterly Report on Form 10-Q for information on legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of shareholders on May 27, 1999, the following
proposals were voted upon:
Concerning Approval of the Merger and Related Issuance of Exxon Stock
Votes Cast For: 1,796,760,491
Votes Cast Against: 13,273,080
Abstentions: 11,915,726
Broker Non-Votes: 265,812,843
Concerning Amendment of Exxon Charter
Votes Cast For: 1,793,931,068
Votes Cast Against: 12,941,270
Abstentions: 15,076,954
Broker Non-Votes: 265,812,848
Concerning Election of Directors
Votes Votes
Nominees for Directors Cast For Withheld
______________________ ________ ________
Michael J. Boskin 2,070,166,123 17,596,017
Rene Dahan 2,070,978,615 16,783,525
William T. Esrey 2,069,829,030 17,933,110
Jess Hay 2,069,072,482 18,689,658
James R. Houghton 2,070,550,595 17,211,545
William R. Howell 2,069,540,260 18,221,880
Reatha Clark King 2,070,023,741 17,738,399
Philip E. Lippincott 2,070,637,881 17,124,259
Harry J. Longwell 2,070,631,307 17,130,833
Marilyn Carlson Nelson 2,070,293,017 17,469,123
Lee R. Raymond 2,069,945,928 17,816,212
Walter V. Shipley 2,070,486,059 17,276,081
Robert E. Wilhelm 2,070,638,563 17,123,577
<PAGE> -19-
EXXON CORPORATION
Concerning Ratification of Independent Accountants
Votes Cast For: 2,070,568,418
Votes Cast Against: 5,266,864
Abstentions: 11,926,858
Broker Non-Votes: N/A
Concerning Term Limit for Nonemployee Directors
Votes Cast For: 84,344,954
Votes Cast Against: 1,675,954,054
Abstentions: 39,981,797
Broker Non-Votes: 287,481,335
Concerning Limitation on Shareholder Voting
Votes Cast For: 97,955,865
Votes Cast Against: 1,631,010,822
Abstentions: 71,316,597
Broker Non-Votes: 287,478,856
Concerning Additional Report on Climate Change
Votes Cast For: 90,903,808
Votes Cast Against: 1,610,183,452
Abstentions: 99,194,019
Broker Non-Votes: 287,480,861
Concerning Sexual Orientation Principles
Votes Cast For: 97,916,459
Votes Cast Against: 1,565,706,544
Abstentions: 136,660,284
Broker Non-Votes: 287,478,853
See also page I-14, pages IV-1 through IV-5 and pages IV-19 through IV-26 of
the registrant's definitive proxy statement dated April 5, 1999.
<PAGE> -20-
EXXON CORPORATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 27 - Financial Data Schedule (included only in the electronic
filing of this document).
b) Reports on Form 8-K
The registrant filed a Form 8-K dated May 6, 1999 concerning
announcement by Exxon Corporation and Mobil Corporation of their
expectation that the antitrust reviews of their proposed merger would
be completed by around the end of the third quarter.
<PAGE> -21-
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: August 13, 1999 /s/ DONALD D. HUMPHREYS
_______________________________________________
Donald D. Humphreys, Vice President, Controller
and Principal Accounting Officer
<PAGE> -22-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EXXON'S
CONDENSED CONSOLIDATED BALANCE SHEET AT 6/30/99 AND EXXON'S CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED 6/30/99, THAT ARE
CONTAINED IN EXXON'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED 6/30/99. THE
SCHEDULE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,328
<SECURITIES> 20
<RECEIVABLES> 6,548
<ALLOWANCES> 95
<INVENTORY> 4,787
<CURRENT-ASSETS> 16,429
<PP&E> 129,053
<DEPRECIATION> 64,051
<TOTAL-ASSETS> 91,235
<CURRENT-LIABILITIES> 19,710
<BONDS> 4,497
0
44
<COMMON> 2,323
<OTHER-SE> 40,462
<TOTAL-LIABILITY-AND-EQUITY> 91,235
<SALES> 55,235
<TOTAL-REVENUES> 56,306
<CGS> 22,398
<TOTAL-COSTS> 22,398
<OTHER-EXPENSES> 8,415
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 139
<INCOME-PRETAX> 2,674
<INCOME-TAX> 449
<INCOME-CONTINUING> 2,225
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,225
<EPS-BASIC> 0.92
<EPS-DILUTED> 0.91
</TABLE>
