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 September 30, 1996 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 September 30, 1996 _______________________________ _____________________________________ Common stock, without par value 1,241,780,932 -1- EXXON CORPORATION FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Page Number ______ Item 1. Financial Statements Condensed Consolidated Statement of Income 3 Three and nine months ended September 30, 1996 and 1995 Condensed Consolidated Balance Sheet 4 As of September 30, 1996 and December 31, 1995 Condensed Consolidated Statement of Cash Flows 5 Nine months ended September 30, 1996 and 1995 Notes to Condensed Consolidated Financial Statements 6 - 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 -13 PART II. OTHER INFORMATION Item 1. Legal Proceedings 14 Item 6. Exhibits and Reports on Form 8-K 14 Signature 15 -2- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS EXXON CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME (millions of dollars) Three Months Ended Nine Months Ended September 30, September 30, __________________ ________________ REVENUE 1996 1995 1996 1995 _______ _______ _______ _______ Sales and other operating revenue, including excise taxes $32,938 $30,577 $95,037 $90,858 Earnings from equity interests and other revenue 383 392 1,700 1,557 ______ ______ ______ ______ Total revenue 33,321 30,969 96,737 92,415 ______ ______ ______ ______ COSTS AND OTHER DEDUCTIONS Crude oil and product purchases 14,026 12,434 39,948 38,138 Operating expenses 3,202 3,118 9,760 9,613 Selling, general and administrative expenses 2,051 1,976 6,007 5,746 Depreciation and depletion 1,307 1,340 3,985 4,004 Exploration expenses, including dry holes 195 152 484 487 Interest expense 97 168 309 449 Excise taxes 3,852 3,552 10,812 9,860 Other taxes and duties 5,972 5,654 17,101 16,198 Income applicable to minority and preferred interests 72 84 291 244 ______ ______ ______ ______ Total costs and other deductions 30,774 28,478 88,697 84,739 ______ ______ ______ ______ INCOME BEFORE INCOME TAXES 2,547 2,491 8,040 7,676 Income taxes 987 991 3,025 2,886 ______ ______ ______ ______ NET INCOME $ 1,560 $ 1,500 $ 5,015 $ 4,790 ====== ====== ====== ====== Net income per common share* $ 1.25 $ 1.20 $ 4.02 $ 3.83 Dividends per common share $ 0.79 $ 0.75 $ 2.33 $ 2.25 Average number common shares outstanding (millions) 1,241.9 1,241.8 1,242.0 1,242.1 * Computed as income less dividends on preferred stock divided by the weighted average number of common shares outstanding. -3- EXXON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (millions of dollars) Sept. 30, Dec. 31, 1996 1995 ________ _______ ASSETS Current assets Cash and cash equivalents $ 2,910 $ 1,508 Other marketable securities 23 281 Notes and accounts receivable - net 9,115 8,925 Inventories Crude oil, products and merchandise 4,681 4,865 Materials and supplies 787 816 Prepaid taxes and expenses 1,062 923 _______ _______ Total current assets 18,578 17,318 Property, plant and equipment - net 65,914 65,446 Investments and other assets 8,976 8,532 _______ _______ TOTAL ASSETS $93,468 $91,296 ======= ======= LIABILITIES Current liabilities Notes and loans payable $ 2,466 $ 2,247 Accounts payable and accrued liabilities 14,273 14,113 Income taxes payable 2,959 2,376 _______ _______ Total current liabilities 19,698 18,736 Long-term debt 7,224 7,778 Annuity reserves, deferred credits and other liabilities 24,755 24,346 _______ _______ TOTAL LIABILITIES 51,677 50,860 _______ _______ SHAREHOLDERS' EQUITY Preferred stock, without par value: Authorized: 200 million shares Outstanding: 5 million shares at Sept. 30, 1996 322 7 million shares at Dec. 31, 1995 454 Guaranteed LESOP obligation (345) (501) Common stock, without par value: Authorized: 2,000 million shares Issued: 1,813 million shares 2,822 2,822 Earnings reinvested 55,647 53,539 Cumulative foreign exchange translation adjustment 751 1,339 Common stock held in treasury: 571 million shares at Sept. 30, 1996 (17,406) 571 million shares at Dec. 31, 1995 (17,217) _______ _______ TOTAL SHAREHOLDERS' EQUITY 41,791 40,436 _______ _______ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $93,468 $91,296 ======= ======= The number of shares of common stock issued and outstanding at September 30, 1996 and December 31, 1995 were 1,241,780,932 and 1,241,771,829, respectively. -4- EXXON CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (millions of dollars) Nine Months Ended September 30, __________________ 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES ______ ______ Net income $5,015 $4,790 Depreciation and depletion 3,985 4,004 Changes in operational working capital, excluding cash and debt 634 109 All other items - net 566 1,371 _____ _____ Net Cash Provided By Operating Activities 10,200 10,274 ______ ______ CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions and additions to property, plant and equipment (5,101) (4,825) Sales of subsidiaries and property, plant and equipment 372 361 Other investing activities - net 44 278 ______ ______ Net Cash Used In Investing Activities (4,685) (4,186) ______ ______ NET CASH GENERATION BEFORE FINANCING ACTIVITIES 5,515 6,088 ______ ______ CASH FLOWS FROM FINANCING ACTIVITIES Additions to long-term debt 550 964 Reductions in long-term debt (711) (976) Additions/(reductions) in short-term debt - net (129) (1,745) Cash dividends to Exxon shareholders (2,915) (2,824) Cash dividends to minority interests (242) (229) Additions/(reductions) to minority interests and sales/(redemptions) of affiliate preferred stock (329) (25) Acquisitions of Exxon shares - net (321) (205) ______ ______ Net Cash Used In Financing Activities (4,097) (5,040) ______ ______ Effects Of Exchange Rate Changes On Cash (16) (5) ______ ______ Increase/(Decrease) In Cash And Cash Equivalents 1,402 1,043 Cash And Cash Equivalents At Beginning Of Period 1,508 1,157 ______ ______ CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,910 $2,200 ______ ______ SUPPLEMENTAL DISCLOSURES Income taxes paid $1,957 $1,794 Cash interest paid $ 543 $ 638 -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 1995 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. Certain costs and other deductions for 1995 have been reclassified to conform to the 1996 presentation. 2. Accounting Changes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" was implemented effective as of January 1, 1996. This Statement had no impact on the corporation's results of operations or financial position upon adoption. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" was implemented effective as of January 1, 1996. As permitted by the Statement, Exxon retained its current method of accounting for stock compensation upon adoption. 3. Litigation and Other Contingencies A number of lawsuits, including class actions, have been 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. Most of these lawsuits seek unspecified compensatory and punitive damages. Several lawsuits seek damages in varying specified amounts. On September 24, 1996, the United States District Court for the District of Alaska entered a judgment in the amount of $5,057,571,930 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 asserting 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. On September 27, 1996, the District Court stayed execution on the judgment pending appeal, contingent on the posting of a $6.75 billion letter of credit which was posted by the corporation on October 7, 1996. Exxon will appeal the judgment. 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. -6- EXXON CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS There are a number of additional cases pending in state court in Alaska where the compensatory damages claimed have not been fully specified. 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 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 to 1981 in favor of the corporation. This decision is subject to appeal. Certain other issues for the years 1979-1982 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 materially adverse consequences 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. -8- EXXON CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FUNCTIONAL EARNINGS SUMMARY Third Quarter First Nine Months _______________ _________________ 1996 1995 1996 1995 _____ _____ _____ _____ (millions of dollars) Petroleum and natural gas Exploration and production United States $ 395 $ 209 $1,237 $ 699 Non-U.S. 583 385 2,202 1,712 Refining and marketing United States 58 102 140 179 Non-U.S. 168 365 492 773 _____ _____ _____ _____ Total petroleum and natural gas 1,204 1,061 4,071 3,363 Chemicals United States 208 270 527 766 Non-U.S. 133 225 405 847 Other operations 116 134 333 356 Corporate and financing (101) (190) (321) (542) _____ _____ _____ _____ NET INCOME $1,560 $1,500 $5,015 $4,790 ===== ===== ===== ===== THIRD QUARTER 1996 COMPARED WITH THIRD QUARTER 1995 Exxon Corporation estimated third quarter 1996 earnings of $1,560 million, equal to $1.25 per share. Comparable third quarter 1995 net income was $1,500 million, or $1.20 per share. Exxon achieved record net income for a third quarter as a result of increased natural gas, petroleum product, and chemical sales, as well as stronger crude oil and natural gas prices. Earnings for the first nine months of 1996 are also the highest in Exxon's history. Upstream earnings increased by 65 percent versus the third quarter of last year. Worldwide crude oil prices averaged about $4.50 per barrel more than last year, natural gas prices were higher, particularly in North America, and worldwide gas sales were up 8 percent. Downstream earnings declined from last year's third quarter, despite increased petroleum product sales. Industry margins were under pressure in all major geographic areas, largely due to rising crude oil prices. The chemical business achieved record third quarter sales. However, earnings were below last year's third quarter, primarily due to lower chemical prices and higher feedstock costs. Earnings from other operations declined from the prior year, reflecting significantly lower copper prices. Coal production from continuing operations was the highest ever achieved in a third quarter. During the quarter, Exxon continued its active investment program spending $2.3 billion on capital and exploration projects and advancing several large initiatives, including projects in Russia, Azerbaijan, West Africa, and the North Sea. -9- EXXON CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OTHER COMMENTS ON THIRD QUARTER COMPARISON Relative to 1995, third quarter 1996 worldwide exploration and production earnings benefited from stronger crude oil and natural gas prices as well as increased natural gas sales. Liquids production was 1,570 kbd (thousand barrels per day) in the third quarter compared to 1,684 kbd in the year ago period. Increased production from new developments in the North Sea was offset by lower volumes in Canada and the U.S., and the near term effect of a revised production sharing agreement in Malaysia. Worldwide natural gas production of 5,104 mcfd (million cubic feet per day) was the highest third quarter in 15 years and up 387 mcfd from 1995 as a result of increased sales in Europe and Malaysia. Exploration and production earnings in the U.S. were $395 million, up from $209 million in the third quarter of 1995. Earnings from exploration and production operations outside the U.S. were $583 million versus $385 million in last year's third quarter. Worldwide petroleum product sales of 5,222 kbd for the third quarter were the highest level achieved in over 20 years and up 123 kbd from third quarter 1995, with a 4 percent increase in motor gasoline sales. Downstream industry margins in all major geographic areas were below prior year levels, reflecting escalation in crude prices. Third quarter refining and marketing earnings in the U.S. of $58 million were down from $102 million in 1995's third quarter, principally due to weaker product margins and increases in scheduled refinery maintenance and fuel prices. Outside the U.S., refining and marketing earnings of $168 million declined from $365 million in the year ago quarter, reflecting weaker industry margins. Worldwide chemical earnings were $341 million versus $495 million in the third quarter 1995. Chemical commodity product prices rose relative to the second quarter of 1996, but remained well below last year's third quarter. Record prime product sales of 3,909 kt (thousand metric tons) in the third quarter 1996 were up 10 percent from the prior year. Earnings from other operating segments, including coal, minerals and power, were $116 million versus $134 million in the third quarter 1995. Coal production from on-going operations was at a record level, but was offset by sharply lower copper prices. Corporate and financing expenses of $101 million compared to $190 million in the third quarter of last year, reflecting lower tax-related charges and lower interest costs due to debt reductions. Revenue totaled $33,321 million compared with $30,969 million in the third quarter of 1995. Capital and exploration expenditures were $2,320 million versus $2,308 million in the third quarter of last year. During the third quarter, Exxon purchased 1.5 million shares of its common stock for the treasury at a cost of $131 million. -10- EXXON CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FIRST NINE MONTHS 1996 COMPARED WITH FIRST NINE MONTHS 1995 Net income of $5,015 million for the first nine months of 1996 was up from $4,790 million in 1995. Through nine months of 1996, worldwide crude oil prices were about $2.75 per barrel higher than the prior year and natural gas prices increased, particularly in North America. Liquids production of 1,617 kbd compared to 1,732 kbd last year. Increased production from new developments in the North Sea was offset by the near term effect of a revised production sharing agreement in Malaysia and lower volumes in Canada and Australia. Natural gas production of 6,365 mcfd was up 12 percent from nine months 1995, due to colder weather in the U.S. and Europe and increased demand in Malaysia. Nine months 1996 earnings from U.S. exploration and production operations were $1,237 million, up from $699 million in 1995. Outside the U.S., earnings from exploration and production operations were $2,202 million versus $1,712 million last year. Worldwide petroleum product sales for the first nine months of 1996 were 5,148 kbd, an increase of 135 kbd over 1995, on the strength of increased clean product volumes. Earnings from U.S. refining and marketing operations were $140 million, compared with $179 million in the first nine months of 1995. Industry refining margins in the U.S. improved relative to last year's low levels, but were offset by increases in scheduled refinery maintenance activity and higher fuel prices. Refining and marketing operations outside the U.S. earned $492 million in the first three quarters versus $773 million in 1995, and were affected by weak industry conditions in the U.K. and Japan. Earnings from worldwide chemical operations totaled $932 million through nine months of 1996, down from $1,613 million in 1995. Record prime product sales of 11,798 kt were up 10 percent from 1995, but industry product prices were significantly lower while feedstock costs were higher than year ago levels. Other operating segments earned $333 million, down $23 million from nine months of 1995. Copper and coal production from continuing operations were at record levels and international coal prices were higher. However, copper prices were down significantly from the previous year. Corporate and financing expenses of $321 million in the first nine months of 1996 declined from $542 million in 1995 due to lower interest and tax-related charges. -11- EXXON CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FIRST NINE MONTHS 1996 COMPARED WITH FIRST NINE MONTHS 1995 Net cash generation before financing activities was $5,515 million in the first nine months of 1996 versus $6,088 million in the same period last year. Operating activities provided net cash of $10,200 million, the same level as 1995's first nine months. Investing activities used net cash of $4,685 million, or $499 million more than a year ago, primarily due to higher capital investment. Net cash used in financing activities was $4,097 million in the first nine months of 1996 versus $5,040 million for the year-ago period. The decrease of $943 million mainly reflects the absence of debt reductions in the year-ago period. During the first nine months of 1996, a total of 6.4 million shares of Exxon common stock were acquired for the treasury at a cost of $535 million. Purchases are made in both the open market and through negotiated transactions. Purchases may be discontinued at any time. Capital and exploration expenditures of $6,612 million in the first nine months of 1996 compared to $6,089 in the same period last year. Total capital and exploration expenditures in 1996 should exceed the 1995 level as Exxon maintains its focus on profitable growth opportunities in each of the major operating segments. Total debt of $9.7 billion at September 30, 1996 compares to $10.0 billion at year-end 1995. The corporation's debt to capital ratio was 18.2 percent at the end of the first nine months of 1996, down from 19.0 percent at year-end 1995. Over the twelve months ended September 30, 1996, return on average shareholders' equity was 16.4 percent. Return on average capital employed, which includes debt, was 13.7 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. -12- EXXON CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SPECIAL ITEMS Third Quarter First Nine Months ________________ _________________ 1996 1995 1996 1995 ____ ____ ____ ____ (millions of dollars) EXPLORATION & PRODUCTION Non-U. S. Tax related - - $125 - ____ ____ ____ ____ TOTAL - - $125 - ==== ==== ==== ==== -13- PART II. OTHER INFORMATION EXXON CORPORATION FOR THE QUARTER ENDED SEPTEMBER 30, 1996 Item 1. Legal Proceedings _______ _________________ As reported in the registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, the U.S. Environmental Protection Agency (the "EPA") has alleged violations of the Clean Air Act by Esso Virgin Islands, Inc. ("EVII"), a subsidiary of the registrant, involving failure to conduct performance testing on a timely basis and underestimations of daily throughput of gasoline in an emissions permit application. On July 15, 1996, the EPA assessed a civil penalty of $501,817 against EVII in connection with this matter, which penalty EVII is contesting. Refer to the relevant portions of Note 3 on pages 6 through 8 of this Quarterly Report on Form 10-Q for further information on legal proceedings. 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 September 27, 1996 concerning the judgment entered by the United States District Court for the District of Alaska in the Exxon Valdez civil trial that began in May 1994. Refer to the relevant portions of Note 3 on pages 6 through 8 of this Quarterly Report on Form 10-Q for further information regarding this legal proceeding. -14- EXXON CORPORATION FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 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: November 13, 1996 /s/ W. Bruce Cook _________________________________________ W. Bruce Cook, Vice President, Controller and Principal Accounting Officer -15-