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, 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 September 30, 1998
_______________________________ ____________________________________
Common stock, without par value 2,431,229,690
EXXON CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
Page
Number
______
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statement of Income 3
Three and nine months ended September 30, 1998 and 1997
Condensed Consolidated Balance Sheet 4
As of September 30, 1998 and December 31, 1997
Condensed Consolidated Statement of Cash Flows 5
Nine months ended September 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 6 - 8
Item 2. Management's Discussion and Analysis of Financial 9 -14
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signature 16
Index to Exhibits 17
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EXXON CORPORATION
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 1998 1997 1998 1997
_______ _______ _______ _______
Sales and other operating revenue,
including excise taxes $28,254 $32,381 $87,044 $100,780
Earnings from equity interests and other
revenue 525 368 1,589 1,400
______ ______ ______ ______
Total revenue 28,779 32,749 88,633 102,180
______ ______ ______ _______
COSTS AND OTHER DEDUCTIONS
Crude oil and product purchases 10,973 13,619 34,463 43,457
Operating expenses 2,874 3,186 8,776 9,763
Selling, general and administrative expenses 2,112 2,088 6,306 6,276
Depreciation and depletion 1,337 1,299 4,115 4,068
Exploration expenses, including dry holes 202 174 623 480
Interest expense 42 107 174 289
Excise taxes 3,395 3,616 10,449 10,904
Other taxes and duties 5,699 5,798 16,400 17,182
Income applicable to minority and
preferred interests 84 96 259 299
______ ______ ______ ______
Total costs and other deductions 26,718 29,983 81,565 92,718
______ ______ ______ ______
INCOME BEFORE INCOME TAXES 2,061 2,766 7,068 9,462
Income taxes 661 946 2,158 3,502
______ ______ ______ ______
NET INCOME $ 1,400 $ 1,820 $ 4,910 $ 5,960
====== ====== ====== ======
Net income per common share (dollars) $ 0.58 $ 0.74 $ 2.01 $ 2.40
Net income per common share - assuming
dilution (dollars) $ 0.58 $ 0.73 $ 1.99 $ 2.37
Average number common shares outstanding
(millions) 2,435 2,470 2,443 2,477
Average number common shares outstanding -
assuming dilution (millions) 2,465 2,506 2,473 2,510
Dividends per common share $ 0.410 $ 0.410 $ 1.230 $ 1.215
Net income per common 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.
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EXXON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(millions of dollars)
Sept. 30, Dec. 31,
1998 1997
______ ______
ASSETS
Current assets
Cash and cash equivalents $ 2,101 $ 4,047
Other marketable securities 108 15
Notes and accounts receivable - net 9,293 10,702
Inventories
Crude oil, products and merchandise 4,704 4,725
Materials and supplies 758 762
Prepaid taxes and expenses 1,113 941
______ ______
Total current assets 18,077 21,192
Property, plant and equipment - net 68,277 66,414
Investments and other assets 8,873 8,458
______ ______
TOTAL ASSETS $95,227 $96,064
====== ======
LIABILITIES
Current liabilities
Notes and loans payable $ 2,639 $ 2,902
Accounts payable and accrued liabilities 14,269 14,683
Income taxes payable 1,857 2,069
______ ______
Total current liabilities 18,765 19,654
Long-term debt 6,912 7,050
Annuity reserves, deferred credits and
other liabilities 25,791 25,700
______ ______
TOTAL LIABILITIES 51,468 52,404
______ ______
SHAREHOLDERS' EQUITY
Preferred stock, without par value:
Authorized: 200 million shares
Outstanding: 2 million shares at Sept. 30, 1998 119
3 million shares at Dec. 31, 1997 190
Guaranteed LESOP obligation (125) (225)
Common stock, without par value:
Authorized: 3,000 million shares
Issued: 2,984 million shares 2,323 2,323
Earnings reinvested 54,113 52,214
Cumulative foreign exchange translation adjustment (846) (1,119)
Common stock held in treasury:
553 million shares at Sept. 30, 1998 (11,825)
527 million shares at Dec. 31, 1997 (9,723)
______ ______
TOTAL SHAREHOLDERS' EQUITY 43,759 43,660
______ ______
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $95,227 $96,064
====== ======
The number of shares of common stock issued and outstanding at
September 30, 1998 and December 31, 1997 was 2,431,229,690 and
2,456,315,299, respectively.
-4-
EXXON CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(millions of dollars)
Nine Months Ended
September 30,
_________________
1998 1997
_____ _____
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,910 $ 5,960
Depreciation and depletion 4,115 4,068
Changes in operational working capital, excluding
cash and debt 616 229
All other items - net 3 1,758
_____ _____
Net Cash Provided By Operating Activities 9,644 12,015
_____ ______
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (5,948) (5,300)
Sales of subsidiaries and property, plant and equipment 304 331
Other investing activities - net (17) (232)
_____ _____
Net Cash Used In Investing Activities (5,661) (5,201)
_____ _____
NET CASH GENERATION BEFORE FINANCING ACTIVITIES 3,983 6,814
_____ _____
CASH FLOWS FROM FINANCING ACTIVITIES
Additions to long-term debt 145 483
Reductions in long-term debt (116) (220)
Additions/(reductions) in short-term debt - net (415) (294)
Cash dividends to Exxon shareholders (3,014) (3,024)
Cash dividends to minority interests (219) (258)
Changes in minority interests and sales/
(purchases) of affiliate stock (84) (87)
Acquisitions of Exxon shares - net (2,236) (1,555)
_____ _____
Net Cash Used In Financing Activities (5,939) (4,955)
_____ _____
Effects Of Exchange Rate Changes On Cash 10 (29)
_____ _____
Increase/(Decrease) In Cash And Cash Equivalents (1,946) 1,830
Cash And Cash Equivalents At Beginning Of Period 4,047 2,951
_____ _____
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,101 $ 4,781
===== =====
SUPPLEMENTAL DISCLOSURES
Income taxes paid $ 1,738 $ 2,502
Cash interest paid $ 618 $ 576
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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.
In June 1998, the Financial Accounting Standards Board released Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement, which must be adopted beginning no later than 2000,
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. No decision has been made as to whether the corporation will
adopt this standard before 2000. The effect on the corporation's operating
results subsequent to adoption is not expected to be material. Liquidity and
cash flow will not be affected.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities." The statement requires that
costs of start-up activities and organizational costs be expensed as
incurred. The statement is effective no later than 1999, with earlier
application permitted. The corporation expects that this new requirement
will not materially affect its consolidated financial condition or
operations.
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.
-6-
EXXON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 recent denial of
its renewed motion for new trial. 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.
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.
-7-
EXXON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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
Statement of Financial Accounting Standards 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 September 30, 1998 and 1997 were $1,978 million and $1,163 million,
respectively. The total nonowner changes in shareholders' equity for the
nine months ended September 30, 1998 and 1997 were $5,183 million and
$4,234 million, respectively. This statement 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
Third Quarter First Nine Months
_________________ _________________
1998 1997 1998 1997
______ ______ ______ ______
(millions of dollars)
Petroleum and natural gas
Exploration and production
United States $ 211 $ 326 $ 625 $1,215
Non-U.S. 274 569 1,454 2,079
Refining and marketing
United States 142 182 468 401
Non-U.S. 439 345 1,347 1,024
_____ _____ _____ _____
Total petroleum and natural gas 1,066 1,422 3,894 4,719
Chemicals
United States 181 214 579 652
Non-U.S. 120 135 391 400
Other operations 102 111 294 366
Corporate and financing (69) (62) (248) (177)
_____ _____ _____ _____
NET INCOME $1,400 $1,820 $4,910 $5,960
===== ===== ===== =====
THIRD QUARTER 1998 COMPARED WITH THIRD QUARTER 1997
Exxon Corporation estimated third quarter 1998 net income of $1,400 million,
down 23 percent from the record $1,820 million in third quarter 1997. On a per
share basis, net income declined 22 percent to $0.58 in the third quarter of
1998, reflecting the ongoing share repurchase program.
Exxon's net income of $1.4 billion was down $420 million or 23 percent,
reflecting weaker crude oil prices which on average were about $6 per barrel or
33 percent lower than last year. Earnings were also adversely affected by
lower natural gas prices and lower industry refining margins in the U.S. and
Asia-Pacific.
Crude oil prices continued to be weak and on average were at their lowest level
since the third quarter of 1986. Exxon's U.S. and European natural gas
realizations also declined to the lowest quarterly level in nearly three years.
Natural gas production was up slightly from the third quarter of 1997, while
liquids volumes were essentially flat. In the downstream, earnings were up 10
percent, reflecting improved marketing margins in the U.S. and Europe and
higher lubes earnings. Total petroleum product sales volumes were just below
the record levels of last year's third quarter as continued growth in most
markets offset weakness in Asia-Pacific. Chemical earnings were down 14 percent
from last year as a result of lower margins. Worldwide commodity prices
continued to decline due to excess industry capacity and the slowdown in Asian
economies. Earnings from other operations were essentially flat as lower coal
and copper prices were offset by record quarterly production volumes in both
businesses.
During the quarter, Exxon continued its active investment program, spending
$2.6 billion on capital and exploration projects.
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EXXON CORPORATION
OTHER COMMENTS ON THIRD QUARTER COMPARISON
Exploration and production earnings were adversely affected by substantially
lower crude oil prices which have fallen significantly since early in the
fourth quarter of 1997. Third quarter crude prices averaged about $6 per barrel
less than the third quarter of last year. Natural gas prices were also below
third quarter 1997 levels in the U.S. and Europe.
Liquids production of 1,553 kbd (thousand barrels per day) was flat versus last
year as production increases from new developments in the U.K. and Azerbaijan
and higher Canadian and Asia-Pacific output were offset by natural field
declines in mature areas. Natural gas production of 5,219 mcfd (million cubic
feet per day) was 1 percent higher due to stronger European volumes.
Earnings from U.S. exploration and production were $211 million compared with
$326 million last year. Outside the U.S., earnings from exploration and
production were $274 million, versus $569 million in the third quarter 1997.
Petroleum product sales of 5,413 kbd were just below last year's record third
quarter with higher volumes in Europe offsetting lower volumes in Asia-Pacific.
Downstream earnings benefited from higher marketing margins in the U.S.,
Europe, and Latin America, improved lubes earnings and positive foreign
exchange effects. Industry refining profitability was mixed with better
European and Latin American margins offset by weakness in Asia-Pacific and the
U.S.
In the U.S., refining and marketing earnings were $142 million, down $40
million from the prior year. Refining and marketing operations outside the U.S.
earned $439 million, an increase of $94 million from 1997.
Chemical earnings were $301 million compared with $349 million in the same
period last year. Margins were lower as chemical commodity prices declined
further. Prime product sales volumes remained strong in most areas except
Asia-Pacific.
Earnings from other operations, including coal, minerals and power, totaled
$102 million, compared to $111 million in the third quarter of 1997. Lower
copper and coal prices were offset by record production volumes. Corporate and
financing expenses of $69 million compared with $62 million in the third
quarter of last year.
During the third quarter of 1998, Exxon purchased 8.9 million shares of its
common stock for the treasury at a cost of $621 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 2,438.4 million at the end of the second quarter of 1998 to
2,431.2 million at the end of the third quarter. Purchases are made in the open
market and through negotiated transactions and may be discontinued at any time.
-10-
EXXON CORPORATION
FIRST NINE MONTHS 1998 COMPARED WITH FIRST NINE MONTHS 1997
Net income was $4,910 million for the first nine months of 1998, a decrease of
18 percent from the $5,960 million earned in 1997. On a per share basis, net
income was $2.01 for the first nine months of 1998 compared to $2.40 last year.
Exploration and production earnings declined primarily due to lower crude oil
prices which decreased by about $6 per barrel versus the same period in 1997.
Earnings were also negatively impacted by lower U.S. and international natural
gas prices. Liquids production of 1,595 kbd was up compared to 1,589 kbd last
year. Worldwide natural gas production of 5,990 mcfd was down 114 mcfd from the
first nine months of 1997, reflecting warmer weather in Europe.
Earnings from U.S. exploration and production operations for the first nine
months were $625 million, down from $1,215 million in 1997. Outside the U.S.,
exploration and production earnings of $1,454 million declined $625 million
from last year.
Petroleum product sales of 5,412 kbd increased 22 kbd over last year, with
higher sales in all major markets except Asia-Pacific. Earnings from U.S.
refining and marketing operations were $468 million, up $67 million from 1997,
reflecting improved marketing and lubes margins. Outside the U.S., 1998
refining and marketing earnings for the first nine months increased $323
million to $1,347 million with stronger marketing and refining margins in
Europe and Latin America more than offsetting weakness in Asia-Pacific.
Earnings also benefited from net positive foreign exchange effects.
Chemical earnings totaled $970 million in the first nine months of 1998
compared with $1,052 million last year. Margins were weaker versus last year,
primarily as a result of lower industry commodity prices. Despite the weaker
Asian markets, prime product sales volumes of 13,024 kt (thousand metric tons)
were up 1 percent from last year's record levels.
Earnings from other operations totaled $294 million, a decrease of $72 million
from the first nine months of 1997, reflecting significantly lower copper
prices, as well as lower international coal prices. 1998 year-to-date coal and
copper production volumes were both at record levels. Corporate and financing
expenses increased $71 million to $248 million, reflecting higher tax-related
charges. However, the company's operating segments continued to benefit from
the impact of lower effective tax rates and the favorable resolution of tax
related issues.
-11-
EXXON CORPORATION
Net cash generation before financing activities was $3,983 million in the first
nine months of 1998 versus $6,814 million in the same period last year.
Operating activities provided net cash of $9,644 million, a decrease of $2,371
million from the prior year, influenced by lower net income and the absence of
an insurance related settlement received during the prior year. Investing
activities used net cash of $5,661 million or $460 million more than a year
ago, reflecting a higher level of capital investment.
Net cash used in financing activities was $5,939 million in the first nine
months of 1998 versus $4,955 million for the year-ago period. The increase of
$984 million reflects higher purchases of shares of Exxon common stock and debt
reductions. During the first nine months of 1998, a total of 37.5 million
shares of Exxon common stock were acquired for the treasury at a cost of $2,537
million. Purchases are made in the open market and through negotiated
transactions. These purchases reflect both the increased repurchases announced
in the first quarter of 1997, as well as purchases to offset shares issued in
conjunction with the Company's benefit plans and programs. Purchases may be
discontinued at any time.
Capital and exploration expenditures in this year's first nine months were
$7,079 million versus $6,279 million a year ago. 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 $9.6 billion at September 30, 1998 decreased $0.4 billion from
year-end 1997. The corporation's debt to capital ratio was 17.2 percent at the
end of the first nine months of 1998, down from 17.8 percent at year-end 1997.
Over the twelve months ended September 30, 1998, return on average
shareholders' equity was 17.0 percent. Return on average capital employed,
which includes debt, was 14.5 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
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.
Plans for achieving Year 2000 compliance were finalized during 1997, and
implementation work was underway at year-end. The initial phases of this work,
an inventory and assessment of potential problem areas, have been essentially
completed. Modification and testing phases continue, with most required system
modifications to mission critical systems planned for completion by year-end
1998. Attention has also been focussed 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.
Notwithstanding the substantive work efforts described above, the corporation
could potentially experience disruptions to some operations or supplies 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 or government entities. The potential
impact of such disruptions cannot be reasonably estimated. Work is underway to
develop business contingency plans in order to attempt to mitigate the extent
of potential disruption to business operations. This work is targeted to be
essentially complete by mid-1999.
Through September 30, 1998, about $130 million of costs had been incurred in
the corporation's efforts to achieve Year 2000 compliant systems. The ultimate
total cost to the corporation of achieving Year 2000 compliant systems is
currently estimated to be $250 to $275 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.
ECONOMIC AND MONETARY UNION IN EUROPE
The European Union is moving toward economic and monetary union in Europe with
an ultimate goal of introducing a single currency called the "euro." Eleven of
the fifteen member countries of the European Union will begin conversion of
their currencies to the "euro" on January 1, 1999. Based on work to date, this
conversion is not expected to have a material effect on the corporation'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 capital expenditures 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.
-13-
EXXON CORPORATION
SPECIAL ITEMS
_____________
Third Quarter First Nine Months
_____________ _________________
1998 1997 1998 1997
____ ____ ____ ____
(millions of dollars)
TOTAL 0 0 0 0
==== ==== ==== ====
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EXXON CORPORATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information about market risks for the nine months ended
September 30, 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 1. Legal Proceedings
The United States, at the request of the United States Environmental
Protection Agency ("EPA"), filed suit against the registrant in the
United States District Court, Southern District of the State of
Texas, on February 11, 1998. The EPA alleged violations of the Clean
Air Act at the registrant's Baytown refinery, primarily relating to
the registrant's failure to test and comply with notification
requirements with respect to flares at the refinery. The EPA is
seeking civil penalties and injunctive relief requiring the
registrant to conduct performance testing. Exxon has agreed to pay a
civil penalty of $250,000 to settle this matter. Although the
settlement is not yet final, the amount of the penalty is not
expected to change.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 10(iii)(a) - Registrant's 1993 Incentive Program, as amended
September 30, 1998.
Exhibit 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.
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EXXON CORPORATION
FORM 10-Q
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 12, 1998 /s/DONALD D. HUMPHREYS
_______________________________________________
Donald D. Humphreys, Vice President, Controller
and Principal Accounting Officer
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EXXON CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
INDEX TO EXHIBITS
10(iii)(a). Registrant's 1993 Incentive Program, as amended
September 30, 1998.
27. Financial Data Schedule (included only in the electronic
filing of this document).
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