01—Abstract
Summary
Summary of the 10-K filed March 8, 1996. Cited figures are marked; the original filing is the authoritative source.
Exxon Corporation's 10-K for fiscal 1995 reports record net income of $6,470 milliona ($5.18 per share), up 27% from $5,100 million ($4.07 per share) in 1994, on revenue of $123.9 billion.
The gain was driven by stronger upstream crude prices (about $1.25b per barrel higher on average) and a record chemicals year, with chemicals earnings of $2,018 million more than doubling 1994. Refining and marketing earnings fell to $1,272 million from $1,389 million as industry margins were weak, particularly in Europe. Cost discipline helped: operating costs rose only 2.5% in a year when crude and product purchases rose 7%, and unit operating costs fell in all major segments.
The balance sheet strengthened over the year. Total debt fell $2.7 billion to $10.0 billionc, the debt-to-capital ratio improved to 19% from 24%, and shareholders' equity rose to $40.4 billion. Operating cash flow reached $13.8 billion, covering $9.0 billion of capital and exploration spending and the $3.7 billion dividend, which was raised to $3.00 per share (a 58% payout).
Management says internally generated funds cover most financing needs. Capital spending is set to rise in 1996, with about $3.2 billiond in firm project commitments at year-end. The main risk in the filing is the Exxon Valdez litigation.
A federal jury awarded $5 billion in punitive damages in 1994, which Exxon is appealing, and compensatory awards are still being adjusted. No charge has been taken, and management says the outcome cannot be estimated.
Management also considers the Saudi crude pricing tax case, which was decided in Exxon's favor, and a German-Dutch gas imbalance dispute as not likely to have a materially adverse effect. Investors should weigh the size of the unrecognized Valdez exposure against otherwise strong earnings and cash generation.
02—Key points
Key Highlights
- Record 1995 net income of $6.47 billion ($5.18 per share), up 27% from $5.10 billion in 1994; revenue rose 9% to $123.9 billion
- Chemicals earnings hit a record $2.02 billion, more than double 1994, on higher margins and record prime product sales of 13.5 million metric tons
- Upstream earnings improved: crude prices averaged about $1.25 per barrel higher, liquids output reached 1.73 million barrels per day (highest since 1989), and natural gas output was the highest since 1981
- Downstream weakness: refining and marketing earnings fell to $1.27 billion from $1.39 billion, with European refining margins especially weak
- Balance sheet strengthened: total debt cut $2.7 billion to $10.0 billion, debt-to-capital fell to 19% from 24%, and shareholders' equity rose to $40.4 billion
- Cash flow: operating cash flow of $13.8 billion covered $9.0 billion in capital and exploration spending plus $3.7 billion in dividends; the annual dividend rose to $3.00 per share
- Major contingent risk: the $5 billion Exxon Valdez punitive damages verdict is under appeal, and no charge has been taken
03—Questions
Frequently Asked Questions
How strong was Exxon's 1995 earnings growth and what drove it?
Net income rose to a record $6.47 billion from $5.10 billion, a 27% increase. Upstream results benefited from crude prices about $1.25 per barrel higher than in 1994 and from new production in the U.S. and North Sea. Chemicals more than doubled, and coal, minerals, and power earnings also rose. Refining and marketing was the one weak segment, falling to $1.27 billion.
Is Exxon's dividend secure?
The dividend was raised to $3.00 per share from $2.91, costing about $3.7 billion, or a 58% payout of 1995 earnings (down from 71% in 1994). Operating cash flow of $13.8 billion covered the dividend, capital spending, and debt reduction. Management says internally generated funds cover most financing needs, which supports the payout, though the company has not stated a dividend policy beyond this increase.
What is the biggest legal risk facing Exxon?
The largest exposure is the Exxon Valdez litigation. A federal jury awarded $5 billion in punitive damages in 1994, which Exxon is appealing as unjustified. Compensatory claims are being adjusted, with a fisher award reduced to about $70 million, and a $3.5 million class settlement is pending. Exxon has taken no charge because the ultimate cost cannot be estimated and may take years to resolve.
How much is Exxon spending on capital projects and what is the outlook?
Capital and exploration spending was $9.0 billion in 1995, up from $7.8 billion, with $4.7 billion in exploration and production and $6.9 billion of total spending outside the U.S. Management expects 1996 spending to exceed 1995 levels. Firm commitments on projects underway were about $3.2 billion at year-end, up from $2.4 billion. Major projects include the Ram-Powell platform in the Gulf of Mexico (start-up expected 1997) and the Hong Kong Power Black Point project.
How healthy is Exxon's balance sheet?
Exxon's position improved in 1995. Total debt fell $2.7 billion to $10.0 billion, long-term debt was $7.8 billion, and the debt-to-capital ratio dropped to 19% from 24%. Shareholders' equity grew to $40.4 billion, and the fixed charge coverage ratio rose to 8.6 from 7.0. Working capital was negative at $1.4 billion, typical for an integrated oil company, with a current ratio of 0.92.
04—Continue