How much of the 2000 earnings increase came from one-time items?

Net income rose $9.81 billion, but about $810 million of the 2000 total was net favorable merger effects: a $1.73 billion after-tax gain on required divestitures, less $920 million of after-tax merger expenses. Excluding these and special items, earnings grew about $8.5 billion to $16.91 billion, so the core improvement was driven mainly by higher oil and gas prices.

Why did the effective tax rate jump, and what does it mean for future earnings?

The effective tax rate rose to 42.4% from 31.8% in 1999, because a larger share of earnings came from the more heavily taxed non-U.S. upstream business and benefits from resolving prior tax issues were smaller. Income tax expense rose to $11.1 billion. If upstream earnings remain concentrated outside the U.S., a high effective rate could persist and weigh on net margins.

What are the main legal risks disclosed?

The most significant is an Alabama jury verdict in December 2000 for $87.69 million in compensatory and $3.42 billion in punitive damages in a royalty dispute, which the company plans to challenge. The Exxon Valdez judgment of $5.058 billion remains on appeal, with the Ninth Circuit hearing arguments in May 1999. Management says the outcomes are not expected to have a materially adverse effect on operations or financial condition, but the timing and amount are uncertain.

How is the company positioned for merger synergies and cost reductions?

Pre-tax operating synergies from the Exxon-Mobil merger are expected to reach $4.6 billion per year by 2002, and about 6,000 employees were removed by year-end 2000. Cumulative merger-related expenses are expected to reach about $2.5 billion pre-tax by 2002, with a $320 million separation reserve to be spent in 2001. Operating costs, excluding merger expenses, fell about $700 million in 2000.

What is the outlook for capital spending and reserves?

Capital and exploration spending fell to $11.2 billion in 2000 from $13.3 billion, largely due to completion of major projects, and firm capital commitments were about $4.6 billion. Proved reserves rose to 11.56 billion oil-equivalent barrels-equivalent liquids basis (9,650 million barrels of crude and NGL and 37.3 trillion cubic feet of gas), and the standardized measure of discounted future net cash flows rose to $97.3 billion from $68.6 billion, reflecting higher year-end prices.

XOM 10-K FY2000 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 28, 2001. Cited figures are marked; the original filing is the authoritative source.

ExxonMobil's fiscal 2000 10-K shows a sharply stronger year driven by higher commodity prices and merger-related items.

Net income rose to $17.72 billion^a ($5.04 diluted EPS) from $7.91 billion in 1999, but this includes a one-time after-tax extraordinary gain of $1.73 billion from divestitures required for merger approval, offset by $920 million of after-tax merger expenses. Excluding merger effects and special items, earnings were $16.91 billion ($4.81 diluted EPS), up about $8.5 billion from 1999. Upstream drove the improvement: crude realizations rose about 60% and natural gas about 45%, lifting upstream earnings to $12.37 billion.

Downstream earnings recovered to $3.42 billion^b from a depressed 1999, and chemicals and other segments were broadly stable. Balance sheet and cash flow strengthened meaningfully. Operating cash flow reached $22.9 billion, and total consolidated debt fell $5.6 billion to $13.4 billion, with the debt-to-capital ratio dropping to 15% from 22%.

Shareholders' equity rose to $70.8 billion^c. The company repurchased 27 million shares for $2.35 billion and paid $1.76 per share in dividends, a 35% payout of earnings. Capital and exploration spending declined to $11.2 billion from $13.3 billion, and management guided to $4.6 billion in pre-tax merger synergies by 2002.

Investors should weigh several risks. The effective tax rate rose to 42.4%, and the company faces a $3.42 billion^d punitive damages verdict in Alabama (December 2000), which management says should be set aside or reduced.

The Exxon Valdez punitive award of $5 billion remains under appeal. Commodity prices are volatile, and integration of the Exxon and Mobil businesses is ongoing, with roughly 6,000 workforce reductions completed.

02—Key points

Key Highlights

Reported 2000 net income of $17.72 billion ($5.04 diluted EPS), up from $7.91 billion in 1999, including a $1.73 billion after-tax gain from required asset divestitures.
Earnings excluding merger effects and special items were $16.91 billion ($4.81 diluted EPS), up about $8.5 billion year over year.
Upstream earnings rose to $12.37 billion as crude oil realizations increased roughly 60% and natural gas realizations roughly 45%.
Operating cash flow of $22.9 billion funded $8.4 billion of PP&E additions, debt reduction of $5.6 billion, and $2.35 billion of share repurchases.
Total consolidated debt fell to $13.4 billion; debt-to-capital ratio improved to 15% from 22%, and shareholders' equity rose to $70.8 billion.
Dividend increased to $1.76 per share from $1.687, a payout of about 35% of 2000 earnings.
Legal exposure includes a $3.42 billion punitive damages verdict in Alabama (December 2000) and a $5 billion Exxon Valdez punitive award still under appeal; management believes both should be reduced or set aside.

03—Questions

Frequently Asked Questions

How much of the 2000 earnings increase came from one-time items?
Net income rose $9.81 billion, but about $810 million of the 2000 total was net favorable merger effects: a $1.73 billion after-tax gain on required divestitures, less $920 million of after-tax merger expenses. Excluding these and special items, earnings grew about $8.5 billion to $16.91 billion, so the core improvement was driven mainly by higher oil and gas prices.
Why did the effective tax rate jump, and what does it mean for future earnings?
The effective tax rate rose to 42.4% from 31.8% in 1999, because a larger share of earnings came from the more heavily taxed non-U.S. upstream business and benefits from resolving prior tax issues were smaller. Income tax expense rose to $11.1 billion. If upstream earnings remain concentrated outside the U.S., a high effective rate could persist and weigh on net margins.
What are the main legal risks disclosed?
The most significant is an Alabama jury verdict in December 2000 for $87.69 million in compensatory and $3.42 billion in punitive damages in a royalty dispute, which the company plans to challenge. The Exxon Valdez judgment of $5.058 billion remains on appeal, with the Ninth Circuit hearing arguments in May 1999. Management says the outcomes are not expected to have a materially adverse effect on operations or financial condition, but the timing and amount are uncertain.
How is the company positioned for merger synergies and cost reductions?
Pre-tax operating synergies from the Exxon-Mobil merger are expected to reach $4.6 billion per year by 2002, and about 6,000 employees were removed by year-end 2000. Cumulative merger-related expenses are expected to reach about $2.5 billion pre-tax by 2002, with a $320 million separation reserve to be spent in 2001. Operating costs, excluding merger expenses, fell about $700 million in 2000.
What is the outlook for capital spending and reserves?
Capital and exploration spending fell to $11.2 billion in 2000 from $13.3 billion, largely due to completion of major projects, and firm capital commitments were about $4.6 billion. Proved reserves rose to 11.56 billion oil-equivalent barrels-equivalent liquids basis (9,650 million barrels of crude and NGL and 37.3 trillion cubic feet of gas), and the standardized measure of discounted future net cash flows rose to $97.3 billion from $68.6 billion, reflecting higher year-end prices.

04—Continue

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