Exxon Mobil Corporation
5959 Las Colinas Boulevard
Irving, TX 75039-2298

April 17, 2000

Mr. Jonathan Katz
U.S. Securities and Exchange Commission
450 Fifth Street, N. W.
Washington D.C. 20549-0609

FILE No. S7-03-00

Dear Mr. Katz:

ExxonMobil is pleased to comment on Release 33-7793 that proposes repositioning certain schedule information currently required under Rule 12-09 of Regulation S-X within a new Item 302(c) as well as adding new Item 302(d) of Regulation S-K.

Item 302(c) -

This proposal is not unexpected, as we recognize that the Commission has been concerned with the accounting for loss accruals and valuation accounts for some time. We agree that there has been a certain amount of confusion over the items that were required to be included in Schedule II of Regulation S-X Rule 12-09. The proposed clarification will provide useful guidance in this regard. However, we are concerned that the proposal will require excessively detailed disclosure of accruals for litigation losses and tax liabilities that would be potentially harmful to investor interests.

Disclosures about litigation can be very difficult because of their extreme sensitivity in the current litigious environment. There is always a balance between providing financial statement users with relevant information and at the same time not revealing confidential strategies or expected settlement benchmarks, the disclosure of which could be injurious to shareholders.

Under current accounting and auditing standards, it is possible to disclose information about litigation and tax issues, including possible future exposure, without revealing the amount that has been accrued. A good example can be found in the AICPA's Statement of Position 94-6, Appendix A, Illustrative Disclosure I. In this example the reader is put on notice that there is a claim against the company and the amount of potential future loss. However, the illustrative disclosure does not reveal the amount accrued and therefore does not give confidential information that could strengthen the opposing litigant's position. If these accruals are required to be included in response to Item 302(c), the amount accrued would become common knowledge and destroy confidentially. This would be a problem even if the accrual were grouped under a common category as it would be fairly easy to relate an increase in the total accruals with the disclosures in the notes to the financial statements.

Item 302(d) -

While we expected the proposal related to loss accruals and valuation accounts, we were quite surprised about the proposal to reinstate and actually expand the information previously required by old Rules 12-06 and 12-07 of Regulation S-X. In 1995, we supported the Commission's decision to eliminate these rules. At that time we did not believe they provided meaningful disclosure. We continue to hold this belief.

The Commission cites a letter from the Association for Investment Management and Research (AIMR) as support for reintroducing the fixed asset activity schedules. We decided to read this letter in the hope that the analyst community might have provided some insight into the usefulness of these schedules that we perhaps overlooked. We found nothing new. In fact we are disappointed that the Commission will require the significant increase in workload that will be caused by this proposal on the basis of the comments put forth by the AIMR. We think the Commission should require AIMR to provide the basis for their comments and we offer the following observations in that regard:

  • The letter indicates that the old Schedules V and VI were critical in "comparing enterprises that selected from a wide variety of depreciation methods, useful lives and salvage values". To our knowledge, disclosure of these items was never required by the old Rules. Furthermore, depreciation methods can be determined in the accounting policy note. We do not understand the need for useful lives and salvage values. Many factors enter into the decision for determining these variables, not the least is how the assets are managed. We suspect that similar assets will not have that much variability in depreciable lives between companies and longer or shorter lives do not necessarily indicate higher or lower quality of financial reporting.

  • AIMR's letter indicates that these schedules allow analysts "to evaluate management's capital allocation decisions and to estimate future depreciation charges". It seems to us that the combination of the MD&A and segment reporting are much better sources of information for this analysis.

  • The AIMR letter suggests that the importance of the depreciation component in the combined depreciation, depletion and amortization amounts requires companies to undertake significant unproductive effort to compile Schedule V and VI type information. While we do not understand the AIMR's reasoning for wanting the information, we expect that most companies would be willing to simply disclose the depreciation component separately rather than prepare the schedules.

  • Finally, it is the AIMR's position on asset sales that we believe to be the weakest reason for requiring the schedules. We do not believe that a pattern of gains or losses suggests anything about the conservatism (or lack thereof) of the depreciation method. Fair value of old long-lived assets, particularly after considering capital maintenance over the years has nothing to do with the book value and depreciable lives. We also do not understand AIMR's point on how the schedules will improve the quality of reported earnings or how they will provide better information about asset sales than the cash flow statement.

    On a final observation about the AIMR letter, we are unsure that it represents the views of the analyst community. Our experience suggests that the large number of analysts who cover ExxonMobil have generally not requested the additional data required by the proposal. We routinely discuss our disclosures with these analysts and they have not raised the issues about fixed assets that are included in the AIMR letter. We have long believed that the accounting standard setting bodies too often accept the views of the AIMR too readily and without question.

    Materiality and Cost/Benefit Considerations -

    As commented above, we perceive very little benefit from the proposals. While we have not performed a detailed study of the implementation costs, we believe that without guidance on materiality thresholds, the Commission has significantly understated its estimates to perform this additional work.

    With regard to Item 302(c), we recognize that the Commission has been concerned with loss accruals for some time and believes the proposal will bolster the disclosures. However, in our opinion, it is not practical to disclose every loss accrual for a large company. Guidance is required on materiality thresholds for compliance and how broadly the loss accruals can be grouped (e.g., can all restructurings be combined). Without this guidance, implementation costs will be significant. ExxonMobil has about 1200 reporters in its consolidation. If we assume that it takes each of these reporters just ½ hour to identify and report all the items under this proposal, then a recurring 600 hours would be required for ExxonMobil to comply each year. This is far greater than the 17 hours estimated by the Commission. Additionally, the development and implementation of standardized reporting of these new data elements, including systems changes, would be significant.

    As explained above, we do not believe that the AIMR's reasons for requesting the information in Item 302(d) are valid. However, if the Commission is not persuaded by our comments, we would at least recommend that disclosure of salvage values and depreciable lives be omitted from the requirements. The only practical way that ExxonMobil, which has thousands of assets, could comply with this requirement would be to disclose such broad averages that the information would be virtually meaningless. We are fairly certain that the ongoing annual burden to obtain this information for all of our affiliates with fixed assets would be substantially greater than the 35 hours estimated by the Commission based on a similar analysis as described in the preceding paragraph.

    Furthermore, much of our asset base is related to exploration and production of oil and gas reserves and uses the unit of production method of depreciation. Much more relevant information about these upstream assets is already contained in the required supplementary oil and gas disclosures.

    Conclusion -

    We ask the Commission to consider our views. We particularly ask that the AIMR letter be more critically reviewed, taking into consideration the issues we raised in this comment letter, to determine whether the AIMR's position is sufficiently persuasive to overcome the significant burden of complying.

    Very truly yours,