Exxon to exit U.S. retail gas business

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Bob Juch · #1 Post by **Bob Juch** » Fri Jun 13, 2008 1:15 pm

They're not making enough money:

http://www.reuters.com/article/newsOne/ ... 3020080612

gsabc · #2 Post by **gsabc** » Fri Jun 13, 2008 1:37 pm

Someone correct me if I'm not remembering this properly (B-school was years ago), but IIRC this should allow them to hide more of their profits. If they own the stations, their internal accounting "cost of goods" to sell the gasoline to them is low; division-to-division sales costs are booked at a lower rate than to external customers. So the accounting profit is high for that gasoline. Selling to the no-longer-owned stations, they can sell at the same price, claim a higher "cost of goods", and therefore "lower" the profit. Which of course gives them less profit to report to the public, helping the general PR if not necessarily the stock price, and to the IRS, helping their tax basis (not that they're paying that much proportionately anyway).

themanintheseersuckersuit · #3 Post by **themanintheseersuckersuit** » Fri Jun 13, 2008 2:03 pm

gsabc wrote:Someone correct me if I'm not remembering this properly (B-school was years ago), but IIRC this should allow them to hide more of their profits. If they own the stations, their internal accounting "cost of goods" to sell the gasoline to them is low; division-to-division sales costs are booked at a lower rate than to external customers. So the accounting profit is high for that gasoline. Selling to the no-longer-owned stations, they can sell at the same price, claim a higher "cost of goods", and therefore "lower" the profit. Which of course gives them less profit to report to the public, helping the general PR if not necessarily the stock price, and to the IRS, helping their tax basis (not that they're paying that much proportionately anyway).

Unless things have changed since I got my accounting degree 32 years ago, this makes no sense. They are selling them cause is easier to screw a station owner than to run a station.

andrewjackson · #4 Post by **andrewjackson** » Fri Jun 13, 2008 3:23 pm

Right. This just tells me that there is no money in running gas stations especially at high gas prices.

BackInTex · #5 Post by **BackInTex** » Fri Jun 13, 2008 3:37 pm

gsabc wrote:Someone correct me if I'm not remembering this properly (B-school was years ago), but IIRC this should allow them to hide more of their profits. If they own the stations, their internal accounting "cost of goods" to sell the gasoline to them is low; division-to-division sales costs are booked at a lower rate than to external customers. So the accounting profit is high for that gasoline. Selling to the no-longer-owned stations, they can sell at the same price, claim a higher "cost of goods", and therefore "lower" the profit. Which of course gives them less profit to report to the public, helping the general PR if not necessarily the stock price, and to the IRS, helping their tax basis (not that they're paying that much proportionately anyway).

Exxon reports net income consolidated for all of their businesses. Selling the stations will likely result in higher margins because operting a gas station is a low margin business.

The net income, all things being equal, will likely go down. But they will take the proceeds from the sale of the stations and invest in something and will eventually make more. At least that is the plan.

Why would they try 'hide' their profits? They are a public company with stockholders who demand they make as much as possible.

What B-school did you go to?

Shade · #6 Post by **Shade** » Sat Jun 14, 2008 9:53 am

The John Tesh Radio show once told me that a gas station owner makes more money from a cup of coffee then he does from a tank of gas.

http://tesh.com/ittrium/visit?path=A1xc ... 5xc281x5x1