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TheExxonMobilCorporation
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The Exxon Mobil Corporation CompanyDescription
ExxonMobilCorporation(EXXON).TheGroup'sprincipalactivitiesareexploration,production,transportationandsaleofcrudeoilandnaturalgas.
TheGroupoperatesthroughthreesegments:Upstream,DownstreamandChemicals.TheUpstreamoperatestoexploreforandproducecrudeoilandnaturalgas.TheDownstreamsegmentmanufacturesandmarketspetroleum
products.TheChemicalssegmentmanufacturesandmarketspetrochemicals.TheGroupmanufacturespetroleumproducts,whichincludesolefins,aromatics,polyethyleneandpolypropyleneplasticsandotherspecialty
products.Itisalsoamajorworldwidemanufacturerandmarketerofpetrochemicalsandparticipatesinelectricpowergeneration.TheGroupoperatesandmarketsintheUnitedStates,Canada,Europe,Africa,Asia
PacificandMiddleEast,RussiaandCaspianandSouthAmerica.
CreditRating:AAA
CompanyProfile
ExxonMobilistheworld’slargestcompanywithrevenueofover400
billiondollars.Exxonprovidesoilandgasproductsforbusinessand
consumeruse.Exxonisalsothelargestcompanyintermsofnetincome;
latestfigurespointtoover40billiondollars.ExxonisheadquarteredinIrving,
Texas,yethasglobaloperations.ThedivisionsofExxonaremostlyinvolved
withoildiscoveryandproduction.Exxonalsohassmallinterestsinchemical
andinfrastructurecomponentsworldwide.ThecurrentCEOofExxonMobilis
RexTillerson.Exxoncurrentlyproduces3%ofalloftheworld’soiland2%of
allenergy.Exxonhasabrightfuture,asoneofthemostdiverseenergy
companiesintheworld.Currently,Exxoninvestsover$600millionayear
intoresearchanddevelopmentforenergysolutionsthatwillmeetincreasing
Ticker: XOM
Sector: IntegratedOilandGas
Industry: Energy
Recommendation: Hold
Pricing
ClosingPrice $67.90 (2/28/09)
52‐wkHigh $96.12 (5/21/08)
52‐wkLow $56.51 (10/10/08)
MarketData
MarketCap $337.9B
Totalassets $15.41B
Tradingvol 4.46M (3monavg)
Valuation
EPS(ttm) $3.17
P/E(ttm) 8.50
PEG .2
DivYield 2.36%
Profitability&Effectiveness(ttm)
ROA 13.75%
ROE 34.35%
ProfitMargin 9.5%
OperMargin 20.8%
GrossMargin 49.6%
TheExxonMobilCorporation
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futuredemand.ThefutureforExxonMobilisbright:mostoftheworldisreliantuponoilandgas.Thiscreatesa
futuredemandfortheproduct,whichisnecessaryforallvalueinvestments.Theenergysectorfell53%overthe
pastyear,andExxonhasonlyfallen11.5%overthesametimeperiod.ThisisastrongindicatorthatExxonwill
outperformthemarketintheupcomingmonths.Also,becauseof
recentnaturaldisasterslikeHurricaneIke,Exxonhasspentlarge
amountsofcashintherepairsoffacilitiesintheGulfofMexicothatare
reflectedinthe2008financialstatements.HurricaneIkeandGustav
causedover570milliondollarsofdamagestoExxon.Also,Exxon’s
strongglobalpositioningwillhelpmitigaterisksassociatedcompanies
thatonlyhaveoperationsandsourcesofrevenuesoriginatingintheUS.TheiroperationsintheUScontributeto
only31%of2007salesfigures,with69%comingfromglobaloperations.Exxoniscurrentlyinvestingover26
billionannuallyintocapitalexpenditures.In2008,Exxoncommittedtospending1billiontodevelopthree
refineriestoincreasetheamountofclean‐burningdieselfuelby6milliongallonsperyearthroughthree
refineriesinBaytown,BatonRougeandAntwerp.
SWOTAnalysis
Helpful Harmful
InternalOrigin Strengths:1. Largest,MostProfitable2. HugeInvestmentsinR&D3. SmallDebttoEquityRatio
Weaknesses:1. OperatingMarginbelowIndustry
2. HigherEffectiveTaxRate3. IncreasingTransportationCosts
ExternalOrigin Opportunities:1. NewTechnologies,Energy2. GrowthinNewMarkets
3. 4xLargerthanCompetitors
Threats:1. EconomicConditions(Recession)2. PoliticalConcerns(WindfallTax)
3. OilBust4. CompetitionfromAbroad5. NaturalCatastrophes
Top Profits Recorded
1)ExxonMobil 2008
2)ExxonMobil 2007
3)ExxonMobil 2006
TheExxonMobilCorporation
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CoreBusinessStrategyandInternalFactors
Exxonbreaksitscorebusinessupintothreedistinctbusinessareas.Upstreamistheexplorationand
developmentoftechnologiesrelatedtoexplorationanddrilling,Downstreamistherefiningofenergysources
intousableproductsandthedevelopmentoftechnologiesrelatedtotheseprocessesandChemicalisthe
productionofoilbasedderivativesutilizedforvariousbusinesses.Thesechemicalscanincludelubricants,
polyethyleneandbenzeneaswellasolefinsforconstructionuse.Exxonemploys79.9thousandemployees
worldwide,downfrom2007(80.8)and2006(82.1).Exxonalsohasroughly11thousandpatents,whichit
licensestoothervendorsforaprofitof$125millionperyear.
Upstreamearningsfor2008wereupovertwoandahalfbilliondollarsfrom2007intheUnitedStates.
Worldwide,earningsforUpstreamactivitiesincreasedbyalmosteightbilliondollars.Thereturnonaverage
employedcapitalincreasedeightpercentto42.6%intheUS,andincreasedbyalmostthirteenpercentto56.7%
TheExxonMobilCorporation
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worldwide.CapitalexpendituresalsoincreasedsignificantlyinUpstreamoperations.Downstreamearnings
decreasedbyalmost1.5billiondollarsin2008from2007figures.Thereturnonaverageemployedcapitalfor
Downstreamsegmentswasstillhighat31.8%.CapitalexpendituresincreasedintheUS,howeverfellworldwide
forDownstream.Chemicaloperationsalsofellin2008fromthepreviousyearby1.5billiondollars.Theaverage
returnonemployedcapitalfellto20.4%in2008.Capitalexpenditures,however,increasedforthechemical
segmentofExxon’sbusiness.
ExxonhasincreasednetincomeinDownstreamproductionsignificantly.Partofthefactorsthathave
causedtheChemicalandUpstreamnumberstofallrecentlyisthefallinpricesofbarrelsofoil.Thisdecreasein
thepriceofinputsstemsfromaglobaldropindemandthataffectssalesofsuchproducts.Exxon’sChemicaland
Upstreambusinesssegmentsarerelatedtotheoverallbusinessdemandinaneconomy,andasthedemand
TheExxonMobilCorporation
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falls,sodosalesandnetincome.Chemicalisthemostvolatilerelatedtobusinessfunctionsassomanyofits
derivativeproductsarerelatedtoconstructionandbusinessdevelopment.Netincomethroughouttheworld,
however,hasincreasedalmost15%fromJune2008toDecember2008.
Thenetincomeyearoveryeariscomparedabove.Exxonhascontinuedtogrowatasteadypacewitha
hugegrowthworldwideintermsofnetincome.Chemicalproductionappearstobedecreasingintermsofnet
incomeconsistentlyoverthepastfouryears.
TheExxonMobilCorporation
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Exxon’sfinancialpositionisextremelysolid.AsoneoffiveUScompaniesthatstillhasaAAArating,
Exxonisinastrongpositiontoraisecapitalifaneedarises.Exxonalsohasaquickratioof1.23,whichishigher
thantheindustryaverageof1.13.1Exxon’sreturnonassets,returnoninvestmentandreturnonequityareall
significantlyhigherthantheindustry,sectorandS&Pasawhole.ThelongtermdebttoequityofExxonis6.22,
whichisalsomuchlowerthantheindustrymarkof17.43orthesectormarkof61.8.Clearly,Exxonisoperating
byfinancingnewexpenditureswithprofitsandmanagementhasavoidedmanyofthecurrentproblems
associatedwithhighlyleveragedfirmsoperatingwithlotsofdebtthatnowhaspremiumsassociatedwith
renewingthesedebtobligations.
Management Effectiveness2
Company Industry Sector S&P 500 Return on Assets (TTM) 19.24 14.80 4.93 7.98 Return on Assets - 5 Yr. Avg. 17.52 13.02 6.26 8.56 Return on Investment (TTM) 25.56 18.86 6.76 11.08 Return on Investment - 5 Yr. Avg. 23.17 16.93 8.81 11.61
1Reuters.2Reuters.
TheExxonMobilCorporation
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Return on Equity (TTM) 38.53 25.65 11.01 25.34 Return on Equity - 5 Yr. Avg. 33.96 23.76 12.96 20.92
CompetitiveAnalysis
ExxonhasoutperformedboththeS&Panditsindustrypeersoverthepastyear.Exxonsharesfell15%in
thepastyear,comparedtoadeclineof22%forrivalsand38%forthebenchmark.3Intheir2008AnnualReport,
Exxonhadthistosayaboutcompetitivefactors;
Exxonhassuperiorpositionsincomparisontoothercompetitorsintheindustry.Withamarketcapof
$392billion,Exxonismorethantwiceaslargeasotheroilproducersandrefiners.ThissizegivesExxonastrong
advantageineconomiesofscaleandallowsExxontooperateasamarketleader.AlthoughExxon’scurrent
3BusinessWeek,February16,2009.
“AkeycomponentoftheCorporation’scompetitiveposition,particularlygiventhecommodity‐basednatureofmanyofitsbusinesses,isExxonMobil’sabilitytomanageexpensessuccessfully.Thisrequirescontinuous
managementfocusonreducingunitcostsandimprovingefficiencyincludingthroughtechnologyimprovements,costcontrol,productivityenhancementsandregularreappraisalofourassetportfolio.”
TheExxonMobilCorporation
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dividendyieldislowerthancomparables,Exxonhasincreaseditsdividendconsistentlyandhascontinuedto
growatarapidpace.StockbuybacksareanotherwayExxonhascontributedtoownersoverthepastyear.
Whencomparedtotopindustrycompetitorsintermsofnetincomeandnetsales,Exxonclearlyhasa
farlargerpositioninbothsalesandnetincomethananyothercompetitors(CompuStat).Thesalescomparison
ofoilcompaniesbelowshowsthebreakdownofmarketshareforeachcompany.Exxon’sclosestcompetitor,
BP,has27%ofthemarket.ThisissignificantlylowerthanExxon’sgrowing35%share.
0
50000
100000
150000
200000
250000
300000
350000
2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006 2007 2004 2005 2006 2007
EXXONMOBILCORP CONOCOPHILLIPS CHEVRONCORP BPPLC
Exxonvs.TopIndustryCompeYtors
SumofNetIncome SumofSales
TheExxonMobilCorporation
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Exxon’scapitalexpenditurespositionislowerthantwotopcompetitors.Thisismisleading,however,
becauseExxonhasincreasedcapitalexpendituressignificantlyinrecentyears.ThestrongpositionofExxonin
termsoflongtermdebtissuancekeepsExxonfromtakingundueriskinexpansionatthecostofincreaseddebt.
Also,whencomparinglongtermdebtbelow,Exxonclearlyhasastrongpositionwithverylittleissuanceofdebt.
ThesmallsumoftotallongtermdebtwhencomparedtosalesornetincomedisplaysExxon’sdominanceinthis
industry.
35%
27%
21%
17%
OilCompanies
ExxonMobil
BP
Chevron
ConocoPhillips
SalesComparison2007
020004000600080001000012000140001600018000
BPPLC
CHEV
RON
CORP
CONOCO
PHILLI
PS
EXXO
NM
OBIL
CORP
Exxonvs.IndustryCompeYtors
SumofCapitalExpenditures
SumofLongTermDebtIssuance
SumofLongTermDebtReducmons
TheExxonMobilCorporation
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AnalystRecommendations
CurrentAnalystconsensusseesExxonasaBuy/Hold.TheimpressivepointaboutthisisthatExxon
remainsaBuy/Holddespitethecrushingrecentdropsinoilprices.Exxonhasbeenconsistentlyrankedasa
Buy/Holdbyanalystsoverthepastthreemonths.
‐3000
2000
7000
12000
17000
22000
27000
Exxonvs.IndustryCompeYtors
SumofTotalLongTermDebt
SumofLongTermDebtReducmons
SumofLongTermDebtIssuance
TheExxonMobilCorporation
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4
Valuation
4Marketwatch
TheExxonMobilCorporation
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Using the Bloomberg basic Dividend Discount Model, the valuation for Exxon Mobil comes out
to be an even $87.17 per share. This is a 23% premium to the share price of $67.20 on March 14th.
Under the Warren Buffett’s Owner’s Earnings Discount Model, the intrinsic value of Exxon comes out
to be $88.52 per share. This is also a large premium to current stock prices, leading me to believe that
Exxon is significantly undervalued. Even utilizing a sensitivity analysis demonstrates that Exxon must
have a 10% discount rate and a growth rate of 6% to be fairly valued. These numbers are not in line with
current projections.
TheExxonMobilCorporation
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By averaging the betas of five large financial institutions assigned to Exxon, an average beta of
.7252 is fair.5
BloombergAdj CNBC
GoogleFinance
YahooFinance Reuters
0.816 1.05 0.57 0.56 0.63 3.626
AverageBeta 0.7252
Growth projections were found utilizing CNBC’s growth projections below.
CNBCGrowthPredictions1Year 3‐5Years
‐40.60% 22.30%
Finally, applying the above numbers to a weighted average cost of capital method in order to
yield a proper discount rate for Exxon resulted in the following numbers:
DiscountRate 50%MarginofSafety0.0871916 0.1307874
The Discount Rate then has a 50% margin of safety applied to yield conservative results.
Discount Rate Method:
K = Rf + β(Rm-Rf)
K = .0027 + .7525(.1100 - .0027)
K = 8.7% + 4.36% = 13%
5Reuters,CNBC,GoogleFinance,YahooFinance,Bloomberg.
TheExxonMobilCorporation
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Warren Buffett Way Owners' Earnings Discount Model assuming discount rate (k) of 13.50% Owner Earnings in 2008: (Use last four quarters)
Net Income $ 45,220,000,000
Depreciation and Amortization $ 12,379,000,000
Capital Expenditures $ (15,198,400,000)
Owner Earnings $ 42,400,600,000
Year: 2009
Prior Year Owner Earnings $ 42,400,600,000.0
First Stage Growth Rate (add) -40.6%
Owner Earnings $ 25,185,956,400.0
Discounted Value per annum $25,185,956,400.0 Sum of present value of owner earnings $147,030,844,634.6 Residual Value
Owner Earnings in year 5 $ 56,346,153,668.8
Second Stage Growth Rate (g) (add) 3.00%
Owner Earnings in year 6 $ 58,036,538,278.8
Capitalization rate (k-g) 10.50% Value at end of year 5 $552,728,935,989 Present Value of Residual $293,449,175,312 Intrinsic Value of Company $440,480,019,946
Shares outstanding assuming dilution 4,976,000,000 Intrinsic Value per share $88.52
TheExxonMobilCorporation
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SensitivityAnalysis
G/K 2% 4% 6% 8% 10% 12% 14%4% $33.82 $56.36 $78.90 $101.45 $123.99 $146.53 $169.086% $30.97 $51.62 $72.26 $92.91 $113.56 $134.20 $154.858% $29.58 $49.30 $69.02 $88.75 $108.47 $128.19 $147.91
10% $28.76 $47.93 $67.11 $86.28 $105.45 $124.63 $143.8012% $28.22 $47.03 $65.84 $84.65 $103.46 $122.28 $141.0914% $27.83 $46.39 $64.94 $83.50 $102.05 $120.61 $139.1616% $27.54 $45.91 $64.27 $82.63 $101.00 $119.36 $137.72
Finally, the Residual Income Valuation Model available from Bloomberg yields a theoretical
price of Exxon at $156.73 per share. This model finds the value of Exxon as much higher than the
current market price.
TheExxonMobilCorporation
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Recommendation
BecauseExxonhassuchastrongpositionandhasgreatcompetitiveadvantagesintheoilsector,ithas
stayingpowerinthisindustry.Exxonalsoisundervaluedonallthreevaluationmodelsandhashadanincreasing
dividendformanyquartersconsecutively.Exxonisinvestinginmanynewpipelinesandtechnologiesandhas
becometheworld’smostprofitablecompany.Finally,manyanalystsseeandhaveseenExxonasaBuyforalong
periodoftime.ThesereasonsleadmetorecommendExxonasaBuy,however,Exxoncurrentlymakesupover
5%oftheInvestmentFund.Becauseofthis,IrecommendaHoldonExxonuntilstockpricereachesan
establishedtargetof$97ashare,andthenallsharesrepresentingmorethan5%oftheportfolioshouldbesold.
Financial Statements for XOM
CONSOLIDATED BALANCE SHEET
Note Reference Number
Dec. 31 2008
Dec. 31 2007
(millions of dollars) Assets
Current assets Cash and cash equivalents $ 31,437 $ 33,981 Marketable securities 570 519 Notes and accounts receivable,
less estimated doubtful amounts 5 24,702 36,450
Inventories Crude oil, products and
merchandise 3 9,331 8,863 Materials and supplies 2,315 2,226
Other current assets 3,911 3,924
Total current assets $ 72,266 $ 85,963 Investments, advances and long-
term receivables 7 28,556 28,194 Property, plant and equipment, at
cost, less accumulated depreciation and depletion 8 121,346 120,869
Other assets, including intangibles, net 5,884 7,056
Total assets $ 228,052 $ 242,082
TheExxonMobilCorporation
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Liabilities
Current liabilities Notes and loans payable 5 $ 2,400 $ 2,383 Accounts payable and accrued
liabilities 5 36,643 45,275 Income taxes payable 10,057 10,654
Total current liabilities $ 49,100 $ 58,312
Long-term debt 13 7,025 7,183 Postretirement benefits reserves 16 20,729 13,278 Deferred income tax liabilities 18 19,726 22,899 Other long-term obligations 13,949 14,366 Equity of minority interests 4,558 4,282
Total liabilities $ 115,087 $ 120,320
Commitments and contingencies 15
Shareholders’ equity Common stock without par value $ 5,314 $ 4,933
(9,000 million shares authorized, 8,019 million shares issued)
Earnings reinvested 265,680 228,518 Accumulated other
comprehensive income Cumulative foreign exchange
translation adjustment 1,146 7,972 Postretirement benefits
reserves adjustment (11,077 ) (5,983 ) Common stock held in treasury
(3,043 million shares in 2008 and 2,637 million shares in 2007) (148,098 ) (113,678 )
Total shareholders’
equity $ 112,965 $ 121,762
Total liabilities and shareholders’ equity $ 228,052 $ 242,082
The information in the Notes to Consolidated Financial Statements is an integral part of these statements. CONSOLIDATED STATEMENT OF CASH FLOWS
Note Reference Number
2008
2007
2006
(millions of dollars) Cash flows from operating
activities Net income
Accruing to s/h $ 45,220 $ 40,610 $ 39,500
TheExxonMobilCorporation
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Accruing to minority interests 1,647 1,005 1,051
Adjustments for noncash transactions
Depreciation and depletion 12,379 12,250 11,416
Deferred income tax charges 1,399 124 1,717
Postretirement benefits expense 57 (1,314 ) (1,787 )
Other long-term obligation (63 ) 1,065 (666 )
Dividends received greater than/(less than) equity 921 (714 ) (579 )
Changes in operational working capital
Reduction 8,641 (5,441 ) (181 ) Increase/(reduction) (5,415 ) 6,228 1,160
Net (gain) on asset sales 4 (3,757 ) (2,217 ) (1,531 ) All other items – net 490 54 628
Net cash $ 59,725 $ 52,002 $ 49,286
Cash flows from investing
activities Additions to property,
plant and equipment $ (19,318 ) $ (15,387 ) $ (15,462 ) Sales of subsidiaries,
investments and property, plant and equipment 4 5,985 4,204 3,080
Decrease in restricted cash and cash equivalents 4 — 4,604 —
Additional investments and advances (2,495 ) (3,038 ) (2,604 )
Collection of advances 574 391 756 Additions to marketable
securities (2,113 ) (646 ) — Sales of marketable
securities 1,868 144 —
Net cash used in investing activities $ (15,499 ) $ (9,728 ) $ (14,230 )
Cash flows from financing
activities Additions to long-term
debt $ 79 $ 592 $ 318 Reductions in long-term
debt (192 ) (209 ) (33 ) Additions to short-term 1,067 1,211 334
TheExxonMobilCorporation
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debt Reductions in short-term
debt (1,624 ) (809 ) (451 ) Additions/(reductions) in
debt with three months or less maturity 143 (187 ) (95 )
Cash dividends to ExxonMobil shareholders (8,058 ) (7,621 ) (7,628 )
Cash dividends to minority interests (375 ) (289 ) (239 )
Changes in minority interests and sales/(purchases) of affiliate stock (419 ) (659 ) (493 )
Tax benefits related to stock-based awards 333 369 462
Common stock acquired (35,734 ) (31,822 ) (29,558 ) Common stock sold 753 1,079 1,173
Net cash used in
financing activities $ (44,027 ) $ (38,345 ) $ (36,210 )
Effects of exchange rate
changes on cash $ (2,743 ) $ 1,808 $ 727 Increase/(decrease) in cash and
cash equivalents $ (2,544 ) $ 5,737 $ (427 ) Cash and cash equivalents at
beginning of year 33,981 28,244 28,671 Cash and cash equivalents at
end of year $ 31,437 $ 33,981 $ 28,244 CONSOLIDATED STATEMENT OF INCOME
Note Reference Number
2008
2007
2006
(millions of dollars)
Revenues and other income
Sales and other operating revenue (1)
$ 459,579
$ 390,328
$
365,467
Income from equity affiliates
6
11,081
8,901
6,985
Other income (2)
6,699
5,323
5,183
Total
$ 477,359
$ 404,552
$ 377,
TheExxonMobilCorporation
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revenues 635
Costs and other deductions
Crude oil and product purchases
$ 249,454
$ 199,498
$
182,546
Production and manufacturing expenses
37,905
31,885
29,528
Selling, general and administrative expenses
15,873
14,890
14,273
Depreciation and depletion
12,379
12,250
11,416
Exploration expenses
1,451
1,469
1,181
Interest expense
673
400
654
Sales-based taxes (1)
18
34,508
31,728
30,381
Other taxes and duties
18
41,719
40,953
39,203
Income applicable
1,647
1,005
1,051
Total costs
$ 395,609
$ 334,078
$
310,233
Income before income taxes
$ 81,750
$ 70,474
$
67,402
Income taxes 18
36,530
29,864
27,902
Net income
$ 45,220
$ 40,610
$
39,500
Net income per common share (dollars)
11
$ 8.78
$ 7.36
$ 6.68
Net income per common share – assuming dilution (dollars)
11
$ 8.69
$ 7.28
$ 6.62
TheExxonMobilCorporation
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Appendices
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