Document kmYvR4n6410QgvR4JGxY4Ez2O

5sErRy Mobil Annual o o MbilFax MbilFax M@bilFax o M@bilFax MbiiFax Mobil Fax o M^bilFax MobilFax M^bilFax o o o o What a year!... Despite a plunge in crude oil and o o o natural gas prices, Mobil's 1986 earnings actually in o o creased to $1,557 billion from $1,548 billion before special o o provisions, and to $1,407 billion from $1,040 billion after these o o o o o o o provisions. Profitability improved from 7.5% to a 9.6% return on average shareholders' equity, and from 7% to an 8% return on average capital employed. Marketing and refining earnings nearly quadrupled, all but offsetting the '86 drop in exploration and producing earnings (see table on page 3). Mobil Chemical's earnings jumped 164% to a record $140 million, and Montgomery Ward's big year matched its previous best. Major o o o o o o o gains in productivity helped, too. o oo o Financial flexibility... we've cut costs and o o boosted efficiency "by delegating more authority, reducing lay o o ers of management and relying more on electronic data-manage- o o ment systems," says Mobil Chairman and CEO Allen E. Murray. o o Result: Though many parts of Mobil .now do more business, o o headcount dropped by 38,800 last year, including 18,500 o o from the sale of Container Corporation of America. And selling o o assets that don't fit long-range plans helped to reduce debt o o further...and to improve financial flexibility so we're ready, says o o Mr. Murray, "to seize opportunities that may become available." o o o o Ahead of the times... and that's where we intend to stay. Despite a difficult year for the Upstream segment of the industry, Mobil's E&P division replaced 120% of our production. o o o o Mobil's forward-looking research helps us identify additional re o o serves in existing fields, while advanced drilling technology o o makes us more efficient. Innovative products also keep us o o ahead--like the synthetic lubricant used in the Voyager round- o o the-world flight, or the industry-leading detergent additive that o o gets rid of harmful deposits in fuel injectors.. .and sent our sales o o zooming. And in 1986, for the fourth year in a row, Mobil was o o granted more U.S. patents than any other oil company. o o 0 What'S next?... "Mobil today is a very different and o much stronger company than the one you knew only a few years o ago--or even one year ago," says Mr. Murray. "And im- o Drovements are still t^ipg^ngde." ilow, thanks to Mobil's en o o hanced financial flexibility, we're ip a position to "use this strength m whatever way best builds shareholder va lue." o o o Q o nJ occ D On the coven MobilFax, a biweekly column that keeps the investment community up-to-date on the state of our business, here provides a succinct report on Mobil's 1986 performance. . '4 r-1 ^ 013S7 027646 Financial highlights; 1986 ii i A summary of Mobil's recent performance 1986 1985 Revenues (millions)................................................ Net income (millions)............................................ Per share fbased on average snares outstanding)., Return on average shareholders equity" ......... Return on average capital emoloyed1"................ Income per dollar of revenue'" ............. ............. Petroleum earnings per gallon sold.................... Total assets, year-end (millions).......................... Capital expenditures, exploration, and other outlays (millions).......... ................... Shareholders' equity, year-end (millions)............. Per share (based on snares outstanding at year-end).................................... Number of shares outstanding, year-end (thousands)...................................... $49,865 1,407 3.45 9.6% 8.3% 2.8c 4.7* $39,412 3,046 15,239 37.28 408,732 $60,609 1.040 2.55 7.5% 7.0% 1.7 4 9C $41.752 3.513 14.089 34.50 408.351 1984 $60,474 1.268 3 11 9.2% 7.9% 2.1 C 4.4C $41,851 3.600 13.624 33.42 407.704 (1) The oresentatton for 1985 has been revised to conform with guidance issued by the Securities and Exchange Commission in 1986 to include the S508 million provision for restructuring of Montgomery Ward. Income for 1986 includes the $150 million loss on sale of Container Corporation of America. 037647 The Annual Meeting of sharenolders will Oeneld on Thursday. May" at )0a m jn the Four Seasons Olvmoic Motel Seattle Washington 98101 Modi) s symooi on tne New York Stock Exchange is 'MOB' INVESTOR CONTACT: For further information snarenoiders may contact Secretary MocuCcrocrat'or '50 East 42^0 Street Vewvcrt N* !00l?*5666crieieoPCnei2*2} 083-4242 S'1907 Moon Corporation ^ vv 3 C13SS a 1986 was a good year for Mobil --a great year considering the problems our industry had to confront Nineteen eighty-six was an unusual year. Both crude oil and natural gas prices plummeted. And yet Mobil's earnings actually increased slightly. Our profits improved in all major segments of the com pany except "upstream" (exploration and producing)-- where earnings naturally followed the overall decline of crude and gas prices. "Downstream" (petroleum refining, marketing, supply and transportation) had a terrific year. Mobil Chemical posted its best earnings ever, and Mont gomery Ward matched its previous best. Frankly, some of these gains were due simply to better conditions for our whole industry. For instance, when crude prices plunged early in 1986, product prices declined more slowly--thus temporarily inflating industry refinery mar gins. Tighter refining and petrochemical capacity strength ened everyone's profit margins. And the steadily weakening dollar also helped profits. But, more important to Mobil shareholders, is that a lot of our strength came directly from all our company has done to restructure itself. Mobil today is a very different and much stronger company than the one you knew only a few years ago--or even one year ago. And improvements are still being made. For example, we're continuing to sell assets that don't fit our long-range plans. Last year Mobil realized $1.1 billion from the sale of Container Corporation of America.The addi tion of $800 million of other assets sold in 1986 brought the total to about $3 billion of assets sold in just two years. We've also kept on cutting our debt--paying back $3.8 billion in the past two years, or the equivalent of 66% of the debt incurred in 1984 when we bought Superior Oil. That lower debt and our strong cash and marketable securities po^itioryrnnrpve Mobil's financial flexibility. So the com pany now i imposition to seize opportunities that may become available, and to use this strength in whatever way best builds shareholder value. Mobil is also stronger thanks to cost-cutting and to efficiency greatly improved by delegating more authority, reducing layers of management and relying more on elec tronic data-management systems. In 1986 alone, head count fell by 18.500 from the sale of Container and by another 20,300 employees elsewhere. Since the beginning of 1980, Mobil has gone from 214,300 employees to 127400, even though many parts of our company now handle more business. You'll find this increased efficiency paying off through out the company: Although total upstream earnings declined, our earnings per barrel produced held up better than for most of our major competitors. Sales volumes of petroleum products and chemicals continued to climb faster for Mobil than for others. And our refineries and chemical plants generally operated at very high, and profit able, utilization rates. As a matter of fact, every one of our divisions is more efficient and more competitive than a year or so ago. Our performance demonstrates what we've said is our intent: to make Mobil the best, or competitive with the best, in each business and location. We're not all the way there yet--but we have come a long way in recent years. What about the future? For oil companies, there really are two quite different futures--one over the next couple of years and one over the longer term. The short term holds continued uncertainty, even potential turbulence. Crude prices did strengthen at the end of 1986--promising direct help for our upstream prof its--but wide price fluctuations are still entirely possible. And though downstream looks good in 1987--thanks to Mobil's own improvements and the industry's tighter capacity--it may not be quite as good as last year since 1986's wide spread between crude and product prices probably won't be repeated. But the longer-term future is more promising. Besides Mobil's tougher competitiveness and the industry's tighter capacity, including marine tonnage, you can probably look forward to the U.S. natural gas surplus disappearing within a few years. Over the longer term, crude oil should move back into a tighter supply position. The timing will depend on whether prices rise enough to encourage exploration and keep the lid on oil consumption. All in all. this remains a good industry to be in. It's an 013S9 ij3"843 industry essential to the world's economies. Its resource base needs to be constantly replenished. It's a high-tech nology industry, and one not likely to be threatened by someone elses technology. Or cheap labor. And it's an industry that won t become obsolete. While utilities can switch from fuel oil to nuclear power or coal, it will be a very long time before there are practical economic alternatives to the premium products that Mobil concentrates on--like gasoline, jet fuel, diesel, lubricants and plastics.These growing markets make for excellent continuing investment opportunities. The challenge is how to best balance our short-term concerns against our long-term optimism and to be in a flexible position to act if special opportunities arise. In exploration and producing, Mobil has promising acreage to explore, as well as major oil and gas reserves to develop in the U.S.. Canada, Europe, Africa and Indonesia. Additional natural gas producing capacity in North America is |ust waiting for customers, which is why we restructured our U.S. gas marketing organization last year--to increase sales and profits from Mobil's extensive reserves. For now. Earnings--millions of dollars 1986 1985 Change Petroleum Upstream'........................ ....... Downstream" . Chemical. Retail Merchandising . .. ......... AllOther ....................... . ......... $ 827 1,299 140 106 (815) Subtotal .......... ....... ......... 1,557 Special Provisions .............. ....... (150)' Net Income ....... $1,407 Si .798 333 53 42 (678) 1,548 (508)2 $1,040 $(971) 966 87 64 (137) 9 358 S 367 `Exploration and Producing "Marketing. Refining. Supply and Transportation 1 Loss on sate of Container Corporation of America. 2 Restructuring of Montgomery Ward. with the price uncertainties, we will selectively continue with investments necessary to protect our long-term strategic position and with investments clearly profitable even at very low crude prices. We will be alert to special opportunities that may become available. We will also do all the preliminary technical and staff work to bring our inven tory of proiects right up to the point of being ready to invest --when the outlook warrants it. In refining, a great deal of attention has been focused in recent years on closing uncompetitive facilities.Today's job is to concentrate on making our remaining refineries even more efficient and profitable.TheTorrance. California, refinery has begun a major upgrading that's expected to yield a high return. And other similar opportunities have been identified. Marketing is only part way through a retail upgrading program that's already given such a big boost to volume and profit. The plan is to continue improving our worldwide service station chain. Mobil Chemical more than ever is a company with great promise. Most of its fabricated plastic and specialty chemical products have very good growth prospects, and much tighter petrochemical industry supply/demand should help earnings. There'll be continued development of advanced new plastic and petrochemical products. In Montgomery Ward, the best-performing busi nesses have been strengthened and the unprofitable ones eliminated, setting the stage for improved sales and profits through the introduction of the new specialty-store strat egy. Meanwhile, as Montgomery Ward's financial position improves, we ll be able to consider our long-term options for this asset. Overall, Mobil's total 1987 capital and exploration spending will fall slightly below the level for 1986. though we'll be ready to increase spending whenever the outlook becomes more promising or when special opportunities arise.To balance the short-term uncertainties against our long-term optimism, the key today is flexibility. Your Board of Directors will keep the situation under constant review so Mobil is neither overextended nor deprived of opportunities. Mobil's Board itself is changing as well. During 1986. Rawleigh Warner, Jr., chairman and chief executive officer for almost 17 years, ended his long and productive career with Mobil. Two other employee directors who retired last year were Alex Massad, president of the Exploration & Producing Division, and George Birrell, vice president and general counsel. And Howard Clark, who served with distinction for many years as a non-employee director, also left our Board. I thank them all--and all of the other Mobil people who retired in the past year. I'm pleased to welcome to the Board Eugene A. Renna, president of the Marketing and Refining Division, who was elected last year, and Robert G. Schwartz, chairman of Metropolitan Life Insur ance Co., who became a Mobil director in January 1987 Throughout the Mobil organization, at all levels. I am proud of our people. They are as competent, aggressive and productive as those of any other company, and they've performed wonderfully well during recent tough times. They deserve your thanks and mine. Despite the difficulties, our industry holds a bright future for any company that has sharpened itself into a low-cost, efficient, forward-looking operation with an aggressive work force. Such companies will have plenty of profitable opportunities. Mobil will have such oppor tunities. And we promise you, Mobil will be ready to take full advantage of this bright future. 037849 01390 Our upstream business had its successes despite a difficult year i i i This was a difficult year for earnings in the "upstream" part of our business--exploration and producing (E&P). As crude oil prices fell to half of their 1985 levels, upstream earnings dropped by about $1 billion. Yet we had a good number of successes in our opera tions last year. On the exploration side, for instance, we had a very good year with substantial discoveries in the U.S., Canada, the United Kingdom, Norway, the Netherlands, Germany and Nigeria. Among the most important: Ewing Bank 826, one of the largest oil discoveries announced in the Gulf of Mexico in the last five years. Thebaud C-74 offshore Eastern Canada, a gas discpvery that brought our reserves in the Sable Island area off Nova Scotia closer to being commercial. a Two oil discoveries in the area of our U.K. Beryl field; these can be produced at very low cost through subsea completions to the existing Beryl platforms. a The Southern North Sea Gas Basin, one of Mobil's most successful areas with five gas discoveries. a Two oil discoveries in the Oseberg area of Norway that will be appraised for development. Also, a promising oil discovery in the Haltenbanken area that complements two previous gas condensate discoveries there. a The lyak field offshore Nigeria, where further drilling confirms a field extension that could more than double its reserves. Adding to our capacity On the producing side, we continue to bring on stream significant new capacity around the world, and last year replaced 120% of our production. In Indonesia, the sixth production train began operation in October with the capacity to manufacture 1.7 million tons a year of liquefied natural gas from the giant Arun gas field. Work now under way at Arun will add 1.6 million tons a year of liquefied petroleum gas for delivery to Japan beginning in 1988. Further development drilling in the Statfjord and Beryl fields in the North Sea strengthened Mobil's liquid pro duction, while a new gas field came on stream in the Dutch North Sea area. In the U.K., theThames field started gas production. Platform and well completion work continue in the Edop oil field offshore Nigeria for start-up in mid-1987. In the U.S., production is underway at the East Breaks field in the Gulf of Mexico and will soon begin at the Green Canyon 18 oil field, also in the Gulf of Mexico, and the Point Pedernales oil field offshore California. Construction of a new gas processing plant will allow us to begin produc tion from the Mary Ann field offshore Alabama in 1987. Despite this new capacity, overall equity oil and gas production last year declined by about 4%--mostly because a greater proportion of our Nigerian crude liftings were purchases in 1986 rather than equity production. Sale of our Angola properties further reduced our equity pro duction. Another major cause was poor market conditions for natural gas in the U.S. as a result of surplus supply and competition with lower-cost fuel oil. 01391 037650 * \ J 592 -sgj '935 '569 P.T. ARUN LNG PLANT CAPACITY M :cr< :-t ,3r NORTH SEA DISCOVERIES 19S6 382 '583 '58J '385 '586 GROSS WORLDWIDE EQUITY PRODUCTION Changing for the better While the biggest changes were external--like lower crude prices--we made some internal changes that will pay off long after today's hard times are gone. We downsized our E&P organization in the U.S., reducing staff by 13% and cutting regional operating units from seven to four. At the same time that we cut back in some areas, we restructured and expanded our U.S. gas marketing organization.The idea is to sell our gas on better terms in this rapidly changing market. We've reduced our drilling costs by centralizing our operations and reducing idle time for rigs by 40%. Mobil also benefited from lower service industry costs and from more favorable terms at federal lease sales. These lower costs helped us get more out of each dollar of investment than in prior years--which was important since we reduced capital and exploration expenditures from $2.3 billion in 1985 to $1.9 billion in 1986 as crude prices fell dramatically. Operationally, therefore, we view 1988 as a reason ably good year. Results were consistent with our fine performance over the past several years when we were among the industry leaders in replacing reserves, in main taining or increasing production and in keeping our costs of finding and developing oil and gas among the lowest in the business. Strategics for new times In the short term, we expect to maintain a prudent, constrained investment program that still protects our strategic interests. At the same time, we've shifted some strategies in response to the new operating environment: B In selecting new exploration plays, we'll give more emphasis to those with the greatest long-term potential. Mobil has always favored the frontier plays that, although riskier, fit our strengths of technology and size. We will go even further in this direction. This probably also means a shift toward more emphasis in the foreign area, since selec tive overseas exploration offers greater potential overall. Mobil's strength as a gas producer has been enhanced by the comple tion of a sixth processing "train" for liquefied natural gas from the Arun field in Indonesia (photo, extreme left). Advanced computer technology aids Mobil geoscientists in the inter pretation of seismic data (photo, left). u. n 0 o d O * Worldwide--out particularly in North America--we I! re-examine our organization to further improve the way we operate. We'll also consolidate ana upgrade our producing properties to make them more efficient. In other words, we re in the market to buy assets that can contribute to our economic strength, ana to sell assets that can t. a We II place greater emphasis on reservoir manage ment-applying today s technology to fields that may have been producing for decades. What usually results is a sizable increase in production and reserves for very little money. a In North America. Mobil has an exceptionally strong natural gas base, though a lot of it is now shut in. As the gas One of Mobil's most promising discoveries in 1986 was the northwest extension of the lyak field off the coast of Nigeria. Here, the Trident IV jack-up rig dnlls an exploratory well at the Mobil-operated field. surolus disappears over the next two to three years. Mobil's gas capacity will become an increasingly important asset. a We intend to emphasize our technological strengths in the management of our operating investments. We've already improved our drilling technology so that our penetration rate--feet drilled per rig, per day--is ud 50c And we're working to become even more efficient. H Technology is the key to this industry. And so. wnile remaining lean, we II continue to hire top-quality candidates with the critical scientific skiils we need. It may sometimes seem difficult, after last year's price collapse, to be bullish about E&P. But we are. Mobil has enormous strengths in reserves, technology and people. We have made significant discoveries that are just waiting to be developed. And we re taking steps to insure that we add attractive new prospects for the future. We also believe our strategies are correct, especially for these uncertain times. We hope--and expect--that this period will one day be recalled as a time when we built Mobil's upstream oper ations prudently but effectively for the future. r\ i o m o J i O 3 O \ 'V Our downstream business was a real success story---a year when we sold more while I spending less Downstream operations were exceptionally profit able for Mobil in 1986--proving once more that the company's strength is in its balance. Downstream operations--meaning marketing and refining (M&R), supply and transportation--contributed well over a billion dollars in after-tax earnings, an extremely satisfying improvement from even the fine results of 1985. These improved profits came partly from market conditions: Crude prices fell faster than product prices, boosting industry profit margins. And the dollar weakened against foreign currencies. This made overseas operations more profitable, since earnings in local currencies trans lated into more dollars. Much of our success, however, came from our deci sions to make Mobil's downstream operations more lean and efficient. For example, from 1981 to 1985 our down stream staff had already shrunk by 16%, and 1986 brought a further 4% reduction. Over the past six years the M&R Division has been steadily reducing management levels, closing regional offices and centralizing operations. We now have more flexible supply, a leaner and more efficient marine fleet, fewer but more sophisticated refineries, more innovative marketing capabilities and more responsive information systems to run the business more efficiently. At the same time, sales increased by concentrating on our areas of strength. And through research, Mobil intends to stay at the forefront of lubricant and fuels development. Stronger market shares A clear sign of Mobil's efficiency is that while staffing levels decreased, sales volumes of the more profitable fuels-- gasoline, diesel and jet fuel--increased steadily. As a result, our market position held up or improved in most parts of the world.This was particularly true of our long-held strength in the lubricants business. Mobil is the leader in the international marine lubricants market, strong in indus trial and automotive lubricants and improving in premium lubricants sold in retail stores. And there's ongoing growth in our product line of synthetics--the high-tech, high-profit top of the lubricant line. More competitive retailing To excel despite today s tough competition, this company has worked hard to enhance our position in markets where Mobil is strong, while withdrawing from markets where Mobil wasn't competitive with the best. The number of our service stations worldwide dropped by 6% in 1986 even as acquisitions integrated marketing operations that fit well with ours. In the U.S., Mobil completed or announced withdrawal from gasoline marketing in all or parts of 12 states, while acquiring a Our new point-of-sale terminal electronically pro cesses debit and credit card transactions--a fast and efficient way of doing business for us, and secure for the customer. T',/;/03t653 01394 number of stations in Florida, Rhode Island and the Boston area where the company was already strong. At the same time, more service stations throughout the world were remodeled with a new. attractive design. Customers now have access to well-located modern sta tions with convenient, high-speed pumps and the latest electronic payment card facilities. Mobil is the U.S. industry leader in the acceptance of bank debit cards, which let you get the lower cash price for your gasoline without actually having cash in your pocket. Electronic payment systems also are a success in Europe. Australia and the Far East, and similar systems are being introduced for diesel fleet fueling throughout Europe. Personal computer-based dealer sys tems are improving the operating efficiency of our outlets in Australia and New Zealand. And customers gam con venience from retail centers such as Mobil Marts and car washes in the U.S. and Food Marts in France and Australia. The result is that Mobil has progressively increased average sales per outlet through the entire system. In the U.S., average annual gasoline volumes at outlets where Mobil has an investment jumped by 21% in 1986, and in Europe average fuel volumes rose about 9%. Mobil has launched newly formulated premium gas olines with detergent additives in 10 countries, including the U.S., France and Australia, resulting in increased gas oline volumes in each of the countries. For example, in the U.S., sales of Super Unleaded were up 46% in 1986. Mobil gasolines with detergent additives were tested and devel oped in our laboratories and have the ability to clean clogged port fuel injectors while you drive. Fewer, better refineries The Frontignan, France, refinery closed at the end of the first quarter of 1986. Including this closure, Mobil's world wide operating capacity is now 20% lower than in 1980. Mobil refineries in Europe now run significantly above industry utilization levels. At the same time, upgrading the remaining facilities improved yields of high-profit gasoline, distillates and lubes. And the Pemref refinery in Yanbu. Saudi Arabia, a joint venture with the Saudi government, is one of the newest and most efficient fuels refineries in the world. Technological advantage Building on technology that gives Super Unleaded gasoline its superior detergency, Mobil's product researchers have developed a detergent for diesel fuel now being introduced in markets worldwide. This additive virtually eliminates the buildup of harmful deposits inside diesel injectors-- improving fuel economy, power and acceleration, and reducing smoke emissions. A new formulation for Delvac Is, Mobil's high-perfor mance synthetic lubricant for heavy-duty gasoline and diesel engines, is a good example of how our product researchers continue to meet evolving needs. Mobil Jet Oil 254* is an industry leader for lubricating the latest jet engines. Our experimental synthetic aviation piston engine lubricant was used in the Voyager aircraft that flew nonstop around the world without refueling. Supply and Shipping The highly volatile oil market has changed some of the ways the company buys and sells crude oil and petroleum products. As a result, we've substantially tightened up on inventory levels and have the flexibility to run a greater vari ety of feedstocks. A stronger trading and sales organization and better information systems help us capitalize on timely, economic purchases and sales of crude and products. Marine Operations have reduced the size of Mobil's fleet--and by anticipating changing market conditions, avoided the heavy cost of holding idle ships in layup. While upholding the strict safety and environmental standards under which we operate our fleet, Marine also cut crew costs and other operating expenses and re vamped shoreside operations. Today, Mobil has very flex ible and competitive coverage for ongoing shipping needs. Above: Pemref, our jointventure refinery in Saudi Arabia, provides us with premium-grade products for world markets. Right: Our leadership in lubri cants pays off for compa nies like Caterpillar. The bulldozer shown here is one of the Caterpillar vehi cles using our lubricants under a major new supply contract. What about the future? While market conditions in 1987 may or may not be as favorable as 1986 for the downstream business, we re opti mistic about the longer term--and especially for Mobil's downstream profit potential. Here's why: U.S. industry refining capacity has tightened up, which should improve margins, while demand is growing for gasoline and distillates--products that Mobil concentrates 01395 US 113b F.V' INCREASE IN AVERAGE OG&L THROUGHPUT '?6C-`55c US tUROPF 17% 48% REDUCTION IN REFINING CAPACITY 'scC`?c on. While Europe still has surplus distillation capacity, it is much tighter on the equipment to make gasoline and dis tillate. Mobil's position is also strong because we operate only highly efficient refineries at hign utilization rates. * A major processing unit is under construction at the Torrance, California, refinery to increase production of highvalue gasoline and distillates from heavier low-cost crudes while meeting more stringent air quality requirements. Fur ther improving the efficiency of our refinery in Woerth. Ger many, will increase throughput and production of gasoline and distillates. 1 Continued upgrading of our service stations will make them still more competitive. Our researchers and engineers will continue developing better products and more efficient refinery operations. & Overall, we've improved productivity and reduced costs, and we are now among the best in most places where we operate. You can be sure we'll be continually alert to strategic investment opportunities Mobil can capitalize on. thanks to the strong cash flow from downstream operations. \% \ \ 01396 In chemicals, we're a leader, with stronger sales, new consumer products and new I market strategies Mobil Chemical had a record year in 1986: Earn ings were our best ever, jumping 164% from 1985 to $140 million. Some of our gains were partly the result of being in the * right position to capitalize on industry trends. In the U.S. and overseas, the petrochemical supply/demand balance j began to tighten in 1986, and margins improved. For polys ethylene and polystyrene, two of our major petrochemical , products, U.S. industry operating rates approached 90% in 1986--much better than in 1985: and because of our inte grated position through plastic fabrication, we were already ; operating close to capacity. At Mobil Chemical's new joint-venture petrochemical plant in Saudi Arabia, production exceeded design capac> ity, and we were fully sold out. Moreover, since we see very little new industry capacity being built near term, we expect steadily improving margins and higher petrochemical profitability in the years ahead. But more im portant than industry trends are the special things Mobil Chemical is doing. Starting with petrochemiI cals, the feedstocks for countless consumer goods, we l upgrade hydrocarbons that cost less than 10C a pound to fabricated products that sell for over $1 a pound. Our out look remains particularly bright. ` In our laboratories, we've developed premium poly ethylene and polystyrene resins, and last year boosted sales of these premium products 70%. We developed an improved resin for our plastic grocery sacks and a high-quality resin for blow-molding plastic bottles for household detergents, automotive lubricants and scores of other products, j In oriented polypropylene (OPP) films, we were already 1 the world's leading producer, and in 1986 volume grew by another 15%. To keep up with increased demand, we're ex panding our facilities in the U.S. and Europe. And to capital ize on the trend toward more sophisticated packaging, our researchers are continuing to work on new OPP film prod ucts. In 1987 half of our OPP sales will come from products developed by Mobil that didn't even exist five years ago. Mobil Chemical is also the market leader in plastic grocery sacks. Supermarkets are busily changing from paper to plastic sacks--a trend we nurtured--and our own sales jumped 31% last year. We've also expanded our capacity to provide the broadest range of films for the fast growing pallet-wrap market, where we're also the industry leader. Our new Placesetter"* foam product helped boost results in Mobil Chemical's line of premium disposable serviceware. Sales of our Hefty drawstring waste bag, Cinch Sak, grew by 37% in 1986. The drawstring is our own innovation in plastic bags that has given us a competitive edge, and we've introduced it into Hefty Steel Sak, Lawn and Leaf, and medium-size waste-bag products, as well as our Kordite housewares brand. The Hefty brand already holds the dominant position in the disposable foam-plate market, where our sales last year increased 12%. We're planning further expansions to keep up with demand. Ffrst in synthetic lubes Mobil Chemical's 40% market share makes us the leader in the manufacture of synthetic lubricants. Our synthetics provide superiorengine protection, extended drain intervals and better fuel mileage. Ourtechnology also has made us a leader in jet-turbine lubricants. And we make and sell a full line of synthetic fluids and greases formulated in Mobil's Research & Engineering laboratories. We have also been innovators in the development and use of zeolite catalysts. We've just expanded our manufac turing facilities at Beaumont, Texas, to meet booming world demand for these versatile catalysts, which are used for upgrading fuel products and for various chemical processes. 037856 01397 Why wa're optimistic We expect Mobil Chemical to do well again in 1987--and beyond. In petrochemicals, industry operating rates should continue to increase--reaching 95% in the U.S. within the next few years. This will mean better margins and higher earnings. Mobil Chemical will be well positioned for this growing demand, thanks to our competitive plants, an improving product mix, and continued innovations in research and development. In fabricated plastic products, we'll continue with aggressive cost reductions and productivity improvements, automation and lower-cost raw materials. These effi ciencies will further strengthen our competitive position. We'll look for new opportunities and keep growing where we're already strong: everywhere from drawstring waste bags and foam plates to synthetic lubricants and zeolite catalysts. Far left: the blown-film line for low-density polyethy lene at Mobil Chemical's state-of-the-art research facilities. Left: Production of the Marfeetote carry-out bag--the biggest seller in the grocery industry. 1*37657 013.9S We've reduced our debt and enhanced financial flexibility... put our retailing business on the right track...scored good I results in other operations improving our financial flexibility We've reduced both fixed-rate and short-term debt to In just two years, we ve reduced our debt by S3.8 maintain a good mix in the current financial environment. billion--with SI.8 billion of it paid off in 1986.This Our interest charges dropped from $1.4 billion in 1985 to represents the equivalent of 66% of the debt we incurred in $1.2 billion in 1986. 1984 when we acquired Superior Oil. We've made excellent WeTe preparing ourselves for 1989, when we'll have progress in restoring the financial flexibility we had before the opportunity to refinance some $2 billion of high-coupon we bought Superior. debt incurred in 1984 in the acquisition of Superior. This Earnings from our downstream operations made a big debt, by its terms, can be called at par after five years contribution to our debt reduction in 1986. Our sales of without penalty. assets--primarily Container Corporation--made another major contribution. And by keeping a lid on our capital Mobil Land continues to develop spending, we also had more funds available to repay our Mobil's earnings from our land-development oper debt. ations rose 20% last year to $24 million, excluding $57 million in nonrecurring profits in 1985 and $7 million in 1986 from bulk sales of land we've held for investment. Mobil Land Development Corporation (MLDC) has been successful in acquiring and developing large parcels of land into residential, commercial and recreational com munities, mostly in the southern and western U.S. Our land holdings have a current value considerably higher than the investment made in these properties when we bought them five to 10 years ago. MLDC's business ranges from acquiring, planning, zoning and preparing raw land for development to constructing office buildings. MLDC is active at more than 20 projects in various high- growth areas, including the suburbs of Washington, D.C.. Atlanta, Phoenix, Los Angeles and San Francisco. In 1986, MLDC completed the first of three office buildings in Arlington, Virginia, that will contain a total of 760,000 square feet. This building is already 60% leased, and the second building is under construction for occupancy early in 1988. MLDC's successful development in Reston, Virginia, is moving into a new phase, in 1986, MLDC announced a part nership to begin developing theTown Center of Reston. Virginia, renowned as America's first "new town." 037658 01309 '2 MOBIL CORPORATION WORKFORCE 'c-sarss- cv*;s =980 981 '982 1983 '984 '985 '966 RETAIL MERCHANDISING 580 *98' 982 -983 TOTAL A new took for Montgomery Ward The retailing arm of Mobil, Montgomery Ward, turned in earnings matching its best previous year ever--1978. Earnings climbed 152% from 1985. And Montgomery Ward made great progress in moving toward a position of financial independence. It did so much better by generally becoming a better merchant--leaner, more efficient and more specialized. Through better business management, Montgomery Ward was able to: reduce its total work force by 21%; a cut administrative overhead by 24%; reduce inventory levels by 21%; Sfcgreatly improve productivity. At the same time in 1986. Montgomery Ward completed the wind-down of its catalog operations and Jefferson Ward stores, closed 25 retail stores, and discontinued unprofitable merchandise lines. Having streamlined its operations and reorganized management, Montgomery Ward is moving forward with the specialty-store strategy introduced last year. The goal: to be competitive with the best specialists in retailing. Prototype stores are already showing promising results, so 35 stores were converted to reflect the new specialty-store concept and 71 other stores were remer chandised. Today's merchandise concentrates on value and broad appeal within each specialty category. Dropping unprofitable lines freed store space in many locations for leasing to retailers whose merchandise com plemented Montgomery Ward lines. For example, a gallery of 17 specialty shops at our Mt. Prospect, Illinois, store led to such galleries, called "SideTrips," at many of our renovated stores. Similarly, Toys 'R' Us. a prominent chain of children's merchandise stores, opened one outlet in Montgomery Ward's remodelecfstore in Gaithersburg, Maryland; several more are in the works. New customer services include National Car Rental booths Deing tested in the San Diego area, the addition of American Express and Discover credit cards to those already accepted nationally, and NAPA auto parts in many of our auto service centers. Forward-looking technology In this report, we've already talked about concrete ways in which our technology strengthens our upstream, downstream and chemical operations. But there's more to the story of Research & Engineering-- and R&E's short-term and long-term benefits to Mobil's bottom line. Our researchers and engineers create opportunities for Mobil to increase reserves at the lowest possible cost. For example, production of our heavy oil holdings at San Above: An x-ray CAT-scanner analyzes a core sample from the Arun gas field in Indonesia--helping to' confirm an additional 2.3 trillion cubic feet of recoverable gas. Left: Merchandise on dis play at Montgomery Ward's newly renovated store in Parkersburg, West Virginia. The store is the first to test a new name--"Focus Montgomery Ward"-- which plays up value and specialty mercnandising. iJ. i 03^659 014ri0 Right: Sports hero Hershel Walker demonstrates his sprinting form for inner-city youths as part of Mobil's 3ig Apple Games--one of the company's ongoing community programs. Far right: A kangaroo reserve exists side-by-side with Mobil's joint-interest refinery in Adelaide, Aus tralia-just one example of how our manufacturing facilities fit comfortably into their environment. iii Ardo. California, increased dramatically after our reservoir management team accurately defined the geological structure of the reservoir so that our researchers could design an innovative steam flooding strategy to take advantage of this particular structure. Our land-seismic data-gathering system is one of the most advanced in the industry. By studying the subsurface in and around existing fields, we're able to identify addi tional reserves that can be brought on stream quickly and economically. We've also developed a more sophisticated computer teohnique for reservoir simulation that will pay off in the long term. Simulation gave the first hint that additional re serves were present at the Arun gas field in Indonesia. With an x-ray CAT-scanner, we analyzed core samples from the field and our findings were instrumental in determining that the field contained an additional 2.3 trillion cubic feet of recoverable gas. These new reserves add potential for sizable profits from the Arun field. Our engineers recently designed one of industry's most advanced control systems for crude oil distillation. This system helps our refineries change the mix of products distilled from different crude oils to adjust to changing market requirements. Our leadership in zeolite catalysis research pays off in extra gallons of gasoline and distillates we're able to make from each barrel of crude oil. Our zeolite catalysts also help us reduce thecost of making lube oils and a variety of chemicals.This technology, which we pioneered, is in such demand that we license it to refiners and chemical producers around the world--making a contribution to Mobil's bottom line. In their most dramatic application to date, one of these catalysts is turning natural gas into gasoline at a Mobiidesigned plant in New Zealand. And in 1986, for the fourth year in a row. we were granted more U.S. patents than any other oil companyfurther evidence of our forward-looking research. Mobil safety earns Stars Mobil has worked hard to achieve a safe work place and to protect the environment. We're justifiably proud of the Star certifica tion awarded to 23 Mobil Chemical facilities by the Occupa tional Safety and Health Administration.This means that for all the Star awards made to industrial plants throughout the U.S.. more than half have gone to one company--Mobil. The awards, considered the toughest government has devised for safety in the workplace, recognize job-safety standards that far exceed what's required. Our first programs for air and water conservation and toxicology testing were established 30 years ago, long before the advent of the environmental movement. And we've spent over $2 billion in just the past five years on our environmental programs and facilities. For example, our toxicology laboratory that opened three years ago in Princeton is still one of the most advanced in the industry. Mobil minerals: adapting to hard times Coal sales from our Caballo Rojo mine in Gillette. Wyoming, remained profitable despite soft demand and tougher competition. In Indonesia, where Mobil operates a joint coalexploration program with the Japanese firm of Nissho Iwai. drilling results indicate potential for 150 million tons of surface minable coal. We've streamlined our phosphate rock operations in response to the weak agricultural market. But we remain well Dositioned to meet future demand for this raw material, which is crucial to world food production. We continued to sell mining and mineral assets unre lated to our main businesses: most of these came to us wnen we bought Superior Oil. and included surplus (anas, a gold mine, and an interest in a platinum mining company in Soutn Africa. We also took a $39 million writedown on some alter native energy properties after reassessing their prosoects. 01401 kO?nij->Ja0 Recruiting the best--even in bad times Again in 1986, we significantly reduced the number of people we employ worldwide. This continues a trend begun five years ago. Given these cutbacks, we clearly don't need to recruit as many new employees as in the past. But we still search out those people--both technical and non-technical-- who'll be the strength of the company in years ahead. At the same time, we've revamped our management education programs at three levels--senior executive, mid dle manager and first-level supervisors--to better utilize our management cadre and make our overall organization more effective. We already have a strong competitive position for women and minorities in higher level jobs, and we're expanding our programs to increase upward mobility. We have strategies in place to enhance our recruitment and career development of minorities and women. And we're strengthening our contacts with organizations concerned with their interests. Our compensation and benefit programs for all employees have remained competitive. Last year, however, we took steps to reduce the administrative expense and funding needed to operate Mobil benefit programs world wide while still providing the comprehensive benefit package employees rightfully expect today. Making our voices heard In Public Affairs, we adapted to the tough busi ness climate by cutting back on some programs and restructuring others to more directly support our business. MotjilFax (on the cover) is a good example of how we're working to improve our communications with share holders--and reaching out through this advertising campaign to the broader investment community. At the same time, we continued to speak out on issues of concern to Mobil and its shareholders.This year, our Government Relations staff in Washington put across our views to Congress on tax reform, protectionism, Superfund, decontrol of natural gas and other issues. And, through our advocacy advertising program, we presented our strongly held views on the op-ed pages of major newspapers. We also continued our sponsorship of public televi sion, art exhibitions and direct support to major museums. Mobil's Masterpiece Theatre, which completed its 15th season on public television, has won 22 Emmy awards and is mentioned as a reason why some shareholders buy our stock and customers choose our products. Our sponsorship of an international track and field Grand Prix is one of our programs that directly support our marketing efforts. Mobil also contributes to the communities where we do business. For example, we provide grants to hire disadvantaged teenagers to improve the appearance of subways, parks and neighborhoods. At the same time, we offer them remedial instruction. We intend to maintain the franchise we have earn^d-gs* a company known for its public involvement and itswiews. i Financial Section Contents Financial Review Five-year financial summary Financial commentary Consolidated Financial Statements Income Changes in shareholders' equity Balance sheet Changes in financial position Distribution of earnings and assets Notes to Financial Statements Report of Management Report of Certified Public Accountants Supplementary information Oil and gas producing disclosures Other resources disclosures 16 17 18 22 22 23 24 25 28 37 37 38 45 0371361 01402 Financial Review This section of the report includes the five-year finan cial summary, a financial commentary that compares 1986 with 1985, and one that compares 1985 with 1984. It also includes the consolidated financial statements, the reports of management and the certified public accountants, and supplementary information on oil and gas producing activities and our other resources. The Financial Section of the Annual Report measures our prog ress toward improving shareholder values. The material shows that: The stock price increased from $30V4 at year-end 1985 to $40Va at year-end 1986. Dividends were maintained at $2.20 per share, representing 24% of cash flow and 64% of earnings. Earnings increased in 1986 from $1,040 million to $1,407 million, despite the substantial reduction in crude and gas prices. Return on average shareholder's equity increased from 7.5% to 9.6%; return on average capital employed increased from 70% to 8.3%. Debt was reduced from $11.1 billion to $9.3 billion, in addition to a reduction of $2.0 billion in 1985; the debt to capitalization ratio improved from 44% to 38%; these results show continuing progress in our objective to improve financial flexibility. Proceeds from sales of assets were $1.9 billion, including $1.1 billion from the sale of Container Corpo ration of America; the sales are con sistent with our program to focus on those activities where we are fully competitive. The number of employees decreased from 166 thousand to 127 thousand, reflecting our continuing efforts to increase productivity. Investment spending was reduced from $3.5 billion to $3.0 billion, reflecting our emphasis on investing in projects offering the highest returns. U.S. automotive gasoline sales volumes were up 8%; worldwide automotive gasoline sales volumes were up 7%; total petroleum product sales volumes were up 5%. Income per dollar of revenue in creased from 1.70 to 2.8; petroleum earnings per gallon sold were 4.7. Chemical operations and Montgomery Ward's retail operations had record earnings. 01403 *6 Five-year financial summary (S m millions except for per-snare amounts) Year Ended December 31 1986 Revenues.................................................................................. ......... $49,865 Operating costs and other expenses...................................... ......... Interest and debt discount expense....................................... ......... Income taxes........................................................................... ......... Total costs and expenses........................................................ ......... Net Income.............................................................................. ......... Per share (based on average shares outstanding)...................... ......... 45,668 1,204 1,586 48,458 $ 1,407 $3.45 Cash dividends--Total............................................................. ......... --Per share..................................................... ......... --As percent of net income"'.......................... ......... --As percent of cash flow'2'........................... ......... $ 898 $2.20 64% 24% Return on average shareholders equity'".............................. ......... Return on average capital employed"*3'................................. ......... Income per dollar of revenue'"................................................. ......... Petroleum earnings per gallon sold........................................ ......... 9.6% 8.3% 2.84 4.7* Petroleum revenues--Refined petroleum products................ ......... --Crude oil.............................................. ......... --Natural gas.......................................... ......... --Other.................................................... ......... $26,475 6,162 2,831 5,526 Capital expenditures, exploration, and other outlays"'.......... ......... $ 3,046 At December 31 Current assets.......................................................................... ......... $10,869 Current liabilities..................................................................... ......... 10,432 Working capital........................................................................ ......... $ 437 Investments and long-term receivables................................. ......... Net properties, plants, and equipment................................... ......... Total assets.............................................................................. ......... Long-term %debt........................................................................ ......... Capital lease obligations........................................................ ......... Shareholders' equity............................................................... ......... Per share (based on shares outstanding at end of year)............. ......... $ 3,713 24,304 39,412 7,885 362 $15,239 $37.28 Number of shares outstanding (in thousands).......................... ......... 408,732 Number of shareholders.......................................................... ......... 260,800 Number of employees (prior years restated).......................... ......... 127,400 1985 $60,609 54.889 1.411 3,269 59.569 $ 1,040 $2.55 S 898 $2.20 86% 22% 7.5% 7.0% 1.7* 4.9* $31,590 9,370 3.768 4.830 $ 3.513 $12,530 12,383 $ 147 $ 3.193 25.408 41,752 9,328 417 $14,089 $34.50 408,351 268.600 166.200 1984 $60,474 55.195 1.111 2.900 59.206 $ 1,268 $3.11 $ 896 $2.20 71% 24% 9.2% 7.9% 2.1* 4.4* $30,870 9,330 3,386 4,586 $ 3.600 $12,383 11,961 $ 422 $ 3,381 25.530 41,851 11.057 435 $13,624 $33.42 407.704 270.400 180,700 1983 S58.998 53.970 814 2.711 57.495 $ 1,503 $3.70 $ 813 $2.00 54% 22% 10.8% 9.3% 2.5* 5.0* $33,065 7.423 2,570 4,770 $ 3.771 $11,890 10,813 $ 1,077 $ 2.854 19.878 35.072 5.162 328 $13,952 $34.30 406,818 271,500 179.900 1982 $64,108 60,139 663 2.093 62.895 $ 1.213 $2.91 $ 836 $2.00 69% 26% 8.5% 7.7% 1.9* 4.1* $36,317 9,752 2,795 4,456 $ 4,753 $12,960 12.426 $ 534 $ 2.563 19,315 35.216 4.404 313 $13,807 $34.00 406,146 286,600 189,700 (1) The presentation for 1985 has been revised to conform with guidance issued by the Securities and Exchange Commission in 1986. (2) Funds available from operations. (3) Net income plus income applicable to minority interests plus interest expense net of tax. divided by the sum of average shareholders equity, minority interests, debt, and capital lease obligations. (4) Includes capital expenditures of majority-owned unconsolidated companies: excludes acquisitions. 037663 CI404 Financial commentary 1986 compared with 1985 Consolidated Earnings and Per-Share Results Mobil's 1986 earnings totaled $1,407 million, or S3.45 per share, after recog nizing a $150 million loss on the sale of the Paperboard Packaging opera tions of Container Corporation of America. This was $367 million higher than the 1985 earnings of $1,040 million, or $2.55 per share, which in cluded a $508 million provision for the restructuring of Montgomery Ward. Excluding the special provisions for Container Corporation of America in 1986 and Montgomery Ward in 1985, earnings improved $9 million, from $3.79 per share to $3.82 per share. Revenues dropped from $60.6 bil lion in 1985 to $49.9 billion in 1986. Decreased revenues in U.S. and For eign Petroleum operations, primarily attributable to lower worldwide petroleum prices, in the Retail Mer chandising segment, mainly due to the discontinuance of discount busi ness and catalog operations, and from the sale of the Paperboard Packaging operations were partly offset by increased Chemical reve nues. Costs and expenses were lower for all segments except Chemical. Segment Earnings Earnings from Petroleum operations totaled $2,126 million in 1986, essen tially unchanged from 1985 earnings of $2,131 million from this segment. Earnings of all segments are indi cated below. Results for 1986 and prior periods for the Paperboard Packaging segment are now in cluded in Corporate and Other. (In millions) 1986 1985 Change Petroleum U.S......... ........... . S 341 $ 873 Foreign ............ . 1,785 1.258 S(532) 527 Total Petroleum.... . Chemical................ Retail Merchandising.. Net Financing Expense............. Corporate and Other................. 2,126 2,131 140 53 106 42 (587) (652) (228) (26) (5) 87 64 65 (202) Income Before Special Provisions.......... 1,557 Provision for Montgomery Ward Restructuring -- Loss on sale of Container Corporation of America............. (150) 1.548 (508) 9 508 (150) Net Income............ $1,407 $1,040 $367 Petroleum Operations--U.S. Earnings from U.S. Petroleum opera tions totaled $341 million in 1986, a decrease of $532 million, or 61%. from 1985. (In millions) U.S. Petroleum Exploration and Producing...... Refining and Marketing...... Total U.S................. 1986 1985 Change S (24) $716 $(740) 365 157 208 $341 $873 $(532) Exploration and Producing earnings decreased, reflecting much lower crude oil price levels, as well as lower prices and demand for natural gas. This decline was partly offset, how ever, by lower exploration expense. Earnings in 1986 were also unfavor ably impacted by a $100 million pro vision for accelerated amortization of exploration and producing assets. Refining and Marketing earnings improved due to stronger product margins, an 8% increase in autogasoline sales and favorable adjustments of $83 million to the Alaskan crude purchase provisions in the second quarter of 1986. Petroleum Operations--Foreign Earnings from Foreign Petroleum operations totaled $1,785 million in 1986, an increase of $527 million, or 42%, from 1985. (In millions! 1986 1985 Change Foreign Petroleum Exploration and Producing...... $ 851 $1,082 Refining and Marketing...... 934 176 S(231) 758 Total Foreign.......... .$1,785 $1,258 $527 Exploration and Producing earnings in 1986, which included a $187 million gain on the sale of Angolan assets, decreased due to lower crude oil and natural gas prices, partly offset by lower exploration expense and higher natural gas production. Foreign Refining and Marketing earnings increased significantly because of the relative strength of product prices compared with crude oil costs, and stronger foreign cur rencies. Results for 1985 included a $50 million provision for the closure of a French refinery and a $53 million provision for certain uneconomic marine transportation charters and vessels. Earnings from Foreign Petroleum operations reflect lower overall effec tive tax rates as Exploration and Producing earnings, normally taxed at rates of 70% ormore, were substan tially lower, and Refining and Market ing earnings, to which a lower effec tive tax rate normally applies, were substantially higher. Chemical Earnings from worldwide Chemical operations were $140 million in 1986. an increase of $87 million, or 164%, from 1985, due to substantial im provements in petrochemical and plastics margins and volumes in the U.S. and overseas. 037664 01405 5 Retail Merchandising Montgomery Ward's 1986 earnings were $106 million, compared with $42 million earned in 1985, excluding the provision for restructuring dis cussed below. Significantly higher retail earnings in 1986, attributable to stronger margins and improved oper ating efficiencies, and the discontin uance of the unprofitable Jefferson Ward and catalog operations in 1985 were the primary bases for the improvement. Net Financing Expense Net Financing Expense includes all net interest expense except for Montgomery Ward, which is reported on a stand-alone basis and retains its own financing. The decrease of $65 million reflected principally the reduction of debt balances and lower interest rates, partly offset by lower capitalized interest due to reduced spending for major projects. Corporate and Other Corporate and Other includes Paperboard Packaging, which was sold in 1986, Real Estate operations. Mining and Minerals, Corporate Administration, and other corporate items. ' Corporate and Other expense increased $202 million because of unusual items: 1986 results included a restructuring provision of $35 mil lion and a $39 million writedown of certain alternative energy properties, while 1985 results benefited from gains on the sale of W.F. Hall Printing Company and certain Colorado real estate. Special Provisions The sale of Container Corporation of America (CCA), completed September 30,1986, resulted in a loss of $150 million. In 1985, a special charge of $508 million after tax was made for the sale of the Jefferson Ward group, the discontinuance of catalog oper ations, and the restructuring of retail operations. Further details on segment and geographic earnings appear on pages 25 through 27 Discussion of Financial Condition Funds available from operations after dividends were $2,873 million in 1986. These funds were sufficient to fund capital expenditures of $2,396 million. The remaining funds avail able, and those generated by asset sales, were used to pay down debt and improve financial flexibility. At year-end 1986 debt and capital lease obligations of Mobil and its subsidiaries totaled $9,289 million, a decrease of $1,854 million from the year-end 1985 level. The sale of Con tainer Corporation of America gener ated $1.1 billion of the reduction. (In millions) 1986 1985 Change Current: Notes and loans payable.......... $ 800 S 750 S 50 Long-term debt and capital lease obliga tions maturing within one year................ 242 648 (406) Long-term: Long-term debt.. 7,885 9,328 (1.443) Capital lease obligations .... 362 417 (55) Total debt and capital lease obligations.... $9,289 $11,143 $(1,854) The percentage of debt plus capital lease obligations to capitalization was 38% at year-end 1986, down from 44% at year-end 1985. At year-end 1986 Mobil's unspent balance of total appropriations for capital expenditures was $2.7 billion, compared with $3.1 billion at yearend 1985. Mobil is not contractually committed to spend all of these amounts but generally expects to do so principally from internally gener ated funds. Whenever external financing is needed. Mobil and its subsidiary 037665 companies have access to multiple capital markets, including significant unused lines of bank credit. Mobil generally has each of its major sub sidiaries finance its own operations. Mobil previously entered into long term revolving credit agreements with various banks. The total of these at December 31,1986. was $3.1 bil lion. none of which was outstanding; a total of $3.0 billion of borrowings due within one year has been classi fied as long-term debt. Mobil has agreed to make equity contributions to Montgomery Ward through Marcor related to certain op erating losses, if any, of Montgomery Ward through 1987 No such contribu tions have been required since 1982. There was an increase in 1986 of $509 million in earnings retained in the business and a $636 million fa vorable effect, due to the weakening of the U.S. dollar in 1986, on the cumulative foreign exchange trans lation adjustment account. The net change in Shareholders' Equity was an increase of $1,150 million in 1986. At year-end 1986 Mobil had an exist ing effective `shelf" registration on file with the Securities and Exchange Commission that would permit the sale of $205 million of debt securities to be offered pursuant to Rule 415 of the Securities Act of 1933. Credit Standard RatingsMoody's& Poors s Mobil Corp........... A1 Mobil Oil................. Aa3 Montgomery Ward............... Baa3 AA-- AA-- BBB-- Due to anticipated effects of declining crude oil prices, Moody's lowered the long-term debt credit ratings of Mobil and Mobil Oil in March 1986; Standard & Poor's lowered Mobil Oil's long-term debt credit rating in May 1986. Both Mobil Oil and Montgomery Ward sell certain accounts receivable to domestic financing subsidiaries. See Note 4, "Investments and LongTerm Receivables," for further details on the financing subsidiaries. 19 ** 01406 Capital Expenditures, Exploration, and Other Outlays Mobil's worldwide capital expendi tures, exploration, and other outlays totaled $3,046 million in 1986, a de crease of 13% from 1985, Outlays in the United States were $1,895 mil lion--or 62% of the worldwide total. In Exploration and Producing (E&P), 1986 outlays were $1,897 million (capital expenditures $1,317 million and exploration expenses $580 million), or 62% of Mobil's total world wide outlays for the year. (In 1985 E&P outlays were $2,308 million.) Outlays for E&P operations in the United States in 1986 were $1,123 million, compared with $1,458 million in 1985. Other than in E&P, capital expendi tures for Petroleum Operations were $187 million higher than in 1985. In 1986, Chemical and Retail Merchandising capital expenditures were lower. The decrease in expendi tures for Corporate and Other was pri marily attributable to the sale of CCA. 1986 1985 year was $1,548 million, or $3.79 per share, an increase of $280 million, compared with 1984 earnings of $1,268 million, or $3.11 per share. Revenues were essentially flat in 1985 versus 1984. Increased reve nues in U.S. and Foreign Petroleum operations, primarily attributable to higher sales volumes, were offset by a revenue decrease in Retail Mer chandising, attributable primarily to the discontinuance of certain retail operations. Costs and expenses were lower for all segments except U.S. Petroleum. tin millions) U.S. Capital expenditures Petroleum Operations Exploration and Producing --lease bonuses............................. .. $ --other............................................. Refining.............................................. Marketing........................................... 40 822 124 259 Foreign S6 449 88 230 Total S 46 1,271 212 489 Total S 105 1.501 172 341 Segment Earnings Earnings from Petroleum operations totaled $2,131 million in 1985,20% above 1984 earnings of $1,781 million from this segment. Earnings of all segments are indicated below. Marine................................................ Pipelines.......................................... Other................................................... Chemical................................................ Retail Merchandising............................. Corporate and Other............................. 1 14 3 100 108 93 Total capital expenditures......................... .. 1,564 Exploration expenses.............................. Other outlays Capital expenditures of ' majority-owned unconsol idated companies.............................. 261 70 Total capital expenditures, exploration, and other outlays................................... .. S1.895 4 -- 29 15 -- 11 832 319 $1,151 5 14 32 115 108 104 2,396 580 70 $3,046 3 23 26 118 183 253 2.725 702 86 S3.513 Dividends In 1986 and 1985, Mobil's per share dividend was $.55 in each quarter for a total of $2.20 for each year. Common Stock In 1986 and 1985, the high and low sales prices of Mobil's common stock, by quarter, were as follows: 1986 Quarter High Low First........... ....... 32Vj Second....... ....... 31% Third............ ....... 39% Fourth......... ....... 40% 26'A 27% 29 35% 1985 High Low 30% 25% 34% 29 31% 27 32% 28Vs Year-end prices per share: December 31,1985 .............. $30'A December 31,1986 .............. $40,/e The principal market for the trading of Mobil's common stock is the New York Stock Exchange. The stock symbol is "MOB." Financial commentary 1985compared with1984 Consolidated Earnings and Per-Share Results Mobil's 1985 earnings totaled $1,040 million, or $2.55 per share, including the special charge of $508 million, net of applicable in come taxes, for the restructuring of Montgomery Ward. Exclusive of this charge, which w^ej 0drSl^itJlhe (In millions! 1985 1984 Change Petroleum U.S.................... .$ 873 Foreign............. . 1,258 S 791 990 S 82 268 Total Petroleum.... . 2,131 Chemical.............. 53 Retail Merchandising., 42 Net Financing Expense........... (652) Corporate and Other................ (26) 1.781 34 53 (462) (138) 350 19 (ID (190) 112 Income Before Montgomery Ward Restructuring.... 1,548 Provision for Montgomery Ward Restructuring.... (508) 1,268 280 (508) Net Income..........,.$1,040 $1,268 3(228) Petroleum Operations--U.S. Earnings from U.S. Petroleum oper ations totaled $873 million in 1985, an increase of $82 million, or 10%. from 1984. (In millions) 1985 U.S. Petroleum Exploration and Producing...... ..$716 Refining and Marketing....... .. 157 Total U.S................. ..S873 1984 Change S795 S (79) (4) 161 $791 S 82 third quarter, net income for the 01407 20 037666 Exploration and Producing earnings were lower aue to weaker natural gas demand and lower crude oil prices, which more than offset earnings on the production increment from the Superior properties and lower exploration expenses. U.S. Refining and Marketing earn ings improved dramatically, due to lower crude oil and operating costs, improved manufacturing efficiencies, and higher sales volumes, particu larly of gasoline. Petroleum Operations--Foreign Earnings from Foreign Petroleum operations totaled Si,258 million in 1985. an increase of S268 million, or 27%. from 1984. 'In millions) 1985 Foreign Petroleum Exploration and Producing ... SI.082 Refining and Marketing...... 176 Total Foreign ....... .$1,258 1984 Change S952 $130 38 138 $990 $268 Exploration and Producing earnings were up. reflecting higher crude oil and gas production from a full year of Superior's operations in Canada, higher crude production in the North Sea, higher gas production and prices in Indonesia, and foreign cur rency gains, which more than offset the effect of higher exploration expenses. Foreign Refining and Marketing earnings increased significantly, re flecting favorable currency trends, lower crude oil costs, and operating efficiencies, offset in part by a $50 million provision for the closure of a French refinery and a $53 million pro vision for certain uneconomic marine transportation charters and vessels. Results for 1984 included a provision of $110 million for a refinery closure. Chemical Earnings from worldwide Chemical operations were $53 million in 1985, an increase of $19 million, or 56%, from 1984. Improved margins in plas tic packaging and consumer prod ucts. improved OPP (oriented poly propylene) volumes, and improved results from the Saudi Petrochemical program, which started regular oper ations in the second half of 1985, were partially offset by depressed petrochemical margins, mainly due to lower polyethylene prices. Retail Merchandising Montgomery Ward's 1985 earn ings, excluding the provision for re structuring discussed below, were $42 million, compared with 1984 earnings of $53 million. The decline reflected lower sales volumes and margins. Net Financing Expense Net Financing Expense includes all net interest expense except for Montgomery Ward, which is reported on a stand-alone basis and retains its own financing. The increase of $190 million reflected primarily the interest expense related to the acquisition of Superior, the financing for which commenced about mid-year of 1984. Corporate and Other Corporate and Other includes Paperboard Packaging, which was sold in 1986. Real Estate operations, Mining and Minerals, Corporate Administration, and other corporate items. W. F. Hall Printing Company (W. F. Hall) was sold in the fourth quarter of 1985. Its earnings, as well as the gain on the sale ($44 million), are also included in this segment. Corporate and Other results also include a gain of $57 million from the sale of a major portion of the BanningLewis Ranch in Colorado, partly offset by a $26 million writedown of mineral properties. Provision for Montgomery Ward Restructuring A special charge of $508 million after tax was made for the sale of the Jefferson Ward group, the discon tinuance of catalog operations, and the restructuring of retail operations. Discussion of Financial Condition Funds available from operations after dividends were $3,197 million in 1985. These funds were sufficient to fund capital expenditures of $2,725 mil lion. The remaining funds available, and those generated by asset sales, were used to pay down debt. At year-end 1985 debt and capital lease obligations of Mobil and its subsidiaries totaled $11,143 million, a decrease of $1,938 million from the year-end 1984 level. (In millions) 1985 1984 Change Current: Notes and loans payable .S 750 $ 1,268 $ i518) Long-term debt and capital lease obligations maturing within one year.......... Long-term: Long-term debt... Capital lease obligations .... 648 9,328 417 321 11.057 435 327 (1.729) (18) Total debt and capital lease obligations......511,143 $13,081 8(1.938) The percentage of debt plus capital lease obligations to capitalization was 44% at year-end 1985, down from 49% at year-end 1984. At year-end 1985 Mobil's unspent balance of total appropriations for capital expenditures was $3.1 billion, compared with $3.3 billion at yearend 1984. Mobil previously entered into long term revolving credit agreements with various banks. The total of these at December 31,1985, was $4.0 bil lion, none of which was outstanding; a total of $3.4 billion of borrowings due within one year was classified as long-term debt. There was an increase in 1985 of $142 million in earnings retained in the business and a $311 million favor able effect, due to the weakening of the U.S. dollar in 1985, on the cumu lative foreign exchange translation adjustment account. The net change in Shareholders' Equity was an in crease of $465 million in 1985. 01408 Consolidated Financial Statements Consolidated Statement of Income (In millions except for per-share amounts) Year Ended December 31 1986 Revenues Sales and services (including excise and state gasoline taxes: 1986--$3,840:1985--$3,498:1984--$3,445). . $48,706 Interest, dividends, and other revenue................................................................................................................. 1,159 Total Revenues.................................................... .............................................................................................. . 49,865 Costs and Expenses Crude oil, products, merchandise, and operating supplies and expenses......................................................... . Exploration expenses......................................................................................................................................... Selling and general expenses.............................................................................................................................. Depreciation, depletion, and amortization.......................................................................................................... Provision for Montgomery Ward restructuring..................................................................................................... Interest and debt discount expense.................................................................................................................... Taxes other than income taxes............................................................................................................................. Income taxes........................................................................................................................................................ 28,549 580 4,766 2,471 1,204 9,302 1,586 Total Costs and Expenses.................................................................................................................................. . 48,458 Net Income........................................................................................................................................................... . $ 1,407 Net Income Per Share.......................................................................................................................................... $3.45 1985 $59,458 1.151 60.609 38.106 702 5.015 2.388 775 1,411 7,903 3.269 59.569 $ 1.040 $2.55 1984 $59,492 982 60,474 38,705 619 5.329 2,337 1,111 8.205 2,900 59,206 $ 1.268 $3.11 Consolidated Statement of Changes in Shareholders' Equity {in minions) Year Ended December 31 1986 Common Stock-- Beginning of Year.................................................................................................................. . $ 858 End of Year, after issuance of shares...................................................................................... $ 860 Capital Surplus-- Beginning of Year.................................................................................................................. . $ 900 End of Year, after issuance of shares.................................................................................... . $ 923 Earnings Retained in the Business--Beginning of Year.................................................................................. . $14,539 Net income............................................................................................................................ 1,407 Cash dividends paid.............................................................................................................. (898) End of Year............................................................................................................................ . $15,048 Cumulative Foreign Exchange Translation Adjustment--Beginning of Year................................................. $(1,726) End of Year, after adjustments for the year............................................................................ . $(1,090) Common Stock Held in Treasury, at Cost--Beginning of Year.......................................................................... : S (482) End of Year, after purchases during the year........................................................................ . S (502) Total Shareholders' Equity................................................................................................................................... $15,239 1985 $ 857 $ 858 $ 889 $ 900 $14,397 1.040 (898) $14,539 $ (2.037) $(1,726) $ (482) S (482) $14,089 1984 $ 855 $ 857 $ 875 $ 889 $14,025 1.268 (896) $14,397 $ (1.321) S (2.037) S (482) 3 (482) $13,624 See Notes to Consolidated Financial Statements on pages 2S-36. 01403 22 Consolidated Balance Sheet (Inmiflionsl December 31 Assets Current Assets Cash......................................................................... Marketable securities, at cost (approximating market) Accounts ana notes receivable.............................. Inventories................................................................ Prepaid taxes and other current assets ................ Total Current Assets ............................................. Investments and Long-Term Receivables............ Net Properties. Plants, and Equipment................ Deferred Charges and Other Assets.................... Total.......................................................................... 1986 $ 341 1,241 3,949 4,555 783 10,869 3,713 24,304 526 $39,412 Liabilities and Shareholders' Equity Current Liabilities Notes and loans payable......................................................................................................... .........................$ Accounts payable and accrued liabilities.......................................................................................................... Income, excise, state gasoline, and other taxes payable................................................................................. Long-term debt and capital lease obligations maturing within one year........................................................ 800 6,868 2,522 242 Total Current Liabilities................................................................................................................................... 10,432 Long-Term Debt............................................................................................................................................... 7,885 Capital Lease Obligations............................................................................................................................... 362 Reserves for Employee Benefits.................................................................................................................... 401 Deferred Credits and Other Noncurrent Obligations.................................................................................... 1,622 Accrued Restoration and Removal Costs..................................................................................................... 491 Deferred Income Taxes...................................................................... 2,941 Minority Interest in Subsidiary Companies.................................................................................................... 39 Shareholders' Equity Preferred stock.................................................................................................................................................. Common stock: shares issued 429.984.265 and 428,916.082. respectively................................................. -- 860 Capital surplus ........................................................................................................................................... 923 Earnings retained in the business..................................................................................................................... 15,048 Cumulative foreign exchange translation adjustment..................................................................................... (1,090) Common stock held in treasury, at cost: 21.252.400 shares in 1986 and 20.564,900 shares in 1985 ............ (502) Total Shareholders' Equity.............................................................. .............................................................. 15,239 .............................................................. $39,412 Mobil follows the 'successful efforts " method of accounting for its oil and gas exploration and producing operations. 1985 S 593 953 4.930 4,902 1,152 12,530 3,193 25.408 621 $41,752 $ 750 8.339 2.646 648 12.383 9.328 417 386 1.314 472 3.259 104 858 900 14,539 (1.726) (482) 14.089 $41,752 See Notes to Consolidated Financial Statements on pages 28-36. f -s 1 i 23 037669 10n i j 1 Consolidated Statement of Changes in Financial Position (In millions) Year Ended December 31 1986 Sources of Funds Operations Net income................................................................................................................. ........................................SI ,407 Depreciation, depletion, and amortization................................................................. Deferred income tax cnarges..................................................................................... ........................................ Dividends less than equity in income of unconsolidated companies................................................................ ........................................ (73) (184) Loss on sale of Container Corporation of America................................................... ........................................ Provision for Montgomery Ward restructuring.......................................................... .............................. 150 -- Funds available from operations............................................................................................................................. 3,771 Book value of properties, plants, and equipment sold.................................................. ........................................ 1,332 Other, net......................................................................................................................... ........................................ (45) Funds Available Before Financing............................................................................... ........................................ 5,058 Application of Funds Cash dividends to shareholders..................................................................................... ...................................... Capital expenditures........................................................................................................ ...................................... Acquisition of Superior.................................................................................................... Other applications Increase (decrease) in-- Accounts and notes receivable............................................................................... ...................................... Inventories................................................................................................................ ....................................... Prepaid taxes and other current assets.................................................................. ...................................... Investments and long-term receivables.................................................................. ...................................... Decrease (increase) in-- Accounts payable and accrued liabilities................................................................ ...................................... Income, excise, state gasoline, and other taxes payable........................................ ....................................... Foreign exchange translation effects on working capital. debt, and other items, net............................................................................................ ...................................... 898 2,396 (981) (347) (369) 336 1,471 124 (355) Application of Funds Before Financing........................................................................ ...................................... 3,173 Increase (Decrease) in Funds Before Financing......................................................... ...................................... 1,885 .Total Financing Increases in long-term debt................................... Decreases in long-term debt................................. (Decrease) increase in capital lease obligations ... Increase (decrease) in notes and loans payable.... (Decrease) increase in long-term debt and capital lease obligations maiunng within one year....... Purchase of common stock for treasury............... issuance or sale of common stock......................... 2,215 (3,658) (55) 50 (406) (20) 25 Total Financing (Decrease) Increase.......................................................................... ......................................... (1,849) Increase (Decrease) in Cash and Marketable Securities......................................... ......................................... S 36 1985 SI .040 2.388 26 (134) -- 775 4.095 522 105 4.722 898 2,725 -- 8 (18) 380 (319) (415) 68 (67) 3,260 1.462 2,563 (4.297) (21) (518) 310 -- 12 (1.951) S (489) 1984 SI.268 2.337 134 (12) -- -- 3.727 230 (25) 3.932 896 2.913 5,720 (280) (258) (90) 149 (343) (354) 242 8,595 (4.663) 5.861 (1.088) 94 40 (51) -- 16 4.872 S 209 v'Y*" See Notes to Consolidated Financial Statements on pages 28-36. 01411 24 Distribution of Earnings and Assets (In millions) Segments Petroleum Operations U.S. Foreign Year Ended Oecember 31,1986 Revenues Nonaffiliated................................................. ...$11,794 Intersegment................................................. 291 $29,200 888 Total Revenues................................................ ...$12,085 $30,088 Pretax operating profit..................................... ...$ 786 Income taxes.................................................... ... (445) $ 3.363 (1.578) Segment Earnings.......................................... ...$ 341 $ 1.785 Net financing expense (net of income taxes)... Corporate and other (net of income taxes)...... Loss on sale of Container Corporation of America (net of income taxes)................... Net income....................................................... Capital expenditures'"..................................... ...$ 1.263 Depreciation, depletion, and amortization12'.... ...$ 1.145 S 806 $ 831 At December 31,1986 Total Segment Assets.................................... ...$14,443 $16,887 Corporate and all other assets........................ Total Assets..................................................... Chemical Retail Adjustments and Merchandising Eliminations $2,391 162 $2,553 $ 205 (65) $ 140 $5,065 -- $5,065 $ 198 (92) $ 106 $1,415 (1.341) $ 74 5-- -- $-- $ 115 $ 117 $2,103 5 108 $ 90 $3,828 $$-- $ (214) Total $49,865 -- $49,865 $ 4.552 (2.180) $ 2,372 (587) (228) (150) $ 1.407 $ 2,396 $ 2,471 $37,047 2,365 $39,412 Year Ended December 31,1985 Revenues Nonaffiliated................................................. ...$15,666 Intersegment................................................. 386 Total Revenues................................................ ...$16,052 Pretax operating profit.................................... ...$ 1.684 Income taxes.................................................... ... (811) Segment Earnings........................................... ...$ 873 Net financing expense (net of income taxes)... Corporate and other (net of income taxes)...... Montgomery Ward restructuring provision (net of income taxes)...................................... Net Income....................................................... Capital expenditures1"..................................... ...$ 1,418 Depreciation, depletion, and amortization'2'.... ...$ 1.218 At December 31,1985 Total Segment Assets.................................... ...$15,353 Corporate and all other assets........................ Total Assets..................................................... $33,892 1,694 $35,586 $ 4.441 (3.183) $ 1.258 $ 753 $ 742 $17,565 $2,266 191 $2,457 $ 81 (28) $ 53 $ 118 $ 114 $2,045 $6,073 $6,073 $ 78 (36) $ 42 $ 183 $ 111 $3,587 $2,712 (2.271) $ 441 $-- -- $-- $-- $-- $ (99) $60,609 $60,609 $ 6,284 (4.058) $ 2,226 (652) (26) (508) $ 1.040 $ 2.725 $ 2.388 $38,451 3.301 $41,752 S_* 'l * See notes and commentary on page 26. 037S71 01412 Segments Petroleum Operations U.S. Foreign Year Ended December 31.1984 Revenues Nonaffiliated................................................. ...$14,819 Intersegment................................................. 404 $33,353 1.688 Total Revenues................................................ ...$15,223 $35,041 Pretax operating profit...................................... ...$ 1.460 Income taxes.................................................... (669) S 3,533 (2.543) Segment Earnings ........................................ ...$ 791 $ 990 Net financing expense (net of income taxes)... Corporate and other (net of income taxes)...... Net Income....................................................... Capital expenditures'"...................................... ...$ 1.493 Depreciation, depletion, and amortization'21 ... ...$ 1.199 $ 949 $ 767 At December 31,1984 Total Segment Assets.................................... ...$15,210 Corporate and all other assets......................... $15,907 Total Assets...................................................... Chemical Retail Adjustments and Merchandising Eliminations $2,351 156 $2,507 $ 57 (23) $ 34 $7,138 -- $7,138 $ 78 (25) $ 53 $2,813 (2.248) $ 565 $-- -- 5-- $ 119 $ 105 $2,021 $ 184 $ 114 $4,427 $$-- $ (279) (1) Total includes capital expenditures (or corporate and all other assets: excludes acquisitions. (2) Total includes depreciation on corporate and all other assets. Total $60,474 -- $60,474 $ 5.128 (3.260) S 1.868 (462) (138) S 1.268 S 2.913 S 2.337 $37,286 4.565 $41,851 Significant investments in com panies owned 50% or less are accounted for on the equity method. The corporation's share of the net income of such companies is included in "Revenues." ' Intersegment and intergeographic revenues are at estimated market prices. Income taxes are allocated to segments and geographic areas on the basis of operating results. "Net financing expense" includes all net interest expense except for Retail Merchandising, which retains its own financing. "Corporate and other" includes Paperboard Packaging (sold in 1986), Real Estate operations, W. F. Hall (sold in 1985), Mining and Minerals, Corporate Administration, and other corporate items. 01413 037672 26 1 Geographic _______________ Foreign U.S. Canada Other Year Ended December 31,1986 Revenues Nonaffiliated............................................................. $18,528 S 904 Intergeographic........................................................ 189338474 $29,018 Total Revenues.............................................................$18,717$1,242$29,492 Geographic Earnings.................................................. $ 514$ 34$ 1,824 Net financing expense (net of income taxes)................ Corporate and other (net of income taxes)................... Loss on sale of Container Corporation of America (net of income taxes)................................ Net Income.................................................................... At December 31,1986 Total Geographic Assets............................................$19,652 $2,919 $14,662 Corporate and all other assets..................................... Total Assets................................................................... Year Ended December 31,1985 Revenues Nonaffiliated... Intergeograpnic $23,408 186 $1,325 647 $33,164 913 Total Revenues............................................................ $23,594 $1,972 $34,077 Geographic Earnings..................................................$ 942 $ 143 $ 1.141 Net financing expense (net of income taxes)................ Corporate and other (net of income taxes)................... Montgomery Ward restructuring provision (net of income taxes)................................................. Net Income.................................................................... At December 31,1985 Total Geographic Assets............................................ $20,374 $3,883 $14,542 Corporate and all other assets..................................... .......................................................... Total Assets................................................................... Year Ended December 31,1984 Revenues Nonaffiliated............................................................... $23,854 Intergeographic........................................................... 248 $1,196 292 $32,611 1.251 Total Revenues..............................................................$24,102 $1,488 $33,862 Geographic Earnings.................................................. $ 880 $ 138 $ 850 Net financing expense (net of income taxes)................ Corporate and other (net of income taxes)................... Net income.................................................................... At December 31,1984__________________________________________________________________ Total Geographic Assets.............................................$21,157$3,634$13.173 Corporate and all other assets..................................... Total Assets.................................................................. ____ Total Adjustments and Eliminations Total $29,922 812 $30.734 $ 1.858 $1,415 $49,865 (1.001)__________________ -- $ 414______ $49,865 $-- $ 2,372 (587) (228) __________________(150) $ 1.407 $17,581 $ (186) $37,047 _______________________________ 2.365 $ 39.412 $34,489 1,560 $36,049 $ 1,284 $18,425 $2,712 $60,609 (1.746)____________ -- $ 966 $60,609 $-- $ 2.226 (652) (26) __________________ (508) $ 1.040 $ (348) $38.451 3,301 $41,752 $33,807 1.543 $35.350 $ 988 $2,813 $60,474 (1.791)____________ - $ 1,022 $60,474 $-- $ 1.868 (462) __________________ (138) $ 1.268 $16.807 $ (678) $37,286 _______________________________ 4,565 $41,851 S>?Cv'si A 4< See commentary on page 26. 27 037673 01414 Notes to Consolidated Financial Statements 1 Major Accounting Policies Investments in other companies in Principles of Consolidation which Mobil owns less than a major The consolidated financial ity interest are stated at cost less statements include the accounts of applicable reserves, and the divi domestic and foreign subsidiaries dends from these companies are in more than 50% owned, except for cluded in "Interest, dividends, and those engaged in financial services other revenue." and real estate operations. Intercom pany transactions are eliminated. Inventories Significant investments in compa Substantially all inventories are valued nies owned 50% or less, and in the at cost under the last-in, first-out (LIFO) unconsolidated financial services and method. Certain inventories, primarily real estate subsidiaries, are accounted materials and supplies, are valued for on the equity method. Under this generally at average cost. At the bal methpd the investment is carried ance sheet date, inventories are at cost plus equity in undistributed stated at the lower of cost or market. earnings since the time of acquisition, after applicable adjustments. Oil and Gas Accounting Method The pretax income of unconsoli Mobil follows the successful efforts dated financial services and real method of accounting prescribed by estate subsidiaries, including Mobil FAS 19, Financial Accounting and Oil Credit Corporation (Mobil Credit) Reporting by Oil and Gas Producing and Montgomery Ward Credit Cor Companies. poration (Montgomery Ward Credit), is included in "Interest, dividends, and Exploration and Mineral Rights other revenue." and related taxes are (Leases) included in "Income taxes." Mobil's Direct acquisition costs of unproved equity in the net income of other mineral rights (leases) are capitalized investments accounted for on the and then amortized in the manner equity method is included in "Inter stated below. Payments made in lieu est, dividends, and other revenue." of drilling on nonproducing leaseholds are charged to expense currently. Geological, Geophysical, and Intangible Drilling Costs Geological and geophysical costs are charged to expense as incurred. Intangible drilling costs of all develop ment wells and of exploratory wells that result in additions to proved reserves are capitalized. Depreciation, Depletion, and Amortization Annual charges to income for depre ciation and the estimated cost for restoration and removal of major producing facilities are computed on a straight-line basis over the useful lives of the various classes of properties or, where appropriate for producing properties, on a unitof-production basis by individual fields. Costs of producing properties are generally accumulated by field. Depletion of these costs and amorti zation of capitalized intangible drilling costs are calculated on a unit-ofproduction basis. C1415 037674 23 Capitalized acquisition costs of significant unproved mineral rights (leases) are assessed periodically on a property-by-property basis to determine whether their values have been impaired: where impairment is indicated, a loss is recognized. Capi talized acquisition costs of unproved mineral rights (leases) whose costs are not individually significant are amortized over the expected holding period. When a mineral right is sur rendered, any unamortized cost is charged to expense. When a prop erty is determined to contain proved reserves, the mineral right then oecomes subject to depletion on a unit-of-production basis. When assets that are part of a composite group are retired, sold, abandoned, or otherwise disposed of, the cost is charged against ac cumulated depreciation, depletion, and amortization, but in those cases where reserves are accumulated for specific properties, gains or losses on disposal are included in income currently. Maintenance and Repairs Maintenance and routine repairs are charged against income as incurred. Major repairs'are capitalized, and any replaced assets are retired. U.S. Investment Tax Credits U.S. investment tax credits are ac counted for under the '`flow through" method. Foreign Currency Translation Mobil follows the provisions of FAS 52, Foreign Currency Translation. The local currency of the country of oper ation is used as the functional cur rency for purposes of translating the local currency asset and liability accounts of most foreign operations at current exchange rates, with the resulting translation adjustments accumulated as a separate com ponent of Shareholders' Equity. For other foreign operations, principally exploration and producing oper ations in Indonesia and Nigeria, and for operations in highly inflationary economies, the U.S. dollar is the functional currency. Gains and losses resulting from translating asset and liability accounts that are denominated in currencies other than the functional currency are included in income. Segment and Geographic Data Details on segment and geographic earnings and assets appear on pages 25 through 27 2 Accounts and Notes Receivable Accounts and notes receivable include amounts receivable from companies accounted for on the equity method of $454 million and $192 million at December 31,1986 and 1985, respectively. 3 Inventories Inventories valued at cost under the LIFO method represented about 82% and 81% of Mobil's worldwide inventories at December 31,1986 and 1985, respectively. For those inven tories valued under the LIFO method, the value of the inventory based upon current cost approximated the stated value of the inventory on the LIFO basis at December 31,1986 and was $1,938 million more than the stated value at December 31,1985. During 1986,1985, and 1984 inven tories valued under the LIFO method were partially liquidated. This resulted in a decrease in net income of $33 million in 1986, and increases in net income of $34 million in 1985, and $109 million in 1984. Inventories at Decemoer 31: (In millions) 1986 Crude oil and petroleum products....... $2,990 Chemical products............. 315 Retail merchandising................ 716 Other, including materials and supplies ... 534 Total.................................... $4,555 1985 $2,954 302 903 743 $4,902 4 Investments and Long-Term Receivables At December 31,1986 and 1985, Investments and Long-Term Receivables included $1,359 million and $1,343 million, respectively, of investments in unconsolidated subsidiaries. f U3767S Unconsolidated Finance Subsidiaries Mobil Credit operates Mobil Oil's credit card business, purchases accounts receivable from Mobil Oil, and issues short-term debt that neither Mobil nor its affiliated com panies guarantee. Mobil's investment in Mobil Credit was $228 million at December 31,1986 and $252 million at December 31,1985. Montgomery Ward Credit purchases customer accounts receivable from Mont gomery Ward and issues short- and long-term debt, none of which Mobil or its affiliated companies guarantee. Mobil's investment in Montgomery Ward Credit was $700 million at December 31.1986 and $707 million at December 31, 1985. (In millions) Assets, principally accounts receivable............... .................... Short-term notes payable and commercial paper................... Current portion of long-term debt....................... Long-term debt.................................................... Other liabilities........................................................... Net assets.................................................................... Gross income....................................................... ....................... Interest expense........................................................ Income before taxes................................................. Net income............................................................ 1986 $875 578 -- -- 69 228 $184 48 33 17 Mobil Credit 1985 $1,129 846 -- -- 31 252 $ 211 66 45 25 1984 $1,160 801 -- -- 109 250 $ 223 86 55 30 Montgomery Ward Credit 1986 1985 1984 $2,519 472 121 843 383 $2,597 602 115 973 200 S3.942 1,769 82 1.140 241 700 707 710 $ 238 156 80 43 $ 407 268 137 74 $ 440 290 148 80 Affiliated Companies and Unconsolidated Subsidiaries Summary financial information for affiliated companies (owned 50% or less), excluding Aramco, and for unconsolidated subsidiaries, excluding the finance subsidiaries above, accounted for on the equity method is shown below. Undistributed earnings of the affiliated companies accounted for on the equity method included in "Earnings retained in the business" were $538 million at December 31,1986. Dividends received from these companies were $107 million in 1986, $80 million in 1985, and $121 million in 1984. 1986 (In millions) Total Mobil Share Affiliated Companies Current assets.............................................................. ........... $ 5,935 Noncurrent assets................................................. .......... 9,267 Current liabilities.................................................... .......... 4,154 Long-term debt..................................................... ........... 4,392 Other liabilities.............................................................. ........... 1,457 Net assets.............................................................. ........... 5,199 $1,817 3,281 1,277 1,647 466 1,708 Gross revenues....................................................... Income before taxes.............................................. Net income........................................... ........... $14,071 ........... 1,674 ........... 845 $4,332 511 241 Unconsolidated Subsidiaries Current assets.......... Noncurrent assets .... Current liabilities....... Lonq-term debt...... Other liabilities............... Net assets............................... ........... $ 326 Gross revenues................................. Income before taxes.................................... Net income............................................................. $ 323 891 307 180 296 431 $ 507 82 38 1985 Total Mobil Share $ 5,421 8,217 4,238 4,693 1,220 3,487 $16,543 829 363 $1.688 3.059 1,326 1,765 386 1,270 $5,538 205 84 $ 260 936 382 236 192 386 $ 550 190 119 $ 260 931 380 235 192 384 $ 550 190 119 1984 Total Mobil Share $ 4.591 7,590 3,734 4,624 853 2.970 $14,938 644 202 $1,497 2.946 1.238 1,736 253 1.216 $4,540 128 23 $ 342 755 237 260 257 343 S 395 92 56 S 342 755 237 260 257 343 S 395 92 56 037878 01417 30 if 5 Properties, Plants, and Equipment V s Properties. Diants, and equipment, at cost, at December 31: (In millions) 1986 1985 Petroleum.................. . $36,379 $34,203 Chemical................... 1,805 1.693 Retail Merchandising...... Corporate and other . 1,384 1,060 1.251 2.937 I Total........................... .. 40,628 Less accumulated depreciation, depletion, and amortization......... .. (16.324) 40.084 (14.676) Net properties, plants, and equipment....... . . $24,304 $25,408 Interest capitalized was $61 million in 1986, $120 million in 1985, and $238 million in 1984. Maintenance and repairs charged to income were $1,216 million in 1986, $1,269 million in 1985, and $1,213 mil lion in 1984. 6 Leases Mobil leases real estate, service stations, tankers, and other equip ment through noncancelable capital and operating leases. Net rent expense charged to earn ings was $755 million in 1986, $700 million in 1985. and $600 million in 1984, after deducting rentals from subleases of $75 million in 1986, $59 million in 1985, and $61 million in 1984. Contingent lease rentals for operating and capital leases were included in net rent expense as incurred and were $57 million in 1986 and in 1985, and $64 million in 1984. These contingent lease rentals are determined generally by volumetric measurement or sales revenue. Some rental agreements contain escalation provisions that may require higher future rent pay ments. Mobil does not expect that such rent increases, if any, will have a material effect on future earnings. Capital leases included in Net Properties, Plants, and Equipment were $350 million at December 31, 1986, and $399 million at December 31,1985. Future minimum lease payments under noncancelable leases at December 31,1986: Capital Operat Lease ing Obliga (In millions) Leases tions 1987............................. ...S 1988............................. 1989............................. 1990............................. 1991............................. Later years.................. 258 210 169 134 99 604 $ 90 86 75 94 59 370 Future minimum lease payments....... ... $1,474 774 Less --executorycosts ... --interest................. ..... (49) ....... (304) Capital lease obligations.............. ..... $421 Future minimum lease payments have not been reduced by future min imum sublease rentals of $203 mil lion under operating leases and $23 million under capital leases. 7 Notes and Loans Payable Notes and loans payable at December 31: (In millions) 1986 Banks............................... ,. $689 Commercial paper.......... 1 Others............................... . 110 Total.................................. . $800 1985 $576 14 160 $750 At December 31,1986, Mobil Oil and Mobil Credit had $745 million of unused lines of credit for short-term financing. Of these, $465 million sup ported commercial paper borrowing arrangements of Mobil Credit, $457 million of which may also be used by Mobil Oil. 8 Accounts Payable and Accrued Liabilities Accounts payable and accrued liabilities at December 31: (In millions) 1986 Accounts payable: Trade and other......... .. $3,582 Equity companies .... 469 Accrued liabilities......... .. 2,817 Total.............................. .. 56,868 1985 S4.205 653 3,481 $8,339 037677 ** 1 + * J * / 3l 01418 9 Taxes Total taxes, year ended December 31: (in millions) U.S. Excise and state gasoline...................... $1,306 Import duties'"........................................ -- Property, production, payroll, and other. 554 1,860 Income taxes.......................................... (73) Total taxes.............................................. $1,787 1986 Foreign $2,534 4,678 232 7,442 1,659 $9,101 Total $ 3,840 4,676 786 9,302 1,586 $10,888 U.S. $1,194 -- 961 2.155 (32) $2,123 1985 Foreign $2,304 3.167 277 5.748 3.301 $9,049 Total $ 3.498 3.167 1.238 7.903 3.269 $11,172 (1) Excludes U.S. duties of $45 million in 1986. $47 million in 1985. and $53 million in 1984 reported in cost of merchandise. U.S. $1,047 -- 1.109 2.156 190 $2,346 1984 Foreign $2,398 3.384 267 6.049 2.710 $8,759 Total $ 3,445 3.384 1.376 8.205 2.900 $11,105 Income before income taxes and effective income tax rates for the year ended December 31: (In millions) U.S. Income before income taxes............. ... $(202) U.S. state and local income taxes...... 66 Income before U.S. federal and foreign income taxes............... ... $(268) U.S. federal and foreign income taxes--current................. ... $171 --deferred................ ... (310) 1986 Foreign $3,195 $3,195 $1,422 237 $(139) $1,659 Effective income tax rate'21................ ... N.A. 52% Total $2,993 66 $2,927 $1,593 (73) $1,520 52% U.S. $ 49'" 36 1985 Foreign $4,260 $ 13 $4,260 $-- (68) $(68) N.A. $3,207 94 $3,301 77% Total $4,309 36 $4,273 $3,207 26 $3,233 76% U.S. $865 27 1984 Foreign $3,303 $838 $3,303 $ 86 77 $163 19% $2,653 57 $2,710 82% Total $4,168 27 $4,141 $2,739 134 $2,873 69% (1) Includes the $775 million provision for Montgomery Ward restructuring. (2) Total U.S. federal and foreign income taxes divided by income before U.S. federal and foreign income taxes. The table below reconciles the difference between the worldwide income tax provision and the application of the U.S. statutory income tax rate. , Income taxes, year ended December 31: (In millions) U.S. statutory tax rate.................. Foreign taxes in excess of statutory tax rate.................... Investment tax credit.................. State and local income taxes...... Purchase accounting amortization related to the acquisition of Superior............ Other items, net.......................... Total............................................. 1986 Amount % $1,377 46.0 180 6.0 (57) (1.9) 36 1.2 144 4.8 (94) (3.1) $1,586 53.0 1985 Amount % $1,982 46.0 1.058 (116) 19 24.6 (2.7) .4 1984 Amount % $1,917 46.0 1,047 (106) 14 25.1 (2.5) .3 121 205 $3,269 2.8 4.8 75.9 48 (20) $2,900 1.2 (.5) 69.6 Deferred tax expense applicable to major timing differences, year ended December 31: (in millions) Excess of tax depreciation over book depreciation............ Timing differences applicable to receivables and inventories. Intangible drilling costs............... Nonproducing properties............. Investment tax credit................... Provision for restructuring............ Other items, net........................... Total.............................................. IMS $127 (87) 36 (78) (64) 73 (80) S (73) 1985 $212 (155) 56 159 (116) (227) 97 $ 26 Trim* 1984 $266 (112) 113 46 -- -- (179) $134 Deferred income taxes Taxable income as defined in the tax laws of various countries is frequently different from pretax income as de fined by generally accepted account ing principles. Someof the differences are permanent, whereas others reflect differences in timing and give rise to accruals of deferred tax. Mobil does not provide deferred taxes for taxes that could result from the remit tance of undistributed earnings since the corporation intends generally to continue reinvesting these earnings indefinitely. If such amounts were remitted, foreign tax credits available under present law would reduce the amount of U.S. taxes payable. Mobil's share of the undistributed earnings of consolidated subsidi aries and companies accounted for on the equity method, which could be subject to additional income taxes if remitted, was approximately S2.800 million at December 31.1986. G1419 32 U37678 10 Long-Term Debt Long-term deot at December 31: tin millions) Callable Within Five Years Mobil Corporation 7'4% notes due 1991........................................................................................... 7%% notes due 1991........................................................................................... 7%% notes due 1993........................................................................................... 8 '/2% deoentures due 2001..................................................................... 1987 8*4% notes due 1988........................................................................................... 9%% notes........................................................................................................... 9VA deoentures due 1999..................................................................... 1987 10 Wo notes due 1990......................................................................................... 10Wo notes due 1992.............................................................................. 1987* 11% notes due 1992 ............................................................................... 1989" 13.765% debentures due 2004................................................................ 1989* 14% notes............................................................................................................. 14%% notes due 1991 .............................................................................. 1988* 14.40% debentures due 2004 ................................................................. 1989* Debt due within one year classified as long-term (7.4%) Other (87/s%) due 1990-1992 ........................................ Foreign currencies (11 Vb/o) due 1990............................. Original issue discount.............................................. $ 100 100 95 604 100 38 200 200 100 1,100 94 900 375 97 59 (15) Mobil Oil and consolidated subsidiaries 4V4% debentures due 1993.......................................................... .......... 7 V4% notes due 1997.................................................................... .......... 7%% debentures due 2001.......................................................... .......... 8.45% debentures due 2005......................................................... .......... 10.85% notes............................................................................... Deot due within one year classified as long-term (6.7%)............ Industrial revenue bonds (6%%) due 1991-2014.......................... Other (8%%) due 1988-2022 ....................................................... Foreign currencies (10'/4%) due 1988-2014................................. 1987 ................... ................ 1987 ................... ................ 1987 ................... ................ 1987 ................... ................. ................. ................. ................ ................. ................ 61 200 73 110 -- 2,578 291 91 47 Montgomery Ward and consolidated subsidiaries 4%% debentures.......................................................................... 9%% debentures due 2000... Other (9%%) due 1988-2020 . 1987 _ 60 227 Other. Total. 1986 $4,147 3,451 287 $7,885 'At par 1985 S 603 100 125 38 200 200 100 1.278 125 94 900 2.306 91 59 (16) $6,203 61 200 73 110 278 1,074 291 243 82 2.412 66 60 216 342 371 S9.328 The percentages shown in parenthe ses in the table are weighted average interest rates at December 31,1986. The approximate amounts of long term debt that become due during the years 1987 through 1991 are: 1987-- $183 million. 1988-S1.157 million, 1989--$2,000 million, 1990-S375 million, and 1991--$428 million. Future sinking fund requirements of $456 million may be satisfied by debentures currently held in the treasury. At year-end 1986 Mobil had an ex isting effective "shelf" registration on file with the Securities and Exchange Commission that would permit the sale of $205 million of debt securities to be offered pursuant to Rule 415 of the Securities Act of 1933. Mobil and Mobil Oil have entered into long-term revolving credit agree ments with various banks totalling $3.1 billion, none of which was out standing at December 31,1986; a total of $3.0 billion of Mobil and Mobil Oil borrowings due within one year have been classified as long-term debt. The unused $3.1 billion of the revolving credit agreements are sub ject to annual commitment fees of Vs of 1% as to $1.6 billion and .09 of 1% as to $1.1 billion. Interest on borrow- *}#$??`i ings under the agreements is based on the London Interbank Offered Rate, the Domestic Certificate of Deposit Rate, or a specified Prime Rate, as applicable, and as selected from time to time by Mobil. Montgomery Ward and Montgomery Ward Credit Corporation have entered into multi-year revolving credit agree ments with various banks totalling $854 million, none of which was out standing at December 31,1986. The unused revolving credit facilities are available either to Montgomery Ward or Montgomery Ward Credit and are subject to commitment fees of v2 of 1%. 33 037679 01420 1 11 Employee Benefits Employee benefits that Mobil pro vides in the United States are contributory and noncontributory medical and dental plans, pension plans, group life insurance, savings plans, employee stock ownership plans, disability plans for sickness and accidents, and termination plans. Mobil's international affiliates also provide various pension and other employee benefit plans. The estimated costs of the domestic and international plans are either funded or accrued currently. The majority of full-time U.S. em ployees are covered by contributory and noncontributory pension plans. These plans are primarily final average and career average plans. Mobil's funding for these plans is based on the projected unit credit actuarial cost method. Mobil's overseas employees are covered by pension and similar plans. Coverage and benefits vary from country to country. Mobil's funding policy also varies, in line with local commercial, actuarial, and taxation practices. The total charge to Mobil's income for pension plans was $105 million in 19J56, $190 million in 1985, and $229 million in 1984. In 1985 Mobil adopted the projected unit credit actuarial cost method for major domestic plans, which had the effect of increasing net income by approximately $12 million ($.03 per share). In 1986 Mobil adopted the provi sions of FAS 87, Employers' Account ing for Pensions, for its principal domestic plan, which had the effect of increasing 1986 net income by approximately $36 million ($.09 per share). The components of 1986 net pen sion expense for Mobil's domestic plans were as follows (in millions): Benefits earned during year............ Interest accrued on benefits earned in orior years..................... Actual earnings on assets............... Net amortization and deferral......... Net pension expense...................... $ 95 163 (316) 80 $ 22 Pension expense for 1986 was based on an assumed discount rate of 9V2%, an assumed rate of increase in future compensation levels of 6V4%, and an expected long-term rate of return on plan assets of 9V2%. Mobil's domestic plans' funded status and amounts recognized in the consolidated balance sheet at December 31,1986, were as follows (in millions): Actuarial present value of accumulated benefit obligation Vested...................................... Nonvested................................ Total................................................. Additional amounts related to projected pay increases.......... Projected benefit obligation............ Plan assets at fair value, primarily in equity and fixed income securities...................................... Plan assets in excess of projected benefit obligation......... $2,009 222 2,231 436 2,667 2,869 $ 202 Consisting of: Unrecognized net asset at date of initial application of FAS 87.. Unrecognized prior service cost............................. Unrecognized net loss since initial application of FAS 87...... Accrued pension cost.................. $ 621 (192) (146) (81) At December 31,1986, the assumed discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obliga tion were 8% and 5V2%, respectively. At December 31.1985, Mobil's domestic pension plans had an accumulated benefit obligation of $2,133 million ($2,071 million vested and $62 million nonvested) and plan assets of $3,236 million. The weighted average assumed rate of return of the domestic plans used in determining the accumulated benefit obligation was approximately 9%. The actuarial value of accumu lated benefits is not calculated for Mobil's foreign pension plans. For foreign plans, the value of plan assets exceeded the actuarial com puted value of vested benefits as of year-end 1986 and 1985. Mobil and many of its subsidiaries provide certain post-retirement health care and life insurance bene fits for most of their retirees, if they are working for the company when they become eligible for retirement. These post-retirement benefits and similar benefits for active employees are provided through programs where the costs are based on the benefits paid during the year. The total expense for health care and life insurance benefits was $170 million in 1986, $192 million in 1985, and $204 million in 1984. The cost of these benefits for 37000,43,000, and 41,000 retirees is not separable from the cost of benefits for the 95,000,112,000, and124,000 active employees in 1986,1985, and 1984, respectively. ;i-i?1 037680 34 r* * , 1 O'. f ! 1 12 Stock Option Plans Under the 1986 Mobil Incentive Com pensation and Stock Option Plan approved by shareholders, options may be granted to key employees to purchase a maximum of 10,000,000 shares of common stock. No addi tional options may be granted under the 1981,1979. or 1974 Stock Option Plans. "Nonqualified" options and "Incentive Stock Options," having a maximum life of 10 years, are granted at 100% of the fair market value of Mobil stock at the time of the award and may be exercised for stock or, in some cases, relinquished for stock appreciation rights (SARs) in annual installments after the first year. The stock appreciation rights permit the holder to receive stock, cash, or a combination thereof equal to the amount by which the fair market value at the time of relinquishment exceeds the option price. Under the 1986 Plan there were 8,034,900 shares available for option at December 31,1986. Stock option transactions: January 1.1986--shares under option.......................................................................... ...... 1986 Plan -- Options granted at $28.78............................................................................................. ......... Options expired or canceled........................................................................................ ......... Options relinquished for stock appreciation rights at prices ranging from $14.77 to $30.00 ........................................................................................................ Options exercised at prices ranging from $14.77 to $36.38......................................... ......... 1.982.350 (17.250) _ (4.000) December 31,1986--shares under option: Years Average of Option Price Grant Per Share 1974-1977 1979-1981 1981-1985 1986 $14.77 31.79 28.56 28.78 1.961.100 Options exercisable at December 31.1986 At an average price of.................................................................................................... ......... 139.000 $28.78 During 1985 options were exercised or relinquished at prices ranging from $14.77 to $30.00 ........................................................................................................ _ During 1984 options were exercised or relinquished at prices ranging from $10.48 to $30.00........................................................................................................ ............... -- 1981 Plan 9,093,133 -- (51.750) (59.542) (789.470) 8.192.371 7.825.638 $28.50 363.018 267.922 1979 Plan 1,951.562 -- (6.614) (7.000) (188.410) 1.749.538 1.749.538 $31.79 189.068 246.725 1974 Plan 365.696 -- -- (31.214) (125.404) 209.078 209.078 $14.77 241.346 522.105 13 Commitments and Contingent Liabilities Substantial commitments are made in the normal course of business for the purchase of crude oil and the acquisition or construction of proper ties, plants, and equipment (including tankers for time charter to Mobil). Mobil has guaranteed approxi mately $267 million of the obligations of others, excluding certain cross guarantees (about $199 million), primarily foreign customs duties, made with other responsible companies in the ordinary course of business. In addition, Mobil has guaranteed specified revenues from crude oil, product, and carbon dioxide shipments under agreements with pipeline companies in which it holds stock interests. If these companies are unable to meet certain obligations, Mobil may be required to advance funds against future transportation charges. No material loss is antici pated under these guarantees. Mobil has provided in its accounts for items and issues not yet resolved based on management's best judg ment. Mobil and its subsidiaries are en gaged in various litigation and have a number of unresolved claims pend ing. While the amounts claimed are substantial and the ultimate liability in respect of such litigation and claims cannot be determined at this time, Mobil is of the opinion that such lia bility, to the extent not provided for through insurance or otherwise, is not likely to be of material importance in relation to its accounts. 037681 14 Capital Stock At December 31,1986,30,000,000 shares of $1.00 par value preferred stock were authorized, of which 6,000,000 shares of Series A Junior Participating Preferred Stock were authorized for issuance upon exercise of certain preferred stock purchase rights; none were issued or outstanding. At December 31.1986, 600.000,000 shares of $2.00 par value common stock were autho rized and 429.984,265 shares were issued, including 21,252.400 held in the treasury. There were 408,731,865 shares outstanding at year-end. Net increase (decrease) in shares of common stock outstanding, year ended December 31: Exercise of stock options and SARs...... Purchase of common stock for treasury Incentive compensation awards............. Purchase of Marcor fractional shares Conversion of Marcor debentures.......... Net increase........................................................................................................................................ 1986 1,039,127 (687,500) 21,054 (109) 8,111 380,683 1985 621.903 24.921 (115) 379 647.088 1984 856.593 27.725 (46) 1.689 885.961 15 Foreign Currency Translation Cumulative translation adiustments at December 31: (In millions) Properties, plants, and equipment, net.............................................................................................. Deferred income taxes........................................................................................................................ Working capital, debt, and other items, net........................................................................................ 1986 $(1,153) 329 (266) $(1,090) 1985 S(1.534) 429 (621) 5(1.726) 1984 5(2.007) 658 (688) 5(2.037) Foreign exchange transaction gains of $181 million in 1986 and $205 million in 1985 were credited to income, while losses of $24 million in 1984 were charged against income. 16 Quarterly Financial Data (unaudited) Quarterly financial data: (in millions except per-share amounts) Revenues 1986................................................. ............. 1985 ................................................. ............. Income taxes 1986................................................. ............. 1985 ................................................ .......... Net income 1986"*2' ........................................... .............. 1985,3'"'............... .................. ............. Net income per share 1986'TM............................................. .............. 1985'3"-........................................................... First $13,877 $15,118 $ 692 $ 900 $ 440 $ 320 $ 1.08 $ .78 Quarter Second Third $12,176 $14,280 $ 408 5 810 $ 582 5 411 $ 1.42 S 1.01 $11,314 $14,664 $ 305 5 517 $ 182 5 (116) $ .45 5 (.28) Fourth $12,498 516.547 $ 181 5 1.042 $ 203 5 425 $ .50 5 1.04 Year $49,865 560.609 S 1,586 5 3.269 5 1,407 5 1.040 $ 3.45 S 2.55 (1) Net income includes a S57 million LIFO inventory drawdown charge in the first quarter of 1986. a $187 million gam on sale of Mobil's interests in Angola and S83 million of favorable adiustments to Alaskan crude purchase provisions in the second quarter of 1986. and a S150 million loss on sale of Container Corporation of America in the third quarter of 1986. (2) Net income includes financial benefits of $24 million in the fourth quarter of 1986. resulting from reductions in LIFO inventories. The fourth quarter of 1986 also includes the unfavorable effects of a S100 million provision for accelerated amortization of exploration and producing assets, offset m part by a financial benefit of S36 million, resulting from adoption of FAS 87. Employers Accounting for Pensions. (3) Net income includes a provision of S508 million for Montgomery Ward restructuring, recorded in the third quarter of 1985 (4) Net income includes financial benefits of $34 million in the fourth quarter of 1985. resulting from reductions in LIFO inventones The fourth quarter of '985 also includes unfavorable effects of writedowns of uneconomic assets ($165 million), offset in part by gains on sales of assets <5101 million) 037882 pU Ji- -<i 9 o3 26 Reports of Management and Certified Public Accountants Report of Management The financial statements of Mobil Corporation and its subsidiaries included in this Annual Report have been prepared by Mobil in conformity with generally accepted accounting principles. Such finan cial statements are necessarily based in part on best estimates and judgments. Mobil maintains a system of inter nal accounting controls and a program of internal auditing designed to pro vide reasonable assurance, at appro priate cost, that Mobil's assets are protected and that transactions are executed in accordance with established authorizations and are recorded properly. The Audit Committee of the Board of Directors, composed solely of directors who are not officers or em ployees. meets regularly with Mobil's financial management and counsel, with Mobil's internal auditors, and with the independent public accountants engaged by Mobil Corporation and its principal subsidiaries.These meet ings include discussion of internal accounting controls and the quality of financial reporting. The independent public accountants and the internal auditors have free and independent access to the Audit Committee to discuss the results of their audits or any other matters relating to Mobil's financial affairs. The accompanying consolidated financial statements have been exam ined by Arthur Young & Company, independent certified public account ants, and their report follows. Report of Certified Public Accountants We have examined the accompanying con solidated balance sheet of Mobil Corporation at December 31.1986 and 1985, and the related consoli dated statements of income, changes in shareholders' equity and changes in financial position for each of the three years in the period ended December 31,1986. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. The consolidated financial statements of Marcor Inc. and Montgomery Ward & Co.. Incorporated, consolidated subsidiaries, and Container Corporation of America, a consolidated subsidiary at December 31. 1985 and 1984. have been examined by other inde pendent public accountants, and we were furnished with their reports thereon. The assets of these consoli dated subsidiaries represent approximately 9% and 13% of the consolidated totals for 1986 and 1985 and reve nues represent approximately 10%, 13%. and 15% of the consolidated totals for the years ended December 31, 1986,1985, and 1984. In our opinion, based upon our examinations and the reports of other independent public accountants, the statements mentioned above present fairly the con solidated financial position of Mobil Corporation at December 31,1986 and 1985. and the consolidated re sults of operations and changes in financial position for each of the three years in the period ended December 31,1986, in conformity with generally accepted account ing principles applied on a consistent basis during the period. 037683 New York. New York March 2.1987 01424 Supplementary Information Supplementary Table 4 sets forth certain costs oil and gas producing incurred, both capitalized and disclosures expensed, in oil and gas producing The accompanying tables set forth activities. Costs reported include information concerning Mobil's oil and the 1986,1985, and 1984 outlays for gas producing activities at December assets described in Table 3, capital 31,1986,1985, and 1984, and for the ized costs, plus the 1986,1985. and years then ended. The tables are 1984 costs charged to expense for prepared in accordance with FAS 69, such items as geological and geo Disclosures about Oil and Gas physical outlays, and expenses to Producing Activities. carry and retain undeveloped proper Tables 1 and 2 represent Mobil's ties. Exploration and development estimated net equity in worldwide net costs include depreciation of support proved reserves. Net proved reserves equipment and facilities used in those represent estimated recoverable vol activities rather than the expendi umes. excluding royalties and interests tures to acquire support equipment owned by others. The production and facilities. and reserve numbers included in the Table 5 summarizes Mobil's results tables exclude NGL volumes re of operations for producing activities ceived under natural gas processing for the years ended December 31, contracts and Mobil's royalty interest 1986,1985, and 1984. Revenues production and reserve volumes. include sales to unaffiliated parties All reserve estimates are subject to and sales or transfers (essentially at future revision. In the past, some of third-party sales prices) to Mobil's these revisions have been significant. other operations. Only the revenues Table 3 presents gross capitalized reported for the U.S. and Canada costs related to oil and gas producing are net of royalty interests of others. activities and related accumulated Production (lifting) costs and ex depreciation, depletion, and amortiza ploration expenses are determined tion at December 31,1986 and 1985. as defined by the FASB. Capitalized costs include (1) mineral Tables 6 and 7 set forth a so-called interests in properties. (2) wells, standardized measure of discounted plants, and related equipment and future net cash flows relating to facilities, and (3) support equipment proved oil and gas reserves, and and facilities used in oil and gas quantify the causes of the changes producing activities. Table 3 includes in the standardized measure of the revised amounts for 1985. cash flows relating to those reserves. Since the estimates reflect proved reserves only, they exclude any rqye^ nues that could result from DrobaDle' reserves, which could become proved reserves in 1987 or later years. For these calculations, year-end oil and gas prices were applied to estimated future production of net proved oil and gas reserves at each year-end, less estimated future ex penditures (based on current costs) to be incurred in developing and producing these proved reserves. The continuance of existing eco nomic conditions and tax rates was assumed. In accordance with FASB requirements, the calculations do not reflect future changes in prices, costs, or tax rates, which may have a significant effect on future results. It is important to note that the data in Tables 6 and 7 are not intended to replace the historical cost-based financial data included in the audited financial statements because, as the FASB recognizes, such data are not representative of either the fair market value or the present value of future cash flows. Cautionary Note: Many of the FASB-mandated data in this section (Supplementary Oil and Gas Producing Disclosures) represent estimates, assump tions. and computations that are subject to constant change as the future unfolds. Mobil cautions investors and analysts, therefore, that the data are of questionaole utility for decision making. J3'?S84 r* r\ I Table 1 Estimated Quantities of Net Proved Crude Oil and Natural Gas Liquids Reserves (unaudited) (Millions of barrels) Year Ended December 31,1986 United States Crude NGL Net proved reserves --Degmning of year................................................. .........853 --revisions of previous estimates............................ ......... 15 --improved recovery................................................ ......... 46 --purchases (sales) of minerals in place................. ......... (1) --extensions, discoveries, and other additions .... ......... 21 --production........................................................... ......... (97) 183 6 3 -- 2 (17) Net proved reserves --end of year........................................................... .........837 Net proved developed reserves --beginning of year................................................. .........721 --end of year........................................................... .........692 Mobil's share of net proved reserves of investees accounted for on the equity method...................... Quantities under special arrangements in which the company acts as producer --quantities received during the year................. --estimated-future quantities ........................... ......... -- 177 168 172 _ -- Year Ended December 31,1985 Net proved reserves --beginning of year................................................. .........832 --revisions of previous estimates............................ ......... 24 --improved recovery.......................... ..................... ......... 79 --purchases (sales) of minerals in place................. ......... -- --extensions, discoveries, and other additions .... ......... 17 --production........................................................... ......... (99) 208 (7) 1 -- 2 (21) Net proved reserves --end of year........................................................... .........853 183 Net proved developed reserves --beginning of year................................................. .........727 --end of year............................................................ .........721 Mobil's share of net proved reserves of investees accounted for on the equitv method...................... ---- Quantities under special arrangements in which the company acts as producer --quantities received during the year................. --estimated future quantities............................. ...... . .... 189 168 _ -- Canada Crude NGL 231 81 --1 12 3 ---- 4-- (23) (3) 224 82 227 81 219 82 __ __ ---- 244 (10) 18 -- 3 (24) 231 239 227 _ 85 (D -- -- -- (3) 81 84 81 __ ---- Foreign Europe Crude NGL 439 33 -- (2) 9 (1) ---- 6-- (51) (2) 403 28 260 12 260 16 6-- ---- 474 -- 12 -- __ (47) 33 -- 1 -- -- (D 439 33 208 11 260 12 6 __ ---- Other Crude NGL 370 11 -- (ID 3 (26) 176 -- 205 (1) -- (18) 347 362 224 175 205 361 551 1 32 ---- 370 187 23 (2) --6 ---- 3-- (26) (15) 370 176 225 185 224 175 531 __ 16 ---- Total 2.366 31 277 (13) 36 (237) 2.460 1.868 2.007 558 32 -- 2,433 27 117 -- 25 (236) 2.366 1,868 1,868 537 16 -- 037685 See Cautionary Note on page 38. 01426 m Table 1 Estimated Quantities of Net Proved Crude Oil and Natural Gas Liquids Reserves (unaudited) United States (Millions of barrels) Year Ended December 31,1984 Crude NGL Net proved reserves --beginning of year.................................................. ....... 706 --revisions of previous estimates............................. ......... 14 --improved recovery................................................. ......... 52 --purchases (sales) of minerals in place................... ....... 131 --extensions, discoveries, and other additions...... ....... 23 --production............................................................. ....... (94) 149 13 3 55 7 (19) Net proved reserves --end of year............................................................. ....... 832 208 Net proved developed reserves --beginning of year.................................................. ....... 638 --end of year............................................................. ....... 727 Mobil's share of net proved reserves of investees accounted for on the equity method....................... __ Quantities under special arrangements in which the company acts as producer --quantities received during the year................... --estimated future quantities............................... ....... ... 146 189 __ -- Canada Crude NGL 174 58 21 2 77 29 10 (21) (3) 244 85 174 58 239 84 __ __ ---- Foreign Europe Crude NGL Other Crude NGL 479 11 (5) 1 26 36 1 (42) 474 33 188 1 208 11 6-- ---- 372 199 11 53 5 (23) (15) 370 187 231 199 225 185 528 -- 30 6-- Total 2,148 36 84 300 82 (217) 2,433 1,635 1.868 534 30 6 See Cautionary Note on page 38. 037686 Table 2 Estimated Quantities of Net Proved Natural Gas Reserves (unaudited) .illions of cubic feetl ear Ended December 31,1986 States et proved reserves --beginning of year....................................................................... ............................ 7.600 --revisions of previous estimates................................................. ............................ 514 improved recovery...................................................................... ............................ 30 --purchases (sales) of minerals in place....................................... ........................... (1) --extensions, discoveries, and other additions.......................... ............................ 270 -production................................................................................. ............................ (558) et proved reserves --end of year................................................................................. ........................... 7.855 n proved developed reserves -beginning of year....................................................................... ............................ 6,814 -end of year................................................................................. ........................... 6,719 bil's share of net proved reserves of investees .ccounted for on the equity method........................................... .......................... .... ar Ended December 31,1985 proved reserves -beginning of year ...................................................................... ........................... 8,084 --revisions of previous estimates................................................. ............................ (69) --improved recovery...................................................................... ........................... 40 --ourchases (sales) of minerals in place........................................ ................................. 6 --extensions, discoveries, and other additions........................... ........................... 162 --production................................................................................. ........................... (623) let proved reserves --end of year................................................................................. ............................7,600 Jet proved developed reserves --beginning of year....................................................................... ............................ 7.414 --end of year .................................................................................. ........................... 6.814 /tobil s share of net proved reserves of investees accounted for on the equity method............................................ 'ear Ended December 31,1984 Jet proved reserves --beginning of year...................................................................... ............................ 6.275 --revisions of previous estimates................................................. ............................ (2) --improved recovery..................................................................... ............................ 15 --purchases (sales) of minerals in place....................................... ............................ 1.901 --extensions, discoveries, and other additions.......................... ............................ 502 --production................................................................................. ............................ (607) Jet proved reserves --end of year................................................................................. ........................... 8.084 Jet proved developed reserves --beginning of year....................................................................... ............................ 5.941 --end of year................................... . ................ ............................ 7.414 Mobil's share of net proved reserves of investees accounted for on the equity method........................................... Canada 2.845 (117) 3 -- 3 (137) 2,597 2,657 2,498 -- 3.242 (298) 20 -- 24 (143) 2.845 2.934 2.657 -- 1,896 (D -- 1,453 8 (114) 3.242 1,895 2.934 -- Foreign Europe 2.649 101 (10) -- 183 (186) 2.737 2,149 2.289 64 2.619 51 17 -- 126 (164) 2.649 1.756 2.149 56 2.157 107 55 208 207 (115) 2.619 1.276 1.756 57 Other 7,593 20 82 (12) -- (393) 7.290 7,581 7,290 155 7.836 145 -- -- -- (388) 7.593 7,739 7,581 91 7,999 42 -- 123 -- (328) 7.836 7.999 7.739 86 Total 20.687 518 105 (13) 456 (1.274) 20.479 19.201 18.796 219 21,781 (171) 77 6 312 (1.318) 20.687 19,843 19.201 147 18,327 146 70 3.685 717 (1.164) 21.781 17.111 19.843 143 037687 onary Note on page 38. Table 3 Capitalized Costs Related to Oil and Gas Producing Activities (unaudited) (In millions) At December 31, 1986 Capitalized costs Unproved properties................................................................................................................................................................... S 1,731 Proved properties, wells, plants, and other equipment............................................................................................................... 24,284 Total capitalized costs.................................................................................. $26,015 Accumulated depreciation, depletion, and amortization...............................................................................................................$ 9,690 Mobil's share of net capitalized costs of investees accounted for on the equity method......................................................................................................................................... $ 156 1985 $ 1,893 22.851 $24,744 S 8.218 S 138 Table 4 Costs Incurred in Oil and Gas Property Acquisition, Exploration, and Development Activities (unaudited) (In millions) United States Year Ended December 31,1986 Property acquisition costs.......................................................... ............................. $ Exploration costs........................................................... ............ ............................. Development costs .................................................................... ............................. 62 282 710 Total expenditures....................................................................... ............................. $1,054 Mobil's share of investees' costs of property acquisition, exploration, and development............................. ...................... -- Year Ended December 31,1985 Property acquisition costs........................................................... .............................. $ Exploration costs......................................................................... .............................. Development costs...................................................................... .............................. 93 504 816 Total expenditures ..................................................................................................... $1,413 Mobil's share of investees' costs of property acquisition, exploration, and development.............................. ............. ............ ... Year Ended December 31,1984 Property acquisition costs........................................................... ...............................$4,142 Exploration costs.......................................................................... ............................. 523 Development costs....................................................................... ............................. 820 Total expenditures........................................................................ ............................. $5,485 Mobil's share of investees costs of property acquisition, exploration, and development.............................. _ Canada S5 90 71 $ 166 -- $ 14 90 99 $ 203 -- $2,006 79 81 $2,166 _ Foreign Europe S-- 237 211 $448 $ 14 $-- 186 216 $402 $ 11 $171 151 361 $683 $ 11 Other $1 82 49 $132 $ 35 $-- 152 91 $243 $ 37 S 38 140 77 $255 S 30 Total S 68 691 1,041 $1,800 ! $ 49 S 107 932 1,222 $2,261 $ 48 $6,357 893 1.339 $8,589 S 41 C' `i 037688 -J2 Table 5 Results of Operations for Oil and Gas Producing Activities (unaudited) (In millions) United States Year Ended December 31,1986 Revenues--Trade sales.................................................................... ... S 1.151 --IntercomDany sales...................................................... ... 1.442 Production (lifting) costs.................................................................. ... (1.096) Exploration expenses...................................................................... ... (248) Depreciation, depletion, and amortization...................................... ... (1.158) Other operating revenues and (expenses)....................................... 31 Income tax expense......................................................................... ... (148) Results of operations for producing activities................................. ...S (26) Mobil's snare of results of operations for producing activities of investees accounted for on the equity method........................... -- Year Ended December 31,1985 Revenues--Trade sales.................................................................... ..$1,834 --Intercompany sales....................................................... .. 2.738 Production (lifting) costs.................................................................. ... (1.731) Exploration expenses....................................................................... .. (365) Depreciation, depletion, and amortization....................................... .. (992) Other operating revenues and (expenses)........................................ 4 Income tax expense......................................................................... .. (742) Results of operations for producing activities................................. ..$ 746 Mobil's share of results of operations for producing activities of investees accounted for on the equity method............................ Year Ended December 31,1984 Revenues--Trade sales..................................................................... ..SI.690 --Intercompanysales ....................................................... .. 2,888 Production (lifting) costs.................................................................... .. (1.621) Exploration expenses....................................................................... .. (341) Depreciation, depletion, and amortization....................................... . (1.003) Other operating revenues and (expenses)........................................ (61) Income tax expense.......................................................................... .. (728) Results of operations for producing activities................................. ..$ 824 Mobil s share of results of operations for producing activities of investees accounted for on the equity method............................. -- Canada S355 186 (244) (64) (156) 61 (95) S 43 -- $494 480 (337) (83) (145) 86 (356) $139 $321 499 (279) (41) (77) 21 (308) $ 136 Foreign Europe S 986 548 (629) (167) (270) 105 (305) S 268 S1 SI.353 840 (747) (138) (203) 66 (839) $ 332 $ 17 $1,190 788 (644) (125) (144) 27 (802) S 290 S 17 Other S 699 820 (387) (86) (129) 316 (732) S 501 S 13 $1,296 1.800 (622) (144) (97) 73 (1.734) $ 572 S 29 SI.074 1.379 (430) 028) (95) 36 (1,373) S 463 S 18 Total S3.191 2.996 (2.356) (565) (1.713) 513 (1.280) S 786 S 14 $4,977 5.858 (3.437) (730) (1.437) 229 (3.671) SI.789 $ 46 S4.275 5.554 (2,974) (635) (1.319) 23 (3.211) $1,713 $ 35 037889 014.% Table 6 Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Oil and Gas Reserves (unaudited) (lr. millions! United States At December 31,1986 Future cash inflows........................................................................ ..S 24.920 Future production costs................................................................. .. (10.308) Future development costs.............................................................. (924) Future income tax expenses.......................................................... (3.397) Future net cash flows...................................................................... .. 10.291 10% annual discount for estimated timing of cash flows................ (4.488) Standardized measure of discounted future net cash flows..........,.S 5.803 Mobil's share of standardized measure of discounted future net cash flows of investees accounted for on the equity method.... -- At December 31,1985'" Future cash inflows......................................................................... . S 40,661 Future production costs.................................................................. . (14.656) Future development costs............................................................... (1.818) Future income tax expenses........................................................... (9.355) Future net cash flows...................................................................... . 14.832 10% annual discount for estimated timing of cash flows................ . (6.544) Standardized measure of discounted future net cash flows.......... .5 8.288 Mobil's shareof standardized measure of discounted future net cash flows of investees accounted for on the equity method-- -- At December 31,1984'" Future cash inflows.......................................................................... . $ 44.013 Future production costs.................................................................. . (15.782) Future development costs............................................................... (1,738) Future income tax expenses........................................................... . (10.326) Future net cash flows....................................................................... . 16.167 10% annual discount for estimated timing of cash flows................ . (6.714) Standardized measure of discounted future net cash flows.......... .$ 9.453 Mobil's shareof standardized measure of discounted future net cash flows of investees accounted for on the equity method.... -- Canada S 7.729 (3.021) (55) (2.126) 2.527 (1.242) $ 1.285 -- Foreign Europe $ 14,074 (4.360) (863) (5.321) 3.530 (1.215) $ 2,315 $ 53 Other $ 23,881 (3.931) (847) (12,370) 6.733 (3.100) $ 3.633 $ 195 $12,710 (2.871) (74) (5.132) 4,633 (2.532) $ 2.101 -- $ 24.660 (6.371) (926) (10.653) 6.710 (3.029) $ 3.681 $ 83 $ 40.223 (3.746) (984) (22.830) 12,663 (6.423) $ 6.240 $ 286 $14,738 (4.493) (135) (5.874) 4,236 (2,322) S 1.914 -- $ 23.734 (6,626) (1.088) (10.846) 5,174 (2,191) $ 2.983 $ 75 $ 43.669 (5.209) (1.078) (23,416) 13.966 (7.347) ' $ 6.619 $ 192 Total $ 70,604 (21.620) (2,689) (23.214) 23,081 (10.045) $ 13.036 $ 248 $118,254 (27,644) (3,802) (47.970) 38.838 (18.528) $ 20,310 S 369 $126,154 (32,110) (4.039) (50,462) 39.543 (18,574) $ 20,969 $ 267 Table 7 Changes in Standardized Measure of Discounted Future Net Cash Flows (unaudited) (In millions) Year Ended December 31,____________________________________ 1986 1985"' 1984"' Beginning of year....................................................................................... Changes resulting from: Sales and transfers of production, net of production costs................. Net changes in prices, and development and production costs.......... Net change in income taxes................................................................. Extensions, discoveries, additions, and purchases less related costs Development costs incurred during the period................................... . Revisions of previous quantity estimates............................................. Accretion of discount............................................................................. Other ............................. . ................... ........................................... S 20,679 (3,831) (23,146) 12,047 424 1,041 1.888 4.303(121) $21,236 (7,398) (1.479) 613 590 1.219 1.281 4.515 102 $18,377 (6.855) (3.556) 1,161 5.003 1.327 1.184 4.539 56 End of year .... (1) Restated to conform with current year presentation Ti9TyT See Cautionary Note on page 38. S 13.284 $20,679 S21.236 I1 U37890 I Other resources disclosures .'unaudited) The table presents selected statistics for Mobil's mineral ore and carbon dioxide operations. Reserves represent estimated recoverable volumes, excluding roy alties and interests owned by others. All reserve estimates are subject to future revision. Future production of these re sources is subject to many factors, including government regulations and market conditions. Market prices for these resources may be subject to wide fluctuations during the pro duction periods. Mineral ore and carbon dioxide resources Coal (thousands of tons) Proved and probable reserves at end of year......................... Production.............................................................................. Purchased (sold) in place....................................................... Average market price per ton at end of year.......................... Phosphate Rock (thousands of tons) Proved and probable reserves at end of year......................... Production.............................................................................. Purchased (sold) in place....................................................... Average market price per ton at end of year.......................... Carbon Dioxide (millions of cubic feet) Proved reserves at end of year................................................ Production.............................................................................. Average market price per thousand cubic feet at end of year 1986 .. 2,968,000 3,990 -- S4.97 . 132,000 2,100 200 $21.15 . 4,380,000 76,000 $.45 1985 1984 4.227.000 4,655 (212,000) S6.51 4.444,000 4,813 80.000 S7.85 133.000 3.100 100 $25.41 137.000 3.300 -- S25.23 4,499.000 49,000 $.71 4,515.000 17.000 $.64 037691 01432 Directors, Officers and Committees Directors of Mobil Corp., seated from left: James 0. Riordan, Richard F. Tucker, Allen E. Murray, Jewel $. Lafontant, Alan Greenspan. Standing, from left: William J. Kennedy III, Lee L. Morgan, William W. Scranton, Eleanor B. Sheldon, Walter A. Bork, Samuel C. Johnson, Lewis M. Branscomb, Paul J. Hoenmans. Eugene A. Renna, Walter E. Mac Donald, Herbert Schmertz, William P. Tavoulareas. Not pictured: Anthony J.F. O'Reilly and Robert G. Schwartz. 'T & Q 0 1 \> ' ^ - > i -~v Mobil Corporation Directors Walter A. Bork Vice President. ModiI Oil Corporation Lewis M. 8ranscomo Director. Science. Tecnnology and PuDlic Policy. JohnF Kennedy Scnool ot Government. Harvard University Alan Greensoan President. Townsend-Greenspan and Company, Inc. Paul J. Hoenmans Executive Vice President. Moon Oil Corpdratron Samuel C. Johnson Chairman and Chief Executive Officer, S. C. Johnson & Son. Inc. William J. Kennedy ill Chairman. President, and Chief Executive Officer. North Carolina Mutual Lite Insurance Company Jewel S.Lafontant Senior Partner. Vedder. Price. Kaufman & Kammnolz Walter E. Mac Donald Executive Vice President. Mobil Oil Corporation Lee L. Morgan Farmer Chairman and Chief Executive Officer. Caterpillar Inc. Allen E. Murray Chairman of the Board. President, and Chief Executive Officer Anthony J.F. O'Reilly President and Chief Executive Officer. H. J. Heinz Company Eugene A. Renna Executive Vice President. Mobil Oil Corporation James Q. Riordan Vice Chairman and Chief Financial Olficer Herbert Schmertz Vice President Robert G. Schwartz Chairman of the Board. Metropolitan Life Insurance Company William W. Scranton Former Governorof Pennsylvania Eleanor B. Sheldon Former President. Social Science Research Council William P.Tavoulareas Former President Richard F. Tucker Vice Chairman and President. Mobil Oil Corporation Officers Allen E. Murray Chairman of the Board. President, and Chief Executive Officer Richard F Tucker Vice Chairman James Q. Riordan Vice Chairman Rex 0. Adams Vice President Andrew L. Gaboriault Vice President LucioA. Noto Vice President HerDert Schmertz Vice President Robert G. Weeks Vice President Susan R.Csia Secretary J. Edward Fowler General Counsel R, Hartwell Gardner Treasurer Philip W. Matos Controller Committees Audit Committee: Or. Branscomb. Chairman: Mr. Kennedy, Mrs. Lafontant. Mr, Morgan and Dr. Sheldon, regular members: Dr Greenspan. Mr. Johnson. Dr. O'Reilly and Gov. Scranton, alternate members. Compensation and Management Incentive Committee: Mr. Morgan. Chairman: Dr. Greenspan. Mr. Johnson. Mr. Kennedy and Dr. O'Reilly, regular members: Dr. Branscomb, Mrs. Lafontant. Gov. Scranton and Dr. Sheldon, alternate members. Executive Committee: Mr. Murray. Chairman: Mr.Tucker. Vice Chairman: Mr Bork. Mr. Hoenmans. Mr. Mac Donald. Mr. Renna. Mr. Riordan. Mr. Schmertz and Mr. Tavoulareas. regular members. Nominating Committee: Gov. Scranton. Chairman: Dr. Branscomb. Or. Greenspan. Mr. Morgan. Mr. Murray and Mr. Tucker, regular members: Mr. Johnson, Mr. Kennedy. Mrs. Lafontant. Dr. O'Reilly and Dr. Sheldon, alternate members. Public Issues Committee: Mrs. Lafontant. Chairman: Mr. Johnson. Mr. Kennedy. Mr. Murray, Dr. O'Reilly. Gov. Scranton. Dr. Sheldon and Mr.Tucker, regular members: Dr. Branscomb, Dr. Greenspan and Mr. Morgan, alternate members Mobil Oil Corporation Directors Walter A. Bork Vice President Paul J. Hoenmans Executive Vice President Walter E. Mac Donald Executive Vice President Allen E. Murray Chairman of the Board LucioA. Noto Vice President Eugene A. Renna Executive Vice President James Q. Riordan Executive Vice President Herbert Schmertz Vice President William P.Tavoulareas Former President Richard F Tucker President Robert G. Weeks Vice President Montgomery Ward Bernard F. Brennan President I! 037893 01 Transfer Agents The Chase Mannattan 0anK N.A 1 New York Plaza New York. New York 10081 The Canada Trust Comoany 110 Yonge at Adelaide Toronto. Ontario MC51T4 Canada The Canada Trust Comoany 505 Third Street. S.W Calgary. Alberta T2P 3Y8. Canada Registrars The Chase Manhattan Bank. N.A New York. New York Montreal Trust Company Toronto. Ontario. Canada Montreal Trust Comoany Calgary. Alberta. Canada Auditors Arthur Young S. Company 277 Park Avenue New York. New York 10172 An important part of the domestic and foreign operations covered by this report is carried on by operating divisions, subsidiaries, and affiliates conducting their respective businesses under the direction and control of their own managements. Except as otherwise indicated by the context, this report uses such terms as Mobil) corporation, company, 'we. and 'our. sometimes for the parent corporation and all sucn divisions, subsidiaries, and affiliates collectively, and sometimes for one or more of them. Additional information relating to Mobil is contained m a separate report. Financial and Operating Statistics 1986. and in its annual report on Form 10-K filed with the Securities and Exchange Commission. Information dealing with various Mobil benefit plans for employees is contained in plan descriptions, annual reports, and other materials regularly furnished fo employees under the Employee Retirement Income Security Act of 1974. A statement of charitable contributions made by Mobil Foundation. Inc., is prepared annually. For copies of any of the foregoing, shareholders may write to the Secretary. Room 9W0006. Mobil Corporation. 150 East 42nd Street. New York. New York 10017-5666 or telephone (212) 883-4242. Mobil Corporation T^cmMBaszM -> r> OO 037695