-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LA9RIy9ux3NA3B4aqBr2EzJwHJIAsvfz/C0vQkl2QGE6sRuffhyfjTxQCwOXvXc9 ZdkBb5rVoesMA1+OQwm6EQ== 0000716039-02-000045.txt : 20020923 0000716039-02-000045.hdr.sgml : 20020923 20020923165332 ACCESSION NUMBER: 0000716039-02-000045 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020630 FILED AS OF DATE: 20020923 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNOCAL CORP CENTRAL INDEX KEY: 0000716039 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 953825062 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08483 FILM NUMBER: 02770256 BUSINESS ADDRESS: STREET 1: 2141 ROSECRANS AVE STREET 2: STE 4000 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107267600 MAIL ADDRESS: STREET 1: 2141 ROSECRANS AVE STREET 2: STE 4000 CITY: EL SEGUNDO STATE: CA ZIP: 90245 10-Q/A 1 q22002_10qa2.txt AMENDMENT NO. 2 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q/A Amendment No. 2 ----------------- (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2002 -------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------- ------------------- Commission file number 1-8483 UNOCAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 95-3825062 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2141 ROSECRANS AVENUE, SUITE 4000, EL SEGUNDO, CALIFORNIA 90245 (Address of principal executive offices) (Zip Code) (310) 726-7600 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- Number of shares of Common Stock, $1 par value, outstanding as of July 31, 2002: 244,665,162 TABLE OF CONTENTS PAGE Glossary.................................................................... i PART I Item 1. Financial Statements Consolidated Earnings............................................. 1 Consolidated Balance Sheet........................................ 2 Consolidated Cash Flows........................................... 3 Notes to Financial Statements..................................... 4 SIGNATURE................................................................... 29 CERTIFICATIONS.............................................................. 29 GLOSSARY Below are certain definitions of key terms that may be in use in this Form 10-Q report. M Thousand Bbl Barrels MM Million Cf/d Cubic feet per day B Billion Cfe/d Cubic feet of gas equivalent per day CF Cubic feet Btu British thermal units BOE Barrels of oil equivalent DD&A Depreciation, depletion and amortization Liquids Crude oil, condensate and NGLs NGLs Natural gas liquids Bbl/d Barrels per day o API Gravity is a measurement of the gravity (density) of crude oil and other liquid hydrocarbons by a system recommended by the American Petroleum Institute ("API"). The measuring scale is calibrated in terms of "API degrees." The higher the API gravity, the lighter the oil. o Bilateral institution refers to a country specific institution, which lends funds primarily to promote the export of goods from that country. Examples of bilateral institutions are Ex-Im (U.S.), Hermes (Germany), SACE (Italy), COFACE (France), and JBIC (Japan). o BOE A term used to quantify oil and natural gas amounts using the same measurement. Gas volumes are converted to barrels of oil on the basis of energy content, where the volume of natural gas that when burned produces the same amount of heat as a barrel of oil (6,000 cubic feet of gas equals one barrel of oil). o British Thermal Units ("Btu") is a measure of the amount of heat required to raise the temperature of one pound of water one degree Fahrenheit. o Delineation or appraisal well is a well drilled in an unproven area adjacent to a discovery well to define the boundaries of the reservoir. o Development well is a well drilled within the proved area of an oil or natural gas reservoir to a depth of a stratigraphic horizon known to be productive. o Dry hole is a well believed to be incapable of producing hydrocarbons in sufficient commercial quantities to justify future capital expenditures for completion and additional infrastructure. o Economic interest method pursuant to production sharing contracts is a method by which the Company's share of the cost recovery revenue and the profit revenue is divided by year-end oil and gas prices and represents the volume that the Company is entitled to. The lower the commodity price, the higher the volume entitlement, and vice versa. o Exploratory well is a well drilled to find and produce oil or natural gas reserves that is not a development well. o Farm-in or farm-out is an agreement whereby the owner of a working interest in an oil and gas lease assigns the working interest or a portion thereof to another party who desires to drill on the leased acreage. The assignor usually retains a royalty or reversionary interest in the lease. The interest received by an assignee is a "farm-in," while the interest transferred by the assignor is a "farm-out." o Field is an area consisting of a single reservoir or multiple reservoirs all grouped on or related to the same individual geological structural feature or stratigraphic condition. o Floating Production Storage and Offloading ("FPSO") technology refers to the use of a vessel that is stationed above or near an offshore oil field. Produced fluids from subsea completion wells are brought by flowlines to the vessel where they are separated, treated, stored and then offloaded to another vessel for transportation. o Gross acres or gross wells are the total acres or wells in which a working interest is owned. o Hydrocarbons are organic compounds of hydrogen and carbon atoms that form the basis of all petroleum products. i o Lifting is the amount of liquids each working-interest partner takes physically. The liftings may actually be more or less than actual entitlements that are based on royalties, working interest percentages, and a number of other factors. o Liquefied Natural Gas ("LNG") is a gas, mainly methane, which has been liquefied in a refrigeration and pressure process to facilitate storage and transportation. o Liquefied Petroleum Gas ("LPG") is a mixture of butane, propane and other light hydrocarbons. At normal temperature it is a gas, but it can be cooled or subjected to pressure to facilitate storage and transportation. o Multilateral institution refers to an institution with shareholders from multiple countries that lends money for specific development reasons. Examples of multilateral institutions are International Finance Corporation ("IFC"), European Bank for Reconstruction and Development ("EBRD"), and Asian Development Bank ("ADB"). o Natural Gas Liquids ("NGLs") are primarily ethane, propane, butane and natural gasolines which can be extracted from wet natural gas and become liquid under various combinations of increasing pressure and lower temperature. o Net acreage and net oil and gas wells are obtained by multiplying gross acreage and gross oil and gas wells by the Company's working interest percentage in the properties. o Net pay is the amount of oil or gas saturated rock capable of producing oil or gas. o Production Sharing Contract ("PSC") is a contractual agreement between the Company and a host government whereby the Company, acting as contractor, bears all exploration costs, development and production costs in return for an agreed upon share of production. o Producible well is a well that is found to be capable of producing hydrocarbons in sufficient quantities such that proceeds from the sale of such production exceed production expenses and taxes. o Prospective acreage is lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and natural gas. o Proved acreage is acreage that is allocated to producing wells or wells capable of production or to acreage that is being developed. o Reservoir is a porous and permeable underground formation containing oil and/or natural gas enclosed or surrounded by layers of less permeable rock and is individual and separate from other reservoirs. o Subsea tieback is a well with the wellhead equipment located on the bottom of the ocean. o Take-or-Pay is a type of contract clause where specific quantities of a product must be paid for, even if delivery is not taken. Normally, the purchaser has the right in following years to take product that had been paid for but not taken. o Trend or Play is an area or region of concentrated activity with a group of related fields and prospects. o Working interest is the percentage of ownership that the Company has in a joint venture, partnership or consortium. ii PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED EARNINGS (UNAUDITED) UNOCAL CORPORATION For the Three Months For the Six Months Ended June 30, Ended June 30, ------------------------------------------------------ Millions of dollars except per share amounts 2002 2001 2002 2001 - ----------------------------------------------------------------------------------------------------------------------------- Revenues Sales and operating revenues $ 1,349 $ 1,684 $ 2,373 $ 3,890 Interest, dividends and miscellaneous income 8 11 20 19 Gain (loss) on sales of assets (1) 1 1 1 - ----------------------------------------------------------------------------------------------------------------------------- Total revenues 1,356 1,696 2,394 3,910 Costs and other deductions Crude oil, natural gas and product purchases 428 537 723 1,524 Operating expense 312 329 600 659 Administrative and general expense 37 27 80 71 Depreciation, depletion and amortization 255 245 479 468 Impairments 21 - 21 - Dry hole costs 13 47 41 87 Exploration expense 61 55 120 111 Interest expense 43 48 94 97 Property and other operating taxes 18 20 34 41 Distributions on convertible preferred securities of subsidiary trust 8 8 16 16 - ----------------------------------------------------------------------------------------------------------------------------- Total costs and other deductions 1,196 1,316 2,208 3,074 Earnings from equity investments 51 49 88 91 - ----------------------------------------------------------------------------------------------------------------------------- Earnings from continuing operations before income taxes and minority interests 211 429 274 927 - ----------------------------------------------------------------------------------------------------------------------------- Income taxes 95 180 135 370 Minority interests 3 14 4 30 - ----------------------------------------------------------------------------------------------------------------------------- Earnings from continuing operations 113 235 135 527 Discontinued operations Refining, marketing and transportation Gain on disposal (net of tax) 1 12 1 16 - ----------------------------------------------------------------------------------------------------------------------------- Earnings from discontinued operations 1 12 1 16 Cumulative effect of accounting change - - - (1) - ----------------------------------------------------------------------------------------------------------------------------- Net earnings $ 114 $ 247 $ 136 $ 542 ============================================================================================================================= Basic earnings per share of common stock (a) Continuing operations $ 0.46 $ 0.98 $ 0.55 $ 2.17 Net earnings $ 0.46 $ 1.02 $ 0.55 $ 2.23 Diluted earnings per share of common stock (b) Continuing operations $ 0.46 $ 0.95 $ 0.55 $ 2.11 Net earnings $ 0.46 $ 0.99 $ 0.55 $ 2.17 Cash dividends declared per share of common stock $ 0.20 $ 0.20 $ 0.40 $ 0.40 - ----------------------------------------------------------------------------------------------------------------------------- (a) Basic weighted average shares outstanding (in thousands) 244,639 243,508 244,423 243,339 (b) Diluted weighted average shares outstanding (in thousands) 245,865 256,899 245,531 256,655 See Notes to the Consolidated Financial Statements.
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CONSOLIDATED BALANCE SHEET UNOCAL CORPORATION At June 30, At December 31, -------------------------------------- Millions of dollars 2002 (a) 2001 - ------------------------------------------------------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents $ 161 $ 190 Accounts and notes receivable - net 837 847 Inventories 111 102 Deferred income taxes 138 123 Other current assets 23 33 - ------------------------------------------------------------------------------------------------------------------------- Total current assets 1,270 1,295 Investments and long-term receivables - net 1,486 1,405 Properties - net (b) 7,741 7,514 Deferred income taxes 177 128 Other assets 119 83 - ------------------------------------------------------------------------------------------------------------------------- Total assets $ 10,793 $ 10,425 ========================================================================================================================= Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 828 $ 823 Taxes payable 245 249 Dividends payable 49 49 Interest payable 48 49 Current portion of environmental liabilities 116 124 Current portion of long-term debt and capital leases 8 9 Other current liabilities 147 119 - ------------------------------------------------------------------------------------------------------------------------- Total current liabilities 1,441 1,422 Long-term debt and capital leases 3,111 2,897 Deferred income taxes 678 627 Accrued abandonment, restoration and environmental liabilities 587 590 Other deferred credits and liabilities 722 724 Subsidiary stock subject to repurchase 92 70 Minority interests 430 449 Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust holding solely parent debentures 522 522 Common stock ($1 par value, shares authorized: 750,000,000 (c)) 255 255 Capital in excess of par value 573 551 Unearned portion of restricted stock issued (26) (29) Retained earnings 2,926 2,888 Accumulated other comprehensive income (66) (88) Notes receivable - key employees (41) (42) Treasury stock - at cost (d) (411) (411) - ------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 3,210 3,124 - ------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 10,793 $ 10,425 ========================================================================================================================= (a) Unaudited (b) Net of accumulated depreciation, depletion and amortization of: $ 11,932 $ 11,648 (c) Number of shares outstanding (in thousands) 244,660 243,998 (d) Number of shares (in thousands) 10,623 10,623 See Notes to the Consolidated Financial Statements.
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CONSOLIDATED CASH FLOWS (UNAUDITED) UNOCAL CORPORATION For the Six Months Ended June 30, --------------------------------- Millions of dollars 2002 2001 - -------------------------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities Net earnings $ 136 $ 542 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation, depletion and amortization 479 468 Impairments 21 - Dry hole costs 41 87 Amortization of exploratory leasehold costs 45 45 Deferred income taxes (17) 82 Gain on sales of assets (pre-tax) (1) (1) Gain on disposal of discontinued operations (pre-tax) (2) (25) Earnings applicable to minority interests 5 30 Other (45) 62 Working capital and other changes related to operations Accounts and notes receivable 18 312 Inventories (9) 12 Accounts payable (1) (265) Taxes payable (4) (46) Other (40) (59) - -------------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 626 1,244 - -------------------------------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities Capital expenditures (includes dry hole costs) (830) (824) Major acquisitions - (417) Proceeds from sales of assets 45 23 Proceeds from sale of discontinued operations 2 7 - -------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (783) (1,211) - -------------------------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities Long-term borrowings 440 467 Reduction of long-term debt and capital lease obligations (229) (101) Minority interests (4) (10) Proceeds from issuance of common stock 19 13 Dividends paid on common stock (98) (97) - -------------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 128 272 - -------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (29) 305 - -------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of year 190 235 - -------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 161 $ 540 ========================================================================================================================== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest (net of amount capitalized) $ 95 $ 98 Income taxes (net of refunds) $ 171 $ 326 See Notes to the Consolidated Financial Statements.
-3- NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. General The consolidated financial statements included in this report are unaudited and, in the opinion of management, include all adjustments necessary for a fair presentation of financial position and results of operations. All adjustments are of a normal recurring nature. Such financial statements are presented in accordance with the Securities and Exchange Commission's ("SEC") disclosure requirements for Form 10-Q. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the related notes filed with the Commission in Unocal Corporation's 2001 Annual Report on Form 10-K. For the purpose of this report, Unocal Corporation ("Unocal") and its consolidated subsidiaries, including Union Oil Company of California ("Union Oil"), are referred to as the "Company". The consolidated financial statements of the Company include the accounts of subsidiaries in which a controlling interest is held. Investments in entities without a controlling interest are accounted for by the equity method or cost basis. Under the equity method, the investments are stated at cost plus the Company's equity in undistributed earnings and losses after acquisition. Income taxes estimated to be payable when earnings are distributed are included in deferred income taxes. Results for the six months ended June 30, 2002, are not necessarily indicative of future financial results. Certain items in the prior year financial statements have been reclassified to conform to the 2002 presentation. 2. Accounting Changes Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets". SFAS No. 142 addresses accounting for goodwill and identifiable intangible assets subsequent to their initial recognition, eliminates the amortization of goodwill and provides specific steps for testing the impairment of goodwill. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their useful lives. SFAS No. 142 also eliminates amortization of the excess of cost over the underlying equity in the net assets of an equity method investee that is recognized as goodwill. The adoption of the statement did not have a material effect on the Company's financial position and results of operations. Effective January 1, 2002, the Company also adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations--Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions". The adoption of SFAS No. 144 did not have a material effect on the Company's financial position and results of operations. The Company has adopted SFAS No. 145, "Rescission of SFAS No. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections." This Statement rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt", and an amendment of that Statement, SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". This Statement also rescinds or amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. The adoption of SFAS No. 145 did not have a material effect on the Company's financial position and results of operations. -4- In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". This statement provides guidance on the recognition and measurement of liabilities associated with disposal activities and is effective for the Company on January 1, 2003. 3. Other Financial Information During the second quarters of 2002 and 2001, approximately 23 percent and 25 percent, respectively, of total sales and operating revenues were attributable to the resale of liquids and natural gas purchased from others in connection with marketing activities. For the six months ended June 30, 2002 and 2001, these percentages were approximately 22 percent and 32 percent, respectively. Related purchase costs are classified as expense in the crude oil, natural gas and product purchase category on the consolidated earnings statement. The current year percentage decreases were principally due to lower purchases of domestic crude oil from third parties for resale. During 2001, management decided to decrease its outside crude oil purchases for resale due to increased volatility in the oil markets. Capitalized interest totaled $10 million and $6 million for the second quarters of 2002 and 2001, respectively, and $19 million and $11 million for the six months ended 2002 and 2001, respectively. The increase was primarily due to the capitalized interest related to the Mad Dog development project in the Gulf of Mexico and the West Seno oil and gas development project in the deepwater Kutei Basin, offshore East Kalimantan, Indonesia. Exploration expense on the consolidated earnings statement consisted of the following:
For the Three Months For the Six Months Ended June 30, Ended June 30, --------------------------- ------------------------- Millions of dollars 2002 2001 2002 2001 - ---------------------------------------------------------------------------------------------------------------------- Exploration operations $ 25 $ 22 $ 48 $ 40 Geological and geophysical 8 6 19 19 Amortization of exploratory leases 23 23 45 45 Leasehold rentals 5 4 8 7 - ---------------------------------------------------------------------------------------------------------------------- Exploration expense $ 61 $ 55 $ 120 $ 111 ======================================================================================================================
4. Restructuring In June 2002, the Company adopted a restructuring plan that resulted in the accrual of a $19 million pre-tax restructuring charge. The charge included the estimated costs of terminating approximately 200 employees in the Company's Sugar Land, Texas, office and field locations. The restructuring plan involves organizational changes to eliminate unnecessary work processes in the Company's Gulf Region business unit, which is part of the U.S. Lower 48 operations in the Exploration and Production segment. The restructuring charge was reflected in the operating expense line on the consolidated earnings statement and included approximately $14 million for termination costs to be paid to the employees over time, about $3 million for outplacement and other costs and about $2 million for benefit plan curtailment costs. All of the affected employees had been terminated or had received termination notices as of June 30, 2002. 5. Impairments The Company, as part of its regular assessment, reviewed its developed and undeveloped oil and gas properties and other long-lived assets for possible impairment. In the second quarter of 2002, the Company recorded a pre-tax charge of $21 million, or $13 million after-tax, for the impairment of oil and gas fields in Alaska and the Gulf of Mexico region. The impairment in Alaska, which made up the majority of the amount recorded, was $18 million pre-tax, or $12 million after-tax. -5- 6. Income Taxes Income taxes on earnings from continuing operations for the second quarter and six months periods of 2002 were $95 million and $135 million, respectively, compared with $180 million and $370 million for the comparable periods of 2001. The effective income tax rates for the second quarter and six months periods of 2002 were 46 percent and 50 percent, respectively, compared with 43 percent and 41 percent for the comparable periods of 2001. The higher effective income tax rates for the second quarter and the first six months of 2002, as compared with the same periods a year ago, reflect currency effects primarily in Thailand along with the effect of changes in the mix of domestic earnings in the prior year periods and losses in the current year periods coupled with foreign earnings for all periods reported, which are generally taxed at higher rates. 7. Earnings Per Share The following are reconciliations of the numerators and denominators of the basic and diluted earnings per share ("EPS") computations for earnings from continuing operations for the second quarters and six months ended June 30, 2002 and 2001:
Earnings Shares Per Share Millions except per share amounts (Numerator) (Denominator) Amount - --------------------------------------------------------------------------------------------------------------------------- Three months ended June 30, 2002 Earnings from continuing operations $ 113 244.6 Basic EPS $ 0.46 ============= Effect of dilutive securities Options and common stock equivalents 1.2 -------------------------------- Diluted EPS 113 245.8 $ 0.46 ============= Distributions on subsidiary trust preferred securities (after-tax) 7 12.3 -------------------------------- Antidilutive $ 120 258.1 $ 0.46 Three months ended June 30, 2001 Earnings from continuing operations $ 235 243.5 Basic EPS $ 0.98 ============= Effect of dilutive securities Options and common stock equivalents 1.1 -------------------------------- 235 244.6 $ 0.96 Distributions on subsidiary trust preferred securities (after-tax) 7 12.3 -------------------------------- Diluted EPS $ 242 256.9 $ 0.95 ============= - ---------------------------------------------------------------------------------------------------------------------------
Not included in the computation of diluted EPS for the three months ended June 30, 2002 and 2001, were options outstanding to purchase approximately 1.9 million and 3.4 million shares, respectively, of common stock. These options were not included in the computation as the exercise prices were greater than average market prices of the common shares during the respective quarters. -6-
Earnings Shares Per Share Millions except per share amounts (Numerator) (Denominator) Amount - --------------------------------------------------------------------------------------------------------------------------- Six months ended June 30, 2002 Earnings from continuing operations $ 135 244.4 Basic EPS $ 0.55 ============= Effect of dilutive securities Options and common stock equivalents 1.1 -------------------------------- 135 245.5 $ 0.55 ============= Distributions on subsidiary trust preferred securities (after-tax) 14 12.3 -------------------------------- Antidilutive $ 149 257.8 $ 0.58 Six months ended June 30, 2001 Earnings from continuing operations $ 527 243.3 Basic EPS $ 2.17 ============= Effect of dilutive securities Options and common stock equivalents 1.1 -------------------------------- 527 244.4 $ 2.16 Distributions on subsidiary trust preferred securities (after-tax) 13 12.3 -------------------------------- Diluted EPS $ 540 256.7 $ 2.11 ============= - ---------------------------------------------------------------------------------------------------------------------------
The diluted EPS computation for the six months ended June 30, 2002 and 2001, did not include options outstanding to purchase approximately 3.3 million and 5.0 million shares, respectively, of common stock. These options were not included in the computation as the exercise prices were greater than the year-to-date average market price of the common shares. Basic and diluted earnings per common share for discontinued operations were as follows:
For the Three Months For the Six Months Ended June 30, Ended June 30, ------------------------------------------------------- Millions except per share amounts 2002 2001 2002 2001 - ---------------------------------------------------------------------------------------------------------------------- Basic earnings per share of common stock: Discontinued operations: Earnings from discontinued operations $ 1 $ 12 $ 1 $ 16 Weighted average common shares outstanding 244.6 243.5 244.4 243.3 Earnings from discontinued operations $ - $ 0.04 $ - $ 0.06 Dilutive earnings per share of common stock: Discontinued operations: Earnings from discontinued operations $ 1 $ 12 $ 1 $ 16 Weighted average common shares outstanding 245.8 256.9 245.5 256.7 Earnings from discontinued operations $ - $ 0.04 $ - $ 0.06
-7- 8. Comprehensive Income The Company's comprehensive income was:
For the Three Months For the Six Months Ended June 30, Ended June 30, --------------------------------------------------- Millions of dollars 2002 2001 2002 2001 - -------------------------------------------------------------------------------------------------------------------------- Net earnings $ 114 $ 247 $ 136 $ 542 Cumulative effect of change in accounting principle SFAS No. 133 adoption (a) - - - (59) Change in unrealized loss on hedging instruments (b) (1) 41 (9) 31 Reclassification adjustment for settled hedging contracts (c) 4 2 (1) 19 Unrealized foreign currency translation adjustments 35 15 32 (16) - -------------------------------------------------------------------------------------------------------------------------- Total comprehensive income $ 152 $ 305 $ 158 $ 517 ========================================================================================================================== (a) Net of tax expense (benefit) of: - - - (36) (b) Net of tax expense (benefit) of: (1) 24 (5) 19 (c) Net of tax expense (benefit) of: 2 1 (1) 11
9. Cash and Cash Equivalents
At June 30, At December 31, ------------------------------------ Millions of dollars 2002 2001 - -------------------------------------------------------------------------------------------------------- Cash $ 18 $ 12 Time deposits 97 123 Restricted cash 6 5 Marketable securities 40 50 - -------------------------------------------------------------------------------------------------------- Cash and cash equivalents $ 161 $ 190 ========================================================================================================
10. Long Term Debt and Credit Agreements During the first six months of 2002, the Company's consolidated debt, including the current portion, increased by $213 million. This net increase included $440 million in new commercial paper borrowings, the proceeds of which were used to refinance maturing debt and for general corporate purposes. The commercial paper had a weighted average interest rate of 2.23 percent at June 30, 2002. The Company retired $132 million of maturing medium-term notes during the first six months of 2002. In February 2002, the Company's Northrock Resources Ltd. subsidiary redeemed its $35 million "Series A" and $40 million "Series B" senior U.S. dollar-denominated notes, which bore interest of 6.54 percent and 6.74 percent, respectively. The Company's Pure Resources, Inc. ("Pure") subsidiary reduced its long-term debt, included in the Company's consolidated debt, by $16 million principally due to a decrease in borrowing under its revolving credit facilities. Pure's debt was $571 million at June 30, 2002. Neither Unocal nor Union Oil guarantees any of Pure's debt. 11. Accrued Abandonment, Restoration and Environmental Liabilities At June 30, 2002, the Company had accrued $472 million for the estimated future costs to abandon and remove wells and production facilities. The total costs for these abandonments are predominantly accrued on a unit-of-production basis and are estimated to be approximately $700 million. This estimate was derived in large part from abandonment cost studies performed by independent third party firms and is used to calculate the amount to be amortized. The Company's reserve for environmental remediation obligations at June 30, 2002 totaled $231 million, of which $116 million was included in current liabilities. -8- 12. Commitments and Contingencies The Company has contingent liabilities with respect to material existing or potential claims, lawsuits and other proceedings, including those involving environmental, tax and other matters, certain of which are discussed more specifically below. The Company accrues liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. Such accruals are based on developments to date, the Company's estimates of the outcomes of these matters and its experience in contesting, litigating and settling other matters. As the scope of the liabilities becomes better defined, there will be changes in the estimates of future costs, which could have a material effect on the Company's future results of operations and financial condition or liquidity. Environmental matters The Company is subject to loss contingencies pursuant to federal, state, local and foreign environmental laws and regulations. These include existing and possible future obligations to investigate the effects of the release or disposal of certain petroleum, chemical and mineral substances at various sites; to remediate or restore these sites; to compensate others for damage to property and natural resources, for remediation and restoration costs and for personal injuries; and to pay civil penalties and, in some cases, criminal penalties and punitive damages. These obligations relate to sites owned by the Company or others and are associated with past and present operations, including sites at which the Company has been identified as a potentially responsible party ("PRP") under the federal Superfund laws and comparable state laws. Liabilities are accrued when it is probable that future costs will be incurred and such costs can be reasonably estimated. However, in many cases, investigations are not yet at a stage where the Company is able to determine whether it is liable or, even if liability is determined to be probable, to quantify the liability or estimate a range of possible exposure. In such cases, the amounts of the Company's liabilities are indeterminate due to the potentially large number of claimants for any given site or exposure, the unknown magnitude of possible contamination, the imprecise and conflicting engineering evaluations and estimates of proper clean-up methods and costs, the unknown timing and extent of the corrective actions that may be required, the uncertainty attendant to the possible award of punitive damages, the recent judicial recognition of new causes of action, the present state of the law, which often imposes joint and several and retroactive liabilities on PRPs, the fact that the Company is usually just one of a number of companies identified as a PRP, or other reasons. As disclosed in note 11, at June 30, 2002, the Company had accrued $231 million for estimated future environmental assessment and remediation costs at various sites where liabilities for such costs are probable and reasonably estimable. The Company may also incur additional liabilities in the future at sites where remediation liabilities are probable but future environmental costs are not presently reasonably estimable because the sites have not been assessed or the assessments have not advanced to the stage where costs are reasonably estimable. At those sites where investigations or feasibility studies have advanced to the stage of analyzing feasible alternative remedies and/or ranges of costs, the Company estimates that it could incur possible additional remediation costs aggregating approximately $255 million. The amount of such possible additional costs reflects the aggregate of the high ends of the ranges of costs of feasible alternatives identified by the Company for those sites with respect to which investigation or feasibility studies have advanced to the stage of analyzing such alternatives. However, such estimated possible additional costs are not an estimate of the total remediation costs beyond the amounts reserved, because there are sites where the Company is not yet in a position to estimate all, or in some cases any, possible additional costs. Both the amounts reserved and estimates of possible additional costs may change in the near term, and in some cases could change substantially, as additional information becomes available regarding the nature and extent of site contamination, required or agreed-upon remediation methods and other actions by government agencies and private parties. -9- The accrued costs and the possible additional costs are shown below in four categories of sites:
At June 30, 2002 ---------------------------- Possible Millions of dollars Reserves Additional - ------------------------------------------------------------------------------------------------- Superfund and similar sites $ 18 $ 11 Active company facilities 37 66 Company facilities sold with retained liabilities and former company-operated sites 97 71 Inactive or closed company facilities 79 107 - ------------------------------------------------------------------------------------------------- Total reserves $ 231 $ 255 =================================================================================================
The time frame over which the amounts included in the reserve may be paid extend from the near term to several years into the future. The sites included in the above categories are in various stages of investigation and remediation; therefore, the related payments against the existing reserve will be made in different future periods. Also, some of the work is dependent upon reaching agreements with regulatory agencies and/or other third parties on the scope of remediation work to be performed, who will perform the work, the timing of the work, who will pay for the work and other factors that may have an impact on the timing of the payments for amounts included in the reserve. For some sites, the remediation work will be performed by other parties, such as the current owners of the sites, and the Company has a contractual agreement to pay a share of the remediation costs. For these sites, the Company generally has less control over the timing of the work and consequently the timing of the associated payments. Based on available information, the Company estimates that the majority of the amounts included in the reserve will be paid within the next three to five years. At the sites where the Company has a contractual agreement to share remediation costs with third parties, the reserve reflects the Company's estimated share of those costs. In many of the oil and gas sites, remediation cost sharing is included in joint venture agreements that were made with third parties during the original operation of the site. In many cases where the Company sold facilities or a business to a third party, sharing of remediation costs for those sites may be included in the sales agreement. Contamination in the sites of the "Superfund and Similar Sites" category was the result of the disposal of substances at these sites by one or more PRPs. Contamination of these sites could be from many sources, of which the Company may be one. The Company has been notified that it is a PRP at the sites included in this category. At the sites where the Company has not denied liability, the Company's contribution to the contamination at these sites was primarily from waste from the current and former operations identified above. The "Active Company Facilities" category includes oil and gas fields and mining operations. The sites are primarily contaminated with crude oil, oil field waste and other petroleum hydrocarbons. Contamination at the active mining sites was principally the result of the impact of mined material on the groundwater and/or surface water at these sites. The "Company Facilities Sold and Former Company-Operated Sites" and "Inactive or Closed Company Facilities" categories include former Company refineries, transportation and distribution facilities and service stations. The required remediation of these sites is mainly for petroleum hydrocarbon contamination as the result of leaking tanks or impoundments that were used in these operations. Also, included in these categories are former oil and gas fields that the company no longer operates. In most cases, these sites are contaminated with crude oil, oil field waste and other petroleum hydrocarbons. Contamination at other sites in this category was the result of former industrial chemical and polymers manufacturing and distribution facilities, agricultural chemical retail businesses and ferromolybdenum production operations. -10- Superfund and similar sites - At June 30, 2002, Unocal had received notification from the U.S. Environmental Protection Agency ("EPA") that the Company may be a PRP at 30 sites and may share certain liabilities at these sites. Of the total, five sites are under investigation and/or litigation and the Company's potential liability is not presently determinable and for two sites the Company has denied responsibility. At one site, the Company's potential liability appears to be de minimis. Of the remaining 22 sites, where probable and to the extent costs can be reasonably estimated, reserves of $12 million have been established for future remediation and settlement costs. Various state agencies and private parties had identified 23 other similar PRP sites. Two sites are under investigation and/or litigation and the Company's potential liability is not presently determinable. At three sites the Company's potential liability appears to be de minimis. At another site, the Company has made final settlement payments and is in the process of completing its involvement in the site. The Company has denied responsibility at two sites. Where probable and to the extent costs can be reasonably estimated at the remaining 15 sites, reserves of $6 million have been established for future remediation and settlement costs. In addition to the total of $18 million in reserves mentioned above, the Company has also estimated that additional costs of $11 million are possible for the "Superfund and Similar Sites" category. Included in this category of sites are: o The McColl site in Fullerton, California o The Operating Industries site in Monterey Park, California o The Casmalia Waste site in Casmalia, California These 53 sites exclude 108 sites where the Company's liability has been settled, or where the Company has no evidence of liability and there has been no further indication of liability by government agencies or third parties for at least a 12-month period. The Company does not consider the number of sites for which it has been named a PRP as a relevant measure of liability. Although the liability of a PRP is generally joint and several, the Company is usually just one of numerous companies designated as a PRP. The Company's ultimate share of the remediation costs at those sites often is not determinable due to many unknown factors. The solvency of other responsible parties and disputes regarding responsibilities may also impact the Company's ultimate costs. Active Company facilities - The Company has a reserve of $37 million for estimated future costs of remedial orders, corrective actions and other investigation, remediation and monitoring obligations at certain operating facilities and producing oil and gas fields. Included in this category are: o The Molycorp molybdenum mine in Questa, New Mexico o The Molycorp lanthanide facility in Mountain Pass, California o Alaska oil and gas properties The company estimates that it may incur possible additional costs of $67 million for this group of sites. Company facilities sold with retained liabilities and former Company-operated sites - Company facilities sold with retained liabilities include: o West Coast refining, marketing and transportation sites o Auto/truckstop facilities throughout the U.S. o Industrial chemical and polymer sites in the South, Midwest and California o Agricultural chemical sites in the West and Midwest In each sale, the Company retained a contractual remediation or indemnification obligation and is responsible only for certain environmental problems associated with its past operations. The reserves represent estimated future costs for remediation work: identified prior to the sale of these sites; included in negotiated agreements with the buyers of these sites where the Company retained certain levels of remediation liabilities; and/or identified in subsequent claims made by buyers of the properties. Former Company- -11- operated sites include service stations, distribution facilities and oil and gas fields that were previously operated but not owned by the Company. The Company has an aggregate reserve of $97 million and additional costs of $72 million are possible for this category. The possible additional costs are primarily related to service station and distribution facilities and oil and gas properties. Inactive or closed Company facilities - Reserves of $79 million have been established for these types of facilities. The major sites in this category are: o The Guadalupe oil field on the central California coast o The Molycorp Washington and York facilities in Pennsylvania o The Beaumont Refinery in Texas These sites also have possible additional costs of $95 million associated with them. The Company is subject to federal, state and local environmental laws and regulations, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), as amended, the Resource Conservation and Recovery Act ("RCRA") and laws governing low level radioactive materials. Under these laws, the Company is subject to possible obligations to remove or mitigate the environmental effects of the disposal or release of certain chemical, petroleum and radioactive substances at various sites. Corrective investigations and actions pursuant to RCRA and other federal, state and local environmental laws are being performed at the Company's Beaumont, Texas, facility, a former agricultural chemical facility in Corcoran, California, and Molycorp's Washington, Pennsylvania, facility. In addition, Molycorp is required to decommission its Washington and York facilities in Pennsylvania pursuant to the terms of their respective radioactive source materials licenses and decommissioning plans. The Company also must provide financial assurance for future closure and post-closure costs of its RCRA-permitted facilities and for decommissioning costs at facilities that are under radioactive source materials licenses. Pursuant to a 1998 settlement agreement between the Company and the State of California and the subsequent stipulated judgment entered by the Superior Court, the Company must provide financial assurance for anticipated costs of remediation activities at its inactive Guadalupe oil field. Also, pursuant to a 1995 settlement agreement between Molycorp and the California Department of Toxic Substances Control (and subsequent final judgment entered by the Superior Court), the Company must provide financial assurance for anticipated costs of disposing of certain wastes, as well as closing facilities associated with the handling of those wastes, at Molycorp's Mountain Pass, California, facility. Although these costs are likely to be incurred at different times and over a period of many years, the Company believes that these obligations could have a material adverse effect on the Company's results of operations but are not expected to be material to the Company's consolidated financial condition or liquidity. The total environmental remediation reserves recorded on the consolidated balance sheet represent the Company's estimates of assessment and remediation costs based on currently available facts, existing technology and presently enacted laws and regulations. The remediation cost estimates, in many cases, are based on plans recommended to the regulatory agencies for approval and are subject to future revisions. The ultimate costs to be incurred could exceed the total amounts reserved. The reserve will be adjusted as additional information becomes available regarding the nature and extent of site contamination, required or agreed-upon remediation methods and other actions by government agencies and private parties. Therefore, amounts reserved may change substantially in the near term. The Company maintains insurance coverage intended to reimburse the cost of damages and remediation related to environmental contamination resulting from sudden and accidental incidents under current operations. The purchased coverages contain specified and varying levels of deductibles and payment limits. Although certain of the Company's contingent legal exposures enumerated above are uninsurable due either to insurance policy limitations, public policy or market conditions, management believes that its current insurance program significantly reduces the possibility of an incident causing a material adverse financial impact to the Company. -12- Certain Litigation and Claims City of Santa Monica MTBE Lawsuit: In June 2000, the City of Santa Monica (the "City") sued Shell Oil Company and other oil companies, including the Company, for contamination with methyl tertiary butyl ether ("MTBE") and a related chemical of water pumped from its Charnock wellfield (City of Santa Monica v Shell Oil Company et al, California Superior Court, Orange County, Case No. 01CC04331). In August 2001, Shell filed a cross-complaint against the Company and other oil companies, seeking the recovery of the funds it has expended to respond to the contamination. Further proceedings on this cross-complaint remain stayed. The City's first amended complaint, filed in May 2002, alleges causes of action for strict liability (gasoline containing MTBE as a defective product designed, manufactured and sold without adequate warnings), negligence, trespass, public and private nuisance, declaratory relief and unfair competition. The City seeks damages, a declaration that the defendants are liable for all remedial actions, abatement of nuisance and injunctive relief. The City alleges that releases from sites of units of Shell, ChevronTexaco Corporation and ExxonMobil Corporation were the releases which caused the wellfield to be shut down. Releases from Company sites allegedly impacted the wellfield subsequently. In July 2002, the City, ChevronTexaco and ExxonMobil announced a proposed settlement, under which the two companies would pay the City $30 million and construct and operate a water treatment plant. Future settlement and/or judgment amounts paid to the City from other defendants would go in part into an operating account, from which the two companies could be reimbursed for part or all of their treatment plant costs, as well as certain other costs. The Company, Tosco Corporation (now a unit of Phillips Petroleum Company) and other defendants, but not the Shell defendants, have been invited to participate in this settlement. The Company is evaluating its position with regard to participation, which would involve its paying the City $7.5 million and contributing to the costs of the treatment plant. However, based on a rigorous technical analysis of the data, the Company believes it has strong defenses to the allegations in the complaint, including the lack of evidence that its former service stations or activities are responsible for any contamination that has reached or threatens the wellfield. The Company also believes it has certain available defenses that the settling defendants and others may not have due to tolling agreements they entered into with the City; and, unlike the Shell defendants and the settling defendants, the Company is neither the object of punitive damages claims nor a cause of the wellfield's being originally shut down. The Company is also subject to potential partial responsibility for liabilities arising from its former gasoline marketing business that was sold to Tosco in 1997. The Company's current analysis does not indicate any such liabilities are likely to be significant. For several years prior to the City's suit, the EPA and the California Regional Water Quality Control Board have asserted jurisdiction over contamination of groundwater potentially affecting the wellfield, and these agencies have issued a number of orders under RCRA and state law to the Shell defendants and the other defendant oil companies, including the Company, with respect to both investigation of individual facilities and regional contamination, and requiring replacement of water lost to the City, which Shell is currently providing. The impact of the proposed settlement in the City's lawsuit on future government agency actions is uncertain. The Company has submitted to these agencies several technical analyses, which it believes demonstrate that its sites are not a part of any regional contamination problem, but, rather, present, at the most, localized issues which the Company, under agency oversight, has been successfully resolving. Agrium Litigation: In June 2002, a lawsuit was filed against the Company by Agrium Inc., a Canadian corporation, and a U. S. subsidiary in the California Superior Court, Los Angeles County (Agrium U.S. Inc. and Agrium Inc. v. Union Oil Company of California, Case No. BC275407). The Company subsequently removed the case to the U.S. District Court for the Central District of California (Case No. 02-04769 Nm). The Agrium entities ("Agrium") allege numerous causes of action relating to their purchase from the Company of a nitrogen-based fertilizer plant on the Kenai Peninsula, Alaska, in September 2000. The primary allegations involve the Company's obligation to supply natural gas to the plant pursuant to a Gas Purchase and Sale Agreement (the "GPSA") between the parties. Agrium alleges that the Company misrepresented the amount of gas reserves available for sale to the plant as of the closing of the transaction and that the Company has failed to develop additional reserves for sale to the plant. Agrium also alleges that -13- the Company misrepresented the condition of the general effluent sewer at the plant and made misrepresentations regarding other environmental matters. Agrium seeks damages in an unspecified amount for breach of such representations and warranties, as well as for alleged misconduct by the Company in operating and managing certain oil and gas leases and other facilities. Agrium also seeks declaratory relief concerning the base price of gas under the GPSA, as well as for the calculation of payments under a "Retained Earnout" covenant that entitles the Company to certain contingent payments based on the price of ammonia subsequent to the September 2000 closing. The complaint includes demands for punitive damages and attorneys' fees. Also in June 2002, the Company filed a lawsuit against Agrium in the U.S. District Court for the Central District of California (Union Oil Company of California v. Agrium Inc. and Agrium U.S. Inc., Case No. 02-04518 Nm(Ctx)). The Company seeks declaratory relief in its favor against the allegations of Agrium set forth above and for judgment on the Retained Earnout in the amount of $16.6 million, together with interest accrued subsequent to May 31, 2002. The Company believes that certain portions of its disputes with Agrium are subject to binding arbitration under the terms of the GPSA, and has initiated arbitration respecting the gas supply available under that agreement. Agrium claims the dispute resolution provisions of the agreement for the sale of the plant (the "PSA") supersede the arbitration provisions of the GPSA. Agrium has filed motions to stay the Company's lawsuit, to enjoin implementation of the arbitration and for Agrium's lawsuit to be remanded to the state court. A hearing on these motions is set for September 2002. The federal court recently denied a motion by Agrium to temporarily restrain implementation of the arbitration. The GPSA contains a contractual limit on liquidated damages of $25 million per year, not to exceed a total of $50 million over the life of the agreement. In addition, the PSA contains a limit on damages of $50 million. The Company believes it has a meritorious defense to each of the Agrium claims, but that in any event its exposure to damages for all disputes is limited by the agreements. Agrium alleges that it is entitled to recover damages in excess of those amounts. Petrobangla Claim: In July 2002, the Company's subsidiary Unocal Bangladesh Blocks Thirteen and Fourteen, Ltd. (which was acquired in 1999 from Occidental Petroleum Corporation and, prior to the recent completion of Bangladesh name-change formalities, was still known in Bangladesh as Occidental of Bangladesh Ltd.) ("OBL"), received from the Bangladesh Oil, Gas & Mineral Corporation ("Petrobangla") a letter claiming, on behalf of the Bangladesh government and Petrobangla, compensation allegedly due in the amount of $685 million for 246 BCF of recoverable natural gas allegedly "lost and damaged" in a 1997 blowout and ensuing fire during the drilling by OBL, as operator, of the Moulavi Bazar #1 ("MB #1") exploration well on the Blocks 13 and 14 PSC area in Northeast Bangladesh. The Company and OBL believe that the claim vastly overstates the amount of recoverable gas involved in the blowout. Consistent with worldwide industry contracting practice, there was no provision in the PSC for compensating the Bangladesh government or Petrobangla for resources lost during the contractors' operations. Even if some form of compensation were due, the Company and OBL believe that settlement compensation for the blowout was fully addressed in a 1998 Supplemental Agreement to the PSC, which, among other matters, waived OBL's then 50-percent contractor's share (as well as the then 50-percent contractor's share held by the Company's Unocal Bangladesh, Ltd., subsidiary) of entitlement to the recovery of costs incurred in the blowout, waived their right to invoke force majeure in connection with the blowout, and reduced by five percentage points their contractors' profit share (with a concomitant increase in Petrobangla's profit share) of future production from the sands encountered by the MB #1 well to a drill depth of 840 meters or, if the blowout sand reservoir were not deemed commercial, from other commercial fields in the Moulavi Bazar "ring-fenced" area of Block 14. Consequently, the Company and OBL consider the matter closed and OBL has advised Petrobangla that no additional compensation is warranted. In view of the inherent difficulty of predicting the outcome of legal matters, the Company cannot state with confidence what the eventual outcome of the three preceding matters will be. However, based on current knowledge, none of the preceding matters is presently expected to have a material adverse effect on the Company's consolidated financial condition or liquidity, but each of them could have a material adverse effect -14- on the Company's results of operations for the accounting period or periods in which one or more of them might be resolved adversely. Tax matters The company believes it has adequately provided in its accounts for tax items and issues not yet resolved. Several prior material tax issues are unresolved. Resolution of these tax issues impact not only the year in which the items arose, but also the company's tax situation in other tax years. With respect to 1979-1984 taxable years, all issues raised for these years have now been settled, with the exception of the effect of the carryback of a 1993 net operating loss ("NOL") to tax year 1984 and resultant credit adjustments. The 1985-1990 taxable years are before the Appeals division of the Internal Revenue Service. All issues raised with respect to those years have now been settled, with the exception of the effect of the 1993 NOL carryback and resultant adjustments. The Joint Committee on Taxation of the U.S. Congress has reviewed the settled issues with respect to 1979-1990 taxable years and no additional issues have been raised. While all tax issues for the 1979-1990 taxable years have been agreed and reviewed by the Joint Committee, these taxable years will remain open due to the 1993 NOL carryback. The 1993 NOL results from certain specified liability losses, which occurred during 1993, and which resulted in a tax refund of $73 million. Consequently, these tax years will remain open until the specified liability loss, which gave rise to the 1993 NOL, is finally determined by the Internal Revenue Service and is either agreed to with the IRS or otherwise concluded in the Tax Court proceeding. In 1999, the United States Tax Court granted Unocal's motion to amend the pleadings in its Tax Court cases to place the 1993 NOL carryback in issue. The 1991-1994 taxable years are now before the Appeals division of the Internal Revenue Service. The 1995-1997 taxable years are under examination by the Internal Revenue Service. Pure Resources, Inc. Employment and Severance Agreements Under circumstances specified in the employment and/or severance agreements entered into between the Company's Pure subsidiary and its officers, each covered officer will have the right to require Pure to purchase its common shares currently held or subsequently obtained by the exercise of any option held by the officer at a calculated "net asset value" per share. The circumstances under which certain officers may exercise this right include the termination of the officer without cause prior to May 25, 2003, termination for any reason after May 24, 2003, a change in control of either Pure or Unocal and other events specified in the agreements. The net asset value per share is calculated by reference to each common share's pro rata amount of the present value of Pure's proved reserves discounted at 10 percent, as defined, times 110 percent, less funded debt, as defined. At June 30, 2002, Pure estimated that the amount it may have to repurchase under these agreements was approximately $92 million, which is reflected as subsidiary stock subject to repurchase on the consolidated balance sheet. The repurchase amount will fluctuate with changes in the net asset value per share. At December 31, 2001, the repurchase amount under these agreements was approximately $70 million. -15- Other matters The Company has a lease agreement relating to its Discoverer Spirit deepwater drillship, with a remaining term of approximately three years and three months at June 30, 2002. In 2001, the Company signed a sublease agreement with a third party for a minimum period of 200 days. The completion of the sublease period is currently estimated to be in September 2002. Under the provisions of the agreement, the third party assumed all of the lease payments to the lessor during the sublease period, which began in December 2001. The drillship has a minimum daily rate of approximately $219,000. The future remaining minimum lease payment obligation, excluding the remaining sublease period, was approximately $240 million at June 30, 2002. In the normal course of business, the Company has performance obligations which are secured by surety bonds or letters of credit. These obligations primarily cover self-insurance, site restoration, dismantlement and other programs where governmental organizations require such support. These surety bonds and letters of credit are issued by financial institutions but are funded by the Company if exercised. At June 30, 2002, the Company, including its Pure subsidiary, had obtained various surety bonds for approximately $350 million. These surety bonds primarily consisted of bonds for the Company's mining operation discussed in the following paragraph and a bond for $99 million securing the Company's performance under a fixed price natural gas sales contract for the delivery of 72 billion cubic feet of gas over a ten year period that began in January of 1999 and will end in December of 2008. The Company also had obtained approximately $64 million in standby letters of credit at June 30, 2002. The Company has entered into indemnification obligations in favor of the providers of these surety bonds and letters of credit. In addition, the Company has various other guarantees for approximately $410 million. Approximately $200 million of the $410 million in guarantees would require the Company to obtain a surety bond or a letter of credit, or establish a trust fund if its credit rating drops below investment grade, that is BBB- or Baa3 from Standard & Poor's Ratings Services and Moody's Investors Service, Inc., respectively. Approximately $180 million of the surety bonds, letters of credit and other guarantees that the Company is required to obtain or issue reflect obligations that are already included on the consolidated balance sheet in other current liabilities and other deferred credits. The surety bonds, letters of credit and other guarantees may also reflect some of the possible additional remediation liabilities discussed earlier in this note. As mentioned in the previous paragraph, the Company's Molycorp subsidiary has permits covering discharges from its Questa, New Mexico, molybdenum mine. Obtaining these permits involved the posting by Molycorp of two bonds totaling $152 million that provide financial assurance of completion of temporary closure plans (required only upon cessation of operations) and other obligations required under the terms of the permits. These costs are based on estimations provided by agencies of the state of New Mexico. Unocal has indemnified the insurance company that issued the bonds with respect to all amounts that may be drawn against them. The Company has certain investments in entities that it accounts for under the equity method, such as Colonial Pipeline Company. These entities have approximately $1.8 billion of their own debt obligations that are either fully non-recourse or of limited recourse to the Company. Of the total $1.8 billion in equity investee debt, $1.1 billion belongs to the Colonial Pipeline Company, in which the Company holds a 23.44 percent equity interest. The Company guarantees only $27 million of the total $1.8 billion debt obligations. The Company also has other contingent liabilities with respect to litigation, claims and contractual agreements arising in the ordinary course of business. On the basis of management's assessment of the ultimate amount and timing of possible adverse outcomes and associated costs, none of such matters is presently expected to have a material adverse effect on the Company's consolidated financial condition, liquidity or results of operations. -16- 13. Financial Instruments and Commodity Hedging Fair values of debt and other long-term instruments - The estimated fair value of the Company's long-term debt at June 30, 2002, including the current portion, was approximately $3.31 billion. The fair value was based on the discounted amounts of future cash outflows using the rates offered to the Company for debt with similar remaining maturities. The estimated fair value of the mandatorily redeemable convertible preferred securities of the Company's subsidiary trust was approximately $527 million at June 30, 2002. The fair value was based on the trading prices of the preferred securities on June 28, 2002, as reported to the Company. Commodity hedging activities - During the second quarter of 2002, the Company recognized $1 million in after-tax losses for the ineffectiveness of both cash flow and fair value hedges. For the six months ended June 30, 2002, the earnings impact of ineffectiveness was immaterial. At June 30, 2002, the Company had approximately $9 million of after-tax deferred losses in accumulated other comprehensive income on the consolidated balance sheet related to cash flow hedges for future commodity sales for the period beginning July 2002 through October 2004. Of this amount, approximately $3 million in after-tax losses are expected to be reclassified to the consolidated earnings statement during the next twelve months. Foreign currency contracts - At June 30, 2002, the Company had approximately $1 million of after-tax deferred gains in accumulated other comprehensive income on the consolidated balance sheet related to cash flow hedges for future foreign currency denominated payment obligations through December 2003. Of this amount, the losses expected to be reclassified to the consolidated earnings statement during the next twelve months are immaterial. Interest rate contracts - At June 30, 2002, the Company had approximately $3 million of after-tax deferred losses in accumulated other comprehensive income on the consolidated balance sheet related to cash flow hedges of interest rate exposure through September 2012. Of this amount, the losses expected to be reclassified to the consolidated earnings statement during the next twelve months are immaterial. -17- 14. Supplemental Condensed Consolidating Financial Information Unocal guarantees all the publicly held securities issued by its 100 percent-owned subsidiaries Unocal Capital Trust and Union Oil. Such guarantees are full and unconditional and no subsidiaries of Unocal or Union Oil guarantee these securities. The following tables present condensed consolidating financial information for (a) Unocal (Parent), (b) the Trust, (c) Union Oil (Parent) and (d) on a combined basis, the subsidiaries of Union Oil (non-guarantor subsidiaries). Virtually all of the Company's operations are conducted by Union Oil and its subsidiaries.
CONDENSED CONSOLIDATING EARNINGS STATEMENT For the three months ended June 30, 2002 Unocal Non- Unocal Capital Union Oil Guarantor Millions of dollars (Parent) Trust (Parent) Subsidiaries Eliminations Consolidated - ------------------------------------------------------------------------------------------------------------------ Revenues Sales and operating revenues $ - $ - $ 286 $ 1,298 $ (235) $ 1,349 Interest, dividends and miscellaneous income - 9 - 10 (11) 8 Gain (loss) on sales of assets - - 1 (2) - (1) - ------------------------------------------------------------------------------------------------------------------ Total revenues - 9 287 1,306 (246) 1,356 Costs and other deductions Purchases, operating and other expenses 1 - 259 836 (240) 856 Depreciation, depletion and amortization - - 93 162 - 255 Impairments - - 21 - - 21 Dry hole costs - - 2 11 - 13 Interest expense 9 1 35 9 (11) 43 Distributions on convertible preferred securities - 8 - - - 8 - ------------------------------------------------------------------------------------------------------------------ Total costs and other deductions 10 9 410 1,018 (251) 1,196 Equity in earnings of subsidiaries 118 - 198 - (316) - Earnings from equity investments - - 2 49 - 51 - ------------------------------------------------------------------------------------------------------------------ Earnings from continuing operations before income taxes and minority interests 108 - 77 337 (311) 211 - ------------------------------------------------------------------------------------------------------------------ Income taxes (3) - (41) 139 - 95 Minority interests - - - 1 2 3 - ------------------------------------------------------------------------------------------------------------------ Earnings from continuing operations 111 - 118 197 (313) 113 Earnings from discontinued operations - - - 1 - 1 - ------------------------------------------------------------------------------------------------------------------ Net earnings $ 111 $ - $ 118 $ 198 $ (313) $ 114 ==================================================================================================================
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CONDENSED CONSOLIDATING EARNINGS STATEMENT For the three months ended June 30, 2001 Unocal Non- Unocal Capital Union Oil Guarantor Millions of dollars (Parent) Trust (Parent) Subsidiaries Eliminations Consolidated - ------------------------------------------------------------------------------------------------------------------ Revenues Sales and operating revenues $ - $ - $ 487 $ 1,604 $ (407) $ 1,684 Interest, dividends and miscellaneous income - 9 4 8 (10) 11 Gain on sales of assets - - 1 - - 1 - ------------------------------------------------------------------------------------------------------------------ Total revenues - 9 492 1,612 (417) 1,696 Costs and other deductions Purchases, operating and other expenses 1 - 272 1,112 (417) 968 Depreciation, depletion and amortization - - 91 154 - 245 Dry hole costs - - 24 23 - 47 Interest expense 9 1 40 8 (10) 48 Distributions on convertible preferred securities - 8 - - - 8 - ------------------------------------------------------------------------------------------------------------------ Total costs and other deductions 10 9 427 1,297 (427) 1,316 Equity in earnings of subsidiaries 252 - 202 - (454) - Earnings from equity investments - - 10 39 - 49 - ------------------------------------------------------------------------------------------------------------------ Earnings from continuing operations before income taxes and minority interests 242 - 277 354 (444) 429 - ------------------------------------------------------------------------------------------------------------------ Income taxes (4) - 37 147 - 180 Minority interests - - - 5 9 14 - ------------------------------------------------------------------------------------------------------------------ Earnings from continuing operations 246 - 240 202 (453) 235 Earnings from discontinued operations - - 12 - - 12 Cumulative effect of accounting change - - - - - - - ------------------------------------------------------------------------------------------------------------------ Net earnings $ 246 $ - $ 252 $ 202 $ (453) $ 247 ==================================================================================================================
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CONDENSED CONSOLIDATING EARNINGS STATEMENT For the six months ended June 30, 2002 Unocal Non- Unocal Capital Union Oil Guarantor Millions of dollars (Parent) Trust (Parent) Subsidiaries Eliminations Consolidated - ---------------------------------------------------------------------------------------------------------------------------- Revenues Sales and operating revenues $ - $ - $ 495 $ 2,279 $ (401) $ 2,373 Interest, dividends and miscellaneous income - 17 7 15 (19) 20 Gain (loss) on sales of assets - - 14 (13) - 1 - ---------------------------------------------------------------------------------------------------------------------------- Total revenues - 17 516 2,281 (420) 2,394 Costs and other deductions Purchases, operating and other expenses 3 - 486 1,470 (402) 1,557 Depreciation, depletion and amortization - - 180 299 - 479 Impairments - - 21 - - 21 Dry hole costs - - 17 24 - 41 Interest expense 17 1 78 18 (20) 94 Distributions on convertible preferred securities - 16 - - - 16 - ---------------------------------------------------------------------------------------------------------------------------- Total costs and other deductions 20 17 782 1,811 (422) 2,208 Equity in earnings of subsidiaries 148 - 326 - (474) - Earnings from equity investments - - 2 86 - 88 - ---------------------------------------------------------------------------------------------------------------------------- Earnings from continuing operations before income taxes and minority interests 128 - 62 556 (472) 274 - ---------------------------------------------------------------------------------------------------------------------------- Income taxes (7) - (86) 228 - 135 Minority interests - - - 3 1 4 - ---------------------------------------------------------------------------------------------------------------------------- Earnings from continuing operations 135 - 148 325 (473) 135 Earnings from discontinued operations - - - 1 - 1 Cumulative effect of accounting change - - - - - - - ---------------------------------------------------------------------------------------------------------------------------- Net earnings $ 135 $ - $ 148 $ 326 $ (473) $ 136 ============================================================================================================================
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CONDENSED CONSOLIDATING EARNINGS STATEMENT For the six months ended June 30, 2001 Unocal Non- Unocal Capital Union Oil Guarantor Millions of dollars (Parent) Trust (Parent) Subsidiaries Eliminations Consolidated - ---------------------------------------------------------------------------------------------------------------------------- Revenues Sales and operating revenues $ - $ - $ 1,180 $ 3,686 $ (976) $ 3,890 Interest, dividends and miscellaneous income 5 17 3 13 (19) 19 Gain on sales of assets - - 1 - - 1 - ---------------------------------------------------------------------------------------------------------------------------- Total revenues 5 17 1,184 3,699 (995) 3,910 Costs and other deductions Purchases, operating and other expenses 2 - 667 2,734 (997) 2,406 Depreciation, depletion and amortization - - 177 291 - 468 Impairments - - - - - - Dry hole costs - - 34 53 - 87 Interest expense 17 1 85 13 (19) 97 Distributions on convertible preferred securities - 16 - - - 16 - ---------------------------------------------------------------------------------------------------------------------------- Total costs and other deductions 19 17 963 3,091 (1,016) 3,074 Equity in earnings of subsidiaries 551 - 413 - (964) - Earnings from equity investments - - 8 83 - 91 - ---------------------------------------------------------------------------------------------------------------------------- Earnings from continuing operations before income taxes and minority interests 537 - 642 691 (943) 927 - ---------------------------------------------------------------------------------------------------------------------------- Income taxes (5) - 106 269 - 370 Minority interests - - - 9 21 30 - ---------------------------------------------------------------------------------------------------------------------------- Earnings from continuing operations 542 - 536 413 (964) 527 Earnings from discontinued operations - - 16 - - 16 Cumulative effect of accounting change - - (1) - - (1) - ---------------------------------------------------------------------------------------------------------------------------- Net earnings $ 542 $ - $ 551 $ 413 $ (964) $ 542 ============================================================================================================================
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CONDENSED CONSOLIDATING BALANCE SHEET At June 30, 2002 Unocal Non- Unocal Capital Union Oil Guarantor Millions of dollars (Parent) Trust (Parent) Subsidiaries Eliminations Consolidated - ----------------------------------------------------------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents $ 1 $ - $ 61 $ 99 $ - $ 161 Accounts and notes receivable - net 51 - 56 792 (62) 837 Inventories - - 9 102 - 111 Other current assets - - 130 31 - 161 - ----------------------------------------------------------------------------------------------------------------------------- Total current assets 52 - 256 1,024 (62) 1,270 Investments and long-term receivables - net 4,123 - 4,455 1,078 (8,170) 1,486 Properties - net - - 2,141 5,600 - 7,741 Other assets 3 541 456 2,130 (2,834) 296 - ----------------------------------------------------------------------------------------------------------------------------- Total assets $4,178 $ 541 $ 7,308 $ 9,832 $ (11,066) $ 10,793 ============================================================================================================================= Liabilities and Stockholders' Equity Current liabilities Accounts payable $ - $ - $ 242 $ 637 $ (51) $ 828 Current portion of long-term debt and capital leases - - - 8 - 8 Other current liabilities 46 3 144 372 40 605 - ----------------------------------------------------------------------------------------------------------------------------- Total current liabilities 46 3 386 1,017 (11) 1,441 Long-term debt and capital leases - - 2,489 622 - 3,111 Deferred income taxes - - (20) 698 - 678 Accrued abandonment, restoration and environmental liabilities - - 305 282 - 587 Other deferred credits and liabilities 541 - 376 2,695 (2,890) 722 Subsidiary stock subject to repurchase - - - 92 - 92 Minority interests - - - 313 117 430 Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust holding solely parent debentures - 522 - - - 522 Stockholders' equity 3,591 16 3,772 4,113 (8,282) 3,210 - ----------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $4,178 $ 541 $ 7,308 $ 9,832 $ (11,066) $ 10,793 =============================================================================================================================
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CONDENSED CONSOLIDATING BALANCE SHEET At December 31, 2001 Unocal Non- Unocal Capital Union Oil Guarantor Millions of dollars (Parent) Trust (Parent) Subsidiaries Eliminations Consolidated - ----------------------------------------------------------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents $ - $ - $ 62 $ 128 $ - $ 190 Accounts and notes receivable - net 51 - 154 693 (51) 847 Inventories - - 3 99 - 102 Other current assets - - 122 34 - 156 - ----------------------------------------------------------------------------------------------------------------------------- Total current assets 51 - 341 954 (51) 1,295 Investments and long-term receivables - net 4,032 - 4,143 968 (7,738) 1,405 Properties - net - - 2,149 5,365 - 7,514 Other assets 3 541 214 2,403 (2,950) 211 - ----------------------------------------------------------------------------------------------------------------------------- Total assets $4,086 $ 541 $ 6,847 $ 9,690 $ (10,739) $ 10,425 ============================================================================================================================= Liabilities and Stockholders' Equity Current liabilities Accounts payable $ - $ - $ 278 $ 596 $ (51) $ 823 Current portion of long-term debt and capital leases - - - 9 - 9 Other current liabilities 42 3 145 400 - 590 - ----------------------------------------------------------------------------------------------------------------------------- Total current liabilities 42 3 423 1,005 (51) 1,422 Long-term debt and capital leases - - 2,181 716 - 2,897 Deferred income taxes - - (71) 698 - 627 Accrued abandonment, restoration and environmental liabilities - - 293 297 - 590 Other deferred credits and liabilities 541 - 312 2,821 (2,950) 724 Subsidiary stock subject to repurchase - - - 70 - 70 Minority interests - - - 309 140 449 Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust holding solely parent debentures - 522 - - - 522 Stockholders' equity 3,503 16 3,709 3,774 (7,878) 3,124 - ----------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $4,086 $ 541 $ 6,847 $ 9,690 $ (10,739) $ 10,425 =============================================================================================================================
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CONDENSED CONSOLIDATING CASH FLOWS For the six months ended June 30, 2002 Unocal Non- Unocal Capital Union Oil Guarantor Millions of dollars (Parent) Trust (Parent) Subsidiaries Eliminations Consolidated - ------------------------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities $ 80 $ - $ (110) $ 656 $ - $ 626 Cash Flows from Investing Activities Capital expenditures and acquisitions (includes dry hole costs) - - (213) (617) - (830) Proceeds from sales of assets and discontinued operations - - 15 32 - 47 - ------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities - - (198) (585) - (783) - ------------------------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities Change in long-term debt and capital leases - - 307 (96) - 211 Dividends paid on common stock (98) - - - - (98) Other 19 - - (4) - 15 - ------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (79) - 307 (100) - 128 - ------------------------------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 1 - (1) (29) - (29) - ------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of period - - 62 128 - 190 - ------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 1 $ - $ 61 $ 99 $ - $ 161 =========================================================================================================================
CONDENSED CONSOLIDATING CASH FLOWS For the six months ended June 30, 2001 Unocal Non- Unocal Capital Union Oil Guarantor Millions of dollars (Parent) Trust (Parent) Subsidiaries Eliminations Consolidated - ------------------------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities $ 83 $ - $ 572 $ 589 $ - $ 1,244 Cash Flows from Investing Activities Capital expenditures and acquisitions (includes dry hole costs) - - (373) (868) - (1,241) Proceeds from sales of assets and discontinued operations - - 28 2 - 30 - ------------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities - - (345) (866) - (1,211) - ------------------------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities Change in long-term debt and capital leases - - (5) 371 - 366 Dividends paid on common stock (97) - - - - (97) Other 13 - - (10) - 3 - ------------------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities (84) - (5) 361 - 272 - ------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (1) - 222 84 - 305 - ------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of period 1 - 84 150 - 235 - ------------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ - $ - $ 306 $ 234 $ - $ 540 =========================================================================================================================
-24- 15. Segment Data The Company's reportable segments are: Exploration and Production, Trade, Midstream, and Geothermal and Power Operations. General corporate overhead, unallocated costs and other miscellaneous operations, including real estate, carbon and minerals and those businesses that were sold, are included under the Corporate and Other heading.
------------------------------------------------------------------------------ Segment Information Exploration & Production Trade For the Three Months North America International ended June 30, 2002 Millions of dollars Lower 48 Alaska Canada Far East Other ------------------------------------------------------------------------------ Sales & operating revenues $ 124 $ 73 $ 61 $ 275 $ 37 $ 644 Other income (loss) (a) 1 - - - - - Inter-segment revenues 234 - - 62 21 1 ------------------------------------------------------------------------------ Total 359 73 61 337 58 645 Earnings (loss) from equity investments 1 - - 9 2 1 Earnings (loss) from continuing operations 20 (5) 6 113 12 1 Earnings from discontinued operations - - - - - - ------------------------------------------------------------------------------ Net earnings (loss) 20 (5) 6 113 12 1 Assets (at June 30, 2002) 3,255 352 1,125 2,718 804 178 ------------------------------------------------------------------------------
------------------------------------------------------------------------------------------- Midstream Geothermal Corporate & Other Total & Power Operations Administrative Net Interest Environmental & General Expense & Litigation Other (b) ------------------------------------------------------------------------------------------- Sales & operating revenues $ 76 $ 33 $ - $ - $ - $ 26 $ 1,349 Other income (loss) (a) 1 2 - 5 - (2) 7 Inter-segment revenues 4 - - - - (322) - ------------------------------------------------------------------------------------------- Total 81 35 - 5 - (298) 1,356 Earnings (loss) from equity investments 18 5 - - - 15 51 - Earnings (loss) from continuing operations 23 14 (19) (28) (13) (11) 113 Earnings from discontinued operations - - - - - 1 1 ------------------------------------------------------------------------------------------- Net earnings (loss) 23 14 (19) (28) (13) (10) 114 Assets (at June 30, 2002) 506 595 - - - 1,260 10,793 ------------------------------------------------------------------------------------------- (a) Includes interest, dividends and miscellaneous income, and gain (loss) on sales of assets. (b) Includes eliminations and consolidation adjustments.
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-------------------------------------------------------------------------- Segment Information Exploration & Production Trade For the Three Months North America International ended June 30, 2001 Millions of dollars Lower 48 Alaska Canada Far East Other -------------------------------------------------------------------------- Sales & operating revenues $ 167 $ 63 $ 97 $ 269 $ 39 $ 925 Other income (loss) (a) - - 2 (3) - 6 Inter-segment revenues 406 - - 55 26 1 -------------------------------------------------------------------------- Total 573 63 99 321 65 932 Earnings from equity investments 8 - - 8 - - Earnings (loss) from continuing operations 142 13 14 113 5 4 Earnings from discontinued operations - - - - - - Cumulative effect of accounting change - - - - - - -------------------------------------------------------------------------- Net earnings (loss) 142 13 14 113 5 4 Assets (at December 31, 2001) 3,345 344 1,015 2,463 741 156 --------------------------------------------------------------------------
--------------------------------------------------------------------------------------- Midstream Geothermal Corporate & Other Total & Power Operations Administrative Net Interest Environmental & General Expense & Litigation Other (b) --------------------------------------------------------------------------------------- Sales & operating revenues $ 39 $ 45 $ - $ - $ - $ 40 $ 1,684 Other income (loss) (a) 1 4 - 7 - (5) 12 Inter-segment revenues 2 - - - - (490) - --------------------------------------------------------------------------------------- Total 42 49 - 7 - (455) 1,696 Earnings from equity investments 19 - - - - 14 49 Earnings (loss) from continuing operations 18 2 (21) (32) (16) (7) 235 Earnings from discontinued operations - - - - - 12 12 Cumulative effect of accounting change - - - - - - - --------------------------------------------------------------------------------------- Net earnings (loss) 18 2 (21) (32) (16) 5 247 Assets (at December 31, 2001) 479 594 - - - 1,288 10,425 --------------------------------------------------------------------------------------- (a) Includes interest, dividends and miscellaneous income, and gain (loss) on sales of assets. (b) Includes eliminations and consolidation adjustments.
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---------------------------------------------------------------------------- Segment Information Exploration & Production Trade For the Six Months North America International ended June 30 2002 Millions of dollars Lower 48 Alaska Canada Far East Other ---------------------------------------------------------------------------- Sales & operating revenues $ 237 $ 124 $ 100 $ 494 $ 60 $ 1,100 Other income (loss) (a) 4 - - - - - Inter-segment revenues 400 - - 114 41 1 ---------------------------------------------------------------------------- Total 641 124 100 608 101 1,101 Earnings (loss) from equity investments - - - 17 4 - Earnings (loss) from continuing operations 24 (11) (3) 203 24 2 Earnings from discontinued operations - - - - - - ---------------------------------------------------------------------------- Net earnings (loss) 24 (11) (3) 203 24 2 Assets (at June 30, 2002) 3,255 352 1,125 2,718 804 178 ----------------------------------------------------------------------------
----------------------------------------------------------------------------------------- Midstream Geothermal Corporate & Other Total & Power Operations Administrative Net Interest Environmental & General Expense & Litigation Other (b) ----------------------------------------------------------------------------------------- Sales & operating revenues $ 139 $ 61 $ - $ - $ - $ 58 $ 2,373 Other income (loss) (a) 2 4 - 8 - 3 21 Inter-segment revenues 6 - - - - (562) - ----------------------------------------------------------------------------------------- Total 147 65 - 8 - (501) 2,394 Earnings (loss) from equity investments 37 2 - - - 28 88 Earnings (loss) from continuing operations 42 20 (43) (65) (36) (22) 135 Earnings from discontinued operations - - - - - 1 1 ----------------------------------------------------------------------------------------- Net earnings (loss) 42 20 (43) (65) (36) (21) 136 Assets (at June 30, 2002) 506 595 - - - 1,260 10,793 ----------------------------------------------------------------------------------------- (a) Includes interest, dividends and miscellaneous income, and gain (loss) on sales of assets. (b) Includes eliminations and consolidation adjustments.
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------------------------------------------------------------------------- Segment Information Exploration & Production Trade For the Six Months North America International ended June 30, 2001 Millions of dollars Lower 48 Alaska Canada Far East Other ------------------------------------------------------------------------- Sales & operating revenues $ 328 $ 135 $ 129 $ 501 $ 74 $ 2,428 Other income (loss) (a) 1 - 1 (6) (1) (1) Inter-segment revenues 972 - - 110 61 1 ------------------------------------------------------------------------- Total 1,301 135 130 605 134 2,428 Earnings from equity investments 14 - - 19 - - Earnings (loss) from continuing operations 383 32 11 219 27 7 Earnings from discontinued operations - - - - - - Cumulative effect of accounting change - - - - - - ------------------------------------------------------------------------- Net earnings (loss) 383 32 11 219 27 7 Assets (at December 31, 2001) 3,345 344 1,015 2,463 741 156 -------------------------------------------------------------------------
-------------------------------------------------------------------------------------- Midstream Geothermal Corporate & Other Total & Power Operations Administrative Net Interest Environmental & General Expens & Litigation Other (b) -------------------------------------------------------------------------------------- Sales & operating revenues $ 139 $ 89 $ - $ - $ - $ 67 $ 3,890 Other income (loss) (a) 2 7 - 13 - 4 20 Inter-segment revenues 4 - - - - (1,148) - -------------------------------------------------------------------------------------- Total 145 96 - 13 - (1,077) 3,910 Earnings from equity investments 28 - - - - 30 91 Earnings (loss) from continuing operations 27 3 (44) (65) (50) (23) 527 Earnings from discontinued operations - - - - - 16 16 Cumulative effect of accounting change - - - - - (1) (1) -------------------------------------------------------------------------------------- Net earnings (loss) 27 3 (44) (65) (50) (8) 542 Assets (at December 31, 2001) 479 594 - - - 1,288 10,425 -------------------------------------------------------------------------------------- (a) Includes interest, dividends and miscellaneous income, and gain (loss) on sales of assets. (b) Includes eliminations and consolidation adjustments.
16. Subsequent Event In July 2002, the Company's Unocal Geothermal of Indonesia, Ltd. ("UGI") subsidiary and Dayabumi Salak Pratama, Ltd. ("DSPL"), a 50-percent equity investee of UGI, reached agreement over pricing and production issues at its Gunung Salak geothermal project in Indonesia with PT. PLN (Persero) ("PLN"), the Indonesian state-owned electricity company, and Pertamina, the Indonesian state-owned oil and natural gas company. The new agreement extends the primary terms of the Joint Operation Contract and Energy Sales Contract ("ESC") to 2040 and also contains provisions to extend the deadline for transferring to PLN generating plants currently operated by DSPL plus any additional plants subsequently developed and operated by DSPL or the Company to the expiration date of the ESC. The new agreement lowers the selling price of electricity delivered by DSPL from 8.49 cents per kilowatt-hour (kWh) to 4.45 cents per kWh and steam supplied to PLN by UGI from 4.25 cents per kWh to 3.75 cents per kWh. Under the terms of the amended ESC both the selling price for electricity and the selling price for geothermal steam are indexed for changes in foreign exchange rates and inflation. The new agreement also provides for payment by PLN of a portion of the past due receivable balances to the Company while the Company foregoes a portion of the receivables. -28- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to the report to be signed on its behalf by the undersigned thereunto duly authorized. UNOCAL CORPORATION (Registrant) Dated: September 23, 2002 By: /s/JOHN A. BRIFFETT --------------------------------- John A. Briffett Assistant Comptroller CERTIFICATIONS I, Charles R. Williamson, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Unocal Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Dated: September 23, 2002 /s/CHARLES R. WILLIAMSON ------------------------------ Charles R. Williamson Chairman of the Board and Chief Executive Officer - -------------------------------------------------------------------------------- I, Terry G. Dallas, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Unocal Corporation; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. Dated: September 23, 2002 /s/TERRY G. DALLAS ------------------------------- Terry G. Dallas Executive Vice President and Chief Financial Officer -29- -----END PRIVACY-ENHANCED MESSAGE-----