-----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, Uk30PJB6ClmedKdeWDn8UCnuE2pCauYqYr8xydfBYakmCcHsDdKx5UH6xfv03qQl oE4ooD+ylPwxJ+8TBHUUYA== 0000716039-96-000053.txt : 19961118 0000716039-96-000053.hdr.sgml : 19961118 ACCESSION NUMBER: 0000716039-96-000053 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNOCAL CORP CENTRAL INDEX KEY: 0000716039 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 953825062 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08483 FILM NUMBER: 96662642 BUSINESS ADDRESS: STREET 1: 2141 ROSECRANS AVE STREET 2: SUITE 4000 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107267718 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q X - QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 ------------------ 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) Registrant's telephone number, including area code: (310) 726-7600 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 October 31, 1996: 250,414,750 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED EARNINGS UNOCAL CORPORATION (Unaudited) For the Three Months For the Nine Months Ended September 30 Ended September 30 -------------------------------------------------- Dollars in millions except per share amounts 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Revenues Sales and operating revenues (a) ................................... $2,531 $1,933 $7,272 $5,997 Interest, dividends and miscellaneous income ....................... 14 50 50 76 Equity in earnings of affiliated companies ......................... 30 20 78 65 Gain on sales of assets ............................................ 36 2 173 63 ------------------------------------------------------ Total revenues ............................................... 2,611 2,005 7,573 6,201 Costs and Other Deductions Crude oil and product purchases .................................... 1,152 746 3,142 2,403 Operating expense .................................................. 442 417 1,315 1,302 Selling, administrative and general expense ........................ 112 108 341 318 Depreciation, depletion and amortization ........................... 228 237 724 704 Dry hole costs ..................................................... 53 31 72 50 Exploration expense ................................................ 33 30 83 85 Interest expense ................................................... 67 72 215 218 Excise, property and other operating taxes (a) ..................... 271 258 814 759 Distributions on convertible preferred securities of subsidiary trust................................................ 2 -- 2 -- ------------------------------------------------------ Total costs and other deductions ............................. 2,360 1,899 6,708 5,839 ------------------------------------------------------ Earnings before income taxes ....................................... 251 106 865 362 Income taxes ....................................................... 80 47 332 151 ------------------------------------------------------ Net Earnings ....................................................... $ 171 $ 59 $ 533 $ 211 Dividends on preferred stock ....................................... -- 9 18 27 ------------------------------------------------------ Net earnings applicable to common stock ...................... $ 171 $ 50 $ 515 $ 184 ====================================================== Earnings per share of common stock assuming no dilution (b) ................................................... $ 0.69 $ 0.20 $ 2.08 $0.75 Earnings per share of common and equivalent stock assuming full dilution (c) ................................... $ 0.65 $ 0.20 $ 2.03 $0.75 Cash dividends declared per share of common stock .................. $ 0.20 $ 0.20 $ 0.60 $0.60 - ----------------------------------------------------------------------------------------------------------------------------------- (a) Includes consumer excise taxes of .................................. $ 249 $ 228 $ 735 $ 665 (b) Based on net earnings applicable to common stock divided by weighted average shares outstanding (in thousands) ............ 248,668 246,666 248,211 245,754 (c) Based on net earnings applicable to common stock divided by weighted average shares outstanding and common stock equivalents (in thousands) .................................. 263,525 -- 262,823 -- See Notes to Consolidated Financial Statements. 1
CONSOLIDATED BALANCE SHEET UNOCAL CORPORATION (Unaudited) September 30 December 31 ---------------------------------- Millions of dollars 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Assets Current assets Cash and cash equivalents ..................................................................... $ 225 $ 94 Accounts and notes receivable ................................................................. 921 920 Inventories Crude oil .................................................................................. 50 48 Refined products ........................................................................... 162 161 Agricultural products ...................................................................... 35 40 Minerals ................................................................................... 21 30 Supplies, merchandise and other ............................................................ 88 81 Deferred income taxes ......................................................................... 75 169 Other current assets .......................................................................... 35 33 ------------------------ Total current assets ....................................................................... 1,612 1,576 Investments and long-term receivables ............................................................ 1,105 1,101 Properties (net of accumulated depreciation and other allowances of $10,910 in 1996 and $11,431 in 1995) ......................................... 6,949 7,109 Deferred income taxes ............................................................................ 27 25 Other assets ..................................................................................... 116 80 ------------------------- Total assets ............................................................................... $ 9,809 $ 9,891 ------------------------- Liabilities and Equity Current liabilities Accounts payable .............................................................................. $ 873 $ 804 Taxes payable ................................................................................. 242 193 Current portion of long-term debt and capital lease obligations ............................... 119 8 Interest payable .............................................................................. 46 92 Current portion of environmental liabilities .................................................. 83 83 Other current liabilities ..................................................................... 94 136 ------------------------- Total current liabilities .................................................................. 1,457 1,316 Long-term debt and capital lease obligations ..................................................... 2,951 3,698 Deferred income taxes ............................................................................ 678 722 Accrued abandonment, restoration and environmental liabilities ................................... 661 607 Other deferred credits and liabilities ........................................................... 729 618 Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust holding solely 6-1/4% convertible junior subordinated debentures of Unocal ........................................................................... 522 -- Stockholders' Equity Preferred stock ($0.10 par value; stated at liquidation value of $50 per share) ..................................................................... 13 513 Common stock ($1 par value) ................................................................... 250 247 Capital in excess of par value ................................................................ 389 319 Foreign currency translation adjustment ....................................................... (12) (10) Unearned portion of restricted stock issued ................................................... (15) (13) Retained earnings ............................................................................. 2,186 1,874 ------------------------- Total stockholders' equity ................................................................. 2,811 2,930 ------------------------- Total liabilities and equity ............................................................ $ 9,809 $ 9,891 -------------------------
See Notes to the Consolidated Financial Statements. 2
CONSOLIDATED CASH FLOWS UNOCAL CORPORATION (Unaudited) For the Nine Months Ended September 30 ------------------------------- Millions of dollars 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net earnings ..................................................................................... $ 533 $ 211 Adjustment to reconcile net earnings to net cash provided by operating activities Depreciation, depletion and amortization ................................................... 724 704 Dry hole costs ............................................................................. 72 50 Deferred income taxes ...................................................................... 48 (21) Gain on sales of assets (before-tax) ....................................................... (173) (63) Other ...................................................................................... 96 (19) Working capital and other changes related to operations Accounts and notes receivable ........................................................... (23) (18) Inventories ............................................................................. 4 18 Accounts payable ........................................................................ 69 (53) Taxes payable ........................................................................... 49 (19) Other ................................................................................... (200) (114) ----------------------- Net cash provided by operating activities ............................................ 1,199 676 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (includes dry hole costs) ................................................ (940) (967) Proceeds from sales of assets ................................................................. 585 130 ----------------------- Net cash used in investing activities ................................................ (355) (837) CASH FLOWS FROM FINANCING ACTIVITIES Long-term borrowings .......................................................................... 130 949 Reduction of long-term debt and capital lease obligations ..................................... (690) (644) Dividends paid on preferred stock ............................................................. (27) (27) Dividends paid on common stock ................................................................ (149) (147) Other ......................................................................................... 23 50 ----------------------- Net cash provided by (used in) financing activities ..................................... (713) 181 Increase in cash and cash equivalents ............................................................ 131 20 Cash and cash equivalents at beginning of year ................................................... 94 148 ----------------------- Cash and cash equivalents at end of period ....................................................... $ 225 $ 168 ----------------------- Supplemental disclosure of cash flow information: Cash paid during the period for: Interest (net of amount capitalized) ....................................................... $ 243 $ 225 Income taxes (net of refunds) .............................................................. $ 239 $ 192
See Notes to the Consolidated Financial Statements. 3 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) The consolidated financial statements included herein 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 (Commission) disclosure requirements for Form 10-Q. These interim consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements filed with the Commission in Unocal Corporation's 1995 Annual Report on Form 10-K. Results for the nine months ended September 30, 1996, are not necessarily indicative of future financial results. Certain items in the prior year financial statements have been reclassified to conform to the 1996 presentation. (2) For the purpose of this report, Unocal Corporation and its consolidated subsidiary, Union Oil Company of California (Union Oil), together with the consolidated subsidiaries of Union Oil, will be referred to as "Unocal" or "the company". (3) Earnings per share of common stock assuming no dilution are based on net earnings less preferred stock dividend requirements, divided by the weighted average shares of common stock outstanding during each period. The computation of fully diluted earnings per share assumes the dilutive effect of common stock equivalents and conversion of the Unocal's outstanding convertible preferred stock and the outstanding Convertible Preferred Securities of a subsidiary trust (see Note 12). When the computation of fully diluted earnings per share is antidilutive for any given period presented, the amounts reported for primary and fully diluted are the same. (4) As a result of the corporate staff reduction program initiated during the fourth quarter of 1994, the company recorded in 1994 a pretax charge of $34 million in administrative and general expense for estimated benefits, primarily termination allowance, to be paid to employees affected by the program. At September 30, 1996, the amount of unpaid benefits remaining on the consolidated balance sheet was $7 million. Approximately 30 employees were terminated during the third quarter of 1996, bringing the total number of terminated employees to approximately 650. (5) Capitalized interest totaled $3 million and $9 million for the third quarters of 1996 and 1995, respectively. For the first nine months of 1996 and 1995 capitalized interest totaled $9 million and $25 million, respectively. (6) Cash Flow Information: UNOCAL SAVINGS PLAN During the first nine months of 1996 and 1995, shares of Unocal common stock were purchased by the trustee of the Unocal Savings Plan (the "Plan") either from Unocal or on the open market as directed by Unocal. The trustee used Unocal's matching contributions to the Plan to purchase the shares. The total matching contributions were expensed in Unocal's consolidated earnings statement. In the consolidated cash flow statements, the portions of the matching contributions resulting in the issuance of Unocal common stock, as detailed below, were treated as a noncash transactions since the resulting effect on cash flow was zero. For the Nine Months Ended September 30 ----------------------------- 1996 1995 - -------------------------------------------------------------------------------- Shares of Unocal common stock issued (in thousands) 252 700 Fair value of common stock (in millions of dollars) $8 $20 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) CONVERTIBLE PREFERRED SECURITIES See Note 12 for discussion of Unocal's third quarter 1996 exchange of 6-1/4 percent Trust Convertible Preferred Securities of a subsidiary trust for outstanding shares of Unocal's $3.50 Convertible Preferred Stock. The exchange was treated as a noncash transaction since the resulting effect on cash flow was zero. (7) Income Taxes: The components of pre-tax earnings and the provision for income taxes were as follows:
For the Three Months For the Nine Months Ended September 30 Ended September 30 ------------------------------------------------------------------------------------- Millions of dollars 1996 1995 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- Earnings (loss) before income taxes: United States (a) ............................ $ 87 $ (7) $ 438 $ (2) Foreign ...................................... 164 113 427 364 -------------------------------------------------------------------- Total ..................................... $ 251 $ 106 $ 865 $ 362 Income Taxes: Current Federal ................................... $ (4) $ (1) $ 100 $ 15 State ..................................... 1 -- 3 5 Foreign ................................... 70 45 182 152 -------------------------------------------------------------------- Total current ........................... $ 67 $ 44 $ 285 $ 172 Deferred Federal ................................... $ 7 $ 1 $ 12 $ (18) State ..................................... 5 (7) 19 (24) Foreign ................................... 1 9 16 21 -------------------------------------------------------------------- Total deferred .......................... $ 13 $ 3 $ 47 $ (21) -------------------------------------------------------------------- Total income taxes .............................. $ 80 $ 47 $ 332 $ 151
(a) Includes corporate and unallocated expenses. Reconciliation of income taxes at the federal statutory rate of 35% to tax provision:
For the Three Months For the Nine Months Ended September 30 Ended September 30 -------------------------------------------------------- Millions of dollars 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings before income taxes ................................... $ 251 $ 106 $ 865 $ 362 Tax at federal statutory rate .................................. $ 88 $ 37 $ 303 $ 126 Taxes on foreign earnings in excess of (less than) statutory rate ................................. (5) 18 36 52 Dividend exclusion ............................................. (3) (4) (11) (11) Deferred California business tax credits, net of federal tax effect ................................... -- (5) -- (16) Other .......................................................... -- 1 4 -- - ------------------------------------------------------------------------------------------------------------------------------------ Total provision ........................................... $ 80 $ 47 $ 332 $ 151
5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) (8) LONG TERM DEBT AND CREDIT AGREEMENTS: During the first quarter of 1996, the company issued $100 million of medium-term notes with interest rates ranging from 5.94 percent to 6.23 percent and maturity dates ranging from February 2003 to February 2006. The company also increased its commercial paper borrowings by $44 million. During the second quarter of 1996, the company reduced long-term debt by approximately $610 million, primarily with the proceeds from the sale of its California oil and gas producing properties. Financing activities for the second quarter of 1996 primarily consisted of: retirement at maturity of the $110 million Swiss Franc bond issue and the corresponding $65 million currency swap agreement; and the early redemption of seven pollution control bond issues totaling $49 million with interest rates ranging from 6-1/8 percent to 7-7/8 percent. The company also reduced its commercial paper balance by $377 million and terminated its $45 million Netherlands revolving credit facility. Third-quarter 1996 financing activities primarily consisted of an additional borrowing of $20 million on the $250 million Thailand revolving credit facility and payment of $80 million on the $1.2 billion credit facility. In addition, the company further reduced its commercial paper balance by $104 million, bringing the outstanding balance to $213 million at September 30, 1996 and terminated its $25 million revolving credit facility with a Canadian bank. (9) FINANCIAL INSTRUMENTS The fair value of the financial instruments described below are based on the company's outstanding balances at September 30, 1996: The Deutsche Mark currency swap agreement had a notional value of $110 million and a fair value of approximately $57 million based on dealer quotes. There were 17 outstanding currency forward contracts to purchase 26 million Pounds Sterling for $40 million to hedge a series of known Pounds Sterling requirements, and the fair market value of the contracts was approximately $1.3 million in assets. The floating interest rate on the swap agreement to hedge $25 million of fixed rate medium-term notes was 5.6 percent, and the fair value was insignificant, based on quoted market prices of comparable instruments. The company had outstanding commodity futures contracts covering the sale of 550 thousand barrels of crude oil and 7 billion cubic feet of natural gas with notional amounts of $11 million and $14 million, respectively. The fair value of the contracts, based on quoted market prices, was insignificant. The estimated fair value of the company's long-term debt and capital lease obligations was $3,140 million. The estimated fair value of the company's obligated mandatorily redeemable Convertible Preferred Securities was $553 million. (10) ACCRUED ABANDONMENT, RESTORATION AND ENVIRONMENTAL LIABILITIES: At September 30, 1996, the company had accrued $500 million for the estimated future costs to abandon and remove wells and production facilities. The total costs for abandonments are estimated to be $640 million to $780 million, of which the lower end of the range is used to calculate the amount to be amortized. At September 30, 1996, the company's reserve for environmental remediation obligations totaled $245 million, of which $83 million was included in current liabilities. The reserve included estimated probable future costs of $29 million for federal Superfund and comparable state-managed multiparty disposal sites; $30 million for formerly-operated sites for which the company has remediation obligations; $67 million for sites related to businesses or operations that have been sold with contractual remediation or indemnification obligations; $67 million for company-owned or controlled sites where facilities have been closed or operations shut down; and $52 million for sites owned and/or controlled by the company and utilized in its ongoing operations. 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) (11) CONTINGENT LIABILITIES: The company has certain 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 and local 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, if liability is 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 cleanup 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, and the fact that the company is usually just one of a number of companies identified as a PRP. As disclosed in Note 10, at September 30, 1996, the company had accrued $245 million for estimated future environmental assessment and remediation costs at various sites where liabilities for such costs are probable. 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 additional remediation costs aggregating approximately $180 million. Between August 22 and September 6, 1994, a chemical known as "Catacarb" was released into the environment at the company's San Francisco Refinery near Rodeo, California. Persons in the surrounding area have claimed that they were exposed to the chemical in varying degrees. Since September 22, 1994, forty-eight lawsuits have been filed by or on behalf of all persons, alleged to be several thousand, claiming that they or their property were adversely affected by the releases. Forty-four of the lawsuits have been consolidated in the Superior Court for Contra Costa County. The First Amended Model Complaint in this consolidated action, filed February 1, 1995, on behalf of individual plaintiffs and purported classes of plaintiffs, alleges personal injury, emotional distress and increased risk of future illness on behalf of the named plaintiffs and all persons present in and around or downwind from the San Francisco Refinery, and property damage and loss or diminution of property value on behalf of all owners of real and personal property in the vicinity of the Refinery, resulting from the release of Catacarb by the Refinery. Certain individual plaintiffs allege injury from alleged subsequent releases at the Refinery of hydrogen sulfide and other chemicals. The Model Complaint seeks compensatory and punitive damages in unspecified amounts, equitable relief including the creation of a fund for medical monitoring and treatment of plaintiffs and members of the purported classes, statutory penalties and other relief. The company has reached agreement with plaintiffs to certify a mandatory non-opt out punitive damages class. Plaintiffs have withdrawn their class 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) claims for personal injury and property damage. In early November, the trial court issued an order declining to certify a medical monitoring class. The court indicated its tentative intention to commence a trial with an undetermined number of test plaintiffs in June 1997. TAX MATTERS In December 1994, the company received a Notice of Proposed Deficiency from the Internal Revenue Service (IRS) related to the years 1985 through 1987. In February 1995, the company filed a protest of the proposed tax deficiency with the Appeals section of the IRS. Discussions with the Appeals Officer are ongoing, but it appears that two substantial issues may proceed to litigation. In an effort to resolve these issues without litigation, in October 1996, the company and the IRS entered into an Agreement to Mediate. While the parties have selected a mediator, no date for the mediation has been set. The most significant issue relates to an IRS challenge of a $341 million deduction taken by the company in its 1985 tax return for amounts paid under a settlement agreement with Mesa Petroleum, T. Boone Pickens and Drexel Burnham Lambert, Incorporated, and certain others which ended a hostile takeover attempt by that group. The IRS contends that the deduction is not allowable because the payment was related solely to the purchase of the company's common stock. Although the company did purchase shares under the settlement agreement, it properly reflected the purchase in its records at the fair market value of the shares purchased. The deduction at issue relates to that portion of the payment made under the settlement agreement that exceeded the value of the shares purchased. The company intends to vigorously dispute the IRS' assertions in court. If the IRS were ultimately to prevail, the company would owe $157 million of tax for 1985 plus tax deductible interest estimated at $295 million as of September 30, 1996. As this matter is not yet before a court, final resolution of this matter is likely to be several years away. The second issue relates to an IRS challenge of a continued deferral of intercompany gains which arose from sales of property between subsidiaries in 1982 and 1983. The IRS contends that the $201 million balance of deferred gain must be recognized in the company's taxable income for 1985 when the subsidiaries contributed the property to a wholly owned master limited partnership. The company intends to vigorously dispute the IRS' assertions in court. If the IRS were ultimately to prevail, the company would owe $92 million in tax for 1985, but would receive credits or refunds for offsetting deductions in later years. For 1986 and 1987 the credits or refunds would total $35 million. In addition to tax, the company would owe tax deductible interest estimated at $120 million as of September 30, 1996. As this matter is not yet before a court, final resolution of this matter is likely to be several years away. The total amount of tax and interest that the company would be required to pay if the IRS were ultimately to prevail on both of the issues described in the two preceding paragraphs is substantially less than the sum of the amounts. As a result of the interplay of these issues, application of foreign tax credits and overpayments related to other issues, the total amount of tax and interest is estimated at $378 million as of September 30, 1996. The company believes it has adequately provided in its accounts for items and issues not yet resolved. In the opinion of management, a successful outcome of the litigation is reasonably likely. However, substantial adverse decisions could have a material effect on the company's financial condition, operating results and liquidity in a given quarter and year when such matters are resolved. OTHER MATTERS The company also has certain other contingent liabilities with respect to litigation, claims and contractual agreements arising in the ordinary course of business. Although these contingencies could result in expenses or judgments that could be material to the company's results of operations for a given reporting period, on the basis of management's best assessment of the ultimate amount and timing of these events, such expenses or judgments are not expected to have a material adverse effect on the company's consolidated financial condition or liquidity. 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) (12) CONVERTIBLE PREFERRED SECURITIES AND PREFERRED STOCK On September 11, 1996, pursuant to an offer which expired on September 5, 1996, Unocal exchanged 10,437,873 new 6-1/4 percent Trust Convertible Preferred Securities (the "Preferred Securities") of Unocal Capital Trust, a Delaware business trust (the "Trust"), for 9,352,962 shares of Unocal's $3.50 Convertible Preferred Stock (the "Preferred Stock") which were tendered in response to the offer. Unocal acquired the Preferred Securities, which have an aggregate liquidation value of $522 million, from the Trust, together with 322,821 common securities of the Trust, which have an aggregate liquidation value of $16 million, in exchange for $538 million principal amount of 6-1/4 percent Convertible Junior Subordinated Debentures (the "Debentures") of Unocal. The Preferred Securities and common securities of the Trust represent undivided beneficial interests in the Debentures, which are the sole assets of the Trust. The Preferred Securities have a liquidation value of $50 per security and will be convertible on and after December 10, 1996, into shares of Unocal common stock at a conversion price of $42.56 per share, subject to adjustment upon the occurrence of certain events. Distributions on the Preferred Securities are cumulative from September 5, 1996, at an annual rate of 6-1/4 percent of their liquidation amount and are payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year, commencing on December 1, 1996, to the extent that the Trust receives interest payments on the Debentures, which payments are subject to deferral by Unocal under certain circumstances. Upon repayment of the Debentures by Unocal, whether at maturity, upon redemption or otherwise, the proceeds thereof must immediately be applied to redeem a corresponding amount of the Preferred Securities and the common securities of the Trust. The Debentures mature on September 1, 2026, and may be redeemed, in whole or in part, at the option of Unocal, at any time on or after September 3, 2000, at a redemption price initially equal to 103.75 percent of the principal amount redeemed, declining annually to 100 percent of the principal amount redeemed in 2006, plus accrued and unpaid interest thereon to the redemption date. The Debentures, and hence the Preferred Securities, may become redeemable at the option of Unocal upon the occurrence of certain special events or restructuring transactions. The Trust is accounted for as a consolidated subsidiary of Unocal, with the Debentures and payments thereon by Unocal to the Trust eliminated in the consolidated financial statements. The payment obligations of the Trust under the Preferred Securities are unconditionally guaranteed by Unocal (the "Guarantee"). The Guarantee, when taken together with Unocal's obligations under the Debentures and the indenture pursuant to which the Debentures were issued and Unocal's obligations under the amended and restated declaration of trust governing the Trust, provides a full and unconditional guarantee of the Trust's obligations under the Preferred Securities. On September 11, 1996, Unocal called the unexchanged 897,038 shares of the Preferred Stock for redemption on October 11, 1996. Of these, 632,263 shares were converted into 1,028,058 shares of Unocal common stock in September and the remaining 264,775 shares were converted into 430,517 shares of common stock in October prior to the redemption date. (13) Unocal guarantees certain indebtedness of Union Oil. Summarized below is financial information for Union Oil and its consolidated subsidiaries:
For the Three Months For the Nine Months Ended September 30 Ended September 30 ---------------------------------------------------- Millions of dollars 1996 1995 * 1996 1995 ----------------------------------------------------------------------------------------------------------------------------------- Total revenues ................................................................. $2,611 $2,005 $7,573 $6,201 Total costs and other deductions, including income taxes ....................... 2,438 1,945 7,037 5,989 --------------------------------------------- Net earnings ................................................................... $ 173 $ 60 $ 536 $ 212 - -------------------------------------------------------------------------------- --------------------------------------------- At September 30 At December 31 Millions of dollars 1996 1995 ----------------------------------------------------------------------------------------------------------------------------------- Current assets ............................................................................... $1,604 $1,576 Noncurrent assets ............................................................................ $8,213 $8,328 Current liabilities .......................................................................... $1,464 $1,309 Noncurrent liabilities ....................................................................... $5,020 $5,645 Shareholder's equity ......................................................................... $3,333 $2,950 - -----------------------------------------------------------------------------------------------------------------------------------=
9
OPERATING HIGHLIGHTS UNOCAL CORPORATION (Unaudited) For the Three Months For the Nine Months Ended September 30 Ended September 30 ------------------------------------------------- 1996 1995 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------------- NET DAILY PRODUCTION Crude oil and condensate (thousand barrels): United States (a) 86.1 123.6 98.9 126.4 Foreign: Far East (b) 82.2 81.9 82.4 84.6 Other 27.2 29.6 27.6 30.3 -------------------------------------------------- Total foreign 109.4 111.5 110.0 114.9 Worldwide 195.5 235.1 208.9 241.3 -------------------------------------------------- Natural gas (million cubic feet): United States (a) 1,099 1,077 1,091 1,109 Foreign: Far East (b) 667 577 626 597 Other 63 55 71 48 -------------------------------------------------- Total foreign 730 632 697 645 Worldwide 1,829 1,709 1,788 1,754 Natural gas liquids (thousand barrels) (a) 19.3 20.2 19.6 21.4 Geothermal (million kilowatt-hours) 21.0 17.7 17.3 16.0 - ------------------------------------------------------------------------------------------------------------------------------------ AVERAGE SALES PRICES Crude oil and condensate (per barrel): United States $20.01 $14.83 $18.31 $15.17 Foreign: Far East $18.89 $15.26 $18.32 $16.11 Other $19.89 $15.12 $18.53 $15.84 Total foreign $19.21 $15.21 $18.39 $16.01 Worldwide $19.62 $14.98 $18.34 $15.51 Natural gas (per thousand cubic feet): United States $ 2.09 $ 1.43 $ 2.20 $ 1.49 Foreign: Far East $ 2.27 $ 2.05 $ 2.23 $ 2.00 Other $ 2.05 $ 1.21 $ 1.82 $ 1.14 Total foreign $ 2.25 $ 1.97 $ 2.18 $ 1.94 Worldwide $ 2.15 $ 1.64 $ 2.20 $ 1.66 (a) Includes production from California upstream properties of: Crude oil and condensate 1.0 28.7 10.9 29.4 Natural gas - 58 17 64 Natural gas liquids - 0.7 0.2 1.1 (b) Includes host country share in Indonesia of: Crude oil and condensate 26.4 33.0 26.8 31.7 Natural gas 29 20 26 23
10 OPERATING HIGHLIGHTS (continued) UNOCAL CORPORATION (Unaudited) For the Three Months For the Nine Months Ended September 30 Ended September 30 ------------------------------------------------- 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ INPUT TO CRUDE OIL PROCESSING UNITS (thousand barrels daily) ...................... 229 220 231 207 REFINERY PRODUCTION (thousand barrels daily) EPA Gasoline ................................................................. 31 120 52 107 CARB gasoline ................................................................ 90 -- 64 -- Jet fuel, kerosene and heating oil ........................................... 33 29 36 21 Diesel fuel .................................................................. 19 14 21 12 CARB diesel .................................................................. 27 27 24 24 Other products (lubricants, gas oils , etc.) ................................. 58 53 61 62 ---------------------------------------- Total ................................................................... 258 243 258 226 PETROLEUM PRODUCT SALES (thousand barrels daily) Primarily sold through retail channels EPA Gasoline ................................................................. 27 116 67 116 CARB gasoline ................................................................ 103 -- 64 -- Diesel fuel .................................................................. 15 12 14 12 CARB diesel .................................................................. 20 17 16 15 Other products ( includes lube oil, kerosene and fuel oil) ................... 7 7 7 7 ---------------------------------------- Total ................................................................... 172 152 168 150 Primarily sold through wholesale or commercial channels EPA Gasoline ................................................................. 4 31 9 23 CARB gasoline ................................................................ 21 -- 12 -- Jet fuel ..................................................................... 38 32 40 29 Diesel fuel .................................................................. 14 14 14 10 CARB diesel .................................................................. 15 11 12 6 Other products (includes petroleum products, gas oils , etc.) ................ 34 35 36 42 ---------------------------------------- Total ................................................................... 126 123 123 110 ---------------------------------------- Total petroleum products sales ....................................... 298 275 291 260 AGRICULTURAL PRODUCTS PRODUCTION VOLUMES (thousand tons) Ammonia ......................................................................... 360 296 1,089 988 Urea ............................................................................ 275 242 845 806 Other products .................................................................. 149 169 494 583 AGRICULTURAL PRODUCTS SALES VOLUMES (thousand tons) Ammonia ......................................................................... 206 106 574 500 Urea ............................................................................ 198 247 779 773 Other products .................................................................. 302 255 971 962
11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONSOLIDATED RESULTS
For the Three Months For the Nine Months Ended September 30 Ended September 30 -------------------------- --------------------------- Millions of dollars 1996 1995 * 1996 1995 --------------------------------------------------------------------------------------------------------------------------------- Net earnings excluding special items: .............................. $ 153 $ 50 $ 478 $ 205 Special items: Sale of California oil and gas properties * .................... -- -- 70 -- Florida and Alaska OCS settlement .............................. -- 18 -- 18 Other asset sales .............................................. 49 1 63 38 Environmental provision ........................................ (12) (1) (38) (19) Litigation provision ........................................... (22) (5) (34) (17) Write-down of assets ........................................... -- -- (4) (10) Other .......................................................... 3 (4) (2) (4) ------------------------------------------------------ Net earnings including special items ........................ $ 171 $ 59 $ 533 $ 211
* Net of provision for environmental remediation of $10 million During the third quarter and first nine months of 1996, operating earnings continued to improve over the prior year results primarily due to higher worldwide crude oil and natural gas sales prices; improved refined product margins; improved foreign natural gas production and increased production and sales volumes of agricultural products. Partially offsetting these positive factors were decreased worldwide crude oil production, primarily due to asset sales and increased exploration costs. During the third quarter of 1996, other asset sales consisted of the sale of exploration blocks in the North sea and miscellaneous real estate assets. Year-to-date 1996 other asset sales primarily consisted of the sale of miscellaneous oil and gas properties and miscellaneous real estate assets. Year-to-date 1995 other asset sales primarily consisted of the sale of miscellaneous oil and gas properties and the company's Process Technology and Licensing business. Consolidated sales and operating revenues for the third quarter of 1996 increased by $598 million, or 31 percent, compared with the third quarter of 1995, and consolidated sales and operating revenues for the first nine months of 1996 increased by $1,275 million, or 21 percent, compared with the first nine months of 1995. The increased sales and operating revenues were primarily the result of higher crude oil, natural gas and gasoline sales prices. OIL AND GAS EXPLORATION AND PRODUCTION
For the Three Months For the Nine Months Ended September 30 Ended September 30 ---------------------------------------------------- Millions of dollars 1996 1995 * 1996 1995 ---------------------------------------------------------------------------------------------------------------------------------- Net earnings excluding special items: ............................ $ 137 $ 82 $ 459 $ 290 Special items: Sale of California oil and gas properties * .................. -- -- 68 -- Other asset sales ............................................ 40 (1) 46 8 Florida and Alaska OCS settlement ............................ -- 18 -- 18 Write-down of assets ......................................... -- -- -- (8) ------------------------------------------------------- Net earnings including special items ...................... $ 177 $ 99 $ 573 $ 308
* Net of provision for environmental remediation of $10 million During the third quarter and first nine months of 1996, average worldwide sales prices for crude oil and natural gas and foreign natural gas production were higher than the 1995 levels. Partially offsetting these positive factors were declining worldwide crude oil production and increased exploration costs. Worldwide crude oil production decreased principally due to the sale of the California properties and other oil and gas assets and natural decline. Another factor offsetting improved earnings was increased dry hole costs, which were the result of increased exploratory drilling in the United States. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Oil and Gas Exploration and Production sales and operating revenues (including intercompany) for the third quarter and first nine months of 1996 were $664 million and $2,000 million, respectively, compared with $543 million and $1,701 million for the corresponding periods in 1995. Average worldwide crude oil sales prices increased during the third quarter of 1996 by $4.64 per barrel, or 31 percent, and worldwide natural gas sales prices increased by $.51 per thousand cubic feet, or 31 percent, compared with the third quarter of 1995. During the first nine months of 1996, worldwide crude oil sales prices increased by $2.83 per barrel, or 18 percent, and worldwide natural gas sales prices increased by $.54 per thousand cubic feet, or 33 percent, compared with the first nine months of 1995. During the third quarter and first nine months of 1996, foreign natural gas production increased by 16 percent and 8 percent, respectively, over the same periods a year ago. The increase was primarily due to activities in Thailand and the Netherlands. REFINING, MARKETING AND TRANSPORTATION - 76 PRODUCTS COMPANY
For the Three Months For the Nine Months Ended September 30 Ended September 30 ----------------------------------------------------- Millions of dollars 1996 1995 * 1996 1995 ---------------------------------------------------------------------------------------------------------------------------------- Net earnings (loss) excluding special items: ................................ $ 35 $ 12 $ 76 $ (5) Special items: Sale of California oil and gas properties (pipelines) ................... -- -- 2 -- Other asset sales ....................................................... 1 -- 1 -- Litigation provision .................................................... (2) -- (2) -- Write-down of assets .................................................... -- -- (4) -- Other ................................................................... 3 -- 7 -- ---------------------------------------------- Net earnings (loss) including special items .......................... $ 37 $ 12 $ 80 $ (5)
The 76 Products Company's increased earnings during the third quarter and first nine months of 1996 reflected significantly improved product margins, higher product sales volumes and increased refinery production of light oil products as compared to the same periods in 1995. 76 Products Company's sales and operating revenues (including intercompany and excise taxes) for the third quarter and first nine months of 1996 were $1,243 million and $3,536 million, respectively, compared with $977 million and $2,899 million (including intercompany and excise taxes) for the corresponding periods in 1995. During the third quarter and first nine months of 1996, product sales volumes through retail channels increased by 13 percent and 12 percent, respectively, compared with the corresponding periods in 1995. Compared with the third quarter and first nine months of 1995, refinery production increased by 6 percent and 14 percent, respectively. GEOTHERMAL AND POWER OPERATIONS
For the Three Months For the Nine Months Ended September 30 Ended September 30 ---------------------------------------------------- Millions of dollars 1996 1995 * 1996 1995 ---------------------------------------------------------------------------------------------------------------------------------- Net earnings excluding special items: .............................. $ 6 $ 4 $15 $14 Special items: Sale of assets ................................................. -- 2 -- 7 --------------------------------------------------- Net earnings including special items ........................ $ 6 $ 6 $15 $21
The 1995 gain was from the sale of a small interest in the Indonesian geothermal operations. 13 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) Diversified Businesses
For the Three Months For the Nine Months Ended September 30 Ended September 30 ----------------------------------------------------- Millions of dollars 1996 1995 * 1996 1995 ---------------------------------------------------------------------------------------------------------------------------------- Net earnings excluding special items: Agricultural Products .......................................... $ 20 $ 3 $ 73 $ 51 Carbon and Minerals ............................................ 13 13 40 40 Pipelines ...................................................... 14 15 44 50 Other .......................................................... 2 2 5 8 ---------------------------------------------------- Total ..................................................... $ 49 $ 33 $162 $149 Special items: Asset sales Agricultural Products ....................................... -- -- -- 4 Pipeline .................................................... -- -- 7 -- Miscellaneous (Other) ....................................... 8 -- 8 1 ---------------------------------------------------- Net earnings including special items ........................ $ 57 $ 33 $177 $154
Increased earnings for Diversified Businesses were primarily due to increased production and sales volumes for agricultural products. During the third quarter and first nine months of 1996, ammonia production volumes increased 22 percent and 10 percent, respectively, compared with the same periods in 1995. Ammonia sales volumes increased by 94 percent and 15 percent during the third-quarter and first nine-months of 1996, respectively, compared with the corresponding periods in 1995. CORPORATE AND UNALLOCATED
For the Three Months For the Nine Months Ended September 30 Ended September 30 ----------------------------------------------------- Millions of dollars 1996 1995 * 1996 1995 ---------------------------------------------------------------------------------------------------------------------------------- Net earnings excluding special items: Administrative and general expense ................................. $ (21) $ (22) $ (55) $ (57) Net interest expense ............................................... (37) (50) (135) (140) Environmental and litigation expense ............................... (5) (4) (14) (21) Other .............................................................. (11) (5) (30) (25) ------------------------------------------------------ Total ......................................................... (74) (81) (234) (243) Special items: Environmental and litigation provisions ......................... (32) (6) (70) (36) Asset sales (Other) ............................................. -- -- 1 18 Write-down of assets (Other) .................................... -- -- -- (2) Other ........................................................... -- (4) (9) (4) ------------------------------------------------------ Net earnings effect including special items .................. $(106) $ (91) $(312) $(267)
Asset sales for 1995 consisted primarily of the sale of the company's Process, Technology and Licensing business. FINANCIAL CONDITION AND CAPITAL EXPENDITURES For the first nine months of 1996, cash flow from operating activities, including working capital changes, was $1,199 million, compared with $676 million in 1995. This increase was principally due to higher commodity prices. Proceeds from asset sales were $585 million for the first nine months of 1996. The total principally included: $490 million from the sale of oil and gas producing properties, which included $480 million from the sale of the California properties; $20 million from the 1995 sale of geothermal assets; $12 million from the sale of the company's interest in the Platte Pipeline; $23 million from the sale of exploration blocks in the North Sea; and $30 million from the sale of miscellaneous real estate assets. The company used most of the 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) proceeds from these sales to repay long-term debt. Proceeds from asset sales for the first nine months of 1995 were $130 million, mainly from the sale of nonstrategic oil and gas properties and the Process, Technology and Licensing business. Consolidated working capital at September 30, 1996 was $155 million, a decrease of $105 million from the year-end 1995 level of $260 million. The company's total debt was $3,070 million at September 30, 1996, a decrease of $636 million from the year-end 1995 level. The debt-to-total capitalization ratio dropped to 48 percent from 55.8 percent at year-end 1995. See Notes 8 and 9 to the Consolidated Financial Statements for additional information. Capital expenditures for the first nine months of 1996 totaled $940 million, a decrease of $27 million from the 1995 level of $967 million. Estimated expenditures for the full year 1996 are expected to reach $1.3 billion. ENVIRONMENTAL MATTERS At September 30, 1996, the company's reserves for environmental remediation obligations totaled $245 million, of which $83 million was included in current liabilities. During the first nine months of 1996, cash payments of $49 million were charged against reserves and an additional $80 million in liabilities were added to the reserve account, primarily due to changes in estimated future remediation costs for numerous sites. The company estimates that it could incur additional remediation costs aggregating approximately $180 million as discussed in Note 11 to the Consolidated Financial Statements. The company is subject to federal, state and local environmental laws and regulations, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, and the Resource Conservation and Recovery Act (RCRA). 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 and petroleum substances at various sites. At year-end 1995, the company had received notification from the Federal Environmental Protection Agency that the company may be a potentially responsible party (PRP) at 40 Superfund sites. In addition, various state agencies and private parties had identified 30 other similar PRP sites that may require investigation and remediation. During the first nine months of 1996, 12 sites were added and five sites were removed resulting in a total of 77 sites. Of the total, the company has denied responsibility at four sites and at another 14 sites the company's liability, although unquantified, appears to be de minimis. At another four sites, the company is in the process of resolving its liability. The total also includes 28 sites which are under investigation or in litigation, for which the company's potential liability is not determinable. Of the remaining 27 sites, where probable costs can be reasonably estimated, a reserve of $29 million was included in the total environmental remediation reserve as of September 30, 1996. Unocal 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 only one of several 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 as discussed in Note 11 to the Consolidated Financial Statements. The solvency of other responsible parties and disputes regarding responsibilities may also impact the company's ultimate costs. Corrective investigations and actions pursuant to RCRA are being performed at the San Francisco and Los Angeles refineries, Beaumont facility and at the company's closed shale oil project and Molycorp Inc., Washington, Pennsylvania, facility. The company also must provide financial assurance for future closure and post-closure costs of its RCRA permitted facilities. Because these costs will be incurred at different times and over a period of many years, the company believes that these obligations are not likely to have a material adverse effect on the company's results of operations or financial condition. In the third quarter of 1996, the company added $18 million to the reserve for estimated costs associated with the remediation of retail marketing sites. Some of the remediation is being performed as the company replaces underground storage tank (UST) systems at its service stations. Federal regulations require all UST systems to meet new standards by December 1998. The addition also includes remediation to be performed in conjunction with the company's program 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) to upgrade its service stations. Estimates for possible additional expenses are included in the $180 million total of future estimated remediation costs disclosed in Note 11 to the consolidated financial statements. In November 1996, the company submitted a remedial action plan to the Regional Water Quality Control Board (RWQCB) for the remediation of petroleum hydrocarbon contamination from the beach area in Avilia Beach, California. Interim beach protection measures will continue until the remedial action plan is evaluated as part of the Environmental Impact Report process and approved by the RWQCB. Cost estimates for the implementation of the plan are approximately $9 million. The company expects to incur additional costs related to this site. These costs however, cannot be determined at this time. OTHER MATTERS In the Philippines, the company's subsidiary, Philippine Geothermal, Inc., reached provisional agreement with Philippine National Power Corporation to continue operating and maintaining two geothermal fields in the northern Philippines until a legal dispute over the extension of the service contract for an additional 25 years is settled. The original 25-year service contract expired on September 30, 1996. The interim contract is for six months and is renewable for another three months. Both parties will continue to observe the rights and obligations under the original contract except for the terms of payment. Under the interim agreement, 60 percent of the company's revenue from the steam fee is being held in escrow until the courts reach a decision. FUTURE ACCOUNTING CHANGE The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". This Statement is to be applied prospectively to transactions occuring after December 31, 1996. The company is reviewing the potential financial impact of adopting the new accounting standard. OUTLOOK Certain of the statements in this discussion, as well as other forward-looking statements within this document, contain estimates and projections of amounts of or increases in future revenues, earnings, cash flows, capital expenditures, assets, liabilities and other financial items and of future levels of or increases in reserves, production, sales including related costs and prices, and other statistical items; plans and objectives of management regarding the company's future operations, products and services; and certain assumptions underlying such estimates, projection plans and objectives. While these forward-looking statements are made in good faith, future operating, market, competitive, legal, economic, political, environmental, and other conditions and events could cause actual results to differ materially from those in the forward-looking statements. While third quarter 1996 refined product margins were above 1995 levels, they were significantly below the levels of the second quarter of 1996. This decline has continued into the fourth quarter of 1996 due to the competitive conditions that have developed in the California market. Crude oil and natural gas prices are expected to remain strong; however, crude oil prices could be adversely impacted if the United Nations Resolution 986 on the limited sale of Iraq oil is implemented. The company will continue to be affected by the uncertainty and volatility of prices. During the fourth quarter of 1996, gross natural gas production in Thailand is expected to increase by 35 percent to an average of approximately 990 mmcfd. Gross natural gas production for the first nine months averaged 735 mmcfd. Associated condensate is expected to average about 32,500 barrels per day during the fourth quarter compared to 26,482 barrels per day for the first nine months. The increased production was in response to Petroleum Authority of Thailand's (PTT) requirement for additional gas to meet customer demand. In order to continue to respond to increased demand, the company expects average gross production to be at or above one billion cubic feet per day by the second quarter of 1997 when PTT's second offshore pipeline and related onshore pipelines and processing facilities are fully operational. Unocal has a 65 percent average net interest in the nine fields it operates in the Gulf of Thailand. On November 11, 1996, the company announced the outcome of 11 successful wells drilled in the Gulf of Thailand, which resulted in the discovery of one new field and extensions and/or delineations of five existing fields. 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The company's subsidiary, Unocal Yangtze, Ltd., joined an equity joint venture that plans to construct and operate a liquefied petroleum gas (LPG) terminal in the People's Republic of China. The terminal construction is expected to be completed by December 1997, with LPG available for delivery to customers by January 1998. The initial planned annual throughput capacity for the terminal is 500,000 metric tons. The company has a 30 percent interest in thejoint venture. On November 12, 1996, the company entered into an agreement to sell 80 percent of the stock of its wholly owned subsidiary, NEC Acquisition Company (NEC), for a sales price of $28 million. The company's after-tax loss is expected to be approximately $57 million. NEC has a 25 percent interest in The Geysers geothermal operations located in Northern California. It is contemplated that the sale will be effective on November 30, 1996. On October 29, 1996, the company announced its intention to establish 76 Products Company as a wholly owned subsidiary and transfer its West Coast downstream refining, marketing and transportation assets to the subsidiary by the end of 1996. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There is incorporated by reference the information regarding environmental remediation reserves in Note 10 to the consolidated financial statements in Item 1 of Part I, the discussion thereof in the Environmental Matters section of Management's' Discussion and Analysis in Item 2 of Part I, and the information regarding contingent liabilities in Note 11 to the consolidated financial Statements in Item 1 of Part I. (1) In Citizens for a Better Environment, et al. v. Union Oil Company of California (No. C94-0712, U.S.D.C., N.D. California) regarding allegations of NPDES violations from selenium discharges, the Ninth Circuit Court of Appeals denied the request for a rehearing en banc. The company is now evaluating whether to file a Petition for Writ of Certiorari with the U. S. Supreme Court. (2) In People v. Union Oil Company of California, Superior Court of San Luis Obispo County (Civil No. 75194), trial settings have been vacated on motion of the California Attorney General. The next status conference is scheduled for November 15, 1996. (3) The company has been served with a lawsuit which is purportedly brought by unidentified representatives on behalf of an alleged class of plaintiffs consisting of all residents of the Tenasserim region of Myanmar who are affected by the defendants' alleged acts of mistreatment and forced labor, and by a California resident, Louisa Benson, who claims that the defendants have engaged in unfair business practices (John Doe, et al. and Louisa Benson v. Unocal Corp., et al., U.S.D.C, C.D. Calif., Civil No 96-6959-LGB, filed October 3, 1996). Defendants include Total S.A., Myanma Oil and Gas Enterprise, the State Law and Order Restoration Council (SLORC), John Imle and Roger C. Beach. Plaintiffs' claims are based on the company's joint-venture activities in Myanmar for the exploration and production of natural gas in the Andaman Sea and shipment of that gas to Thailand through a pipeline crossing Myanmar (the Yadana Project). The complaint contains numerous counts and alleged violations of several U.S. and California laws and U.S. treaties. Plaintiffs seek compensatory and punitive damages on behalf of the purported class, and Louisa Benson seeks disgorgement of profits. Injunctive and declaratory relief is also requested to direct defendants to cease payments to SLORC and to cease participation in the Yadana Project. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3 Bylaws of Unocal Corporation, as amended September 30, 1996, and currently in effect. 11 Unocal Corporation statement regarding computation of earnings per common share for the three months ended September 30, 1996 and 1995 and for the nine-month periods ended September 30, 1996 and 1995. 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED) 12.1 Unocal Corporation statement regarding computation of ratio of earnings to fixed charges for the nine months ended September 30, 1996 and 1995. 12.2 Unocal Corporation statement regarding computation of ratio of earnings to combined fixed charges and preferred stock dividends for the nine months ended September 30, 1996 and 1995. 12.3 Union Oil Company of California statement regarding computation of ratio of earnings to fixed charges for the nine months ended September 30, 1996 and 1995. 27 Financial data schedule for the quarter ended September 30, 1996 (included only in the copy of this report filed electronically with the Commission). 99 Bylaws of Union Oil Company of California, as amended September 30, 1996, and currently in effect. (b) Reports on Form 8-K During the third quarter of 1996: 1. Current Report on Form 8-K dated and filed July 25, 1996, for the purpose of reporting, under Item 5, Unocal's second quarter and first six months 1996 earnings. 2. Current Report on Form 8-K dated and filed September 3, 1996, for the purpose of reporting, under Item 5, the exchange and conversion ratios for the new 6-1/4 percent Trust Convertible Preferred Securities of Unocal Capital Trust offered by Unocal in exchange for all of the outstanding shares of its $3.50 Convertible Preferred Stock. 3. Current Report on Form 8-K dated and filed September 6, 1996, for the purpose of reporting, under Item 5, the acceptance by Unocal of all shares of its $3.50 Convertible Preferred Stock tendered in its exchange offer. 4. Current Report on Form 8-K dated and filed September 11, 1996, for the purpose of reporting, under Item 5, the completion of Unocal's exchange offer and its call for redemption of the remaining shares of its $3.50 Convertible Preferred Stock. During the fourth quarter of 1996 to the date hereof: 1. Current Report on Form 8-K dated and filed October 23, 1996, for the purpose of reporting, under Item 5, Unocal's third quarter and first nine months 1996 earnings. 18 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. UNOCAL CORPORATION (Registrant) Dated: November 13, 1996 By: /s/ CHARLES S. MCDOWELL ----------------------- Charles S. McDowell Vice President and Comptroller (Duly Authorized Officer and Principal Accounting Officer) 19 EX-3.(I) 2 BYLAWS OF UNOCAL CORPORATION EXHIBIT 3 BYLAWS OF UNOCAL CORPORATION ARTICLE I FISCAL YEAR Section 1. The fiscal year of Unocal Corporation (hereinafter called the "Corporation") shall end on the thirty-first day of December of each year. ARTICLE II OFFICES Section 1. Principal Office. The principal office for the transaction of business of the Corporation is hereby fixed and located at 2141 Rosecrans Avenue, Suite 4000, in the City of El Segundo, County of Los Angeles, State of California. The Board of Directors (hereinafter sometimes called the "Board") is hereby granted full power and authority to change said principal office from one location to another. ARTICLE III STOCKHOLDERS Section 1. Annual Meetings. The annual meetings of the stockholders shall be held at 10:00 o'clock A.M. on the fourth Monday in May of each year if not a legal holiday, for the purpose of electing directors, consideration of reports of the affairs of the Corporation, and for the transaction of any other business which is within the powers of the stockholders and properly brought before the meeting. If the fourth Monday in May is a legal holiday, the annual meeting of the stockholders shall be held at 10:00 o'clock A.M. on the preceding or subsequent Monday as fixed by resolution of the Board. Section 2. Notice of Meetings. Written notice of each annual or special meeting of stockholders shall be given to each stockholder entitled to vote thereat not less than ten nor more than sixty days before the meeting. Section 3. Place of Meetings. All meetings of stockholders, whether annual or special, shall be held at the principal office of the Corporation or at such other place, within or without the State of Delaware, as the Board may from time to time designate pursuant to authority hereinafter granted it. In the absence of any such designation stockholders' meetings shall be held at the principal office of the Corporation. Section 4. Voting Rights. Stockholders entitled to vote at stockholder meetings shall be entitled to one vote for each full share. A fraction of a share or a fractional interest in a share shall not be entitled to any voting rights whatsoever. Section 5. Conduct of Meetings. The decisions of the Chairman of the Board or officer presiding at all stockholders' meetings shall govern in all matters relating to the conduct of the meeting. Section 6. Voting. Directors shall be divided into three classes with each director serving a three-year term. At each annual meeting, all directors of one class shall be elected in accordance with the provisions of ARTICLE SEVENTH of the Corporation's Certificate of Incorporation by the holders of shares entitled to vote in the election. A nomination shall be accepted, and votes cast for a proposed nominee shall be counted by the inspectors of election, only if the Secretary of the Corporation has received at least 30 days prior to the meeting a statement over the signature of the proposed nominee that such person consents to being a nominee and, if elected, intends to serve as a director. Such statement shall also contain the Unocal stock ownership of the proposed nominee, occupations and business history for the previous five years, other directorships, names of business entities in which the proposed nominee owns a 10 percent or more equity interest, listing of any criminal convictions, including federal or state securities violations, and all other information required by the federal proxy rules in effect at the time the proposed nominee submits said statement. Section 7. Notice of Stockholder Business. At any meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before the meeting by a stockholder, the Secretary must have received written notice at least thirty (30) days prior to the meeting. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (a) a brief description of the business desired to be brought before the meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and the number of shares of the Corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at a meeting except in accordance with the procedures set forth herein. Section 8. Quorum. The holders of one-third (1/3) of all of the outstanding shares of the stock of the Corporation entitled to vote at a meeting of stockholders, present in person or by proxy, shall constitute a quorum for the transaction of any business at such meeting. ARTICLE IV BOARD OF DIRECTORS Section 1. Powers. Subject to the limitations of the Certificate of Incorporation of the Corporation and of the Delaware General Corporation Law as to action which shall be authorized or approved by the stockholders, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed by, the Board of Directors. Section 2. Number. The exact number of directors of the Corporation, within the limits specified in ARTICLE SEVENTH of the Corporation's Certificate of Incorporation, shall be twelve until changed in the manner provided by law. 2 Section 3. Chairman and Vice Chairman of the Board. The Board shall appoint a Chairman, who shall preside at all meetings of the Board of Directors and shall have such other powers and duties as may from time to time be assigned by the Board of Directors or prescribed by the Bylaws. The Board may also appoint a Vice Chairman, who shall preside at all meetings of the Board of Directors in the absence of the Chairman and shall have such other powers and duties as may from time to time be assigned by the Board of Directors or prescribed by the Bylaws. Section 4. Annual Meetings. Immediately following each annual meeting of stockholders, the Board shall hold its annual meeting for the purpose of organization, election of officers and the transaction of any other business. Section 5. Regular Meetings. Regular meetings of the Board shall be held at the times and on the dates fixed by resolution of the Board. Section 6. Special Meetings. Special meetings of the Board for any purpose or purposes whatsoever may be called by the Chairman of the Board or the Chief Executive Officer or, in the absence or inability of either of them, by the President, the Chief Financial Officer, or by at least two of the directors at the time in office. Section 7. Notice of Meetings. Notice of annual meetings and of regular meetings of the Board is hereby dispensed with. Notice of special meetings must be given at least two days in advance if given by mail, or at least twenty-four hours in advance if delivered personally or given by telephone or telegram. Section 8. Place of Meetings. All meetings of the Board, whether annual, regular or special meetings, shall be held at any place within or without the State of Delaware which has been designated from time to time by resolution of the Board or in the notice of the meeting. In the absence of such designation all directors' meetings shall be held at the principal office of the Corporation. Section 9. Quorum. A majority of the exact number of directors specified in Section 2 of ARTICLE IV of the Bylaws shall constitute a quorum of the Board of Directors for the transaction of business; provided, however, that vacancies on the Board may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, each such director to hold office until a successor is elected at an annual or special meeting of the stockholders. Section 10. Compensation of Directors. Directors and members of committees appointed by the Board shall receive such compensation, if any, for their services, and such reimbursement for their expenses, as may be fixed or determined by resolution of the Board. The Board may, however, in any such resolution provide that directors who are also employees of the Corporation or any of its subsidiaries shall not receive additional compensation for services as a director or member of a committee appointed by the Board. 3 Section 11. Indemnification of Directors, Officers, Employees and Other Agents. (a) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or involved in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative ("Proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, trustee, or fiduciary, or in a similar capacity (collectively, "Agent") of another foreign or domestic corporation, limited liability company, partnership, joint venture, trust, or any other enterprise or entity whatsoever, including without limitation employee benefit plans (collectively, "Affiliate"), whether the basis of such Proceeding is alleged action in an official capacity, or in any other capacity while serving as a director or officer of the Corporation or as an Agent of an Affiliate, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability, and loss, including without limitation, attorneys' fees, judgments, fines, ERISA excise taxes, penalties, amounts paid or to be paid in settlement, and any other amounts actually incurred or suffered by such person in connection with any Proceeding; and such indemnification shall continue as to a person who has ceased to be a director or officer of the Corporation or Agent of an Affiliate and shall inure to the benefit of his or her heirs, executors, and administrators; provided, however, that, except as provided in paragraph (b) hereof with respect to Proceedings seeking to enforce rights to indemnification, the Corporation shall indemnify any such person seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if such Proceeding (or part thereof) was authorized by the board of directors of the Corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such Proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including without limitation, service to an employee benefit plan) in advance of the final disposition of a Proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. The Corporation may, to the extent authorized from time to time by its board of directors, either on a general basis or as to specific employees or agents, provide indemnification to employees and agents of the Corporation with similar scope and effect as the foregoing indemnification of directors and officers. (b) Right to Bring Suit. If a claim under paragraph (a) of this Section is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for expenses incurred in a Proceeding in advance of its final disposition in which case the applicable period shall be twenty (20) days, the person seeking indemnification (the "Party to be Indemnified") may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Party to be Indemnified shall be entitled to be paid also the expense of prosecuting or defending such claim. The Corporation's sole defense to an action seeking indemnification (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition where the required 4 undertaking, if any is required, has been tendered to the Corporation) shall be that the Party to be Indemnified has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the Party to be Indemnified for the amount claimed, and the burden of providing such defense shall be on the Corporation. Neither the failure of the Corporation (including its board of directors, its independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the Party to be Indemnified is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its board of directors, its independent legal counsel, or its stockholders) that the Party to be Indemnified has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Party to be Indemnified has not met the applicable standard of conduct. (c) Non-Exclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a Proceeding in advance of its final disposition conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. (d) Insurance. The Corporation shall maintain in full force and effect, at its own expense, director and officer liability insurance ("Insurance") coverage for each director and officer in amounts and scope at least as favorable as that maintained by the Corporation on September 30, 1996, or, to the extent more favorable, any Insurance policy entered into or renewed by the Corporation following such date. Notwithstanding the foregoing, if the Corporation, after using its best efforts, cannot obtain and purchase such coverage for an amount no more than what it paid for the most recent expiring Insurance policy plus a reasonable additional amount, the Corporation shall only be required to purchase such Insurance coverage for any act or omission occurring at or prior to the time of such date. (e) Enforceability; Amendment. The rights provided to any person by this bylaw shall be enforceable against the Corporation by such person, who shall be presumed to have relied upon it in serving or continuing to serve as an Agent, as provided above. No amendment of this bylaw shall impair the rights of any person arising at any time with respect to events occurring prior to such amendment, including, without limitation, any right of a director or officer to Insurance for any act or omission occurring at or prior to the time of such amendment. Section 12. Authority to Designate Place of Stockholders' Meetings. The Board is hereby granted full power and authority to designate from time to time any place within or without the State of Delaware for the holding of any stockholders' meeting. Section 13. Committees. The Board may, by resolution, appoint one or more committees, in addition to an Executive Committee and a Management Committee, to consist of two or more of the directors of the Corporation, and prescribe their duties and powers. A majority of the members of any such committee may determine its action and fix the time and place of its meetings unless the Board shall otherwise provide. The Board shall have the power at any time to fill vacancies in, to change the membership of, or to dissolve any such committee. 5 Section 14. Action by Written Consent. Any action required or permitted to be taken by the Board or any committee thereof may be taken without a meeting, if all members of the Board or such committee, as the case may be, shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Section 15. Conference Calls. Members of the Board or any committee thereof may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. ARTICLE V EXECUTIVE COMMITTEE Section 1. Number and Composition. The Board of Directors shall appoint from its membership, annually, an Executive Committee of three or more directors. Included on the Executive Committee shall be the Chief Executive Officer of the Corporation. Each member of the Executive Committee shall hold membership at the pleasure of the Board, which shall have the exclusive power to fill vacancies thereon as they may occur. The Chairman of the Executive Committee shall be the Chief Executive Officer of the Corporation. Section 2. Powers. The Executive Committee, during the intervals between meetings of the Board, shall have and there is hereby granted to it all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, except that the Executive Committee shall not be permitted to fill vacancies on the Board or on any committee, approve any action for which stockholder approval is also required by the Delaware General Corporation Law, amend or repeal any resolution of the Board which by its express terms is not so amendable or repealable, or appoint other committees of the Board or the members thereof and shall not have any powers restricted by Section 141(c) of the Delaware General Corporation Law unless the Board shall have specifically delegated authority to the Executive Committee to take action with respect to a matter listed in such Section as permitted to be so delegated. Section 3. Procedure. Two members of the Executive Committee shall constitute a quorum of the Executive Committee for the transaction of business. The Executive Committee, by vote of a majority of its members, shall fix its own times and places of meetings and shall prescribe its own rules of procedure; no change in which shall be made save by a majority vote of its members. Section 4. Records and Reports. The Executive Committee shall keep regular minutes of all business transacted at its meetings, and all action of the Executive Committee shall be reported to the Board at its next ensuing meeting. Section 5. Compensation. Members of the Executive Committee may receive such compensation, if any, for their services, and such reimbursement for their expenses, as may be fixed or determined by the Board. 6 ARTICLE VI MANAGEMENT COMMITTEE Section 1. Number and Composition. The Board of Directors shall appoint from its membership, annually, a Management Committee composed of the directors who are salaried officers of the Corporation. The Chairman of the Management Committee shall be the Chief Executive Officer of the Corporation. Section 2. Powers. The Management Committee, during the intervals between meetings of the Board, shall have and there is hereby granted to it all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, subject to approval limits established by resolution of the Board of Directors as deemed appropriate from time to time, but the Management Committee shall not be permitted to fill vacancies on the Board or on any committee, appoint officers, approve any action for which stockholder approval is also required by the Delaware General Corporation Law, amend or repeal any resolution of the Board or of the Executive Committee, which by its express terms is not so amendable or repealable, or appoint other committees of the Board or the members thereof and shall not have any powers restricted by Section 141(c) of the Delaware General Corporation Law unless the Board shall have specifically delegated authority to the Management Committee to take action with respect to a matter listed in such Section as permitted to be so delegated. Section 3. Procedure. Two members of the Management Committee shall constitute a quorum of the Management Committee for the transaction of business. The Management Committee, by vote of a majority of its members, shall fix its own times and places of meetings, and shall prescribe its own rules of procedure; no change in which shall be made save by a majority vote of its members. Section 4. Records. The Management Committee shall keep regular minutes of all business transacted at its meetings. ARTICLE VII OFFICERS Section 1. Officers. The officers of the Corporation shall be a Chief Executive Officer, a President, a Chief Financial Officer, a Vice President, a Secretary, a Comptroller, a Treasurer, and a Chief Legal Officer. The Corporation may also have, at the discretion of the Board, one or more additional Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and one or more Assistant Comptrollers, and the Board may appoint such other officers as it may deem necessary or advisable, who shall have such authority and perform such duties as from time to time may be prescribed by the Board, the Chairman of the Board, or the Chief Executive Officer. Any two or more offices may be held by the same person. Section 2. Election and Removal. The officers of the Corporation shall be chosen annually by the Board at its annual meeting and each shall hold office until the corresponding annual meeting of the Board in the next year and until a successor shall be elected and qualified unless such officer shall theretofore resign or shall be removed or otherwise disqualified to serve. The Board may remove any officer either with or without cause or under such other terms or conditions as it may prescribe. Vacancies may be filled by the Board as they may occur. 7 Section 3. Powers and Duties. (a) Chief Executive Officer. The Chief Executive Officer shall be the officer, reporting directly to the Board, responsible for overall management of the Corporation and shall have general supervision, direction and control over the business and affairs of the Corporation and its officers. The Chief Executive Officer shall be a member of the Executive Committee and of the Management Committee and in general shall perform all duties incident to the office of Chief Executive Officer and shall have such powers and duties as may from time to time be assigned by the Board of Directors or prescribed by the Bylaws. (b) President. The President in general shall perform all duties incident to the office of President, and shall have such powers and duties as may from time to time be assigned by the Board of Directors, the Chief Executive Officer or prescribed by the Bylaws. (c) Chief Financial Officer and Vice Presidents. The Chief Financial Officer and each Vice President shall have such authority and shall perform such duties as shall from time to time be assigned by the Board, the Chief Executive Officer or prescribed by the Bylaws. (d) Secretary. The Secretary shall keep, or cause to be kept, a book of minutes, at the principal office and/or such other place or places as the Board may order, of all meetings of directors and stockholders, with the time and place of holding, whether regular or special, and if special how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The Secretary shall keep or cause to be kept at the principal office, or at the office of the Corporation's transfer agent, a stock register, which may be an electronic database, showing the names of the stockholders of record and their addresses, the number and classes of shares held by each, the numbers and dates of the certificates issued for those shares, and the numbers and dates of cancellation of every certificate surrendered for cancellation. The Secretary shall give or cause to be given notice of all meetings of the stockholders and the Board required to be given by the Bylaws or by law. The Secretary shall have charge of and be custodian of the seal of the Corporation and the minute books and documents relating to the existence and governance of the Corporation. The Secretary shall have such other powers and perform such other duties as may from time to time be prescribed by the Board, the Chairman of the Board, the Chief Executive Officer or the Bylaws, and shall in general, subject to control of the Board, the Chairman of the Board and the Chief Executive Officer, perform all the duties usually incident to the office of secretary of a corporation. (e) Assistant Secretaries. Each Assistant Secretary shall assist the Secretary and, in the absence or disability of the Secretary, may perform the duties of the Secretary unless and until the contrary is expressed by the Board, and may perform such other duties as may be prescribed by the Board or the Secretary. 8 (f) Treasurer. The Treasurer shall have custody of and be responsible for all the monies and funds of the Corporation. The Treasurer shall deposit or cause to be deposited all Corporation monies, funds and other valuables in the name and to the credit of the Corporation in such bank or banks as shall be judged proper or as shall be directed by the Board, the Chief Executive Officer, or the Chief Financial Officer, and shall disburse the funds of the Corporation which have been duly approved for disbursement. The Treasurer shall enter or cause to be entered regularly in the books of the Corporation full and accurate accounts of all monies received and paid out on account of the Corporation. The Treasurer shall have such other powers and perform such other duties as may from time to time be prescribed by the Board, the Chief Executive Officer, the Chief Financial Officer or the Bylaws, and shall in general, subject to control of the Board, the Chief Executive Officer, and the Chief Financial Officer, perform all the duties usually incident to the office of treasurer of a corporation. (g) Assistant Treasurers. Each Assistant Treasurer shall assist the Treasurer and, in the absence or disability of the Treasurer, may perform the duties of the Treasurer unless and until the contrary is expressed by the Board, and shall perform such other duties as may be prescribed by the Board or the Treasurer. (h) Comptroller. The Comptroller shall be the principal officer in charge of the general accounting books, accounting records and forms of the Corporation and shall see that all monies and obligations due the Corporation and all properties and assets are properly accounted for. The Comptroller shall prepare the Corporation's balance sheets, income accounts and other financial statements and reports, and render to the Board, the Chief Executive Officer, and the Chief Financial Officer, such periodic reports covering the results of operations of the Corporation as may be required by them or any of them. The Comptroller shall have such other powers and perform such other duties as may from time to time be prescribed by the Board, the Chief Executive Officer, the Chief Financial Officer or the Bylaws and shall in general, subject to control of the Board, the Chief Executive Officer, and the Chief Financial Officer, perform all the duties usually incident to the office of comptroller of a corporation. (I) Assistant Comptrollers. Each Assistant Comptroller shall assist the Comptroller and, in the absence or disability of the Comptroller, may perform the duties of the Comptroller unless and until the contrary is expressed by the Board, and shall perform such other duties as may be prescribed by the Board or the Comptroller. (j) Chief Legal Officer. The Chief Legal Officer shall be in charge of the Corporation's legal affairs. The Chief Legal Officer shall advise the Board, the Chairman of the Board and/or the officers of the Corporation on such legal matters and prepare such reports as may be required by them or any of them. 9 ARTICLE VIII MISCELLANEOUS Section 1. Execution of Documents. Unless otherwise authorized or prescribed by the Board of Directors, all contracts, leases, deeds, deeds of trust, mortgages, bonds, indentures, endorsements, assignments, powers of attorney, and other documents and instruments of whatsoever kind shall be executed for and on behalf of the Corporation by the Chief Executive Officer, the President, the Chief Financial Officer, a Vice President, the Treasurer, the Comptroller, or by any such officer and shall be attested by the Secretary or an Assistant Secretary, who shall have authority to affix the corporate seal to the same. The Board also may authorize, and delegate to any one or more of the Chief Executive Officer, the President and the Chief Financial Officer the power to so authorize, any other officer or officers, employee or employees, or agent or agents, to execute any contract, document or instrument of whatever kind for and on behalf of the Corporation and such authority may be general or be confined to specific instances. Section 2. Undertakings and Commitments. No undertaking, commitment, contract, instrument or document shall be binding upon the Corporation unless previously authorized or subsequently ratified by the Board or executed by an officer or officers, an employee or employees or an agent or agents of the Corporation acting under powers conferred by the Board or by these Bylaws. Section 3. Checks, Drafts, etc. All checks, notes and other obligations for collection, deposit or transfer, and all checks and drafts for disbursement from Corporation funds, and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, shall be endorsed or signed by such officer or officers, employee or employees or agent or agents as shall be thereunto authorized from time to time by the Board of Directors, which may delegate the power to so authorize to any one or more of the Chief Executive Officer, the President and the Chief Financial Officer. Section 4. Representation of Shares of Other Corporations. Shares standing in the name of the Corporation may be voted or represented and all rights incident thereto may be exercised on behalf of the Corporation by the Chief Executive Officer, the President, the Chief Financial Officer, a Vice President, the Secretary, the Treasurer or the Comptroller, or by such other officers upon whom the Board of Directors may from time to time confer like powers. ARTICLE IX AMENDMENTS TO BYLAWS Section 1. Power of Stockholders. New Bylaws may be adopted or these Bylaws may be amended or repealed by the vote of seventy-five percent of the outstanding stock of the Corporation entitled to vote thereon. Section 2. Power of Directors. Subject to the right of stockholders as provided in Section 1 of this ARTICLE IX to adopt, amend or repeal Bylaws, Bylaws may be adopted, amended or repealed by the Board of Directors as provided or permitted by law; however, any Bylaw amendment adopted by the Board of Directors increasing or reducing the authorized number of directors or amending this section shall require a resolution adopted by the affirmative vote of not less than seventy-five percent of the directors. 10 ARTICLE X EMERGENCY Section 1. "Emergency" as used in this Article means disorder, disturbance or damage caused by war, enemy attack, other warlike acts or by catastrophe, disaster or other similar emergency condition, which prevents the conduct and management of the affairs and business of the Corporation by the Board of Directors and officers in the manner provided for in other Articles of these Bylaws. The powers and duties conferred and imposed by this Article, and any resolutions adopted pursuant hereto, shall be effective only during an emergency. This Article may be implemented from time to time by resolutions adopted by the Board of Directors before or during an emergency, or during an emergency by the emergency Board of Directors constituted and then acting pursuant hereto. An emergency, once commenced, shall be deemed to continue until terminated by resolutions adopted for that purpose by the Board of Directors. Section 2. If, during an emergency, a majority of the Board of Directors cannot be found or is unable to act, one-third of the exact number of the Board of Directors shall constitute a quorum thereof. Section 3. During any emergency, the officers and employees of the Corporation shall continue, so far as possible, to conduct the Corporation's affairs and business under the guidance of the Board of Directors acting pursuant to this Article and in accordance with known orders of governmental authorities. Section 4. If, during any emergency, a quorum of the Board of Directors, as provided in Section 3 of this Article, cannot be found or is unable to act, any three available members of the Executive Committee, including the Chief Executive Officer, shall be and constitute the Board of Directors, with two thereof constituting a quorum, and as such shall have and exercise the fullest power of the Board of Directors for the conduct and management of the affairs and business of the Corporation, permitted by law, without the limitations set forth in Section 2 of ARTICLE V of these Bylaws, provided that such emergency Board of Directors as so constituted shall comply to the extent practicable under the circumstances with the provisions of ARTICLE III of these Bylaws relating to annual and special meetings of stockholders. If three members of the Executive Committee, including the Chief Executive Officer, are not able to serve, any three available directors shall be and constitute such emergency Board of Directors, with two thereof constituting a quorum, for the exercise of the powers conferred and performance of the duties imposed by this Section 4. Section 5. If, during any emergency, neither a quorum of the Board of Directors, as provided in Section 3 of this Article, nor a quorum of the emergency Board of Directors, as provided for in Section 4 of this Article is available to serve, then the powers conferred and duties imposed by Section 4 shall vest in and devolve upon any three of (in the following order of priority) available directors, including any one or more of the Chief Executive Officer, the President and the Chief Financial Officer, and as many Vice Presidents (or, in case of their inability, any other officers), in order of seniority, as may be necessary from time to time to constitute a total of three emergency directors. The Chief Executive Officer and any other one emergency director shall constitute a quorum of such emergency Board of Directors for exercise of the powers conferred and performance of the duties imposed hereunder, but if the Chief Executive Officer is not available, any two of such emergency directors shall constitute a quorum. EX-11 3 EXHIBIT 11 UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE
For the Three Months For the Nine Months Ended September 30 Ended September 30 ---------------------------------------------------------- Dollars and shares in thousands, except per share amounts 1996 1995 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings Per Share Assuming No Dilution (a) Net earnings .................................................... $ 170,765 $ 58,672 $ 532,906 $ 210,753 Preferred stock dividend ........................................ -- (8,969) (17,938) (26,906) ------------------------------------------------------------ Net earnings applicable to common stock ...................... 170,765 49,703 514,968 183,847 Weighted average common stock outstanding ....................... 248,668 246,666 248,211 245,754 - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings per common share ............................. $ 0.69 $ 0.20 $ 2.08 $ 0.75 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings Per Share Assuming Full Dilution Net earnings .................................................... $ 170,765 $ 58,672 $ 532,906 $ 210,753 Distribution on preferred securities (net of tax) ............... 1,720 -- 1,720 -- ------------------------------------------------------------ Net earnings applicable to common stock ...................... 172,485 58,672 534,626 210,753 Weighted average common stock outstanding ....................... 248,668 246,666 248,211 245,754 Dilutive common stock equivalents ............................... 2,162 1,565 1,917 1,512 Conversion of preferred stock (b) ............................... 431 16,667 431 16,667 Conversion of preferred securities .............................. 12,264 -- 12,264 -- ------------------------------------------------------------ Weighted average common and equivalent stock outstanding ............................................ 263,525 264,898 262,823 263,933 - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings per common share ............................. $ 0.65 $ 0.22 $ 2.03 $ 0.80 - ------------------------------------------------------------------------------------------------------------------------------------ (a) The dilutive effect of common stock equivalents is less than 3 percent. (b) During 1995, the effect of assumed conversion of preferred stock on earnings per common stock is antidilutive.
EX-12.1 4 RATIO OF EARNINGS TO FIXED CHARGES
EXHIBIT 12.1 UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES For the Nine Months Ended September 30 ------------------------------ Millions of dollars 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings ..................................................................... $ 533 $ 211 Provision for income taxes ....................................................... 332 151 ------------------------------- Earnings subtotal ............................................................. 865 362 Fixed charges included in earnings: Interest expense .............................................................. 215 218 Distributions on preferred securities ......................................... 2 -- Interest portion of rentals ................................................... 31 37 ------------------------------- Subtotal ................................................................... 248 255 Earnings available before fixed charges .......................................... $1,113 $ 617 ------------------------------- Fixed charges: Fixed charges included in earnings ............................................ 248 255 Capitalized interest .......................................................... 9 25 ------------------------------- Total fixed charges ........................................................ $ 257 $ 280 Ratio of earnings to fixed charges ............................................... 4.3 2.2
EX-12.2 5 RATIO OF EARNINGS TO FIXED CHGS AND PREF STOCK DIV EXHIBIT 12.2 UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
For the Nine Months Ended September 30 ------------------------------ Millions of dollars 1996 1995 - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings ..................................................................... $ 533 $ 211 Provision for income taxes ....................................................... 332 151 ------------------------------- Earnings subtotal ............................................................. 865 362 Fixed charges included in earnings: Interest expense .............................................................. 215 218 Distributions on preferred securities ......................................... 2 -- Interest portion of rentals ................................................... 31 37 ------------------------------- Subtotal ................................................................... 248 255 Earnings available before fixed charges .......................................... $1,113 $ 617 ------------------------------- Fixed charges: Fixed charges included in earnings ............................................ 248 255 Capitalized interest .......................................................... 9 25 Preferred stock dividends * ................................................... 29 43 ------------------------------- Total fixed charges ........................................................ $ 286 $ 323 Ratio of earnings to fixed charges ............................................... 3.9 1.9
* For purposes of this ratio, preferred stock dividends are adjusted to a pre-tax basis. EX-12.3 6 UNION OIL RATIOS EXHIBIT 12.3 UNION OIL COMPANY OF CALIFORNIA AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
For the Nine Months Ended September 30 ------------------------ Millions of dollars 1996 1995 - ------------------------------------------------------------------------------------------- Net earnings ..................................................................... $ 536 $ 212 Provision for income taxes ....................................................... 332 151 ------------------------------- Earnings subtotal ............................................................. 868 363 Fixed charges included in earnings: Interest expense .............................................................. 215 218 Interest portion of rentals ................................................... 31 37 ------------------------------- Subtotal ................................................................... 246 255 Earnings available before fixed charges .......................................... $1,114 $ 618 ------------------------------- Fixed charges: Fixed charges included in earnings ............................................ 246 255 Capitalized interest .......................................................... 9 25 ------------------------------- Total fixed charges ........................................................ $ 255 $ 280 ------------------------------- Ratio of earnings to fixed charges ............................................... 4.4 2.2
EX-27 7 FDS --
5 Unocal Corporation FDS 1,000,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 225 0 921 0 356 1,612 17,859 10,910 9,809 1,457 2,951 0 13 250 2,575 9,809 7,202 7,573 4,456 6,708 0 0 215 865 332 533 0 0 0 533 2.08 2.03
EX-99.B2 8 BYLAWS OF UNION OIL COMPANY - EXHIBIT 99.B2 BYLAWS OF UNION OIL COMPANY OF CALIFORNIA ARTICLE I FISCAL YEAR Section 1. The fiscal year of Union Oil Company of California (hereinafter called the "Company") shall end on the thirty-first day of December of each year. ARTICLE II OFFICES Section 1. Principal Office. The principal office for the transaction of business of the Company is hereby fixed and located at 2141 Rosecrans Avenue, Suite 4000, in the City of El Segundo, County of Los Angeles, State of California. The Board of Directors (hereinafter sometimes called the "Board") is hereby granted full power and authority to change said principal office from one location to another in said county. ARTICLE III SHAREHOLDERS Section 1. Annual Meetings. The annual meetings of the shareholders shall be held at 10:00 o'clock A.M. on the fourth Monday in May of each year if not a legal holiday, for the purpose of electing directors, consideration of reports of the affairs of the Company, and for the transaction of any other business which is within the powers of the shareholders and properly brought before the meeting. If the fourth Monday in May is a legal holiday, the annual meeting of the shareholders shall be held at 10:00 o'clock A.M. on the preceding or subsequent Monday as fixed by resolution of the Board. Section 2. Special Meetings. Special meetings of the shareholders for any purpose whatsoever may be called at any time by the Chairman of the Board, the Chief Executive Officer, the Board, or by one or more shareholders holding not less than ten percent of the voting power of the Company upon request in writing to the Chairman of the Board, the Chief Executive Officer, the President, a Vice President or the Secretary. The business transacted at special meetings shall be confined to the purpose or purposes stated in the notice of such meetings. Section 3. Notice of Meetings. Written notice of each annual or special meeting of shareholders shall be given to each shareholder entitled to vote thereat not less than ten nor more than sixty days before the meeting. Section 4. Place of Meetings. All meetings of shareholders, whether annual or special, shall be held at the principal office of the Company or at such other place, within or without the State of California, as the Board may from time to time designate pursuant to authority hereinafter granted it. In the absence of any such designation, shareholders' meetings shall be held at the principal office of the Company. 2 Section 5. Voting Rights. Shareholders entitled to vote at shareholder meetings shall be entitled to one vote for each full share. A fraction of a share or a fractional interest in a share shall not be entitled to any voting rights whatsoever. Section 6. Conduct of Meetings. The decisions of the Chairman of the Board or officer presiding at all shareholders' meetings shall govern in all matters relating to the conduct of the meeting. Section 7. Voting. Directors shall be elected in accordance with the provisions of the California Corporations Code by holders of shares entitled to vote in the election; provided, however, a nomination shall be accepted, and votes cast for a nominee shall be counted by the inspectors of election, only if the Secretary of the Company has received at least twenty-four hours prior to the meeting a statement over the signature of the nominee that such person consents to being a nominee and, if elected, intends to serve as a director. Section 8. Action Without a Meeting. Any action which may be taken at any annual or special meeting may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by the holders of the outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. ARTICLE IV BOARD OF DIRECTORS Section 1. Powers. Subject to the limitations of the Restated Articles of Incorporation of the Company and of the California General Corporation Law as to action required or authorized to be approved by the shareholders, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the Company shall be managed by, the Board of Directors. Section 2. Number. The exact number of directors of the Company, within the limits specified in Article Fourth of the Company's Restated Articles of Incorporation, shall be twelve until changed in the manner provided by law. Section 3. Chairman and Vice Chairman of the Board. The Board shall appoint a Chairman, who shall preside at all meetings of the Board of Directors and shall have such other powers and duties as may from time to time be assigned by the Board of Directors or prescribed by the Bylaws. The Board may also appoint a Vice Chairman, who shall preside at all meetings of the Board of Directors in the absence of the Chairman and shall have such other powers and duties as may from time to time be assigned by the Board of Directors or prescribed by the Bylaws. Section 4. Annual Meetings. Immediately following each annual meeting of shareholders, the Board shall hold its annual meeting for the purpose of organization, election of officers and the transaction of any other business. Section 5. Regular Meetings. Regular meetings of the Board shall be held at the times and on the dates fixed by resolution of the Board. 3 Section 6. Special Meetings. Special meetings of the Board for any purpose or purposes whatsoever may be called by the Chairman of the Board or the Chief Executive Officer or, in the absence or inability of either of them, by the President, the Chief Financial Officer, or by at least two of the directors at the time in office. Section 7. Notice of Meetings. Notice of annual meetings and of regular meetings of the Board is hereby dispensed with. Notice of special meetings must be given at least two days in advance if given by mail, or at least twenty-four hours in advance if delivered personally or given by telephone or telegram. Section 8. Place of Meetings. All meetings of the Board, whether annual, regular or special meetings, shall be held at any place within or without the State of California which has been designated from time to time by resolution of the Board or in the notice of the meeting. In the absence of such designation all directors' meetings shall be held at the principal office of the Company. Section 9. Quorum. A majority of the exact number of directors specified in Section 2 of ARTICLE IV of the Bylaws shall constitute a quorum of the Board of Directors for the transaction of business; provided, however, that vacancies on the Board may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, each such director to hold office until a successor is elected at an annual or special meeting of the shareholders. Section 10. Compensation of Directors. Directors and members of committees appointed by the Board shall receive such compensation, if any, for their services, and such reimbursement for their expenses as may be fixed or determined by resolution of the Board. The Board may, however, in any such resolution provide that directors who are also employees of the Company or any of its subsidiaries shall not receive additional compensation for services as a director or member of a committee appointed by the Board. Section 11. Indemnification of Directors, Officers, Employees and Other Agents. (a) The Company shall, to the maximum extent permitted by the General Corporation Law of California, indemnify each of its directors and officers against all expense, liability, and loss, including without limitation, attorneys' fees, judgments, fines, ERISA excise taxes, penalties, amounts paid or to be paid in settlement, and any other amounts actually incurred in connection with any proceeding arising by reason of the fact any such person is or was a director or officer of the Company and shall advance to such director or officer expenses incurred in defending any such proceeding to the maximum extent permitted by such law. For purposes of this section, a "director" or "officer" of the Company includes any person who is or was a director or officer of the Company, or is or was serving at the request of the Company as a director, officer, trustee, or fiduciary, or in a similar capacity, of another foreign or domestic corporation, limited liability company, partnership, joint venture, trust, or any other enterprise or entity whatsoever, including without limitation service with respect to employee benefit plans. (b) The Board of Directors may in its discretion provide by resolution, either on a general basis or as to specific employees or agents, for similar indemnification of, or advance of expenses to, other employees or agents of the Company, and likewise may refuse to provide for such indemnification or advance of expenses except to the extent such indemnification is mandatory under the California General Corporation Law. 4 (c) The Company shall maintain in full force and effect, at its own expense, director and officer liability insurance ("Insurance") coverage for each director and officer in amounts and scope at least as favorable as that maintained by the Corporation on September 30, 1996, or, to the extent more favorable, any Insurance policy entered into or renewed by the Company following such date. Notwithstanding the foregoing, if the Company, after using its best efforts, cannot obtain and purchase such coverage for an amount no more than what it paid for the most recent expiring Insurance policy plus a reasonable additional amount, the Company shall only be required to purchase such Insurance coverage for any act or omission occurring at or prior to the time of such date. (d) The rights provided to any person by this bylaw shall be enforceable against the Company by such person, who shall be presumed to have relied upon it in serving or continuing to serve as a director or officer, as provided above. No amendment of this bylaw shall impair the rights of any person arising at any time with respect to events occurring prior to such amendment, including, without limitation, any right of a director or officer to Insurance for any act or omission occurring at or prior to the time of such amendment. Section 12. Authority to Designate Place of Shareholders' Meetings. The Board is hereby granted full power and authority to designate from time to time any place within or without the State of California for the holding of any shareholders' meeting, whether annual or special. Section 13. Committees. The Board may, by resolution, appoint one or more committees, in addition to an Executive Committee and a Management Committee, to consist of two or more of the directors of the Company, and prescribe their duties and powers. A majority of the members of any such committee may determine its action and fix the time and place of its meetings unless the Board shall otherwise provide. The Board shall have the power at any time to fill vacancies in, to change the membership of, or to dissolve any such committee. Section 14. Action by Written Consent. Any action required or permitted to be taken by the Board or any committee thereof may be taken without a meeting, if all members of the Board or such committee, as the case may be, shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Section 15. Conference Calls. Members of the Board or any committee thereof may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. ARTICLE V EXECUTIVE COMMITTEE Section 1. Number and Composition. The Board of Directors shall appoint from its membership, annually, an Executive Committee of three or more directors. Included on the Executive Committee shall be the Chief Executive Officer of the Company. Each member of the Executive Committee shall hold membership at the pleasure of the Board, which shall have the exclusive power to fill vacancies thereon as they may occur. The Chairman of the Executive Committee shall be the Chief Executive Officer of the Company. 5 Section 2. Powers. The Executive Committee, during the intervals between meetings of the Board, shall have and there is hereby granted to it all the powers and authority of the Board of Directors in the management of the business and affairs of the Company, except that the Executive Committee shall not be permitted to fill vacancies on the Board or on any committee, approve any action for which approval of the shareholders is also required by the California General Corporation Law, amend or repeal any resolution of the Board which by its express terms is not so amendable or repealable, or appoint other committees of the Board or the members thereof or take any other action which may not be delegated to a committee of the Board under the California General Corporation Law. Section 3. Procedure. Two members of the Executive Committee shall constitute a quorum of the Executive Committee for the transaction of business. The Executive Committee, by vote of a majority of its members, shall fix its own times and places of meetings and shall prescribe its own rules of procedure; no change in which shall be made save by a majority vote of its members. Section 4. Records and Reports. The Executive Committee shall keep regular minutes of all business transacted at its meetings, and all action of the Executive Committee shall be reported to the Board at its next ensuing meeting. Section 5. Compensation. Members of the Executive Committee may receive such compensation, if any, for their services, and such reimbursement for their expenses, as may be fixed or determined by the Board. ARTICLE VI MANAGEMENT COMMITTEE Section 1. Number and Composition. The Board of Directors shall appoint from its membership, annually, a Management Committee composed of the directors who are employee officers of the Company. The Chairman of the Management Committee shall be the Chief Executive Officer of the Company. Section 2. Powers. The Management Committee, during the intervals between meetings of the Board, shall have and there is hereby granted to it all the powers and authority of the Board of Directors in the management of the business and affairs of the Company, subject to approval limits established by resolution of the Board of Directors as deemed appropriate from time to time, but the Management Committee shall not be permitted to fill vacancies on the Board or on any committee, appoint officers, approve any action for which approval is also required by the California General Corporation Law, to amend or repeal any resolution of the Board or of the Executive Committee which by its express terms is not so amendable or repealable, or to appoint other committees of the Board or the members thereof or take any other action which may not be delegated to a committee of the Board under the California General Corporation Law. Section 3. Procedure. Two members of the Management Committee shall constitute a quorum of the Management Committee for the transaction of business. The Management Committee, by vote of a majority of its members, shall fix its own times and places of meetings and shall prescribe its own rules of procedure; no change in which shall be made save by a majority vote of its members. 6 Section 4. Records. The Management Committee shall keep regular minutes of all business transacted at its meetings. ARTICLE VII OFFICERS Section 1. Officers. The officers of the Company shall be a Chief Executive Officer, a President, a Chief Financial Officer, a Vice President, a Secretary, a Comptroller, a Treasurer, and a Chief Legal Officer. The Company may also have, at the discretion of the Board, one or more additional Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and one or more Assistant Comptrollers, and the Board may appoint such other officers as it may deem necessary or advisable, who shall have such authority and perform such duties as from time to time may be prescribed by the Board, the Chairman of the Board, or the Chief Executive Officer. Any two or more offices may be held by the same person. Section 2. Election and Removal. The officers of the Company shall be chosen annually by the Board at its annual meeting and each shall hold office until the corresponding annual meeting of the Board in the next year and until a successor shall be elected and qualified unless such officer shall theretofore resign or shall be removed or otherwise disqualified to serve. The Board may remove any officer either with or without cause or under such other terms or conditions as it may prescribe. Vacancies may be filled by the Board as they may occur. Section 3. Powers and Duties. (a) Chief Executive Officer. The Chief Executive Officer shall be the officer, reporting directly to the Board, responsible for overall management of the Company and shall have general supervision, direction and control over the business and affairs of the Company and its officers. The Chief Executive Officer shall be a member of the Executive Committee and of the Management Committee and in general shall perform all duties incident to the office of Chief Executive Officer and shall have such powers and duties as may from time to time be assigned by the Board of Directors or prescribed by the Bylaws. (b) President. The President in general shall perform all duties incident to the office of President, and shall have such powers and duties as may from time to time be assigned by the Board of Directors, the Chief Executive Officer or prescribed by the Bylaws. (c) Chief Financial Officer and Vice Presidents. The Chief Financial Officer and each Vice President shall have such authority and shall perform such duties as shall from time to time be assigned by the Board, the Chief Executive Officer or prescribed by the Bylaws. (d) Secretary. The Secretary shall keep, or cause to be kept, a book of minutes, at the principal office and/or such other place or places as the Board may order, of all meetings of directors and shareholders, with the time and place of holding, whether regular or special, and if special how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. The Secretary shall keep or cause to be kept at the principal office, or at the office of the Company's transfer agent, a share register, which may be an electronic database, showing the names of the shareholders of record and their addresses, the number and classes of shares held by each, the numbers and dates of the 7 certificates issued for those shares, and the numbers and dates of cancellation of every certificate surrendered for cancellation. The Secretary shall give or cause to be given notice of all meetings of the shareholders and the Board required to be given by the Bylaws or by law. The Secretary shall have charge of and be custodian of the seal of the Company and the minute books and documents relating to the existence and governance of the Company. The Secretary shall have such other powers and perform such other duties as may from time to time be prescribed by the Board, the Chairman of the Board, the Chief Executive Officer or the Bylaws, and shall in general, subject to control of the Board, the Chairman of the Board and the Chief Executive Officer, perform all the duties usually incident to the office of secretary of a corporation. (e) Assistant Secretaries. Each Assistant Secretary shall assist the Secretary and, in the absence or disability of the Secretary, may perform the duties of the Secretary unless and until the contrary is expressed by the Board, and shall perform such other duties as may be prescribed by the Board or the Secretary. (f) Treasurer. The Treasurer shall have custody of and be responsible for all the monies and funds of the Company. The Treasurer shall deposit or cause to be deposited all Company monies, funds and other valuables in the name and to the credit of the Company in such bank or banks as shall be proper or as shall be directed by the Board, the Chief Executive Officer, or the Chief Financial Officer, and shall disburse the funds of the Company which have been duly approved for disbursement. The Treasurer shall enter or cause to be entered regularly in the books of the Company full and accurate accounts of all monies received and paid out on account of the Company. The Treasurer shall have such other powers and perform such other duties as may from time to time be prescribed by the Board, the Chief Executive Officer, the Chief Financial Officer or the Bylaws, and shall in general, subject to control of the Board, the Chief Executive Officer, and the Chief Financial Officer, perform all the duties usually incident to the office of treasurer of a corporation. (g) Assistant Treasurers. Each Assistant Treasurer shall assist the Treasurer and, in the absence or disability of the Treasurer, may perform the duties of Treasurer unless and until the contrary is expressed by the Board, and shall perform such other duties as may be prescribed by the Board or the Treasurer. (h) Comptroller. The Comptroller shall be the principal officer in charge of the general accounting books, accounting records and forms of the Company and shall see that all monies and obligations due the Company and all properties and assets are properly accounted for. The Comptroller shall prepare the Company's balance sheets, income accounts and other financial statements and reports, and render to the Board, the Chief Executive Officer, and the Chief Financial Officer, such periodic reports covering the results of operations of the Company as may be required by them or any of them. The Comptroller shall have such other powers and perform such other duties as may from time to time be prescribed by the Board, the Chief Executive Officer, the Chief Financial Officer or the Bylaws, and shall in general, subject to control of the Board, the Chief Executive Officer, and the Chief Financial Officer, perform all the duties usually incident to the office of comptroller of a corporation. 8 (I) Assistant Comptrollers. Each Assistant Comptroller shall assist the Comptroller and, in the absence or disability of the Comptroller, may perform the duties of the Comptroller unless and until the contrary is expressed by the Board, and shall perform such other duties as may be prescribed by the Board or the Comptroller. (j) Chief Legal Officer. The Chief Legal Officer shall be in charge of the Company's legal affairs. The Chief Legal Officer shall advise the Board, the Chairman of the Board and/or the officers of the Company on such legal matters and prepare such reports as may be required by them or any of them. ARTICLE VIII MISCELLANEOUS Section 1. Execution of Documents. Unless otherwise authorized or prescribed by the Board of Directors, all contracts, leases, deeds, deeds of trust, mortgages, bonds, indentures, endorsements, assignments, powers of attorney to transfer stock or for other purposes, and other documents and instruments of whatsoever kind shall be executed for and on behalf of the Company by the Chief Executive Officer, the President, the Chief Financial Officer, a Vice President, the Treasurer, the Comptroller, or by any such officer and shall be attested by the Secretary or an Assistant Secretary, who shall have authority to affix the corporate seal to the same. The Board also may authorize, and delegate to any one or more of the Chief Executive Officer, the President and the Chief Financial Officer the power to so authorize, any other officer or officers, employee or employees, or agent or agents, to execute any contract, document or instrument of whatever kind for and on behalf of the Company and such authority may be general or be confined to specific instances. Section 2. Undertakings and Commitments. No undertaking, commitment, contract, instrument or document shall be binding upon the Company unless previously authorized or subsequently ratified by the Board or executed by an officer or officers, an employee or employees or an agent or agents of the Company acting under powers conferred by the Board or by these Bylaws. Section 3. Checks, Drafts, etc. All checks, notes and other obligations for collection, deposit or transfer, and all checks and drafts for disbursement from Company funds, and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, shall be endorsed or signed by such officer or officers, employee or employees or agent or agents as shall be thereunto authorized from time to time by the Board of Directors, which may delegate the power to so authorize to any one or more of the Chief Executive Officer, the President and the Chief Financial Officer. Section 4. Representation of Shares of Other Corporations. Shares standing in the name of the Company may be voted or represented and all rights incident thereto may be exercised on behalf of the Company by the Chief Executive Officer, President, the Chief Financial Officer, a Vice President, the Secretary, the Treasurer or the Comptroller, or by such other officers upon to whom the Board of Directors may from time to time confer like powers. 9 ARTICLE IX REPEAL OF BYLAWS Section 1. All existing Bylaws of the Company and all amendments thereto are hereby repealed. ARTICLE X AMENDMENTS Section 1. Power of Shareholders. New Bylaws may be adopted or these Bylaws may be amended or repealed by the vote or written assent of shareholders entitled to exercise a majority of the voting power of the Company. Section 2. Power of Directors. Subject to the right of shareholders as provided in Section 1 of this ARTICLE X to adopt, amend or repeal Bylaws, Bylaws may be adopted, amended or repealed by the Board of Directors as provided or permitted by law. ARTICLE XI EMERGENCY Section 1. "Emergency" as used in this Article means disorder, disturbance or damage caused by war, enemy attack, other warlike acts or by catastrophe, disaster or other similar emergency condition, which prevents the conduct and management of the affairs and business of the Company by the Board of Directors and officers in the manner provided for in other Articles of these Bylaws. The powers and duties conferred and imposed by this Article, and any resolutions adopted pursuant hereto, shall be effective only during an emergency. This Article may be implemented from time to time by resolutions adopted by the Board of Directors before or during an emergency, or during an emergency by the emergency Board of Directors constituted and then acting pursuant hereto. An emergency, once commenced, shall be deemed to continue until terminated by resolutions adopted for that purpose by the Board of Directors. Section 2. If, during an emergency, a majority of the Board of Directors cannot be found or is unable to act, one-third of the exact number of the Board of Directors shall constitute a quorum thereof. Section 3. During any emergency, the officers and employees of the Company shall continue, so far as possible, to conduct the Company's affairs and business under the guidance of the Board of Directors acting pursuant to this Article and in accordance with known orders of governmental authorities. Section 4. If, during any emergency, a quorum of the Board of Directors, as provided in Section 3 of this Article, cannot be found or is unable to act, any three available members of the Executive Committee, including the Chief Executive Officer, shall be and constitute the Board of Directors, with two thereof constituting a quorum, and as such shall have and exercise the fullest power of the Board of Directors for the conduct and management of the affairs and business of the Company, permitted by law, without the limitations set forth in Section 2 of ARTICLE V of these Bylaws, provided that such emergency Board of Directors as so constituted shall comply to the extent practicable under the circumstances with the provisions of ARTICLE III of these Bylaws relating to annual and special meetings of shareholders. If three members of the Executive Committee, including the Chief Executive Officer, are not able to serve, any three available directors shall be and constitute such emergency Board of Directors, with two thereof constituting a quorum, for the exercise of the powers conferred and performance of the duties imposed by this Section 4. 10 Section 5. If, during any emergency, neither a quorum of the Board of Directors, as provided in Section 3 of this Article, nor a quorum of the emergency Board of Directors, as provided for in Section 4 of this Article is available to serve, then the powers conferred and duties imposed by Section 4 shall vest in and devolve upon any three of (in the following order of priority) available directors, including any one or more of the Chief Executive Officer, the President and the Chief Financial Officer, and as many Vice Presidents (or, in case of their inability, any other officers), in order of seniority, as may be necessary from time to time to constitute a total of three emergency directors. The Chief Executive Officer and any other one emergency director shall constitute a quorum of such emergency Board of Directors for exercise of the powers conferred and performance of the duties imposed hereunder, but if the Chief Executive Officer is not available, any two of such emergency directors shall constitute a quorum. -----END PRIVACY-ENHANCED MESSAGE-----