-----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, D3a0XO8vE0yOv+7ErKEIrAy3f1iMP3/cc/BEtUxtrdtVcgywEOzgkyAcNB5Tedcw PAklZ0Sa6wh7oUsFhvwNbA== 0000716039-97-000056.txt : 19971117 0000716039-97-000056.hdr.sgml : 19971117 ACCESSION NUMBER: 0000716039-97-000056 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: SEC FILE NUMBER: 001-08483 FILM NUMBER: 97722190 BUSINESS ADDRESS: STREET 1: 2141 ROSECRANS AVE STREET 2: STE 4000 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107267600 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------- ------------------- Commission file number 1-8483 UNOCAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 95-3825062 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2141 ROSECRANS AVENUE, SUITE 4000, EL SEGUNDO, CALIFORNIA 90245 (Address of principal executive offices) (Zip Code) (310) 726-7600 (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Number of shares of Common Stock, $1 par value, outstanding as of October 31, 1997: 246,527,276
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 1997 1996 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- Revenues Sales and operating revenues .................................................... $ 1,370 $ 1,265 $ 4,272 $ 3,668 Gain on sales of assets and other revenues ...................................... 27 72 235 275 - --------------------------------------------------------------------------------------------------------------------------------- Total revenues ............................................................ 1,397 1,337 4,507 3,943 Costs and Other Deductions Crude oil and product purchases ................................................. 524 421 1,616 1,096 Operating expense ............................................................... 423 325 1,076 960 Selling, administrative and general expense ..................................... 26 36 81 104 Depreciation, depletion and amortization ........................................ 300 192 755 617 Dry hole costs .................................................................. 8 53 51 72 Exploration expense ............................................................. 50 33 114 83 Interest expense ................................................................ 37 67 147 215 Property and other operating taxes .............................................. 18 16 54 57 Distributions on convertible preferred securities of subsidiary trust ............................................... 8 2 24 2 - --------------------------------------------------------------------------------------------------------------------------------- Total costs and other deductions .......................................... 1,394 1,145 3,918 3,206 - --------------------------------------------------------------------------------------------------------------------------------- Earnings from continuing operations before income taxes .......................................................... 3 192 589 737 Income taxes (benefit) .......................................................... (174) 58 68 284 - --------------------------------------------------------------------------------------------------------------------------------- Earnings from continuing operations before discontinued operations and extraordinary item ............................................ $ 177 $ 134 $ 521 $ 453 Discontinued operations Earnings from operations (net of tax of $22 million and $48 million, respectively) -- 37 -- 80 Loss on disposal (net of tax benefit of $27 million) ......................... -- -- (44) -- - --------------------------------------------------------------------------------------------------------------------------------- Earnings (loss) from discontinued operations .............................. -- 37 (44) 80 --------------------------------------------- Extraordinary item Early extinguishment of debt (net of tax benefit of $14 million) .............. -- -- (38) -- - --------------------------------------------------------------------------------------------------------------------------------- Net Earnings .................................................................... $ 177 $ 171 $ 439 $ 533 Dividends on preferred stock .................................................... -- -- -- 18 Non-cash charge related to exchange of preferred stock .......................... -- 54 -- 54 - --------------------------------------------------------------------------------------------------------------------------------- Net earnings applicable to common stock ................................... $ 177 $ 117 $ 439 $ 461 ============================================= Earnings (loss) per share of common stock assuming no dilution (a) Continuing operations ........................................................ $ 0.71 $ 0.32 $ 2.09 $ 1.54 Discontinued operations ...................................................... -- 0.15 (0.18) 0.32 Extraordinary item ........................................................... -- -- (0.15) -- --------------------------------------------- Net earnings per common share assuming no dilution ........................ $ 0.71 $ 0.47 $ 1.76 $ 1.86 Earnings (loss) per share of common stock assuming full dilution (b) Continuing operations ........................................................ $ 0.70 $ 0.31 $ 2.04 $ 1.52 Discontinued operations ...................................................... -- 0.14 (0.17) 0.31 Extraordinary item ........................................................... -- -- (0.14) -- --------------------------------------------- Net earnings per common share assuming full dilution ...................... $ 0.70 $ 0.45 $ 1.73 $ 1.83 Cash dividends declared per share of common stock ............................... $ 0.20 $ 0.20 $ 0.60 $ 0.60 - --------------------------------------------------------------------------------------------------------------------------------- (a) Weighted average shares outstanding assuming no dilution (in thousands) .... 247,367 248,668 249,153 248,211 (b) Weighted average shares outstanding assuming full dilution (in thousands) .. 262,073 263,525 263,757 262,823 See notes to the consolidated financial statements
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CONSOLIDATED BALANCE SHEET UNOCAL CORPORATION September 30 December 31 ------------------------- Millions of dollars 1997 (a) 1996 - -------------------------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents $ 516 $ 217 Accounts and notes receivable 813 1,027 Net assets of discontinued operations -- 1,774 Inventories 154 125 Deferred income taxes 54 57 Other current assets 24 28 - -------------------------------------------------------------------------------------------- Total current assets 1,561 3,228 Investments and long-term receivables 1,081 1,206 Properties (b) 4,688 4,590 Deferred income taxes 19 21 Other assets 108 78 - -------------------------------------------------------------------------------------------- Total assets $ 7,457 $ 9,123 - -------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 664 $ 1,012 Taxes payable 123 231 Current portion of long-term debt and capital lease obligations -- 118 Interest payable 32 70 Current portion of environmental liabilities 73 73 Other current liabilities 83 118 - -------------------------------------------------------------------------------------------- Total current liabilities 975 1,622 Long-term debt 2,078 2,940 Deferred income taxes 166 348 Accrued abandonment, restoration and environmental liabilities 704 677 Other deferred credits and liabilities 607 739 Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust holding solely 6-1/4% convertible junior subordinated debentures of Unocal 522 522 Common stock ($1 par value) 252 251 Capital in excess of par value 444 412 Foreign currency translation adjustment (13) (13) Unearned portion of restricted stock issued (34) (14) Retained earnings 1,929 1,639 Treasury stock - at cost (c) (173) -- - -------------------------------------------------------------------------------------------- Total stockholders' equity 2,405 2,275 - -------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 7,457 $ 9,123 - -------------------------------------------------------------------------------------------- (a) Unaudited (b) Net of accumulated depreciation and other of: $ 9,863 $ 9,502 (c) Number of shares (in thousands): 4,485 -- See notes to the consolidated financial statements
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CONSOLIDATED CASH FLOWS UNOCAL CORPORATION (Unaudited) For the Nine Months Ended September 30 ---------------------- Millions of dollars 1997 1996 - ------------------------------------------------------------------------------------------ Cash Flows from Operating Activities Net earnings $ 439 $ 533 Adjustments to reconcile net earnings to net cash provided by operating activities Loss on disposal of discontinued operations (before-tax 71 -- Depreciation, depletion and amortization 755 724 Dry hole costs 51 72 Deferred income taxes (226) 48 Gain on sales of assets (before-tax) (59) (173) Other (83) 96 Working capital and other changes related to operations Accounts and notes receivable 221 (23) Inventories (41) 4 Accounts payable (351) 69 Taxes payable (110) 49 Other 69 (200) - ------------------------------------------------------------------------------------------ Net cash provided by operating activities 736 1,199 Cash Flows from Investing Activities Capital expenditures (includes dry hole costs) (953) (940) Proceeds from sale of discontinued operations 1,789 -- Proceeds from sales of assets 55 585 - ------------------------------------------------------------------------------------------ Net cash provided by (used in) investing activiti 891 (355) Cash Flows from Financing Activities Long-term borrowings 370 130 Reduction of long-term debt and capital lease obligations (1,329) (690) Dividends paid on preferred stock -- (27) Dividends paid on common stock (150) (149) Repurchases of common stock (173) -- Other (46) 23 - ------------------------------------------------------------------------------------------ Net cash used in financing activities (1,328) (713) Increase in cash and cash equivalents 299 131 Cash and cash equivalents at beginning of year 217 94 - ------------------------------------------------------------------------------------------ Cash and cash equivalents at end of period $ 516 $ 225 - ------------------------------------------------------------------------------------------ Supplemental disclosure of cash flow information: Cash paid during the period for: Interest (net of amount capitalized) $ 178 $ 243 Income taxes (net of refunds) $ 265 $ 239 See notes to consolidatefinancial 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 thereto filed with the Commission in Unocal Corporation's 1996 Annual Report on Form 10-K (as amended). Results for the nine months ended September 30, 1997, are not necessarily indicative of future financial results. Certain items in the prior year financial statements have been reclassified to conform to the 1997 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, are referred to as "Unocal" or "the company". (3) Discontinued Operations On March 31, 1997, the company sold its West Coast refining, marketing and transportation assets to Tosco Corporation (Tosco). In addition to cash proceeds of $1.4 billion, the company received 14,092,482 shares of Tosco common stock valued at $397 million. The value of the stock was based on the average of the high and low market prices of the Tosco stock for the last 10 trading days prior to the sale. On May 8, 1997, the company sold the stock back to Tosco for $394 million (net of expenses). During the first nine months of 1997, the company recorded an additional loss on disposal of $44 million (net of a $27 million tax benefit). The additional provision was primarily due to adjustments in closing inventory amounts and higher than anticipated termination costs. Included in the $44 million amount is a favorable adjustment of $6 million (net of $4 million tax) related to a lower than expected first quarter operating loss. The consolidated earnings statement reflects the results for the refining, marketing and transportation operations as discontinued operations for the quarters and nine months ended September 30, 1997 and 1996. At December 31, 1996, the assets had been reclassified in the consolidated balance sheet from their historical classifications to separately reflect them as net assets of discontinued operations. Cash flows related to discontinued operations have not been segregated in the consolidated statement of cash flows for the 1996 and 1997 periods. Consequently, amounts on the consolidated earnings statement may not agree with certain captions on the consolidated statement of cash flows for the 1996 and 1997 periods. (4) Extraordinary Item In May 1997, the company purchased approximately $507 million in aggregate principal amount of three of its outstanding issues of debt securities. The debt securities consisted of $161 million in debentures with an interest rate of 9-1/4 percent and $346 million in notes with interest rates of 8-3/4 percent and 9-3/4 percent. The debt securities were purchased for an aggregate price of $555 million, including a pre-tax premium of approximately $48 million over their aggregate carrying value. The premium, together with related costs, was recorded as a extraordinary item on the company's consolidated statement of earnings. (5) Other Financial Information Sales and operating revenues are principally derived from the sale of crude oil, natural gas, natural gas liquids, geothermal steam, specialty minerals and nitrogen-based agricultural products produced by the company. Sales and operating revenues also include amounts received from the sale of purchased crude oil, natural gas and products. During the third quarters of 1997 and 1996, approximately 29 percent and 30 percent, respectively, of total sales and operating revenues were attributed to sales of purchased crude oil, natural gas and products. For the first nine months of 1997 and 1996, 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) approximately 28 percent and 29 percent, respectively, of total sales and operating revenues were attributed to sales of purchased crude oil, natural gas and products. Earnings attributable to the sale of purchased crude oil, natural gas and products were immaterial for the third quarters and first nine months of 1997 and 1996. Related purchase costs are classified as expense in the crude oil and product purchases category of the consolidated earnings statement. Capitalized interest totaled $10 million and $3 million for the third quarters of 1997 and 1996, respectively. For the first nine months of 1997 and 1996, capitalized interest was $26 million and $9 million, respectively. (6) Income Taxes: The components of earnings from continuing operations and the provision for income taxes were as follows:
For Three Months For the Nine Months Ended September 30 Ended September 30 -------------------------------------------------------- Millions of Dollars 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings (loss) from continuing operations before income taxes United States (a) ........................................ $(116) $ 28 $ 204 $ 310 Foreign .................................................. 119 164 385 427 -------------------------------------------------------- Total .............................................. 3 192 589 737 Income Taxes Current Federal ................................................... 2 (22) 76 65 State ..................................................... 2 (1) 13 1 Foreign ................................................... 77 70 243 182 -------------------------------------------------------- Total .............................................. 81 47 332 248 Deferred Federal ................................................... (167) 3 (178) 2 State ..................................................... (7) 7 (5) 18 Foreign ................................................... (81) 1 (81) 16 -------------------------------------------------------- Total .............................................. (255) 11 (264) 36 -------------------------------------------------------- Total income taxes (benefit) ..................... $(174) $ 58 $ 68 $ 284 -------------------------------------------------------- (a) Includes corporate and unallocated expenses.
5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) The following is a reconciliation of income taxes calculated at the federal statutory income tax rate to income taxes (benefits) reported in the consolidated earnings statement:
For Three Months For the Nine Months Ended September 30 Ended September 30 ----------------------------------------------- Millions of Dollars 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Federal statutory rate: 35% 35% 35% 35% Earnings from continuing operations before income taxes ..................................................... $ 3 $ 192 $ 589 $ 737 Tax at federal statutory rate .............................................. 1 67 206 258 Foreign taxes in excess of (less than) statutory rate (b) .................. (53) (5) (8) 36 Dividend exclusion ......................................................... (3) (3) (10) (11) U.S. deferred tax adjustment ............................................... (114) -- (114) -- Other ...................................................................... (5) (1) (6) 1 Total ......................................................... $(174) $ 58 $ 68 $ 284 ------------------------------------------------ (b) The third quarter and first nine months of 1997 included a $68 million reduction in deferred taxes for Thailand.
(7) Inventories September 30 December 31 ----------------------------------------------------- Millions of dollars 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Crude oil and other petroleum products ............................................. $ 28 $ 12 Agricultural products .............................................................. 33 31 Carbon and Minerals ................................................................ 54 31 Materials, supplies and other ...................................................... 39 51 - ------------------------------------------------------------------------------------------------------------------------------------ Total ....................................................................... $154 $125 - ------------------------------------------------------------------------------------------------------------------------------------
(8) Long Term Debt and Credit Agreements: Third quarter 1997 financing activities primarily consisted of: the borrowing of an additional $10 million under the $250 million Thailand revolving credit facility, increasing the outstanding balance to $160 million, and a payment of $250 million on the $1.2 billion Bank Credit Agreement, reducing the balance to zero. On October 10, 1997 the company signed a new Bank Credit Agreement providing a revolving credit facility of $1 billion through October 2002, at interest rates based on LIBOR and requiring a facility fee on undrawn commitments. The $1.2 billion Bank Credit Agreement available on September 30, 1997, which had availability through June 2000, and the $200 million 364-day credit facility established in 1995, which had a March 1998 maturity, were both canceled on October 10, 1997. (9) Financial Instruments The fair values of the company's financial instruments at September 30, 1997 are described below: The Deutsche Mark currency swap agreement had a notional value of $110 million and a fair value of approximately $32 million based on dealer quotes. The company had outstanding commodity futures contracts covering the sale of 1,853 thousand barrels of crude oil with a notional amount of $38 million and 8 billion cubic feet of natural gas with a notional amount of $18 million. The fair values of the contracts, based on quoted market prices, were insignificant. The estimated fair value of the company's long-term debt and capital lease obligations was $2,173 million. The fair values of debt instruments were based on the discounted amount of future cash outflows using the rates offered to the company for debt with similar remaining maturities. The estimated fair value of the mandatorily redeemable convertible 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) preferred securities of the company's subsidiary trust was $638 million, based on dealer quotes. (10) Accrued Abandonment, Restoration And Environmental Liabilities: At September 30, 1997, the company had accrued $495 million for the estimated future costs to abandon and remove wells and production facilities. The total costs for abandonments are accrued predominately on a units-of-production basis and are estimated to be $675 million. This estimate was derived in large part from abandonment cost studies performed by an independent firm and is used to calculate the amount to be amortized. At September 30, 1997, the company's reserve for environmental remediation obligations totaled $282 million, of which $73 million was included in current liabilities. The reserve included estimated probable future costs of $25 million for federal Superfund and comparable state-managed multiparty disposal sites; $28 million for formerly-operated sites for which the company has remediation obligations; $81 million for sites related to businesses or operations that have been sold with contractual remediation or indemnification obligations; $119 million for company-owned or controlled sites where facilities have been closed or operations shut down; and $29 million for sites owned and/or controlled by the company and utilized in its ongoing operations. (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 may 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, 1997, the company had accrued $282 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 $190 million. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) TAX MATTERS In December 1994, the company received a Notice of Proposed Deficiency (Notice) 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 is possible that the most substantial issues raised in the Notice will 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 raised in the Notice 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 purchased 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 second largest issue raised in the Notice 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 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, after application of foreign tax credits and overpayments related to other issues, and assuming a full disallowance of the claim for refund discussed below, is estimated at $422 million as of September 30, 1997. During the first quarter of 1997, the IRS examination team completed its review of a claim for refund recently filed by the company relating to its 1985 tax liability. If the company ultimately prevails in its claim for refund, the liability for the issues described above would be eliminated and the company would be entitled to a refund for overpayment of tax. Although the IRS has not formally disallowed the claim, the company has been informed that the IRS examination team believes the claim should be disallowed. In April 1997, the IRS examination team sent the issue raised by the claim to the IRS National Office for technical advice. In September 1997, the IRS examination team withdrew the technical advice request and returned the claim to the IRS Appeals Officer for further consideration. The company intends to vigorously defend the claim and dispute the proposed deficiency and hopes to resolve these matters during 1997. Should that effort fail, final resolution of these matters is likely to be several years away as they are not yet before a court. 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 these matters 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) Unocal guarantees certain indebtedness of Union Oil. Summarized below is financial information for Union Oil and its consolidated subsidiaries: SUMMARIZED FINANCIAL DATA OF UNION OIL
For the Three Months For the Nine Months Ended September 30 Ended September 30 -------------------------------------------------------- Millions of dollars 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues ............................................ $ 1,397 $ 1,337 $ 4,507 $ 3,944 Total costs and other deductions (including income taxes) ............................... 1,211 1,201 3,959 3,488 -------------------------------------------------------------- Earnings from continuing operations ....................... 186 136 548 456 Discontinued operations Earnings from operations (a) ........................... -- 37 -- 80 Loss on disposal (b) ................................... -- -- (44) -- Extraordinary Item Early extinguishment of debt (c) ...................... -- -- (38) -- -------------------------------------------------------------- Net earnings .............................................. $ 186 $ 173 $ 466 $ 536 -------------------------------------------------------------- (a) Net of tax of: ....................................... $ -- $ 22 $ -- $ 48 (b) Net of tax benefit of: ............................... $ -- $ -- $ (27) $ -- (c) Net of tax benefit of: ............................... $ -- $ -- $ (14) $ --
At September 30 At December 31 ------------------------------------------- Millions of dollars 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Current assets ........................................................... $1,559 $3,228 Noncurrent assets ........................................................ 5,925 5,905 Current liabilities ...................................................... 979 1,622 Noncurrent liabilities ................................................... 3,555 4,704 Shareholder's equity ..................................................... 2,950 2,807 ------
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OPERATING HIGHLIGHTS UNOCAL CORPORATION (Unaudited) For the Three Months For the Nine Months Ended September 30 Ended September 30 ---------------------------------------------- 1997 1996 1997 1996 - -------------------------------------------------------------------------------------------------------------------------- NET DAILY PRODUCTION Crude oil and condensate (thousand barrels daily) United States Spirit Energy 76 .......................................... 40.8 51.4 45.0 51.7 Other (a) ................................................. 29.8 34.7 31.5 47.2 ---------------------------------------------- Total United States ..................................... 70.6 86.1 76.5 98.9 International Far East (b) .............................................. 96.2 82.2 94.9 82.4 Other ..................................................... 24.9 27.2 25.9 27.6 ---------------------------------------------- Total International ..................................... 121.1 109.4 120.8 110.0 Worldwide .................................................... 191.7 195.5 197.3 208.9 ---------------------------------------------- Natural gas (million cubic feet daily) United States Spirit Energy 76 .......................................... 844.5 928.4 875.7 917.0 Other (a) ................................................. 109.6 146.8 130.8 164.5 ---------------------------------------------- Total United States ..................................... 954.1 1,075.2 1,006.5 1,081.5 International Far East (b) .............................................. 790.0 666.5 789.5 625.7 Other ..................................................... 54.8 63.0 61.7 71.1 ---------------------------------------------- Total International ..................................... 844.8 729.5 851.2 696.8 Worldwide .................................................... 1,798.9 1,804.7 1,857.7 1,778.3 ---------------------------------------------- Natural gas liquids (thousand barrels daily) (a) ................ 17.8 19.3 18.7 19.6 Geothermal (million kilowatt-hours daily) ....................... 18.7 21.0 17.2 17.3 ---------------------------------------------- (a) Includes production from California upstream properties of: Crude oil and condensate ..................................... -- 1.0 -- 10.9 Natural gas .................................................. -- -- -- 17.2 Natural gas liquids .......................................... -- -- -- 0.2 (b) Includes host country share in Indonesia of: Crude oil and condensate ..................................... 27.9 26.4 29.2 26.8 Natural gas .................................................. 21.9 29.1 26.6 26.2
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OPERATING HIGHLIGHTS (continued) UNOCAL CORPORATION (Unaudited) For the Three Months For the Nine Months Ended September 30 Ended September 30 ----------------------------------------------- 1997 1996 1997 1996 - ----------------------------------------------------------------------------------------------------- AVERAGE SALES PRICES Crude oil and condensate (per barrel) United States Spirit Energy 76 ......................... $ 18.27 $ 21.80 $ 20.01 $ 20.33 Other .................................... 13.36 17.37 15.39 16.52 Total United States .................... 16.13 20.01 18.09 18.31 International Far East ................................. $ 17.45 $ 18.89 $ 18.72 $ 18.32 Other .................................... 16.58 19.89 17.58 18.53 Total International .................... 17.23 19.21 18.41 18.39 Worldwide ................................... $ 16.73 $ 19.62 $ 18.26 $ 18.34 - ----------------------------------------------------------------------------------------------------- Natural gas (per thousand cubic feet) United States Spirit Energy 76 ......................... $ 2.31 $ 2.23 $ 2.42 $ 2.34 Other .................................... 1.47 1.36 1.39 1.42 Total United States .................... 2.21 2.09 2.29 2.20 International Far East ................................. $ 2.39 $ 2.27 $ 2.35 $ 2.23 Other .................................... 2.40 2.05 2.23 1.82 Total International .................... 2.39 2.25 2.34 2.18 Worldwide ................................... $ 2.29 $ 2.15 $ 2.31 $ 2.20 - ----------------------------------------------------------------------------------------------------- AGRICULTURAL PRODUCTS PRODUCTION VOLUMES (thousand tons) Ammonia ........................................ 314 360 1,072 1,089 Urea ........................................... 188 275 696 845 Other products ................................. 146 149 494 494 AGRICULTURAL PRODUCTS SALES VOLUMES (thousand tons) Ammonia ........................................ 187 206 590 574 Urea ........................................... 191 198 690 779 Other products ................................. 200 302 907 971
11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Management's Discussion and Analysis of Financial Condition and Results of Operations for the three and nine month periods ended September 30, 1997 should be read in conjunction with Unocal's Management's Discussion and Analysis reported in the 1996 Annual Report on Form 10-K (as amended). Unocal explores for, develops, produces and markets crude oil and natural gas resources around the world. The company's largest operations are in the Gulf Coast region of the United States and in Southeast Asia. In addition, Unocal is the world's leading geothermal energy producer and manufactures and markets nitrogen-based fertilizers, petroleum coke, graphites, and specialty minerals. CONSOLIDATED RESULTS
For the Three Months For the Nine Months Ended September 30 Ended September 30 ---------------------------------------------------- Millions of Dollars ` 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Reported net earnings .............................................. $ 177 $ 171 $ 439 $ 533 Special items: Bangladesh well blowout ........................................ -- -- (7) -- UNO-VEN restructuring .......................................... -- -- 39 -- Deferred tax adjustments ....................................... 185 -- 192 -- Impairment of long-lived assets (SFAS No. 121) ................. (39) -- (39) -- Litigation provisions .......................................... (20) (20) (25) (32) Environmental remediation provisions ........................... (41) (12) (50) (38) Asset sales .................................................... (2) 48 30 130 Other .......................................................... -- -- -- (9) Discontinued operations: Loss on disposal ............................................ -- -- (44) -- Asset sales and miscellaneous ............................... -- 2 -- 4 Extraordinary item ............................................. -- -- (38) -- ------------------------------------------------------ Total special items ............................................. 83 18 58 55 ------------------------------------------------------ Adjusted net earnings .............................................. $ 94 $ 153 $ 381 $ 478 ------------------------------------------------------
For the third quarter and first nine months of 1997, adjusted net earnings reflected lower domestic crude oil and natural gas production, lower average worldwide crude oil sales prices and higher depreciation, depletion and amortization (DD&A) expense. Partially offsetting these negative factors were improved international natural gas and crude oil production, primarily in Thailand and Indonesia, higher average worldwide natural gas sales prices and lower interest expense. EXPLORATION AND PRODUCTION
For the Three Months For the Nine Months Ended September 30 Ended September 30 --------------------------------------------------- Millions of Dollars 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Reported net earnings United States Spirit Energy 76 ............................................... $ 6 $ 55 $ 144 $ 215 Other .......................................................... 10 22 42 126 International ..................................................... 128 107 259 245 ---------------------------------------------------- Total .......................................................... 144 184 445 586 Special items: Impairment of long-lived assets (SFAS No. 121) ................... (39) -- (39) -- Deferred tax adjustment .......................................... 68 -- 68 -- Bangladesh well blowout .......................................... -- -- (7) -- Asset sales ...................................................... (1) 40 (15) 114 ---------------------------------------------------- Total special items ......................................... 28 40 7 114 ---------------------------------------------------- Adjusted net earnings ................................................ $ 116 $ 144 $ 438 $ 472 ----------------------------------------------------
12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Compared with the third quarter and first nine months of 1996, adjusted net earnings for 1997 decreased $28 million, or 19 percent, and $34 million, or 7 percent, respectively. These decreases were due primarily to lower domestic crude oil and natural gas production, higher worldwide DD&A expense and lower average worldwide crude oil sales prices. Partially offsetting these negative factors were increased natural gas and crude oil production in the Far East and higher average worldwide natural gas sales prices. During the third quarter and first nine months of 1997, domestic crude oil production decreased 18 percent and 23 percent, respectively, and domestic natural gas production decreased 11 percent and 7 percent, respectively. These decreases were due primarily to natural declines, hurricane related shut-ins, mechanical problems in some high output wells and delays in the drilling program. Higher international production, principally from Thailand and Indonesia, partially offset the domestic production declines. During the third quarter and first nine months of 1997, international crude oil production increased 11 percent and 10 percent, respectively, and international natural gas production increased 16 percent and 22 percent, respectively. Adjusted worldwide DD&A expense for the third quarter and first nine months of 1997 increased 26 percent and 17 percent, respectively, due primarily to negative reserve adjustments in the United States and Thailand, increased production from higher rate fields in the United States, higher production in Thailand and higher capital spending in Indonesia. Compared with the third quarter of 1996, average worldwide crude oil sales prices decreased from $19.62 to $16.73 per barrel, a 15 percent decrease. Average worldwide crude oil sales prices for the first nine months of 1997 were essentially unchanged from the same period in 1996. For the third quarter of 1997, average worldwide natural gas sales prices increased from $2.15 to $2.29 per thousand cubic feet (mcf), and for the first nine months of 1997, average worldwide natural gas sales prices increased from $2.20 to $2.31 per mcf. Special items for the third quarter of 1997 primarily consisted of a $39 million write-down for the impairment of long-lived assets and a $68 million reduction in deferred taxes for Thailand related to recent currency devaluations. Special items for the first nine months of 1997 also included a $7 million charge related to a gas-ignited exploration well blowout in northeast Bangladesh and a $17 million loss on the sale of the company's United Kingdom operations. GEOTHERMAL OPERATIONS
For the Three Months For the Nine Months Ended September 30 Ended September 30 ----------------------------------------------------------- Millions of Dollars 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Reported net earnings ...................................... $ 6 $ 6 $25 $15 Special items: Deferred tax adjustments ................................ 3 -- 10 -- --------------------------------------------------------- Adjusted net earnings ...................................... $ 3 $ 6 $15 $15 ---------------------------------------------------------
Compared with the third quarter of 1996, the decrease in adjusted net earnings were the result of decreased revenues in the Philippines due to the deferral of 60 percent of the revenues and related earnings pending the settlement of a dispute regarding extension of the company's service contract and foreign exchange losses, primarily in Indonesia. Partially offsetting these negative factors was higher steam generation in Indonesia. During the first nine months of 1997, adjusted net earnings reflected higher steam generation in all areas of operation, decreased dry hole expense in Indonesia and lower depreciation expense due to the sale of domestic geothermal assets in 1996. Offsetting these positive factors were the negative factors previously discussed for the third quarter of 1997. During the third quarter and first nine months of 1997, the company recorded a $3 million deferred tax benefit for exploration expenses incurred for a project in Japan. In 1997, the company also recorded a $7 million deferred tax benefit related to prior year exploration expenses incurred for the Sarulla project in Indonesia. 13 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) DIVERSIFIED BUSINESS GROUP
For the Three Months For the Nine Months Ended September 30 Ended September 30 ------------------------------------------------------- Millions of Dollars 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Reported net earnings Agricultural Products ....................................... $ 4 $ 20 $ 50 $ 73 Carbon and Minerals ......................................... 10 13 76 40 Pipelines ................................................... 16 14 46 51 Other ....................................................... -- 3 37 9 ------------------------------------------------------- Total ....................................................... 30 50 209 173 Special items: UNO-VEN restructuring (Other) ............................... -- -- 39 -- Carbon and Minerals (asset sales) ........................... -- -- 41 -- Pipelines (asset sales) ..................................... -- -- -- 7 ------------------------------------------------------- Total special items ......................................... -- -- 80 7 ------------------------------------------------------- Adjusted net earnings .......................................... $ 30 $ 50 $129 $166 -------------------------------------------------------
Compared to the third quarter and first nine months of 1996, adjusted net earnings decreased 40 percent and 22 percent, respectively, principally due to lower agricultural products sales prices, sales volumes and production. Agricultural products production was lower as a result of maintenance at the Kenai, Alaska facility, mechanical problems and market related urea production cuts. Decreased demand in China for nitrogen fertilizers, particularly urea, impacted both agricultural products sales volumes and sales prices beyond normal seasonal declines. Lower lanthanide margins, primarily due to price cutting by China, and the elimination of earnings attributable to the UNO-VEN restructuring and the sale of the Unocal Hydrocarbon Sales business also impacted the Diversified Business Group's results. CORPORATE AND UNALLOCATED
For the Three Months For the Nine Months Ended September 30 Ended September 30 --------------------------------------------------------- Millions of Dollars 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ Reported net earnings effect Administrative and general expense .......................... $ (13) $ (21) $ (40) $ (55) Net interest expense ........................................ (19) (37) (84) (135) Environmental and litigation expense ........................ (65) (37) (86) (84) New Ventures ................................................ (1) (7) (23) (13) Other ....................................................... 95 (4) 75 (34) --------------------------------------------------------- Total ....................................................... (3) (106) (158) (321) Special items: Environmental and litigation provisions ................... (61) (32) (75) (70) Asset sales (Other) ....................................... (1) 8 4 9 Deferred tax adjustment (Other) .......................... 114 -- 114 -- Miscellaneous (Other) ..................................... -- -- -- (9) --------------------------------------------------------- Total special items ......................................... 52 (24) 43 (70) --------------------------------------------------------- Adjusted net earning effect .................................... $ (55) $ (82) $(201) $(251) ---------------------------------------------------------
Compared with the third quarter and first nine months of 1996, net interest expense decreased 49 percent and 38 percent, respectively, as a result of increased capitalized interest and a decreased debt level. Included in the Corporate and Unallocated Other category for the third quarter and first nine months of 1997 was a $7 million charge for a reinsurance obligation that was the result of a platform fire in Indonesia. For the third quarter and first nine months of 1997, the company reported a special item of $114 million for a reduction of deferred taxes related to the reassessment of the company's exposure for pending federal income tax appeals. 14 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) DISCONTINUED OPERATIONS During the first nine months of 1997, the company recorded an additional loss on disposal of its West Coast refining, marketing and transportation operations of $44 million (net of a $27 million tax benefit). See Note 3 to the consolidated financial statements for additional information. FINANCIAL CONDITION AND CAPITAL EXPENDITURES For the first nine months of 1997, cash flow from operating activities, including working capital changes, was $736 million, compared with $1,199 million in 1996. During the first nine months of 1997, the discontinued refining, marketing and transportation operations had a negative cash flow of $20 million, compared with a positive cash flow of $244 million for the same period in 1996. The 1997 cash flow from operations also reflected an $81 million escrow payment related to the settlement of the "Catacarb" litigation and $27 million for the company's buy-out of environmental liabilities related to the UNO-VEN partnership restructuring. Also impacting cash flow from operations were lower domestic crude oil and natural gas production, higher international exploration expense and lower agricultural products prices. Partially offsetting these negative factors were higher international crude oil and natural gas production, higher average worldwide natural gas sales prices, and lower net interest expense. Proceeds from asset sales were $1,844 million for the first nine months of 1997. The amount consisted of: $1,789 million from the sale of the West Coast refining, marketing and transportation assets; $25 million for Unocal Hydrocarbon Sales, $6 million from the sale of one of the company's airplanes, $12 million for miscellaneous real estate properties and $12 million from the sale of miscellaneous assets including various oil and gas properties. Capital expenditures for the first nine months of 1997 totaled $953 million, an increase of $13 million from the 1996 level of $940 million, due primarily to increased international oil and gas activity. The company's preliminary capital expenditure plan for 1998 could be as much as $1.5 billion, up from an estimated $1.4 billion in 1997. The exploration capital spending program for 1998 is $568 million, up more than 50 percent from the estimated 1997 level. During 1998, the company expects to drill more than 189 exploration wells. Consolidated working capital at September 30, 1997 was $586 million, a decrease of $1,020 million from the year-end 1996 level of $1,606 million. Included in the 1996 amount was $1,774 million in net assets of discontinued operations. The decline in working capital reflects primarily the application of proceeds from the sale of these assets to the debt reduction described below, as well as the company's repurchase of the $200 million undivided interest in pool trade receivables, which it had previously sold. The company's total debt was $2,078 million at September 30, 1997, a decrease of $980 million from the year-end 1996 level of $3,058 million. The debt-to-total capitalization ratio decreased to 42 percent from 52 percent at year-end 1996. The company used a portion of the proceeds from the sale of its West Coast refining, marketing and transportation assets to reduce long term debt. See Notes 8 and 9 to the consolidated financial statements for related information. Through September 30, 1997, the company had repurchased approximately 4.5 million shares of common stock for a total cost of approximately $173 million. As of November 7, 1997, the company repurchased approximately 1.6 million additional shares of common stock for a cost of approximately $65 million. ENVIRONMENTAL MATTERS At September 30, 1997, the company's reserves for environmental remediation obligations totaled $282 million, of which $73 million was included in current liabilities. During the third quarter, cash payments of $19 million were applied against the reserve and an additional $67 million in liabilities were recorded to the reserve account, primarily due to changes in estimated future remediation costs as discussed below. The company also estimates that it could incur additional remediation costs aggregating approximately $190 million, as discussed in Note 11 to the consolidated financial statements. The company's total environmental reserve is grouped into the following five categories: 15 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) RESERVE SUMMARY September 30, Millions of Dollars 1997 - -------------------------------------------------------------------------------- Superfund and similar sites ................................. $ 25 Former company-operated sites ............................... 28 Company facilities sold with retained liabilities ...................................... 81 Inactive or closed company facilities ....................... 119 Active company facilities ................................... 29 ---- Total reserves ........................................... $282 ---- At year-end 1996, Unocal had received notification from the U.S. Environmental Protection Agency that the company may be a potentially responsible party (PRP) at 39 sites and may share certain liabilities at these sites. In addition, various state agencies and private parties had identified 37 other similar PRP sites that may require investigation and remediation. During the first nine months of 1997, 10 sites were added and four sites were resolved resulting in a total of 82 sites. Of the total, the company has denied responsibility at 6 sites and at another 8 sites the company's liability, although unquantified, appears to be de minimis. The total also includes 27 sites which are under investigation or in litigation, for which the company's potential liability is not presently determinable. At another two sites, the company has made settlement payments and is in the final process of resolving its liabilities. Of the remaining 39 sites, where probable costs can be estimated, reserves of $25 million have been established for future remediation and settlement costs. These 82 sites exclude 60 sites where the company's liability has been settled, or where the company has both no evidence of liability and there has been no further indication of liability by government agencies or third parties for at least a 12-month period. 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 just 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. The solvency of other responsible parties and disputes regarding responsibilities may also impact the company's ultimate costs. The company is subject to a number of 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. Corrective investigations and actions pursuant to RCRA are being performed at the company's Beaumont, Texas, facility, its closed Colorado shale oil project, and its 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. On May 14, 1997, a draft environmental impact report (EIR) prepared by a consultant to the County of San Luis Obispo, California, was issued for use by the County, the Regional Water Quality Board -- Central Coast Region and others in evaluating the company's proposed remedial action plan, as well as alternative courses of action, for remediation of the underground petroleum hydrocarbon contamination at Avila Beach, California, resulting from former company operations. The company reviewed the alternatives addressed therein versus the expected environmental benefits, and issued comments in this regard as well as comments on other procedural and substantive issues subject to appeal. The county accepted public comments on the draft EIR for a 60-day period through July 14, 1997. These comments will be used to determine the final EIR. On August 25, 1997, the County of San Luis Obispo issued a draft EIR on the company's remediation and abandonment plans for the Guadalupe Oil Field located on the central coast of California. The field is contaminated with diluent, a kerosene-like additive used in the company's former operations at the site. The draft EIR will allow the company, the general public, the county and other regulatory agencies to evaluate the company's proposed remediation and abandonment plan, as well as 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) alternative courses of action, for the field. Certain of the alternatives addressed in the draft EIR would, if implemented, result in significantly higher remediation costs than the costs for the company's proposed plan. The company has completed its review of the draft EIR and issued extensive comments to the county on November 4, 1997. In the third quarter of 1997, the company added approximately $55 million to the remediation reserve for the estimated costs of the company's clean-up plans for Avila Beach, Guadalupe and associated projects. The costs for Avila Beach include expenses for excavation of the affected sections of the beach; bioremediation of the town area; development of mitigation projects that will benefit the community; and decommissioning and dismantlement of storage tanks that overlook the town. There is a reasonable possibility that the company may incur additional, but presently indeterminate, expenses for these sites. The ultimate clean-up costs will be affected by the EIR's, which are expected to be finalized in early 1998. See Notes 10 and 11 for related information. OUTLOOK Certain of the statements in this discussion, as well as other forward-looking statements within this document, contain estimates and projections of future revenues, earnings, cash flows, capital expenditures, assets, liabilities and other financial items and of future levels of 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. During the fourth quarter of 1997, the company expects increased operating earnings due to higher natural gas prices in the United States, improved agricultural products sales volumes and production and expansion of the Salak geothermal resource and power plant project in Indonesia. In 1998, the company expects net worldwide oil and gas production to average more than 560,000 barrels of oil equivalent (boe) per day, up seven percent from an estimated 525,000 boe per day in 1997. The company is targeting growth to more than 700,000 boe per day by 2001. ASIAN ECONOMIC DOWNTURN While the economic downturn in Southeast Asia is significant, the company has experienced no material negative impact as a result of these recent events and continues to expect no significant financial impact. The company believes the steps being taken by the affected governments in the region and by international financial institutions will alleviate the situation. In Thailand, the company's gas sales contracts provide for adjustments in the event of a devaluation of more than five percent of the baht in relation to the United States dollar. In Indonesia and the Philippines, revenues from the company's operations are either dollar-denominated or indexed to the United States dollar. UNITED STATES EXPLORATION AND PRODUCTION In an effort to increase domestic crude oil and natural gas production, the company expects to increase the number of rigs it employs to 17 during the fourth quarter of 1997. The company also signed a memorandum of understanding on September 19, 1997, with Smedvig Offshore Limited for a deepwater drill ship that can operate in 10,000 feet of water. The drill ship is designed for dual activity and has capabilities for production testing. The ship is currently under construction and is scheduled to start drilling operations in late 1998 or early 1999. On October 6, 1997, the company discovered oil in Terrebonne Parish, Louisiana. The discovery well tested at an average daily rate of 1,068 barrels of oil and 3.3 million cubic feet of gas. Production is expected to begin in December 1997, once the production facilities are completed. The company holds a 40 percent working interest in the well. In the Gulf of Mexico, the company recently tested a deepwater oil discovery in Garden Banks 409 and is currently exploring development alternatives. A production test on one of these wells drilled on the block wells yielded 7,266 barrels of oil and 3.7 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) million cubic feet of gas per day. The project, called Ladybug, is in close proximity to existing infrastructure at Garden Banks 189, which will serve as host facility. The company holds a 50 percent working interest in the project. INTERNATIONAL EXPLORATION AND PRODUCTION In Indonesia, the company successfully tested a stepout delineation well offshore East Kalimantan that establishes significant natural gas and condensate production potential in the deepwater area of the Mahakam Delta. The well tested at a rate of 24.8 million cubic feet of gas and 860 barrels of condensate per day. The company holds a 50 percent working interest in the project. The company is currently considering the restructuring of certain Canadian oil and gas assets held by its Unocal Canada, Ltd. subsidiary. The restructuring could involve an exchange of assets for an equity interest in a publicly traded Canadian oil and gas company or the formation of an alliance, joint venture or operating partnership with a Canadian firm. The company's objective is to enhance the long-term growth and value of its Canadian oil and gas properties. The $1 billion Yadana natural gas development project remains on schedule for its August 1, 1998 completion. The onshore Myanmar portion of the pipeline is essentially completed. Efforts are now focused on the offshore infrastructure, including a 215 mile pipeline and four platforms. Although the Thai side of the project has faced challenges, approximately 118 miles of the pipeline has been installed or is under construction. Construction of the remaining 32 miles nearest the Myanmar border is expected to begin during the fourth quarter of 1997, with completion scheduled for June 1998. The company has a 28.26 percent working interest in the project. In Thailand, the company successfully tested two exploration wells. The wells are part of a program to evaluate the new Maragot field offshore on Block B12/26. The company is evaluating development options and expects to bring this field on-stream following the start-up of production from the Pailin field, which is scheduled to begin in late 1998. The company holds a 35 percent working interest in the concession block, which includes the Pailin field. GEOTHERMAL OPERATIONS In Indonesia, at the Salak field on the Island of Java, the operation of a new 165-megawatt power plant began in the second week of October when the first of three 55-megawatt Units came on-line. During the first week of November, Unit 5 began operations and Unit 6 is expected to come on-line in late November. The company's fourth quarter results will benefit from the start-up of this 165-megawatt power plant. DIVERSIFIED BUSINESS GROUP Fourth quarter 1997 results for the Agricultural Products Group are expected to improve as a result of seasonal increases in demand for agricultural products. In addition, the company is restructuring its lanthanides business unit in response to current lanthanides market conditions. This restructuring effort should result in improved customer focus and product line profitability and reduced overall operating costs. This restructuring will also result in a manpower reduction at the company's Mountain Pass facility. The expected completion of the restructuring is early 1998. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS There is incorporated by reference the information previously reported in Item 3 of Unocal's Annual Report on Form 10-K (as amended) for the year ended December 31, 1996 (1996 Form 10-K (as amended)) and in Item 1 of Part II of Unocal's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997 (First Quarter 1997 Form 10-Q) and June 30, 1997 (Second Quarter 1997 Form 10-Q), 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. 18 PART II - OTHER INFORMATION (continued) (1) With reference to the action entitled Atlantic Richfield Company, et --------------------------------- al. v. Unocal Corporation, et al., involving the company's patent for ------------------------------------- certain compositions of reformulated gasoline, described in Paragraph (6) of Item 3 of the 1996 Form 10-K (as amended), on October 14, 1997, following the first phase of a trial which commenced in July 1997, the jury rendered a verdict upholding the validity of the patent and finding that Atlantic Richfield Company and the other five oil companies party to the action had infringed the patent with respect to approximately 29 percent, or 1.2 billion gallons, of the gasoline produced by them in California during the five-month period from March through July 1996 at issue in the trial. On November 3, 1997, following a second phase of the trial, the jury rendered a verdict awarding the company damages of 5.75 cents per infringing gallon, or $69 million for the five-month period. A third phase of the trial, relating to issues of "inequitable conduct," is scheduled to be heard by the trial judge commencing in early December 1997. (2) With reference to the litigation arising from past underground petroleum pipeline leaks at Avila Beach, California, described in Paragraph (9) of Item 3 of the 1996 Form 10-K (as amended) and in Paragraph (3) of Item 2 of Part II of the First Quarter 1997 Form 10-Q, there are currently 14 lawsuits filed in the California Superior Court for San Luis Obispo County that have been served on the company. Thirteen of the suits are individually based, with a total of 107 plaintiffs. The other suit is a purported class action filed by owners of a local time-share complex. In addition, the California Attorney General's Office contacted Unocal and held a "pre-filing" meeting to discuss remediation alternatives, mitigation, penalties and possible claims for natural resource damages. The Attorney General's Office also filed a notice of intent to sue based on Resource Conservation and Recovery Act Section 7002 allegations. In an effort to resolve property damage and business loss claims by the local community and discourage additional lawsuits from being filed, the company has announced a voluntary settlement program for property and business owners in the town of Avila Beach. (3) With reference to the litigation involving the Yadana gas project in Myanmar, described in Paragraph (13) of Item 3 of the 1996 Form 10-K (as amended), in Paragraph (5) of Item 1 of Part II of the First Quarter 1997 Form 10-Q, and in Paragraph (2) of Item 1 of Part II of the Second Quarter 1997 Form 10-Q, several developments have occurred that may affect the course of the litigation: In John Doe I, et al. v. Unocal Corp., et al., the court on September --------------------------------------------- 18, 1997, granted in part and denied in part the company's motion to strike from the plaintiffs' complaint allegations concerning claims of wrongful taking of property. The hearing on the plaintiffs' motion for a preliminary injunction (which seeks to enjoin the company from further participation in the Yadana gas project) and on the plaintiffs' motion for class certification is set for December 8, 1997. Defendant Total's motion to dismiss for lack of personal jurisdiction remains pending before the court. In National Coalition Government of the Union of Burma, et al. v. ------------------------------------------------------------------ Unocal, Inc., et al., the company's motion to dismiss was granted in --------------------- part and denied in part on October 30, 1997. (4) With reference to the matter entitled Aguilar, et al. v. Atlantic ----------------------------- Richfield, et al., alleging that the company and other oil company ------------------- defendants conspired to fix the price of reformulated gasoline in California in restraint of trade, described in Paragraph (7) of Item 1 of Part II of the First Quarter 1997 Form 10-Q, on October 17, 1997, the court granted the defendants' motion for summary judgment. Counsel for the plaintiffs has stated his intention to seek a reconsideration of the court's decision. ITEM 2. CHANGES IN SECURITIES During the third quarter of 1997, the company awarded 5,156 restricted stock units to certain nonemployee directors pursuant to the terms of the company's Directors' Restricted Stock Plan. The units were not registered under the Securities Act of 1933 (the Act) in reliance upon the exemption contained in Section 4(2) of the Act for transactions by an issuer not involving any public offering. The units were awarded (1) in consideration of the prior election by each of the nonemployee directors to 19 PART II - OTHER INFORMATION (continued) defer all or a portion of his or her cash fees and (2) upon the credit of dividend equivalents upon units previously issued. The units are paid out in an equal number of shares of Unocal common stock at the end of a restriction period elected by each director, or upon his or her earlier termination of service as a director. During the third quarter of 1997, Unocal issued 727 shares of its common stock upon the conversion of 620 of the 6-1/4 percent trust convertible preferred securities of Unocal Capital Trust. The common shares were not registered under the Act in reliance upon the exemption contained in Section 3(a)(9) of the Act for securities exchanged by the issuer with its existing security-holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange. ITEM 5. OTHER INFORMATION Neal E. Schmale resigned as a director of Unocal Corporation effective as of October 15, 1997. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: The Exhibit Index on page 23 of this report lists the exhibits that are filed as part of this report. (b) Current Reports on Form 8-K During the third quarter of 1997: 1. Report dated and filed July 23, 1997, for the purpose of reporting, under Item 5, Unocal's second quarter and first six months of 1997 earnings and related information. 2. Report dated September 16, 1997 and filed September 17, 1997, for the purpose of reporting, under Item 5, certain hydrocarbon discoveries offshore Indonesia. During the fourth quarter of 1997 to the date hereof: 1. Report dated and filed October 14, 1997, for the purpose of reporting, under Item 5, Unocal's intent to consider the restructuring of certain Canadian oil and gas assets held by its Unocal Canada Limited, subsidiary. 2. Report dated and filed October 14, 1997, for the purpose of reporting, under Item 5, the resignation of Neal E. Schmale as Unocal's Chief Financial Officer and the appointment of Timothy H. Ling as Chief Financial Officer, effective October 15, 1997. 3. Report dated October 14, 1997 and filed October 15, 1997, for the purpose of reporting, under Item 5, a jury's verdict validating Unocal's reformulated gasoline patent. 4. Report dated and filed October 27, 1997, for the purpose of reporting, under Item 5, Unocal's third quarter and first nine months of 1997 earnings and related information. 5. Report dated November 3, 1997 and filed November 4, 1997, for the purpose of reporting, under Item 5, damages awarded to Unocal in the reformulated gasoline patent infringement lawsuit. 20 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 14, 1997 By: /s/ JOSEPH A. HOUSEHOLDER -------------------------- Joseph A. Householder Vice President, Tax and Comptroller (Duly Authorized Officer and Principal Accounting Officer) 21 EXHIBIT INDEX 2.1 Sale and Purchase Agreement for 76 Products Company, dated December 14, 1996, between Union Oil Company of California and Tosco Corporation (without attachments or schedules) (incorporated by reference to Exhibit 2.1 to Unocal's Current Report on Form 8-K dated December 16, 1996 and filed January 3, 1997, File No. 1-8483). 2.2 Stock Purchase and Shareholder Agreement, dated as of January 15, 1997, by and between Tosco Corporation and Union Oil Company of California, together with form of Supplement No. 1 thereto (incorporated by reference to Exhibit 2.2 to Unocal's Current Report on Form 8-K dated December 16, 1996 and filed January 3, 1997, File No. 1-8483). 2.3 Amendment No. 1 and Supplement, dated as of March 31, 1997, to Stock Purchase and Shareholder Agreement, dated as of January 15, 1997, by and between Tosco Corporation and Union Oil Company of California (incorporated by reference to Exhibit C to Unocal's and Union Oil Company of California's statement on Schedule 13D relating to Tosco Corporation, dated and filed April 10, 1997, File No. 1-7910). 2.4 Environmental Agreement, dated as of March 31, 1997, by and between Union Oil Company of California and Tosco Corporation (without schedules) (incorporated by reference to Exhibit 2.3 to Unocal's Current Report on Form 8-K dated December 16, 1996 and filed January 3, 1997, File No. 1-8483). 10 Termination and Employment Agreement and Release among Neal E. Schmale, Union Oil Company of California and Unocal Corporation. 11.1 Statement regarding computation of earnings per common share assuming no dilution for the three months and nine months ended September 30, 1997 and 1996. 11.2 Statement regarding computation of earnings per common share assuming full dilution for the three months and nine months ended September 30, 1997 and 1996. 12.1 Statement regarding computation of ratio of earnings to fixed charges of Unocal for the nine months ended September 30, 1997 and 1996. 12.2 Statement regarding computation of ratio of earnings to combined fixed charges and preferred stock dividends of Unocal for the nine months ended September 30, 1997 and 1996. 12.3 Statement regarding computation of ratio of earnings to fixed charges of Union Oil Company of California for the nine months ended September 30, 1997 and 1996. 27 Financial data schedule for the period ended September 30, 1997 (included only in the copy of this report filed electronically with the Commission). 22 EX-10 2 TERMINATION AND EMPLOYMENT AGREEMENT AND RELEASE EXHIBIT 10 MATERIAL CONTRACTS TERMINATION AND EMPLOYMENT AGREEMENT AND RELEASE This Termination and Employment Agreement and Release ("Agreement"), is made and entered into as of the Effective Date, as defined herein, by and between Neal E. Schmale ("Employee"), Union Oil Company of California ("Company") and Unocal Corporation ("Unocal"). The Company and Unocal are sometimes referred to herein jointly as "Companies". WHEREAS, Employee has been employed by the Companies or their affiliates or predecessors for 29.5 years and (i) presently serves as a director of each of Companies, (ii) was, until recently, employed as Chief Financial Officer of Unocal, and (iii) is an employee of Company. WHEREAS, Companies advised Employee of their wish to change his current assignments and have him resign from his position as a director of Companies and any positions as director or employee of any of their subsidiaries while remaining available to act as an employee of each of the Companies in a consulting capacity, and subsequently, effective October 15, 1998, to have him resign from his remaining positions as an employee of Companies. NOW, THEREFORE, in consideration of the mutual promises contained in this Agreement and other valuable consideration, the sufficiency of which is hereby acknowledged, Companies and Employee agree as follows: 1. Resignation. Upon execution of this Agreement, Employee will render -------------- his written resignation from all of his positions as a director of Companies, effective as of October 15, 1997. 2. Services to be Rendered by Employee on and After Effective Date. (a) Term of Employment. ------------------ Employee shall be employed by the Companies continuously as a consulting employee, commencing on the Effective Date and continuing through October 14, 1998. Such employment may be terminated earlier, provided that such termination shall be exclusively in accordance with Section 7(b) of this Agreement. (b) Duties to be Performed. Upon reasonable written notice by an officer of -------------------------- the Companies, employee shall make himself available during regular business hours at Employee's reasonable convenience to perform telephonic consultation on matters not involving Confidential Information of the Companies, provided that such telephonic consultation shall not be required of Employee at times which interfere with Employee's ability to conduct other employment or business activities. Employee may waive such written notice and telephonic requirements, provided that any such waiver in one instance shall not constitute a permanent waiver under this Agreement. In addition, Employee shall make himself available during regular business hours to provide testimony in litigation to which any of the Companies is a party, but only to the extent of five hours per month (unless Employee is otherwise compelled by judicial process) and only to the extent Employee determines that he could be compelled by judicial process to so testify. The foregoing requirements to perform limited hours of service per month shall be non-cumulative and accordingly shall expire at the end of each month during the term of Employee's employment. The Companies agree to negotiate in good faith with Employee regarding definition of Employee's duties provided Companies' rights hereunder are not prejudiced where Employee is presented with technical obstacles to future employment due to his duties under this Agreement. (c) Non-Exclusive Employment. Employee may, without restrictions as to ---------------------------- time, place or nature of undertaking, perform services for others during the term of employment described in Section 2(a) as long as such services do not compromise Employee's obligations under Sections 5 or 6 of this Agreement. Following execution of this Agreement, and the Effective Date of same, and during the term of employment described in Section 2(a),Employee agrees to inform Companies in writing within 10 days of commencing other employment, consulting assignments or any other position for which he receives compensation for his services. 3.Compensation. --------------- (a) Vacation Accrual, Reimbursement of Fees, and Value of Future Benefits. --------------------------------------------------------------------------- Simultaneously upon full execution and as a condition to delivery of this Agreement by the parties hereto, 2 and Employee's delivery of his written resignations in accordance with Section 1 hereof, Company or Unocal shall deliver to Employee (i) its check made payable to Employee in the amount of $46,154 (which amount shall be translated to its hourly equivalency under the Unocal vacation bank and policy and debited from Employee's vacation bank accrual) less Applicable Withholding, (ii) its check for $15,000 representing reimbursement of a portion of Employee's legal fees with Pillsbury Madison & Sutro LLP, less Applicable Withholding, (iii) its check made payable to Employee in the amount of $75,000 (representing the parties' agreed upon substitute value of certain welfare plan and fringe benefit coverage for applicable periods between October 14, 1998 and October 14, 2001), less Applicable Withholding and (v) its check made payable to Employee in the amount of $273,171 (representing a payment in lieu of the benefit accruals that would have occurred in the aggregate under the Unocal Retirement Plan and the Non-Qualified Retirement Plans had the Employee continued employment through October 14, 2001 at his present compensation). None of such amounts shall be deemed compensation for purposes of any Benefit Plan. (b) Salary. During the term of employment described in Section 2(a), ------ Employee shall receive a salary, payable in semi-monthly installments, of $400,008 per annum, less Applicable Withholding. (c) Revised Incentive Compensation Plan. Employee shall receive ---------------------------------------------- distribution of the cash portion of deferred RICP awards made with respect to years prior to 1998 in accordance with his existing deferral elections on a 100% vested and non-forfeitable basis. Employee shall receive an RICP award for calendar year 1997 equal to that which he would have received had his resignation under Section 1 not occurred. If the RICP is interpreted, modified, amended or terminated, or the Committee thereunder acts, in a manner which would result in the foregoing award (after having been rendered in a manner that is non-discriminatory relative to Employee) being reduced, Employee shall receive a bonus, less Applicable Withholding, in the amount of such reduction, payable at the time the RICP award is payable, or would have been payable. (d) Long Term Incentive Plan of 1991. -------------------------------- (1) Performance Shares. The parties acknowledge and agree that Employee has been awarded, under the LTIP, with respect 3 to the Performance Cycles set forth in Column A below, the number of Performance Shares appearing to the right of each Performance Cycle in Column B below, and that under the terms of the LTIP, such Performance Share awards will be pro-rated as set forth in Column C below, assuming Employee's employment continues through October 14, 1998: A. B. C. Performance Performance Proration Cycle Share Awards - --------------------------------------- ---------------------------------------- 1994-97 ............................... 6,600 6,000 1995-98 ............................... 7,000 6,635 1996-99 ............................... 7,000 4,885 1997-2000 .............................. 6,000 2,688 The Companies agree that payout of the above referenced awards shall be "at the convenience of the Company" for purposes of Section 8(d)(i) of the LTIP and the equivalent section of the Employee's LTIP agreements. Accordingly, the Companies shall cause the LTIP Committee to make Performance Share payments to Employee based on the Awards described in Column B above following the close of each Performance Cycle (in the form and at the time such awards are generally paid) subject only to the following LTIP variables: (a) Pro-ration for service under Section 8(d)(i) of the LTIP shall be as described in Column C above for termination of employment on October 14, 1998; in the event of an earlier termination of the term of employment described in Section 2(a), the date of such termination shall not be earlier than the Effective Date and the pro-ration shall be based on the principles used to derive Column C above. (b) The original Performance Share award shall be subject to variation in accordance with Section 8(b) of the LTIP and the "Peer Group Companies" relative performance fraction contemplated by the LTIP agreement. (c) The price of Stock under the LTIP at the end of the Performance Cycle. (2) Stock Options. The parties acknowledge and agree that Employee has been ------------------ awarded, under the LTIP, with respect to the Option Grants dated as set forth in Column A below, the number of 4 non-qualified stock options appearing to the right of each Option Grant in Column B below, exercisable at the applicable strike price set forth in Column C below and that under the terms of the Option Grants, such Option Grants become exercisable in 25% increments over the 3 1/2 years following the Option Grant date and will therefore be exercisable in the numbers set forth in Column D below, assuming Employee's employment continues through October 14, 1998: A B C D Options Number Exercisable Option of Strike on Grants Options Prices 10/14/98 - -------------------------------------------------------------------------------- 3/26/90 ................... 15,344 $ 30.0625 15,344 1/28/91 ................... 12,666 24.3125 12,666 3/30/92 ................... 18,269 20.9375 18,269 3/29/93 ................... 17,917 29.6875 17,917 3/28/94 ................... 22,095 26.3750 22,095 3/27/95 ................... 21,000 28.5000 21,000 3/25/96 ................... 21,000 32.8125 15,750 3/24/97 ................... 19,500 38.8125 9,750 Companies agree that the options described in Column D are vested and non-forfeitable and shall be exercisable by Employee without restriction until the earlier of (i) the tenth anniversary of the grant or (ii) the third anniversary of the termination of the term of Employee's employment under Section 2(a), provided that (i) prior to September 27, 1998, with respect to the March 27, 1995 option grant, the number of options exercisable as described in Column D shall be 15,750, (ii) prior to September 25, 1998, with respect to the March 25, 1996 option grant, the number of options exercisable as described in Column D shall be 10,500 and (iii) prior to September 24, 1998, with respect to the March 24, 1997 option grant, the number of options exercisable as described in Column D shall be 4,875. In the event of an exercise of an option by Employee prior to the termination of the term of Employee's employment under Section 2(a) and payment of all or a portion of the gain on the option in Restricted Stock, said Restricted Stock shall be immediately 100% vested and non-forfeitable, and shall be distributed to Employee without restriction, on October 14, 1998. (3) Restricted Shares. The parties acknowledge and agree that Employee ------------------- has 16,412 shares of Restricted Stock resulting 5 from his deferral of a portion of RICP awards, as of October 14, 1997. Notwithstanding any other provisions of this Agreement, such Restricted Stock shall be 100% vested and non-forfeitable, and distributed to Employee without restriction, on the earlier of the termination of the term of employment described in Section 2(a) or October 14, 1998. (4) LTIP Rights Vested. The termination of the term of Employee's ------------------------- employment under Section 2(a) by reason of Section 7(b) shall not modify Employee's rights under Sections 3(d)(1) through (3). (e) Expense Reimbursement. Company will reimburse Employee for all ---------------------- reasonable and documented travel and out-of-pocket expenses incurred by Employee while traveling on behalf of Company when such travel has been authorized in writing by Company. Companies shall provide Employee with office space, secretarial assistance acceptable to Employee, office equipment and supplies, hardwired and cellular telephone service through the earlier of October 14, 1998 or the date Employee is provided an office by a subsequent employer. (f) Severance Payment. In consideration of 30 1/2 years of employment with ------------------- the Companies and the promises exchanged in this Agreement, and notwithstanding any other provision of this Agreement, including without limitation, the date of termination of the term of Employee's employment under Section 2(a), on October 14, 1998 the Companies shall deliver to Employee a check made payable to Employee (or in the event of Employee's intervening disability or death, the trustee of the Schmale Family Trust) in the amount of $1,966,670, less Applicable Withholding, and its check representing the dollar equivalent of Employee's accrued vacation hours in the Unocal vacation bank, at his date of termination of employment. (g) Waiver. Employee shall not be entitled to any other separation benefits --------- except as specifically provided in this Section 3. Employee shall not be eligible for any additional grants under the Long Term Incentive Plan of 1991 after the Effective Date. 4. Benefits. -------- (a) Participation After Effective Date. On and after the Effective Date, ------------------------------------ and during the term of Employee's employment under 6 Section 2(a) above, Employee shall be entitled to participate in all Benefit Plans and fringe benefit and payroll practices of Unocal on the same terms and conditions as would be applicable were Employee serving, during the term of employment described in Section 2(a), as Chief Financial Officer of Unocal in good standing and receiving as compensation the amounts described in Sections 3(b) and 3(c) of this Agreement. For purposes of the preceding sentence, "terms and conditions" includes Employee making required elections, and Employee's paying generally applicable employee-side contributions required by a Benefit Plan to obtain one or more benefits under the Benefit Plan. (b) Guaranty of Benefits by Companies. If, for any reason, Employee does ---------------------------------- not receive, pursuant to a Benefit Plan, at the time required by such Benefit Plan, all or any portion of the benefit under such Benefit Plan as contemplated by Section 4(a), the Companies shall be jointly and severally obligated to provide the Employee the After Tax Equivalent of the benefit not then received by the Employee pursuant to the Benefit Plan. The parties agree that the rights and obligations created under the preceding sentence are contractual rights and obligations between Employee and the Companies under the law of California, and not rights and obligations under a Benefit Plan. (C) Defined Benefit Plans. ---------------------- (1) Qualified Plan. The parties acknowledge and agree that Employee's --------------- accrued benefit under the Unocal Retirement Plan accrued through October 31, 1997 is $9,722.23 per month (calculated as though Employee terminated employment on October 31, 1997), and such accrued benefit accrued through October 14, 1998 (assuming Employee's employment through October 14, 1998 and making no allowance for anticipated increase in the IRC ss. 415 limit) shall also be $9,722.23 per month (both expressed as a single life annuity for the life of the Employee commencing on the first day of the first month following Employee's attainment of age 65), and that such accrued benefits are and shall be 100% vested and non-forfeitable, and that Employee has the right to elect to receive such benefit or any alternative form of benefit deemed to be equivalent, and generally available, under the Unocal Retirement Plan (with applicable spousal consents) upon the first day of the first month immediately following Employee's attainment of age 55 (or in the event of Employee's death prior to 7 retirement, Employee's surviving spouse shall have survivor benefits, in accordance with the terms of the Unocal Retirement Plan, derived from such applicable accrued benefits). (2) Non-Qualified Plans. The parties acknowledge and agree that, assuming -------------------- the accuracy of the benefits described in Section (c)(1), Employee's aggregate accrued benefit under the Non-Qualified Retirement Plans accrued through October 31, 1997 is $11,675.91 per month, and such accrued benefit accrued through October 14, 1998 (assuming Employee's employment through October 14, 1998) shall be $13,234.03 per month (both expressed as a single life annuity for the life of the Employee commencing on the first day of the first month following Employee's attainment of age 65), and that such accrued benefits are and shall be 100% vested and non-forfeitable, and that Employee has the right to elect to receive such applicable benefit or any alternative form of benefit deemed to be equivalent, and generally available, under the Non-Qualified Retirement Plans (with any applicable spousal consents) upon the first day of the first month immediately following Employee's attainment of age 55 (or in the event of Employee's death prior to retirement, Employee's surviving spouse shall have survivor benefits in accordance with the terms of the Unocal Non-Qualified Retirement Plans derived from such applicable accrued benefits). (3) Assumptions in Calculating Retirement Benefits. For purposes of -------------------------------------------------- calculating Final Average Pay under the Unocal Retirement Plan and the Non Qualified Retirement Plans, Employee shall be deemed to have received an RICP award of $200,004 with respect to 1997, notwithstanding the actual amount of award under Section 3(c). (d) Special Rules. The parties agree that Employee shall have a "qualifying ------------- event" under COBRA (consisting of potential loss of group coverage under the Unocal Medical and Dental Plans by reason of employment termination) at the conclusion of the term of employment described in Section 2(a). The foregoing sentence shall not be construed as a waiver of any rights under COBRA by Employee, Employee's spouse or Employee's dependent children. (e) Retiree Medical and Re-employment Options. The parties acknowledge and ------------------------------------------ agree that Employee has the right to enroll in the Retiree Medicare Supplement Coverage under the Unocal Medical Plan at or after attainment of age 65. Employee shall have the option of 8 returning as a consulting employee on the regular payroll of the Companies for a period of three months and at a salary of $30,000 at any time between Employee's 55th birthday and the date Employee attains age 65. If Employee so elects to return to employment, he shall agree to make himself available for consulting on a substantially full-time basis. The Companies acknowledge and agree that if Employee is employed as set forth in this subsection (e), Employee and his eligible dependents will be eligible upon Employee's subsequent termination of employment to participate for life in the combination of, first, the Companies' age 55 to age 65 Retiree Medical Coverage, and thereafter in the Companies' Retiree Medicare Supplement Coverage under the Unocal Medical Plan, as such coverages may be amended by amendments of general application, provided that for purposes of this Section 4(e), any such amendments adopted or effective after October 14, 1997 shall be disregarded to the extent specifically directed at Employee or restricting eligibility in a manner which has the effect of defeating the purpose of this Section 4(e). In the event Employee is unable to exercise the option described in this Section 4(e) by reason of disability, Companies shall provide the equivalent of such retiree medical coverage (including coordinated application of specific and aggregate benefit limitations) in exchange for Employee's payment of the then current employee side premiums. (f) Qualified Defined Contribution Plans. The parties acknowledge and agree ------------------------------------ that Employee's account balances under the Unocal ESOP and Profit Sharing/Saving Plan are 100% vested and non-forfeitable. 5. Confidential Information. Employee acknowledges that in the course of ------------------------- carrying out his responsibilities to Companies, he has had fiduciary responsibilities to Companies and has had access to and has been entrusted with the confidential and proprietary information and trade secrets of Companies including, without limitation, information not previously disclosed to the public regarding current and projected revenues, expenses, costs, profit margins and any other financial and budgeting information; marketing and distribution plans and practices; manufacturing processes, formulae, methods and facilities; research and development; business plans, opportunities, projects and any other business and corporate strategies; product information including reserves, exploration and research; terms of 9 contracts and other arrangements with customers suppliers, agents and employees of Companies; confidential and sensitive information of record regarding other employees (other than Employee's personal opinions), including information with respect to their job descriptions, documented performance strengths and weaknesses, and compensation; and other information not generally known regarding the business, affairs and plans of Companies (collectively, the "Confidential Information"). Employee acknowledges that the unauthorized use or disclosure of Confidential Information would be detrimental to Companies and would reasonably be anticipated to materially impair Companies' value. Employee acknowledges and agrees that such Confidential Information is the exclusive property of Companies and that he shall not at any time, without the prior written consent of an authorized officer of Unocal either during his employment by Companies or after the termination of that employment, directly or indirectly use for himself or others, or disclose to others, any Confidential Information. The foregoing shall not apply to information which either (i) is known to Employee other than as a result of work performed for Companies and from some authorized source other than Companies, (ii) is or becomes part of the public domain, other than by Employee's direct or indirect disclosure, or (iii) consists of explanations of his work experience that are reasonably necessary to interview for employment. Employee's obligations under this paragraph shall survive termination of his employment as described in Section 2(a) for a period of two years from such termination. Employee represents he has made available to Companies all of his files and materials taken from his Unocal office, and Companies have had an opportunity to inspect same, and Companies acknowledge that such files and materials contain no Confidential Information. 6. Change of Control. Employee agrees that during the period commencing on ----------------- the Effective Date and ended two years after the termination of Employee's employment as described in Section 2(a), Employee will not directly or indirectly participate in or assist any person or entity in activities designed to effectuate, or reasonably likely to result in, a change in control of Unocal or other extraordinary transaction involving Unocal. The foregoing sentence shall not be interpreted as preventing Employee from holding a position with an employer where Employee is "walled off" from any activity prohibited to Employee under this Section. Without limiting the generality of the preceding sentence, activities prohibited by this 10 paragraph 5 include activities designed to effectuate, or reasonably likely to result in (i) a merger or consolidation involving Unocal, (ii) a sale or other disposition of all, or a substantial portion of, Unocal's assets, (iii) any transaction that would require a vote of Unocal's stockholders under Unocal's Certificate of Incorporation or bylaws or under applicable law, (iv) any person or entity (individually or as a group within the meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended) becoming the beneficial owner of 15% or more of the combined voting power of Unocal's then-outstanding equity securities or (v) a change in the composition of Unocal's Board of Directors such that, during any period of two consecutive calendar years, Continuing Directors (as defined below) cease, for any reason, to constitute at least a majority of the Board of Directors. For purposes of this Agreement, "Continuing Directors" shall be the individuals who constitute the Board of Directors at the beginning of the applicable two-year period together with new directors whose election by the stockholders was approved by a vote of at least two-thirds of the directors then in office who either were directors at the beginning of the applicable two-year period or whose election was previously so-approved. Employee acknowledges and agrees that in light of Employee's position and history with Companies and their affiliates and the circumstances as they exist as of the Effective Date of this Agreement, it would be impossible for Employee to engage in any of the activities prohibited by this paragraph 5 without making use of Confidential Information, and the prohibitions contained in this paragraph 5 are reasonable. 7. Funding, Termination and Remedies. --------------------------------- (a) Funding. At the option of the Employee, the Companies shall establish ------- at City National Bank, Beverly Hills, California (the "Trustee") a "rabbi trust" in a form materially similar to that employed by the Companies for the RICP, adapted to the purposes of this Agreement. On such formation, the Companies will fund such Rabbi Trust with cash in the amount equal to the then present value of the payment described in Section 3(f) discounted at the rate of 9.5% (and with no other discounts) as determined in good faith by James Warner, F.S.A. of Towers, Perrin. Distribution shall be accomplished by the Trustee distributing to Employee amounts necessary to pay the amount due under Section 3(f) above. To the extent funds remain after satisfying the amount due Employee under 3(f), the balance of such trust shall be paid to Company. If the amount of the trust is 11 insufficient to pay said amount, Company shall pay Employee such insufficiency, less Applicable Withholding. Employee shall bear the cost of the Trustee's fees and any other expenses of the Rabbi Trust. The assets of the Trust shall be invested in vehicle jointly approved by the Companies and Employee. Payments to Employee shall be reduced by any Applicable Withholding. (b) Termination of Employee. Employee's employment with the companies ------------------------ described in Section 2(a) shall terminate only as a result of one of the following conditions: (1) The termination of such employment effective October 14, 1998 pursuant to the first sentence of Section 2(a). (2) The Employee's material breach of Employee's obligations under Section 5 or Section 6. (c) Death or Disability. In the event of the Employee's death or total -------------------- disability, the entire balance of the Rabbi Trust shall be distributed to the trustee of the Schmale Family Trust. (d) Remedies (1) Damages. The parties agree that the damages according to proof shall be the ------- remedy at law for breaches hereunder. However, the Companies shall not be entitled to withhold any payment or portion thereof provided under Section 3 as an alleged offset against any such claim of damages by the Companies unless (i) Companies have submitted the issue to arbitration under Section 12 by written notice given in accordance with the procedures thereunder on or before September 14, 1998 and (ii) after a full evidentiary hearing, the arbitrator determines that the Companies have such a right of offset as a matter of law and that there has been a material breach by Employee of Section 6 hereof. (2) Companies' Equitable Remedies. Employee acknowledges and agrees that ------------------------------ full compliance with his obligations under Sections 5 and 6 are essential to the Companies, and in the event of any breach or threatened breach by Employee of Sections 5 or 6 Companies will sustain losses which are impossible to determine and not fully compensable by monetary damages. Therefore, Company and/or 12 Unocal shall be entitled to institute and prosecute proceedings in any court of competent jurisdiction to enjoin any such breach or threatened breach and to enforce the specific performance of such provisions. (3) Employee's Equitable Remedies. Companies acknowledge and agree that ------------------------------- full compliance with their obligations under this Agreement are essential to the Employee, and in the event of any breach or threatened breach by Companies of this Agreement, Employee will sustain losses which are impossible to determine and not fully compensable by monetary damages. Therefore, Employee shall be entitled to institute and prosecute proceedings in any court of competent jurisdiction to enjoin any such breach or threatened breach and to enforce the specific performance of such provisions. (4) Defense of Validity. The Companies agree to defend the validity of this ------------------- Agreement in any proceeding which threatens to make this Agreement unenforceable in any material respect. 8. General Release by Employee. In consideration for this Agreement, ----------------------------- Employee hereby releases and forever discharges Companies and their respective predecessors, successors, partners, assigns, employees, shareholders, owners, officers, directors, agents, attorneys, subsidiaries, divisions, and affiliates (jointly referred to as "Employee's Released Parties") from any and all claims, demands, causes of action, obligations, damages, attorneys' fees, costs and liabilities of any nature whatsoever ("Claims"), whether or not now known, suspected or asserted, which Employee may have or claim to have against the Released Parties relating in any manner to Employee's employment with Companies and/or the termination of such employment, other than those claims arising by reason of Employee's rights under this Agreement and Benefit Plans of the Companies under this Agreement, and hereby covenants not to assert any such released Claims through a lawsuit, an administrative proceeding or otherwise. This General Release includes, but is not limited to, claims arising under federal, state or local laws prohibiting employment discrimination or claims arising out of any legal restrictions on Company's rights to terminate its employees, including without limitation the Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act of 1964, and the Civil Rights Act of 1991. Except as specifically provided herein in Section 4 or elsewhere, nothing in this Section 8 or Section 9 shall affect in any way, apply 13 to, increase, or diminish, any rights which Employee has with respect to benefits under Benefit Plans that have accrued and vested as of the Effective Date. Nothing in this Agreement shall affect in any way, apply to, increase or diminish, any rights which Employee may have with respect to coverage by Companies' liability insurance policies, including directors and officers liability coverages, or Company's or Unocal's defense or indemnification of Employee during and after his employment with the Companies, or service as an officer or director thereof for acts or omissions occurring during the term of his employment with Company or the term of his service as an officer or director. 9. General Release by Companies. In consideration for this Agreement, ------------------------------ Companies hereby release and forever discharge Employee and his successors, heirs, spouse, executors, insurers, creditors, administrators, devisees, the trustee of the Schmale Family Trust, partners, assigns, employees, shareholders, owners, officers, directors, agents, financial consultants (and specifically AYCO) attorneys (and specifically, Pillsbury Madison & Sutro LLP), and affiliates (jointly referred to as "Companies' Released Parties") from any and all claims, demands, causes of action, obligations, damages, attorneys' fees, costs and liabilities of any nature whatsoever ("Company Claims"), whether or not now known, suspected or asserted, which Companies may have or claim to have against the Companies' Released Parties relating in any manner to Employee's employment with Companies and/or the termination of such employment (other than Company Claims arising under this Agreement), and hereby covenants not to assert any such released Company Claims through a lawsuit, an administrative proceeding or otherwise. 10. Section 1542 Waiver. Companies and Employee waive all rights under ------------------- Section 1542 of the Civil Code of California. That section reads as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." Notwithstanding the provisions of Section 1542 or any similar law of any other state, and to provide a full and complete release of Employee's and Companies' Released Parties as provided in Sections 8 14 and 9 hereof, Companies and Employee expressly acknowledge that Sections 8 and 9 of this Agreement are intended to release, without limitation, Claims and Company Claims which Companies or Employee do not know or suspect to exist in their or his favor at the time of execution of this document, and that the settlement agreed upon completely extinguishes all such Claims and Company Claims. 11. Non-Disclosure of Agreement. Employee shall not disclose terms of this --------------------------- Agreement to anyone; provided, however, that Employee may disclose the terms and text of this Agreement in confidence to his spouse, lender,attorneys, tax advisor, financial advisor, potential employer, or consulting client, or when required by legal or administrative proceedings. At the time of execution of this Agreement, Company agrees that it has no knowledge of any improper disclosure by Employee as such disclosure is referred to in this paragraph. 12. Arbitration. Except for claims for equitable or injunctive relief, the ----------- parties hereby agree to submit any claim or dispute arising out of the terms of this Agreement (including exhibits) to private and confidential arbitration by a single neutral arbitrator. Subject to the terms of this paragraph, the arbitration proceedings shall be governed by the Commercial Arbitration Rules of the American Arbitration Association, and shall take place in Los Angeles County. The arbitrator shall be appointed by agreement of the parties hereto or, if no agreement can be reached, by the American Arbitration Association pursuant to its Rules. The decision of the arbitrator shall be final and binding on all parties to this Agreement, and judgment thereon may be entered in any court having jurisdiction. All costs of the arbitration proceeding or litigation to enforce this Agreement, including reasonable attorneys' fees shall be paid to the prevailing party by the party against whom the arbitrator or court rules. The parties shall instruct the arbitrator to specify which party is the prevailing party. Except for claims for equitable or injunctive relief, this arbitration procedure is intended to be the exclusive method of resolving any claim relating to the obligations set forth in this Agreement or otherwise relating in any way to Employee's employment relationship with Companies. 13. Entire Agreement. This Agreement is a full and complete expression of ---------------- the intent of the parties with respect to the subject matter of this Agreement. No other agreement or representation, 15 16 express or implied, has been made by either party with respect to the subject matter of this Agreement. 14. Amendment. This Agreement may not be modified except by a written -------- agreement signed by both Employee and by a Vice President of Unocal. 15. Governing Law. This Agreement shall be governed by, and construed in ------------- accordance with, the laws of the State of California without reference to the conflicts of law provisions thereof. 16. Severability. In the event any provision of this Agreement shall ------------ finally be determined to be unlawful, such provision shall be deemed to be severed from this Agreement and every other provision of this Agreement shall remain in full force and effect. If any one or more of the provisions of this Agreement shall for any reason be held to be excessively broad, it shall be construed, by limiting and reducing it, so as to be enforceable to the full extent possible under applicable law. 17. Assignment. Employee warrants and represents that he has not assigned ---------- or in any way transferred any right or claim related to the subject matter of this Agreement and that he will not allow or assist in such transfer or assignment in the future. Any purported assignment or transfer shall be deemed void ab initio. 18. No Admission. This Agreement shall not constitute an admission by any ------------ Released Party of any wrongful action or inaction whatsoever. 19. Voluntariness. Employee agrees that this Agreement is understood by ------------- Employee and is voluntarily entered into by the Employee. 20. Beneficiary Designation. Employee may file a written beneficiary ------------------------ designation for any payments in the event of his death prior to receipt of the amounts due under this Agreement in the form of Exhibit A. The last such designation received by Company prior to his death shall control any such payments. 21. Employee's Right to Review Agreement. Employee has twenty-two (22) days ------------------------------------ from the date of Employee's receipt of this Agreement to consider whether or not to sign this Agreement. 22. Effective Date. This Agreement shall not be effective until eight (8) --------------- days from the date of execution of this Agreement by Employee (the "Effective Date"). During the seven days following his execution of this Agreement, Employee may notify Company in writing of his revocation of this Agreement. 23. Employee's Right to Consult Counsel. Employee is advised to consult ------------------------------------- with Employee's attorney before deciding whether or not to sign this Agreement. 24. Parties in Interest. Except as expressly provided to the contrary -------------------- herein, this Agreement shall be binding upon each successor to, and assign of, the parties, and inure to the benefit of each permitted successor to, and assign of, the parties. 25. Definitions. Capitalized terms herein shall have the meanings set forth ---------- below. (a) "After Tax Equivalent" means, with respect to the value of a benefit under a Benefit Plan that is tax free or tax deferred, the amount necessary to replace the value of such benefit after the tax effect on Employee, assuming a 50% effective tax rate. For example, if Employee were not able to receive a tax deferred allocation of $1,000 in a Benefit Plan that was a defined contribution plan, the After Tax Equivalent would be $2,000 payable in taxable form to Employee (on the assumption at least $1,000 net of taxes would be generated which Employee could choose to deposit in a deferred annuity). Similarly, the After Tax Equivalent of a tax deferred defined benefit future accrual would be twice the lump sum present value of the accrual at the time the accrual would otherwise have occurred using plan actuarial assumptions. (b) "Applicable Withholding" means the sum of (i) required Federal, state and local payroll and income tax withholding and (ii) withholdings for employee-side contributions pursuant to the terms of Benefit Plans. (c) "Benefit Plan" means all of the Unocal employee benefit plans (as defined in Section 3(3) of ERISA), programs or fringe benefit arrangements or payroll practices in effect at the Companies on October 14, 1997, any amendment, modification, restatement or successor to same, and any other "employee benefit plans" as defined in Section 17 3(3) of ERISA or fringe benefit programs established by the Companies during the term of Employee's employment described in Section 2(a) in which the Chief Financial Officer of Unocal is eligible to participate. (d)"COBRA" means the health care continuation provisions of the Consolidated Omnibus Budget Reconciliation Act of 1986. (e) "Confidential Information" has the meaning assigned by Section 5. (f) "Effective Date" has the meaning assigned by Section 21. (g) "LTIP" means the Long Term Incentive Compensation Plan forming a part of the Unocal Corporation Management Incentive Program. (h) "Non-Qualified Retirement Plans" means the Unocal Retirement Supplementary Compensation Plan and the Unocal Supplemental Retirement Plan for Key Management Personnel. (i) "RICP" means the Revised Incentive Compensation Plan forming a part of the Unocal Corporation Management Incentive Program. 18 IN WITNESS WHEREOF, this Agreement has been executed in duplicate originals. UNION OIL COMPANY OF CALIFORNIA EMPLOYEE By: /s/ DENNIS P.R. CODON By: /s/ NEAL E. SCHMALE --------------------- ------------------- Dennis P.R. Codon Neal E. Schmale - ----------------- --------------- Print Name Print Name November 14, 1997 November 14, 1997 - -------------------------- -------------------------- Date Date UNOCAL CORPORATION By: /s/ DENNIS P.R. CODON --------------------- Dennis P.R. Codon - ----------------- Print Name November 14, 1997 - -------------------------- 19 EX-11.1 3 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
EXHIBIT 11.1 UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE ASSUMING NO DILUTION For Three Months For the Nine Months Ended September 30 Ended September 30 ------------------------------------------------ Dollars and shares in thousands, except per share amounts 1997 1996 1997 1996 - -------------------------------------------------------------------------------------------------------------------- Earnings from continuing operations per share assuming no dilution (a) Earnings from continuing operations ............................. $ 176,856 $ 133,517 $ 520,966 $ 452,815 Preferred stock dividend ........................................ -- -- -- (17,938) Non-cash charge related to exchange of preferred stock .......... -- (54,246) -- (54,246) ------------------------------------------------ Earnings from continuing operations applicable to common stock ................................ 176,856 79,271 520,966 380,631 Weighted average common stock outstanding ....................... 247,367 248,668 249,153 248,211 ------------------------------------------------ Earnings from continuing operations per common share ....................................... $ 0.71 $ 0.32 $ 2.09 $ 1.54 ------------------------------------------------ Earnings (loss) from discontinued operations per share assuming no dilution (a) Earnings (loss) applicable to common stock ...................... $ -- $ 37,247 $ (44,243) $ 80,091 Weighted average common stock outstanding ....................... 247,367 248,668 249,153 248,211 ------------------------------------------------ Earnings (loss) from discontinued operations per common share ....................................... $ -- $ 0.15 $ (0.18) $ 0.32 ------------------------------------------------ Loss from extraordinary item per share assuming no dilution (a) Early extinguishment of debt ................................. $ -- $ -- $ (37,820) $ -- Weighted average common stock outstanding ....................... 247,367 -- 249,153 -- ------------------------------------------------ Loss from extraordinary item per common share ....................................... -- -- (0.15) -- ------------------------------------------------ Net earnings per common share assuming no dilution ............................. $ 0.71 $ 0.47 $ 1.76 $ 1.86 ------------------------------------------------ (a) The dilutive effect of common stock equivalents is less than 3 percent for the three and nine months ended September 30, 1997 and 1996
EX-11.2 4 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
EXHIBIT 11.2 UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE ASSUMING FULL DILUTION For Three Months For the Nine Months Ended September 30 Ended September 30 ----------------------------------------------- Dollars and shares in thousands, except per share amounts 1997 1996 1997 1996 - ------------------------------------------------------------------------------------------------------------------- Earnings from continuing operations per share assuming full dilution Earnings from continuing operations ............................. $ 176,856 $ 133,518 $ 520,966 $ 452,815 Distribution on convertible preferred securities (net of tax) ... 5,952 1,720 17,858 1,720 Non-cash charge related to exchange of preferred stock .......... -- (54,246) -- (54,246) ----------------------------------------------- Earnings from continuing operations applicable to common stock ................................. 182,808 80,992 538,824 400,289 Weighted average common stock outstanding ....................... 247,367 248,668 249,153 248,211 Dilutive common stock equivalents ............................... 2,444 2,162 2,342 1,917 Conversion of preferred stock ................................... -- 431 -- 431 Conversion of preferred securities (a) .......................... 12,262 12,264 12,262 12,264 ----------------------------------------------- Weighted average common stock and stock equivalents outstanding ............................... 262,073 263,525 263,757 262,823 ----------------------------------------------- Earnings from continuing operations per common share ...................................... $ 0.70 $ 0.31 $ 2.04 $ 1.52 ----------------------------------------------- Earnings (loss) from discontinued operations per share assuming full dilution Earnings (loss) applicable to common stock ...................... $ -- $ 37,247 $ (44,243) $ 80,091 Weighted average common stock outstanding ....................... 247,367 248,668 249,153 248,211 Dilutive common stock equivalents ............................... 2,444 2,162 2,342 1,917 Conversion of preferred stock ................................... -- 431 -- 431 Conversion of preferred securities (a) .......................... 12,262 12,264 12,262 12,264 ----------------------------------------------- Weighted average common stock and stock equivalents outstanding ............................... 262,073 263,525 263,757 262,823 ----------------------------------------------- Earnings (loss) from discontinued operations per common share ...................................... $ -- $ 0.14 $ (0.17) $ 0.31 ----------------------------------------------- Loss from extraordinary item per share assuming full dilution Early extinguishment of debt ................................. $ -- $ -- $ (37,820) $ -- Weighted average common stock outstanding ....................... 247,367 248,668 249,153 248,211 Dilutive common stock equivalents ............................... 2,444 2,162 2,342 1,917 Conversion of preferred stock ................................... -- 431 -- 431 Conversion of preferred securities (a) ......................... 12,262 12,264 12,262 12,264 ----------------------------------------------- Weighted average common stock and stock equivalents outstanding ............................... 262,073 263,525 263,757 262,823 ----------------------------------------------- Loss from extraordinary item per common share ...................................... $ -- $ -- $ (0.14) $ -- ----------------------------------------------- Net earnings per common share Assuming full dilution .............................. $ 0.70 $ 0.45 $ 1.73 $ 1.83 ----------------------------------------------- (a) The effect of assumed conversion of preferred stock is antidilutive for the nine months ended September 30, 1997.
EX-12.1 5 STATEMENT RE: COMPUTATION OF RATIOS
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 ........................................ 1997 1996 - ---------------------------------------------------------------------------------- Earnings from continuing operations ........................ $ 521 $ 453 Provision for income taxes ................................. 68 284 ------------------- Earnings subtotal ................................. 589 737 Fixed charges included in earnings: Interest expense ........................................ $ 147 $ 215 Distribution on convertible preferred securities ........ 24 2 Interest portion of rentals ............................. 21 31 ------------------- Fixed charges subtotal ............................ 192 248 Earnings from continuing operations available before fixed charges .......................... $ 781 $ 985 ------------------- Fixed charges: Fixed charges included in earnings ...................... $ 192 $ 248 Capitalized interest .................................... 26 9 ------------------- Total fixed charges ............................... $ 218 $ 257 ------------------- Ratio of earnings from continuing operations to fixed charges ........................................ 3.6 3.8 -------------------
EX-12.2 6 STATEMENT RE: COMPUTATION OF RATIOS
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 1997 1996 - ---------------------------------------------------------------------------------- Earnings from continuing operations ........................ $ 521 $ 453 Provision for income taxes ................................. 68 284 ------------------- Earnings subtotal ................................. 589 737 Fixed charges included in earnings: Interest expense ........................................ 147 215 Distribution on convertible preferred securities ........ 24 2 Interest portion of rentals ............................. 21 31 ------------------- Fixed charges subtotal ............................ 192 248 Earnings from continuing operations available before fixed charges and preferred stock dividends ............. 781 985 ------------------- Fixed charges: Fixed charges included in earnings ...................... 192 248 Capitalized interest .................................... 26 9 Preferred stock dividends (before-tax basis) ............... -- 29 ------------------- Total fixed charges and preferred stock dividends . $ 218 $ 286 ------------------- Ratio of earnings from continuing operations to combined fixed charges and preferred stock dividends ............. 3.6 3.4 -------------------
EX-12.3 7 STATEMENT RE: COMPUTATION OF 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 1997 1996 - ---------------------------------------------------------------------------------- Earnings from continuing operations ........................ $ 548 $ 456 Provision for income taxes ................................. 68 284 ------------------- Earnings subtotal .................................... 616 740 Fixed charges included in earnings: Interest expense ........................................ 147 215 Interest portion of rentals ............................. 21 31 ------------------- Fixed charges subtotal ............................... 168 246 Earnings from continuing operations available before fixed charges .......................... 784 986 ------------------- Fixed charges: Fixed charges included in earnings ...................... 168 246 Capitalized interest .................................... 26 9 ------------------- Total fixed charges .................................. $ 194 $ 255 ------------------- Ratio of earnings from continuing operations to fixed charges ....................................... 4.0 3.9 -------------------
EX-27 8 ART. 5 FC FOR 3RD Q 10-Q
5 Unocal Corporation FDS 1,000,000 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 516 0 846 (33) 154 1,561 14,551 (9,863) 7,457 975 2,078 0 0 252 2,153 7,457 4,272 4,507 2,692 3,918 165 0 147 589 68 521 (44) (38) 0 439 1.76 1.73
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