-----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, SMkwDM+jYM0K5aaIfag8DzNZ6sMTGLJo15jtFtLs5gfUDBSWQFSFL9RvuR4RbYWe GEpCDcT2/ujaP70zztJFGQ== 0000716039-99-000032.txt : 19990817 0000716039-99-000032.hdr.sgml : 19990817 ACCESSION NUMBER: 0000716039-99-000032 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNOCAL CORP CENTRAL INDEX KEY: 0000716039 STANDARD INDUSTRIAL CLASSIFICATION: CRUDE PETROLEUM & NATURAL GAS [1311] IRS NUMBER: 953825062 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08483 FILM NUMBER: 99690183 BUSINESS ADDRESS: STREET 1: 2141 ROSECRANS AVE STREET 2: STE 4000 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107267600 10-Q 1 2nd Quarter 1999 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 June 30, 1999 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 June 30, 1999: 242,385,441 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED EARNINGS UNOCAL CORPORATION (UNAUDITED) For the Three Months For the Six Months Ended June 30 Ended June 30 ---------------------------------------------------- Millions of dollars except per share amounts 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Revenues Sales and operating revenues .................................................. $ 1,495 $ 1,226 $ 2,684 $ 2,397 Interest, dividends and miscellaneous income .................................. 28 51 56 62 Equity in earnings of affiliated companies .................................... 21 27 48 52 Gain(loss) on sales of assets ................................................. 11 93 (2) 93 ---------------------------------------------------- Total revenues .......................................................... 1,555 1,397 2,786 2,604 Costs and other deductions Crude oil, natural gas and product purchases .................................. 838 515 1,438 931 Operating expense ............................................................. 286 356 537 680 Selling, administrative and general expense ................................... 52 15 84 39 Depreciation, depletion and amortization ...................................... 183 199 383 380 Dry hole costs ................................................................ 47 42 74 92 Exploration expense ........................................................... 35 39 73 86 Interest expense .............................................................. 48 42 93 83 Property and other operating taxes ............................................ 14 15 27 31 Distributions on convertible preferred securities of subsidiary trust ............................................. 8 8 16 16 Minority interests ............................................................ 4 2 4 5 ---------------------------------------------------- Total costs and other deductions ........................................ 1,515 1,233 2,729 2,343 ---------------------------------------------------- Earnings (loss) from operations before income taxes ........................... 40 164 57 261 Income taxes .................................................................. 31 59 41 138 ---------------------------------------------------- Net earnings (loss) ..................................................... $ 9 $ 105 $ 16 $ 123 ==================================================== Basic earnings (loss) per share of common stock (a) ........................... $ 0.04 $ 0.43 $ 0.07 $ 0.51 Diluted earnings (loss) per share of common stock (b) ......................... $ 0.04 $ 0.43 $ 0.07 $ 0.50 Cash dividends declared per share of common stock ............................. $ 0.20 $ 0.20 $ 0.40 $ 0.40 (a) Basic weighted average shares outstanding (in thousands) ................ 242,270 241,362 241,649 241,396 (b) Diluted weighted average shares outstanding (in thousands) ............... 244,001 242,707 242,717 242,610 See notes to the consolidated financial statements.
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CONSOLIDATED BALANCE SHEET UNOCAL CORPORATION June 30 December 31 ------------------------------------- Millions of dollars 1999 (a) 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Assets Current assets Cash and cash equivalents .................................................. $ 168 $ 238 Accounts and notes receivable .............................................. 873 807 Inventories ................................................................ 158 179 Deferred income taxes ...................................................... 96 142 Other current assets ....................................................... 32 22 ------------------------------------- Total current assets .................................................... 1,327 1,388 Investments and long-term receivables ......................................... 1,194 1,143 Properties (b) ................................................................ 5,840 5,276 Deferred income taxes ......................................................... 71 23 Other assets .................................................................. 140 122 ------------------------------------- Total assets ............................................................ $ 8,572 $ 7,952 ===================================== Liabilities and Stockholders' Equity Current liabilities Accounts payable ........................................................... $ 738 $ 709 Taxes payable .............................................................. 92 260 Interest payable ........................................................... 59 52 Current portion of environmental liabilities ............................... 140 142 Other current liabilities .................................................. 150 213 ------------------------------------- Total current liabilities ............................................... 1,179 1,376 Long-term debt ................................................................ 2,802 2,558 Deferred income taxes ......................................................... 281 132 Accrued abandonment, restoration and environmental liabilities ................ 598 622 Other deferred credits and liabilities ........................................ 613 514 Minority interests ............................................................ 424 26 Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust holding solely parent debentures .......... 522 522 Common stock ($1 par value) ................................................... 253 252 Capital in excess of par value ................................................ 489 460 Unearned portion of restricted stock issued ................................... (23) (24) Retained earnings ............................................................. 1,878 1,959 Accumulated other comprehensive income (loss) ................................. (33) (34) Treasury stock - at cost (c) ................................................. (411) (411) ------------------------------------- Total stockholders' equity .............................................. 2,153 2,202 ------------------------------------- Total liabilities and stockholders' equity ........................... $ 8,572 $ 7,952 ===================================== (a) Unaudited (b) Net of accumulated depreciation .......................................... $ 10,269 $ 10,193 (c) Number of shares (in thousands) .......................................... 10,623 10,623 See notes to the consolidated financial statements
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CONSOLIDATED CASH FLOWS UNOCAL CORPORATION (UNAUDITED) For the Six Months Ended June 30 ------------------------------------- Millions of dollars 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Cash Flows from Operating Activities Net earnings (loss) ............................................................ $ 16 $ 123 Adjustments to reconcile net earnings to net cash provided by operating activities Depreciation, depletion and amortization ................................. 383 380 Dry hole costs ........................................................... 74 92 Deferred income taxes .................................................... (9) 30 (Gain) loss on sales of assets (before-tax) .............................. 2 (93) Other .................................................................... (21) 28 Working capital and other changes related to operations Accounts and notes receivable ......................................... (59) 61 Inventories ........................................................... 21 24 Accounts payable ...................................................... (7) (139) Taxes payable ......................................................... (168) (37) Other ................................................................. (62) (72) ------------------------------------- Net cash provided by (used in) operating activities ................ 170 397 Cash Flows from Investing Activities Capital expenditures (includes dry hole costs) .............................. (468) (766) Acquisition of Northrock Resources Ltd. ..................................... (184) -- Proceeds from sales of assets ............................................... 154 34 ------------------------------------- Net cash provided by (used in) investing activities ................ (498) (732) Cash Flows from Financing Activities Long-term borrowings ........................................................ 798 657 Reduction of long-term debt ................................................. (705) (316) Dividends paid on common stock .............................................. (97) (97) Repurchases of common stock ................................................. -- (48) Minority interests .......................................................... 242 (7) Other ....................................................................... 20 1 ------------------------------------- Net cash provided by (used in) financing activities ................... 258 190 Increase (decrease) in cash and cash equivalents ............................... (70) (145) Cash and cash equivalents at beginning of year ................................. 238 338 ------------------------------------- Cash and cash equivalents at end of period ..................................... $ 168 $ 193 ===================================== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest (net of amount capitalized) ..................................... $ 95 $ 84 Income taxes (net of refunds) ............................................ $ 259 $ 142 See notes to the consolidated financial statements.
3 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) The consolidated financial statements included herein are unaudited and, in the opinion of management, include all adjustments necessary for a fair presentation of financial position and results of operations. All adjustments are of a normal recurring nature. Such financial statements are presented in accordance with the Securities and Exchange Commission's (Commission) disclosure requirements for Form 10-Q. These interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the Notes thereto filed with the Commission in Unocal Corporation's 1998 Annual Report on Form 10-K. Results for the six months ended June 30, 1999, are not necessarily indicative of future financial results. Certain items in the prior year financial statements have been reclassified to conform to the 1999 presentation. (2) For the purpose of this report, Unocal Corporation (Unocal) and its consolidated subsidiaries, including Union Oil Company of California (Union Oil), are referred to as the company. The consolidated financial statements of the company include the accounts of affiliates in which a controlling interest is held. Investments in affiliates without a controlling interest are accounted for by the equity method. Under the equity method, the investments are stated at cost plus the company's equity in undistributed earnings and losses after acquisition. Income taxes estimated to be payable when earnings are distributed are included in deferred taxes. (3) Other Financial Information During the second quarter of 1999 and 1998, approximately 48 percent and 33 percent, respectively, of total sales and operating revenues were attributed to the resale of crude oil, natural gas and natural gas liquids purchased from others, that the company purchased in connection with its trading and marketing activities. For the six months ended June 30, 1999 and 1998, approximately 47 percent and 32 percent, respectively, of total sales and operating revenues were attributed to the resale of crude oil, natural gas and natural gas liquids purchased from others. Related purchase costs are classified as expense in the crude oil, natural gas and product purchases category on the consolidated earnings statement. Capitalized interest totaled $4 million and $9 million for the second quarters of 1999 and 1998, respectively. Capitalized interest totaled $9 million and $17 million for the first six months of 1999 and 1998, respectively. (4) Income Taxes Income taxes on earnings from operations for the second quarter and first six months of 1999 were $31 million and $41 million, respectively, compared with $59 million and $138 million for the comparable periods of 1998. The effective income tax rate for the second quarter of 1999 was 78 percent compared with 36 percent for the second quarter of 1998. The higher tax rate for the second quarter of 1999 was primarily due to the mix effect of domestic losses versus foreign earnings. The tax rate for the comparable period in 1998 was lower primarily due to currency-related tax adjustments in Thailand. The effective income tax rate for the first six months of 1999 was 72 percent compared with 53 percent for the first six months of 1998. The higher effective income tax rate for the first six months of 1999 was due to the mix effect of domestic losses versus foreign earnings. 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (5) Comprehensive Income The company's comprehensive earnings were as follows:
For the Three Months For the Six Months Ended June 30 Ended June 30 ---------------------------------------------------- Millions of dollars 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings (loss) ........................................................... $ 9 $ 105 $ 16 $ 123 Change in foreign currency translation adjustments (net of tax) ............... 1 (1) 1 -- ---------------------------------------------------- Comprehensive earnings (loss) ........................................... $ 10 $ 104 $ 17 $ 123 ====================================================
(6) Earnings Per Share The following are reconciliations of the numerators and denominators of the basic and diluted earnings per share (EPS) computations for net earnings for the second quarters and the six months ended June 30, 1999 and 1998:
Earnings Shares Per Share Millions except per share amounts (Numerator) (Denominator) Amount - ------------------------------------------------------------------------------------------------------------------------------------ Three Months Ended June 30, 1999 Net Earnings ............................................................ $ 9 242.3 Basic EPS ............................................................ $0.04 ===== Effect of Dilutive Securities Options/common stock equivalents ..................................... 1.7 ----------------------------- Diluted EPS .......................................................... 9 244.0 $0.04 ===== Distributions on preferred securities (after-tax) .................... 6 12.3 ----------------------------- Antidilutive ......................................................... $ 15 256.3 $0.06 Three Months Ended June 30, 1998 Net Earnings ........................................................... $ 105 241.4 Basic EPS ........................................................... $0.43 ===== Effect of Dilutive Securities Options/common stock equivalents .................................... 1.3 ----------------------------- Diluted EPS ......................................................... 105 242.7 $0.43 ===== Distributions on subsidiary trust preferred securities (after-tax) .. 6 12.3 ----------------------------- Antidilutive ........................................................ $ 111 255.0 $0.44 Six Months Ended June 30, 1999 Net Earnings ........................................................... $ 16 241.6 Basic EPS ........................................................... $0.07 ===== Effect of Dilutive Securities Options/common stock equivalents .................................... 1.1 ----------------------------- Diluted EPS ......................................................... 16 242.7 $0.07 ===== Distributions on subsidiary trust preferred securities (after-tax) .. 13 12.3 ----------------------------- Antidilutive ........................................................ $ 29 255.0 $0.11 Six Months Ended June 30, 1998 Net Earnings ........................................................... $ 123 241.4 Basic EPS ........................................................... $0.51 ===== Effect of Dilutive Securities Options/common stock equivalents .................................... 1.2 ----------------------------- Diluted EPS ......................................................... 123 242.6 $0.50 ===== Distributions on subsidiary trust preferred securities (after-tax) .. 12 12.3 ----------------------------- Antidilutive ........................................................ $ 135 254.9 $0.53
5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) Not included in the computation of diluted EPS were options outstanding at June 30, 1999 to purchase approximately 6.9 million shares of common stock. These options were not included in the computation as the exercise prices were greater than the year-to-date average market price of $35.85 for the common shares. The exercise prices of these options range from $35.94 to $51.01 per share and they expire in 2007 through 2009. (7) Long Term Debt and Credit Agreements On June 21, 1999, the company issued $350 million of 10 year, 7.35 percent notes under its universal shelf registration statement. After issuance of the notes, the total amount available for future issuance of medium term notes, other debt and/or equity securities under the registration statement was approximately $739 million. Additionally, the company, through consolidation of a Canadian subsidiary's acquisition of a 46-percent controlling ownership interest in Northrock Resources Ltd. (see note 12), added approximately $150 million in long-term debt. Proceeds from the $350 million debt issuance referred to above were used to retire $60 million of maturing medium-term notes and to pay down $113 million in maturing commercial paper to an outstanding balance of $40 million at June 30, 1999. The company also reduced its borrowings under the $1 billion bank credit agreement by $100 million to an outstanding balance of $100 million at June 30, 1999. (8) Financial Instruments The estimated fair value of the company's long-term debt was $2,873 million on June 30, 1999. The fair values of the debt instruments were based on the discounted amounts of future cash outflows using rates offered to the company for debt with similar maturities. The estimated fair value of the mandatorily redeemable convertible preferred securities of the company's subsidiary trust was $584 million. The fair value of the preferred securities was based on the trading prices of the preferred securities on June 30, 1999. The company's financial instruments at June 30, 1999 are described below: Foreign exchange contracts - The company and its subsidiaries have assorted currency swap agreements outstanding that are designed to hedge the impacts of foreign-currency exchange-rate fluctuations on US dollar- denominated debt. One agreement requires a subsidiary to pay approximately C$146 million at maturity in exchange for US$100 million. The parent company has a currency swap agreement that requires the company to pay US$100 million in exchange for C$146 million at maturity which effectively offsets the subsidiary's agreement. The combined fair values of these swap agreements were approximately zero at the end of the period. In addition, other agreements require a subsidiary to pay approximately C$115 million at maturity in exchange for US$75 million. The fair values of these agreements were US$72 million and were determined by comparing the swap rates to the forward rates in effect at June 30, 1999. The company's share of the estimated pre-tax deferred losses related to the US$75 million currency swap agreements was US$1.2 million at June 30, 1999 (net of minority interests). The combined total of US$175 million to be received by the subsidiaries will be used to retire US dollar-denominated debt at maturity. A subsidiary has US dollar forward contracts outstanding that are designed to mitigate the subsidiary's exposure to the US dollar-indexed prices it receives for the sale of its crude oil. These contracts are subject, in some cases, to extensions at the bank's option and require the company to sell approximately US$200 million in exchange for approximately C$285 million at maturity. At June 30, 1999, contracts of US$15 million were scheduled to mature in 1999 with the remaining contracts scheduled to mature periodically through the year 2005. The fair values of the contracts were approximately US$196 million. The fair values were determined by comparing the contract rates to the forward rates in effect at June 30, 1999. The company's share of estimated pre-tax deferred losses relating to these US dollar forward exchange contracts were US$2.6 million at June 30, 1999 (net of minority interests). 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) During the quarter, the company closed out its Thai baht foreign-exchange forward contracts. The fair value of the contracts at termination approximated the notional amounts. There were no Thai baht foreign-exchange forward contracts outstanding at June 30, 1999. Other commodity-based contracts - The company has various fixed-price sales contracts outstanding at June 30, 1999, related to the future sale of natural gas production of one of its Canadian affiliates. The contracts cover production in the amounts shown for the following years: Remainder of 1999 18.3 million cubic feet/day Avg price of $2.36 per mcf Average for 2000 37.5 million cubic feet/day Avg price of $2.32 per mcf Average for 2001 65.1 million cubic feet/day Avg price of $1.99 per mcf Average for 2002 60.5 million cubic feet/day Avg price of $1.68 per mcf The company's share of estimated pre-tax deferred losses relating to these contracts was approximately $8 million at June 30, 1999, (net of minority interests). The losses primarily relate to contracts with delivery dates scheduled for the years 2001 through 2002. At June 30, 1999, the company had $43 million in futures contracts outstanding related to its non-trading activities. The company purchased crude oil futures contracts for $21 million covering 1,600 thousand barrels of crude oil. These purchases offset the fixed price risk related to delivery obligations under a December 1998 pre-paid forward crude oil sale. The fair values of these crude oil futures purchase contracts based on quoted market prices at June 30, 1999, were approximately $31 million. The company also purchased natural gas futures contracts for $22 million covering approximately 10 million thousand cubic feet (mcf) of natural gas, primarily in the third quarter of 1999. These contracts were purchased as part of the company's overall hedging strategy. The fair values of the natural gas futures purchase contracts based on quoted market prices at June 30, 1999 were approximately $23 million. There were no material crude oil and natural gas futures contracts outstanding related to the company's trading activities at June 30, 1999. At June 30, 1999, the company had various hydrocarbon option contracts (options) outstanding with several counterparties. Generally, options have been used to limit the company's exposure to adverse commodity price fluctuations. In some cases, the instruments may also limit the company's ability to participate fully in future gains from favorable price movements. These options are generally accounted for as hedges, with gains and losses deferred and recognized as a component of crude oil and natural gas revenues upon the sale of the underlying production. At June 30, 1999, the company had options to purchase approximately 81 million mcf and sell approximately 144 million mcf of natural gas. Sold options include call contracts that relate to the future production of one of the company's Canadian affiliates. These call prices range from an average of $2.45 per mcf for the remainder of 1999 to $2.50 per mcf in the year 2004. Related subsidiary call option gross daily volumes are expected to average approximately 86 million cubic feet (cf)for the remainder of 1999, 129 million cf in 2000, 37 million cf in 2001, 14 million cf in 2002, 22 million cf in 2003 and approximately 8 million cf in 2004. The purchased options consist primarily of put options, which the company acquired to establish a floor price for its 1999 natural gas production. At June 30, 1999, the purchased options had a fair value of approximately $(15) million and the sold options had a fair value of approximately $(17) million. The fair values of the options were determined by dealer quotes where available, or by financial modeling using underlying commodity prices. Net premiums paid for the options totaled $3 million. Approximately 80 percent of the sold options and 100 percent of the purchased options were associated with the company's non-trading activities. At June 30, 1999, the company's share (net of minority interests) of pre-tax deferred losses related to its non-trading natural gas option activity was approximately $24 million. 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) At June 30, 1999, the company had options outstanding to purchase approximately 5 million barrels of crude oil and sell approximately 23 million barrels of crude oil. The sold options consist of put and call contracts that relate primarily to the company's remaining 1999 production as well as call contracts that relate to the production of one of the company's Canadian affiliates for the years 2000 through 2002. The purchased options include put options that were acquired to establish a floor price for the company's 1999 crude oil production. At June 30, 1999, the purchased options had a fair value of approximately $(5) million and the sold options had a fair value of approximately $(21) million. The fair values of the options were determined by dealer quotes where available, or by financial modeling using underlying commodity prices. Net premiums paid for the options totaled $6 million. Approximately 70 percent of the sold and purchased options were associated with the company's non-trading activities. At June 30, 1999, the company's share (net of minority interests) of pre-tax deferred losses related to its non-trading crude oil option activity was approximately $32 million. At June 30, 1999, the company had a ten-year natural gas price swap agreement outstanding. The agreement effectively refloats the fixed price the company received for a ten-year natural gas pre-paid forward sale. As the counterparty to the swap agreement remits a current-index-price payment amount to the company based upon volumes in the swap agreement, the company remits a fixed-price payment amount to the counterparty. The pre-tax deferred loss related to the swap agreement at June 30, 1999, was approximately $4 million. This loss is offset by the fixed price physical sales contract. The company recorded approximately $3 million and $7 million in pre-tax trading gains for the second quarter and first six months of 1999, respectively. (9) Accrued Abandonment, Restoration and Environmental Liabilities At June 30, 1999, the company had accrued $464 million for the estimated future costs to abandon and remove wells and production facilities. The total costs for abandonments are predominantly accrued for on a unit-of-production basis and are estimated to be approximately $655 million. This estimate was derived in large part from abandonment cost studies performed by outside firms and is used to calculate the amount to be amortized. The company's reserve for environmental remediation obligations at June 30, 1999 totaled $274 million, of which $140 million was included in current liabilities. (10) Contingent Liabilities The company has certain contingent liabilities with respect to material existing or potential claims, lawsuits and other proceedings, including those involving environmental, tax and other matters, certain of which are discussed more specifically below. The company accrues liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. Such accruals are based on developments to date, the company's estimates of the outcomes of these matters and its experience in contesting, litigating and settling other matters. As the scope of the liabilities becomes better defined, there will be changes in the estimates of future costs, which could have a material effect on the company's future results of operations and financial condition or liquidity. Environmental matters - The company is subject to loss contingencies pursuant to federal, state and local environmental laws and regulations. These include existing and possible future obligations to investigate the effects of the release or disposal of certain petroleum, chemical and mineral substances at various sites; to remediate or restore these sites; to compensate others for damage to property and natural resources, for remediation and restoration costs and for personal injuries; and to pay civil penalties and, in some cases, criminal penalties and punitive damages. These obligations relate to sites owned by the company or others and are associated with past and present operations, including sites at which the company has been identified as a potentially responsible party (PRP) under the federal Superfund laws and comparable state laws. 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) Liabilities are accrued when it is probable that future costs will be incurred and such costs can be reasonably estimated. However, in many cases, investigations are not yet at a stage where the company is able to determine whether it is liable or, even if liability is determined to be probable, to quantify the liability or estimate a range of possible exposure. In such cases, the amounts of the company's liabilities are indeterminate due to the potentially large number of claimants for any given site or exposure, the unknown magnitude of possible contamination, the imprecise and conflicting engineering evaluations and estimates of proper clean-up methods and costs, the unknown timing and extent of the corrective actions that may be required, the uncertainty attendant to the possible award of punitive damages, the recent judicial recognition of new causes of action, the present state of the law, which often imposes joint and several and retroactive liabilities on PRPs, the fact that the company is usually just one of a number of companies identified as a PRP, or other reasons. As disclosed in note 9, at June 30, 1999, the company had accrued $274 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 possible additional remediation costs aggregating approximately $190 million. Tax matters - The company believes it has adequately provided in its accounts for tax items and issues not yet resolved. Other matters - In February 1996, Bridas Corporation filed a petition against the company and others in the District Court of Fort Bend County, Texas, alleging that the defendants conspired to and did tortiously interfere with Bridas' rights under agreements with the government of Turkmenistan to develop the Yashlar Field and to transport gas from that field to Pakistan. The petition also alleged that the defendants interfered with Bridas' exclusive right to lay a gas pipeline in Afghanistan. Bridas sought actual damages, as well as punitive damages, plus interest. Bridas' expert witnesses stated in pre-trial discovery that Bridas' total actual damages for loss of future profits were approximately $1.7 billion. In the alternative, Bridas was expected to seek an award of approximately $430 million with respect to its total expenditures in Turkmenistan. In October 1998, the court granted the defendants' motion for summary judgement and dismissed the action. In March 1999, Bridas filed a notice of appeal of the dismissal. In May 1999, a Canadian subsidiary of the company acquired an approximately 46 percent controlling interest in Northrock Resources Ltd. (Northrock) (see note 12). Northrock has the right, until December 31, 1999, to require that the company purchase additional Northrock common shares from treasury shares at a price of C$15 per share, up to a maximum ownership level of 49.9 percent. In 1998, the company signed a letter agreement regarding the Transocean Discoverer Spirit deepwater drill ship with a minimum daily rate of $210 thousand for five years. The drill ship is scheduled for delivery in the Gulf of Mexico in 2000. 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. 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (11) 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 Six Months Ended June 30 Ended June 30 ---------------------------------------------------- Millions of dollars 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues ............................................................... $1,555 $1,397 $2,786 $2,604 Total costs and other deductions (including income taxes) .................................................. 1,538 1,286 2,756 2,470 ---------------------------------------------------- Net Earnings.................................................................. $ 17 $ 111 $ 30 $ 134 ==================================================== At June 30 At December 31 (a) ---------------------------------------------------- Millions of dollars 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Current assets ............................................................... $1,327 $1,388 Noncurrent assets ............................................................ 7,264 6,583 Current liabilities .......................................................... 1,214 1,406 Noncurrent liabilities ....................................................... 4,719 3,852 Shareholder's equity ......................................................... 2,658 2,713 (a) Audited
(12) Acquisition of Assets In May 1999, a Canadian subsidiary of the company acquired an approximately 46-percent controlling interest in Northrock Resources Ltd. (Northrock), a Canadian oil and gas exploration and production company, for approximately $184 million. The investment was effected by the acquisition of 10 million shares of Northrock common stock at C$14 per share pursuant to a partial tender offer to Northrock's shareholders and 7.64 million shares of Northrock common stock at C$16 per share pursuant to a private placement. The acquisition is part of the company's overall North American natural gas strategy. Northrock is fully consolidated in the company's financial results. (13) Minority Interests In April 1999, the company contributed fixed-price overriding royalty interests from its working interest shares in certain oil and gas producing properties in the Gulf of Mexico to Spirit Energy 76 Development, L.P. (Spirit LP), a limited partnership formed under the laws of Delaware. In exchange for its overriding royalty contributions, valued at $304 million, the company received an initial general partnership interest of approximately 55 percent in Spirit LP. An unaffiliated investor contributed $250 million in cash to the partnership in exchange for an initial limited partnership interest of approximately 45 percent. The net result of this transaction was to increase minority interests by approximately $244 million. The fixed-price overrides are subject to economic limitations of production from the affected fields. The limited partner is entitled to receive a priority allocation of profits and cash distributions. The partnership has a maximum term of 20 years, but may terminate after six years, subject to certain conditions. As discussed in note 12, in May 1999, a Canadian subsidiary of the company acquired approximately 46 percent of Northrock. The net result of this transaction was to increase minority interests by approximately $145 million. 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (14) Restructuring Costs The company adopted a restructuring plan during the second quarter of 1999 that resulted in the accrual of a $18 million pre-tax restructuring charge. This amount included the costs of terminating approximately 250 employees. The charge was included in selling, administrative and general expense on the consolidated earnings statement. The plan involves the blending of several International and Geothermal organizations, a manpower optimization program in Thailand, cost cutting and efficiency initiatives in the company's Diversified Business and Exploration and Production Technology groups and a company-wide shared resources initiative. Approximately 100 of the affected employees were from the company's International operations, 95 were from the Diversified Business group and 55 were from other organizations, including corporate staff. The restructuring charge included approximately $16 million for termination costs to be paid to the employees over time and about $2 million related to outplacement and other costs. At July 15, 1999, 155 employees had been terminated or had received termination notices as the result of the plan with additional terminations scheduled during the remainder of 1999 and early 2000. In the fourth quarter of 1998, the company adopted a restructuring plan that resulted in the accrual of a $27 million pre-tax restructuring charge. This amount included the costs of terminating approximately 475 employees. The charge was included in selling, administrative and general expense on the consolidated earnings statement. The plan involves the suspension of mining and manufacturing operations at the Mountain Pass, California lanthanide facility, a change in mining operations at the Questa, New Mexico molybdenum facility, the withdrawal from non-strategic activities in Central Asia and a reduction in activities of various business units. Approximately 240 of the affected employees were from the company's mining operations, 95 were from various exploration and production business units and 140 were support personnel at various locations. The restructuring charge included approximately $23 million for termination costs to be paid to the employees over time, about $2 million in benefit plan curtailment costs and about $2 million related to outplacement and other costs. At July 15, 1999, 399 employees had been terminated or had received termination notices as a result of the plan, with additional terminations scheduled during the remainder of 1999 and early 2000. The amount of unpaid benefits remaining on the consolidated balance sheet at June 30, 1999 was $29 million for the two plans combined. 11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) (15) Segment Information The company's reportable segments are as follows: Exploration and Production, Global Trade, Geothermal & Power Operations and Diversified Businesses. Unallocated corporate administrative and general expenses and other miscellaneous operations are included under the Corporate and Unallocated heading. Effective January 1, 1999, the Pipelines business unit was transferred from the Diversified Business segment to the Global Trade segment. For an expanded description of the activities conducted by the company's business segments, see pages 74 and 75 of the company's 1998 Annual Report on Form 10-K.
-------------------------------------------------------------------------------- Segment Information Exploration & Production Geothermal For the Three Months United States International Global Trade & Power ended June 30, 1999 Spirit Far Operations Millions of dollars Energy 76 Alaska East Other Global Trade Pipelines -------------------------------------------------------------------------------- External sales & operating revenues ......... $ 27 $ 29 $ 180 $ 48 $ 1,022 $ 9 $ 32 Other revenue (loss) ........................ 4 -- (3) 5 -- 16 17 Inter-segment revenues ...................... 234 16 45 14 2 3 -- -------------------------------------------------------------------------------- Total revenues ............................. 265 45 222 67 1,024 28 49 Operating profit (loss) before income taxes and minority interest in earnings ......... 25 6 88 (1) -- 18 22 Income taxes (benefit) .................. 8 2 47 (3) -- 2 8 Minority interest in earnings ........... 4 -- -- 1 -- -- -- -------------------------------------------------------------------------------- Net earnings (loss) ......................... 13 4 41 1 -- 16 14 Assets (at June 30, 1999) ................... 2,083 304 1,880 1,434 403 253 499
- ----------------------------------------------------------------------------------------------------------------------------- Diversified Corporate & Unallocated Totals Business Ag Carbon & Admn & Net Int Env & New Products Minerals General Exp Litigation Ventures Other(a) - ----------------------------------------------------------------------------------------------------------------------------- External sales & operating revenues.......... $ 113 $ 36 $ -- $ -- $ -- $ -- $ (1) $ 1,495 Other revenue (loss) ........................ -- 7 -- 5 -- -- 9 60 Inter-segment revenues ...................... -- -- -- -- -- -- (314) -- -------------------------------------------------------------------------------- Total revenues ............................. 113 43 -- 5 -- -- (306) 1,555 Operating profit (loss) before income taxes and minority interest in earnings ......... 1 2 (30) (44) (10) (5) (28) 44 Income taxes (benefit) .................. (2) (2) (9) (9) (3) (1) (7) 31 Minority interest in earnings ........... -- -- -- (1) -- -- -- 4 -------------------------------------------------------------------------------- Net earnings (loss) ......................... 3 4 (21) (34) (7) (4) (21) 9 Assets (at June 30, 1999) ................... 299 377 -- -- -- -- 1,040 8,572 (a) Includes eliminations and consolidation adjustments.
12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
-------------------------------------------------------------------------------- Segment Information Exploration & Production Geothermal For the Three Months United States International Global Trade & Power ended June 30, 1998 Spirit Far Operations Millions of dollars Energy 76 Alaska East Other Global Trade Pipelines -------------------------------------------------------------------------------- External sales & operating revenues ......... $ 22 $ 25 $ 176 $ 40 $ 730 $ 10 $ 36 Other revenue (loss) ........................ -- -- (8) 96 -- 14 28 Inter-segment revenues ...................... 248 20 59 (1) 1 2 -- -------------------------------------------------------------------------------- Total revenues ............................. 270 45 227 135 731 26 64 Operating profit (loss) before income taxes and minority interest in earnings ......... 24 2 99 65 7 19 22 Income taxes (benefit) .................. 9 1 34 27 3 4 8 Minority interest in earnings ........... -- -- -- -- -- -- -- -------------------------------------------------------------------------------- Net earnings (loss) ......................... 15 1 65 38 4 15 14 Assets (at December 31, 1998) ............... 2,094 329 1,848 641 317 298 598
- ----------------------------------------------------------------------------------------------------------------------------- Diversified Corporate & Unallocated Totals Business Ag Carbon & Admn & Net Int Env & New Products Minerals General Exp Litigation Ventures Other(a) - ----------------------------------------------------------------------------------------------------------------------------- External sales & operating revenues.......... $ 120 $ 57 $ -- $ -- $ -- $ -- $ 10 $ 1,226 Other revenue (loss) ........................ 1 9 -- 9 -- -- 22 171 Inter-segment revenues ...................... -- -- -- -- -- -- (329) -- -------------------------------------------------------------------------------- Total revenues ............................. 121 66 -- 9 -- -- (297) 1,397 Operating profit (loss) before income taxes and minority interest in earnings ......... 18 9 (23) (33) (48) (8) 13 166 Income taxes (benefit) .................. 6 -- (7) (9) (18) (3) 4 59 Minority interest in earnings ........... -- 2 -- -- -- -- -- 2 -------------------------------------------------------------------------------- Net earnings (loss) ......................... 12 7 (16) (24) (30) (5) 9 105 Assets (at December 31, 1998) ............... 305 419 -- -- -- -- 1,103 7,952 (a) Includes eliminations and consolidation adjustments.
-------------------------------------------------------------------------------- Segment Information Exploration & Production Geothermal For the Six Months United States International Global Trade & Power ended June 30, 1999 Spirit Far Operations Millions of dollars Energy 76 Alaska East Other Global Trade Pipelines -------------------------------------------------------------------------------- External sales & operating revenues ......... $ 61 $ 53 $ 335 $ 92 $ 1,790 $ 19 $ 77 Other revenue (loss) ........................ 6 -- (2) 10 -- 31 5 Inter-segment revenues ...................... 418 33 87 14 3 5 -- -------------------------------------------------------------------------------- Total revenues ............................. 485 86 420 116 1,793 55 82 Operating profit (loss) before income taxes and minority interest in earnings ......... 25 9 165 (25) 3 38 24 Income taxes (benefit) .................. 8 3 76 (12) 1 5 9 Minority interest in earnings ........... 3 -- -- 1 -- -- -- -------------------------------------------------------------------------------- Net earnings (loss) ......................... 14 6 89 (14) 2 33 15 Assets (at June 30, 1999) ................... 2,083 304 1,880 1,434 403 253 499
- ----------------------------------------------------------------------------------------------------------------------------- Diversified Corporate & Unallocated Totals Business Ag Carbon & Admn & Net Int Env & New Products Minerals General Exp Litigation Ventures Other(a) - ----------------------------------------------------------------------------------------------------------------------------- External sales & operating revenues.......... $ 176 $ 79 $ -- $ -- $ -- $ -- $ 2 $ 2,684 Other revenue (loss) ........................ -- 16 -- 11 -- -- 25 102 Inter-segment revenues ...................... -- -- -- -- -- -- (560) -- -------------------------------------------------------------------------------- Total revenues ............................. 176 95 -- 11 -- -- (533) 2,786 Operating profit (loss) before income taxes and minority interest in earnings ......... 3 14 (61) (82) (18) (7) (27) 61 Income taxes (benefit) .................. (3) -- (19) (16) (6) (2) (3) 41 Minority interest in earnings ........... -- 1 -- (1) -- -- -- 4 -------------------------------------------------------------------------------- Net earnings (loss) ......................... 6 13 (42) (65) (12) (5) (24) 16 Assets (at June 30, 1999) ................... 299 377 -- -- -- -- 1,040 8,572
13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED)
-------------------------------------------------------------------------------- Segment Information Exploration & Production Geothermal For the Six Months United States International Global Trade & Power ended June 30, 1998 Spirit Far Operations Millions of dollars Energy 76 Alaska East Other Global Trade Pipelines -------------------------------------------------------------------------------- External sales & operating revenues ......... $ 46 $ 57 $ 338 $ 86 $ 1,415 $ 20 $ 77 Other revenue (loss) ........................ -- -- (19) 101 -- 28 29 Inter-segment revenues ...................... 480 39 129 4 1 4 -- -------------------------------------------------------------------------------- Total revenues ............................. 526 96 448 191 1,416 52 106 Operating profit (loss) before income taxes and minority interest in earnings ......... 40 21 212 46 16 37 44 Income taxes (benefit) .................. 15 8 126 16 6 7 16 Minority interest in earnings ........... 1 -- -- -- -- -- -- -------------------------------------------------------------------------------- Net earnings (loss) ......................... 24 13 86 30 10 30 28 Assets (at December 31, 1998) ............... 2,094 329 1,848 641 317 298 598
- ----------------------------------------------------------------------------------------------------------------------------- Diversified Corporate & Unallocated Totals Business Ag Carbon & Admn & Net Int Env & New Products Minerals General Exp Litigation Ventures Other(a) - ----------------------------------------------------------------------------------------------------------------------------- External sales & operating revenues.......... $ 215 $119 $ -- $ -- $ -- $ -- $ 24 $ 2,397 Other revenue (loss) ........................ 1 18 -- 17 -- -- 32 207 Inter-segment revenues ...................... -- -- -- -- -- -- (657) -- -------------------------------------------------------------------------------- Total revenues ............................. 216 137 -- 17 -- -- (601) 2,604 Operating profit (loss) before income taxes and minority interest in earnings ......... 31 27 (50) (66) (100) (19) 27 266 Income taxes (benefit) .................. 10 3 (16) (16) (37) (7) 7 138 Minority interest in earnings ........... -- 4 -- -- -- -- -- 5 -------------------------------------------------------------------------------- Net earnings (loss) ......................... 21 20 (34) (50) (63) (12) 20 123 Assets (at December 31, 1998) ............... 305 419 -- -- -- -- 1,103 7,952 (a) Includes eliminations and consolidation adjustments.
14
OPERATING HIGHLIGHTS UNOCAL CORPORATION (UNAUDITED) For the Three Months For the Six Months Ended June 30 Ended June 30 ----------------------------------------- 1999 1998 1999 1998 ----------------------------------------- NET DAILY PRODUCTION Crude oil and condensate (thousand barrels daily) United States Spirit Energy 76 .......................................................... 40 44 40 44 Alaska .................................................................... 28 29 28 30 ----------------------------------------- Total United States 68 73 68 74 International (a) Far East .................................................................. 72 79 71 84 Other (b) ................................................................. 35 33 33 32 ----------------------------------------- Total International ..................................................... 107 112 104 116 ----------------------------------------- Worldwide .................................................................... 175 185 172 190 ========================================= Natural gas (million cubic feet daily) United States Spirit Energy 76 .......................................................... 764 795 772 784 Alaska .................................................................... 131 121 137 130 ----------------------------------------- Total United States 895 916 909 914 International (a) Far East .................................................................. 873 864 860 863 Other (b) ................................................................. 88 67 64 60 ----------------------------------------- Total International 961 931 924 923 ----------------------------------------- Worldwide .................................................................... 1,856 1,847 1,833 1,837 ========================================= Natural gas liquids (thousand barrels daily) .................................... 20 20 19 19 Geothermal (million kilowatt-hours daily) ....................................... 15 18 18 20 (a) Includes host countries' shares of: Crude oil and condensate ..................................................... 26 7 19 13 Natural gas .................................................................. 94 39 84 45 (b) Production includes 100% of Northrock Resources Ltd. in Canada of: Crude oil and condensate ..................................................... 5 -- 2 -- Natural gas .................................................................. 59 -- 30 --
15
OPERATING HIGHLIGHTS (CONTINUED) UNOCAL CORPORATION (UNAUDITED) For the Three Months For the Six Months Ended June 30 Ended June 30 ---------------------------------------------------- 1999 1998 1999 1998 ---------------------------------------------------- AVERAGE SALES PRICES (a) Crude oil (per barrel) United States Spirit Energy 76 .......................................... $ 14.98 $ 13.04 $ 13.15 $ 13.50 Alaska .................................................... 12.02 8.83 10.01 9.84 Total United States ..................................... 13.75 11.35 11.82 12.01 International Far East .................................................. $ 14.76 $ 12.85 $ 12.59 $ 13.42 Other ..................................................... 13.41 10.31 12.19 11.34 Total International ..................................... 14.20 12.14 12.44 12.84 Worldwide .................................................... $ 13.99 $ 11.80 $ 12.16 $ 12.49 Natural gas (per thousand cubic feet) United States Spirit Energy 76 .......................................... $ 2.05 $ 2.15 $ 2.01 $ 2.15 Alaska .................................................... 1.20 1.48 1.20 1.47 Total United States ..................................... 1.93 2.06 1.88 2.05 International Far East .................................................. $ 2.03 $ 2.04 $ 1.95 $ 2.03 Other ..................................................... 1.90 2.46 1.86 2.24 Total International ..................................... 2.02 2.05 1.95 2.04 Worldwide .................................................... $ 1.97 $ 2.05 $ 1.92 $ 2.05 AGRICULTURAL PRODUCTS PRODUCTION VOLUMES (thousand tons) Ammonia ......................................................... 364 390 745 764 Urea ............................................................ 259 245 503 505 AGRICULTURAL PRODUCTS SALES VOLUMES (thousand tons) Ammonia ......................................................... 254 243 391 463 Urea ............................................................ 398 270 662 596 (a) realized prices include hedging gains and losses, but exclude Global Trade margins.
16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the consolidated financial condition and results of operations of Unocal should be read in conjunction with Management's Discussion and Analysis in Item 7 of the company's 1998 Annual Report on Form 10-K. Unless otherwise specified, the following discussion pertains to the company's continuing operations. CONSOLIDATED RESULTS
For the Three Months For the Six Months Ended June 30 Ended June 30 ---------------------------------------------------- Millions of dollars 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ After-tax earnings (loss) ...................................................... $ 9 $ 105 $ 16 $ 123 Less: special items (net of tax) Environmental and litigation provisions/proceeds............................ 1 (28) (2) (61) Asset sales ................................................................ -- 53 (10) 53 Deferred tax adjustments ................................................... -- 7 -- (14) Restructuring provision .................................................... (11) -- (11) -- Insurance settlement ....................................................... -- 11 -- 11 ---------------------------------------------------- Total special items ........................................................ (10) 43 (23) (11) ---------------------------------------------------- Adjusted after-tax earnings (loss) ............................................. $ 19 $ 62 $ 39 $ 134 ====================================================
Adjusted after-tax earnings decreased $43 million in the second quarter of 1999 compared with the same period last year. Lower worldwide crude oil volumes, lower agricultural products prices and higher corporate expense, including interest expense, were the primary contributors to the decreased earnings. These negative factors were partially offset by higher worldwide realized crude oil prices, which increased 19 percent from the second quarter of 1998. Adjusted after-tax earnings decreased $95 million in the first six months of 1999 compared with the first six months of 1998. The major factors contributing to the decrease were lower worldwide crude oil and natural gas volumes, lower worldwide realized crude oil and natural gas prices, lower agricultural products prices and higher net interest expense. Partially offsetting these negative factors were lower domestic dry hole costs. In the second quarter of 1999, special items included an $11 million after-tax charge resulting from the company's adoption of a restructuring plan. This amount included the costs of terminating approximately 250 employees. The plan involves the blending of several International and Geothermal organizations, a manpower optimization program in Thailand, a cost cutting and efficiency initiative in the company's Diversified Business and Exploration and Production Technology groups and a company-wide shared resources initiative. The resulting charge was recorded in aggregate in Corporate and Unallocated. Approximately $7 million and $3 million of the after-tax charge relate to the Exploration and Production and Diversified Business segments, respectively. Approximately 100 of the affected employees were from the company's International operations, 95 were from the Diversified Business group and 55 were from other organizations, including corporate staff. EXPLORATION AND PRODUCTION The company engages in oil and gas exploration, development, and production worldwide. United States - Included in the United States category are Spirit Energy 76 and Alaska oil and gas operations. The Spirit Energy 76 business unit is responsible for oil and gas operations in the Lower 48 United States with emphasis on the shelf and deepwater areas in the Gulf of Mexico and the Permian Basin in West Texas. A substantial portion of the crude oil and natural gas produced in the United States is sold to the company's Global Trade segment. The remainder is sold to third parties or, in the case of Alaska natural gas production, used in the company's agricultural products operations. 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
For the Three Months For the Six Months Ended June 30 Ended June 30 ---------------------------------------------------- Millions of dollars 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ After-tax earnings (loss) Spirit Energy 76 ............................................................ $ 13 $ 15 $ 14 $ 24 Alaska ...................................................................... 4 1 6 13 ---------------------------------------------------- Total ....................................................................... 17 16 20 37 Less: special items (net of tax) Litigation provision (Spirit Energy 76) ..................................... 7 -- 7 -- Litigation provision (Alaska) ............................................... (2) -- (2) -- ---------------------------------------------------- Total special items ......................................................... 5 -- 5 -- ---------------------------------------------------- Adjusted after-tax earnings (loss) ............................................. $ 12 $ 16 $ 15 $ 37 ====================================================
Adjusted after-tax earnings decreased $4 million in the second quarter of 1999 compared with the same period last year. The decrease was primarily due to lower Spirit Energy 76 crude oil and natural gas sales volumes and lower United States realized natural gas prices. These negative factors were partially offset by higher United States realized crude oil prices which improved by 21 percent, or $2.40 per barrel, from the second quarter of 1998 and by lower depreciation, depletion and amortization expense due to positive reserve adjustments. Adjusted after-tax earnings decreased $22 million in the first six months of 1999 compared with the first six months of 1998. The decrease was primarily due to lower United States crude oil and natural gas sales volumes, lower United States realized natural gas prices. These negative factors were partially offset by lower Spirit Energy 76 dry hole costs. International - Includes the company's international exploration and production activities and related business development activities. The company is engaged in oil and gas production activities in nine foreign countries: Thailand, Indonesia, Canada, The Netherlands, Azerbaijan, Yemen, Myanmar, the Democratic Republic of Congo and Bangladesh.
For the Three Months For the Six Months Ended June 30 Ended June 30 ---------------------------------------------------- Millions of dollars 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ After-tax earnings (loss) Far East .................................................................. $ 41 $ 65 $ 89 $ 86 Other ..................................................................... 1 38 (14) 30 ---------------------------------------------------- Total ..................................................................... 42 103 75 116 Less: special items (net of tax) Asset sales (Other) ....................................................... -- 53 -- 53 Deferred tax adjustment (Far East) ........................................ -- 7 -- (14) Litigation proceeds (Far East) ............................................ 2 -- 2 -- ---------------------------------------------------- Total special items ....................................................... 2 60 2 39 ---------------------------------------------------- Adjusted after-tax earnings (loss) ............................................. $ 40 $ 43 $ 73 $ 77 ====================================================
Adjusted after-tax earnings decreased $3 million during in the second quarter of 1999 compared with the same period last year. Lower crude oil volumes, primarily in Indonesia, and higher current income taxes in Thailand were the primary factors for the decrease. Partially offsetting these negative factors was a 17 percent increase in realized crude oil prices, or $2.06 per barrel, from the second quarter of 1998. Adjusted after-tax earnings decreased $4 million in the first six months of 1999 compared with the first six months of 1998. The major factors contributing to the decrease were lower crude oil and natural gas volumes, primarily in Indonesia and Thailand, respectively, and lower realized natural gas prices. These negative factors were largely offset by lower exploration expense, depreciation, depletion and amortization expense and foreign income tax expense. 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) GLOBAL TRADE The Global Trade segment conducts most of the company's worldwide crude oil, condensate and natural gas trading and marketing activities and is responsible for commodity-specific risk management activities on behalf of most of the company's exploration and production segment. Global Trade also purchases crude oil, condensate and natural gas from certain of the company's royalty owners, joint venture partners and other unaffiliated oil and gas producers for resale. From time to time, Global Trade takes pricing positions in hydrocarbon derivative instruments. Global Trade also manages the company's Pipelines business unit, which holds the company's equity interests in affiliated pipeline companies.
For the Three Months For the Six Months Ended June 30 Ended June 30 ---------------------------------------------------- Millions of dollars 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ After-tax earnings (loss) Global Trade ................................................................ $ -- $ 4 $ 2 $ 10 Pipelines ................................................................... 16 15 33 30 ---------------------------------------------------- Total ..................................................................... 16 19 35 40 Less: special items (net of tax) ............................................... -- -- -- -- ---------------------------------------------------- Adjusted after-tax earnings (loss) ............................................. $ 16 $ 19 $ 35 $ 40 ====================================================
Adjusted after-tax earnings decreased $3 million in the second quarter of 1999 compared with the same period last year. The decrease was primarily due to lower margins on domestic crude oil trading. Adjusted after-tax earnings decreased $5 million in the first six months of 1999 compared with the first six months of 1998. The decrease was primarily due to lower margins on domestic crude oil trading, partially offset by higher Pipeline affiliate earnings due to increased volumes. GEOTHERMAL AND POWER OPERATIONS The Geothermal and Power Operations segment supplies geothermal steam for power generation, with operations in the Philippines and Indonesia. The segment's current activities also include the operation of power plants in Indonesia and an interest in a gas-fired power plant under construction in Thailand.
For the Three Months For the Six Months Ended June 30 Ended June 30 ---------------------------------------------------- Millions of dollars 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ After-tax earnings (loss) ...................................................... $ 14 $ 14 $ 15 $ 28 Less: special items (net of tax) Asset sales (a) ............................................................ -- -- (10) -- ---------------------------------------------------- Adjusted after-tax earnings .................................................... $ 14 $ 14 $ 25 $ 28 ==================================================== (a) Represents the sale of The Geysers, a geothermal production operation in Northern California
Adjusted after-tax earnings were unchanged in the second quarter of 1999 compared with the same period last year. Lower foreign receivable provisions and higher foreign exchange gains in Indonesia in the second quarter of 1999 fully offset the loss of earnings attributable to the sale of The Geysers assets and the difference in the recognition of cash received related to the construction of the Salak power plant units 4 through 6 in Indonesia. Adjusted after-tax earnings decreased $3 million in the first six months of 1999 compared with the first six months of 1998. This decrease was primarily due to the above-mentioned difference in the recognition of cash received related to the construction of the Salak power plant units 4 through 6. This difference was partially offset by foreign exchange gains in Indonesia. 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) DIVERSIFIED BUSINESS GROUP The Agricultural Products business unit manufactures, transports and markets nitrogen-based products for agricultural and industrial uses. The Carbon and Minerals business unit manufactures and markets petroleum coke, graphites and specialty minerals.
For the Three Months For the Six Months Ended June 30 Ended June 30 ---------------------------------------------------- Millions of dollars 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ After-tax earnings (loss) Agricultural Products ....................................................... $ 3 $ 12 $ 6 $ 21 Carbon and Minerals ......................................................... 4 7 13 20 ---------------------------------------------------- Total ....................................................................... 7 19 19 41 Less: special items (net of tax) Environmental and litigation provisions (Carbon and Minerals) ............... (3) (1) (3) (2) ---------------------------------------------------- Adjusted after-tax earnings (loss) ............................................. $ 10 $ 20 $ 22 $ 43 ====================================================
Adjusted after-tax earnings decreased $10 million in the second quarter of 1999 compared with the same period last year. The decrease was primarily due to lower agricultural products prices, the effect of which was partially offset by higher agricultural products sales volumes. Adjusted after-tax earnings decreased $21 million in the first six months of 1999 compared with the first six months of 1998. This decrease was primarily due to lower agricultural products prices, which declined approximately 20 percent compared to the first six months of 1998. Carbon and Minerals earnings were lower primarily due to decreased petroleum coke and Needle Coker Company sales volumes. CORPORATE AND UNALLOCATED Corporate and Unallocated includes all unallocated corporate administrative and general items, miscellaneous operations, including real estate, and non-exploration and production new ventures activities, such as the new project development of common carrier pipelines, liquefied petroleum gas plants and electrical power generating plants. Net interest expense represents interest expense, net of interest income and capitalized interest.
For the Three Months For the Six Months Ended June 30 Ended June 30 ---------------------------------------------------- Millions of dollars 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ After-tax earnings (loss) Administrative and general expense .......................................... $ (21) $ (16) $ (42) $ (34) Net interest expense ........................................................ (34) (24) (65) (50) Environmental and litigation expense ........................................ (7) (30) (12) (63) New ventures ................................................................ (4) (5) (5) (12) Other ....................................................................... (21) 9 (24) 20 ---------------------------------------------------- Total ....................................................................... (87) (66) (148) (139) Less: special items (net of tax) Environmental and litigation provisions .................................... (3) (27) (6) (59) Asset sales (Other) ........................................................ -- -- -- -- Deferred tax adjustment (Other) ............................................ -- -- -- -- Restructuring provision (Other) ............................................ (11) -- (11) -- Insurance settlement (Other) ............................................... -- 11 -- 11 ---------------------------------------------------- Total special items ........................................................ (14) (16) (17) (48) ---------------------------------------------------- Adjusted after-tax earnings (loss) ............................................. $ (73) $ (50) $(131) $ (91) ====================================================
The adjusted after-tax loss increased by $23 million in the second quarter of 1999 compared with the same period last year. The negative factors included higher interest expense due to lower capitalized interest and increased debt levels, lower pension income, in the Other category, and higher employee benefit-related accruals, also in the Other category. 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The adjusted after-tax loss increased by $40 million in the first six months of 1999 compared with the same period last year. The negative factors included higher interest expense due to lower capitalized interest and increased debt levels, lower pension income, in the Other category, and higher employee benefit-related accruals, also in the Other category. Those factors were partially offset by lower new ventures expenditures. FINANCIAL CONDITION AND CAPITAL EXPENDITURES For the first six months of 1999, net cash flow provided by operating activities was $170 million compared with $397 million in the same period a year ago. This decrease reflects lower worldwide crude oil and natural gas volumes and prices, lower agricultural products prices and increased foreign income tax payments. These factors were partially offset by the receipt of $120 million in the first quarter of 1999 for a ten-year natural gas pre-paid forward sale. Proceeds from asset sales for the first six months of 1999 were $154 million, consisting primarily of $101 million from the sale of the company's interest in The Geysers completed in the first quarter, $27 million from the sale of Michigan oil and gas assets and $26 million from the sale of other miscellaneous domestic and real estate properties. Capital expenditures for the first six months of 1999 totaled $468 million compared with $766 million in the same period a year ago. The decrease was primarily due to lower worldwide drilling activities and lower lease acquisitions in the Gulf of Mexico. The company also spent $184 million in the second quarter of 1999 to acquire a 46 percent ownership interest in Northrock Resources Ltd. (Northrock). Total capital expenditures are expected to be approximately $1.1 billion for 1999, excluding the Northrock acquisition. The company will continue to focus on deepwater exploration programs in Indonesia and the Gulf of Mexico. The company may adjust its capital spending estimate later depending on the timing of acquisitions and changes in commodity prices. In the second quarter of 1999, the company contributed fixed-price overriding royalty interests from its working interest shares in certain oil and gas producing properties in the Gulf of Mexico to Spirit Energy 76 Development, L.P. (Spirit LP), a limited partnership formed under the laws of Delaware. The fixed-price overrides are subject to economic limitations of production from the affected fields. In exchange for its overriding royalty contributions, valued at $304 million, the company received an initial general partnership interest of approximately 55 percent in Spirit LP. An unaffiliated investor contributed $250 million in cash to the partnership in exchange for an initial limited partnership interest of approximately 45 percent. The limited partner is entitled to receive a priority allocation of profits and cash distributions. In the second quarter of 1999, a non-consolidated affiliate, Unocal Receivables Corp. ("URC"), entered into a sales agreement under which it will sell up to $204 million of interests in domestic crude oil and natural gas trade receivables. The company began to sell interests in the receivables in the third quarter of 1999. The company's long-term debt was $2.80 billion at June 30, 1999, compared with $2.56 billion at year-end 1998. Most of this increase reflects the consolidation of the company's investment in Northrock, including its outstanding debt. The company's debt-to-total capitalization ratio was 51 percent at June 30, 1999, compared with 48 percent at year-end 1998. In the third quarter of 1999, the company received a $43 million income tax refund in Canada as a result of its reinvestment, in the stock of Northrock, of the proceeds from the 1998 sale of its investment in the stock of Tarragon Oil and Gas Limited. 21 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) ENVIRONMENTAL MATTERS At June 30, 1999, the company's reserves for environmental remediation obligations totaled $274 million, of which $140 million was included in current liabilities. During the second quarter of 1999, cash payments of $23 million were applied against the reserve. The company also estimates that it possibly could incur additional remediation costs aggregating approximately $190 million, as discussed in note 10 to the consolidated financial statements. The company's total environmental reserve amount is grouped into the following five categories:
Reserve Summary June 30, Millions of dollars 1999 - -------------------------------------------------------------------------------- Superfund and similar sites $ 12 Former company-operated sites 15 Company facilities sold with retained liabilities 56 Inactive or closed company facilities 142 Active company facilities 49 - -------------------------------------------------------------------------------- Total reserves $274 ================================================================================
OUTLOOK Certain of the statements in this discussion, as well as other forward-looking statements within this document, contain estimates and projections of amounts of or increases / decreases in future revenues, earnings, cash flows, capital expenditures, assets, liabilities and other financial items and of future levels of or increases / decreases in reserves, production, sales including related costs and prices, and other statistical items; plans and objectives of management regarding the company's future operations, products and services; and certain assumptions underlying such estimates, projection plans and objectives. While these forward-looking statements are made in good faith, future operating, market, competitive, legal, economic, political, environmental, and other conditions and events could cause actual results to differ materially from those in the foward-looking statements. See pages 40 and 41 of Management's Discussion and Analysis in Item 7 of the company's 1998 Annual Report on Form 10-K for a discussion of certain of such conditions and events, as well as pages 24 through 26 of this report. Even though energy commodity prices increased in the first six months of 1999 as compared to recent prior periods, the company expects prices to remain volatile for the remainder of 1999. The economic situation in Asia, where much of the company's international activity is centered, remained largely unchanged from year-end 1998. The company believes that the governments in the region are committed to undertaking the reforms and restructuring necessary to enable their nations to recover from the current downturn. The company, at times, employs a commodity price option program that establishes a price floor, while retaining most of the benefits of higher price movements. This program is designed to protect the company's cash flow and capital spending program against the effects of severe commodity price deterioration. Derivative instruments are generally used to limit the company's exposure to adverse commodity price movement, however these instruments may also limit some of the future gains otherwise available from favorable commodity price movements. The price protection program resulted in lower realizations for crude oil and natural gas totaling about $5 million after-tax in the second quarter of 1999 and about a $6 million after-tax gain for the first six months of 1999. For the full-year 1999, based on six-month actual and financial modeling using underlying commodity prices as of August 6th , the company anticipates this program will lower earnings by approximately $28 million after-tax. Most of the company's existing non-trading positions close out in the fourth quarter, with the exception of certain options and fixed-price contracts for one of the company's Canadian subsidiaries. For more information, refer to note 8 to the consolidated financial statements. 22 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) In July 1999, the company completed the trade of most of its Rocky Mountain oil and gas assets to Tom Brown, Inc. The company received approximately 5.8 million shares of Tom Brown, Inc., common stock and $5 million in cash for the properties. The effective date of the transaction was January 1, 1999, which resulted in a net cash payment to Tom Brown, Inc. reflecting the net operating results of the properties since the effective date. The company expects to complete an exchange of its interest in a subsidiary holding a 28.57 percent stake in three producing fields in Yemen for the stock of two Occidental Petroleum Corporation subsidiaries holding 50-percent working interests in three blocks in northeast Bangladesh. These Bangladesh assets, received by the company in July 1999, include two production sharing contracts in which the company already holds 50-percent working interests. In addition, the assets include the world-class Bibiyana gas field, discovered in 1998. The company expects to transfer to Occidental Petroleum Corporation its working interest in the production-sharing contract of the East Shabwa contract area in the Republic of Yemen in the third quarter of 1999. Following the discoveries on the Mad Dog prospect on Green Canyon block 826 and the Mirage prospect on Mississippi Canyon block 941, the company drilled three deepwater wells in the Gulf of Mexico during the second quarter of 1999, none of which encountered commercial quantities of oil and gas. The company continues to be very active in the deepwater in the Gulf of Mexico. A fourth deepwater well was spud in July in the Sumatra sub-salt prospect in Garden Banks block 941. The company also anticipates appraisal drilling to begin late this year on the Mad Dog and Mirage discoveries and is participating in the K-2 deepwater well currently being drilled on Green Canyon block 562. In June 1999, the company won one of the most prospective deepwater blocks in the Espirito Santo Basin, offshore Brazil. The company will be operator with a 40.5 percent interest. This block holds multiple prospects and covers a 593,000 acre area. In addition, the company joined another prospective block in the Espirito Santo Basin through a farm-in with a 30-percent interest. The company also signed a participation agreement for block BC-1009, located in the Campos Basin. The Campos Basin currently accounts for about 75 percent of Brazil's hydrocarbon production. The company previously joined another group to develop a shelf area in the Camamu Basin. In Myanmar, the company's subsidiaries and the other project participants are awaiting completion of the Ratchaburi power plant in Thailand for commercial production from the Yadana field to begin. Commercial production from the Yadana field is expected to begin in the fourth quarter of 1999. The gas sales agreement with the Petroleum Authority of Thailand (PTT) includes a "Take-or-Pay" provision, which requires PTT to purchase an annual contract quantity of natural gas. Due to the delay in the completion of the plant, PTT could not meet its contract minimum obligation for 1998. Therefore, PTT was billed for the 1998 "Take-or-Pay" obligation, of which the company's share was approximately $13 million. In August 1999, the company's subsidiaries and the other project participants signed a letter agreement with PTT to resolve certain technical issues related to the gas export sales agreement. Under the letter agreement, the company expects to receive up to $10 million for its share of the 1998 Take-or-Pay settlement in the third quarter of 1999. The gas will be delivered later to PTT. As of June 30, 1999, the company's geothermal operations in Indonesia had a gross receivable balance of approximately $141 million, most of which was for steam sales from the Salak field. Approximately $53 million is due by August 28, 1999, of which $44 million represents a shortfall in payments for March 1998 through April 1999 steam deliveries to the Salak electric generating Units 1, 2 and 3. Partial payments have been received on a timely basis. Agreements allow for payments over the next several years. Provisions covering a portion of these receivables were recorded in 1998 and 1999. The company is vigorously pursuing collection of the outstanding receivables. The company adopted two separate restructuring plans in the second quarter of 1999 and the fourth quarter of 1998 that will result in the termination of approximately 250 and 475 employees, respectively. The company expects implementation of the plans to reduce future annualized salaries and benefits by an estimated $32 million after-tax. Cash expenditures related to the plans are estimated to be $19 million and $8 million for the years 1999 and 2000, respectively. 23 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) YEAR 2000 The company is actively addressing the Year 2000 (Y2K) issue. Many existing computer programs were designed and developed to use only two digits to identify a year in the date field. If not addressed, these programs could result in system failures with possible material adverse effects on the company's operations at the beginning of the year 2000. The company's Y2K efforts are divided into three general categories: information technology (IT) systems and applications, non-IT embedded systems in process controls, and its relationships with critical business partners. The company has appointed a program manager and has assembled various teams of professionals, principally at the business unit level, which have developed plans to implement these efforts. The plans have established a methodology and schedule to identify, assess, correct and test the company's IT systems, applications, non-IT embedded systems (such as microcontrollers and other devices used for process control), system interfaces with vendors, suppliers, customers and other outside parties, as well as to assess the Y2K readiness of such third parties. The company has contracted with systems consulting firms to assist with the assessment, correction and testing of the company's internal systems and their interfaces with third parties. To ensure independent review and validation of the implementation of the company's Y2K plans, internal auditors, assisted by contract auditors, are auditing the Y2K projects of key business units within the company and reporting their findings to senior management. A company-wide initial awareness campaign was completed in June 1998. The identification, assessment, and planning phases of the internal systems portion of the project have been completed. The company has written and tested business contingency and recovery plans for over 90 percent of its "mission critical" systems, applications and processes. These systems, applications and processes, if not operable, could materially adversely impact cash flow, operations, safety or the environment. The company's Y2K project work includes the writing and updating of existing contingency plans to address material Y2K issues. The company has existing processes for managing emergency situations and intends to have its Crisis Management Center operating at the time of the century rollover to assist with implementing any contingency plans if required. The company has completed the inventory and assessment of its IT and non IT embedded systems and detailed planning to correct or work around the anticipated problems in these systems. The remediation/renovation and validation/testing of its IT and non IT embedded systems were approximately 90 percent complete as of June 30, 1999. The following schedule sets forth the company's estimated timetable for achieving Y2K readiness of its IT and embedded systems: Project Target Completion Dates - -------- ----------------------- Phases Worldwide inventory of systems Completed Worldwide assessment Completed Initial plan for corrections/work arounds Completed Remediation/renovation Third quarter 1999 Contingency planning Third quarter 1999 Validation/testing Third quarter 1999 Implementation Third quarter 1999 Continuous system review Ongoing-through first quarter 2000 The company has identified approximately 400 "critical business partners" and contacted 98 percent of these companies regarding their Y2K readiness. The overall assessment of partner Year 2000 readiness has been positive. The company will closely monitor a small number of "critical business partners". Work in this area will continue and contingency plans will incorporate the possibility of performance failures by multiple critical business partners. 24 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The company estimates the total expenditures on its Y2K project will be approximately $30 million. These expenditures are recorded at the business unit and corporate levels and are funded from cash provided by operating activities. Expenditures as of June 30, 1999, were approximately $20 million. Most of the remaining expenditures are expected to be incurred in the remainder of 1999. The company is not aware of any IT projects that have been delayed due to the Y2K project. The Y2K problem is real and there is a risk of Y2K related failures. These failures could result in an interruption in, or a failure of, certain business activities or functions. Such failures could materially and adversely affect the company's results of operations, liquidity or financial condition. Due to the uncertainty surrounding the Y2K problem, including the uncertainty of the Y2K readiness of the company's customers, suppliers, and partners, the company is unable at this time to determine the true impact of the Y2K problem to Unocal. The principal areas of risk are thought to be oil and gas production control systems, other embedded operations control systems and third party Y2K readiness. The company's Y2K project is expected to reduce this uncertainty. The company believes that with the completion of the project as planned, the possibility of significant interruptions of normal operations should be reduced. There can be no assurance, however, that there will not be a delay in, or increased costs associated with the implementation of such changes or that such changes will prove 100 percent effective in resolving all Y2K related issues. Furthermore, there can be no assurance that critical business partners will not experience failures, irrespective of the Y2K readiness representations they may have made. A likely worst case scenario is that despite the company's efforts, there could be failures of control systems, which might cause some processes to be shut down. Such failures could have a material adverse impact on the company's operations. The company is particularly concerned about the status of key critical business partners' Y2K readiness in Indonesia, Thailand, and the Gulf of Mexico. Their failure due to a Year 2000 problem could prevent Unocal from delivering product and cause a material adverse impact to the company's cash flows. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk generally represents the risk that losses may occur in the values of financial instruments as a result of movements in interest rates, foreign currency exchange rates and commodity prices. As part of its overall risk- management strategies, the company uses derivative financial instruments to manage and reduce risks associated with these factors. The company also pursues outright pricing positions in certain hydrocarbon derivative financial instruments, such as futures contracts. Interest Rate Risk - From time to time the company temporarily invests its excess cash in interest-bearing securities issued by high-quality issuers. Company policies limit the amount of investment in securities of any one financial institution. Due to the short time the investments are outstanding and their general liquidity, these instruments are classified as cash equivalents in the consolidated balance sheet and do not represent a material interest rate risk to the company. The company's primary market-risk exposure for changes in interest rates relates to the company's long-term debt obligations. The company manages its exposure to changing interest rates principally through the use of a combination of fixed and floating-rate debt. Interest-rate risk-sensitive derivative financial instruments, such as swaps, options, floors, caps, and collars may also be used depending upon market conditions. The company evaluated the potential effect that near-term changes in interest rates would have had on the fair value of its interest-rate risk-sensitive financial instruments at June 30, 1999. Assuming a ten-percent decrease in the company's weighted average borrowing costs at June 30, 1999, the potential increase in the fair value of the company's debt obligations and associated derivative instruments, including the company's net interests in the debt obligations and associated derivative instruments of its subsidiaries, would have been approximately $109 million. 25 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (CONTINUED) Foreign Exchange Rate Risk - The company conducts business in various parts of the world and in various foreign currencies. To limit the company's foreign currency exchange-rate risk related to operating income, foreign sales agreements generally contain price provisions designed to insulate the company's sales revenues against adverse foreign-currency exchange rates. In most countries, energy products are valued and sold in U.S. dollars and foreign currency operating cost exposures have not been significant. In other countries, the company is paid for product deliveries in local currencies but at prices indexed to the U.S. dollar. These funds, less amounts retained for operating costs, are converted to U.S. dollars as soon as practicable. The company's Canadian subsidiary is paid in Canadian dollars for its crude oil and natural gas sales. Excess Canadian funds generally have been invested in other Unocal foreign operations. From time to time the company may purchase foreign-currency options or enter into foreign-currency exchange contracts to limit the exposure related to its foreign-currency obligations. At June 30, 1999, the company evaluated the effect that near term changes in foreign-exchange rates would have had on the fair value of the company's foreign-currency position related to its outstanding foreign-currency forward exchange contracts. Assuming an adverse change of ten percent in foreign-currency exchange rates at June 30, 1999, the potential decrease in fair value of the company's foreign-currency forward exchanges contracts, including the company's net interests in the foreign-currency exchange contracts of its subsidiaries, would have been approximately $1 million. Commodity Price Risk - The company is a producer, purchaser, marketer and trader of certain hydrocarbon commodities such as crude oil and condensate, natural gas and petroleum-based products and is subject to the associated price risks. The company generally uses hydrocarbon derivative financial instruments, such as futures contracts, swaps and options with maturities of 24 months or less, to mitigate its exposure to commodity price fluctuations. These instruments are generally used to limit the company's exposure to adverse commodity price movements, however, these instruments may also limit some of the future gains otherwise available from favorable commodity price movements. When these instruments are used to hedge the company's future production, the impacts are reflected in the average sales prices of the associated commodities at the time of sale. As a result, the company's reported crude oil and natural gas revenues may be higher or lower than what would have been reported if the company had not employed the use of these instruments. From time to time, the company may also enter into longer-term derivative instruments, such as swap contracts, to refloat its long term fixed-price commitments. The company also takes pricing positions in hydrocarbon derivative financial instruments (primarily futures and options contracts). The company uses a variance-covariance value-at-risk model to assess the market risk of its hydrocarbon-price-sensitive derivative instruments. Value-at-risk represents the potential loss in fair value the company would experience on its hydrocarbon-price-sensitive derivative instruments, using calculated volatilities and correlations over a specified time period with a given confidence level. The company's model is based upon historical data and uses a three-day time interval with a 95-percent confidence level. The model includes offsetting physical positions for hydrocarbon-price-sensitive derivative instruments related to the company's pre-paid crude oil and natural gas forward sales as well the company's net interests in its subsidiaries' crude oil and natural gas derivative instruments including offsetting physical positions of forward sales contracts to which those instruments relate. Based upon the company's model, the value at risk related to hydrocarbon-price-sensitive derivative financial instruments held for purposes other than trading was approximately $11 million at June 30, 1999 (see note 8 to the financial statements for information on pre-tax deferred losses as of June 30, 1999, relating to hydrocarbon-price-sensitive derivative financial instruments held for purposes other than trading). The value at risk related to hydrocarbon-price-sensitive derivative financial instruments held for trading purposes was approximately $1 million at June 30, 1999. 26 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. There is incorporated by reference the information with respect to certain legal proceedings previously reported in Item 3 of Unocal's Annual Report on Form 10-K for the year ended December 31, 1998 (1998 Form 10-K) and in Item 1 of Part II of Unocal's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 (First Quarter 1999 Form 10-Q), the information regarding environmental remediation reserves in note 9 to the consolidated financial statements in Item 1 of Part I hereof, the discussion of such reserves in the Environmental Matters section of Management's Discussion and Analysis in Item 2 of Part I, and the information regarding certain legal proceedings and other contingent liabilities in note 10 to the consolidated financial statements. Information with respect to certain recent developments is set forth below: 1. In the lawsuit captioned Atlantic Richfield, et al. v. Unocal Corporation, et al., described in Paragraph 1 of Item 3 of the 1998 Form 10-K, oral argument of the appeal by the other companies was heard by the U.S. Court of Appeals for the Federal Circuit in Washington, D.C., on July 9, 1999. 2. In the lawsuit captioned United States, ex rel. Johnson v. Shell Oil Company, et al., described in Paragraph 4 of Item 3 of the 1998 Form 10-K, the company views the issue of whether Federal royalties have been paid in compliance with detailed Minerals Management Service (MMS) regulations to be essentially an administrative accounting matter. The company does not believe bringing this proceeding pursuant to the False Claims Act was justified and it is vigorously defending the lawsuit. 3. In connection with the Notices of Preliminary Determination of Underpaid Royalties received from the MMS, described in Paragraph 6 of Item 3 of the 1998 Form 10-K and in Paragraph 4 of Item 1 of Part II of the First Quarter 1999 Form 10-Q, in July 1999, the company entered into an agreement with the MMS and the Department of the Interior to settle, for $7 million, substantially all royalty disputes with the Federal government arising from the company's prior gas contract settlements. 4. In the lawsuits captioned Aguilar, et al. v. Atlantic Richfield, et al. and Gilley, et al. v. Atlantic Richfield, et al., described in Paragraph 7 of Item 3 of the 1998 Form 10-K, in July 1999, the company agreed to settle both matters, subject to court approvals, for an aggregate amount of $3,525,000. 5. In connection with the criminal investigation and civil lawsuit brought against the company's Molycorp, Inc., subsidiary by the Office of the District Attorney of San Bernardino County, California, described in Paragraph 8 of Item 3 of the 1998 Form 10-K and in Paragraph 5 of Item 1 of Part II of the First Quarter 1999 Form 10-Q, in May 1999, Molycorp entered into a civil settlement with the District Attorney that resulted in the payment of $1 million in June. Separately, the District Attorney issued a letter formally declining to file criminal charges against Molycorp or its employees. Molycorp is continuing to negotiate with the Office of the California Attorney General and the Lahontan Regional Water Quality Control Board with respect to the settlement of additional alleged violations of water quality discharge permits issued under the California Water Code. The Settlement of these matters could result in the payment of civil penalties exceeding $100,000. 6. In the lawsuit captioned John Doe I, et al. v. Unocal Corp., et al., alleging acts of mistreatment and forced labor by the government of Myanmar allegedly in connection with the construction of the Yadana natural gas pipeline, described in Paragraph 9 of Item 3 of the 1998 Form 10-K, in August 1999, the court denied certification of the alleged class of plaintiffs seeking injunctive and declaratory relief against the company. 7. In connection with the company's negotiations with the South Coast Air Quality Management District concerning issues involving the company's former Los Angeles Refinery, described in Paragraph 14 of Item 3 of the 1998 Form 10-K, in June 1999, the company settled the past Notices of Violation for an aggregate of $100,000, which was paid in July. 27 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The 1999 Annual Meeting of Stockholders of Unocal was held on May 24, 1999. The following actions were taken by the stockholders at the Annual Meeting, for which proxies were solicited pursuant to Regulation 14 under the Securities Exchange Act of 1934, as amended: 1. The two nominees proposed by the board of directors were elected as directors by the following votes for three-year terms expiring at the 2002 Annual Meeting of Stockholders, or until their successors are duly elected and qualified: Name Votes For Votes Withheld James W. Crownover 210,509,623 3,052,394 Donald B. Rice 211,163,756 2,398,261 2. A proposal to ratify the appointment of PricewaterhouseCoopers LLP as Unocal's independent accountants for 1999 was passed by a vote of 211,953,508 for versus 795,602 against. There were 812,907 abstentions and no broker non-votes. 3. A stockholder proposal that the Board report on the cost and benefits of doing business in Myanmar failed to pass by a vote of 13,600,219 for versus 169,611,492 against. There were 7,843,852 abstentions and 22,506,454 broker non-votes. ITEM 5. OTHER INFORMATION On July 16, 1999, the company announced that John F. Imle, Jr., Vice Chairman and a member of the Management Committee, plans to relinquish these positions at the end of 1999. Mr. Imle will serve as a consulting employee for a 15-month period thereafter. The company does not plan to fill the Vice Chairman position. 28 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits: The Exhibit Index on page 31 of this report lists the exhibits that are filed as part of this report. (b) Reports on Form 8-K: Filed during the second quarter of 1999: 1. Current Report on Form 8-K dated April 12, 1999, and filed April 14, 1999, for the purpose of reporting, under Item 5, the company's participation in deepwater discoveries in the Gulf of Mexico. 2. Current Report on Form 8-K dated April 15, 1999, and filed April 16, 1999, for the purpose of reporting, under Item 5, the company's Unocal Canada Resources subsidiary's definitive agreement to acquire an interest in Northrock Resources Ltd. 3. Current Report on Form 8-K dated April 28, 1999, and filed April 30, 1999, for the purpose of reporting, under Item 5, the company's first quarter 1999 earnings and related information. 4. Current Report on Form 8-K dated May 14, 1999, and filed May 18, 1999, for the purpose of reporting, under Item 5, the company's Unocal Canada Resources subsidiary's completion of its acquisition of an interest in Northrock Resources Ltd. Filed during the third quarter of 1999 to the date hereof: 1. Current Report on Form 8-K dated July 6, 1999, and filed July 9, 1999, for the purpose of reporting, under Item 5, the results of wells drilled by the company's Spirit Energy 76 business unit in the Gulf of Mexico. 2. Current Report on Form 8-K dated July 27, 1999, and filed July 29, 1999, for the purpose of reporting, under Item 5, the company's second quarter 1999 earnings and related information. 29 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: August 13, 1999 By: /s/ JOE D. CECIL ---------------------------- Joe D. Cecil Vice President and Comptroller (Duly Authorized Officer Principal Accounting Officer) 30 EXHIBIT INDEX 3.1 Certificate of Incorporation of Unocal, as amended through July 21, 1992, and currently in effect. 3.2 Bylaws of Unocal, as amended through May 24, 1999, and currently in effect. 12.1 Statement regarding computation of ratio of earnings to fixed charges of Unocal for the six months ended June 30, 1999 and 1998. 12.2 Statement regarding computation of ratio of earnings to fixed charges of Union Oil Company of California for the six months ended June 30, 1999 and 1998. 27. Financial data schedule for the period ended June 30, 1999 (included only in the copy of this report filed electronically with the Commission). 99. Bylaws of Union Oil Company of California, as amended through April 1, 1999, and currently in effect. 31 EX-3.(I) 2 UNOCAL EXHIBIT 3.1 Filed March 18, 1983 - 2:00P.M. CERTIFICATE OF INCORPORATION OF UNOCAL CORPORATION FIRST: The name of this corporation is: UNOCAL CORPORATION SECOND: The name and address of the registered agent of the corporation in the State of Delaware is: The Corporation Trust Company 100 West Tenth Street Wilmington, New Castle County, Delaware THIRD: The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOURTH: The total amount of capital stock which this corporation has the authority to issue is 260,000,000 shares of common stock $1.00 par value per share. FIFTH: The name and mailing address of the incorporator of the corporation is as follows: Name Mailing Address George C. Bond P.O. Box 7600 Los Angeles, California 90051 SIXTH: New bylaws may be adopted or the bylaws may be amended or repealed by a vote of seventy-five percent of the outstanding stock of the corporation entitled to vote thereon. Bylaws may also be adopted, amended or repealed by the Board of Directors as provided or permitted by law; however, any bylaw amendment adopted by the Board of Directors increasing or reducing the authorized number of directors shall require a resolution adopted by the affirmative vote of not less than seventy-five percent of the directors. SEVENTH: The number of directors which shall constitute the whole Board of Directors of the corporation shall be as specified in the bylaws of the corporation, subject to the provisions of Article SIXTH hereof and this Article SEVENTH. The board is divided into three classes, Class I, Class II and Class III. Such classes shall be as nearly equal in number of directors as possible. Each director shall serve for a term ending on the third annual meeting following the annual meeting at which such director was elected; provided, however, that the directors first elected to Class I shall serve for a term ending on the annual meeting next following the end of the calendar year 1983, the directors first elected to Class II shall serve for a term ending on the second annual meeting next following the end of the calendar year 1983, and the directors first elected to Class III shall serve for a term ending on the third annual meeting next following the end of the calendar year 1983. The foregoing notwithstanding, each director shall serve until his successor shall have been duly elected and qualified, unless he shall resign, become disqualified, disabled or shall otherwise be removed. At each annual election, the directors chosen to succeed those whose terms then expire shall be of the same class as the directors they succeed, unless, by reason of any intervening changes in the authorized number of directors, the Board shall designate one or more directorships whose term 1 then expires as directorships of another class in order more nearly to achieve equality of number of directors among the classes. Notwithstanding the rule that the three classes shall be as nearly equal in number of directors as possible, in the event of any change in the authorized number of directors each director then continuing to serve as such shall nevertheless continue as a director of the class of which he is a member until the expiration of his current term, or his prior death, resignation or removal. If any newly created directorship may, consistent with the rule that the three classes shall be as nearly equal in number or directors as possible, be allocated to one or two or more classes, the Board shall allocate it to that of the available classes whose term of office is due to expire at the earliest date following such allocation. EIGHTH: The affirmative vote of the holders of not less than seventy-five percent of the outstanding stock of the corporation entitled to vote shall be required for approval if (1) this corporation merges or consolidates with any other corporation if such other corporation and its affiliates singly or in the aggregate are directly or indirectly the beneficial owners of more than ten percent (10%) of the total voting power of all outstanding shares of the voting stock of this corporation (such other corporation being herein referred to as a "Related Corporation"), or if (2) this corporation sells or exchanges all or a substantial part of its assets to or with such Related Corporation, or if (3) this corporation issues or delivers any stock or other securities of its issue in exchange or payment for any properties or assets of such Related Corporation or securities issued by such Related Corporation, or in a merger of any affiliate of this corporation with or into such Related Corporation or any of its affiliates; provided, however, that the foregoing shall not apply to any such merger, consolidation, sale or exchange, or issuance or delivery of stock or other securities which was (i) approved by resolution of the Board of Directors adopted by the affirmative vote of not less than seventy-five percent of the directors prior to the acquisition of the beneficial ownership of more then ten percent (10%) of the total voting power of all outstanding shares of the voting stock of the corporation by such Related Corporation and its affiliates, nor shall it apply to any such transaction solely between this corporation and another corporation fifty percent (50%) or more of the voting stock of which is owned by this corporation. For the purposes hereof, an "affiliate" is any person (including a corporation, partnership, trust, estate or individual) who directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the person specified. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise; and in computing the percentage of outstanding voting stock beneficially owned by any person the shares outstanding and the shares owned shall be determined as of the record date fixed to determine the stockholders entitled to vote or express consent with respect to such proposal. The stockholder vote, if any, required for mergers, consolidations, sales or exchanges of assets or issuances of stock or other securities not expressly provided for in this Article, shall be such as may be required by applicable law. A "substantial part" of the corporation's assets shall mean assets comprising more than ten percent of the book value of fair market value of the total assets of the corporation and its subsidiaries taken as a whole. NINTH: No action shall be taken by the stockholders except at an annual or special meeting of stockholders. No action shall be taken by stockholders by written consent. TENTH: Special meetings of the stockholders of the corporation for any purpose or purposes may be called at any time by the Board of Directors, or by a majority of the members of the Board of Directors, or by a committee of the Board of Directors which has been duly designated by the Board of Directors and whose powers and authority, as provided in a resolution of the Board of Directors or in the by-laws of the corporation, include the power to call such meetings, but such special meetings may not be called by any other person or persons; provided, however, that, if and to the extent that any special meeting of stockholders may be called by any other person or persons specified in any provisions of this Certificate of Incorporation or any amendment thereto, then such special meeting may also be called by the person or persons, in the manner, at the times and for the purposes so specified. 2 ELEVENTH: The corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred on stockholders herein are granted subject to this reservation. Notwithstanding the foregoing, the provisions set forth in Articles SIXTH, SEVENTH, EIGHTH, NINTH, TENTH and this Article ELEVENTH may not be repealed or amended in any respect unless such repeal or amendment is approved by the affirmative vote of the holders of not less than seventy-five percent of the total voting power of all outstanding shares of voting stock of this corporation. THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a corporation to do business both within and without the State of Delaware, and in pursuance of the Delaware General Corporation Law, does hereby make and file this certificate. /s/ George C. Bond March 18, 1983 3 FILED JULY 27, 1984 - 4:30 P.M. CERTIFICATE OF CHANGE OF ADDRESS OF REGISTERED OFFICE AND OF REGISTERED AGENT PURSUANT TO SECTION 134 OF TITLE 8 OF THE DELAWARE CODE To: DEPARTMENT OF STATE Division of Corporations Townsend Building Federal Street Dover, Delaware 19903 Pursuant to the provisions of Section 134 of Title 8 of the Delaware Code, the undersigned Agent for service of process, in order to change the address of the registered office of the corporations for which it is registered agent, hereby certifies that: 1. The name of the agent is: The Corporation Trust Company 2. The address of the old registered office was: 100 West Tenth Street Wilmington, Delaware 19801 3. The address to which the registered office is to be changed is: Corporation Trust Center 1209 Orange Street Wilmington, Delaware 19801 The new address will be effective July 30, 1984. 4. The names of the corporations represented by said agent are set forth on the list annexed to this certificate and made a part hereof by reference. IN WITNESS WHEREOF, said agent has caused this certificate to be signed on its behalf by its Vice-President and Assistant Secretary this 25th day of July, 1984. THE CORPORATION TRUST COMPANY (Name of Registered Agent) By /s/ Virginia Colvell (Vice President) Attest: /s/ Mary Murray (Assistant Secretary) 1 PAGE 1041 STATE OF DELAWARE - DIVISION OF CORPORATIONS CHANGE OF ADDRESS FILING FOR CORPORATION TRUST AS OF JULY 27, 1984 DOMESTIC 2005071 UNOCAL CORPORATION 03/18/1983 D DE 2 FILED MAY 1, 1986 - 10:00 A.M. CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF UNOCAL CORPORATION a Delaware Corporation Claude S. Brinegar and R. O. Hedley certify that; 1. They are a duly elected and acting Executive Vice President and Chief Financial Officer and the duly elected and acting Secretary respectively, of Unocal corporation. 2. The Certificate of Incorporation of Unocal corporation shall be amended by revising Article IV to read as follows: IV: The total number of shares of stock which the corporation shall have authority to issue is three hundred fifty million (350,000,000) shares, consisting of two hundred fifty million (250,000,000) shares of Common Stock, having a par value of $1.00 per share, and one hundred million (100,000,000) shares of Preferred Stock, having a par value of $0.10 per share. The board of directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in one or more series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences, and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders, is required pursuant to the certificate or certificates establishing the series of Preferred Stock. 3. The foregoing amendment has been approved by the Board of Directors and by a vote of the Stockholders pursuant to Section 242 of the Delaware General Corporation Law at the annual meeting of Stockholders held on April 28, 1986. IN WITNESS WHEREOF, the undersigned have executed this Certificate on April 29, 1986. ATTEST /s/ Claude S. Brinegar /s/ R. O. Hedley Claude S. Brinegar R. O. Hedley Executive Vice President Secretary and Chief Financial Officer The undersigned Claude S. Brinegar and R. O. Hedley an Executive Vice President and Chief Financial Officer and Secretary, respectively of Unocal Corporation, each declares under penalty of perjury that the matters set out in the foregoing Certificate are true of his own knowledge. Executed at Los Angeles, California, on April 29, 1986. /s/ Claude S. Brinegar /s/ R. O. Hedley Claude S. Brinegar R. O. Hedley 1 FILED MAY 22, 1986 - 10:00 A.M. CERTIFICATE OF CORRECTION OF CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF UNOCAL CORPORATION a Delaware Corporation Claude S. Brinegar and R. O. Hedley certify that: 1. They are a duly elected and acting Executive Vice President and Chief Financial Officer and the duly elected and acting Secretary, respectively, of Unocal Corporation. 2. That a Certificate of Amendment of Certificate of Incorporation was filed by the Secretary of State of Delaware on May 1, 1986 and that said Certificate requires correction as permitted by subsection (f) of Section 103 of The General Corporation Law of the State of Delaware. 3. The inaccuracy or defect of said Certificate to be corrected is as follows; The authorized number of common shares was incorrectly reduced. 4. Article IV of the Certificate is corrected to read as follows; IV: The total number of shares of stock which the corporation shall have authority to issue is three hundred sixty million (360,000,000) shares, consisting of two hundred sixty million (260,000,000) shares of Common Stock, having a par value of $1.00 per share, and one hundred million (100,000,000) shares of Preferred Stock, having a par value of $0.10 per share. The board of directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in one or more series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences, and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the certificate or certificates establishing the series of Preferred Stock. 1 IN WITNESS WHEREOF, the undersigned have executed this Certificate on May 16, 1986. /s/ Claude S. Brinegar ATTEST:/s/ R. O. Hedley Claude S. Brinegar R. O. Hedley Executive Vice President and Secretary Chief Financial Officer The undersigned Claude S. Brinegar and R. O. Hedley, an Executive Vice President and Chief Financial Officer and Secretary, respectively of Unocal Corporation, each declares under penalty of perjury that the matters set out in the foregoing Certificate are true of his own knowledge. Executed at Los Angeles, California, on May 16, 1986. /s/ Claude S. Brinegar /s/ R. O. Hedley Claude S. Brinegar R. O. Hedley 2 FILED MAY 5, 1987 - 10:00 A.M. CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF UNOCAL CORPORATION a Delaware Corporation Sam A. Snyder and R. O. Hedley certify that: 1. They are a duly elected and acting Vice President and the duly elected and acting Secretary respectively, of Unocal Corporation. 2. The Certificate of Incorporation of Unocal Corporation shall be amended by adding Article Twelfth to read as follows; TWELFTH: A director of the corporation shall not be personally liable to the corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its shareholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended after approval by the shareholders of this article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of the foregoing paragraph by the shareholders of the corporation shall not adversely affect any right or protection of a director of the corporation existing at the time of such repeal or modification. 3. The foregoing amendment has been approved by the Board of Directors and by a vote of the Stockholders pursuant to Section 242 of the Delaware General Corporation Law at the Annual Meeting of Stockholders held on May 4, 1987. IN WITNESS WHEREOF, the undersigned have executed this Certificate on May 4, 1987. ATTEST /s/ Sam A. Snyder /s/ R. O. Hedley Vice President Secretary The undersigned Sam A. Snyder and R. 0. Hedley, a Vice President and Secretary, respectively of Unocal Corporation, each declares under penalty of perjury that the matters set out in the foregoing Certificate are true of his own knowledge. Executed at Los Angeles, California, on May 4, 1987. /s/ Sam A. Snyder /s/ R. O. Hedley 1 FILED FEBRUARY 6, 1990 - 12:00 P.M. CERTIFICATE OF DESIGNATIONS SERIES A JUNIOR PARTICIPATING CUMULATIVE PREFERRED STOCK $.10 Par Value Of UNOCAL CORPORATION Pursuant to Section 151 of the General Corporation Law of the State of Delaware We, Sam A. Snyder, Vice President, and R. E. Jenkins Assistant Secretary, Of Unocal Corporation, a corporation organized and existing under the General Corporation of the State of Delaware, in accordance with the provisions Law Section 103 thereof, DO HEREBY CERTIFY: That Pursuant to the authority conferred upon the Board of Directors by the Certificate of Incorporation of the Corporation, the Board of Directors on January 29, 1990 adopted the following resolution creating a series of 2,500,000 shares of Preferred Stock, par value $.10 per share, designated as Series A Junior Participating Cumulative Preferred Stock: RESOLVED, that pursuant to the authority vested in the Board of Directors of this Corporation in accordance with the provisions of its Certificate of Incorporation, a series of Preferred Stock of the Corporation be, and it hereby is, created, and that the designation and amount thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof, are as follows: Section 1. Designation and Amount. The shares of such series shall be designated as Series A Junior Participating Cumulative Preferred Stock, par value $.10 per share (the "Series A Preferred Stock"), and the number of shares constituting such series shall be 2,500,000. Section 2. Dividends and Distributions. (a) The holders of shares of Series A Preferred Stock, in preference to the holders of shares of Common Stock, $1.00 per share, of the Corporation (the "Common Stock") and of any other junior stock of the Corporation that may be outstanding, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the tenth day of January, April, July and October in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (i) $0.25 per share ($1.00 per annum), or (ii) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock, or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event that the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then and in each such event, the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (ii) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 1 (b) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (a) of this Section 2 immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided, however, that in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $0.25 per share ($1.00 per annum) on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (c) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which cases such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall cumulate but shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Preferred Stock shall have the following voting rights: (a) Each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes (and each one one-hundredth of a share of Series A Preferred Stock shall entitle the holder thereof to one vote) on all matters submitted to a vote of the stockholders of the Corporation. In the event that the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then and in each such event, the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. (b) Except as otherwise provided in the Certificate of Incorporation of the Corporation or herein or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (c) In addition, the holders of shares of Series A Preferred Stock shall have the following special voting rights: In the event that at any time dividends on Series A Preferred Stock, whenever accrued and whether or not consecutive, shall not have been paid or declared and a sum sufficient for the payment thereof set aside, in an amount equivalent to six quarterly dividends on all shares of Series A Preferred Stock at the time outstanding, then and in each such event, the 2 holders of shares of Series A Preferred Stock and each other series of preferred stock now or hereafter issued that shall be accorded such class voting right by the Board of Directors and that shall have the right to elect three directors as the result of a prior or subsequent default in payment or dividends on such series (each such other series being hereinafter called "Other Series of Preferred Stock"), voting separately as a class without regard to series, shall be entitled to elect three directors at the next annual meeting of stockholders of the Corporation, in addition to the directors to be elected by the holders of all shares of the Corporation entitled to vote for the election of directors, and the holders of all shares (including the Series A Preferred Stock) otherwise entitled to vote for directors, voting separately as a class, shall be entitled to elect the remaining members of the Board of Directors, provided that the Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, shall not have the right to elect more than three directors. Such special voting right of the holders of shares of Series A Preferred Stock may be exercised until all dividends in default on the Series A Preferred Stock shall have been paid in full or declared and funds sufficient therefor set aside, and when so paid or provided for, such special voting right of the holders of shares of Series A Preferred Stock shall cease, but subject always to the same provisions for the vesting of such special voting rights in the event of any such future dividend default or defaults. At any time after such special voting rights shall have so vested in the holders of shares of Series A Preferred Stock, the Secretary of the Corporation may, and upon the written request of the holders of record of 10% or more in number of the shares of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding addressed to the Secretary at the principal executive office of the Corporation shall, call a special meeting of the holders of shares of Preferred Stock so entitled to vote, for the election of the directors to be elected by them as herein provided, to be held within 60 days after such call and at the place and upon the notice provided by law and in the Bylaws for the holding of meetings of stockholders; provided, however, that the Secretary shall not be required to call such special meeting in the case of any such request received less than 90 days before the date fixed for any annual meeting of stockholders, and if in such case such special meeting is not called or held, the holders of shares of Preferred Stock so entitled to vote shall be entitled to exercise the special voting rights provided in this paragraph at such annual meeting. If any such special meeting required to be called as above provided shall not be called by the Secretary within 30 days after receipt of any such request, then the holders of record of 10% or more in number of the shares of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding may designate in writing one of their number to call such meeting, and the person so designated may, at the expense of the Corporation, call such meeting to be held at the place and upon the notice given by such person, and for that purpose shall have access to the stock books of the Corporation. No such special meeting and no adjournment thereof shall be held on a date later than 60 days before the annual meeting of stockholders. If, at any meeting so called or at any annual meeting held while the holders of shares of Series A Preferred Stock have the special voting rights provided for in this paragraph, the holders of not less than 40% of the shares of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding are present in person or by proxy, which percentage shall be sufficient to constitute a quorum for the election of additional directors as herein provided, the then authorized number of directors of the Corporation shall be increased by three, as of the time of such special meeting or the time of the first such annual meeting held while such holders have special voting rights and such quorum is present, and the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, shall be entitled to elect the additional directors so provided for. If the directors of the Corporation are then divided into classes under provisions of the Certificate of Incorporation of the Corporation or the Bylaws, the three additional directors shall be members of those respective classes of directors in 3 which a vacancy is created as a result of such increase in the authorized number of directors. If the foregoing expansion of the size of the Board of Directors shall not be valid under applicable law, then the holders of shares of Series A Preferred Stock and of each Other Series of Preferred Stock, voting as a class, shall be entitled, at the meeting of stockholders at which they would otherwise have voted, to elect directors to fill any then existing vacancies on the Board of Directors, and shall additionally be entitled, at such meeting and each subsequent meeting of stockholders at which directors are elected, to elect all of the directors then being elected until by such class vote three members of the Board of Directors have been so elected. Upon the election at such meeting by the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, of the directors they are entitled so to elect, the persons so elected, together with such persons as may be directors or as may have been elected as directors by the holders of all shares (including Series A Preferred Stock) otherwise entitled to vote for directors, shall constitute the duly elected directors of the Corporation. The additional directors so elected by holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, shall serve until the next annual meeting or until their respective successors shall be elected and qualified or if any such director is a member of a class of directors under provisions dividing the directors into classes, each such director shall serve until the annual meeting at which the term of office of such director's class shall expire or until such director's successor shall be elected and shall qualify, and at each subsequent meeting of stockholders at which the directorship of any director elected by the vote of holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock under the special voting rights set forth in this paragraph is up for election, said special class voting rights shall apply in the reelection of such director or in the election of such director's successor; provided, however, that whenever the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock shall be divested of the special rights to elect three directors as above provided, the terms of office of all persons elected as directors by the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, or elected to fill any vacancies resulting from the death, resignation, or removal of directors so elected by the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, shall forthwith terminate and, if applicable, the number of directors shall be reduced accordingly. If, at any time after a special meeting of stockholders or an annual meeting of stockholders at which the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock, voting as a class, have elected directors as provided above, and while the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock shall be entitled so to elect three directors, the number of directors who have been elected by the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock (or who by reason of one or more resignations, deaths or removals have succeeded an directors so elected) shall by reason of resignation, death or removal be less than three but at least one, the vacancy in the directors so elected by the holders of shares of the Series A Preferred Stock and each Other Series of Preferred Stock may be filled by the remaining director elected by such holders, and in the event that such election shall not occur within 30 days after such vacancy arises, or in the event that there shall not be incumbent at least one director so elected by such holders, the Secretary of the Corporation may, and upon the written request of he holders of record of 10% or more in number of the shares of Series A Preferred Stock and each Other Series of Preferred Stock then outstanding addressed to the Secretary at the principal office of the Corporation shall, call a special meeting of the holders of shares of Series A Preferred Stock and each Other Series of Preferred Stock so entitled to vote, for an election to fill such vacancy or vacancies, to be held within 60 days after such call and at the place and upon the notice provided by law and in the Bylaws for the holding of meetings of stockholders; provided, however, that the Secretary shall not be required to call such special meeting in the case of any 4 such request received less than 90 days before the date fixed for any annual meeting of stockholders, and if in such case such special meeting is not called, the holders of shares of Preferred Stock so entitled to vote shall be entitled to fill such vacancy or vacancies at such annual meeting. If any such special meeting required to be called as above provided shall not be called by the Secretary within 30 day after receipt of any such request, then the holders of record of 10% or more in number of the shares of Series A Preferred Stock and each Other Series of Preferred Stock the outstanding may designate in writing one of their number to call such meeting, and the person so designated may, at the expense of the Corporation, call such meeting to be held at the place and upon the notice above provided, and for that Purpose shall have access to the stock books of the Corporation; no such special meeting and no adjournment thereof shall be held on a date later than 60 days before the annual meeting of stockholders. (d) Nothing herein shall prevent the directors or stockholders from taking any action to increase the number of authorized shares of Series A Preferred Stock, or increasing the number of authorized shares of Preferred Stock of the same class as the Series A Preferred Stock or the number of authorized shares of Common Stock, or changing the par value of the Common Stock or Preferred Stock, or issuing options, warrants or rights to any class of stock of the Corporation as authorized by the Certificate of Incorporation of the Corporation, as it may hereafter be amended. (e) Except as set forth herein, holders of shares of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote as set forth in the Certificate of Incorporation of the Corporation or herein or by law) for taking any corporate action. Section 4. Certain Restrictions. (a) Whenever any dividends or other distributions payable on the Series A Preferred Stock as provided 1 Section 2 hereof are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not and shall cause its subsidiaries not to, directly or indirectly: (i) declare or pay dividends on, or make any other distributions with respect to, any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends on, or make any other distributions with respect to, any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on shares of the series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except 5 in accordance with a Purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (b) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (a) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorize but unissued shares of preferred stock, without designation as to series, and may be reissued as part of any series of referred stock created by resolution or resolutions of the Board of Directors (including Series A Preferred Stock), subject to the conditions and restrictions on issuance set forth herein. Section 6. Liquidation, Dissolution or Winding Up. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made to: (a) the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received the greater of (i) $1.00 per share ($.01 per one one-hundredth of a share), plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (ii) an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock; or (b) the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event that the Corporation shall at any time declare or pay any dividend on Common Stack payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then and in each such event, the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (a) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. 6 Section 7. Consolidation, Merger, etc. In the event that the Corporation shall enter into any consolidation, merger combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, or otherwise changed, then and in each such event, the shares of Series A Preferred Stock shall at the same time be similarly exchanged or changed in an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event that the Corporation shall at any time declare or pay any dividend on Common Stock payable in shares of Common Stock, or effect a subdivision or combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise) into a greater or lesser number of shares of Common Stock, then and in each such event, the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common stock outstanding immediately after such event, and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. Section 8. No Redemption. The shares of Series A Preferred Stock shall not be redeemable. Notwithstanding the foregoing, the Corporation may acquire shares of Series A Preferred Stock in any other manner permitted by law, the Certificate of Incorporation of the Corporation or herein. Section 9. Rank. Unless otherwise provided in the Certificate of Incorporation of the Corporation or a Certificate of Designations relating to a subsequent series of preferred stock of the Corporation, the Series A Preferred Stock shall rank junior to all other series of the Corporation's preferred stock as to the payment of dividends and the distribution of assets on liquidation, dissolution or winding up, and senior to the Common Stock of the Corporation. Section 10. Amendment. The Certificate of Incorporation of the Corporation shall not be amended in any manner that would materially and adversely alter or change the powers, preferences or special rights of the Series A Preferred Stock without the affirmative vote of the holders of at least two-thirds of the Outstanding shares of Series A Preferred Stock, voting together as a single series. Section 11. Fractional Shares. Series A Preferred Stock maybe issued in fractions of a share (in one one-hundredths (1/100) of a share and integral multiples thereof) that shall entitle the bolder thereof, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and have the benefit of all other rights of holders of shares of Series A Preferred Stock. IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do affirm the foregoing as true under the penalties of perjury this 31st day of January, 1990. /s/ Sam A. Snyder Sam A. Snyder Vice President Attest: /s/ R. E. Jenkins R. E. Jenkins Assistant Secretary 7 FILED MAY 4, 1990 - 9:00 A.M. CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF UNOCAL CORPORATION A Delaware Corporation Sam A. Snyder and R. 0. Hedley certify that: 1. They are a duly elected and acting Vice President and the duly elected and acting Secretary, respectively, of Unocal Corporation. 2. The Certificate of Incorporation or Unocal Corporation shall be amended by revising Article Fourth to read as follows: FOURTH: The total number of shares of stock which the corporation shall have authority to issue is eight hundred fifty million (850,000,000) shares, consisting of seven hundred fifty million (750,000,000) shares of Common Stock, having a par value of $1.00 per share, and one hundred million (100,000,000) shares of Preferred Stock, having a par value of $0.10 per share. The board of directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in one or more series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the distribution, powers, preferences, and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the certificate or certificates establishing the series of Preferred Stock. 3. The foregoing amendment has been approved by the Board of Directors and by a vote of the Stockholders pursuant to Section 242 of the Delaware General Corporation Law at the Annual Meeting of Stockholders held on April 30, 1990. IN WITNESS WHEREOF, the undersigned have executed this Certificate on April 30, 1990. ATTEST /s/ Sam A. Snyder /s/ R. O. Hedley Vice President Secretary The undersigned Sam A. Snyder and R.0. Hedley, Vice President and the Secretary, respectively, of Unocal Corporation, each declares under penalty of perjury that the matters set out in the foregoing Certificate are true of his own knowledge. Executed at Los Angeles, California, on April 30, 1990. /s/ Sam A. Snyder /s/ R. O. Hedley 1 State of Delaware Secretary of State Division of Corporations FILED JULY 22, 1992 - 1:40 P.M. CERTIFICATE OF CORRECTION TO CERTIFICATE OF DESIGNATION OF UNOCAL CORPORATION UNOCAL CORPORATION, a Delaware corporation, pursuant to section 103(f) of the General corporation Law of the State of Delaware, certifies: FIRST: That the Certificate of Designation which vas filed with the Secretary of State of Delaware on February 6, 1990 is an inaccurate record of the corporate action therein referred to. SECOND: That said Certificate of Designation was inaccurate in that Section 6(a) states: "(a) the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received the greater of (i) $1.00 per share ($.01 per one one-hundredth of a share), plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (ii) an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock; or" THIRD: That section 6(a) of said Certificate of Designation in correct form is as follows: "(a) the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received the greater of (i) $100.00 per share ($1.00 per one one-hundredth of a share), plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, or (ii) an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 100 times the aggregate amount to be distributed per share to holders of shares of Common Stock; or" IN WITNESS WHEREOF, Unocal corporation has caused this Certificate of Correction to be signed by its President and attested by its Secretary this 21st day of July, 1992. ATTEST UNOCAL CORPORATION /s/ Dennis P. Codon By /s/ Thomas B. Sleeman Dennis P. Codon, Secretary Thomas B. Sleeman, Senior Vice President 1 STATE OF DELAWARE SECRETARY OF STATE DIVISION OF CORPORATIONS FILED 7/22/92 -1:41 P.M. CERTIFICATE OF INCREASE OF SERIES A JUNIOR PARTICIPATING CUMULATIVE PREFERRED STOCK OF UNOCAL CORPORATION Pursuant to Section 151(g) of the Delaware General Corporation Law In accordance with the provisions of Section 151(g) of the General Corporation Law of the State of Delaware, Unocal Corporation, a Delaware corporation (the "Corporation") does hereby certify that the following resolution respecting its Series A Junior Participating Cumulative Preferred Stock was duly adopted by the Executive Committee of the Board of Directors of the Corporation, pursuant to authority conferred on the Executive Committee by the Board of Directors, at a meeting of the Executive Committee on July 20, 1992: RESOLVED, that the authorized number of shares of the Corporation's Series A Junior Participating Cumulative Preferred Stock, of which the designations, preferences and rights were set forth in a certificate filed with the Delaware Secretary of State on February 6, 1990, shall be increased from 2,500,000 shares to 3,000,000 shares. IN WITNESS WHEREOF, Unocal Corporation has caused this certificate to be signed by its President and attested by its Secretary this 21st day of July, 1992. /s/ Thomas B. Sleeman Thomas B. Sleeman Senior Vice President ATTEST: /s/ Dennis P. Codon Dennis P. Codon Secretary 1 EX-3.(II) 3 BYLAWS OF UNOCAL EXIBIT 3.2 BYLAWS OF UNOCAL CORPORATION a Delaware corporation (Effective May 24, 1999) ARTICLE I FISCAL YEAR Section 1. The fiscal year of Unocal Corporation (hereinafter called the "Corporation") shall end on the thirty-first (31st) day of December of each year. ARTICLE II OFFICES Section 1. Principal Office. The principal office for the transaction of business of the Corporation is hereby fixed and located at 2141 Rosecrans Avenue, Suite 4000, in the City of El Segundo, County of Los Angeles, State of California. The Board of Directors (hereinafter sometimes called the "Board") is hereby granted full power and authority to change said principal office from one location to another. ARTICLE III STOCKHOLDERS Section 1. Annual Meetings. The annual meetings of the stockholders shall be held at 10:00 o'clock A.M. on the fourth (4th) Monday in May of each year if not a legal holiday, for the purpose of electing directors and for the transaction of any other business which is within the powers of the stockholders and properly brought before the meeting. If the fourth (4th) Monday in May is a legal holiday, the annual meeting of the stockholders shall be held at 10:00 o'clock A.M. on the subsequent Monday. Section 2. Notice of Meetings. Written notice of each annual or special meeting of stockholders shall be given to each stockholder entitled to vote thereat not less than ten (10) nor more than sixty (60) days before the meeting. Section 3. Place of Meetings. All meetings of stockholders, whether annual or special, shall be held at the principal office of the Corporation or at such other place, within or without the State of Delaware, as the Board may from time to time designate pursuant to authority hereinafter granted it. In the absence of any such designation stockholders' meetings shall be held at the principal office of the Corporation. Section 4. Voting Rights. Stockholders entitled to vote at stockholder meetings shall be entitled to one (1) vote for each full share. A fraction of a share or a fractional interest in a share shall not be entitled to any voting rights whatsoever. Section 5. Conduct of Meetings. The decisions of the Chairman of the Board or officer presiding at all stockholders'meetings shall govern in all matters relating to the conduct of the meeting. Section 6. Voting. Directors shall be divided into three (3) classes. At each annual meeting, all directors of one (1) class shall be elected in accordance with, and subject to, the provisions of ARTICLE SEVENTH of the Corporation's Certificate of Incorporation by the holders of shares entitled to vote in the election. Section 7. Nominations and Other Stockholder Business. At any meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting in accordance with the procedures set forth herein. 1 Only such business shall be conducted at an annual meeting of the stockholders as shall have been properly brought before the meeting (a) pursuant to the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) by or at the direction of the Board of Directors, or (c) by a stockholder or a beneficial owner of the Corporation's stock ("Proponent") in compliance with all of the following provisions: (1) such business must be a proper matter for stockholder action under the General Corporation Law of the State of Delaware; (2) the Corporate Secretary must have timely received (as described below) written notice by the Proponent containing (a) a brief description of each matter desired to be brought before the meeting, (b) the Proponent's name and address (if Proponent is a stockholder of record, as they appear on the Corporation's books), (c) the class and the number of shares of the Corporation which are beneficially owned by the Proponent and, if the Proponent is not a stockholder of record, proof of beneficial ownership, (d) a description of any material interest of the Proponent in such business, (e) a statement as to whether the Proponent intends to deliver a proxy statement and form of proxy to holders of a sufficient number of shares, in the case of a nomination, to elect such nominee, and in the case of a proposal of other business, to carry such proposal (an affirmative statement of such intent, a "Solicitation Notice"), and (f) as to each person whom the Proponent proposes to nominate for election or re-election as a director, (i) all information relating to such person as would be required to be disclosed in solicitations of proxies for the election of such person as a director pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, and (ii) such person's written consent to serve as a director if elected; (3) if the Proponent has provided the Corporation with a Solicitation Notice, the Proponent must have delivered a proxy statement and form of proxy to holders of a sufficient number of shares, in the case of a nomination, to elect such nominee, and in the case of a proposal of other business, to carry such proposal; and (4) if the Proponent has not provided the Corporation with a Solicitation Notice, the Proponent must not have delivered a proxy statement and a form of proxy to holders of a sufficient number of shares, in the case of a nomination, to elect such nominee, and in the case of a proposal of other business, to carry such proposal. The Corporate Secretary shall be deemed to have timely received a Proponent's notice under clause (c)(2) of the preceding paragraph if it is delivered at the Corporation's principal office to the attention of the Corporate Secretary at least ninety (90) days prior to the annual meeting of stockholders; provided, however, that if there has been an amendment to the bylaws since the last annual meeting changing the date of the annual meeting, a Proponent's notice shall be deemed to have been timely received if it is delivered not later than the close of business on the later of the ninetieth (90th) day prior to the annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made; provided further, however, that if the number of directors to be elected to the Board of Directors is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased board of directors at least one hundred (100) days prior to the annual meeting, a Proponent's notice shall be deemed to have been timely received, but only with respect to nominees for any new positions created by such increase, if it is delivered not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made. Only such business shall be conducted at a special meeting of the stockholders as shall have been brought before the meeting pursuant to the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors. Nominations of persons for election to the Board of Directors may be made at a special meeting of the stockholders at which directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) by a Proponent who delivers the notice described in clause (c)(2) of the second paragraph of this Section at the Corporation's principal office to the attention of the Corporate Secretary not later than the close of business on the later of the ninetieth (90th) day prior to such special meeting or the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the number of directors proposed by the Board of Directors to be elected at such meeting. Only persons nominated in accordance with the procedures set forth in this section shall be eligible to serve as Directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this section. The chairman of the meeting shall have the power to determine whether a nomination or any other business is in compliance with this section, and to declare that any defective nomination or other business not be presented for stockholder action at the meeting and be disregarded. 2 For purposes of this section, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News service, Associated Press or a comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. Notwithstanding the foregoing provisions of this section, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to matters set forth in this section. Nothing in this section shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at a meeting except in accordance with the procedures set forth herein. Section 8. Quorum. The holders of one-third (1/3) of all of the outstanding shares of the stock of the Corporation entitled to vote at a meeting of stockholders, present in person or by proxy, shall constitute a quorum for the transaction of any business at such meeting. ARTICLE IV BOARD OF DIRECTORS Section 1. Powers. Subject to the limitations of the Certificate of Incorporation of the Corporation and of the Delaware General Corporation Law as to action which shall be authorized or approved by the stockholders, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed by, the Board of Directors. Section 2. Number. The exact number of directors of the Corporation shall be nine (9) until changed in the manner provided by law. Section 3. Chairman and Vice Chairman of the Board. The Board shall appoint a Chairman, who shall preside at all meetings of the Board of Directors and shall have such other powers and duties as may from time to time be assigned by the Board of Directors or prescribed by the Bylaws. The Board may also appoint a Vice Chairman, who shall preside at all meetings of the Board of Directors in the absence of the Chairman and shall have such other powers and duties as may from time to time be assigned by the Board of Directors or prescribed by the Bylaws. Section 4. Annual Meetings. Immediately following each annual meeting of stockholders, the Board shall hold its annual meeting for the purpose of organization, election of officers and the transaction of any other business. Section 5. Regular Meetings. Regular meetings of the Board shall be held at the times and on the dates fixed by resolution of the Board. Section 6. Special Meetings. Special meetings of the Board for any purpose or purposes whatsoever may be called by the Chairman of the Board or the Chief Executive Officer or, in the absence or inability of either of them, by the Vice Chairman, the Chief Financial Officer, or by at least two (2) of the directors at the time in office. Section 7. Notice of Meetings. Notice of annual meetings and of regular meetings of the Board is hereby dispensed with. Notice of special meetings must be given at least two (2) days in advance if given by mail, or at least twenty-four (24) hours in advance if delivered personally or given by telephone or telegram. Section 8. Place of Meetings. All meetings of the Board, whether annual, regular or special meetings, shall be held at any place within or without the State of Delaware which has been designated from time to time by resolution of the Board or in the notice of the meeting. In the absence of such designation all directors' meetings shall be held at the principal office of the Corporation. Section 9. Quorum. A majority of the exact number of directors specified in Section 2 of ARTICLE IV of the Bylaws shall constitute a quorum of the Board of Directors for the transaction of business; provided, however, that vacancies on the Board may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, each such director to hold office until a successor is elected at an annual or special meeting of the stockholders. 3 Section 10. Compensation of Directors. Directors and members of committees appointed by the Board shall receive such compensation, if any, for their services, and such reimbursement for their expenses, as may be fixed or determined by resolution of the Board. The Board may, however, in any such resolution provide that directors who are also employees of the Corporation or any of its subsidiaries shall not receive additional compensation for services as a director or member of a committee appointed by the Board. Section 11. Indemnification of Directors, Officers, Employees and Other Agents. (a) Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or involved in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative ("Proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, trustee, or fiduciary, or in a similar capacity (collectively, "Agent") of another foreign or domestic corporation, limited liability company, partnership, joint venture, trust, or any other enterprise or entity whatsoever, including without limitation employee benefit plans (collectively, "Affiliate"), whether the basis of such Proceeding is alleged action in an official capacity, or in any other capacity while serving as a director or officer of the Corporation or as an Agent of an Affiliate, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment), against all expense, liability, and loss, including without limitation, attorneys' fees, judgments, fines, ERISA excise taxes, penalties, amounts paid or to be paid in settlement, and any other amounts actually incurred or suffered by such person in connection with any Proceeding; and such indemnification shall continue as to a person who has ceased to be a director or officer of the Corporation or Agent of an Affiliate and shall inure to the benefit of his or her heirs, executors, and administrators; provided, however, that, except as provided in paragraph (b) hereof with respect to Proceedings seeking to enforce rights to indemnification, the Corporation shall indemnify any such person seeking indemnification in connection with a Proceeding (or part thereof) initiated by such person only if such Proceeding (or part thereof) was authorized by the board of directors of the Corporation. The right to indemnification conferred in this Section shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such Proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including without limitation, service to an employee benefit plan) in advance of the final disposition of a Proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Section or otherwise. The Corporation may, to the extent authorized from time to time by its board of directors, either on a general basis or as to specific employees or agents, provide indemnification to employees and agents of the Corporation with similar scope and effect as the foregoing indemnification of directors and officers. (b) Right to Bring Suit. If a claim under paragraph (a) of this Section is not paid in full by the Corporation within sixty (60) days after a written claim has been received by the Corporation, except in the case of a claim for expenses incurred in a Proceeding in advance of its final disposition in which case the applicable period shall be twenty (20) days, the person seeking indemnification (the "Party to be Indemnified") may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Party to be Indemnified shall be entitled to be paid also the expense of prosecuting or defending such claim. The Corporation's sole defense to an action seeking indemnification (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) shall be that the Party to be Indemnified has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the Party to be Indemnified for the amount claimed, and the burden of providing such defense shall be on the Corporation. Neither the failure of the Corporation (including its board of directors, its independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the Party to be Indemnified is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its board of directors, its independent legal counsel, or its stockholders) that the Party to be Indemnified has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the Party to be Indemnified has not met the applicable standard of conduct. 4 (c) Non-Exclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a Proceeding in advance of its final disposition conferred in this Section shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. (d) Insurance. The Corporation shall maintain in full force and effect, at its own expense, director and officer liability insurance ("Insurance") coverage for each director and officer in amounts and scope at least as favorable as that maintained by the Corporation on September 30, 1996, or, to the extent more favorable, any Insurance policy entered into or renewed by the Corporation following such date. Notwithstanding the foregoing, if the Corporation, after using its best efforts, cannot obtain and purchase such coverage for an amount no more than what it paid for the most recent expiring Insurance policy plus a reasonable additional amount, the Corporation shall only be required to purchase such Insurance coverage for any act or omission occurring at or prior to the time of such date. (e) Enforceability; Amendment. The rights provided to any person by this bylaw shall be enforceable against the Corporation by such person, who shall be presumed to have relied upon it in serving or continuing to serve as an Agent, as provided above. No amendment of this bylaw shall impair the rights of any person arising at any time with respect to events occurring prior to such amendment, including, without limitation, any right of a director or officer to Insurance for any act or omission occurring at or prior to the time of such amendment. Section 12. Authority to Designate Place of Stockholders' Meetings. The Board is hereby granted full power and authority to designate from time to time any place within or without the State of Delaware for the holding of any stockholders' meeting. Section 13. Committees. The Board may, by resolution, appoint one (1) or more committees, in addition to an Executive Committee and a Board Management Committee, to consist of two (2) or more of the directors of the Corporation, and prescribe their duties and powers. A majority of the members of any such committee may determine its action and fix the time and place of its meetings unless the Board shall otherwise provide. The Board shall have the power at any time to fill vacancies in, to change the membership of, or to dissolve any such committee. Section 14. Action by Written Consent. Any action required or permitted to be taken by the Board or any committee thereof may be taken without a meeting, if all members of the Board or such committee, as the case may be, shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Section 15. Conference Calls. Members of the Board or any committee thereof may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. ARTICLE V EXECUTIVE COMMITTEE Section 1. Number and Composition. The Board of Directors shall appoint from its membership, annually, an Executive Committee of three (3) or more directors. Included on the Executive Committee shall be the Chief Executive Officer of the Corporation. Each member of the Executive Committee shall hold membership at the pleasure of the Board, which shall have the exclusive power to fill vacancies thereon as they may occur. The Chairman of the Executive Committee shall be the Chief Executive Officer of the Corporation. Section 2. Powers. The Executive Committee, during the intervals between meetings of the Board, shall have and there is hereby granted to it all the powers and authority of the Board of Directors in the management of the 5 business and affairs of the Corporation, except that the Executive Committee shall not be permitted to fill vacancies on the Board or on any committee, approve any action for which stockholder approval is also required by the Delaware General Corporation Law, amend or repeal any resolution of the Board which by its express terms is not so amendable or repealable, or appoint other committees of the Board or the members thereof and shall not have any powers restricted by Section 141(c) of the Delaware General Corporation Law unless the Board shall have specifically delegated authority to the Executive Committee to take action with respect to a matter listed in such Section as permitted to be so delegated. Section 3. Procedure. Two (2) members of the Executive Committee shall constitute a quorum of the Executive Committee for the transaction of business. The Executive Committee, by vote of a majority of its members, shall fix its own times and places of meetings and shall prescribe its own rules of procedure; no change in which shall be made save by a majority vote of its members. Section 4. Records and Reports. The Executive Committee shall keep regular minutes of all business transacted at its meetings, and all action of the Executive Committee shall be reported to the Board at its next ensuing meeting. Section 5. Compensation. Members of the Executive Committee may receive such compensation, if any, for their services, and such reimbursement for their expenses, as may be fixed or determined by the Board. ARTICLE VI BOARD MANAGEMENT COMMITTEE Section 1. Number and Composition. The Board of Directors shall appoint from its membership, annually, a Board Management Committee composed of the directors who are salaried officers of the Corporation. The Chairman of the Board Management Committee shall be the Chief Executive Officer of the Corporation. Section 2. Powers. The Board Management Committee, during the intervals between meetings of the Board, shall have and there is hereby granted to it all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, subject to approval limits established by resolution of the Board of Directors as deemed appropriate from time to time, but the Board Management Committee shall not be permitted to fill vacancies on the Board or on any committee, appoint the Chief Executive Officer or the Chief Financial Officer, approve any action for which stockholder approval is also required by the Delaware General Corporation Law, amend or repeal any resolution of the Board or of the Executive Committee, which by its express terms is not so amendable or repealable, or appoint other committees of the Board or the members thereof and shall not have any powers restricted by Section 141(c) of the Delaware General Corporation Law unless the Board shall have specifically delegated authority to the Board Management Committee to take action with respect to a matter listed in such Section as permitted to be so delegated. Section 3. Procedure. Two (2) members of the Board Management Committee shall constitute a quorum of the Board Management Committee for the transaction of business. The Board Management Committee, by vote of a majority of its members, shall fix its own times and places of meetings, and shall prescribe its own rules of procedure; no change in which shall be made save by a majority vote of its members. Section 4. Records. The Board Management Committee shall keep regular minutes of all business transacted at its meetings. ARTICLE VII OFFICERS Section 1. Officers. The officers of the Corporation shall be a Chairman, a Chief Executive Officer, a Chief Financial Officer, a Vice President, a Secretary, a Comptroller, a Treasurer, and a Chief Legal Officer. The Corporation may also have, at the discretion of the Board, one (1) Vice Chairman, one (1) or more Vice Presidents, who may be designated as Executive Vice Presidents, Group Vice Presidents, Senior Vice Presidents or Vice Presidents, one (1) or more Assistant Chief Financial Officers, one (1) or more Assistant Secretaries, one (1) or more Assistant Treasurers, and one (1) or more Assistant Comptrollers, and the Board may appoint such other officers as it may deem necessary or advisable, who shall have such authority and perform such 6 duties as from time to time may be prescribed by the Board, the Chairman of the Board, or the Chief Executive Officer. Any two (2) or more offices may be held by the same person. Section 2. Election and Removal. The officers of the Corporation shall be chosen annually by the Board at its annual meeting and each shall hold office until the corresponding annual meeting of the Board in the next year and until a successor shall be elected and qualified unless such officer shall theretofore resign or shall be removed or otherwise disqualified to serve. The Board may remove any officer either with or without cause or under such other terms or conditions as it may prescribe. Vacancies may be filled by the Board as they may occur. Section 3. Powers and Duties. (a) Chief Executive Officer. The Chief Executive Officer shall be the officer, reporting directly to the Board, responsible for overall management of the Corporation and shall have general supervision, direction and control over the business and affairs of the Corporation and its officers. The Chief Executive Officer shall be a member of the Executive Committee and of the Board Management Committee and in general shall perform all duties incident to the office of Chief Executive Officer and shall have such powers and duties as may from time to time be assigned by the Board of Directors or prescribed by the Bylaws. (b) Executive Vice Presidents. The Executive Vice Presidents in general shall perform all duties incident to the office of Executive Vice President, and shall have such powers and duties as may from time to time be assigned by the Board of Directors, the Chief Executive Officer or prescribed by the Bylaws. (c) Other Vice Presidents. Other Vice Presidents, who may be designated as Group Vice Presidents, Senior Vice Presidents or Vice Presidents, shall have such authority and shall perform such duties as shall from time to time be assigned by the Board of Directors, the Chief Executive Officer, the Executive Vice Presidents or prescribed by the Bylaws. (d) Chief Financial Officer. The Chief Financial Officer shall have such authority and shall perform such duties as shall from time to time be assigned by the Board, the Chief Executive Officer or prescribed by the Bylaws. (e) Assistant Chief Financial Officer. Each Assistant Chief Financial Officer shall assist the Chief Financial Officer and shall perform such duties as shall from time to time be assigned by the Board, the Chief Executive Officer or the Chief Financial Officer. (f) Secretary. The Secretary shall keep, or cause to be kept, a book of minutes, at the principal office and/or such other place or places as the Board may order, of all meetings of directors and stockholders, with the time and place of holding, whether regular or special, and if special how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The Secretary shall keep or cause to be kept at the principal office, or at the office of the Corporation's transfer agent, a stock register, which may be an electronic database, showing the names of the stockholders of record and their addresses, the number and classes of shares held by each, the numbers and dates of the certificates issued for those shares, and the numbers and dates of cancellation of every certificate surrendered for cancellation. The Secretary shall give or cause to be given notice of all meetings of the stockholders and the Board required to be given by the Bylaws or by law. The Secretary shall have charge of and be custodian of the seal of the Corporation and the minute books and documents relating to the existence and governance of the Corporation. The Secretary shall have such other powers and perform such other duties as may from time to time be prescribed by the Board, the Chairman of the Board, the Chief Executive Officer or the Bylaws, and shall in general, subject to control of the Board, the Chairman of the Board and the Chief Executive Officer, perform all the duties usually incident to the office of secretary of a corporation. (g) Assistant Secretaries. Each Assistant Secretary shall assist the Secretary and, in the absence or disability of the Secretary, may perform the duties of the Secretary unless and until the contrary is expressed by the Board, and may perform such other duties as may be prescribed by the Board or the Secretary. 7 (h) Treasurer. The Treasurer shall have custody of and be responsible for all the monies and funds of the Corporation. The Treasurer shall deposit or cause to be deposited all Corporation monies, funds and other valuables in the name and to the credit of the Corporation in such bank or banks as shall be judged proper or as shall be directed by the Board, the Chief Executive Officer, or the Chief Financial Officer, and shall disburse the funds of the Corporation which have been duly approved for disbursement. The Treasurer shall enter or cause to be entered regularly in the books of the Corporation full and accurate accounts of all monies received and paid out on account of the Corporation. The Treasurer shall have such other powers and perform such other duties as may from time to time be prescribed by the Board, the Chief Executive Officer, the Chief Financial Officer or the Bylaws, and shall in general, subject to control of the Board, the Chief Executive Officer, and the Chief Financial Officer, perform all the duties usually incident to the office of treasurer of a corporation. (i) Assistant Treasurers. Each Assistant Treasurer shall assist the Treasurer and, in the absence or disability of the Treasurer, may perform the duties of the Treasurer unless and until the contrary is expressed by the Board, and shall perform such other duties as may be prescribed by the Board or the Treasurer. (j) Comptroller. The Comptroller shall be the principal officer in charge of the general accounting books, accounting records and forms of the Corporation and shall see that all monies and obligations due the Corporation and all properties and assets are properly accounted for. The Comptroller shall prepare the Corporation's balance sheets, income accounts and other financial statements and reports, and render to the Board, the Chief Executive Officer, and the Chief Financial Officer, such periodic reports covering the results of operations of the Corporation as may be required by them or any of them. The Comptroller shall have such other powers and perform such other duties as may from time to time be prescribed by the Board, the Chief Executive Officer, the Chief Financial Officer or the Bylaws and shall in general, subject to control of the Board, the Chief Executive Officer, and the Chief Financial Officer, perform all the duties usually incident to the office of comptroller of a corporation. (k) Assistant Comptrollers. Each Assistant Comptroller shall assist the Comptroller and, in the absence or disability of the Comptroller, may perform the duties of the Comptroller unless and until the contrary is expressed by the Board, and shall perform such other duties as may be prescribed by the Board or the Comptroller. (l) Chief Legal Officer. The Chief Legal Officer shall be in charge of the Corporation's legal affairs. The Chief Legal Officer shall advise the Board, the Chairman of the Board and/or the officers of the Corporation on such legal matters and prepare such reports as may be required by them or any of them. ARTICLE VIII MISCELLANEOUS Section 1. Execution of Documents. Unless otherwise authorized by or pursuant to a resolution of the Board of Directors, all contracts, leases, deeds, deeds of trust, mortgages, bonds, indentures, endorsements, assignments, powers of attorney, and other documents and instruments of whatsoever kind shall be executed for and on behalf of the Corporation by the Chairman and Chief Executive Officer, the Vice Chairman, the Chief Financial Officer, a Vice President, the Treasurer, the Comptroller, or by any such officer and shall be attested by the Secretary or an Assistant Secretary, who shall have authority to affix the corporate seal to the same. Section 2. Undertakings and Commitments. No undertaking, commitment, contract, instrument or document shall be binding upon the Corporation unless previously authorized or subsequently ratified by the Board or executed by an officer or officers, an employee or employees or an agent or agents of the Corporation acting under powers conferred by the Board or by these Bylaws. Section 3. Checks, Drafts, etc. All checks, notes and other obligations for collection, deposit or transfer, and all checks and drafts for disbursement from Corporation funds, and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, shall be endorsed or signed by such officer or officers, employee or employees or 8 agent or agents as shall be authorized from time to time to do so by or pursuant to a resolution of the Board of Directors. Section 4. Representation of Shares of Other Corporations. Shares standing in the name of the Corporation may be voted or represented and all rights incident thereto may be exercised on behalf of the Corporation by the Chairman and Chief Executive Officer, the Vice Chairman, the Chief Financial Officer, a Vice President, the Secretary, the Treasurer or the Comptroller, or by such other officers upon whom the Board of Directors may from time to time confer like powers. ARTICLE IX AMENDMENTS TO BYLAWS Section 1. Power of Stockholders. New Bylaws may be adopted or these Bylaws may be amended or repealed by the vote of seventy-five (75) percent of the outstanding stock of the Corporation entitled to vote thereon. Section 2. Power of Directors. Subject to the right of stockholders as provided in Section 1 of this ARTICLE IX to adopt, amend or repeal Bylaws, Bylaws may be adopted, amended or repealed by the Board of Directors as provided or permitted by law; however, any Bylaw amendment adopted by the Board of Directors increasing or reducing the authorized number of directors or amending this Section shall require a resolution adopted by the affirmative vote of not less than seventy-five (75) percent of the directors. ARTICLE X EMERGENCY Section 1. "Emergency" as used in this Article means disorder, disturbance or damage caused by war, enemy attack, other warlike acts or by catastrophe, disaster or other similar emergency condition, which prevents the conduct and management of the affairs and business of the Corporation by the Board of Directors and officers in the manner provided for in other Articles of these Bylaws. The powers and duties conferred and imposed by this Article, and any resolutions adopted pursuant hereto, shall be effective only during an emergency. This Article may be implemented from time to time by resolutions adopted by the Board of Directors before or during an emergency, or during an emergency by the emergency Board of Directors constituted and then acting pursuant hereto. An emergency, once commenced, shall be deemed to continue until terminated by resolutions adopted for that purpose by the Board of Directors. Section 2. If, during an emergency, a majority of the Board of Directors cannot be found or is unable to act, one-third (1/3) of the exact number of the Board of Directors shall constitute a quorum thereof. Section 3. During any emergency, the officers and employees of the Corporation shall continue, so far as possible, to conduct the Corporation's affairs and business under the guidance of the Board of Directors acting pursuant to this Article and in accordance with known orders of governmental authorities. Section 4. If, during any emergency, a quorum of the Board of Directors, as provided in Section 3 of this Article, cannot be found or is unable to act, any three (3) available members of the Executive Committee, including the Chief Executive Officer, shall be and constitute the Board of Directors, with two (2) thereof constituting a quorum, and as such shall have and exercise the fullest power of the Board of Directors for the conduct and management of the affairs and business of the Corporation, permitted by law, without the limitations set forth in Section 2 of ARTICLE V of these Bylaws, provided that such emergency Board of Directors as so constituted shall comply to the extent practicable under the circumstances with the provisions of ARTICLE III of these Bylaws relating to annual and special meetings of stockholders. If three (3) members of the Executive Committee, including the Chief Executive Officer, are not able to serve, any three (3) available directors shall be and constitute such emergency Board of Directors, with two (2) thereof constituting a quorum, for the exercise of the powers conferred and performance of the duties imposed by this Section 4. Section 5. If, during any emergency, neither a quorum of the Board of Directors, as provided in Section 3 of this Article, nor a quorum of the emergency Board of Directors, as provided for in Section 4 of this Article is available to serve, then the powers conferred and duties imposed by Section 4 shall vest in and devolve upon any three (3) of (in the following order of priority) available directors, Executive Vice Presidents, the Chief Financial Officer, and as many other Vice Presidents (or, in case of their inability, any other officers), in order of seniority, as may be necessary from time to time to constitute a total of three (3) emergency directors. The Chief Executive Officer and any other one (1) emergency director shall constitute a quorum of such emergency Board of Directors for exercise of the powers conferred and performance of the duties imposed hereunder, but if the Chief Executive Officer is not available, any two (2) of such emergency directors shall constitute a quorum. 9 EX-12.1 4 STATEMENT RE: COMPUTATION OF RATIOS
EXHIBIT 12.1 UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES For the Six Months Ended June 30 -------------------- Millions of dollars 1999 1998 - -------------------------------------------------------------------------------- ........................................................ Earnings (loss) from operations ............................ $ 16 $123 Provision for income taxes ................................. 41 138 - -------------------------------------------------------------------------------- Earnings (loss) subtotal .......................... 57 261 Fixed charges included in earnings: Interest expense ........................................ $ 93 $ 83 Distribution on convertible preferred securities ........ 16 16 Interest portion of rentals ............................. 10 12 - -------------------------------------------------------------------------------- Fixed charges subtotal ............................ 119 111 Earnings from operations available before fixed charges .......................... $176 $372 - -------------------------------------------------------------------------------- Fixed charges: Fixed charges included in earnings ...................... $119 $111 Capitalized interest .................................... 9 17 - -------------------------------------------------------------------------------- Total fixed charges ............................... $128 $128 - -------------------------------------------------------------------------------- Ratio of earnings from operations to fixed charges ........................................ 1.4 2.9 - --------------------------------------------------------------------------------
EX-12.2 5 STATEMENT RE: COMPUTATION OF RATIOS
EXHIBIT 12.2 UNION OIL COMPANY OF CALIFORNIA AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES For the Six Months Ended June 30 -------------------- Millions of dollars 1999 1998 - -------------------------------------------------------------------------------- .................................................. Earnings (loss) from operations ...................... $ 30 $134 Provision for income taxes ........................... 45 144 - -------------------------------------------------------------------------------- Earnings subtotal .............................. 75 278 Fixed charges included in earnings: Interest expense .................................. 93 83 Interest portion of rentals ....................... 10 12 - -------------------------------------------------------------------------------- Fixed charges subtotal ......................... 103 95 Earnings (loss) from operations available before fixed charges .................... 178 373 - -------------------------------------------------------------------------------- Fixed charges: Fixed charges included in earnings ................ 103 95 Capitalized interest .............................. 9 17 - -------------------------------------------------------------------------------- Total fixed charges ............................ $112 $112 - -------------------------------------------------------------------------------- Ratio of earnings from operations to fixed charges ................................. 1.6 3.3 - --------------------------------------------------------------------------------
EX-27 6 ARTICLE 5 FC FOR 2ND Q 10-Q
5 Unocal Corporation FDS 1,000,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 168 0 935 (62) 158 1,327 16,109 (10,269) 8,572 1,179 2,802 0 0 253 2,367 8,572 2,684 2,786 1,975 2,729 147 0 93 57 41 16 0 0 0 16 0.07 0.07
EX-99.B2 7 UNION OIL EXHIBIT 99 BYLAWS OF UNION OIL COMPANY OF CALIFORNIA a California Corporation (Effective April 1, 1999) ARTICLE I FISCAL YEAR Section 1. The fiscal year of Union Oil Company of California (hereinafter called the "Company") shall end on the thirty-first day of December of each year. ARTICLE II OFFICES Section 1. Principal Office. The principal office for the transaction of business of the Company is hereby fixed and located at 2141 Rosecrans Avenue, Suite 4000, in the City of El Segundo, County of Los Angeles, State of California. The Board of Directors (hereinafter sometimes called the "Board") is hereby granted full power and authority to change said principal office from one location to another in said county. ARTICLE III SHAREHOLDERS Section 1. Annual Meetings. The annual meetings of the shareholders shall be held at a time to be fixed by resolution of the Board on the fourth Monday in May of each year if not a legal holiday, for the purpose of electing directors and for the transaction of any other business which is within the powers of the shareholders. If the fourth Monday in May is a legal holiday, the annual meeting of the shareholders shall be held on the preceding or subsequent Monday as fixed by resolution of the Board. The mailing of an annual report to the shareholders not later than 120 days after the close of the fiscal year is waived. Section 2. Special Meetings. Special meetings of the shareholders for any purpose whatsoever may be called at any time by the Chairman of the Board, the Chief Executive Officer, the Board, or by one or more shareholders holding not less than ten percent of the voting power of the Company upon request in writing to the Chairman of the Board, the Chief Executive Officer, the Vice Chairman, a Vice President or the Secretary. The business transacted at special meetings shall be confined to the purpose or purposes stated in the notice of such meetings. Section 3. Notice of Meetings. Written notice of each annual or special meeting of shareholders shall be given to each shareholder entitled to vote thereat not less than ten nor more than sixty days before the meeting. Section 4. Place of Meetings. All meetings of shareholders, whether annual or special, shall be held at the principal office of the Company or at such other place, within or without the State of California, as the Board may from time to time designate pursuant to authority hereinafter granted it. In the absence of any such designation, shareholders' meetings shall be held at the principal office of the Company. Section 5. Voting Rights. Shareholders entitled to vote at shareholder meetings shall be entitled to one vote for each full share. A fraction of a share or a fractional interest in a share shall not be entitled to any voting rights whatsoever. Section 6. Conduct of Meetings. The decisions of the Chairman of the Board or officer presiding at all shareholders' meetings shall govern in all matters relating to the conduct of the meeting. 1 Section 7. Voting. Directors shall be elected in accordance with the provisions of the California Corporations Code by holders of shares entitled to vote in the election. Section 8. Action Without a Meeting. Any action which may be taken at any annual or special meeting may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, shall be signed by the holders of the outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Directors may not be elected by written consent except by unanimous written consent of all shares entitled to vote for the election of directors. ARTICLE IV BOARD OF DIRECTORS Section 1. Powers. Subject to the limitations of the Restated Articles of Incorporation of the Company and of the California General Corporation Law as to action required or authorized to be approved by the shareholders, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the Company shall be managed by, the Board of Directors. Section 2. Number. The number of directors of the Company shall not be less than four (4) nor more than seven (7). The exact number of directors of the Company shall be fixed by resolution of the Board of Directors. Section 3. Chairman and Vice Chairman of the Board. The Board shall appoint a Chairman, who shall preside at all meetings of the Board of Directors and shall have such other powers and duties as may from time to time be assigned by the Board of Directors or prescribed by the Bylaws. The Board may also appoint a Vice Chairman, who shall preside at all meetings of the Board of Directors in the absence of the Chairman and shall have such other powers and duties as may from time to time be assigned by the Board of Directors or prescribed by the Bylaws. Section 4. Annual Meetings. Immediately following each annual meeting of shareholders, the Board shall hold its annual meeting for the purpose of organization, election of officers and the transaction of any other business. Section 5. Regular Meetings. Regular meetings of the Board shall be held at the times and on the dates fixed by resolution of the Board. Section 6. Special Meetings. Special meetings of the Board for any purpose or purposes whatsoever may be called by the Chairman of the Board and Chief Executive Officer or, in his absence or inability by the Vice Chairman, the Chief Financial Officer, or by at least two (2) of the directors at the time in office. Section 7. Notice of Meetings. Notice of annual meetings and of regular meetings of the Board is hereby dispensed with. Notice of special meetings must be given at least two days in advance if given by mail, or at least one hour in advance if delivered personally or given by telephone or other electronic means. Section 8. Place of Meetings. All meetings of the Board, whether annual, regular or special meetings, shall be held at any place within or without the State of California which has been designated from time to time by resolution of the Board or in the notice of the meeting. In the absence of such designation all directors' meetings shall be held at the principal office of the Company. Section 9. Quorum. The higher of two (2) or one-third (1/3) of the number of directors fixed by resolution adopted pursuant to Section 2 of this Article of the Bylaws shall constitute a quorum of the Board of Directors for the transaction of business; provided, however, that vacancies on the Board may 2 be filled by a majority of the remaining directors or by a sole remaining director, each such director to hold office until a successor is elected at an annual or special meeting of the shareholders. Section 10. Compensation of Directors. Directors and members of committees appointed by the Board shall receive such compensation, if any, for their services, and such reimbursement for their expenses as may be fixed or determined by resolution of the Board. The Board may, however, in any such resolution provide that directors who are also employees of the Company or any of its subsidiaries shall not receive additional compensation for services as a director or member of a committee appointed by the Board. Section 11. Indemnification of Directors, Officers, Employees and Other Agents. (a) The Company shall, to the maximum extent permitted by the General Corporation Law of California, indemnify each of its directors and officers against all expense, liability, and loss, including without limitation, attorneys' fees, judgments, fines, ERISA excise taxes, penalties, amounts paid or to be paid in settlement, and any other amounts actually incurred in connection with any proceeding arising by reason of the fact any such person is or was a director or officer of the Company and shall advance to such director or officer expenses incurred in defending any such proceeding to the maximum extent permitted by such law. For purposes of this section, a "director" or "officer" of the Company includes any person who is or was a director or officer of the Company, or is or was serving at the request of the Company as a director, officer, trustee, or fiduciary, or in a similar capacity, of another foreign or domestic corporation, limited liability company, partnership, joint venture, trust, or any other enterprise or entity whatsoever, including without limitation service with respect to employee benefit plans. (b) The Board of Directors may in its discretion provide by resolution, either on a general basis or as to specific employees or agents, for similar indemnification of, or advance of expenses to, other employees or agents of the Company, and likewise may refuse to provide for such indemnification or advance of expenses except to the extent such indemnification is mandatory under the California General Corporation Law. (c) The Company shall maintain in full force and effect, at its own expense, director and officer liability insurance ("Insurance") coverage for each director and officer in amounts and scope at least as favorable as that maintained by the Corporation on September 30, 1996, or, to the extent more favorable, any Insurance policy entered into or renewed by the Company following such date. Notwithstanding the foregoing, if the Company, after using its best efforts, cannot obtain and purchase such coverage for an amount no more than what it paid for the most recent expiring Insurance policy plus a reasonable additional amount, the Company shall only be required to purchase such Insurance coverage for any act or omission occurring at or prior to the time of such date. (d) The rights provided to any person by this bylaw shall be enforceable against the Company by such person, who shall be presumed to have relied upon it in serving or continuing to serve as a director or officer, as provided above. No amendment of this bylaw shall impair the rights of any person arising at any time with respect to events occurring prior to such amendment, including, without limitation, any right of a director or officer to Insurance for any act or omission occurring at or prior to the time of such amendment. Section 12. Authority to Designate Place of Shareholders' Meetings. The Board is hereby granted full power and authority to designate from time to time any place within or without the State of California for the holding of any shareholders' meeting, whether annual or special. Section 13. Committees. A majority of the Board may, by resolution, appoint one or more committees to consist of two or more of the directors of the Company, and prescribe their duties and powers. Two of the members of any such committee may determine its action and fix the time and place of its meetings 3 unless the Board shall otherwise provide. The Board shall have the power at any time to fill vacancies in, to change the membership of, or to dissolve any such committee. Section 14. Action by Written Consent. Any action required or permitted to be taken by the Board or any committee thereof may be taken without a meeting, if all members of the Board or such committee, as the case may be, shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Section 15. Conference Calls. Members of the Board or any committee thereof may participate in a meeting through use of conference telephone or similar communications equipment as permitted by the California General Corporation Law. ARTICLE V OFFICERS Section 1. Officers. The officers of the Company shall be a Chairman, a Chief Executive Officer, a Chief Financial Officer, a Vice President, a Secretary, a Comptroller, a Treasurer, and a Chief Legal Officer. The Company may also have, at the discretion of the Board, one (1) Vice Chairman, one (1) or more Vice Presidents, who may be designated as Executive Vice Presidents, Group Vice Presidents, Senior Vice Presidents or Vice Presidents, one (1) or more Assistant Chief Financial Officers, one (1) or more Assistant Secretaries, one (1) or more Assistant Treasurers, and one (1) or more Assistant Comptrollers, and the Board may appoint such other officers as it may deem necessary or advisable, who shall have such authority and perform such duties as from time to time may be prescribed by the Board, the Chairman of the Board, or the Chief Executive Officer. Any two (2) or more offices may be held by the same person. Section 2. Election and Removal. The officers of the Company shall be chosen annually by the Board at its annual meeting and each shall hold office until the corresponding annual meeting of the Board in the next year and until a successor shall be elected and qualified unless such officer shall theretofore resign or shall be removed or otherwise disqualified to serve. The Board may remove any officer either with or without cause or under such other terms or conditions as it may prescribe. Vacancies may be filled by the Board as they may occur. Section 3. Powers and Duties. (a) Chief Executive Officer. The Chief Executive Officer shall be the officer, reporting directly to the Board, responsible for overall management of the Company and shall have general supervision, direction and control over the business and affairs of the Company and its officers. The Chief Executive Officer shall perform all duties incident to the office of Chief Executive Officer and shall have such powers and duties as may from time to time be assigned by the Board of Directors or prescribed by the Bylaws. (b) Executive Vice Presidents. The Executive Vice Presidents in general shall perform all duties incident to the office of Executive Vice President, and shall have such powers and duties as may from time to time be assigned by the Board of Directors, the Chief Executive Officer or prescribed by the Bylaws. (c) Other Vice Presidents. Other Vice Presidents, who may be designated as Group Vice Presidents, Senior Vice Presidents or Vice Presidents, shall have such authority and shall perform such duties as shall from time to time be assigned by the Board of Directors, the Chief Executive Officer, the Executive Vice Presidents or prescribed by the Bylaws. (d) Chief Financial Officer. The Chief Financial Officer shall have such authority and shall perform such duties as shall from time to time be assigned by the Board, the Chief Executive Officer or prescribed by the Bylaws. 4 (e) Assistant Chief Financial Officer. Each Assistant Chief Financial Officer shall assist the Chief Financial Officer and shall perform such duties as shall from time to time be assigned by the Board, the Chief Executive Officer or the Chief Financial Officer. (f) Secretary. The Secretary shall keep, or cause to be kept, at the Company's offices, a book of minutes of all meetings of directors and shareholders. The Secretary shall keep or cause to be kept at the principal office, or at the office of the Company's transfer agent, a share register, which may be an electronic database, showing the names of the shareholders of record and their addresses, the number and classes of shares held by each, the numbers and dates of the certificates issued for those shares, and the numbers and dates of cancellation of every certificate surrendered for cancellation. The Secretary shall give or cause to be given notice of all meetings of the shareholders and the Board required to be given by the Bylaws or by law. The Secretary shall have charge of and be custodian of the seal of the Company and the minute books and documents relating to the existence and governance of the Company. The Secretary shall have such other powers and perform such other duties as may from time to time be prescribed by the Board, the Chairman of the Board, the Chief Executive Officer or the Bylaws, and shall in general, subject to control of the Board, the Chairman of the Board and the Chief Executive Officer, perform all the duties usually incident to the office of secretary of a corporation. (g) Assistant Secretaries. Each Assistant Secretary shall assist the Secretary and, in the absence or disability of the Secretary, may perform the duties of the Secretary unless and until the contrary is expressed by the Board, and shall perform such other duties as may be prescribed by the Board or the Secretary. (h) Treasurer. The Treasurer shall have custody of and be responsible for all the monies and funds of the Company. The Treasurer shall deposit or cause to be deposited all Company monies, funds and other valuables in the name and to the credit of the Company in such bank or banks as shall be proper or as shall be directed by the Board, the Chief Executive Officer, or the Chief Financial Officer, and shall disburse the funds of the Company which have been duly approved for disbursement. The Treasurer shall enter or cause to be entered regularly in the books of the Company full and accurate accounts of all monies received and paid out on account of the Company. The Treasurer shall have such other powers and perform such other duties as may from time to time be prescribed by the Board, the Chief Executive Officer, the Chief Financial Officer or the Bylaws, and shall in general, subject to control of the Board, the Chief Executive Officer, and the Chief Financial Officer, perform all the duties usually incident to the office of treasurer of a corporation. (i) Assistant Treasurers. Each Assistant Treasurer shall assist the Treasurer and, in the absence or disability of the Treasurer, may perform the duties of Treasurer unless and until the contrary is expressed by the Board, and shall perform such other duties as may be prescribed by the Board or the Treasurer. (j) Comptroller. The Comptroller shall be the principal officer in charge of the general accounting books, accounting records and forms of the Company and shall see that all monies and obligations due the Company and all properties and assets are properly accounted for. The Comptroller shall prepare the Company's balance sheets, income accounts and other financial statements and reports, and render to the Board, the Chief Executive Officer, and the Chief Financial Officer, such periodic reports covering the results of operations of the Company as may be required by them or any of them. 5 The Comptroller shall have such other powers and perform such other duties as may from time to time be prescribed by the Board, the Chief Executive Officer, the Chief Financial Officer or the Bylaws, and shall in general, subject to control of the Board, the Chief Executive Officer, and the Chief Financial Officer, perform all the duties usually incident to the office of comptroller of a corporation. (k) Assistant Comptrollers. Each Assistant Comptroller shall assist the Comptroller and, in the absence or disability of the Comptroller, may perform the duties of the Comptroller unless and until the contrary is expressed by the Board, and shall perform such other duties as may be prescribed by the Board or the Comptroller. (l) Chief Legal Officer. The Chief Legal Officer shall be in charge of the Company's legal affairs. The Chief Legal Officer shall advise the Board, the Chairman of the Board and/or the officers of the Company on such legal matters and prepare such reports as may be required by them or any of them. ARTICLE VI MISCELLANEOUS Section 1. Execution of Documents. Unless otherwise authorized by or pursuant to a resolution of the Board of Directors, all contracts, leases, deeds, deeds of trust, mortgages, bonds, indentures, endorsements, assignments, powers of attorney to transfer stock or for other purposes, and other documents and instruments of whatsoever kind shall be executed for and on behalf of the Company by the Chairman and Chief Executive Officer, the Vice Chairman, the Chief Financial Officer, a Vice President, the Treasurer, the Comptroller, or by any such officer and shall be attested by the Secretary or an Assistant Secretary, who shall have authority to affix the corporate seal to the same. Section 2. Undertakings and Commitments. No undertaking, commitment, contract, instrument or document shall be binding upon the Company unless previously authorized or subsequently ratified by the Board or executed by an officer or officers, an employee or employees or an agent or agents of the Company acting under powers conferred by the Board or by these Bylaws. Section 3. Checks, Drafts, etc. All checks, notes and other obligations for collection, deposit or transfer, and all checks and drafts for disbursement from Company funds, and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, shall be endorsed or signed by such officer or officers, employee or employees or agent or agents as shall be authorized from time to time to do so by or pursuant to a resolution of the Board of Directors. Section 4. Representation of Shares of Other Corporations. Shares standing in the name of the Company may be voted or represented and all rights incident thereto may be exercised on behalf of the Company by the Chairman and Chief Executive Officer, the Vice Chairman, the Chief Financial Officer, a Vice President, the Secretary, the Treasurer or the Comptroller, or by such other officers upon whom the Board of Directors may from time to time confer like powers. ARTICLE VII AMENDMENTS Section 1. Power of Shareholders. New Bylaws may be adopted or these Bylaws may be amended or repealed by the vote or written assent of shareholders entitled to exercise a majority of the voting power of the Company. Section 2. Power of Directors. Subject to the right of shareholders as provided in Section 1 of this Article to adopt, amend or repeal Bylaws, Bylaws may be adopted, amended or repealed by the Board of Directors as provided or permitted by law. 6 ARTICLE VIII EMERGENCY Section 1. "Emergency" as used in this Article means disorder, disturbance or damage caused by war, enemy attack, other warlike acts or by catastrophe, disaster or other similar emergency condition, which prevents the conduct and management of the affairs and business of the Company by the Board of Directors and officers in the manner provided for in other Articles of these Bylaws. The powers and duties conferred and imposed by this Article, and any resolutions adopted pursuant hereto, shall be effective only during an emergency. This Article may be implemented from time to time by resolutions adopted by the Board of Directors before or during an emergency, or during an emergency by the emergency Board of Directors constituted and then acting pursuant hereto. An emergency, once commenced, shall be deemed to continue until terminated by resolutions adopted for that purpose by the Board of Directors. Section 2. If, during any emergency, a quorum of the Board of Directors is not available to serve, then, in the following order of priority, any available director and as many other Vice Presidents (or, in case of their inability, any other officers), in order of seniority, as may be necessary from time to time to constitute a total of two emergency directors, shall be and constitute the Board of Directors, and as such shall have and exercise the fullest power of the Board of Directors for the conduct and management of the affairs and business of the Company permitted by law, provided that such emergency Board of Directors as so constituted shall comply to the extent practicable under the circumstances with the provisions of ARTICLE III of these Bylaws relating to annual and special meetings of shareholders. Any two of such emergency directors shall constitute a quorum. Section 3. During any emergency, the officers and employees of the Company shall continue, so far as possible, to conduct the Company's affairs and business under the guidance of the Board of Directors acting pursuant to this Article and in accordance with known orders of governmental authorities. 7 -----END PRIVACY-ENHANCED MESSAGE-----