-----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, GzhcsQv2wIr3HrksmeKcscH0zJ4KRMJCyYxcUehGFcu+cqO1sptu5l0XUxYdmkUJ kMWo/rJGeHgwvfy4Df3lJQ== 0000898430-96-001095.txt : 19960401 0000898430-96-001095.hdr.sgml : 19960401 ACCESSION NUMBER: 0000898430-96-001095 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNOCAL CORP CENTRAL INDEX KEY: 0000716039 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 953825062 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08483 FILM NUMBER: 96541645 BUSINESS ADDRESS: STREET 1: 2141 ROSECRANS AVE STREET 2: SUITE 4000 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107267713 10-K 1 1995 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ----- SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 ----------------- Commission file number 1-8483 UNOCAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 95-3825062 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2141 ROSECRANS AVENUE, SUITE 4000, EL SEGUNDO, CALIFORNIA 90245 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (310) 726-7600 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered ------------------- ----------------------------------------- Common Stock, par value $1.00 per share New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Chicago Stock Exchange Pacific Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 ---- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 15, 1996 (based upon the average of the high and low prices of these shares reported in the New York Stock Exchange Composite Transactions listing for that date) was $7,869 million. Shares of Common Stock outstanding as of March 15, 1996: 247,860,562 DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive Proxy Statement for its 1996 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission on or about April 22, 1996) are incorporated by reference into Part III. PART I ITEMS 1 AND 2 - BUSINESS AND PROPERTIES HISTORY AND ORGANIZATION Unocal Corporation was incorporated in Delaware on March 18, 1983, to operate as the parent of Union Oil Company of California (Union Oil), which was incorporated in California on October 17, 1890. Virtually all operations are conducted by Union Oil and its subsidiaries. The terms "Unocal" and "the company" as used in this report mean Unocal Corporation and its subsidiaries, except where the context indicates otherwise. Unocal is a fully integrated energy resources company whose worldwide operations comprise many aspects of energy production. During 1995, the company reorganized its business into the following segments in order to remain focused on its most critical business activities: . EXPLORATION AND PRODUCTION - this segment is engaged in the exploration for, and the production and marketing of, crude oil, condensate, natural gas and natural gas liquids. . REFINING, MARKETING AND TRANSPORTATION 76 PRODUCTS COMPANY - this segment is principally responsible for the company's West Coast petroleum refining operations, marketing and transportation of refined petroleum products and the manufacturing and marketing of petroleum coke. . GEOTHERMAL AND POWER OPERATIONS - this segment is involved in the exploration for, and the production and sale of, geothermal resources for the generation of electricity. . DIVERSIFIED BUSINESSES: AGRICULTURAL PRODUCTS - manufactures and markets nitrogen-based fertilizers for wholesale markets to the western United States and to the Pacific Rim. CARBON AND MINERALS - produces and markets petroleum coke (other than on the West Coast), graphites, solvents and specialty minerals. PIPELINES - principally includes the company's equity interests in affiliated pipeline companies. OTHER - includes the development and sale of real estate assets and the company's equity interest in The UNO-VEN Company, a refining and marketing partnership in the midwestern United States. Unocal competes in a challenging business environment of global competition, political instability, rapid technological developments, volatile oil and gas prices, and rising costs of complying with environmental regulations. In order to meet these challenges, the company's focus remains on its basic businesses and core competitive strengths. In keeping with this emphasis, the company continues to sell assets that were marginally related to its core activities or that were not a good strategic fit for Unocal. In February 1996, Unocal and Nuevo Energy Company signed an asset purchase agreement for the sale of nearly all of Unocal's crude oil and natural gas producing properties in California. Torch Energy Advisors, Inc. negotiated the sale and will operate the properties on behalf of Nuevo. Proceeds from the sale will allow Unocal to reduce debt and help fund core activities in Central and Southeast Asia. The company is in the process of retaining an advisor to assist in the disposal of its oil and gas interests in the Netherlands sector of the North Sea as the company continues to shift its focus to Southeast Asia and other areas that offer greater growth opportunities. In February 1994, the company was granted a United States patent for reformulated gasolines that meet the 1996 California state standards for reduced emissions. Six refining companies filed suit against Unocal in April 1995 to invalidate the patent or declare it unenforceable. See Item 3-Legal Proceedings. The company intends to aggressively defend its rights under this patent. The company's research activities were phased out at its Brea, California facility during 1995, and routine laboratory operations and seismic data processing were outsourced. The decision to outsource was based on projected cost savings. Selected research activities are now handled by the operating segments. For a detailed analysis of the company's financial results and information on capital expenditures, see Management's Discussion and Analysis under Item 7 beginning on page 19 of this report. 1 SEGMENT AND GEOGRAPHIC INFORMATION Financial information relating to the company's business segments, geographic areas of operations, and sales revenues by classes of products is presented under Note 24 to the consolidated financial statements, on page 55 of this report. PETROLEUM OPERATIONS Information regarding oil and gas financial data and oil and gas reserve data and its related present value of future net cash flow is presented on pages 60 through 65 of this report. During 1995, certain estimates of underground oil and gas reserves were filed with the Department of Energy under the name of Union Oil. Such estimates were consistent with reserve data filed with the Securities and Exchange Commission. WORLDWIDE OIL AND GAS ACTIVITIES Unocal conducts exploration, production and development activities, including low-risk exploration within producing areas with major operations in the United States, Thailand, Indonesia and Canada. Exploration and production operations make up approximately 48 percent of Unocal's assets, and of this, operations in the United States make up 65 percent of the current asset base. Unocal's future growth will focus principally in the foreign sector, with a concentration in the Far East. In addition, growth opportunities in the United States will focus in the Gulf of Mexico.
WORLDWIDE 1995 1994 1993 - ---------------------------------------------------------------- NET PROVED RESERVES AT YEAR END: (a) Crude oil and condensate - million 667 697 764 barrels Natural gas - billion cubic feet 6,765 6,911 6,632 NET DAILY PRODUCTION: (a) Crude oil and condensate - thousand barrels 240 260 246 Natural gas - million cubic feet 1,765 1,766 1,599 Natural gas liquids - thousand barrels 21 22 20 NATURAL GAS SALES TO PUBLIC - MILLION 1,513 1,529 1,422 CUBIC FEET DAILY - ----------------------------------------------------------------
(a) Includes foreign production sharing agreements on a gross basis. Natural gas is reported on a wet-gas basis; production excludes gas consumed on lease. The decrease in worldwide crude oil production was mainly due to natural production declines and the sale of nonstrategic domestic properties. Due to the accelerated development program initiated in 1993, worldwide natural gas production remains stable, despite the sales of domestic oil and gas producing properties. Operating expense decreased in 1995 due primarily to the sale of nonstrategic domestic properties and cost reductions. In 1995, average production costs per barrel of oil equivalent were $2.94, down from $3.00 and $3.40 for 1994 and 1993, respectively. Unocal pursues exploration opportunities and business development projects to sustain the long-term growth of the company. The company's exploration activity in high-risk, high-potential wildcat areas is limited to projects that pass rigorous geotechnical and economic review. This assures concentration of technical talent and resources on the most promising areas which have the highest potential value to the company. 2 UNITED STATES EXPLORATION In an effort to reduce exploration risk, Unocal has formed drilling venture teams to actively solicit opportunities to farm into ready-to-drill projects in parts of Texas, Oklahoma, Louisiana and the Gulf of Mexico. The company anticipates this approach will not only reduce risk, but will also put cash to work more efficiently, offer cash flow recovery and provide upside potential if energy prices rise. The company holds approximately 1.2 million net acres of unproved lands in the United States. Most of these lands are located in Alaska, Louisiana, Texas, California and New Mexico. Unproved acreage in federal offshore exploration and production areas is included in the contiguous states. Unocal concentrates its domestic exploration activities in the Gulf of Mexico. The company foresees exploration potential along the entire Louisiana Coast. In 1996, Unocal has plans to drill 16 offshore exploration wells and 4 onshore Texas/Louisiana coast wells. The company is also planning 24 development wells and 141 recompletions. Unocal has recently leased eight deep- water blocks in a lease sale. The company has acquired 3-D surveys for use in evaluating exploration potential near existing fields. In the past, these types of surveys have identified opportunities which resulted in increased production. PRODUCTION The company holds approximately 815,000 net acres of proved lands in 19 states. Most of these lands are located in Texas, Louisiana, California, Alaska, Oklahoma, and New Mexico. Proved acreage in federal offshore exploration and production areas is included in the contiguous states. Unocal's domestic crude oil production comes principally from fields in Alaska (32%), California (23%), Texas (19%) and Louisiana (21%). Approximately 43% of domestic natural gas production is from offshore and onshore fields in Louisiana, with most of the balance coming from Texas (26%), Alaska (13%), New Mexico (4%), Oklahoma (3%) and California (2%). Unocal has varying ownership interests in 21 natural gas processing plants located near major gas fields in the United States. Of the 21 natural gas processing plants, interests in 3 are included in the expected sale of the California oil and gas producing properties. The company operates 11 of these plants and has full ownership in four. Nineteen of the 21 processing plants were active in 1995.
UNITED STATES 1995 1994 1993 - ---------------------------------------------------------------- NET PROVED RESERVES AT YEAR END:(a) Crude oil and condensate - million 387 419 483 barrels Natural gas - billion cubic feet 3,261 3,580 3,727 NET DAILY PRODUCTION:(a) Crude oil and condensate - thousand 125 137 148 barrels Natural gas - million cubic feet 1,103 1,095 952 Natural gas liquids - thousand 16 16 15 barrels NATURAL GAS SALES TO PUBLIC - MILLION 882 873 752 CUBIC FEET DAILY - ----------------------------------------------------------------
(a) Natural gas is reported on a wet-gas basis; production excludes gas consumed on lease. The decline in crude oil and condensate production reflects the sale of nonstrategic oil and gas producing properties and natural production decline. The company expects oil and gas production to further decline in 1996 due to the sale of its California oil and gas producing properties anticipated to be completed in April 1996. Domestic natural gas production in 1996 is expected to be 58% of the company's total production with most coming from the Louisiana/Gulf Coast area. Even though Unocal's 1995 domestic natural gas production remained at about the same level as 1994, production in the Gulf of Mexico has increased over 30 percent since 1993. 3 Most of the company's crude oil produced in the United States is sold to third parties. A substantial portion of the natural gas produced domestically is sold to third parties under contracts having terms of less than two years. The company believes that it has sufficient production capacity in the U.S. to meet the contracted deliveries. Another significant portion of the domestic gas production is sold to third parties in the spot market. The remainder is primarily used in the company's agricultural products manufacturing operations or as fuel in its refineries. FOREIGN EXPLORATION Unocal pursues oil and gas exploration and development opportunities overseas, primarily in Thailand, Azerbaijan, Myanmar and Indonesia. Unocal is also pursuing oil and gas exploration and development opportunities in Turkmenistan, Pakistan, China and Vietnam. THAILAND. Considerable exploration potential still exists in the Gulf of Thailand. Natural gas markets for electricity generation are projected to grow by 50 percent by the year 2000 and double by 2010. During 1995 and early 1996, Unocal drilled 29 exploration, appraisal and delineation wells, of which 22 were successful. This program has extended the limits of currently producing fields, proved commerciality of the Pladang and Trat fields and delineated the Pailin field. Further drilling is expected to take place in Pailin in 1996, subject to the signing of the Pailin gas sales agreement, to extend the field to the north and potentially increase the ultimate daily contract quantity. AZERBAIJAN. Unocal is part of an international consortium participating in the development of three oil fields in the Caspian Sea offshore Azerbaijan. In October 1995, the consortium announced two pipeline routes for the export of initial oil production from Azerbaijan to the Black Sea. The success of the initial oil program will help determine the feasibility of full field development. A delineation drilling program, scheduled for completion in 1997, will help determine proved reserves in the three fields. Unocal holds a 9.5 percent interest. Significant issues remain to be resolved, including contractual agreements and the routing and construction of a new export pipeline, before full field development can begin. MYANMAR. During 1996, a major focus of capital spending will be the Yadana project offshore Myanmar of which Unocal holds a 28.26 percent interest. This natural gas project, which is expected to include four offshore platforms, should begin operations by mid-1998. When fully developed, estimated gross production is expected to reach 650 million cubic feet of natural gas per day in 1999. Most of the Yadana natural gas production will be shipped by pipeline to an electric power plant southwest of Bangkok, Thailand. In March 1996, a potentially significant new gas field was discovered about six miles south of the Yadana field. Further studies are under way to prove the commerciality of the new discovery. The discovery could be produced through the Yadana platform complex currently under construction. INDONESIA. Oil and gas production has been revitalized in Indonesia as a result of a successful exploration and development program. Since December 1993, when the current exploration phase started, Unocal drilled 25 exploration, delineation and appraisal wells, of which 15 were successful. Fifteen of these wells were drilled in 1995, with nine successes. The Company conducted an extensive exploration 3-D seismic program in 1995 and another program is planned for early 1996. An aggressive exploration and delineation drilling program is also planned for 1996, which will use drilling technology developed by the company to drill as many as 30 wells in one year. The company will continue to seek new production sharing agreements in Indonesia. 4 PRODUCTION Unocal has oil and gas production in six foreign countries: Thailand, Indonesia, Canada, the Netherlands, United Kingdom and Zaire. Overseas, Unocal is the operator in each of these countries except Zaire. The company sells most of its foreign natural gas production to third parties under long-term contracts. The crude oil and condensate produced overseas are primarily sold at spot market prices to third parties.
FOREIGN 1995 1994 1993 - ---------------------------------------------------------------- NET PROVED RESERVES AT YEAR END: (a) Crude oil and condensate - million 280 278 281 barrels Natural gas - billion cubic feet 3,504 3,331 2,905 NET DAILY PRODUCTION: (a) Crude oil and condensate - thousand 115 123 98 barrels Natural gas - million cubic feet 662 671 647 Natural gas liquids - thousand barrels 5 6 5 NATURAL GAS SALES TO PUBLIC - MILLION CUBIC FEET DAILY 631 656 670 - ----------------------------------------------------------------
(a) Includes production sharing agreements on a gross basis. Natural gas is reported on a wet-gas basis; production excludes gas consumed on lease. THAILAND. Natural gas and condensate production began in Thailand in 1981 and is Unocal's primary gas producing area outside the United States. Unocal and its partners have spent more than $3.9 billion developing the offshore gas fields. In 1996, the Company expects to spend approximately $160 million on projects that will allow gross production to remain at 950 million cubic feet of gas per day, once a second pipeline becomes operational. Gross natural gas production averaged about 720 million cubic feet (mmcf) per day (466 mmcf net to Unocal) in 1995. Construction of the Petroleum Authority of Thailand's (PTT) second pipeline is expected to be completed by mid-1996. This second pipeline should allow Unocal to increase its net gas production from 466 mmcf per day in 1995 to 550 in 1996 and to 655 in 1998, mainly attributable to the Jakrawan, Funan and Gomin fields. Unocal's net working interests in all eight producing fields average 65 percent. The company is negotiating a separate gas sales agreement related to the development of the Pailin field where gross reserves may exceed one trillion cubic feet. Production from Pailin should start in 1998 at a gross rate of 150 million cubic feet per day and may peak at a rate of 250 million cubic feet per day by 1999. Unocal's share in this field is 35 percent. Unocal's future development plan in the Gulf of Thailand calls for delineation and additional development of the eight fields operated by Unocal under the existing gas sales contracts and the new Pailin field. For the next four years, the company plans to drill nearly 380 wells and install 32 additional production platforms. Estimated gross capital expenditures over the four year period are $1.0 billion ($632 million net for Unocal). Natural gas demand in Thailand is expected to continue its active growth over the next 10 to 15 years, providing a market for increased production from the Gulf of Thailand. Unocal's natural gas production in Thailand is sold under long-term contracts. The contract prices are based on formulas that allow prices to fluctuate with market prices. The company has typically supplied more natural gas to PTT than is called for in the daily contract quantity provisions of its sales contracts. In any event, the company's obligation to deliver gas to PTT is limited to the available economic production from its properties in Thailand. INDONESIA. Unocal operates seven producing oil and gas fields. Discoveries and extensions have increased production to the highest levels in more than a decade. Net production in 1995 averaged about 68,000 barrels of oil and 179 mmcf of natural gas per day. During 1995, the Seguni field was discovered and is expected to begin production early in 1996 from four wells at about 10,000 barrels of oil per day. The time from discovery to production is expected to be significantly reduced at this field, due to an innovative early production system. Further delination of this field is planned for 1996. In 1997, the Santan field is expected to start production, and the company is also planning a waterflood project in the Attaka field, which has already produced over 500 million barrels of crude oil. 5 CANADA. Net crude oil production averaged 13,900 barrels per day in 1995, down from 14,600 barrels per day in 1994. The decrease was due to natural production declines in mature fields and the sale of the Kidney field. Partially offsetting the decrease was the purchase of an additional working interest in the Virginia Hills unit. Unocal Canada operates the Aitken Creek natural gas storage facility in Northern British Columbia and has a working interest of approximately 94 percent. During 1995, fixed-price seasonal contracts were negotiated and resulted in the company receiving prices for winter sales which are currently averaging 30 to 35 percent more than the spot market. The contracts provide take-or-pay protection for the company. NETHERLANDS. Daily gross oil production from Unocal's five offshore fields averaged 14,000 barrels in 1995, up 6,100 barrels from 1994. Unocal holds an 80 percent working interest in all five fields. Gross natural gas production was 19 mmcf per day from two offshore gas fields. Unocal holds a 46 percent working interest in both fields. The company is currently pursuing advice to assist in the disposal of oil and gas interests in the Netherlands sector of the North Sea. UNITED KINGDOM. Gross production from the Heather field averaged 6,400 barrels of oil per day in 1995, down 15 percent from a year ago. The field is approaching the end of its production life and the company expects to abandon the field within the next few years. Unocal holds a 31.25 percent interest in this field. ZAIRE. Gross production from five fields averaged 19,600 barrels of oil per day in 1995, compared with 18,100 barrels per day in 1994. Production from new fault blocks accounted for the increase in production. Unocal holds a 17.7 percent interest in these fields. In light of the changing political climates and relationships between international oil companies and host governments in the foregoing countries and other parts of the world, including changes in posted or tax-reference prices for crude oil, increases in tax rates (sometimes retroactive) and demands for increased participation in the ownership of operations, there could be changes in the status of Unocal's exploration and production activities in these and other foreign countries during the coming years. 6
OIL AND GAS ACREAGE As of December 31, 1995 (thousands of acres) ------------------------------------------ Proved Acreage Prospective Acreage ----------------- ---------------------- Gross Net Gross Net ------ -------- ------------ ------- United States 1,197 815 1,562 1,218 Far East 417 257 11,754 6,930 Other Foreign 262 141 4,978 1,834 ----- ----- ------ ----- Total 1,876 1,213 18,294 9,982 ===== ===== ====== =====
PRODUCIBLE OIL AND GAS WELLS
As of December 31, 1995 ----------------------------------------- Oil Gas ----------------- ---------------------- Gross Net Gross Net ------ -------- ------------ ------- United States 5,514 3,740 1,827 881 Far East 221 155 398 295 Other Foreign 1,253 502 106 66 ----- ----- ------ ----- Total 6,988 4,397 2,331 1,242 ===== ===== ====== =====
The company had 143 gross and 91 net producible wells with multiple completions. DRILLING IN PROGRESS
As of December 31, 1995 ----------------------- Oil and Gas Wells ----------------------- Gross Net ------- -------- United States 34 18 Far East 85 56 Other Foreign 5 2 ----- ------ Total 124 76 ===== ======
The company had one waterflood project in process of installation at December 31, 1995. NET OIL AND GAS WELLS COMPLETED AND DRY HOLES
Productive Dry ------------------ ------------------ 1995 1994 1993 1995 1994 1993 ---- ---- ---- ---- ---- ---- Exploratory United States 15 7 9 11 10 11 Far East 7 9 4 7 3 3 Other Foreign 3 4 1 5 6 4 ---- ---- ---- ---- ---- ---- Total 25 20 14 23 19 18 ==== ==== ==== ==== ==== ==== Development United States 113 137 164 5 2 7 Far East 38 50 60 - 4 4 Other Foreign 32 19 17 1 4 2 ---- ---- ---- ---- ---- ---- Total 183 206 241 6 10 13 ==== ==== ==== ==== ==== ====
7 REFINING, MARKETING AND TRANSPORTATION -- 76 PRODUCTS COMPANY This business segment is principally responsible for the company's West Coast petroleum refining operations, marketing and transportation of refined petroleum products and the manufacturing and marketing of petroleum coke. REFINING The company owns three refineries in California that are operated by 76 Products Company, which carries out the company's refining and marketing activities. The refineries manufacture a complete line of high-quality petroleum products, including automotive gasoline, jet and turbine fuels, kerosene, diesel oils, automotive and industrial lubricating oils and petroleum coke. Green petroleum coke, a by-product of refining operations, is calcined for use in aluminum production and other industrial applications. Green coke is also used as a fuel. Calcining plants are located adjacent to the Santa Maria and San Francisco refineries. Rated capacities of crude oil processing units for the refineries are summarized below:
Refinery Barrels Per Day - ---------------------------------------------------- --------------- Los Angeles-Wilmington and Carson plants 130,000 San Francisco 77,000 Santa Maria 44,000
The Santa Maria refinery produces unfinished products for further processing at the company's Los Angeles and San Francisco refineries. Upgrades to the Los Angeles and San Francisco refineries are now complete and higher valued products are being produced along with the new reformulated gasolines (RFG) required by the California Air Resources Board. RFG must be sold at the retail level by June 1, 1996. The major construction at the refineries required to manufacture RFG was completed over a three-year period at a cost of approximately $400 million, $50 million under budget. The company's input to crude oil processing units and refinery production data are shown below:
Thousand barrels per day 1995 1994 1993 - ------------------------------------------------------------- Input to crude oil processing units: Crude oil 203 218 205 Other materials 10 13 12 ---- ---- ---- Total 213 231 217 ==== ==== ==== Refinery production: Gasoline 110 115 113 Jet fuel, kerosene and heating oil 24 21 22 Diesel fuel 38 35 28 Other products (lubricants, gas 62 78 71 oils, etc.) ---- ---- ---- Total 234 249 234 ==== ==== ====
The decrease in refinery production in 1995 was primarily due to extended scheduled maintenance at the refineries early in the year. 8 MARKETING The company markets gasoline and other refined petroleum products in the western United States under the "Unocal 76" trade name. Gasoline is marketed, directly or through marketers, to consumers at retail service stations, while jet fuels, diesel fuel, lube oil and heavy fuel oil are marketed to commercial users. A significant majority of retail outlets, including locations owned and leased by the company, are operated by independent dealers. The retail outlets also sell branded tires, batteries and other automobile accessories. Unocal currently operates about five percent of the retail outlets and is working toward operating between 20 to 25 percent. Unocal's retail marketing covers six western states: California, Arizona, Nevada, Hawaii, Washington and Oregon. The company has an approximate 13.6 percent market share in the greater Los Angeles metropolitan area, which is one of the world's largest and most competitive regional gasoline markets. The West Coast marketing network includes about 1,300 branded retail outlets (1,100 of which are in California) and 13 proprietary terminals. The company will continue to expand its marketing operations at retail outlets with the addition of new businesses to certain existing locations, such as FastBreak convenience stores, ProWash car washes, AutoPulse car maintenance services and quick-service restaurants. The company is also working to increase gasoline retail sales volumes by installing credit card readers at the dispensers and reconfiguring the service islands. In February 1996, Unocal entered into a strategic alliance with Fleetman, Inc. to market Fuelman Fleet Cards and also signed a Memorandum of Understanding with Southern Counties Oil Company/Cardlock Fuels System which could lead to joint construction, development and operation of unattended commercial fueling facilities throughout California. These agreements position the company as a leader in the West Coast commercial fleet fuel business. The company is actively pursuing joint ventures and alliances in order to improve its standing in markets outside California and Hawaii. In October 1995, Unocal and Circle K Corporation (Circle K), one of the nation's leading convenience store operators, signed a branding/licensing agreement for more than 400 Circle K sites in the Phoenix and Tucson, Arizona markets. In addition, Unocal expects to brand and supply 20 existing Circle K sites in Las Vegas, Nevada and the two companies plan to co-develop new service stations/convenience store sites in the Las Vegas area. In February 1996, Tosco Corporation, a petroleum refiner and marketer, announced that it had entered into a merger agreement with Circle K. The company's sales volumes of refined products are as follows:
Thousand barrels per day 1995 1994 1993 - ------------------------------------------------------------- Gasoline 145 133 129 Jet fuel, kerosene and heating oil 35 30 27 Diesel fuel 45 37 32 Other products (lubricants, gas oils, 44 52 46 etc.) ---- ---- ---- Total 269 252 234 ==== ==== ====
The increase in 1995 refined product sales volumes compared with 1994 is primarily related to the outside purchase and resale of refined products to other than retail customers. TRANSPORTATION The 76 Products Company has various interests in West Coast pipelines, through which crude oil production and purchases are transported to the company's refineries or to selling locations. At year-end 1995, the company's marine fleet consisted of one crude oil tanker and two refined product tankers. The company also has an extensive fleet of product tank trucks. 9 GEOTHERMAL AND POWER OPERATIONS This segment is involved in the exploration for and the production and sale of geothermal resources for the generation of electricity. Unocal is the world's largest supplier of geothermal energy for power generation, with major operations in California, the Philippines and Indonesia. The production of geothermal resources for power generation has been a core business for Unocal for a quarter of a century. Unocal holds over 100 geothermal patents in five countries. The company currently supplies geothermal energy for about 1,850 megawatts of installed generating capacity worldwide. Capital expenditures are expected to more than double to $110 million in 1996, focusing on projects in Indonesia. In November 1994, Unocal signed amended agreements with PERTAMINA, the Indonesian state energy company, and PLN, Indonesia's state utility, to develop and produce the Gunung Salak geothermal resource and to build and operate three new 55-megawatt electrical generating plants at the field on Java. These plants in addition to a third new 55-megawatt plant being built by PLN are expected to begin operation mid-1997. PLN operates two 55-megawatt electrical generating power plants that began operation during late 1994. When fully operational, the six electrical generating power plants will have a combined capacity of 330 megawatts (100 million barrels of oil equivalent over a project life of 30 years). The company will provide steam to all six of the Salak power plants and sell the electricity generated by the three plants to PLN. During 1995, in the Sarulla contract area on the island of Sumatra in Indonesia, a discovery well was drilled that indicated a highly productive geothermal resource. The slimhole well tested sufficient steam to fuel 23 megawatts of generating capacity. The company, which holds a 90 percent interest in the contract area, is continuing additional resource delineation to confirm commerciality of the field. Exploration of the 240,000-acre tract is being conducted under a 1993 contract signed with PERTAMINA, Indonesia's state oil and gas company. The contract calls for Unocal to explore for, appraise and develop geothermal resources of up to 1,000 megawatts (315 million barrels of oil equivalent over a project life of 30 years). If further drilling confirms the existence of commercially exploitable resources, Unocal will also build and operate power plants with the first of these scheduled to begin power generation in 1999 under an energy sales contract with PLN. The company expects to conduct additional exploration work at Sarulla. Unocal has been involved in the exploration and development of geothermal resources in the Philippines since 1971. The company operates the Tiwi and Mak- Ban geothermal fields which commenced production in 1979. In 1995, the Philippine National Power Corporation (NPC) selected Unocal as a strategic partner in NPC's privatization efforts. The company will participate in the rehabilitation of the 330-megawatt Tiwi and 330-megawatt Mak-Ban power plants. Unocal expects to participate in the ownership and operation of both the geothermal resource and power plants. Unocal has operated The Geysers, a dry-steam reservoir in Northern California, since 1967. The geothermal steam produced is purchased by a public utility for power generation. In 1996, the company is scheduled to begin a project to inject waste water from municipal treatment plants to recharge the reservoir. This injection project should increase the productivity and extend the life of this mature steam field. Below are geothermal reserves and operating data:
1995 1994 1993 ------------------------------ Net proved geothermal reserves at year end: - billion kilowatt-hours 144 143 125 - million equivalent oil barrels 216 215 188 Net daily production - million kilowatt-hours 16 21 20 - thousand equivalent oil barrels 24 31 30 Net geothermal lands in acres - proved 20,240 20,240 20,249 - prospective 457,380 457,380 457,943 Net producible geothermal wells 260 261 266
The lower net daily production in 1995 was due to seven months of discretionary curtailments at The Geysers by the public utility due to an abundant supply of low cost hydro-power available from record rainfalls and depressed natural gas prices. Steam production was lower in the Philippines due primarily to damage to the Tiwi facilities caused by a November typhoon. Increased production from Indonesian operations partially offset these decreases. 10 The present value of future net cash flows from proven geothermal reserves at year-end 1995 was $555 million. The net future cash flows are based on estimated future revenues less future development and production costs and income taxes. A 10 percent discount factor was used in calculating the present value. Estimated future revenues are based on estimated generation of electricity from proved reserves from existing and new facilities under development and on actual prices for geothermal steam pursuant to long-term service and energy sales contracts at year-end. Development and production costs related to future production are based on year-end cost levels and assume continuation of existing economic conditions. Income tax is computed by applying the appropriate year-end statutory tax rates to pretax future cash flows less recovery of the tax basis of proved properties, and reduced by applicable tax credits. The company cautions readers that the data on the present value of future net cash flows of geothermal reserves are based on many subjective judgments and assumptions. Different, but equally valid, assumptions and judgments could lead to significantly different results. Additionally, estimates of physical quantities of geothermal reserves, power plant efficiency factors, minimum contract purchase quantities, future rates of production and related prices and costs for such production are subject to extensive revisions and a high degree of variability as a result of economic and political changes. Any subsequent price changes will alter the results and the indicated present value of geothermal reserves. DIVERSIFIED BUSINESSES AGRICULTURAL PRODUCTS The Agricultural Products business unit manufactures and markets nitrogen- based fertilizers for wholesale markets to the western United States and to the Pacific Rim. Unocal's largest fertilizer manufacturing facility, located in Kenai, Alaska, produces ammonia and urea for agricultural applications using natural gas as feedstock. The natural gas comes primarily from nearby Unocal-operated fields. This manufacturing operation is supported by a system of West Coast terminals and product upgrading plants in Kennewick, Washington and West Sacramento, California. In 1995, Agricultural Products benefited from significant increases in ammonia and urea products sales prices primarily due to high demand in international markets. This was partially offset by higher manufacturing costs due to start-up expenses associated with an ammonia plant located in Finley, Washington. Plant improvements were completed and production began in December 1995. Production from the Finley plant is targeted for domestic markets which will allow more of the Kenai, Alaska facility's marketable production of ammonia and urea to target international markets. CARBON AND MINERALS The Carbon and Minerals business unit produces and markets petroleum coke (outside the West Coast), graphites, solvents, and specialty minerals. Green petroleum coke, a by-product of refining operations, is calcined for use in aluminum production and other industrial applications. Green coke is also sold in the United States and overseas as fuel. A calcining plant is located adjacent to The UNO-VEN Company's (UNO-VEN) Chicago Refinery. The Needle Coker Company, a joint venture equally owned by Unocal and UNO- VEN, produces calcined needle coke at facilities also adjacent to UNO-VEN's Chicago Refinery. Needle coke is a high quality petroleum coke used to make graphite electrodes for the production of steel in electric arc furnaces. Through its wholly owned subsidiary, Poco Graphite, Inc., the company manufactures premium graphite materials for use in electrodes, semiconductors, biomedical products and other advanced technologies. The subsidiary experienced its ninth consecutive year of sales growth. Unocal's mineral operations are carried out by Molycorp, Inc., a wholly owned subsidiary, which mines, processes and markets lanthanides. It operates a lanthanide mine and mill and a chemical plant at Mountain 11 Pass, California. Lanthanides have a variety of applications in industrial and electronic products, including high-strength magnets, television phosphors, and automobile and refining catalysts. Lanthanide markets have become highly competitive over the past 10 years with the entry of suppliers from China, Japan and Eastern Europe. Molycorp continued to focus its production on cerium, the demand for which is growing for use in automobile catalytic converters, polishing powders and glass to help filter ultraviolet radiation. Molycorp also owns an approximate 45 percent interest in Companhia Brasileira de Metalurgia e Mineracao, a Brazilian company which is the world's largest niobium producer. Niobium is used as a hardening agent in steel. Molycorp, in response to increased molybdenum demand and prices, is expected to resume operations in late 1996 at its molybdenum mine and mill in Questa, New Mexico. After being idle for approximately ten years, this mine is expected to produce about 14 million pounds per year of molybdenum when it reaches full production. Molybdenum is used in the production of stainless and alloy steels, nonferrous alloys, pigments, lubricants and catalysts. PIPELINES Pipelines principally includes the company's equity interests in petroleum pipeline companies in undivided interest systems and wholly owned pipeline systems throughout the United States, other than California. As of December 31, 1995, Unocal had interests in more than 7,200 miles of refined product pipelines and 6,500 miles of crude oil pipelines through these investments. Included in Unocal's pipeline investments are: 1) the Colonial Pipeline Company in which the company holds a 20.75 percent equity interest. The Colonial Pipeline system runs from Texas to New Jersey and transports a significant portion of all petroleum products consumed in its 13-state market area; and 2) the Unocal Pipeline Company, a wholly owned subsidiary of Unocal, holds a 1.36 percent participation interest in the TransAlaska Pipeline System (TAPS) which transports crude oil from the North Slope of Alaska to the port of Valdez in Alaska. In 1995, TAPS oil throughput averaged 1.6 million barrels per day, of which Unocal's share was approximately 22,000 barrels per day. In February 1996, Unocal sold its 15 percent interest in the Platte Pipeline Company, which owns 1,282 miles of crude oil pipeline. OTHER OPERATIONS Unocal's real estate activities include the development and sale of certain real estate assets for industrial, commercial and residential purposes. Unocal, through a subsidiary, owns a 50 percent interest in UNO-VEN, which owns and operates a refinery near Chicago, Illinois, 11 product terminals, two lubricant terminals and a lube oil blending and packaging plant. UNO-VEN has a long-term crude oil supply agreement with a subsidiary of Petroleos de Venezuela, S.A. (PDVSA), which provides 135,000 barrels per day of crude oil as feedstock for the refinery through the year 2009. The purchase prices of the crude oil are tied to refined product prices at the time of delivery. While this arrangement limits UNO-VEN's refining margins, it has provided UNO-VEN with earnings stability. All products produced from its refinery operations are marketed under the "76" trade name. UNO-VEN supplies, directly or through jobbers and marketers, approximately 2,500 service stations. UNO-VEN's wholesale marketing and bulk distribution network consists of 250 terminals. UNO-VEN is an Illinois general partnership. The managing general partners, each with a 50 percent interest, are Midwest 76, Inc., a subsidiary of Union Oil, and a subsidiary of PDV America Corp., (Petroleos de Venezuela America Corp.). PDV America Corp. is a wholly owned indirect subsidiary of PDVSA. 12 COMPETITION The energy industry is highly competitive. Unocal competes with numerous companies in all phases of its petroleum operations. The company competes with other producers and marketers of non-petroleum energy. Competition for finding, developing and producing oil and gas resources occurs in bidding for domestic prospective leases or foreign exploration rights, acquisition of geological, geophysical and engineering knowledge, and the cost- efficient development and production of proved oil and gas reserves. The future availability of prospective domestic leases is subject to competing land uses and federal, state and local statutes and policies. The company's geothermal and power operations are in competition with producers of other energy resources. Competition also exists in the manufacture, distribution and marketing of petroleum products. In the refining segment, the ability to produce high-value products at a competitive cost, while meeting regulatory standards, is of primary importance. On the marketing side, price, customer service, advertising and new product development are the major factors affecting competition. In the Agricultural Products business, the key competitive factors for the company's fertilizer products are prices, cost and availability of natural gas and other raw materials. EMPLOYEES As of December 31, 1995, Unocal had 12,509 employees compared to 13,127 a year ago. The decrease principally reflects the impact of business divestments and a two-year restructuring program. Of the total employees, 2,176 were represented by various labor unions. Collective bargaining agreements covering represented employees at Unocal's refineries and various other facilities were entered into during 1996. Most of these new labor agreements are for three-year terms. See page 67 of this report for information on total payroll and employee benefits costs. GOVERNMENT REGULATION Certain interstate crude oil pipeline subsidiaries of Unocal are regulated (as common carriers) by the Federal Energy Regulatory Commission (FERC). As a lessee from the United States government, Unocal is subject to Department of the Interior regulations covering activities onshore and on the Outer Continental Shelf (OCS). In addition, state regulations impose strict controls on both state-owned and privately-owned lands. Some federal and state bills would, if enacted, significantly and adversely affect Unocal and the petroleum industry. These include the imposition of additional taxes, land use controls, prohibitions against operating in certain foreign countries and restrictions on development. Regulations promulgated by the Environmental Protection Agency (EPA), the Department of the Interior, the Department of Energy, the State Department, the Department of Commerce and other government agencies are complex and subject to change. New regulations may be adopted. The company cannot predict how existing regulations may be interpreted by enforcement agencies or court rulings, whether amendments or additional regulations will be adopted, or what effect such changes may have on its business or financial condition. ENVIRONMENTAL REGULATION Federal, state and local laws and provisions regulating the discharge of materials into the environment or otherwise relating to environmental protection have a continuing impact on the company's operations. Significant federal legislation applicable to the company's operations includes the following: the Clean Water Act, as amended in 1977; the Clean Air Act, as amended in 1977 and 1990; the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, as amended in 1984; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended in 1986; the Toxic Substances Control Act of 1976, as amended in 1986; and the Oil Pollution Act of 1990. Various state and local governments have adopted or are considering the adoption of similar laws and regulations. 13 The California Air Resources Board and the federal government have both adopted new standards for gasoline. The Federal Clean Air Act Amendments of 1990 required the manufacture and sale of reformulated gasolines in areas not meeting specified air quality standards commencing January 1, 1995. These requirements apply to the nine areas which have the worst ozone pollution, including Los Angeles and San Diego. The California Air Resources Board has established stricter standards than those imposed by the federal rules. These standards for reformulated gasolines are to become effective for fuel production at refineries commencing March 1, 1996 and for retail sales commencing on June 1, 1996. Modifications to the company's refineries to meet these regulatory standards were performed between 1993 and 1995 at a cost of approximately $400 million. The Air Quality Management Plan for the Los Angeles Basin, as adopted, and the Clean Air Act Amendments could, by the year 2000, significantly and adversely affect all of the company's petroleum operations in the Los Angeles area, including its refining operations located near the Los Angeles harbor and in Carson. The company believes it can continue to meet the requirements of existing laws and regulations, although changes in operating procedures and the acquisition of additional pollution control facilities may be necessary to meet future regulatory standards. The company has been a party to a number of administrative and judicial proceedings under federal, state and local provisions relating to environmental protection. These proceedings include actions for civil penalties or fines for alleged environmental violations, permit proceedings including hearing requests into the issuance or modification of National Pollution Discharge Elimination System (NPDES) permits, requests for temporary variances from air pollution regulations for refinery operations, and similar matters. The company has also joined or intervened with the American Petroleum Institute, the Western States Petroleum Association and with other oil companies in actions relating to guidelines and proposed and final regulations of the EPA, the Department of the Interior and other agencies. For information regarding the company's environmental-related capital expenditures and charges to earnings and possibe future environmental exposure, see Legal Proceedings below and the Environmental Matters section of Management's Discussion and Analysis on pages 25 through 27 of this report. ITEM 3 - LEGAL PROCEEDINGS There is incorporated by reference the information regarding environmental remediation reserves in Note 17 to the consolidated financial statements on page 50, the discussion thereof in the Environmental Matters section of Management's Discussion and Analysis, on pages 25 through 27 and the information regarding contingent liabilities in Note 18 to the consolidated financial statements on pages 50 and 51 of this report. (1) The matter previously reported regarding claimed violations concerning hazardous waste management at the company's Parachute Creek Oil Shale facility in Colorado has been settled. (2) The matters previously reported regarding claimed NPDES permit violations in Cook Inlet have been settled. The company paid $140,000 to EPA; $499,000 to Greenpeace; and $36,524 to the Trustees for the State of Alaska. 14 (3) The matter previously reported regarding the complaint filed by the Ventura County District Attorney for several alleged violations related to discharges of crude oil into state waters has been settled for a total payment of $27,000. (4) In December 1994, the company received notice of alleged violations from the EPA, Region IX, relating to New Source Performance Standards at its Los Angeles Refinery - Carson Plant. Civil penalties in excess of $100,000 could be imposed. Proceedings and negotiations are continuing. (5) In the litigation previously reported as Forty-Niner Truck Plaza Inc., et -------------------------------- al. v. Unocal Corporation, et al. in Superior Court for Sacramento County, ------------------------------- the trial court granted the company's motion for a new trial. That order is now on appeal. This matter does not appear to have a potentially material effect on the company's financial condition or results of operations, and no further reports will be made. (6) On April 13, 1995, Atlantic Richfield Company, Chevron U.S.A., Inc., Exxon Corporation, Mobil Oil Corporation, Shell Oil Products Company and Texaco Refining and Marketing, Inc. filed a lawsuit against the company regarding U.S. Letters Patent No. 5,288,393 issued to the company in 1994 and covering several patent claims for the composition of reformulated gasoline. (Atlantic Richfield Company, et al. v. Unocal Corporation, et ------------------------------------------------------------ al., U.S.D.C., C.D. California, No. CV-95-2379-RG). The plaintiffs allege ---- that the company's patent is invalid and unenforceable, and they seek declaratory relief for equitable estoppel and an injunction against enforcement. The company has filed its answer as well as a counterclaim for patent infringement, lost royalties and further injunctive relief. Discovery and pretrial proceedings are continuing. (7) Between August 22 and September 6, 1994, a chemical known as "Catacarb" was released into the environment at the company's San Francisco Refinery near Rodeo, California. Persons in the surrounding area have claimed that they were exposed to the chemical in varying degrees. Since September 22, 1994, 42 lawsuits have been filed by or on behalf of all persons, alleged to be several thousand, claiming that they or their property were adversely affected by the releases. Thirty-nine of the lawsuits have been consolidated in the Superior Court for Contra Costa County under the caption In Re Unocal Refinery Litigation (Santos, et al. v. Unocal ---------------------------------------------------------- Corporation), Case No. 94-04141. The First Amended Model Complaint in this ------------ consolidated action, filed on February 1, 1996, on behalf of individual plaintiffs and purported classes of plaintiffs, alleges personal injury, emotional distress, and increased risk of future illness on behalf of the named plaintiffs and all persons present in and around or downwind from the San Francisco Refinery, and property damage and loss or diminution of property value on behalf of all owners of real and personal property in the vicinity of the Refinery, resulting from the release of Catacarb by the Refinery. Certain individual plaintiffs allege injury from alleged subsequent releases at the Refinery of hydrogen sulfide and other chemicals. The Model Complaint seeks compensatory and punitive damages in unspecified amounts, equitable relief including the creation of a fund for medical monitoring and treatment of plaintiffs and members of the purported classes, statutory penalties and other relief. The company is also presently in discussions with the EPA to settle an administrative Complaint issued on November 28, 1995, seeking approximately $490,000 in civil penalties for failure to report timely the Catacarb release and a subsequent release of hydrogen sulfide. All state civil and criminal governmental investigations, claims and charges have been settled. (8) Citizens for a Better Environment, et al. v. Union Oil Company of ----------------------------------------------------------------- California, No. C94-0712, U.S. D.C., N.D. California, filed on March 2, ---------- 1994, alleges that as of February 28, 1994, the company's San Francisco Refinery was in violation of the selenium limit in its NPDES permit. The company denies that any violations have occurred. By a prior Cease and Desist Order issued after notice and hearing, the permitting agency, the California Regional Water Quality Control Board, deferred to July 1998, the effective date of the selenium limitation in question. The company's motion to dismiss the Citizens action was denied by the trial court. The -------- company believes that the court's ruling is in error and that it conflicts 15 with precedent from two different federal circuits. The Ninth Circuit Court of Appeals has accepted the appeal of the trial court decision. That appeal is now pending and oral arguments are scheduled for April 8, 1996. (9) In September 1994, the California Regional Water Quality Control Board issued a Cleanup or Abatement Order relating to prior underground petroleum leaks along Front Street and vicinity in the town of Avila Beach, California. In October 1994, the company initiated an administrative appeal proceeding and a related civil suit in the Superior Court for San Luis Obispo County for declaratory and injunctive relief and writ of mandate with respect to the soil and shallow ground water standard to be applied to the remediation. The company has been working with local agencies and property owners for several years regarding the hydrocarbon presence in this location. Various related civil suits have been filed or threatened. (10) On March 23, 1994, a civil suit seeking various forms of penalties, restitution and remediation regarding contamination at the Guadalupe oil field was filed against the company by the California Attorney General on behalf of the Department of Fish and Game, the Regional Water Quality Control Board and the Department of Toxic Substances Control (People v. --------- Union Oil Company of California, Superior Court for San Luis Obispo County, -------------------------------- Civil No. 75194). The complaint alleges several categories of violations, namely, discharge into marine and state waters, failure to report discharge, destruction of natural resources, failure to warn, exposure to known carcinogens, public nuisance, unauthorized disposal of hazardous waste, and labeling violations for "recycled" diluent material. Injunctive relief and civil penalties are demanded for the various claimed violations, as well as prejudgment and postjudgment interest, costs and reasonable attorney fees. Several related follow-on private civil actions have been filed, including a purported class action, or threatened, each seeking damages and various other forms of relief similar to those sought by the Attorney General. Trial settings have been vacated on motion of the California Attorney General. The next status conference is scheduled for July 19, 1996. (11) In September 1994, the U.S. Minerals Management Service (MMS) issued an administrative compliance order assessing the company approximately $21 million in royalty fees and interest associated with FERC Order No. 94. The company is presently negotiating with the MMS for a settlement of outstanding issues which could include this MMS assessment. (12) In June 1994, the EPA filed an administrative complaint against the company seeking $252,000 in civil penalties for alleged late filing of certain reports regarding gas processing plant inventories under the Toxic Substances Control Act (TSCA) Inventory Update Rule. The company notified the EPA that no reports for the gas processing facilities had been filed in 1991. Reports, due every four years, were filed in March 1994. No public safety or environmental harm could be associated with these delayed reports or any alleged technical violation of the reporting rules, even if the rules are applicable. The Gas Processors Association has urged an amnesty for past alleged violations and is seeking EPA clarification of application of these rules to natural gas streams for the next TSCA Inventory Update due later this year. The company has appealed this complaint. (13) On February 9, 1996, Bridas Corporation filed a petition in the District Court of Fort Bend County, Texas alleging that the company and other defendants conspired to and did tortiously interfere with certain agreements and prospective business relations between Bridas and the government of Turkmenistan (Bridas Corporation v. Unocal Corporation, ----------------------------------------- et al., Case No. 94144, 268th Judicial District). The Plaintiff alleges ------ that as a result of the defendants' conduct, it has lost the ability to timely and reasonably develop, produce, transport, export and sell its interest in the Yashlar area of Turkmenistan, an area that includes the Yashlar field. The plaintiff also claims it has lost the opportunity to participate in a Turkmenistan-Pakistan pipeline project. The plaintiff seeks unspecified actual damages as well as punitive damages, plus interest at the highest lawful rate. On March 11, 1996, the defendants filed a notice of removal of the case to U.S. District Court, Southern District of Texas, Houston Division (Civ. No. H-906-0824). 16 ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE. EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below are the executive officers of Unocal Corporation as of March 1, 1996.
NAME, AGE AND PRESENT POSITION WITH UNOCAL BUSINESS EXPERIENCE DURING PAST FIVE YEARS - --------------------------------------------------------------------------------- ROGER C. BEACH, 59 Mr. Beach has been Chairman of the Board Chairman and Chief Executive of Directors since April 1995 and Chief Officer Executive Officer since 1994. He heads the Director since 1988 Office of the Chief Executive Officer, formed in Chairman of Management and 1994. He served as President and Chief Executive Committees Operating Officer from 1992 to 1994. Mr. Beach was President of the Unocal Refining & Marketing Division from 1986 to 1992 and from 1987 to 1992 also served as Senior Vice President. - --------------------------------------------------------------------------------- JOHN F. IMLE, JR., 55 Mr. Imle has been President since 1994. President He directs the company's growth activities and Director since 1988 Planning Department from the Office of the Member of Management Chief Executive Officer. From 1992 to 1994 he Committee served as Executive Vice President and President of the Energy Resources Division, which encompassed the company's worldwide oil, gas and geothermal businesses. Mr. Imle was Senior Vice President from 1988 until his appointment as Executive Vice President. - --------------------------------------------------------------------------------- NEAL E. SCHMALE, 49 Mr. Schmale has been Chief Financial Officer Chief Financial Officer since 1994, when he joined the Office of the Director since 1991 Chief Executive Officer. He served as Senior Member of Management Vice President of the company from 1988 to Committee 1994. Mr. Schmale was President of the Petroleum Products & Chemicals Division (which encompassed refining, marketing, chemicals and minerals operations) from 1992 to 1994. He was President of the Unocal Chemicals & Minerals Division from 1991 to 1992. - --------------------------------------------------------------------------------- LAWRENCE M. HIGBY, 50 Mr. Higby has been a Group Vice President and Group Vice President and President of the company's 76 Products Company President, 76 Products business segment since 1994. From 1992 to 1994, Company he was Executive Vice President, Marketing for the Los Angeles Times and Chairman for the Orange County Edition. In 1991, he was Senior Vice President, Consumer Marketing for the Los Angeles Times and President of the Orange County Edition. Prior to 1991, he was Senior Vice President for Marketing, Programming and Sales for Times Mirror Cable Television. - --------------------------------------------------------------------------------- JOHN W. SCHANCK, 44 Mr. Schanck has been Group Vice President, Oil Group Vice President, Oil and Gas Operations, since 1994. From 1992 to and Gas Operations 1994, he was Vice President, Worldwide Exploration, of the Energy Resources Division. From 1989 through 1991, he was President of Unocal Canada Limited. - --------------------------------------------------------------------------------- DENNIS P.R. CODON, 47 Mr. Codon has been Vice President, General Vice President, General Counsel and Chief Legal Officer since 1992. Counsel, He has been Corporate Secretary since 1990. Chief Legal Officer, and He served as Deputy General Counsel in 1990 Corporate and various other positions in the Law Secretary Department prior thereto. - --------------------------------------------------------------------------------- CHARLES S. McDOWELL, 54 Mr. McDowell has been a Vice President since Vice President and 1991 and Comptroller since 1986. Comptroller
The bylaws of the company provide that each executive officer shall hold office until the annual organizational meeting of the Board of Directors held June 3, 1996 and until his successor shall be elected and qualified, unless he shall resign or shall be removed or otherwise disqualified to serve. 17 PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
1995 Quarters 1994 Quarters ----------------------------------- ----------------------------------- 1st 2nd 3rd 4th 1st 2nd 3rd 4th ------------------------------------------------------------------------------------------------------------------------ Market price per common share - high $29-1/8 $30-1/8 $30-1/2 $29-7/8 $ 30 $29-5/8 $30-3/4 $29-7/8 - low 25-1/4 27-5/8 26-7/8 24-3/4 24-7/8 24-3/8 26-5/8 25-5/8 Cash dividends paid per common share .20 .20 .20 .20 .20 .20 .20 .20 ------------------------------------------------------------------------------------------------------------------------
Prices in the foregoing table are from the New York Stock Exchange Composite Transactions listing. On March 15, 1996, the high price per share was $32 and the low price per share was $31-5/8. Unocal common stock is listed for trading on the New York, Pacific and Chicago Stock Exchanges in the United States, on the Stock Exchange of Singapore and on the Basel, Geneva and Zurich Stock Exchanges in Switzerland. As of March 15, 1996, the approximate number of holders of record of Unocal common stock was 35,051 and the number of shares outstanding was 247,860,562. Unocal's quarterly dividend declared has been $.20 per common share since the third quarter of 1993. The previous quarterly dividend rate was $.175 per share since the third quarter of 1989. The company has paid a quarterly dividend for 80 consecutive years. ITEM 6 - SELECTED FINANCIAL DATA - SEE PAGE 67 18 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CONSOLIDATED RESULTS Millions of Dollars 1995 1994 1993 - ------------------------------------------------------------------ Net earnings excluding special items: $ 297 $ 300 $ 347 Special items: Cumulative effect of accounting changes - (277) (130) Impairment of long-lived assets (SFAS (53) - - No. 121) Litigation (37) (43) (30) Environmental remediation provisions (26) (99) (10) Write-downs of assets (12) (44) (12) Asset sales 71 8 66 Provision for abandonment and remediation of the Guadalupe oil field - (16) - Restructuring costs - (15) - Other 20 33 (18) ----------------------------------------------------------------- Net earnings (loss) including special items $ 260 $(153) $ 213 --------------------------
The 1995 earnings excluding special items reflected lower margins for refined petroleum products due primarily to lower refinery production, lower worldwide crude oil production, lower average sales prices for natural gas and lower geothermal steam production. Partially offsetting these negative factors were higher worldwide average crude oil sales prices and higher average sales prices for agricultural products. Comparing the 1994 operating results with 1993, the reduction in earnings reflected the adverse effects of lower average crude oil and natural gas prices and lower margins in West Coast refining and marketing operations. These negative factors were partially offset by higher natural gas production, higher foreign crude oil production, stronger agricultural products earnings, and lower domestic oil and gas operating and depreciation expenses. In the above special items table, the Other category for 1995 included benefits of $34 million from a bankruptcy settlement with Columbia Gas Transmission Corporation (Columbia settlement) and $18 million from a settlement to recover lease bonus and rentals relating to Outer Continental Shelf leases offshore Florida and Alaska (OCS Settlement). Partially offsetting these benefits were charges of $18 million for a deferred tax adjustment and $14 million for a receivable write-down. For 1994, the amount included a $24 million gain from the settlement of a lawsuit against Mesa Petroleum and a $9 million benefit related to the cancellation of the lease on the Unocal headquarters building in downtown Los Angeles. For 1993, the amount included a $14 million charge for the effect of the federal tax rate change on deferred taxes and a $4 million provision for the closure of the company's credit card center. REVENUES Consolidated revenues in 1995 were $8.4 billion, up $460 million from year- end 1994 and up $81 million from 1993. The increase from 1994 was primarily due to higher petroleum product sales volumes, agricultural products average sales prices and gains on sales of assets. The decrease in 1994 from 1993 was mainly due to lower refined product prices and volumes. COSTS AND OTHER DEDUCTIONS Adjusted to exclude special items, crude oil and product purchases, operating expense, and selling, administrative and general expense totaled $5.3 billion in 1995, compared with $5.0 billion in 1994 and $5.3 billion in 1993. The increase in 1995 was primarily due to increased expense for crude oil and product purchases resulting from higher average crude oil prices and increased purchases of refined products for resale due to extended maintenance activities at the refineries. 19 The higher depreciation, depletion and amortization expense in 1995 was due to an $87 million charge resulting from the adoption of Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of," as described in Note 2 to the consolidated financial statements. The company's interest expense increased in 1995 due primarily to higher debt. OIL AND GAS EXPLORATION AND PRODUCTION This segment is engaged in the exploration for, and the production and marketing of crude oil, condensate, natural gas and natural gas liquids.
Millions of Dollars 1995 1994 1993 - ------------------------------------------------------------------ Net earnings excluding special items $ 395 $ 406 $ 422 Special items: Columbia and OCS settlements 52 - - Asset sales 35 3 23 Impairment of long-lived assets (SFAS (53) - - No. 121) Write-downs of assets (8) (15) - Provision for abandonment and remediation of the Guadalupe oil field - (16) - Other - - (8) ----------------------------------------------------------------- Net earnings including special items $ 421 $ 378 $ 437 ========================
The 1995 earnings excluding special items reflected lower worldwide crude oil production and lower average domestic natural gas sales prices. Worldwide crude oil production in 1995 averaged 240,400 barrels per day, down from 259,800 in 1994 and 246,000 in 1993. The decrease was mainly due to natural production declines and the sale of nonstrategic domestic properties. The company's average domestic sales price for natural gas was $1.56 per thousand cubic feet, down from $1.78 in 1994 and $1.97 in 1993. Positive factors in 1995 were higher average worldwide crude oil sales prices, lower effective foreign income tax rates and lower domestic operating expense. Unocal's average worldwide sales price for crude oil was $15.40 per barrel in 1995, up from $13.63 in 1994 and $14.21 in 1993. The decrease in domestic operating expense was primarily due to sales of nonstrategic domestic properties and cost reductions. In 1995, the company reduced its worldwide average production costs per barrel of oil equivalent to $2.94, compared with $3.00 for 1994 and $3.40 for 1993. Domestic natural gas production averaged 1,103 million cubic feet per day in 1995, up from 1,095 in 1994 and 952 in 1993. The accelerated development program initiated in 1993, primarily in the Gulf of Mexico, has allowed Unocal to keep its domestic natural gas production stable despite the continuing sales of oil and gas properties. Comparing the adjusted 1994 results with 1993, the decrease reflected lower worldwide natural gas and crude oil sales prices and lower domestic crude oil production. The decrease in production was mainly due to asset sales and natural declines. Positive factors in 1994 were higher natural gas production, higher foreign crude oil production and lower domestic operating expense. The increase in foreign crude oil production was due to new production in Indonesia and the Netherlands. The 1994 results also benefited from a $38 million reduction in depreciation and depletion expense as a result of the change in accounting policy for recognizing the reduction in value of the company's producing properties, as described in Note 2. The pro forma effect of this accounting change on 1993 results would have been an increase in net earnings of $31 million. REFINING, MARKETING AND TRANSPORTATION -- 76 PRODUCTS COMPANY This business segment is principally responsible for the company's West Coast petroleum refining operations, marketing and transportation of refined petroleum products, and the manufacturing and marketing of petroleum coke. 20
Millions of Dollars 1995 1994 1993 - ----------------------------------------------------------------- Net earnings excluding special items $ 10 $ 37 $ 92 Special items: Asset sales 1 1 - Write-downs of assets - (20) (10) Litigation - (2) - Environmental remediation provision - (2) - Federal tax rate change - - (7) Closing of the credit card center - - (4) ---------------------------------------------------------------- Net earnings including special items $ 11 $ 14 $ 71 ======================
The lower 1995 earnings excluding special items reflected lower refined product margins and lower refinery production volumes due to extended maintenance and modification activities early in the year. These negative factors were partially offset by California business tax credits of $18 million (net of federal tax effect) related to refinery modifications to produce reformulated fuels and by lower operating and selling expenses. Petroleum product sales volumes were 269,000 barrels per day in 1995, up from 252,000 barrels per day in 1994. Due to scheduled refinery maintenance in 1995, the increased sales volumes and lower margins were principally related to the outside purchase and resale of refined petroleum products to other than retail customers. Comparing 1994 results with 1993, the decrease was principally due to lower margins resulting from weak selling prices for refined products, which were partially offset by lower crude oil and product purchase costs. GEOTHERMAL AND POWER OPERATIONS This segment is involved in the exploration for, and the production and sale of geothermal resources for the generation of electricity.
Millions of Dollars 1995 1994 1993 - ---------------------------------------------------------------- Net earnings excluding special items $ 19 $ 32 $ 21 Special items: Asset sales 7 - 6 Federal tax rate change - - (1) - ---------------------------------------------------------------- Net earnings including special items $ 26 $ 32 $ 26 ======================
The decreased 1995 earnings excluding special items resulted from lower steam production and prices at The Geysers in Northern California and lower steam production in the Philippines primarily due to damage to the Tiwi facilities caused by a November typhoon. The lower production at The Geysers was due to seven months of discretionary curtailments by the public utility company that purchases the steam to generate electricity. The curtailments were the product of abundant supplies of inexpensive hydro-power available from record rainfall in the western U.S. and depressed natural gas prices. These negative factors were partially offset by increased production and prices for Indonesian operations. The increased production resulted from a full year of supplying steam from the Gunung Salak field to power two 55-megawatt power plants that began commercial operation during the third quarter of 1994. The power plants are located on the island of Java and are operated by Indonesia's state utility company. Comparing the 1994 operating results with 1993, the increase reflected higher domestic earnings, primarily due to reduced depreciation expense at The Geysers, and the start-up of Indonesian operations. DIVERSIFIED BUSINESSES Agricultural Products manufactures and markets nitrogen-based fertilizers for wholesale markets to the western United States and to the Pacific Rim. Carbon and Minerals produces and markets petroleum coke (other than on the West Coast), graphites, solvents and specialty minerals. Pipelines principally includes the company's equity interests in affiliated pipeline companies. Other includes the development and sale of real estate assets and the company's equity interest in The UNO-VEN Company, a refining and marketing partnership in the midwestern United States. 21
Millions of Dollars 1995 1994 1993 - ---------------------------------------------------------------- Net earnings excluding special items Agricultural Products $ 70 $ 27 $ 19 Carbon and Minerals 52 42 29 Pipelines 66 56 52 Other 6 14 18 - ---------------------------------------------------------------- Total $ 194 $ 139 $ 118 Special items: Agricultural Products 4 2 (1) Pipelines - - 2 Other 1 - (2) - ---------------------------------------------------------------- Net earnings including special items $ 199 $ 141 $ 117 =====================
In 1995, Agricultural Products continued to benefit from significant increases in ammonia and urea product sales prices primarily due to high demand in international markets. This was partially offset by higher raw materials costs and higher manufacturing costs due to start-up expenses associated with an ammonia plant located in Finley, Washington. Plant improvements were completed and production began in December 1995. Production from the Finley plant is targeted for domestic markets. This will allow more of the Kenai, Alaska facility's marketable production of ammonia and urea to target international markets. Comparing the 1994 Agricultural Products earnings with 1993, the increase reflected considerably higher margins on sales of ammonia and urea products, particularly in Asian markets. In 1995, Carbon and Minerals benefited from higher petroleum coke and lanthanide earnings. The increase in 1994 from 1993 was primarily due to higher lanthanide earnings.
CORPORATE AND UNALLOCATED Millions of Dollars 1995 1994 1993 - ------------------------------------------------------------------ Net earnings effect excluding special items Administrative and General expense $ (84) $ (70) $ (61) Net interest expense (178) (174) (193) Environmental and Litigation expense (29) (48) (43) Other (30) (22) (29) - ------------------------------------------------------------------ Total (321) (314) (326) Special items: Environmental and Litigation (63) (138) (36) provisions Tax adjustments (Other) (18) - (1) Receivable write-down (Other) (14) - - Write-downs of assets (Other) (2) (9) - Asset sales (Other) 21 2 34 Mesa settlement (Other) - 24 - Restructuring costs (A&G) - (15) - UOC lease termination (Other) - 9 - ----------------------------------------------------------------- Net earnings effect including special items $(397) $(441) $(329) =======================
The higher Administrative and General expense in 1995 was primarily due to the income tax effect of allocable expenses to foreign operations for tax purposes and lower pension income. Net interest expense represents interest income and expense, net of capitalized interest. The increase in 1995 was primarily due to higher debt, while the decrease in 1994 reflected the benefit of refinancing debt at lower interest rates. 22 The Other category includes all unallocated corporate items and miscellaneous operations. In addition, this category, especially in prior years, includes the earnings effects and close-down expenses of businesses that were sold or being phased-out, such as the company's Process, Technology and Licensing business (sold in 1995), national auto/truckstop system (sold in 1993), Imperial Valley geothermal operations (sold in 1993), PureGro chemical operations (sold in 1993), and Southeast marketing operations (phased-out beginning in 1992). This category also includes corporate items such as tax adjustments and certain special items noted in the above table.
FINANCIAL CONDITION Dollars in millions 1995 1994 1993 - -------------------------------------------------------------- Current ratio 1.2 1.2 1.3 Total debt $3,706 $3,466 $3,522 Equity $2,930 $2,815 $3,129 Capital employed $6,636 $6,281 $6,651 Total debt/ capital employed 56% 55% 53% Floating-rate debt/ total debt 24% 25% 16% - --------------------------------------------------------------
Cash flow from operating activities, including working capital and other changes, was $1,277 million in 1995, $1,299 million in 1994 and $1,100 million in 1993. The 1995 amount included $200 million of proceeds from the sale of trade receivables (see Note 23 to the consolidated financial statements), $71 million from the Columbia settlement and $34 million from the OCS settlement. These benefits were more than offset by temporary working capital changes. The 1994 cash flow reflected decreased working capital requirements and significant income tax refunds received during the year. These benefits were partially offset by lower operational earnings. The 1993 amount reflected significant payments for legal and tax settlements and an adjustment for a 1992 crude oil forward sale. During 1995, the company generated $204 million in pretax proceeds from sales of assets, primarily nonstrategic oil and gas properties and the company's Process, Technology and Licensing business. Proceeds from sales of assets in 1994 totaled $156 million, primarily from the sale of nonstrategic oil and gas properties. Proceeds of $586 million in 1993 included $218 million from the sale of the Imperial Valley and other geothermal assets, $172 million from the sale of the company's national auto/truckstop system and $106 million from the sale of various nonstrategic oil and gas properties. In 1995 and 1994, the company also generated approximately $55 million and $54 million, respectively, in cash from the sale of its common stock, primarily through the Dividend Reinvestment and Common Stock Purchase Plan. The company's total debt at year-end 1995 increased by $240 million from a year ago to $3,706 million. The increase was primarily due to the carrying values of debt-related currency swaps in the amount of $137 million being classified as long-term receivables at December 31, 1995. As a result, the principal amounts of the company's foreign-currency debt, when stated at the current exchange rates, totaled $350 million, an increase of $130 million from year-end 1994. The difference between the carrying values of the currency swaps and the increase in the principal amounts of the related foreign-currency debt represents the net gain that would have occurred if the currency swaps and debt had been settled at the end of December 1995. This classification has no effect on the consolidated cash flow statement. For 1996, the company expects cash generated from operational earnings and asset sales to be adequate to meet its operating requirements, capital spending and dividend payments. In addition, the company has substantial borrowing capacity to meet unanticipated cash requirements. At December 31, 1995, the company had approximately $1.5 billion of undrawn commitments under various credit facilities with major banks. The company's foreign operations have limited exposures to foreign currency risks. In most countries, energy products are valued and sold in U.S. dollars, and foreign currency operating cost exposures have not been significant. In the Philippines and Thailand, the company is paid for product deliveries in the local currencies, but at prices indexed to U.S. dollar valuations. Such funds, less amounts required for local currency-denominated obligations, are converted to U.S. dollars as soon as practicable and periodically remitted to the U.S. parent. 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 rather than remitted to the U.S. parent. 23 The company has only limited involvement with derivative financial instruments. The majority are debt-related and are used to manage interest rate and foreign currency exchange rate risks. The company also uses futures contracts to hedge its exposure to fluctuations in petroleum commodity prices. Such contracts covered less than one percent of the company's annual oil and gas production at year-end 1995. Authorization from the Board of Directors is needed before the company hedges more than 15% of its production of oil and gas, refined products, and of crude oil purchased for refinery supply.
CAPITAL EXPENDITURES Estimated Millions of Dollars 1996 1995 1994 1993 - ------------------------------------------------------------------------------- Exploration and Production Domestic $ 360 $ 497 $ 486 $ 562 Foreign 525 353 310 330 - ------------------------------------------------------------------------------- Total 885 850 796 892 Refining, Marketing and Transportation 76 Products Company 220 422 367 231 Geothermal and Power Operations 110 51 35 48 Diversified Businesses Agricultural Products 14 55 8 8 Carbon and Minerals 24 12 8 4 Pipeline 9 5 5 4 Other 3 6 12 7 Corporate and Unallocated 35 58 41 55 --------------------------------- Total $1,300 $1,459 $1,272 $1,249 =================================
Capital spending in 1995 on foreign oil and gas exploration and production was up 14 percent compared with 1994, primarily reflecting increased expenditures in Myanmar, Indonesia, the Netherlands and Azerbaijan. The $422 million spent by 76 Products Company during 1995 primarily reflected refinery upgrades to complete environmental requirements for reformulated gasoline required by the California Air Resources Board, and the addition of refinery units to increase production of higher value products. Capital spending on geothermal energy projects in 1995 primarily focused on development work at the Salak field on the island of Java and exploration drilling on the island of Sumatra, in Indonesia. The forecasted 1996 capital expenditures will focus on development of overseas oil and gas projects, particularly in Myanmar, Thailand, Indonesia and Azerbaijan. This capital plan reflects Unocal's continued emphasis on energy development projects overseas with higher potential rates of return. The foreign petroleum exploration and production capital spending plan is up 49 percent from the 1995 amount. A major focus of this spending will be the Yadana field development and pipeline project offshore Myanmar. This natural gas project is expected to be in operation by mid-1998. In Thailand, the company plans to develop its existing fields in order to increase natural gas production capacity, as a second pipeline from the Gulf of Thailand to shore is being constructed by the Thai government. In Indonesia, the company plans to further develop new oil and gas reserves offshore East Kalimantan and accelerate its successful exploratory drilling program by drilling 15 to 25 exploratory wells in known producing basins as the first phase of a 65-well, multi-year program. Another important overseas project is in the Caspian Sea, offshore Azerbaijan. Unocal is a member of an international consortium that is moving forward with a development program to begin initial oil production by mid-1997. The Louisiana/Gulf of Mexico area accounts for 64 percent of the 1996 domestic capital budget, as the company moves ahead with development of key natural gas projects. The capital spending plan for petroleum exploration and production includes $230 million for worldwide exploration. Of this, $170 million, or 74 percent, is planned for projects near existing operations that have a high potential for success. 24 Planned capital expenditures for 76 Products Company in 1996 are down 48 percent from 1995. The allocated capital for this segment has been significantly reduced since refinery modifications have been completed to manufacture California-mandated reformulated gasoline. Of the 1996 amount, about $95 million is planned for marketing operations, mostly for the addition of new profit centers to existing locations, such as convenience stores, car washes, quick- service restaurants and car maintenance services. Another $85 million is planned for the company's California refineries on projects to enhance profitability and meet environmental regulations. Capital expenditures for Geothermal and Power Operations are expected to more than double in 1996, focusing on projects in Indonesia. The company expects to accelerate development of resource production facilities at the Salak field and conduct additional exploration at the Sarulla contract area on the island of Sumatra. The company also expects to be a 50 percent owner in a venture that expects to build and operate power plants at the Salak field that will utilize its steam production. The decrease in Agricultural Products capital spending in 1996 reflects reduced expenditures for the startup of the Finley, Washington, ammonia manufacturing plant. The planned increase in capital spending for Carbon and Minerals reflects anticipated projects at the Mountain Pass, Chicago Carbon and Poco Graphite facilities. ENVIRONMENTAL MATTERS Unocal continues to make substantial capital and operating expenditures for environmental protection and to comply with federal, state and local laws and provisions regulating the discharge of materials into the environment. In many cases, investigatory or remedial work is now required at various sites even though past operations followed practices and procedures that were considered acceptable under environmental laws and regulations, if any, existing at the time. In 1995, the company recorded approximately $230 million in environment- related capital expenditures, compared with an average of approximately $160 million per year for the prior three years. Estimated 1996 capital expenditures for environment-related costs are $90 million. The capital expenditures for 1994 and 1995 included significant amounts for refinery modifications to manufacture reformulated gasoline for the California market. No significant capital expenditures related to reformulated gasoline are anticipated in 1996. The amount charged to 1995 earnings for remediation costs and for operating, maintenance and administrative costs to maintain environmental compliance was approximately $170 million, and such costs averaged approximately $270 million per year for the prior three years, including $370 million in 1994. The amount charged to 1994 earnings included provisions of $187 million for certain known future environmental remediation costs, of which $152 million was recorded in the fourth quarter of 1994. The 1994 fourth quarter provision was primarily the result of an extensive and ongoing review by the company of its reserves for environmental assessment/remediation costs and its procedures for monitoring such reserves. In 1995, the company's continuing review identified additional future remediation costs which resulted in provisions of $45 million that were included in the amount charged to 1995 earnings. At December 31, 1995, the company's reserves for environmental remediation obligations totaled $214 million, of which $83 million was included in other current liabilities. The total reserve amount is grouped into five categories and discussed below. SUPERFUND AND SIMILAR SITES. At year-end 1995, Unocal had received notification from the federal Environmental Protection Agency that the company may be a potentially responsible party (PRP) at 40 sites and may share certain liabilities at these sites. In addition, various state agencies and private parties had identified 30 other similar PRP sites that may require investigation and remediation. Of the total, the company has denied responsibility at 2 sites and at another 13 sites the company's liability, although unquantified, appears to be de minimis. The total also includes 25 sites which are under investigation or in litigation, for which the company's potential liability is not presently determinable. Of the remaining 30 sites, where probable costs can be reasonably estimated, reserves of $32 million had been established for future remediation and settlement costs. These 70 sites are exclusive of 44 sites where the company's liability has been settled or where the company has no evidence of liability and there has been no further indication of liability by government agencies or third parties for at least a 12-month period. 25 Unocal does not consider the number of sites for which it has been named a PRP as a relevant measure of liability. Although the liability of a PRP is generally joint and several, the company is usually just one of several companies designated as a PRP. The company's ultimate share of the remediation costs at those sites often is not determinable due to many unknown factors as discussed in Note 18 to the consolidated financial statements. The solvency of other responsible parties and disputes regarding responsibilities may also impact the company's ultimate costs. FORMER COMPANY-OPERATED SITES. Reserves of $35 million had been established for this category of sites. Of the total, $14 million was for approximately 190 service station sites on leased properties at which operations have ceased and which the company is obligated to remediate before returning them to the owners. Also included was $12 million for approximately 230 service station sites that the company previously owned or leased. The current owners of such properties are holding the company responsible for environmental remediation costs. COMPANY FACILITIES SOLD WITH RETAINED LIABILITIES. This category had reserves of $71 million for accrued environmental liabilities related to major company assets that were sold in prior years. Included are the company's former auto/truckstop facilities, a former mine site in Wyoming, industrial chemical and polymer sites and agricultural chemical sites. In each sale, the company retained a contractual remediation or indemnification obligation and is responsible only for certain environmental problems associated with its past operations. The reserves represent presently estimated future costs for investigation/feasibility studies and identified remediation work as a result of claims made by buyers of the properties. Also included are reserves for the remediation of certain facilities which were transferred to The UNO-VEN Company in 1989 in connection with its formation. The facilities included the Chicago Refinery and related product terminals and service stations. Under the UNO-VEN Asset Purchase and Contribution Agreement, the company retained certain environmental liabilities that would require Unocal to either manage remediation work or reimburse UNO-VEN for remediation costs resulting from valid environmental claims. The agreement required all claims to be filed by November 30, 1995. The company has not completely evaluated the additional claims made by UNO-VEN near or on the November 30, 1995 deadline; however, it does not anticipate that any additional material liabilities beyond the current reserves will be incurred for these claims. INACTIVE OR CLOSED COMPANY FACILITIES. Reserves of $57 million had been established for these types of facilities. Major sites included in this category are the former Beaumont refinery in Texas and the shale oil project and a chemical facility in Colorado. Also included in this category is the Questa molybdenum mine in New Mexico. In the second quarter of 1995, an additional $9 million was added to the reserve for the estimated costs of investigations and remedial activities for the Questa site. This category also includes the cleanup at the Guadalupe oil field on the central California coast of underground releases of a diesel-like additive formerly used to produce the field's heavy crude oil. During 1995, an additional reserve of $8 million was provided for estimated costs to complete the beach cleanup and for assessing and investigating the inland portion of the field. At year-end 1995, the reserve that had been established for the above activities had been fully utilized. The company expects to incur additional, but indeterminate, costs for continuing assessment, investigation and remediation of the inland portion of the field. Also included in this category is the Avila Beach, California site. In 1988, petroleum hydrocarbon contamination under the Front Street section of the town was discovered. It was determined that the source of the contamination had been leaking pipelines that ran between a tank farm and wharf operated by the company. The company has installed interim systems as an initial remediation measure until a final remedial action plan is completed and implemented. The company is currently developing a plan that will be submitted by mid-1996 to the Regional Water Quality Control Board for approval. The plan will outline the procedures that will be used to determine the desired alternatives for the site's final remediation. The future costs related to the final remediation will not be determined until these alternatives are identified. The year-end reserve included the estimated remaining cost for the excavation of one section of the beach where contaminants were detected close to the surface of the sand during the company's third quarter 1995 testing and monitoring of the site. The company completed the cleanup of this area in January 1996 as required by a state order. ACTIVE COMPANY FACILITIES. The company had provided $19 million for estimated future costs of remedial orders, corrective actions and other investigation, remediation and monitoring obligations at certain operating facilities and producing oil and gas fields. The operating facilities primarily consist of refineries, marketing terminals and bulk plants. 26 The total environmental remediation reserves recorded on the consolidated balance sheet represent the company's estimate of assessment and remediation costs based on currently available facts, existing technology, and presently enacted laws and regulations. The remediation cost estimates, in many cases, are based on plans recommended to the regulatory agencies for approval and are subject to future revisions. The ultimate costs to be incurred will likely exceed the total amounts reserved, since many of the sites are relatively early in the remedial investigation or feasibility study phase. Additional liabilities may be accrued as the assessment work is completed and formal remedial plans are formulated. The company estimated, to the extent it was able to do so, that it could incur approximately $180 million of additional costs in excess of the $214 million accrued at December 31, 1995. The amount of such possible additional costs reflects, in most cases, the high end of the range of costs of feasible alternatives identified by the company for those sites with respect to which investigation or feasibility studies have advanced to the stage of analyzing such alternatives. However, such estimated possible additional costs are not an estimate of the total remediation costs beyond the amounts reserved, since at a large number of sites the company is not yet in a position to estimate such possible additional costs. Both the amounts reserved and estimates of possible additional costs may change in the near term, in some cases, substantially, as additional information becomes available regarding the nature and extent of site contamination, required or agreed upon remediation methods, and other actions by governmental agencies and private parties. See Notes 17 and 18 to the consolidated financial statements for additional information. FUTURE ACCOUNTING CHANGE The Financial Accounting Standards Board recently issued Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." The new requirements under SFAS No. 123 are generally effective for 1996 financial statements. Companies must either expense the value of stock-based compensation or disclose in a footnote what the earnings and earnings per share would be had the value been expensed. The company expects to adopt the disclosure method. At adoption, the effect on earnings and earnings per share is not expected to be material. OUTLOOK Certain of the statements in this discussion, as well as other forward-looking statements within this document, contain estimates and projections of amounts of or increases in future revenues, earnings, cash flows, capital expenditures, assets, liabilities and other financial items and of future levels of or increases in reserves, production, sales including related costs and prices, and other statistical items; plans and objectives of management regarding the company's future operations, products and services; and certain assumptions underlying such estimates, projection plans and objectives. While these forward-looking statements are made in good faith, future operating, market, competitive, legal, economic, political, environmental, and other conditions and events could cause actual results to differ materially from those in the forward-looking statements. Crude oil prices are expected to be unstable in 1996 because of the uncertain effect of the United Nations' seeming willingness to allow a partial resumption of oil exports from Iraq. However, domestic natural gas prices are expected to remain strong in early 1996, at least until the winter selling season is over and natural gas inventories within the industry are replenished. The sale of the company's California oil and gas producing properties is expected to be completed in April 1996. The proceeds are expected to be used to reduce debt and fund capital projects overseas. The sale includes Unocal's interests in 68 oil and gas fields, including 11 producing platforms off the California coast in state and federal waters. Unocal's average net daily production from the properties in the proposed sale was 27,000 barrels of oil and 59 million cubic feet (mmcf) of natural gas during 1995, and proven reserves of 184 million barrels of oil equivalent at year-end 1995. For 1995, Unocal's California oil and gas producing properties generated pretax operating earnings and cash flow of approximately $14 million and $64 million, respectively. Unocal has approximately 600 employees involved in its California oil and gas operations. While many of those employees will be offered positions with the buyer or at other Unocal operations, some layoffs are expected (see Note 25 for additional information). The sale of these producing properties is not expected to have a material effect on Unocal's future operating results. 27 On a worldwide basis, 1996 daily natural gas production is expected to average nearly 1.8 billion cubic feet, up slightly from 1995. Crude oil and condensate production is expected to average 210,000 barrels per day, down from 240,000 last year. The company anticipates an approximate 15 percent increase in foreign natural gas production in 1996. This improvement is expected mainly from a significant increase in the company's Gulf of Thailand production beginning in the second quarter of 1996, when the Petroleum Authority of Thailand's new pipeline comes on stream. Also, oil and gas production should continue to improve in Indonesia as a result of successful exploration and development programs that have revitalized operations. For 1996, the company expects domestic crude oil and natural gas production to be lower, reflecting the expected completion of the sale of its California producing oil and gas properties and continued natural production declines. The company will continue to focus on domestic natural gas production in the Louisiana/Gulf Coast area. The company is in the process of retaining an advisor to assist in the disposal of its oil and gas interests in the Netherlands sector of the North Sea as it continues to shift its strategic focus to Southeast Asia and other areas that offer greater opportunities for growth. Unocal's net daily production from its Netherlands operations in 1995 was 11,000 barrels of crude oil and condensate and 9 mmcf of natural gas. In Thailand, the company expects to spend approximately $160 million on development projects that should allow the company to sustain gross production at 950 mmcf of natural gas per day once a second pipeline becomes operational in 1996. The planned production for 1996 is expected to average 825 mmcf per day (gross). Natural gas demand in Thailand is expected to continue its active growth over the next 10 to 15 years, providing a market for the increased production from the Gulf of Thailand. Unocal is currently pursuing growth opportunities in Central and Southeast Asia. The main areas of oil and gas exploration and development opportunities are in Azerbaijan, Myanmar, Turkmenistan, Pakistan, China and Vietnam. In Azerbaijan, Unocal is part of an international consortium participating in the development of three oil fields in the Caspian Sea offshore Azerbaijan. Unocal has a 9.5 percent interest in the project. Initial production is expected to begin in mid-1997. This is a major, long-term commitment for Unocal. There are still difficult issues to resolve as to the route and construction of permanent export pipelines for the oil. A major focus of 1996 capital spending will be the Yadana project offshore Myanmar. This natural gas project, which is to include four offshore platforms, should be in operation by mid-1998. When fully developed, estimated gross production in 1999 is expected to reach 650 mmcf of natural gas per day. The majority of the production is to be sold under a 30-year gas sales contract and a pipeline agreement calling for natural gas deliveries of 525 mmcf per day to Thailand beginning in mid-1998. A separate sales agreement calls for 125 mmcf per day of natural gas to be supplied to Myanmar for its domestic use. Unocal has a 28.26 percent interest in the Yadana project. In March 1996, Unocal announced the discovery of a potentially significant new gas field located about six miles south of the Yadana field in the Andaman Sea. Further studies are under way to prove the commerciality of this new offshore discovery. The field could be produced through the Yadana platform complex. Unocal has the same percentage ownership and partners in this discovery as it has in the Yadana project. The United States Congress is currently considering legislation that could ban United States companies from all business activities associated with Myanmar. This action, if passed, would adversely effect the company's future prospects in that country. The company will continue to expand its marketing operations at retail outlets with the addition of new businesses to certain existing locations, such as convenience stores, car washes, quick-service restaurants and car maintenance services. The company is also working to increase gasoline retail sales volumes by installing credit card readers at the dispensers and reconfiguring the service islands. In February 1996, Unocal entered into a strategic alliance with Fleetman, Inc. to market Fuelman Fleet Cards. Also, Unocal signed a Memorandum of Understanding with Southern Counties Oil Company/Cardlock Fuels System which could lead to joint construction, development and operation of unattended commercial fueling facilities throughout California. These agreements position the company as a leader in the West Coast commercial fleet fuel business. 28 To improve the company's standing in markets outside California and Hawaii, Unocal is actively pursuing joint ventures and alliances. In October 1995, Unocal and Circle K Corporation (Circle K), one of the nation's leading convenience store operators, signed a branding/licensing agreement for more than 400 Circle K sites in the Phoenix and Tucson, Arizona markets. In addition, the company plans to brand and supply 20 existing Circle K sites in Las Vegas, Nevada, and the two companies plan to co-develop new service station/convenience store sites in the Las Vegas area. In February 1996, Tosco Corporation, a petroleum refiner and marketer, announced that it had entered into a merger agreement with Circle K. The upgrades to the company's refineries are now complete and higher valued products are being produced along with the new reformulated gasolines that meet California standards. On the retail marketing side, the company foresees improved margins on the California reformulated gasolines that must be sold at retail sites by June 1, 1996. In addition, the increased gasoline throughput and returns from its reformatted service stations are meeting or exceeding the company's forecasts. However, the ultimate effect on product margins of the new gasolines cannot be accurately predicted. In February 1994, the company was granted a United States patent for reformulated gasolines that meet the 1996 California standards. Six refining companies filed suit against Unocal in April 1995 to invalidate the patent or declare it unenforceable. The company intends to aggressively defend its rights under this patent. In Indonesia, the Geothermal and Power Operations segment expects to accelerate development of resource production facilities at the Salak field on the island of Java. The company also expects to be a 50 percent owner in a venture that expects to build and operate new power plants at this field. Unocal will supply steam for the power plants. The company also plans to conduct additional exploration in the Sarulla block on the island of Sumatra, after a discovery well indicated a highly productive geothermal resource. The company had previously negotiated a power sales agreement that allows it to develop up to 1,000 megawatts of generating capacity in the Sarulla block. The first of the Unocal power plants is expected to begin operation in 1999, assuming the commerciality of the field. The company is also pursuing other geothermal development and power generation opportunities throughout Indonesia. The geothermal segment expects to benefit from improved earnings in 1996 from operations at The Geysers in Northern California. The 1995 earnings were adversely affected by seven months of discretionary curtailments by the public utility that purchases the steam. Such curtailments are not expected in 1996. In 1996, the company is scheduled to begin a project to inject waste water from municipal treatment plants to recharge the reservoir. This injection project should increase the productivity of the field. In 1996, the Agricultural Products segment expects continued high sales volumes of ammonia and urea. Approximately 200,000 additional tons per year of ammonia is expected to be available for sale due to new production from the Finley, Washington plant and higher production from the Kenai, Alaska facility. The segment plans to expand sales efforts in its existing markets in South Korea, Japan, China and Vietnam. The company also plans to develop new markets in India. The Carbon and Minerals segment will continue to expand specialty graphite products and will begin production of higher margin minerals. Also, primarily due to increased molybdenum prices, the Questa mine is expected to resume operations in late 1996, after being idle for approximately ten years. This mine is expected to produce about 14 million pounds of molybdenum per year when it reaches full production. Carbon and Minerals will continue to look for new products and expansion opportunities in order to provide earnings growth. 29 ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
Page ----- Report on Management's Responsibilities 31 Report of Independent Accountants 32 Financial Statements Consolidated Earnings 33 Consolidated Balance Sheet 34 Consolidated Cash Flows 35 Consolidated Stockholder's Equity 36 Notes to Consolidated Financial 37-59 Statements Supplemental Information: Oil and Gas Financial Data 60-61 Oil and Gas Reserve Data 62-63 Present Value of Future Net Cash Flow Relate to Proved Oil and Gas Reserves 64-65 Selected Quarterly Financial Data 66 Selected Financial Data 67 Supporting Financial Statement Schedule covered by the Foregoing Report of Independent Accountants: Schedule II - Valuation and Qualifying Accounts and Reserves 72
All other financial statement schedules have been omitted as they are not applicable, not material or the required information is included in the financial statements or notes thereto. 30 REPORT ON MANAGEMENT'S RESPONSIBILITIES ---------------------------------------- TO THE STOCKHOLDERS OF UNOCAL CORPORATION: Unocal's management is responsible for the integrity and objectivity of the financial information contained in this Annual Report. The financial statements included in this report have been prepared in accordance with generally accepted accounting principles and, where necessary, reflect the informed judgments and estimates of management. The financial statements have been audited by the independent accounting firm of Coopers & Lybrand L.L.P. Management has made available to Coopers & Lybrand L.L.P. all the company's financial records and related data, minutes of the company's executive and management committee meetings and directors' meetings and all internal audit reports. The independent accountants conduct a review of internal accounting controls to the extent required by generally accepted auditing standards and perform such tests and procedures as they deem necessary to arrive at an opinion on the fairness of the financial statements presented herein. Management maintains and is responsible for systems of internal accounting controls designed to provide reasonable assurance that the company's assets are properly safeguarded, transactions are executed in accordance with management's authorization and the books and records of the company accurately reflect all transactions. The systems of internal accounting controls are supported by written policies and procedures and by an appropriate segregation of responsibilities and duties. The company maintains an extensive internal auditing program that independently assesses the effectiveness of these internal controls with written reports and recommendations issued to the appropriate levels of management. Management believes that the existing systems of internal controls are achieving the objectives discussed herein. Unocal assessed its internal control systems in relation to criteria for effective internal control over financial reporting following the Treadway Commission's Committee of Sponsoring Organizations "Internal Control - Integrated Framework." Based on this assessment, Unocal believes that, as of December 31, 1995, its systems of internal controls over financial reporting met those criteria. Unocal's Accounting, Auditing and Ethics Committee, consisting solely of directors who are not employees of Unocal, is responsible for: reviewing the company's financial reporting, accounting and internal control practices; recommending the selection of independent accountants (which in turn are approved by the Board of Directors and annually ratified by the stockholders); monitoring compliance with applicable laws and company policies; and initiating special investigations as deemed necessary. The independent accountants and the internal auditors have full and free access to the Accounting, Auditing and Ethics Committee and meet with it, with and without the presence of management, to discuss all appropriate matters. Roger C. Beach John F. Imle, Jr. Neal E. Schmale Charles S. McDowell Chief Executive President Chief Financial Vice President Officer Officer and Comptroller February 14, 1996 31 REPORT OF INDEPENDENT ACCOUNTANTS --------------------------------- TO THE STOCKHOLDERS OF UNOCAL CORPORATION: We have audited the accompanying consolidated balance sheets of Unocal Corporation and its subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of earnings, cash flows and stockholders' equity for each of the three years in the period ended December 31, 1995 and the related financial statement schedule. These financial statements are the responsibility of Unocal Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above, which appear on pages 33 through 61 of this Annual Report on Form 10-K, present fairly, in all material respects, the consolidated financial position of Unocal Corporation and its subsidiaries as of December 31, 1995 and 1994 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements, taken as a whole, presents fairly, in all material respects, the information required to be included therein. As discussed in Note 2 to the consolidated financial statements, Unocal Corporation and its subsidiaries changed their method of accounting for the impairment of long-lived assets and long-lived assets to be disposed of in 1995; for recognizing the reduction in value of its producing oil and gas properties in 1994; and for postretirement benefits other than pensions and for postemployment benefits in 1993. Coopers & Lybrand L.L.P. February 14, 1996, except for Note 25, as to which the date is February 16, 1996 Los Angeles, California 32 CONSOLIDATED EARNINGS UNOCAL CORPORATION
YEARS ENDED DECEMBER 31 ------------------------ DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS 1995 1994 1993 - -------------------------------------------------------------------- REVENUES Sales and operating revenues * $8,133 $7,797 $8,077 Interest, dividends and miscellaneous income 95 84 67 Equity in earnings of affiliated companies 80 86 84 Gain (loss) on sales of assets 117 (2) 116 - -------------------------------------------------------------------- Total revenues 8,425 7,965 8,344 COSTS AND OTHER DEDUCTIONS Crude oil and product purchases 3,198 2,875 3,160 Operating expense 1,795 1,856 1,724 Selling, administrative and general expense 436 501 467 Depreciation, depletion and amortization 1,022 947 963 Dry hole costs 61 84 45 Exploration expense 138 116 119 Interest expense 291 275 304 Excise, property and other operating taxes * 1,021 1,017 951 - -------------------------------------------------------------------- Total costs and other deductions 7,962 7,671 7,733 - -------------------------------------------------------------------- Earnings before income taxes and cumulative effect of accounting changes 463 294 611 Income taxes 203 170 268 - -------------------------------------------------------------------- Earnings before cumulative effect of accounting changes 260 124 343 Cumulative effect of accounting changes - (277) (130) - -------------------------------------------------------------------- NET EARNINGS (LOSS) $ 260 $ (153) $ 213 ==================================================================== Dividends on preferred stock 36 36 36 - -------------------------------------------------------------------- NET EARNINGS (LOSS) APPLICABLE TO COMMON STOCK $ 224 $ (189) $ 177 ==================================================================== Earnings (loss) per share of common stock: Before cumulative effect of accounting changes $.91 $.36 $1.27 Cumulative effect of accounting changes - (1.14) (.54) - -------------------------------------------------------------------- Net earnings (loss) per share $.91 $(.78) $.73 ==================================================================== * Includes consumer excise taxes of $ 898 $ 893 $ 816
See Notes to Consolidated Financial Statements. 33 CONSOLIDATED BALANCE SHEET UNOCAL CORPORATION
AT DECEMBER 31 ------------------- MILLIONS OF DOLLARS 1995 1994 - ----------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $ 94 $ 148 Accounts and notes receivable 920 897 Inventories 360 341 Deferred income taxes 169 109 Other current assets 33 33 - ----------------------------------------------------------- Total current assets 1,576 1,528 Investments and long-term receivables Affiliated companies 461 445 Other 640 450 Properties - net 7,109 6,823 Deferred income taxes 25 30 Other assets 80 61 - ----------------------------------------------------------- Total assets $9,891 $9,337 - ----------------------------------------------------------- LIABILITIES Current liabilities Accounts payable $ 804 $ 688 Taxes payable 193 226 Interest payable 92 87 Other current liabilities 227 256 - ----------------------------------------------------------- Total current liabilities 1,316 1,257 Long-term debt and capital lease obligations 3,698 3,461 Deferred income taxes 722 643 Accrued abandonment, restoration and environmental liabilities 607 622 Other deferred credits and liabilities 618 539 - ----------------------------------------------------------- Total liabilities 6,961 6,522 - ----------------------------------------------------------- STOCKHOLDERS' EQUITY Preferred stock ($0.10 par value, stated at liquidation value of $50 per share) Shares authorized: 100,000,000 Shares outstanding: 10,250,000 in 1995 and 1994 513 513 Common stock ($1 par value) Shares authorized: 750,000,000 Shares outstanding: 247,310,376 in 1995; 244,198,701 in 1994 247 244 Capital in excess of par value 319 237 Foreign currency translation adjustment (10) (13) Unearned portion of restricted stock issued (13) (13) Retained earnings 1,874 1,847 - ----------------------------------------------------------- Total stockholders' equity 2,930 2,815 - ----------------------------------------------------------- Total liabilities and $9,891 $9,337 stockholders' equity - -----------------------------------------------------------
The company follows the successful efforts method of accounting for its oil and gas activities. See Notes to Consolidated Financial Statements. 34 CONSOLIDATED CASH FLOWS UNOCAL CORPORATION
YEARS ENDED DECEMBER 31 -------------------------------- MILLIONS OF DOLLARS 1995 1994 1993 - ------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES Net earnings (loss) $ 260 $ (153) $ 213 Adjustments to reconcile net earnings (loss) to net cash provided by operating activities Cumulative effect of accounting changes - 277 130 Depreciation, depletion and amortization 1,022 947 963 Dry hole costs 61 84 45 Deferred income taxes 9 (118) 139 (Gain) loss on sales of assets (pretax) (117) 2 (116) Other - 217 42 Working capital and other changes related to operations Accounts and notes receivable (5) 91 33 Inventories (16) (10) (24) Accounts payable 115 (49) 25 Taxes payable (33) 18 (52) Other (19) (7) (298) ----------------------------------------------------------------------- Net cash provided by operating activities 1,277 1,299 1,100 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (includes dry hole costs) (1,459) (1,272) (1,249) Proceeds from sales of assets 204 156 586 - ------------------------------------------------------------------------ Net cash used in investing activities (1,255) (1,116) (663) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from issuance of common stock 55 54 6 Long-term borrowings 844 732 543 Reduction of long-term debt and (734) (788) (718) capital lease obligations Dividends paid on preferred stock (36) (36) (36) Dividends paid on common stock (197) (193) (175) Other (8) (9) (9) - ------------------------------------------------------------------------ Net cash used in financing activities (76) (240) (389) Increase (decrease) in cash and cash equivalents (54) (57) 48 Cash and cash equivalents at beginning of year 148 205 157 - ------------------------------------------------------------------------ Cash and cash equivalents at end of year $ 94 $ 148 $ 205 - ------------------------------------------------------------------------ Supplemental disclosure of cash flow information: Cash paid during the year for: Interest (net of amount capitalized) $ 268 $ 263 $ 296 Income taxes (net of refunds) $ 228 $ 174 $ 291
See Notes to Consolidated Financial Statements. 35 CONSOLIDATED STOCKHOLDERS' EQUITY UNOCAL CORPORATION
MILLIONS OF DOLLARS 1995 1994 1993 - ---------------------------------------------------------------------- PREFERRED STOCK Balance at end of year $ 513 $ 513 $ 513 COMMON STOCK Balance at beginning of year 244 241 241 Issuance of common stock 3 3 - - ---------------------------------------------------------------------- Balance at end of year 247 244 241 CAPITAL IN EXCESS OF PAR VALUE Balance at beginning of year 237 163 149 Issuance of common stock 82 74 14 - ---------------------------------------------------------------------- Balance at end of year 319 237 163 FOREIGN CURRENCY TRANSLATION ADJUSTMENT Balance at beginning of year (13) (5) 5 Current year adjustment 3 (8) (10) - ---------------------------------------------------------------------- Balance at end of year (10) (13) (5) UNEARNED PORTION OF RESTRICTED STOCK ISSUED Balance at beginning of year (13) (13) (11) Issuance of restricted stock (3) (4) (5) Current year amortization 3 4 3 - ---------------------------------------------------------------------- Balance at end of year (13) (13) (13) RETAINED EARNINGS Balance at beginning of year 1,847 2,230 2,234 Net earnings (loss) for year 260 (153) 213 Cash dividends declared Preferred Stock ($3.50 per share (36) (36) (36) Common Stock ($0.80 per share in 1995 and 1994; $0.75 per share in 1993) (197) (194) (181) - ---------------------------------------------------------------------- Balance at end of year 1,874 1,847 2,230 - ------------------------------------------------------------------------------- TOTAL STOCKHOLDERS' EQUITY $2,930 $2,815 $3,129 - -------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION For the purpose of this report, Unocal Corporation (Unocal) and its consolidated subsidiary, Union Oil Company of California (Union Oil) and its consolidated subsidiaries, will be referred to as the company. The consolidated financial statements of the company include the accounts of subsidiaries more than 50 percent owned. Investments in affiliates owned 50 percent or less 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 after acquisition. Income taxes estimated to be payable when earnings are distributed are included in deferred income taxes. USE OF ESTIMATES The consolidated financial statements are prepared in conformity with generally accepted accounting principles, which require management to make estimates and assumptions that affect the amounts of assets and liabilities and the disclosures of contingent liabilities as of the financial statement date and the amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INVENTORIES Inventories are valued at lower of cost or market. The costs of crude oil, refined products and agricultural products inventories are determined using the last-in, first-out (LIFO) method. The costs of other inventories are determined by using various methods. Cost elements primarily consist of raw materials and production expenses. IMPAIRMENT OF ASSETS Oil and gas producing properties are regularly assessed for possible impairment on a field-by-field basis using the estimated undiscounted future cash flows of each field. Impairment loss is charged to depreciation, depletion and amortization expense when the estimated discounted future cash flows are less than the current net book values of the properties in a field. See Note 2 for additional information. Impairment charges are also made for the write-down of other long-lived assets when it is determined that the carrying values of the assets may not be recoverable. A long-lived asset is reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. OIL AND GAS EXPLORATION AND DEVELOPMENT COSTS The company follows the successful-efforts method of accounting for its oil and gas activities. Acquisition costs of exploratory acreage are capitalized. Full amortization of such costs related to the portion of unproved properties is provided over the shorter of the exploratory period or the lease holding period. Costs of successful leases are transferred to proved properties. Exploratory drilling costs are initially capitalized. If exploratory wells are determined to be commercially unsuccessful, the related costs are expensed. Geological and geophysical costs for exploration and leasehold rentals for unproved properties are expensed. Development costs of proved properties, including unsuccessful development wells, are capitalized. DEPRECIATION, DEPLETION AND AMORTIZATION Depreciation, depletion and amortization related to proved oil and gas properties and estimated future abandonment and removal costs for offshore production platforms are calculated at unit-of-production rates based upon estimated proved recoverable reserves. Depreciation of other properties is generally on a straight-line method using various rates based on estimated useful lives. 37 MAINTENANCE AND REPAIRS Expenditures for maintenance and repairs are expensed. In general, improvements are charged to the respective property accounts and such accounts are relieved of the original cost of property replaced. RETIREMENT AND DISPOSAL OF PROPERTIES Upon retirement of facilities depreciated on an individual basis, remaining book values are charged to depreciation expense. For facilities depreciated on a group basis, remaining book values are charged to accumulated allowances. Gains or losses on sales of properties are included in current earnings. INCOME TAXES The company uses the liability method for reporting income taxes in which current or deferred tax liabilities or assets are recorded in accordance with enacted tax laws and rates. Under this method, the amount of deferred tax liabilities or assets at the end of each period is determined using the tax rate expected to be in effect when taxes are actually paid or recovered. Future tax benefits are recognized to the extent that realization of such benefits is more likely than not. Deferred income taxes are provided for the estimated income tax effect of temporary differences between financial and tax bases in assets and liabilities. Deferred tax assets are also provided for certain tax credit carryforwards. A valuation allowance to reduce deferred tax assets is established when deemed appropriate. See Note 9 for the principal temporary differences and unused tax credits. FOREIGN CURRENCY TRANSLATION Foreign exchange gains and losses as a result of translating a foreign entity's financial statements from its functional currency into U.S. dollars are included as a separate component of stockholders' equity. The functional currency for all foreign operations, except Canada, is the U.S. dollar. Gains or losses incurred on currency transactions in other than a country's functional currency are included in net earnings. ENVIRONMENTAL EXPENDITURES Environmental expenditures that create future benefits or contribute to future revenue generation are capitalized. Expenditures that relate to existing conditions caused by past operations are expensed. Liabilities related to environmental assessment and future remediation costs are recorded when such liabilities are probable and the amounts can be reasonably estimated. The company considers a site to present a probable liability when an investigation has identified environmental remediation requirements for which the company is responsible. The timing of accruing for remediation costs generally coincides with the company's completion of investigation or feasibility work and its recommendation of a remedy or commitment to an appropriate plan of action. Environmental liabilities are not discounted or reduced by possible recoveries from third parties. However, accrued liabilities for Superfund and similar sites reflect anticipated allocations of liabilities among settling participants. Environmental remediation expenditures required for properties held for sale are capitalized. A valuation allowance is established when the aggregate book values of the properties, including capitalized remediation costs, exceed net aggregate realizable values. See Notes 17 and 18 for additional information. 38 FINANCIAL INSTRUMENTS The company has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used to manage well-defined interest rate, foreign currency exchange rate and commodity price risks. Gains and losses arising from currency swap agreements are recognized in income and offset the foreign exchange gains and losses on the underlying transactions. Gains and losses arising from commodity future contracts are deferred and included in the basis of the underlying transactions. Income or expense associated with interest rate swap agreements is recognized on the accrual basis over the life of the swap agreement as a component of interest income or interest expense. See Note 16 for additional information. OTHER Earnings per share of common stock are based on net earnings less preferred stock dividend requirements, divided by the weighted average shares of common stock outstanding during each period. Interest is capitalized on major construction and development projects as part of the costs of the assets. Certain items in prior year financial statements have been reclassified to conform to the 1995 presentation. NOTE 2 - ACCOUNTING CHANGES Effective in the fourth quarter of 1995, the company adopted Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of." The new accounting standard sets guidelines to be used for determining and measuring impairment of certain assets. As a result, the company recorded a charge to earnings of $87 million pretax ($53 million after tax or 22 cents per common share) for the write-down of several oil and gas producing properties where recent downward revisions in reserve estimates indicated future net cash flows would be insufficient to fully recover the carrying value of these properties. The carrying values were written down to estimated future discounted cash flows or fully written off in the case of negative future cash flows. The charge was recorded in depreciation, depletion and amortization expense and reflected the reduction in value of various properties located in the United States ($44 million), the Netherlands ($37 million) and Canada ($6 million). Effective January 1, 1994, the company changed its accounting policy for recognizing the reduction in value of its producing oil and gas properties and commenced to evaluate properties for impairment on a field-by-field basis instead of a country-by-country basis which was previously used. The cumulative effect of the accounting change resulted in a charge to earnings of $447 million pretax ($277 million after tax or $1.14 per common share) in the first quarter of 1994. The charge reflected the reduction in value of certain oil and gas properties in the U.S. from which the estimated undiscounted future cash flows were less than the current net book values of the properties. As a result of the property write-downs, the company's depreciation and depletion expense in 1994 was reduced by approximately $61 million ($38 million after tax). On a pro forma basis, net earnings for 1993 would have increased by $31 million to $244 million or 86 cents per common share as a result of the accounting change. Effective January 1, 1993, the company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This new accounting standard requires the company to recognize its obligation to provide postretirement health care benefits and to accrue such costs rather than recording them on a cash basis. The actuarial present value of the accumulated postretirement health care obligation existing at January 1, 1993 was recognized in the consolidated earnings statement as a cumulative effect of an accounting change, resulting in a charge to the first quarter 1993 earnings of $192 million before tax ($121 million after tax or 50 cents per common share). The company also adopted SFAS No. 112, "Employers' Accounting For Postemployment Benefits," effective January 1, 1993. This statement requires the company to recognize its obligation to provide benefits, such as workers' compensation and disabled employees' medical care, to former or inactive employees after employment but before retirement. The charge to earnings for the cumulative effect of the company's unfunded obligation prior to 1993 was $14 million before tax ($9 million after tax or 4 cents per common share). 39 NOTE 3 - RESTRUCTURING COSTS During the fourth quarter of 1994, as a result of an overhead study, the company began a two-year program to reduce its 1,540-person corporate staff by 630 positions and to eliminate another 126 positions in the operating groups. A pretax charge of $25 million was recorded in administrative and general expense for net costs associated with the staff reductions. This charge included $34 million of estimated benefits to be paid to ex-employees over a period of time. Partially offsetting this charge was an estimated credit of $9 million for reduced pension obligations. At December 31, 1995, approximately 541 employees had been terminated as a result of the program. The amount of unpaid benefits remaining on the consolidated balance sheet was $14 million. NOTE 4 - WRITE-DOWNS OF ASSETS In 1995, prior to the adoption of SFAS No. 121 in the fourth quarter, the company recorded a pretax charge of $13 million to write down the carrying values of certain domestic oil and gas properties and $5 million for miscellaneous asset write-downs. During 1994, the company recorded a pretax charge of $25 million to write down the carrying value of the Guadalupe oil field due to its decision to shut down the field for environmental reasons. The company also closed certain facilities used in refining and marketing operations and research activities, which resulted in write-downs of $39 million. Due to project modifications, the company wrote off an additional $7 million in 1994 for costs related to the reformulated fuels program at the company's Los Angeles Refinery. The 1993 earnings included a pretax charge of $19 million for the write-off of refining projects, primarily due to the cancellation of a portion of work associated with the reformulated fuels program at the company's Los Angeles Refinery. NOTE 5 - DISPOSITIONS OF ASSETS During 1995, the company received total proceeds from sales of assets of $204 million and recorded a pretax gain of $117 million. Of the total, $134 million was from the sale of nonstrategic oil and gas properties with a pretax gain of $52 million. In addition, the company recorded a pretax gain of $26 million on proceeds of $32 million from the sale of its Process, Technology and Licensing business. In 1994, asset sales generated total proceeds of $156 million with a pretax loss of $2 million. Of the total proceeds, $118 million was from the sale of oil and gas properties. In 1993, the sale of the company's geothermal assets in the Imperial Valley of California and other geothermal exploration leases resulted in a $40 million pretax gain on proceeds of $218 million. An $11 million pretax gain on proceeds of $172 million was recorded from the sale of the company's national auto/truckstop system. In addition, various oil and gas properties were sold which generated total proceeds of $106 million with a pretax gain of $42 million. The company also sold its retail agricultural businesses with a pretax loss of $1 million on proceeds of $31 million. NOTE 6 - CASH FLOW INFORMATION The company considers cash equivalents to be all highly liquid investments purchased with a maturity of three months or less. All income taxes paid are included in determining cash flows from operating activities. As a result, income taxes paid on taxable income from sales of assets are not included in cash flows from investing activities. The 1995 and 1994 cash flow statements excluded $30 million and $23 million, respectively, in non-cash transactions. These amounts primarily relate to the purchase of Unocal common stock by the trustee of the Unocal Savings Plan (the "Plan") from Unocal. The trustee used the company's matching contributions to the Plan, which were expensed in the company's consolidated earnings statements, to purchase the shares. In the consolidated cash flow statements, the issuance of Unocal common stock and the matching contribution expense were treated as non-cash transactions since the resulting effect on cash flow was zero. 40 In the consolidated statement of cash flows for 1994, the $217 million adjustment to reconcile the net loss to net cash provided by operating activities principally included non-cash charges to earnings of $170 million for future environmental remediation costs. In the consolidated statement of cash flows for 1993, other changes related to operations principally included $106 million of payments for Alaska tax and geothermal energy sales contract settlements. Also included was a cash flow reduction of $125 million relating to the settlement of crude oil forward sales contracts, for which revenue was recognized in 1993, but cash was received in 1992. NOTE 7 - OTHER FINANCIAL INFORMATION CONSOLIDATED EARNINGS INCLUDE THE FOLLOWING:
Millions of Dollars 1995 1994 1993 - ---------------------------------------------------------- Total interest costs $ 326 $ 305 $ 334 Less capitalized interest 35 30 30 - ---------------------------------------------------------- Interest expense $ 291 $ 275 $ 304 Maintenance and repair costs $ 451 $ 457 $ 442 ==========================================================
The consolidated balance sheet at December 31 includes the following:
Millions of Dollars 1995 1994 - --------------------------------------------------------------------------- Other deferred credits and liabilities: Postretirement medical benefits obligation $ 214 $ 206 Reserve for litigation and other claims 262 204 Other employee benefits 50 54 Other 92 75 ------------------------------------------------------------------------ Total $ 618 $ 539 Allowances for doubtful accounts and notes receivable $ 28 $ 15 Allowances for investments and long-term receivables $ 15 $ 3 ========================================================================
NOTE 8 - EXCISE, PROPERTY AND OTHER OPERATING TAXES
Millions of Dollars 1995 1994 1993 - ----------------------------------------------------------------------- Consumer excise taxes $ 898 $ 893 $ 816 Real and personal property taxes 69 68 68 Severance and other taxes on production 38 38 47 Other taxes and duties 16 18 20 - ----------------------------------------------------------------------- Total $1,021 $1,017 $ 951 =======================================================================
In addition, social security and unemployment insurance taxes, which are charged to earnings and included with salaries and wages, totaled $45 million in 1995 and $44 million in 1994 and 1993. 41 NOTE 9 - INCOME TAXES Unocal files a consolidated federal income tax return that includes essentially all U.S. subsidiaries. The components of pretax earnings and the provision for income taxes are as follows:
Millions of Dollars 1995 1994 1993 - -------------------------------------------------------- Earnings (loss) before income taxes and cumulative effect on accounting changes United States $ 69 $(163) $ 189 Foreign 394 457 422 - -------------------------------------------------------- Total $ 463 $ 294 $ 611 - -------------------------------------------------------- Income taxes Current Federal $ 3 $ 25 $ (73) State 4 18 (19) Foreign 187 245 221 ------------------------------------------------------- Total 194 288 129 Deferred Federal 20 (120) 113 State (23) (8) 14 Foreign 12 10 12 - -------------------------------------------------------- Total 9 (118) 139 ------------------------------------------------------- Total income taxes $ 203 $ 170 $ 268 -------------------------------------------------------
The following table is a reconciliation of income taxes at the federal statutory income tax rates to income taxes as reported in the consolidated earnings statement.
Dollars in Millions 1995 1994 1993 - ----------------------------------------------------------------------------- Federal statutory rate 35% 35% 35% Taxes on book earnings computed at statutory rate $ 162 $ 103 $ 214 Foreign taxes in excess of statutory rate 59 75 66 Dividend exclusion (15) (13) (13) Deferred federal business tax credits - - (12) Effect of federal rate change on deferred taxes - - 14 Deferred California business tax credits, net of federal tax effect (18) - - Other 15 5 (1) - ----------------------------------------------------------------------------- Total $ 203 $ 170 $ 268 - -----------------------------------------------------------------------------
42 NOTE 9 - INCOME TAXES (CONTINUED) The significant components of deferred income tax assets and liabilities included in the consolidated balance sheet at December 31, 1995 and 1994 are as follows:
Millions of Dollars 1995 1994 - ----------------------------------------------------------------------- Deferred tax assets (liabilities) Depreciation and intangible drilling costs $(1,129) $(986) Pension assets (145) (135) Investments in affiliates (80) (82) Other deferred tax liabilities (216) (212) Depletion 169 145 Exploratory costs 140 155 Federal alternative minimum tax credits 142 143 Future abandonment costs 133 126 Postretirement benefit costs 81 78 Litigation/environmental costs 108 112 1995 federal net operating loss carryforward 94 - Other deferred tax assets 175 152 - ----------------------------------------------------------------------- Total $ (528) $(504) - -----------------------------------------------------------------------
No deferred U.S. income tax liability has been recognized on the undistributed earnings of foreign subsidiaries that have been retained for reinvestment. If distributed, no additional U.S. tax is expected due to the availability of foreign tax credits. Such undistributed earnings for tax purposes, excluding previously taxed earnings, are estimated at $759 million as of December 31, 1995. At year-end 1995, the company had $66 million of unused foreign tax credits with various expiration dates through the year 2000. No deferred tax asset for these foreign tax credits is recognized for financial statement purposes. The federal alternative minimum tax credits are available to offset future U.S. federal income taxes on an indefinite basis. In addition, the company has approximately $15 million of federal business tax credit carryforwards and $28 million of California business tax credit carryforwards that will expire between the years 2001 and 2009. The 1995 federal net operating loss carryforward is expected to be fully utilized in 1996.
NOTE 10 - INVENTORIES Millions of Dollars 1995 1994 - ------------------------------------------------ Crude oil and condensate $ 48 $ 31 Refined products 161 161 Agricultural products 40 46 Minerals 30 16 Supplies, merchandise and other 81 87 - ------------------------------------------------ Total $ 360 $ 341 - ------------------------------------------------
The current replacement cost of inventories exceeded the LIFO inventory value included above by $149 million and $142 million at December 31, 1995 and 1994, respectively. 43 NOTE 11 - PROPERTIES AND CAPITAL LEASES Investments in owned and capitalized leased properties at December 31, 1995 and 1994 are set forth below. Total accumulated depreciation, depletion and amortization was $11,431 million and $11,096 million at December 31, 1995 and 1994, respectively.
1995 1994 -------------------------------------- Millions of dollars Gross Net Gross Net ---------------------------------------------------------------------- Owned properties (at cost) Petroleum operations: Exploration United States $ 113 $ 45 $ 167 $ 54 Foreign 173 90 125 71 Production United States 7,994 2,676 8,101 2,803 Foreign 4,353 1,235 4,106 1,214 Refining and Marketing 76 Products Company 3,310 2,058 2,889 1,731 ---------------------------------------------------------------------- Total 15,943 6,104 15,388 5,873 Geothermal & Power Operations 995 382 967 380 Diversified Businesses Agricultural Products 650 221 616 191 Carbon & Minerals 140 45 123 33 Pipelines 330 99 324 99 Corporate and Unallocated 465 254 483 241 ---------------------------------------------------------------------- Total owned properties 18,523 7,105 17,901 6,817 Capitalized leased properties 17 4 18 6 ---------------------------------------------------------------------- Total $18,540 $7,109 $17,919 $6,823 ----------------------------------------------------------------------
NOTE 12 - RETIREMENT PLANS The company and its subsidiaries have several non-contributory retirement plans covering substantially all employees. Plan benefits are primarily based on years of service and employees' compensation near retirement. All U.S. plans are administered by corporate trustees. There was no company contribution to any of the U.S. plans during the years 1993 through 1995 as plan assets substantially exceeded the pension obligations. At year-end 1995, plan assets principally consisted of equity securities, U.S. government and agency issues, corporate bonds and cash. Employees of certain foreign subsidiaries of the company are covered by separate plans. Total obligations for all foreign plans are not material. 44 NOTE 12 - RETIREMENT PLANS (CONTINUED) Pension costs for the funded U.S. plans include the following components:
Millions of Dollars 1995 1994 1993 - ------------------------------------------------------------------------------- Service cost - benefits earned during the year $ 21 $ 24 $ 20 Interest cost on projected benefit obligation 52 49 48 Actual return on plan assets (225) 9 (125) Net amortization and deferral 129 (109) 20 Net gain from partial settlement of obligation and curtailment of operations (7) (4) (3) - ------------------------------------------------------------------------------- Net pension expense (income) $ (30) $ (31) $ (40) ===============================================================================
The following table sets forth the plans' funded status and amounts recognized in the consolidated balance sheet at December 31, 1995 and 1994:
Millions of Dollars 1995 1994 - -------------------------------------------------------------------------------- Plan assets at fair value $1,053 $ 885 - -------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefits 636 484 Nonvested benefits 24 18 - -------------------------------------------------------------------------------- Accumulated benefit obligation 660 502 Effect of projected future salary increases 78 101 - -------------------------------------------------------------------------------- Projected benefit obligation 738 603 - -------------------------------------------------------------------------------- Plan assets in excess of projected benefit obligation 315 282 Unrecognized net loss 115 152 Unrecognized net assets (63) (86) Unrecognized prior service cost 24 13 - -------------------------------------------------------------------------------- Prepaid pension cost $ 391 $ 361 - --------------------------------------------------------------------------------
The assumed rates used to measure the projected benefit obligation and the expected earnings on plan assets were as follows:
1995 1994 1993 ----- ----- ------ Weighted-average discount rate 7.25% 8.50% 7.25% Increase in future compensation levels 4.00% 5.00% 5.00% Expected long-term return on plan assets 9.50% 9.75% 10.50%
The amount of benefits which can be covered by the funded plans described above are limited by the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. Therefore, the company has a supplemental retirement plan designed to maintain benefits for all employees at the plan formula level. The amounts expensed for this plan were $5 million, $5 million and $2 million in 1995, 1994 and 1993, respectively. The accumulated obligation recognized in the consolidated balance sheet at December 31, 1995 was $21 million. The company has established a grantor trust to provide funding for the benefits payable under the supplemental retirement plan. Total assets held in the trust at December 31, 1995 and 1994 amounted to $14 million and $8 million, respectively. 45 NOTE 13 - POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT PLANS The company's medical plan provides health care benefits for eligible employees and retired employees. Employees may become eligible for postretirement benefits if they reach the normal retirement age while working for the company. The plan is contributory and the benefits are subject to deductibles and co-payments. The following table sets forth the postretirement benefit obligation recognized in the consolidated balance sheet at December 31, 1995 and 1994:
Millions of Dollars 1995 1994 - --------------------------------------------------------------------- Accumulated postretirement benefit obligations: Retirees $ 134 $ 134 Fully eligible active employees 23 20 Other active employees 52 29 - --------------------------------------------------------------------- Total 209 183 Unrecognized gain and prior service cost 4 23 - --------------------------------------------------------------------- Accrued postretirement benefit cost $ 213 $ 206 =====================================================================
Net periodic postretirement benefits cost is comprised of the following components:
Millions of Dollars 1995 1994 1993 - ------------------------------------------------- Service cost $ 4 $ 6 $ 5 Interest cost 15 15 17 - ------------------------------------------------- Total $ 19 $ 21 $ 22 =================================================
The accumulated postretirement benefit obligation at December 31, 1995 was determined using a discount rate of 7.25 percent. The health care cost trend rates used in measuring the 1995 benefit obligations were 7.0 percent for under age 65 and 6.2 percent for age 65 and over, gradually decreasing to 5.0 percent by the year 2001 and remaining at that level thereafter. The rates are subject to change in the future. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, an increase in the assumed health care cost trend rate of one percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1995 by $24 million and net periodic benefits cost by $3 million. The company also provides benefits such as workers' compensation and disabled employees' medical care to former or inactive employees after employment but before retirement. The accumulated postemployment benefit obligation was $16 million as of December 31, 1995 and $17 million as of December 31, 1994. 46 NOTE 14 - LONG-TERM DEBT AND CREDIT AGREEMENTS The following table summarizes the company's long-term debt:
At December 31 --------------- Millions of Dollars 1995 1994 - ------------------------------------------------------------------ Bonds and debentures 9-1/4% Debentures due 2003 $ 250 $ 250 9-1/8% Debentures due 2006 200 200 6-1/8% to 7-7/8% Industrial Development Revenue Bonds due 1998 to 2008 71 74 Swiss Franc Bonds due 1996 (5.25%) 175 110 Deutsche Mark Bonds due 1998 (6.125%) 175 110 Notes Commercial paper (6.02%) * 650 456 Medium-term notes due 1996 to 2011 (8.17%) * 1,075 754 Bank Credit Agreement (6.08%) * 105 250 Revolving credit facilities (6.31%) * 130 135 9-5/8% Notes due 1995 - 250 9-3/4% Notes due 2000 250 250 Eurodollar Notes due 1996, effective rate 9.77% - 200 8-3/4% Notes due 2001 200 200 6-3/8% Notes due 2004 200 200 7.20% Notes due 2005 200 - Other miscellaneous debt 15 15 - ------------------------------------------------------------------ Total 3,696 3,454 Less current portion of long-term debt 4 2 - ------------------------------------------------------------------ Total long-term debt $3,692 $3,452 ================================================================== * Weighted average interest rate at December 31, 1995
At December 31, 1995, the commercial paper, the Swiss Franc Bonds, $5 million of medium-term notes due in 1996 and short-term borrowings under various credit facilities due in 1996 were classified as long-term debt and included with the maturity amount due in the year 2000, listed below. The company has the intent to refinance these borrowings on a long-term basis and has the ability to do so, if necessary, through existing lines of credit extending to the year 2000. The amounts of long-term debt maturing in 1997, 1998, 1999 and 2000 are $118 million, $415 million, $171 million and $1,336 million, respectively. In 1995, the company's new borrowings consisted of: (1) $350 million in medium-term notes with interest rates ranging from 6.70% to 8.15% and maturity dates ranging from March 2002 to April 2015; (2) $200 million of 7.20% Notes due 2005; (3) and $50 million under a $50 million revolving credit facility. The proceeds were used principally to retire the Eurodollar Notes and refinance other maturing debt. The company also borrowed an additional $50 million under a $250 million revolving credit facility that was established in 1993 for the purpose of funding its oil and gas development program in Thailand. This credit facility, which had $80 million outstanding at December 31, 1995, terminates December 15, 2000. For the same purpose, the company has a $45 million revolving credit facility through April 19, 2000 in the Netherlands. The entire commitment amount was unborrowed at year-end 1995. During 1994, the company arranged an $85 million revolving credit facility with a Canadian Bank. This facility, which has a perpetual 364-day maturity date, was reduced to $25 million in 1995. The entire amount was available at year-end 1995. During 1995, the company arranged a $200 million 364-day credit facility, which matures March 1997 and is subject to annual renewal. The entire commitment amount was undrawn at year-end 1995. Borrowings under these four credit facilities bear interest at different margins above London Interbank Offered Rates (LIBOR) and the agreements call for facility fees on either the total or undrawn commitment. The Bank Credit Agreement provides a revolving credit of $1.2 billion through June of the year 2000 at interest rates based on LIBOR and requires a facility fee on the total commitments. Of the total, $105 million had been drawn at December 31, 1995. This agreement is available for general corporate purposes, including the support of commercial paper. The company has other undrawn letters of credit for approximately $183 million. The majority are maintained for operational needs. 47 NOTE 14 - LONG-TERM DEBT AND CREDIT AGREEMENTS (CONTINUED) The Bank Credit Agreement and certain of the other revolving credit facilities described above provide for the termination of the commitments and require the prepayment of all outstanding borrowings in the event (a) any person or group becomes the beneficial owner of more than 30 percent of the then outstanding voting stock of Unocal, otherwise than in a transaction having the approval of the Board of Directors of Unocal (the Board), at least a majority of which are continuing directors (as defined therein), or (b) continuing directors shall cease to constitute at least a majority of the Board. NOTE 15 - LEASE RENTAL OBLIGATIONS Future minimum rental payments for operating leases having initial or remaining noncancelable lease terms in excess of one year are as follows:
Millions of Dollars - ----------------------------------------- 1996 $ 77 1997 57 1998 48 1999 37 2000 33 Balance 155 - ----------------------------------------- Total minimum lease payments $407 =========================================
Net operating rental expense included in consolidated earnings is as follows:
Millions of Dollars 1995 1994 1993 - -------------------------------------------------------------------------------- Fixed rentals $ 101 $ 118 $ 129 Contingent rentals (based primarily on sales and usage) 22 32 37 Sublease rental income (49) (49) (51) - -------------------------------------------------------------------------------- Net expense $ 74 $ 101 $ 115 ================================================================================
NOTE 16 - FINANCIAL INSTRUMENTS Unocal does not hold or issue financial instruments for trading purposes. Notional amounts are not included in the consolidated balance sheet and generally exceed the future cash requirements relating to the instruments. The counterparties to the company's financial instruments are regulated exchanges or major international financial institutions with high credit ratings. Even though the company may be exposed to losses in the event of non- performance by these counterparties, it does not anticipate losses due to non- performance by the counterparties. In the opinion of management, the off- balance-sheet risk associated with these instruments is minimal and immaterial. FOREIGN CURRENCY FORWARD AND SWAP CONTRACTS Unocal enters into various foreign currency forward and swap contracts to manage its exposures to adverse impacts of foreign currency fluctuations under both debt and other obligations. Foreign currency gains or losses on the outstanding contracts essentially offset the foreign currency gains or losses of the underlying obligations. 48 NOTE 16 - FINANCIAL INSTRUMENTS (CONTINUED) During 1986, the company entered into two currency swap agreements to hedge foreign currency exchange exposures related to the interest and principal payments on the company's Swiss Franc bonds due in 1996 and Deutsche Mark bonds due in 1998. These instruments have the same maturities as the related underlying debt. At year-end 1995 and 1994, the aggregate notional principal amounts of these agreements were $220 million. At year-end 1995, these currency swap agreements had an aggregate fair value of approximately $137 million, based on dealer quotes, which is included in long-term receivables on the consolidated balance sheet. In addition, the company had two currency swap agreements outstanding on borrowings of its Canadian subsidiary, with notional amounts totaling $250 million at year end 1995, and three currency swap agreements outstanding with national amounts totaling $310 million at year-end 1994. The agreements, entered into by the subsidiary, have the effect of changing the subsidiary's U.S. dollar denominated borrowings into its functional Canadian currency. The objective of these agreements is to limit the subsidiary's exposure to currency exchange gains and losses. The parent company also has two currency swap agreements to offset the subsidiary's currency swaps with the objective of maintaining the underlying debt in U.S. dollars for reporting in the consolidated financial statements. The maturities of the agreements range from 1996 to 1999, which generally correspond to the related debt obligations. The net fair value of the currency swap agreements at year-end 1995 and 1994, based on dealer quotes, was approximately zero. As of December 31, 1995, the company had 20 currency forward contracts outstanding to purchase 32 million Pounds Sterling for $48 million. At December 31, 1994, the company had eight currency forward contracts outstanding to purchase 17 million Pounds Sterling for $25 million. The objective is to hedge a series of known obligations denominated in Pounds Sterling which will come due during the period from January 1996 to July 2000. The fair value of these currency forward contracts at December 31, 1995 and 1994, based upon quoted market prices of comparable instruments, was approximately $0.4 million and $1.4 million, respectively, in assets. INTEREST RATE SWAPS Unocal enters into interest rate swap agreements to manage its debt with the objective of minimizing the company's borrowing costs. Net payments or receipts under the agreements are recorded in interest expense on a current basis. The related amounts payable to, or receivable from, the counterparties are included in interest payable on the balance sheet. At year-end 1995 and 1994, the interest rate swap agreements had aggregate fair values of approximately $12 million and $15 million, respectively, in liabilities, based on quoted market prices of comparable instruments. In 1986, the company entered into a 10-year interest rate swap agreement with a notional amount of $200 million. This swap was entered into to hedge $200 million floating-rate Eurodollar notes, which were redeemed early in March 1995. From March 1995 until its termination in March 1996, the agreement was used to hedge floating-rate debt consisting of $150 million of outstanding commercial paper and borrowing under the $50 million credit facility as discussed in Note 14. The company paid interest at a fixed rate of 9.28 percent and received interest at a floating rate based on LIBOR. At year-end 1995 and 1994, the floating-interest rates were 5.8 percent and 5.6 percent, respectively. In 1994, the company entered into a three-year interest rate swap with a notional amount of $25 million. This swap was entered into to hedge $25 million in medium-term notes. The company pays interest at a floating rate based on LIBOR and receives interest at a fixed rate of 6.7 percent. At year-end 1995 and 1994, the floating interest rates were 5.8 percent and 6.0 percent, respectively. OTHER The company uses commodity futures contracts with maturities of one year or less to hedge the impact of fluctuations in prices of crude oil, natural gas and refined products. Realized and unrealized changes in the market value of futures contracts are deferred until the hedged transaction is recognized. At December 31, 1995, contracts covering 225 thousand barrels of crude oil, 4.2 million gallons of heating oil and 1.02 billion cubic feet of natural gas with notional amounts totaling $4 million for crude oil, $3 million for heating oil and $2 million for natural gas were outstanding. At December 31, 1994, the company had outstanding contracts covering 419 thousand barrels of crude oil and 9 billion cubic feet of natural gas with notional amounts totaling $7 million for crude oil and $16 million for natural gas. The fair values of the contracts, based on quoted market prices, were insignificant at year-end 1995 and 1994. 49 NOTE 16 - FINANCIAL INSTRUMENTS (CONTINUED) As of December 31, 1995 and 1994, the carrying amounts of certain financial instruments employed by the company, including cash, cash equivalents, and trade receivables and payables are representative of fair value because of the short- term maturity of these instruments. The estimated fair value of the company's long-term debt was $3,983 million and $3,541 million at year-end 1995 and 1994, respectively. The fair values of debt instruments were based on the discounted amount of future cash outflows using the rates offered to the company for debt of the same remaining maturities. CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the company to concentrations of credit risk consist primarily of temporary cash investments and trade receivables. The company places its temporary cash investments with high credit quality financial institutions and, by policy, limits the amount of credit exposure to any one financial institution. Concentrations of credit risk with respect to trade receivables are limited because there is a large number of customers in the company's customer base spread across many industries and geographic areas. As of December 31, 1995 and 1994, the company had no significant concentrations of credit risk. NOTE 17 - ACCRUED ABANDONMENT, RESTORATION AND ENVIRONMENTAL LIABILITIES At December 31, 1995, the company had accrued $476 million for the estimated future costs to abandon and remove wells and production facilities, primarily related to worldwide offshore operations. The total costs for abandonments are estimated to be $640 million to $780 million, of which the lower end of the range is used to calculate the amount to be amortized. These estimates are lower than those reported last year as a result of recent abandonment cost studies performed by an outside firm. At December 31, 1995, the company's reserves for environmental remediation obligations totaled $214 million, of which $83 million was included in other current liabilities. The reserve includes estimated probable future costs of $32 million for federal Superfund and comparable state-managed multiparty disposal sites; $35 million for formerly-operated sites for which the company has remediation obligations; $71 million for sites related to businesses or operations that have been sold with contractual remediation or indemnification obligations; $57 million for company-owned or controlled sites where facilities have been closed or operations shut down; and $19 million for sites owned and/or controlled by the company and utilized in its ongoing operations. NOTE 18 - 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 associated with past and present operations, including sites at which the company has been identified as a potentially responsible party (PRP) under the federal Superfund laws and comparable state laws. Liabilities are accrued when it is probable that future costs will be incurred and such costs can be reasonably estimated. However, in many cases, investigations are not yet at a stage where the company is able to determine whether it is liable or, if liability is probable, to quantify the liability or estimate a range of possible exposure. In such cases, the amounts of the company's liabilities are indeterminate due to the potentially large number of claimants for any given site or exposure, the unknown 50 magnitude of possible contamination, the imprecise and conflicting engineering evaluations and estimates of proper cleanup methods and costs, the unknown timing and extent of the corrective actions that may be required, the uncertainty attendant to the possible award of punitive damages, the recent judicial recognition of new causes of action, the present state of the law, which often imposes joint and several and retroactive liabilities on PRPs, and the fact that the company is usually just one of a number of companies identified as a PRP. As disclosed in Note 17, at year-end 1995 the company had accrued $214 million for estimated future environmental assessment and remediation costs at various sites where liabilities for such costs are probable. At those sites where investigations or feasibility studies have advanced to the stage of analyzing feasible alternative remedies and/or ranges of costs, the company estimates that it could incur additional remediation costs aggregating approximately $180 million. Between August 22 and September 6, 1994, a chemical known as "Catacarb" was released into the environment at the company's San Francisco Refinery near Rodeo, California. Persons in the surrounding area have claimed that they were exposed to the chemical in varying degrees. Since September 22, 1994, forty two lawsuits have been filed by or on behalf of all persons, alleged to be several thousand, claiming that they or their property were adversely affected by the releases. Thirty nine of the lawsuits have been consolidated in the Superior Court for Contra Costa County. The First Amended Model Complaint in this consolidated action, filed on February 1, 1995, on behalf of individual plaintiffs and purported classes of plaintiffs, alleges personal injury, emotional distress and increased risk of future illness on behalf of the named plaintiffs and all persons present in and around or downwind from the San Francisco Refinery, and property damage and loss or diminution of property value on behalf of all owners of real and personal property in the vicinity of the Refinery, resulting from the release of Catacarb by the Refinery. Certain individual plaintiffs allege injury from alleged subsequent releases at the Refinery of hydrogen sulfide and other chemicals. The Model Complaint seeks compensatory and punitive damages in unspecified amounts, equitable relief including the creation of a fund for medical monitoring and treatment of plaintiffs and members of the purported classes, statutory penalties and other relief. TAX MATTERS In December 1994, the company received a Notice of Proposed Deficiency from the Internal Revenue Service (IRS) related to the years 1985 through 1987. In February 1995, the company filed a protest of the proposed tax deficiency with the appeals section of the IRS. Discussions with the Appeals Officer are ongoing, but it appears that two substantial issues will proceed to litigation. The most significant issue relates to an IRS challenge of a $341 million deduction taken by the company in its 1985 tax return for amounts paid under a settlement agreement with Mesa Petroleum, T. Boone Pickens and Drexel Burnham Lambert, Incorporated and certain others which ended a hostile takeover attempt by that group. The IRS contends that the deduction is not allowable because the payment was related solely to the purchase of the company's common stock. Although the company did purchase shares under the settlement agreement, it properly reflected the purchase in its records at the fair market value of the shares purchased. The deduction at issue relates to that portion of the payment made under the settlement agreement that exceeded the value of the shares purchased. The company intends to vigorously dispute the IRS' assertions in court. If the IRS were ultimately to prevail, the company would owe $157 million of tax for 1985 plus tax deductible interest estimated at $235 million as of December 31, 1995. As this matter is not yet before a court, final resolution of this matter is likely to be several years away. The second issue relates to an IRS challenge of a continued deferral of intercompany gains which arose from sales of property between subsidiaries in 1982 and 1983. The IRS contends that the $201 million balance of deferred gain must be recognized in the company's taxable income for 1985 when the subsidiaries contributed the property to a wholly owned master limited partnership. The company intends to vigorously dispute the IRS' assertions in court. If the IRS were ultimately to prevail, the company would owe $92 million in tax for 1985, but would receive credits or refunds for offsetting deductions in later years. For 1986 and 1987 the credits or refunds would total $35 million. In addition to tax, the company would owe tax deductible interest estimated at $96 million as of December 31, 1995. As this matter is not yet before a court, final resolution of this matter is likely to be several years away. The company believes it has adequately provided in its accounts for items and issues not yet resolved. In the opinion of management, a successful outcome of the litigation is reasonably likely. However, substantial adverse 51 decisions could have a material effect on the company's financial condition, operating results and liquidity in a given quarter and year when such matters are resolved. OTHER MATTERS The company also has certain other contingent liabilities with respect to litigation, claims and contractual agreements arising in the ordinary course of business. Although these contingencies could result in expenses or judgments that could be material to the company's results of operations for a given reporting period, on the basis of management's best assessment of the ultimate amount and timing of these events, such expenses or judgments are not expected to have a material adverse effect on the company's consolidated financial condition or liquidity. NOTE 19 - CAPITAL STOCK
COMMON STOCK 1995 1994 1993 ----------------------------- Authorized - 750,000,000 shares Thousands of Shares ----------------------------------------------------------------------------- Outstanding at beginning of year 244,199 241,324 240,671 Issuance of common stock 3,111 2,875 653 ----------------------------------------------------------------------------- Outstanding at end of year 247,310 244,199 241,324 ----------------------------------------------------------------------------- Par value per authorized share $ 1.00 $ 1.00 $ 1.00 =============================================================================
At December 31, 1995, there were approximately 16.7 million shares reserved for the conversion of preferred stock, 14.2 million shares for the company's employee benefit plans and Directors' Restricted Stock Plan and 5.7 million shares for the company's Dividend Reinvestment and Common Stock Purchase Plan. PREFERRED STOCK The company has authorized 100,000,000 shares of preferred stock with a par value of $0.10 per share. In July 1992, the company issued 10,250,000 shares of $3.50 convertible preferred stock. The convertible preferred stock is redeemable on and after July 15, 1996, in whole or in part, at the option of the company, at a redemption price of $52.10 per share declining to $50 per share on and after July 15, 2002, together with accumulated but unpaid dividends. The convertible preferred stock has a liquidation value of $50 per share and is convertible at the option of the holder into common stock of the company at a conversion price of $30.75 per share, subject to adjustment in certain events. Dividends on the preferred stock at an annual rate of $3.50 per share are cumulative and are payable quarterly in arrears, when and as declared by Unocal's Board of Directors (the Board). Holders of the preferred stock have no voting rights. However, there are certain exceptions including the right to elect two additional directors if the equivalent of six quarterly dividends payable on the preferred stock are in default. STOCKHOLDER RIGHTS PLAN In January 1990, the Board adopted a stockholder rights plan (Rights Plan) and declared a dividend of one preferred stock purchase right (Right) for each share of common stock outstanding. The Board also authorized the issuance of one Right for each common share issued after February 12, 1990, and prior to the earlier of the date on which the rights become exercisable, the redemption date, or the expiration date. The Board has designated 3,000,000 shares of preferred stock as Series A Junior Participating Cumulative Preferred Stock (Series A Preferred Stock) in connection with the Rights Plan. The Rights Plan provides that in the event any person, or group of affiliated persons, becomes, or commences a tender offer or exchange offer pursuant to which such person or group would become, the beneficial owner of 15 percent or more of the outstanding common shares, each Right (other than Rights held by the 15 percent stockholder) will be exercisable, on and after the close of business on the tenth business day following such event, unless the Rights are redeemed by the Board of Directors of the company, to purchase units of Series A Preferred Stock (each consisting of one one-hundredth of a share) having a market value equal to two times the then-current exercise price (initially $75). The Rights Plan further provides that if, on or after the occurrence of such event, the company is merged into any other corporation or 50 percent or more of the company's assets or earning power are sold, each Right (other than 52 Rights held by the 15 percent stockholder) will be exercised to purchase shares of the acquiring corporation having a market value equal to two times the exercise price. The Rights expire on January 29, 2000, unless previously redeemed by the Board. The Rights do not have voting or dividend rights and, until they become exercisable, have no diluting effect on the earnings of the company. As of December 31, 1995, none of the Series A Preferred Stock had been issued nor had the Rights become exercisable. NOTE 20 - STOCK OPTION PLANS Under the company's Long-Term Incentive Plans of 1991 and 1985, stock options are granted to executives and key employees to purchase shares of the company's common stock. The option price per share will not be less than the fair market value of a share of common stock on the date granted. No options will be exercisable more than 10 years after the date of grant. Restrictions may be imposed for a period of five years on certain shares acquired through exercise of options granted after 1990. The following is a summary of stock option transactions for 1993, 1994 and 1995:
Weighted Average 1985 Plan Shares Under Option Price per Share - ------------------------------------------------------------------------------- Outstanding, January 1, 1993 2,230,291 $24.12 Exercised (266,693) 19.20 Canceled (119,428) 24.41 - ------------------------------------------------------------------------------- Outstanding, December 31, 1993 1,844,170 24.82 Exercised (95,505) 20.10 Canceled (33,735) 30.07 - ------------------------------------------------------------------------------- Outstanding, December 31, 1994 1,714,930 24.98 Exercised (198,720) 21.13 Canceled (108,996) 29.55 - ------------------------------------------------------------------------------- Outstanding, December 31, 1995 1,407,214 25.16 Exercisable, December 31, 1995 1,407,214 25.16 =============================================================================== Weighted Average 1991 Plan Shares Under Option Price per Share - ------------------------------------------------------------------------------- Outstanding, January 1, 1993 998,563 $20.94 Granted 762,528 29.69 Exercised (80,099) 20.94 Canceled (44,723) 21.68 - ------------------------------------------------------------------------------- Outstanding, December 31, 1993 1,636,269 25.00 Granted 819,628 26.38 Exercised (28,384) 20.94 Canceled (98,226) 26.02 - ------------------------------------------------------------------------------- Outstanding, December 31, 1994 2,329,287 25.49 Granted 856,189 28.50 Exercised (49,906) 21.05 Canceled (66,341) 25.33 - ------------------------------------------------------------------------------- Outstanding, December 31, 1995 3,069,229 26.40 Exercisable, December 31, 1995 1,863,625 25.39
Under the Long-Term Incentive Plan of 1991, there were 5,303,044 shares available at year-end 1995 for stock option awards as well as other awards. No additional shares will be granted under the 1985 Plan. 53 NOTE 21 - SUMMARIZED FINANCIAL DATA OF UNION OIL Unocal Corporation is the parent of Union Oil Company of California, a fully integrated energy resources company. Virtually all operations are conducted by Union Oil and its subsidiaries. Summarized financial information for Union Oil and its consolidated subsidiaries is presented below:
For Years Ended ---------------------------- Millions of Dollars 1995 1994 1993 - ------------------------------------------------------------------------------- Total revenues $8,425 $7,965 $8,344 Total costs and other deductions, including income taxes 8,163 7,840 8,000 Earnings before cumulative effect of accounting changes 262 125 344 Cumulative effect of accounting changes - (277) (130) Net earnings (loss) 262 (152) 214 =============================================================================== At December 31 ------------------- Millions of Dollars 1995 1994 - -------------------------------------------------------------------------------- Current assets $1,576 $1,528 Noncurrent assets 8,328 7,822 Current liabilities 1,309 1,275 Noncurrent liabilities 5,645 5,264 Shareholder's equity 2,950 2,811 ================================================================================
NOTE 22 - INVESTMENTS IN AFFILIATES Investments in affiliated companies accounted for by the equity method were $407 million, $391 million and $389 million at December 31, 1995, 1994 and 1993, respectively. Dividends or cash distributions received from these affiliates were $92 million, $88 million and $80 million for the same years, respectively. These affiliated companies are primarily engaged in pipeline ventures, refining and marketing operations, and the manufacture of needle coke. The excess of the company's investments in Colonial Pipeline Company and West Texas Gulf Pipeline Company over its share in the related underlying equity in net assets is being amortized on a straight-line basis over a period of 40 years. The remaining unamortized balance at December 31, 1995 was $107 million. The company has a 50% interest in The UNO-VEN Company (UNO-VEN), a refining and marketing partnership in the midwestern United States. The company's share of the underlying equity in the net assets of UNO-VEN over the carrying value of its investment is being amortized on a straight-line basis over a period of 25 years. The remaining unamortized balance at December 31, 1995 was $57 million. Summarized financial information for these equity investees is shown below.
1995 1994 1993 ------------------------------------------------------------ Unocal's Unocal's Unocal's Millions of Dollars Total Share Total Share Total Share ----------------------------------------------------------------------------------------- Revenues $2,441 $951 $2,144 $829 $2,257 $857 Costs and other deductions 2,080 870 1,809 743 1,903 773 Net earnings 361 81 335 86 354 84 ========================================================================================= Current assets $ 631 $245 $ 440 $178 $ 452 $178 Noncurrent assets 2,095 588 2,121 597 2,081 564 Current liabilities 568 212 383 152 317 111 Noncurrent liabilities 1,012 273 1,038 291 1,068 301 Net equity 1,146 348 1,140 332 1,148 330 =========================================================================================
54 NOTE 23 - SALE OF ACCOUNTS RECEIVABLE On December 15, 1995, the company entered into an agreement to sell, on a revolving basis, an undivided interest in a defined pool of the company's trade receivables. As collections reduce the amount of receivables included in the pool, the company sells new receivables to bring the amount sold up to the $200 million maximum permitted by the agreement. Under the terms of the agreement, the company retains the risk of credit loss and the collection and administrative responsibilities for the receivables sold. The $200 million proceeds from the sale were used to reduce borrowings and is reflected as a reduction of accounts receivable in the consolidated balance sheet and as operating cash flows in the consolidated statement of cash flows. The total cost of the program from December 15, 1995 through the end of the year was $0.8 million, which included a one-time charge of $0.3 million. The total amount was included in operating expense in the consolidated earnings statement. NOTE 24 - SEGMENT AND GEOGRAPHIC DATA The company's businesses include petroleum, geothermal, agricultural products, carbon and minerals. Petroleum involves the exploration for, and the production, transportation, purchase and sale of, crude oil and natural gas; and the manufacture, purchase, transportation and marketing of petroleum products and the manufacturing and marketing of petroleum coke. Geothermal involves the exploration for, and the production and sale of, geothermal resources and the construction and eventual operation of electrical generating plants served by the resources. Agricultural Products involves the manufacture, transportation and marketing of nitrogen-based fertilizers for agricultural uses. Carbon and Minerals operations involves the production and marketing of petroleum coke, graphites, solvents and specialty minerals. The company is also involved in other miscellaneous businesses. Unocal has domestic oil and gas operations in the Louisiana/Gulf, California, Alaska and Central U.S. regions. The sale of California oil and gas producing properties is expected to be completed in April 1996 (see Note 25 for additional information). Most of the company's crude oil produced in the United States is sold to third parties. A substantial portion of the natural gas produced domestically is sold to third parties under contracts having terms of less than two years. The remainder is sold to third parties in the spot market, used in the company's agricultural products operations or as fuel in its refineries. Unocal has oil and gas production in six foreign countries: Thailand, Indonesia, Canada, the Netherlands, United Kingdom and Zaire. The company sells most of its foreign natural gas production overseas to third parties under long-term contracts. The crude oil and condensate produced overseas are primarily sold to third parties at spot market prices. Unocal pursues exploration opportunities and business development projects worldwide to sustain the long-term growth of the company. Currently, the main areas of oil and gas exploration and development opportunities are in Azerbaijan, Myanmar, Turkmenistan, Pakistan, China and Vietnam. The company owns three refineries in California that are operated by the 76 Products Company business segment, which carries out the company's refining and marketing activities. The company manufactures a complete line of high-quality petroleum products, including automotive gasoline, jet and turbine fuels, kerosene, diesel oils, automotive and industrial lubricating oils and petroleum coke. The company principally markets gasoline and other refined petroleum products in the western United States under the "Unocal 76" trade name. Gasoline is marketed to consumers at retail service stations, while jet fuels, diesel fuel, lube oil, and heavy fuel oil are marketed to commercial users. The Geothermal and Power Operations segment supplies geothermal steam for power generation, with major operations in California, the Philippines and Indonesia. This segment is constructing power plants in Indonesia to be served by the geothermal resources it provides. 55 Agricultural Products manufactures and markets nitrogen-based fertilizers for wholesale markets to the western United States and to the Pacific Rim. Carbon and Minerals produces and markets petroleum coke (other than on the West Coast), graphites, solvents and specialty minerals. Pipelines principally includes the company's equity interests in affiliated pipeline companies. Other includes the development and sale of real estate assets and the company's equity interest in UNO-VEN. The Corporate and Unallocated category includes all unallocated corporate items and miscellaneous operations. In addition, this category, especially in prior years, includes the financial data related to businesses that were sold or being phased-out. Financial data by business segments and geographic areas of operation are shown below. Intersegment revenue eliminations in business segment data are mainly transfers from exploration and production operations to refining, marketing and transportation operations, and in geographic areas of operations essentially represent transfers from foreign countries to the United States. Intersegment sales prices approximate market prices. BUSINESS SEGMENT DATA
Millions of Dollars 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------- Revenues: Petroleum Exploration and Production United States (a) $2,477 $2,501 $2,703 $ 2,824 $ 3,013 Foreign (b) 1,345 1,258 1,146 1,365 1,248 Refining, Marketing and Transportation 76 Products Company 4,036 3,693 3,614 3,814 3,666 Geothermal and Power Operations 133 139 142 134 133 Diversified Businesses Agricultural Products 509 378 331 324 285 Carbon and Minerals 271 241 220 220 160 Pipelines 120 92 90 84 74 Other 23 45 33 33 18 Corporate and Unallocated 79 123 585 1,906 2,957 Intersegment Eliminations (568) (505) (520) (643) (659) - ------------------------------------------------------------------------------------------- Total $8,425 $7,965 $8,344 $10,061 $10,895 (a) Includes marketing related sales of $ 789 $ 918 $ 974 $ 1,056 $ 1,162 (b) Includes marketing related sales of $ 370 $ 200 $ 136 $ 268 $ 145
56 BUSINESS SEGMENT DATA (continued)
Millions of Dollars 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------------- Earnings: Petroleum Exploration and Production United States $ 386 $ 289 $ 376 $ 346 $ 333 Foreign 330 407 390 377 403 Refining, Marketing and Transportation 76 Products Company (a) (12) 23 126 44 (107) Geothermal and Power Operations 47 57 51 34 36 Diversified Businesses Agricultural Products 113 43 27 24 (6) Carbon and Minerals 72 62 45 21 16 Pipelines 82 70 67 64 58 Other 12 22 25 31 12 Corporate and Unallocated Administrative and General expense (127) (137) (98) (102) (68) Net interest expense (257) (255) (279) (356) (357) Environmental and Litigation expense (b) (148) (293) (130) (98) (80) Other (35) 6 11 (36) (28) - -------------------------------------------------------------------------------------------------------- Pretax earnings before cumulative effect of accounting changes 463 294 611 349 212 Income taxes (203) (170) (268) (153) (139) Cumulative effect of accounting changes - (277) (130) 24 - - -------------------------------------------------------------------------------------------------------- Net earnings (loss) $ 260 $ (153) $ 213 $ 220 $ 73 Assets - December 31: Petroleum Exploration and Production (c) United States $3,071 $3,214 $3,815 $3,774 $ 3,906 Foreign 1,648 1,509 1,528 1,563 1,595 Refining, Marketing and Transportation 76 Products Company 2,604 2,322 2,032 1,979 1,752 Geothermal and Power Operations 481 456 436 461 469 Diversified Businesses Agricultural Products 309 284 281 292 227 Carbon and Minerals 229 204 201 211 246 Pipelines 261 262 264 270 255 Other 230 193 179 156 131 Corporate and Unallocated 1,058 893 970 1,186 1,764 - -------------------------------------------------------------------------------------------------------- Total $9,891 $9,337 $9,706 $9,892 $10,345
(a) 1991 includes the write-down of the Los Angeles Refinery for $73 million. (b) 1994 includes a $161 million provision for environmental remediation costs. (c) The decline in 1994 is primarily due to the write-down of impaired producing oil and gas properties as discussed in Note 2. 57 BUSINESS SEGMENT DATA (continued)
Millions of Dollars 1995 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------- Capital expenditures: Petroleum Exploration and Production United States $ 497 $ 486 $ 562 $ 364 $ 488 Foreign 353 310 330 275 369 Refining, Marketing and Transportation 76 Products Company 422 367 231 194 463 Geothermal and Power Operations 51 35 48 33 19 Diversified Businesses Agricultural Products 55 8 8 54 37 Carbon and Minerals 12 8 4 7 6 Pipelines 5 5 4 4 8 Other 6 12 7 4 - Corporate and Unallocated 58 41 55 24 80 - ---------------------------------------------------------------------------------------- Total $1,459 $1,272 $1,249 $ 959 $1,470 Depreciation, depletion and amortization: Petroleum Exploration and Production United States $ 537 $ 476 $ 507 $ 538 $ 493 Foreign 290 240 245 211 210 Refining, Marketing and Transportation 76 Products Company 111 135 107 95 154 Geothermal and Power Operations 28 28 49 45 46 Diversified Businesses Agricultural Products 28 20 18 17 42 Carbon and Minerals 6 6 6 12 9 Pipelines 6 6 7 7 7 Corporate and Unallocated 16 36 24 39 44 - ---------------------------------------------------------------------------------------- Total $1,022 $ 947 $ 963 $ 964 $1,005 ========================================================================================
58 GEOGRAPHIC AREAS OF OPERATIONS
MILLIONS OF DOLLARS 1995 1994 1993 1992 1991 - ---------------------------------------------------------------------------------------------- Revenues: United States $6,883 $6,500 $6,541 $ 6,712 $ 6,590 Foreign 1,463 1,342 1,241 1,457 1,449 Corporate and Unallocated 79 123 585 1,906 2,957 Intersegment Eliminations - - (23) (14) (101) - ---------------------------------------------------------------------------------------------- Total $8,425 $7,965 $8,344 $10,061 $10,895 Earnings: United States $ 636 $ 679 $ 729 $ 536 $ 400 Foreign 394 457 422 425 469 Corporate and Unallocated (567) (842) (540) (612) (657) - ---------------------------------------------------------------------------------------------- Pretax earnings before cumulative Effect of accounting changes 463 294 611 349 212 Income taxes (203) (170) (268) (153) (139) Cumulative effect of accounting changes - (277) (130) 24 - - ---------------------------------------------------------------------------------------------- Net earnings (loss) $ 260 $ (153) $ 213 $ 220 $ 73 Assets - December 31: United States $6,905 $6,700 $7,009 $ 6,958 $ 6,806 Foreign 1,928 1,744 1,727 1,748 1,775 Corporate and Unallocated 1,058 893 970 1,186 1,764 - ---------------------------------------------------------------------------------------------- Total $9,891 $9,337 $9,706 $ 9,892 $10,345
NOTE 25 - SUBSEQUENT EVENT On February 16, 1996, Unocal and Nuevo Energy Company (Nuevo) signed an asset purchase agreement for the sale of nearly all of Unocal's crude oil and natural gas producing properties in California. Torch Energy Advisors, Inc. (Torch) negotiated the sale and will operate the properties on behalf of Nuevo, a company Torch formed in 1990. The sales agreement is subject to certain regulatory consents, approvals and waiting periods. Under the terms of the agreement, Unocal will receive approximately $500 million from the sale of the properties. The final cash settlement will be set at the closing, which is expected in April 1996. In addition, beginning in 1998, the company could receive further payments that are contingent upon the price per barrel from the properties' future oil production. The company expects to use the proceeds from the sale to reduce debt and fund projects in Central and Southeast Asia. 59 SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES Results of Operations Results of operations of oil and gas exploration and production activities are shown below. Sales revenues are net of royalty payments, net profits interests and marketing related purchases. Other revenues primarily include gains or losses on sales of oil and gas properties and miscellaneous rental income. Production costs include lifting costs and taxes other than income. Exploration expenses consist of geological and geophysical costs, leasehold rentals and dry hole costs. Other operating expenses primarily include administrative and general expense. Income tax expense is based on the tax effects arising from the operations. Results of operations do not include general corporate overhead and interest costs.
United Far Other Millions of Dollars States East Foreign Total - ------------------------------------------------------------------------------ YEAR 1995 Sales To public $ 580 $514 $176 $1,270 Intercompany 772 249 18 1,039 Other revenues 164 5 29 198 - ------------------------------------------------------------------------------ Total 1,516 768 223 2,507 Production costs 394 102 79 575 Exploration expenses 75 64 54 193 Depreciation, depletion and 537 192 98 827 amortization Other operating expenses 124 46 26 196 - ------------------------------------------------------------------------------ Net 386 364 (34) 716 Income taxes 146 170 (21) 295 - ------------------------------------------------------------------------------ Results of operations $ 240 $194 $(13) $ 421 YEAR 1994 Sales To public $ 639 $495 $198 $1,332 Intercompany 749 263 14 1,026 Other revenues 17 - 41 58 - ------------------------------------------------------------------------------ Total 1,405 758 253 2,416 Production costs 420 108 76 604 Exploration expenses 69 67 56 192 Depreciation, depletion and 476 165 75 716 amortization Other operating expenses 151 39 18 208 - ------------------------------------------------------------------------------ Net 289 379 28 696 Income taxes 109 194 15 318 - ------------------------------------------------------------------------------ Results of operations $ 180 $185 $ 13 $ 378 YEAR 1993 Sales To public $ 624 $517 $187 $1,328 Intercompany 839 198 12 1,049 Other revenues 66 - 51 117 - ------------------------------------------------------------------------------ Total 1,529 715 250 2,494 Production costs 448 108 78 634 Exploration expenses 75 28 63 166 Depreciation, depletion and 507 174 71 752 amortization Other operating expenses 122 42 12 176 - ------------------------------------------------------------------------------ Net 377 363 26 766 Income taxes 149 168 12 329 - ------------------------------------------------------------------------------ Results of operations $ 228 $195 $ 14 $ 437
60 COSTS INCURRED Costs incurred in oil and gas property acquisition, exploration and development activities, either capitalized or charged to expense, are shown below. Data for the company's capitalized costs related to petroleum production and exploration activities are presented in Note 11.
United Far Other Millions of Dollars States East Foreign Total - ---------------------------------------------------------- 1995 Property acquisition Proved $ 7 $ - $ 6 $ 13 Unproved 13 2 5 20 Exploration 138 117 62 317 Development 383 181 91 655 - ---------------------------------------------------------- 1994 Property acquisition Proved $ 5 $ - $ - $ 5 Unproved 4 - 7 11 Exploration 115 94 58 267 Development 398 189 62 649 - ---------------------------------------------------------- 1993 Property acquisition Proved $ 32 $ - $ 2 $ 34 Unproved 8 - 14 22 Exploration 121 40 61 222 Development 469 203 94 766 - ----------------------------------------------------------
AVERAGE SALES PRICE AND PRODUCTION COSTS PER UNIT (UNAUDITED) The average sales price is based on sales revenues and volumes attributable to net working interest production. The average production costs per barrel presented below are based on equivalent petroleum barrels, including natural gas converted at a ratio of 6.0 MCF to one barrel of oil which represents the energy content of the wet gas.
United Far Other States East Foreign Total - ----------------------------------------------------------------------------- 1995 Average sales price: Crude oil and condensate - per barrel $15.03 $16.09 $15.69 $15.40 Natural gas - per MCF 1.56 2.04 1.39 1.72 Natural gas liquids - per barrel 11.57 12.99 9.02 11.73 Average production costs per barrel 3.49 1.50 5.40 2.94 ============================================================================= 1994 Average sales price: Crude oil and condensate - per barrel $13.06 $14.55 $14.36 $13.63 Natural gas - per MCF 1.78 2.01 1.76 1.86 Natural gas liquids - per barrel 11.38 8.32 8.31 10.60 Average production costs per barrel 3.60 1.54 5.15 3.00 - ----------------------------------------------------------------------------- 1993 Average sales price: Crude oil and condensate - per barrel $13.68 $15.50 $14.88 $14.21 Natural gas - per MCF 1.97 2.11 1.79 2.01 Natural gas liquids - per barrel 13.65 8.06 9.51 12.51 Average production costs per barrel 4.02 1.77 5.53 3.40 - -----------------------------------------------------------------------------
61 OIL AND GAS RESERVE DATA (UNAUDITED) Estimates of physical quantities of oil and gas reserves, determined by company engineers, for the years 1995, 1994 and 1993 are shown below. As defined by the Securities and Exchange Commission, proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Accordingly, these estimates do not include probable or possible reserves. Estimated oil and gas reserves are based on available reservoir data and are subject to future revision. Proved reserve quantities exclude royalties owned by others, however, foreign reserves held under certain production sharing agreements, principally with Indonesia, are reported on a gross basis. The gross basis includes the company's net working interest and host country's interest. Unocal's estimated net worldwide reserves, excluding the host country's share under these production sharing agreements, would have been 596 million barrels of crude oil and 6,308 billion cubic feet of natural gas at December 31, 1995. Natural gas reserves are reported on a wet-gas basis, which include natural gas liquids reserves. For informational purposes, natural gas liquids reserves in the U.S. were 83, 91 and 95 million barrels at December 31, 1995, 1994 and 1993, respectively. They are derived from the natural gas reserves by applying a national average shrinkage factor obtained from the Department of Energy published statistics. Foreign natural gas liquids reserves were insignificant for the above periods. ESTIMATED PROVED RESERVES OF CRUDE OIL AND CONDENSATE
United Far Other MILLIONS OF BARRELS States East Foreign Total - ------------------------------------------------------------------------------------------ DEVELOPED AND UNDEVELOPED AS OF JANUARY 1, 1993 506 189 99 794 Revisions of estimates (6) - 2 (4) Improved recovery 6 - - 6 Discoveries and extensions 27 5 25 57 Purchases 4 - - 4 Sales (6) - (3) (9) Production (48) (a) (25) (11) (84) - ------------------------------------------------------------------------------------------ AS OF DECEMBER 31, 1993 483 169 112 764 Revisions of estimates (7) 6 3 2 Improved recovery 2 - - 2 Discoveries and extensions 9 28 7 44 Sales (18) - (2) (20) Production (50) (32) (13) (95) - ------------------------------------------------------------------------------------------ AS OF DECEMBER 31, 1994 419 171 107 697 Revisions of estimates 9 8 (11) 6 Improved recovery 19 - - 19 Discoveries and extensions 4 21 7 32 Purchases - - 20 20 Sales (18) - (1) (19) Production (46) (31) (11) (88) - ------------------------------------------------------------------------------------------ AS OF DECEMBER 31, 1995 387 169 111 667 ========================================================================================== PROVED DEVELOPED RESERVES December 31, 1992 388 107 57 552 December 31, 1993 360 98 78 536 December 31, 1994 318 103 69 490 December 31, 1995 298 96 64 458
(a) Excludes 7 million barrels produced in 1993 but sold under forward contracts in 1992. 62 OIL AND GAS RESERVE DATA (UNAUDITED) (CONTINUED) ESTIMATED PROVED RESERVES OF NATURAL GAS
United Far Other BILLIONS OF CUBIC FEET States East Foreign Total - ------------------------------------------------------------------------------------------ DEVELOPED AND UNDEVELOPED AS OF JANUARY 1, 1993 3,831 2,596 310 6,737 Revisions of estimates (94) 49 (20) (65) Discoveries and extensions 348 261 19 628 Purchases 26 - 23 49 Sales (19) - (75) (94) Production (365) (237) (21) (623) - ------------------------------------------------------------------------------------------ AS OF DECEMBER 31, 1993 3,727 2,669 236 6,632 Revisions of estimates 3 (2) (16) (15) Discoveries and extensions 282 624 88 994 Purchases 117 (a) - - 117 Sales (128) (b) - (3) (131) Production (421) (243) (22) (686) - ------------------------------------------------------------------------------------------ AS OF DECEMBER 31, 1994 3,580 3,048 283 6,911 Revisions of estimates (55) 40 (20) (35) Discoveries and extensions 209 408 - 617 Purchases - - 7 7 Sales (54) - - (54) Production (419) (241) (21) (681) - ------------------------------------------------------------------------------------------ AS OF DECEMBER 31, 1995 3,261 3,255 249 6,765 ========================================================================================== PROVED DEVELOPED RESERVES December 31, 1992 2,460 1,587 225 4,272 December 31, 1993 2,520 1,601 147 4,268 December 31, 1994 2,437 1,768 127 4,332 December 31, 1995 2,194 1,807 188 4,189
(a) Includes 115 billion cubic feet due to property exchanges. (b) Includes 105 billion cubic feet due to property exchanges. 63 PRESENT VALUE OF FUTURE NET CASH FLOW (UNAUDITED) The present value of future net cash flows from proved oil and gas reserves for the years 1995, 1994 and 1993 are presented below. Revenues are based on estimated production of proved reserves from existing and planned facilities and on average prices of oil and gas at year-end. Development and production costs related to future production are based on year-end cost levels and assume continuation of existing economic conditions. Income tax expense is computed by applying the appropriate year-end statutory tax rates to pretax future cash flows less recovery of the tax basis of proved properties, and reduced by applicable tax credits. The company cautions readers that the data on the present value of future net cash flow of oil and gas reserves are based on many subjective judgments and assumptions. Different, but equally valid, assumptions and judgments could lead to significantly different results. Additionally, estimates of physical quantities of oil and gas reserves, future rates of production and related prices and costs for such production are subject to extensive revisions and a high degree of variability as a result of economic and political changes. Any subsequent price changes will alter the results and the indicated present value of oil and gas reserves. It is the opinion of the company that this data can be highly misleading and may not be indicative of the value of underground oil and gas reserves.
United Far Other Millions of Dollars States East Foreign Total - ---------------------------------------------------------------------------------- 1995 Revenues (a) $12,395 $7,617 $1,939 $21,951 Production costs 4,532 1,423 1,013 6,968 Development costs (b) 1,696 1,025 253 2,974 Income tax expense 1,824 2,176 298 4,298 - ---------------------------------------------------------------------------------- Future net cash flow 4,343 2,993 375 7,711 10% annual discount 1,496 1,129 117 2,742 - ---------------------------------------------------------------------------------- Present value of future net cash flow $ 2,847 $1,864 $ 258 $ 4,969 ================================================================================== 1994 Revenues (a) $11,291 $6,610 $1,798 $19,699 Production costs 4,829 1,321 890 7,040 Development costs (b) 1,835 1,122 217 3,174 Income tax expense 1,189 1,729 290 3,208 - ---------------------------------------------------------------------------------- Future net cash flow 3,438 2,438 401 6,277 10% annual discount 1,141 858 128 2,127 - ---------------------------------------------------------------------------------- Present value of future net cash flow $ 2,297 $1,580 $ 273 $ 4,150 ================================================================================== 1993 Revenues (a) $12,260 $6,049 $1,467 $19,776 Production costs 5,114 1,192 640 6,946 Development costs (b) 1,980 1,006 201 3,187 Income tax expense 1,172 1,788 263 3,223 - ---------------------------------------------------------------------------------- Future net cash flow 3,994 2,063 363 6,420 10% annual discount 1,333 546 124 2,003 - ---------------------------------------------------------------------------------- Present value of future net cash flow $ 2,661 $1,517 $ 239 $ 4,417 ================================================================================== (a) Average prices at year end used in this calculation are as follows: Crude oil per barrel 1995 $ 15.44 $17.14 $15.20 1994 13.26 16.84 14.81 1993 10.08 14.96 11.78 Natural gas per mcf 1995 $ 1.98 $ 2.18 $ 1.58 1994 1.62 1.88 1.28 1993 2.05 1.99 1.62
(b) Includes dismantlement and abandonment costs. 64 CHANGES IN PRESENT VALUE OF FUTURE NET CASH FLOW (UNAUDITED) (CONTINUED)
Millions of Dollars 1995 1994 1993 - -------------------------------------------------------------------------------- Present value at beginning of year $ 4,150 $ 4,417 $ 5,425 Discoveries and extensions, net of estimated future costs 743 602 626 Net purchases and sales of proved reserves (a) (51) (22) (52) Revisions to prior estimates: Prices net of estimated changes in production costs 2,321 83 (2,026) Future development costs (516) (164) 92 Quantity estimates (58) (88) (403) Production schedules and other (548) 39 91 Accretion of discount 636 543 741 Development costs related to beginning of year reserves 635 646 764 Sales of oil and gas, net of production costs of $575 million in 1995, $604 million in 1994 and $634 million in 1993 (1,734) (1,754) (1,653)(b) Net change in income taxes (609) (152) 812 - -------------------------------------------------------------------------------- Present value at end of year $ 4,969 $ 4,150 $ 4,417 ================================================================================
(a) Purchases of reserves were valued at $23 million, $26 million and $39 million in 1995, 1994 and 1993, respectively. Sales of reserves, including the sale of future production, were valued at $74 million, $48 million and $91 million for the same years, respectively. (b) Excludes the 1992 sale of future production for which income was recognized in 1993 but cash was received in 1992. 65 QUARTERLY FINANCIAL AND MARKET PRICE DATA (Unaudited) - -----------------------------------------------------
1995 QUARTERS --------------------------------------------------------------------- Dollars in millions except per share amounts 1st 2nd 3rd 4th - -------------------------------------------------------------------------------------------------------------------------------- Total revenues (a) $1,906 $2,290 $2,005 $2,224 Total costs and other deductions, including income taxes (b) 1,832 2,212 1,946 2,175 - -------------------------------------------------------------------------------------------------------------------------------- Net earnings $ 74 $ 78 $ 59 $ 49 - -------------------------------------------------------------------------------------------------------------------------------- Net earnings per common share $ .27 $ .28 $ .20 $ .16 - -------------------------------------------------------------------------------------------------------------------------------- Gross margin (c) $ 147 $ 176 $ 139 $ 122 - -------------------------------------------------------------------------------------------------------------------------------- (a) Includes sales and operating revenues of $1,826 $2,238 $1,933 $2,136 (b) Includes special items of $ 15 $ 50 $ 10 $ 148 (c) Gross margin equals sales and operating revenues less crude oil and product purchases, operating and selling expenses, depreciation, depletion and amortization, dry hole costs, exploration expense, consumer excise taxes and other operating taxes. 1994 QUARTERS --------------------------------------------------------------------- Dollars in millions except per share amounts 1st 2nd 3rd 4th - -------------------------------------------------------------------------------------------------------------------------------- Total revenues (a) $1,916 $2,045 $2,020 $1,984 Total costs and other deductions, including income taxes (b) 1,853 1,986 1,950 2,052 - -------------------------------------------------------------------------------------------------------------------------------- Net earnings (loss) before cumulative effect of accounting change 63 59 70 (68) Cumulative effect of accounting change (277) - - - - -------------------------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ (214) $ 59 $ 70 $ (68) - -------------------------------------------------------------------------------------------------------------------------------- Earnings (loss) per common share: Before cumulative effect of accounting change $ .22 $ .21 $ .25 $ (.32) Cumulative effect of accounting change (1.14) - - - - -------------------------------------------------------------------------------------------------------------------------------- Net earnings (loss) per common share $ (.92) $ .21 $ .25 $ (.32) - -------------------------------------------------------------------------------------------------------------------------------- Gross margin (c) $ 132 $ 188 $ 203 $ 16 - -------------------------------------------------------------------------------------------------------------------------------- (a) Includes sales and operating revenues of $1,829 $2,023 $1,989 $1,956 (b) Includes special items of $ 58 $ 13 $ 17 $ 229 (c) Gross margin equals sales and operating revenues less crude oil and product purchases, operating and selling expenses, depreciation, depletion and amortization, dry hole costs, exploration expense, consumer excise taxes and other operating taxes.
The net loss for the fourth quarter of 1994 included charges of $94 million ($152 million pretax) for environmental remediation costs, $22 million ($35 million pretax) for litigation expenses, $22 million ($35 million pretax) for asset write-downs and $15 million ($25 million pretax) for restructuring costs. Fourth quarter charges for environmental remediation and litigation are principally due to changes in estimates. Included in the $94 million for environmental remediation costs was $16 million ($26 million pretax) which relates to incremental obligations incurred over a number of prior periods but which would not have been material to any such period. 66 SELECTED FINANCIAL DATA
Dollars in millions except per share amounts 1995 1994 1993 1992 1991 - ------------------------------------------------------------------------------------------------------------ SALES AND EARNINGS DATA Sales revenues Petroleum products $ 2,768 $ 2,457 $ 2,895 $ 3,710 $ 3,759 Crude oil and condensate 2,303 2,314 2,264 2,754 3,027 Agricultural products 486 373 319 292 256 Natural gas 1,031 1,109 1,104 1,033 954 Geothermal 120 135 145 197 204 Natural gas liquids 97 96 101 116 117 Minerals 95 79 62 80 92 Other 74 119 149 457 967 Consumer excise taxes 898 893 816 992 1,050 - ------------------------------------------------------------------------------------------------------------ Total 7,872 7,575 7,854 9,631 10,426 Operating revenues 261 222 223 256 309 Other revenues 292 168 267 174 160 - ------------------------------------------------------------------------------------------------------------ Total revenues 8,425 7,965 8,344 10,061 10,895 Earnings before cumulative effect of accounting changes 260 124 343 196 73 Per common share .91 .36 1.27 .75 .31 Net earnings (loss) (a) 260 (153) 213 220 73 Per common share .91 (.78) .73 .85 .31 - ------------------------------------------------------------------------------------------------------------ SHARE DATA Cash dividends declared on preferred stock $ 36 $ 36 $ 36 $ 17 $ - Per share 3.50 3.50 3.50 1.62 - Cash dividends declared on common stock 197 194 181 167 164 Per share .80 .80 .75 .70 .70 Number of common stockholders of record at year end 33,028 37,622 41,682 44,870 43,591 Weighted average common shares - thousands 246,112 242,640 241,114 238,278 234,594 - ------------------------------------------------------------------------------------------------------------ BALANCE SHEET DATA Current assets $ 1,576 $ 1,528 $ 1,578 $ 1,660 $ 1,978 Current liabilities 1,316 1,257 1,196 1,436 1,524 Working capital 260 271 382 224 454 Ratio of current assets to current liabilities 1.2:1 1.2:1 1.3:1 1.2:1 1.3:1 Total assets 9,891 9,337 9,706 9,892 10,345 Long-term debt 3,692 3,452 3,455 3,530 4,543 Total stockholders' equity 2,930 2,815 3,129 3,131 2,464 Per common share 9.87 9.54 10.90 10.93 10.50 Return on average stockholders' equity 9.1% (5.1)% 6.8% 7.9% 2.9% - ------------------------------------------------------------------------------------------------------------ GENERAL DATA Salaries, wages and employee benefits (b) $ 797 $ 811 $ 744 $ 817 $ 843 Number of regular employees at year end 12,509 13,127 13,613 14,687 17,248 - ------------------------------------------------------------------------------------------------------------
(a) Net earnings (loss) included the cumulative effect of accounting changes which consisted of a charge of $277 million ($1.14 per common share) in 1994, a charge of $130 million ($.54 per common share) in 1993 and a gain of $24 million ($.10 per common share) in 1992. (b) Employee benefits are net of pension income recognized in accordance with current accounting standards for pension costs. For years 1995, 1994 and 1993, such benefits also include the accrued postretirement medical benefits cost. 67 ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE: None. ----------------- PART III The information required by Items 10 through 12 (except for information regarding the company's executive officers) is incorporated by reference to Unocal's Proxy Statement for its 1996 Annual Meeting of Stockholders (the "1996 Proxy Statement") (File No. 1-8483), as indicated below. The 1996 Proxy Statement is expected to be filed with the Securities and Exchange Commission on or about April 22, 1996. ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See the information regarding Unocal's directors and nominees for election as directors to appear under the caption "Item 1. Election of Directors" in the 1996 Proxy Statement. Also, see the list of Unocal's executive officers and related information under the caption "Executive Officers of the Registrant" in Part I of this report on page 17. ITEM 11 - EXECUTIVE COMPENSATION See the 1996 Proxy Statement for information regarding executive compensation to appear under the captions "Summary Compensation Table," "Option Grants in 1995," "Aggregated Option/SAR Exercises in 1995 and December 31, 1995 Option Values," "Long-Term Incentive Plans - Awards in 1995," "Pension Plan Benefits - Estimated Annual Retirement Benefits," "Employment and Change of Control Agreements" and for information regarding directors' compensation to appear under the caption "Directors' Compensation." ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See the 1996 Proxy Statement for information regarding security ownership to appear under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management." ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: Not required. ----------------- PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial statements, financial statement schedules and exhibits filed as part of this annual report: (1) Financial Statements: See the Index to Consolidated Financial Statements and Financial Statement Schedules under Item 8 on page 30 of this report. (2) Financial Statement Schedules: See the Index to Consolidated Financial Statements and Financial Statement Schedules under Item 8 on page 30 of this report. (3) Exhibits: The Exhibit Index on pages 73 and 74 of this report lists the exhibits that are filed as part of this report. 68 ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (continued) (b) Reports filed on Form 8-K: During the fourth quarter of 1995: (1) Current Report on Form 8-K dated and filed October 26, 1995, for the purpose of reporting, under item 5, third quarter and year-to-date earnings. During the first quarter of 1996 to the date hereof: (1) Current Report on Form 8-K dated and filed January 25, 1996, for the purpose of reporting, under item 5, the company's fourth quarter and full-year 1995 earnings. (2) Current Report on Form 8-K dated and filed February 20, 1996 for the purpose of reporting, under item 5, the company's sale of its California oil and gas producing properties. (3) Current Report on Form 8-K dated and filed February 23, 1996 for the purpose of reporting, under item 5, the company's crude oil and natural gas reserve data. 69 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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) Date: March 25, 1996 By /s/ NEAL E. SCHMALE ---------------------------------- Neal E. Schmale Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 25, 1996.
SIGNATURE TITLE - ----------------------------- -------------------------------------------- /s/ ROGER C. BEACH Chairman of the Board of Directors and Chief - ----------------------------- Executive Officer Roger C. Beach /s/ JOHN F. IMLE, JR. Director and President - ----------------------------- John F. Imle, Jr. /s/ NEAL E. SCHMALE Director and Chief Financial - ----------------------------- Officer Neal E. Schmale /s/ CHARLES S. MCDOWELL Vice President and Comptroller - ----------------------------- (Principal Accounting Officer) Charles S. McDowell
70
SIGNATURE TITLE - ----------------------------- -------------------------------------------- /s/ JOHN W. AMERMAN Director - ----------------------------- John W. Amerman /s/ MACDONALD G. BECKET Director - ----------------------------- MacDonald G. Becket /s/ JOHN W. CREIGHTON, JR. Director - ----------------------------- John W. Creighton, Jr. /s/ MALCOLM R. CURRIE Director - ----------------------------- Malcolm R. Currie /s/ FRANK C. HERRINGER Director - ----------------------------- Frank C. Herringer /s/ DONALD P. JACOBS Director - ----------------------------- Donald P. Jacobs /s/ RICHARD J. STEGEMEIER Director - ----------------------------- Richard J. Stegemeier /s/ CHARLES R. WEAVER Director - ----------------------------- Charles R. Weaver /s/ J. STEVEN WHISLER Director - ----------------------------- J. Steven Whisler Director - ----------------------------- Marina v.N. Whitman
71 UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (MILLIONS OF DOLLARS)
ADDITIONS ------------------------- CHARGED OR CHARGED OR BALANCE AT (CREDITED) (CREDITED) DEDUCTIONS BALANCE BEGINNING TO COSTS & TO OTHER FROM AT END DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RESERVES (A) OF PERIOD - ------------------------------------------------------------------------------------------------------------ YEAR 1995 Amounts deducted from applicable assets: Accounts and notes receivable $15 $22 $ - $ (9) $28 Investments and long-term receivables $ 3 - $12 - $15 YEAR 1994 Amounts deducted from applicable assets: Accounts and notes receivable $16 $10 $ 1 $(12) $15 Investments and long-term receivables $ 4 $(1) $ - $ - $ 3 YEAR 1993 Amounts deducted from applicable assets: Accounts and notes receivable $18 $11 $(2) $(11) $16 Investments and long-term receivables $ 5 $ 2 $(2) $ (1) $ 4 - -------------------
(a) Represents receivables written off, net of recoveries, reinstatements, and losses sustained. 72 UNOCAL CORPORATION EXHIBIT INDEX Exhibit 3.1 Certificate of Incorporation of Unocal, as amended through July 23, 1992, and currently in effect (incorporated by reference to Exhibit 3.1 to Amendment No. 2 on Form 10-K/A to Unocal's Annual Report on Form 10-K for the year ended December 31, 1993, File No. 1-8483). Exhibit 3.2 Bylaws of Unocal, as amended though May 22, 1995, and currently in effect (incorporated by reference to Exhibit 3 to Unocal's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, File No. 1-8483). Exhibit 3.3 Bylaws of Unocal, as amended effective June 3, 1996. Exhibit 4.1 Standard Multiple-Series Indenture Provisions, January 1991, dated as of January 2, 1991 (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-3 of Union Oil Company of California and Unocal (File Nos. 33-38505 and 33-38505-01)). Exhibit 4.2 Form of Indenture, dated as of January 30, 1991 among Union Oil Company of California, Unocal and The Bank of New York (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-3 of Union Oil Company of California and Unocal (File Nos. 33-38505 and 33-38505-01)). Exhibit 4.3 Form of Indenture, dated as of February 3, 1995, among Union Oil Company of California, Unocal and Chemical Trust Company of California (incorporated by reference to Exhibit 4.6 to the Registration Statement on Form S-3 of Union Oil Company of California and Unocal (File Nos. 33-54861 and 33-54861-01)). Other instruments defining the rights of holders of long term debt of Unocal and its subsidiaries are not being filed since the total amount of securities authorized under each of such instruments does not exceed 10 percent of the total assets of the company and its subsidiaries on a consolidated basis. Unocal agrees to furnish a copy of any such instrument to the Securities and Exchange Commission (Commission) upon request. Exhibit 10.1 Rights Agreement, dated as of January 29, 1990, between the Unocal and Chemical Trust Company of California, as Rights Agent (incorporated by reference to Exhibit 1 to Unocal's Current Report on Form 8-K dated January 29, 1990, File No. 1-8483). The following Exhibits 10.2 through 10.9 are management contracts or compensatory plans, contracts or arrangements required to be filed by Item 601 (b) (10) (iii) (A) of Regulation S-K. Exhibit 10.2 Management Incentive Program (incorporated by reference to Exhibit A to Unocal's Proxy Statement dated March 18, 1991 for its 1991 Annual Meeting of Stockholders, File No. 1-8483). Exhibit 10.3 Long-Term Incentive Plan of 1985 (incorporated by reference to Unocal's Proxy Statement dated March 24, 1984 for its 1984 Annual Meeting of Stockholders, File No. 1-8483). Exhibit 10.4 Supplemental Retirement Plan for Key Management Personnel, as amended and effective January 1, 1989 (incorporated by reference to Exhibit 10.3 to Unocal's Annual Report on Form 10-K for the year ended December 31, 1990, File No. 1-8483). Exhibit 10.5 Other Compensatory Arrangements (incorporated by reference to Exhibit 10.4 to Unocal's Annual Report on Form 10-K for the year ended December 31, 1990, File No. 1-8483). Exhibit 10.6 Directors' Restricted Stock Plan of 1991 (incorporated by reference to Exhibit B to Unocal's Proxy Statement dated March 18, 1991 for its 1991 Annual Meeting of Stockholders, File No. 1-8483). Exhibit 10.7 Admendments to Directors Restricted Stock Plan effective February 8, 1996. Exhibit 10.8 Form of Indemnity Agreement between Unocal and each of its directors (incorporated by reference to Exhibit A to Unocal's Proxy Statement dated March 20, 1987 for its 1987 Annual Meeting of Stockholders, File No. 1-8483). Exhibit 10.9 Employment Agreement, effective July 1, 1994, between Union Oil Company of California and Lawrence M. Higby (incorporated by reference to Exhibit 10 to Unocal's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, File No. 1-8483). Exhibit 11 Statement regarding computation of earnings per common share for the five years ended December 31, 1995.
73 UNOCAL CORPORATION EXHIBIT INDEX (CONTINUED)
Exhibit 12.1 Statement regarding computation of ratio of earnings to fixed charges of Unocal for the five years ended December 31, 1995. Exhibit 12.2 Statement regarding computation of ratio of earnings to combined fixed charges and preferred stock dividends of Unocal for the five years ended December 31, 1995. Exhibit 12.3 Statement regarding computation of ratio of earnings to fixed charges of Union Oil Company of California for the five years ended December 31, 1995. Exhibit 21 Subsidiaries of Unocal Corporation. Exhibit 23 Consent of Coopers & Lybrand L.L.P. Exhibit 27 Financial data schedule for the year ended December 31, 1995 (included only in the copy of this report filed electronically with the Commission).
74 EX-3.3 2 BYLAWS OF UNOCAL EXHIBIT 3.3 BYLAWS OF UNOCAL CORPORATION ARTICLE I FISCAL YEAR Section 1. The fiscal year of Unocal Corporation (hereinafter called the "Corporation") shall end on the thirty-first day of December of each year. ARTICLE II OFFICES Section 1. PRINCIPAL OFFICE. The principal office for the transaction of business of the Corporation is hereby fixed and located at Unocal Center in the City of Los Angeles, County of Los Angeles, State of California. The Board of Directors (hereinafter sometimes called the "Board") is hereby granted full power and authority to change said principal office from one location to another. ARTICLE III STOCKHOLDERS Section 1. ANNUAL MEETINGS. The annual meetings of the stockholders shall be held at 10:00 o'clock A.M. on the fourth Monday in May of each year if not a legal holiday, for the purpose of electing directors, consideration of reports of the affairs of the Corporation, and for the transaction of any other business which is within the powers of the stockholders and properly brought before the meeting. If the fourth Monday in May is a legal holiday, the annual meeting of the stockholders shall be held at 10:00 o'clock A.M. on the preceding or subsequent Monday as fixed by resolution of the Board. Section 2. NOTICE OF MEETINGS. Written notice of each annual or special meeting of stockholders shall be given to each stockholder entitled to vote thereat not less than ten nor more than sixty days before the meeting. Section 3. PLACE OF MEETINGS. All meetings of stockholders, whether annual or special, shall be held at the principal office of the Corporation or at such other place, within or without the State of Delaware, as the Board may from time to time designate pursuant to authority hereinafter granted it. in the absence of any such designation stockholders' meetings shall be held at the principal office of the Corporation. Section 4. VOTING RIGHTS. Stockholders entitled to vote at stockholder meetings shall be entitled to one vote for each full share. A fraction of a share or a fractional interest in a share shall not be entitled to any voting rights whatsoever. Section 5. CONDUCT OF MEETINGS. The decisions of the Chairman of the Board or officer presiding at all stockholders' meetings shall govern in all matters relating to the conduct of the meeting. Section 6. VOTING. Directors shall be divided into three classes with each director serving a three-year term. At each annual meeting, all directors of one class shall be elected in accordance with the provisions of ARTICLE SEVENTH of the Corporation's Certificate of Incorporation by the holders of shares entitled to vote in the election. A nomination shall be accepted, and votes cast for a proposed nominee shall be counted by the inspectors of election, only if the Secretary of the Corporation has received at least 30 days prior to the meeting a statement over the signature of the proposed nominee that such person consents to being a nominee and, if elected, intends to serve as a director. Such statement shall also contain the Unocal stock ownership of the proposed nominee, occupations and business history for the previous five years, other directorships, names of business entities in which the proposed nominee owns a 10 percent or more equity interest, listing of any criminal convictions, including federal or state securities violations, and all other information required by the federal proxy rules in effect at the time the proposed nominee submits said statement. Section 7. NOTICE OF STOCKHOLDER BUSINESS. At any meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before a meeting, business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before the meeting by a stockholder, the Secretary must have received written notice at least thirty (30) days prior to the meeting. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the meeting (a) a brief description of the business desired to be brought before the meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and the number of shares of the Corporation which are beneficially owned by the stockholder, and (d) any material interest of the stockholder in such business. Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at a meeting except in accordance with the procedures set forth herein. Section 8. QUORUM. The holders of one-third (1/3) of all of the outstanding shares of the stock of the Corporation entitled to vote at a meeting of stockholders, present in person or by proxy, shall constitute a quorum for the transaction of any business at such meeting. ARTICLE IV BOARD OF DIRECTORS Section 1. POWERS. Subject to the limitations of the Certificate of Incorporation of the Corporation and of the Delaware General Corporation Law as to action which shall be authorized or approved by the stockholders, all corporate powers shall be exercised by or under the authority of, and the business and affairs of the Corporation shall be managed by, the Board of Directors. Section 2. NUMBER. The exact number of directors of the Corporation, within the limits specified in ARTICLE SEVENTH of the Corporation's Certificate of Incorporation, shall be twelve until changed in the manner provided by law. Section 3. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The Board shall appoint a Chairman, who shall preside at all meetings of the Board of Directors and shall have such other powers and duties as may from time to time be assigned by the Board of Directors or prescribed by the Bylaws. The Board may also appoint a Vice Chairman, who shall preside at all meetings of the Board of Directors in the absence of the Chairman and shall have such other powers and duties as may from time to time be assigned by the Board of Directors or prescribed by the Bylaws. Section 4. ANNUAL MEETINGS. Immediately following each annual meeting of stockholders, the Board shall hold its annual meeting for the purpose of organization, election of officers and the transaction of any other business. Section 5. REGULAR MEETINGS. Regular meetings of the Board shall be held at the times and on the dates fixed by resolution of the Board. Section 6. SPECIAL MEETINGS. Special meetings of the Board for any purpose or purposes whatsoever may be called by the Chairman of the Board or the Chief Executive Officer or, in the absence or inability of either of them, by the President, the Chief Financial Officer, or by at least two of the directors at the time in office. Section 7. NOTICE OF MEETINGS. Notice of annual meetings and of regular meetings of the Board is hereby dispensed with. Notice of special meetings must be given at least two days in advance if given by mail, or at least twenty-four hours in advance if delivered personally or given by telephone or telegram. Section 8. PLACE OF MEETINGS. All meetings of the Board, whether annual, regular or special meetings, shall be held at any place within or without the State of Delaware which has been designated from time to time by resolution of the board or in the notice of the meeting. In the absence of such designation all directors' meetings shall be held at the principal office of the Corporation. Section 9. QUORUM. A majority of the exact number of directors specified in Section 2 of Article IV of the Bylaws shall constitute a quorum of the Board of Directors for the transaction of business; provided, however, that vacancies on the Board may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, each such director to hold office until a successor is elected at an annual or special meeting of the stockholders. 2 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 is involved in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a "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, employee, or agent of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent, 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 attorneys' fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith; and, such indemnification shall continue as to a person who has ceased to be a director, officer, employee, or agent 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, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. (b) RIGHT OF CLAIMANT 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 claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but 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 claimant 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 claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. (c) Non-Exclusivity of Rights. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Section shall not be exclusive of any other right which 3 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 may maintain insurance, at its expense, to protect itself and any director, officer, employee, or agent of the corporation or another corporation, partnership, joint venture, trust, or other enterprise against any such expense, liability, or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. Section 12. AUTHORITY TO DESIGNATE PLACE OF STOCKHOLDERS' MEETINGS. The Board is hereby granted full power and authority to designate from time to time any place within or without the State of Delaware for the holding of any stockholders' meeting. Section 13. COMMITTEES. The Board may, by resolution, appoint one or more committees, in addition to an Executive Committee and a Management Committee, to consist of two or more of the directors of the Corporation, and prescribe their duties and powers. A majority of the members of any such committee may determine its action and fix the time and place of its meetings unless the Board shall otherwise provide. The Board shall have the power at any time to fill vacancies in, to change the membership of, or to dissolve any such committee. Section 14. ACTION BY WRITTEN CONSENT. Any action required or permitted to be taken by the Board or any committee thereof may be taken without a meeting, if all members of the Board or such committee, as the case may be, shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the Board. Section 15. CONFERENCE CALLS. Members of the Board or any committee thereof may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. ARTICLE V EXECUTIVE COMMITTEE Section 1. NUMBER AND COMPOSITION. The Board of Directors shall appoint from its membership, annually, an Executive Committee of three or more directors. Included on the Executive Committee shall be the Chief Executive Officer of the Corporation. Each member of the Executive Committee shall hold membership at the pleasure of the Board, which shall have the exclusive power to fill vacancies thereon as they may occur. The Chairman of the Executive Committee shall be the Chief Executive Officer of the Corporation. Section 2. POWERS. The Executive Committee, during the intervals between meetings of the Board, shall have and there is hereby granted to it all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, except that the Executive Committee shall not be permitted to fill vacancies on the Board or on any committee, approve any action for which stockholder approval is also required by the Delaware General Corporation Law, amend or repeal any resolution of the Board which by its express terms is not so amendable or repealable, or appoint other committees of the Board or the members thereof and shall not have any powers restricted by Section 141(c) of the Delaware General Corporation Law unless the Board shall have specifically delegated authority to the Executive Committee to take action with respect to a matter listed in such section as permitted to be so delegated. Section 3. PROCEDURE. Two members of the Executive Committee shall constitute a quorum of the Executive Committee for the transaction of business. The Executive Committee, by vote of a majority of its members, shall fix its own times and places of meetings and shall prescribe its own rules of procedure; no change in which shall be made save by a majority vote of its members. Section 4. RECORDS AND REPORTS. The Executive Committee shall keep regular minutes of all business transacted at its meetings, and all action of the Executive Committee shall be reported to the Board at its next ensuing meeting. Section 5. COMPENSATION. Members of the Executive Committee may receive such compensation, if any, for their services, and such reimbursement for their expenses, as may be fixed or determined by the Board. 4 ARTICLE VI MANAGEMENT COMMITTEE Section 1. NUMBER AND COMPOSITION. The Board of Directors shall appoint from its membership, annually, a Management Committee composed of the directors who are salaried officers of the Corporation. The Chairman of the Management Committee shall be the Chief Executive Officer of the Corporation. Section 2. POWERS. The Management Committee, during the intervals between meetings of the Board, shall have and there is hereby granted to it all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, subject to approval limits established by resolution of the Board of Directors as deemed appropriate from time to time, but the Management Committee shall not be permitted to fill vacancies on the Board or on any committee, appoint officers, approve any action for which stockholder approval is also required by the Delaware General Corporation Law, amend or repeal any resolution of the Board or of the Executive Committee, which by its express terms is not so amendable or repealable, or appoint other committees of the Board or the members thereof and shall not have any powers restricted by Section 141(C) of the Delaware General Corporation Law unless the Board shall have specifically delegated authority to the Management Committee to take action with respect to a matter listed in such section as permitted to be so delegated. Section 3. PROCEDURE. Two members of the Management Committee shall constitute a quorum of the Management Committee for the transaction of business. The Management Committee, by vote of a majority of its members, shall fix its own times and places of meetings, and shall prescribe its own rules of procedure; no change in which shall be made save by a majority vote of its members. Section 4. RECORDS. The Management Committee shall keep regular minutes of all business transacted at its meetings. ARTICLE VII OFFICERS Section 1. OFFICERS. The officers of the Corporation shall be a Chief Executive Officer, a President, a Chief Financial Officer, a Vice President, a Secretary, a Comptroller, a Treasurer, and a Chief Legal Officer. The Corporation may also have, at the discretion of the Board, one or more additional Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and one or more Assistant Comptrollers, and the Board may appoint such other officers as it may deem necessary or advisable, who shall have such authority and perform such duties as from time to time may be prescribed by the Board, the Chairman of the Board, or the Chief Executive Officer. Any two or more offices may be held by the same person. Section 2. ELECTION AND REMOVAL. The officers of the Corporation shall be chosen annually by the Board at its annual meeting and each shall hold office until the corresponding annual meeting of the Board in the next year and until a successor shall be elected and qualified unless such officer shall theretofore resign or shall be removed or otherwise disqualified to serve. The Board may remove any officer either with or without cause or under such other terms or conditions as it may prescribe. Vacancies may be filled by the Board as they may occur. Section 3. POWERS AND DUTIES. (a) CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be the officer, reporting directly to the Board, responsible for overall management of the Corporation and shall have general supervision, direction and control over the business and affairs of the Corporation and its officers. The Chief Executive Officer shall be a member of the Executive Committee and of the Management Committee and in general shall perform all duties incident to the office of Chief Executive Officer and shall have such powers and duties as may from time to time be assigned by the Board of Directors or prescribed by the Bylaws. (b) PRESIDENT. The President in general shall perform all duties incident to the office of President, and shall have such powers and duties as may from time to time be assigned by the Board of Directors, the Chief Executive Officer or prescribed by the Bylaws. 5 (c) CHIEF FINANCIAL OFFICER AND VICE PRESIDENTS. The Chief Financial Officer and each Vice President shall have such authority and shall perform such duties as shall from time to time be assigned by the Board, the Chief Executive Officer or prescribed by the Bylaws. (d) SECRETARY. The Secretary shall keep, or cause to be kept, a book of minutes, at the principal office and/or such other place or places as the Board may order, of all meetings of directors and stockholders, with the time and place of holding, whether regular or special, and if special how authorized, the notice thereof given, the names of those present at directors' meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The Secretary shall keep or cause to be kept at the principal office, or at the office of the Corporation's transfer agent, a stock register, which may be an electronic database, showing the names of the stockholders of record and their addresses, the number and classes of shares held by each, the numbers and dates of the certificates issued for those shares, and the numbers and dates of cancellation of every certificate surrendered for cancellation. The Secretary shall give or cause to be given notice of all meetings of the stockholders and the Board required to be given by the Bylaws or by law. The Secretary shall have charge of and be custodian of the seal of the Corporation and the minute books and documents relating to the existence and governance of the Corporation. The Secretary shall have such other powers and perform such other duties as may from time to time be prescribed by the Board, the Chairman of the Board, the Chief Executive Officer or the Bylaws, and shall in general, subject to control of the Board, the Chairman of the Board and the Chief Executive Officer, perform all the duties usually incident to the office of secretary of a corporation. (e) ASSISTANT SECRETARIES. Each Assistant Secretary shall assist the Secretary and, in the absence or disability of the Secretary, may perform the duties of the Secretary unless and until the contrary is expressed by the Board, and may perform such other duties as may be prescribed by the Board or the Secretary. (f) TREASURER. The Treasurer shall have custody of and be responsible for all the monies and funds of the corporation. The Treasurer shall deposit or cause to be deposited all Corporation monies, funds and other valuables in the name and to the credit of the Corporation in such bank or banks as shall be judged proper or as shall be directed by the Board, the Chief Executive Officer, or the Chief Financial Officer, and shall disburse the funds of the Corporation which have been duly approved for disbursement. The Treasurer shall enter or cause to be entered regularly in the books of the Corporation full and accurate accounts of all monies received and paid out on account of the Corporation. The Treasurer shall have such other powers and perform such other duties as may from time to time be prescribed by the Board, the Chief Executive Officer, the Chief Financial Officer or the Bylaws, and shall in general, subject to control of the Board, the Chief Executive Officer, and the Chief Financial Officer, perform all the duties usually incident to the office of treasurer of a corporation. (g) ASSISTANT TREASURERS. Each Assistant Treasurer shall assist the Treasurer and, in the absence or disability of the Treasurer, may perform the duties of the Treasurer unless and until the contrary is expressed by the Board, and shall perform such other duties as may be prescribed by the Board or the Treasurer. (h) COMPTROLLER. The comptroller shall be the principal officer in charge of the general accounting books, accounting records and forms of the Corporation and shall see that all monies and obligations due the Corporation and all properties and assets are properly accounted for. the Comptroller shall prepare the Corporation's balance sheets, income accounts and other financial statements and reports, and render to the Board, the Chief Executive Officer, and the Chief Financial Officer, such periodic reports covering the results of operations of the corporation as may be required by them or any of them. The Comptroller shall have such other powers and perform such other duties as may from time to time be prescribed by the Board, the Chief Executive Officer, the Chief Financial Officer or the Bylaws and shall in general, subject to control of the Board, the Chief Executive Officer, and the Chief Financial Officer, perform all the duties usually incident to the office of comptroller of a corporation. (i) ASSISTANT COMPTROLLERS. Each Assistant Comptroller shall assist the Comptroller and, in the absence or disability of the Comptroller, may perform the duties of the Comptroller unless and until the contrary is expressed by the Board, and shall perform such other duties as may be prescribed by the Board or the Comptroller. 6 (j) CHIEF LEGAL OFFICER. The Chief Legal Officer shall be in charge of the Corporation's legal affairs. The Chief Legal Officer shall advise the Board, the Chairman of the Board and/or the officers of the Corporation on such legal matters and prepare such reports as may be required by them or any of them. ARTICLE VIII MISCELLANEOUS Section 1. EXECUTION OF DOCUMENTS. Unless otherwise authorized or prescribed by the Board of Directors, all contracts, leases, deeds, deeds of trust, mortgages, bonds, indentures, endorsements, assignments, powers of attorney, and other documents and instruments of whatsoever kind shall be executed for and on behalf of the Corporation by the Chief Executive Officer, the President, the Chief Financial Officer, a Vice President, the Treasurer, The Comptroller, or by any such officer and shall be attested by the Secretary or an Assistant Secretary, who shall have authority to affix the corporate seal to the same. The Board also may authorize, and delegate to any one or more of the Chief Executive Officer, the President and the Chief Financial Officer the power to so authorize, any other officer or officers, employee or employees, or agent or agents, to execute any contract, document or instrument of whatever kind for and on behalf of the Corporation and such authority may be general or be confined to specific instances. Section 2. UNDERTAKINGS AND COMMITMENTS. No undertaking, commitment, contract, instrument or document shall be binding upon the Corporation unless previously authorized or subsequently ratified by the Board or executed by an officer or officers, an employee or employees or an agent or agents of the Corporation acting under powers conferred by the Board or by these bylaws. Section 3. CHECKS, DRAFTS, ETC. All checks, notes and other obligations for collection, deposit or transfer, and all checks and drafts for disbursement from Corporation funds, and all bills of exchange and promissory notes, and all acceptances, obligations and other instruments for the payment of money, shall be endorsed or signed by such officer or officers, employee or employees or agent or agents as shall be thereunto authorized from time to time by the Board of Directors, which may delegate the power to so authorize to any one or more of the Chief Executive Officer, the President and the Chief Financial Officer. Section 4. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. Shares standing in the name of the Corporation may be voted or represented and all rights incident thereto may be exercised on behalf of the Corporation by the Chief Executive Officer, the President, the Chief Financial Officer, a Vice President, the Secretary, the Treasurer or the Comptroller, or by such other officers upon whom the Board of Directors may from time to time confer like powers. ARTICLE IX AMENDMENTS TO BYLAWS Section 1. POWER OF STOCKHOLDERS. New Bylaws may be adopted or these Bylaws may be amended or repealed by the vote of seventy-five percent of the outstanding stock of the corporation entitled to vote thereon. Section 2. POWER OF DIRECTORS. Subject to the right of stockholders as provided in section 1 of this ARTICLE IX to adopt, amend or repeal Bylaws, Bylaws may be adopted, amended or repealed by the Board of Directors as provided or permitted by law; however, any bylaw amendment adopted by the Board of Directors increasing or reducing the authorized number of directors or amending this section shall require a resolution adopted by the affirmative vote of not less than seventy-five percent of the directors. 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 7 the emergency Board of Directors constituted and then acting pursuant hereto. An emergency, once commenced, shall be deemed to continue until terminated by resolutions adopted for that purpose by the Board of Directors. Section 2. If, during an emergency, a majority of the Board of Directors cannot be found or is unable to act, one-third of the exact number of the Board of Directors shall constitute a quorum thereof. Section 3. During any emergency, the officers and employees of the Corporation shall continue, so far as possible, to conduct the Corporation's affairs and business under the guidance of the Board of Directors acting pursuant to this Article and in accordance with known orders of governmental authorities. Section 4. If, during any emergency, a quorum of the Board of Directors, as provided in Section 3 of this Article, cannot be found or is unable to act, any three available members of the Executive Committee, including the Chief Executive Officer, shall be and constitute the Board of Directors, with two thereof constituting a quorum, and as such shall have and exercise the fullest power of the Board of Directors for the conduct and management of the affairs and business of the Corporation, permitted by law, without the limitations set forth in Section 2 of ARTICLE V of these Bylaws, provided that such emergency Board of Directors as so constituted shall comply to the extent practicable under the circumstances with the provisions of ARTICLE III of these Bylaws relating to annual and special meetings of stockholders. If three members of the Executive Committee, including the Chief Executive Officer, are not able to serve, any three available directors shall be and constitute such emergency Board of Directors, with two thereof constituting a quorum, for the exercise of the powers conferred and performance of the duties imposed by this Section 4. Section 5. If, during any emergency, neither a quorum of the Board of Directors, as provided in Section 3 of this Article, nor a quorum of the emergency Board of Directors, as provided for in Section 4 of this Article is available to serve, then the powers conferred and duties imposed by Section 4 shall vest in and devolve upon any three of (in the following order of priority) available directors, including any one or more of the Chief Executive Officer, the President and the Chief Financial Officer, and as many Vice Presidents (or, in case of their inability, any other officers), in order of seniority, as may be necessary from time to time to constitute a total of three emergency directors. The Chief Executive Officer and any other one emergency director shall constitute a quorum of such emergency Board of Directors for exercise of the powers conferred and performance of the duties imposed hereunder, but if the Chief Executive Officer is not available, any two of such emergency directors shall constitute a quorum. 8 EX-10.7 3 AMENDMENTS TO DIRECTORS RESTRICTED STOCK PLAN Exhibit 10.7 AMENDMENT TO DIRECTORS' RESTRICTED STOCK PLAN EFFECTIVE FEBRUARY 8, 1996 "RESOLVED, That effective February 8, 1996, the first sentence of Section 7 of the Directors' Restricted Stock Option Plan is hereby amended to read as follows: 'Except as otherwise provided by paragraph b of this Section 7, Restricted Stock issued under the Plan shall have a Restricted Period beginning on the Date of Grant or the date of the annual deferral election, whichever is applicable, and ending, as elected by the Holder, from five to ten years thereafter or, if later than five years after the Date of Grant or date of the annual deferral election, whichever is applicable, on the day following the day the Holder ceases to be a Director of the Company.' "RESOLVED FURTHER, That effective February 8, 1996, subparagraph b(i) of Section 7 of the Directors' Restricted Stock Purchase Plan is hereby amended to read as follows: 'The end of the Restricted Period elected by the Holder.' "RESOLVED FURTHER, That effective February 8, 1996, the last sentence of Section 7 of the Directors' Restricted Stock Plan is hereby deleted. "RESOLVED FURTHER, That effective February 8, 1996, Section 7 of the Directors' Restricted Stock Plan is hereby amended by adding the following provisions at the end thereof: "For purposes of Section 5 beginning with the Restricted Stock Award for the 12 calendar months prior to the month of the 1996 Annual Meeting of Shareholders, and for purposes of the second paragraph of Section 6 beginning with periods from and after September 1, 1996, the following provisions shall apply: In lieu of actually issuing Stock at the time an Eligible Director is entitled to receive Restricted Stock as provided above, the Company shall credit to an account for such Eligible Director (a 'Restricted Stock Unit Account') a number of units ('Restricted Stock Units') equal to the number of shares of Restricted Stock the Eligible Director would be entitled to receive at such time but for the provisions of this paragraph. At the time of each payment of cash dividends on Stock, additional Restricted Stock Units (or portions thereof) will be credited to the Eligible Director's Restricted Stock Unit Account in an amount equal to the number of shares of Stock that could be purchased at a price equal to Fair Market Value with an amount of cash equal to the cash dividend per share multiplied by the number of Restricted Stock Units in the Eligible Director's Restricted Stock Unit Account on the dividend record date. Solely for purposes of the foregoing sentence, Fair Market Value shall be as defined in Section 2, except that closing prices for the 30 consecutive trading days prior to the dividend payment date shall be used in the calculation. If giving effect to the foregoing would cause the sum of the shares of Restricted Stock issued under the Plan and the number of Restricted Stock Units in all Restricted Stock Unit Accounts to exceed the number of shares authorized under this Plan, the Company shall in lieu of issuing Restricted Stock Units thereunder pay Eligible Directors a cash amount equal to the cash dividend per share multiplied by the number of Restricted Stock Units in the Eligible Director's Restricted Stock Account on the dividend record date. At the end of the Restriction Period, the Company shall deliver a stock certificate representing a number of shares equal to the number of Restricted Stock Units no longer subject to forfeiture or other restrictions (other than any restrictive legends or stop transfer instructions appropriate under federal or state securities laws). The definition of 'Restricted Stock' is amended to include references to Restricted Stock Units unless the context otherwise requires. The provisions of paragraph c of this Section 7 insofar as they apply to Restricted Stock represented by Restricted Stock Units, shall be as follows: c. Restricted Stock represented by Restricted Stock Units in an Eligible Director's Restricted Stock Unit Account shall be entirely forfeited in the event that during a Restriction Period the Holder resigns other than for Good Cause or is dismissed for cause by the Board during his or her elected term. Resignation for Good Cause shall include resignation for reasons of personal health or health of family members, to avoid conflicts of interest, as a result of increased family demands or business demands of a directors' employer, as a result of accepting government or community service, as a result of a change in area of residence or as a result of a material increase in the time required or projected to be required for service on the Board of Directors of the Company. EX-11 4 UNOCAL COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31 ------------------------------------------------------------ 1995 1994 1993 1992 1991 ------------------------------------------------------------ PRIMARY: Net earnings (loss) including cumulative effect of accounting changes $260,319 $(153,374) $212,867 $220,013 $ 72,545 Preferred stock dividend (35,875) (35,875) (35,875) (16,642) - ------------------------------------------------------------ Net earnings (loss) applicable to 224,444 $(189,249) $176,992 $203,371 $ 72,545 common stock Weighted average common shares outstanding 246,112 242,640 241,114 238,278 234,594 Dilutive common stock equivalents 943 1,040 1,081 1,123 629 ------------------------------------------------------------ 247,055 243,680 242,195 239,401 235,223 - ---------------------------------------------------------------------------------------------------- NET EARNINGS (LOSS) PER COMMON SHARE $ .91 $ (.78) $ .73 $ .85 $ .31 - ---------------------------------------------------------------------------------------------------- FULLY DILUTED: Net earnings (loss) including cumulative effect of accounting change $260,319 $(153,374) $212,867 $220,013 $ 72,545 Weighted average common shares outstanding 246,112 242,640 241,114 238,278 234,594 Dilutive common stock equivalents 1,511 1,714 1,743 1,561 629 Conversion of preferred stock * 16,667 16,667 16,667 16,667 16,667 ------------------------------------------------------------ 264,290 261,021 259,524 256,506 235,223 - ---------------------------------------------------------------------------------------------------- NET EARNINGS (LOSS) PER COMMON SHARE $ .98 $ (.59) $ .82 $ .86 $ .31 - ----------------------------------------------------------------------------------------------------
* The effect of assumed conversion of preferred stock on earnings per share is antidilutive EX-12.1 5 UNOCAL COMPUTATION OF EARNINGS TO FIXED CHARGES EXHIBIT 12.1 UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31 ---------------------------------------- 1995 1994 1993 1992 1991 ----- ----- ----- ----- ----- Earnings before cumulative effect of accounting changes $ 260 $ 124 $ 343 $ 196 $ 73 Provision for income taxes 203 170 268 153 139 Minority interest - - - 5 6 ----- ----- ----- ----- ----- Earnings subtotal (a) 463 294 611 354 218 Fixed charges included in earnings: Interest expense 291 275 304 379 395 Interest portion of rentals (b) 41 50 55 61 67 ----- ----- ----- ----- ----- Subtotal 332 325 359 440 462 Earnings available before fixed charges $ 795 $ 619 $ 970 $ 794 $ 680 ===== ===== ===== ===== ===== Fixed charges: Fixed charges included in earnings $ 332 $ 325 $ 359 $ 440 $ 462 Capitalized interest 35 30 30 34 40 ----- ----- ----- ----- ----- Total fixed charges $ 367 $ 355 $ 389 $ 474 $ 502 ===== ===== ===== ===== ===== Ratio of earnings to fixed charges (a) 2.2 1.7 2.5 1.7 1.4 (a) Includes pretax asset write-downs of: $ 105 $ 71 $ 19 $ 50 $ 106 The ratio of earnings, excluding asset write-downs, to fixed charges would be: 2.5 1.9 2.5 1.8 1.6
(b) Calculated as one-third of operating rental expense. EX-12.2 6 UNOCAL COMPUTATION OF EARNINGS TO COMBINE EXHIBIT 12.2 UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31 ---------------------------------------- 1995 1994 1993 1992 1991 ----- ----- ----- ----- ----- Earnings before cumulative effect of accounting changes $ 260 $ 124 $ 343 $ 196 $ 73 Provision for income taxes 203 170 268 153 139 Minority interest - - - 5 6 ----- ----- ----- ----- ----- Earnings subtotal (a) 463 294 611 354 218 Fixed charges included in earnings: Interest expense 291 275 304 379 395 Interest portion of rentals (b) 41 50 55 61 67 ----- ----- ----- ----- ----- Subtotal 332 325 359 440 462 Earnings available before fixed charges $ 795 $ 619 $ 970 $ 794 $ 680 ===== ===== ===== ===== ===== Fixed charges and preferred stock dividends: Fixed charges included in earnings $ 332 $ 325 $ 359 $ 440 $ 462 Capitalized interest 35 30 30 34 40 Preferred stock dividends, pre-tax basis 58 58 58 26 - ----- ----- ----- ----- ----- Total fixed charges and preferred stock dividends $ 425 $ 413 $ 447 $ 500 $ 502 ===== ===== ===== ===== ===== Ratio of earnings to combined fixed charges 1.9 1.5 2.2 1.6 1.4 and preferred stock dividends (a) (a) Includes pretax asset write-downs of: $ 105 $ 71 $ 19 $ 50 $ 106 The ratio of earnings, excluding asset write-downs, to combined fixed charges and preferred stock dividends would be: 2.1 1.7 2.2 1.7 1.6
(b) Calculated as one-third of operating rental expense. EX-12.3 7 UNOCAL COMPUTATION OF EARNINGS TO FIXED CHARGES EXHIBIT 12.3 UNION OIL COMPANY OF CALIFORNIA AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31 ---------------------------------------- 1995 1994 1993 1992 1991 ----- ----- ----- ----- ----- Earnings before cumulative effect of accounting changes $ 262 $ 125 $ 344 $ 197 $ 75 Provision for income taxes 203 170 268 153 139 Minority interest - - - 5 6 ----- ----- ----- ----- ----- Earnings subtotal (a) 465 295 612 355 220 Fixed charges included in earnings: Interest expense 291 275 304 379 395 Interest portion of rentals (b) 41 50 55 61 67 ----- ----- ----- ----- ----- Subtotal 332 325 359 440 462 Earnings available before fixed charges $ 797 $ 620 $ 971 $ 795 $ 682 ===== ===== ===== ===== ===== Fixed charges: Fixed charges included in earnings $ 332 $ 325 $ 359 $ 440 $ 462 Capitalized interest 35 30 30 34 40 ----- ----- ----- ----- ----- Total fixed charges $ 367 $ 355 $ 389 $ 474 $ 502 ===== ===== ===== ===== ===== Ratio of earnings to fixed charges (a) 2.2 1.7 2.5 1.7 1.4 - ---------------------------- (a) Includes pretax asset write-downs of: $ 105 $ 71 $ 19 $ 50 $ 106 The ratio of earnings, excluding asset write-downs, to fixed charges would be: 2.5 1.9 2.5 1.8 1.6
(b) Calculated as one-third of operating rental expense. EX-21 8 UNOCAL SUBSIDIARIES LIST EXHIBIT 21 SUBSIDIARIES OF UNOCAL CORPORATION
Organized under Name of Company law of - --------------- --------- Union Oil Company of California, dba California "UNOCAL" Philippine Geothermal, Incorporated California Unocal International Corporation Nevada Unocal Canada Limited Alberta Unocal Indonesia, Limited Bermuda Unocal Netherlands B.V. Netherlands Unocal Thailand, Limited Bermuda
The indented companies are subsidiaries of Union Oil Company of California. The names of 147 subsidiaries are omitted inasmuch as such subsidiaries, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. EX-23 9 CONSENT OF COOPERS & LYBRAND EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the following Registration Statements of Unocal Corporation, Registration Statements on Form S-8 (Nos. 33-43231, 33-43232 and 33-65461) and Registration Statements on Form S-3 (Nos. 33-54861-01 and 33-63719) of our report, which includes an explanatory paragraph regarding Unocal Corporation's change in their method of accounting for the impairment of long-lived assets and long-lived assets to be disposed of in 1995; for recognizing the reduction in value of its oil and gas properties in 1994; and for postretirement benefits other than pensions and for postemployment benefits in 1993, dated February 14, 1996, except for Note 25, as to which the date is February 16, 1996, which appears on page 59 of this Annual Report on Form 10-K. COOPERS & LYBRAND L. L. P. Los Angeles, California March 28, 1996 EX-27 10 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the consolidated earnings statement and consolidated balance sheet and is qualified in its entirety by reference to such financial statments. 0000716039 UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES 1,000 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 94 0 920 0 360 1,576 18,540 11,431 9,891 1,316 3,698 0 513 247 2,193 9,891 8,133 8,425 4,947 7,962 3,015 0 291 463 203 260 0 0 0 260 0.00 0.00
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