-----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, KHOdJdTDClsnnburL2swIqpFPnvmgSthr3wU9H0t/VsbdhMZj5XdmQh5Eeq/PVWi FOsfO87jc8FR8exTkwznew== 0000898430-97-002314.txt : 19970526 0000898430-97-002314.hdr.sgml : 19970526 ACCESSION NUMBER: 0000898430-97-002314 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19970523 SROS: CSX SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: UNOCAL CORP CENTRAL INDEX KEY: 0000716039 STANDARD INDUSTRIAL CLASSIFICATION: PETROLEUM REFINING [2911] IRS NUMBER: 953825062 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08483 FILM NUMBER: 97613835 BUSINESS ADDRESS: STREET 1: 2141 ROSECRANS AVE STREET 2: SUITE 4000 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107267718 10-Q/A 1 QUARTERLY REPORT FOR PERIOD ENDING 9/30/96 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q/A AMENDMENT NO. 1 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended SEPTEMBER 30, 1996 ------------------ or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ____________. Commission file number 1-8483 UNOCAL CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 95-3825062 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2141 ROSECRANS AVENUE, SUITE 4000, EL SEGUNDO, CALIFORNIA 90245 --------------------------------------------------------- ------ (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (310) 726-7600 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Number of shares of Common Stock, $1 par value, outstanding as of October 31, 1996: 250,414,750 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED EARNINGS UNOCAL CORPORATION (UNAUDITED)
For the Three Months For the Nine Months Ended September 30 Ended September 30 ------------------------------------------------------- Dollars in millions except per share 1996 1995 1996 1995 amounts - ----------------------------------------------------------------------------------------------- REVENUES Sales and operating revenues (a) $ 2,531 $ 1,933 $ 7,272 $ 5,997 Interest, dividends and miscellaneous income 14 50 50 76 Equity in earnings of affiliated companies 30 20 78 65 Gain on sales of assets 36 2 173 63 - ----------------------------------------------------------------------------------------------- Total revenues 2,611 2,005 7,573 6,201 COSTS AND OTHER DEDUCTIONS Crude oil and product purchases 1,152 746 3,142 2,403 Operating expense 442 417 1,315 1,302 Selling, administrative and general expense 112 108 341 318 Depreciation, depletion and amortization 228 237 724 704 Dry hole costs 53 31 72 50 Exploration expense 33 30 83 85 Interest expense 67 72 215 218 Excise, property and other operating taxes (a) 271 258 814 759 Distributions on convertible preferred securities of subsidiary trust 2 - 2 - - ----------------------------------------------------------------------------------------------- Total costs and other deductions 2,360 1,899 6,708 5,839 - ----------------------------------------------------------------------------------------------- Earnings before income taxes 251 106 865 362 Income taxes 80 47 332 151 - ----------------------------------------------------------------------------------------------- NET EARNINGS $ 171 $ 59 $ 533 $ 211 Dividends on preferred stock - 9 18 27 Non-cash charge related to exchange of preferred stock 54 - 54 - - ----------------------------------------------------------------------------------------------- NET EARNINGS APPLICABLE TO COMMON STOCK $ 117 $ 50 $ 461 $ 184 ======================================================= Earnings per share of common stock assuming no dilution (b) $ 0.47 $ 0.20 $ 1.86 $ 0.75 ======================================================== Earnings per share of common and equivalent stock assuming full dilution (c) $ 0.45 $ 0.20 $ 1.83 $ 0.75 ======================================================== Cash dividends declared per share of common stock $ 0.20 $ 0.20 $ 0.60 $ 0.60 - ------------------------------------------------------------------------------------------------ (a) Includes consumer excise taxes of $ 249 $ 228 $ 735 $ 665 (b) Based on net earnings applicable to common stock divided by weighted average shares outstanding (in thousands) 248,668 246,666 248,211 245,754 (c) Based on net earnings applicable to common stock divided by weighted average shares outstanding and common stock equivalents (in thousands) 263,525 - 262,823 -
See Notes to Consolidated Financial Statements. 2 CONSOLIDATED BALANCE SHEET UNOCAL CORPORATION (UNAUDITED)
September December 30 31 ------------------------ Millions of dollars 1996 1995 - ------------------------------------------------------------------------------ ASSETS Current assets Cash and cash equivalents $ 225 $ 94 Accounts and notes receivable 921 920 Inventories Crude oil 50 48 Refined products 162 161 Agricultural products 35 40 Minerals 21 30 Supplies, merchandise and other 88 81 Deferred income taxes 75 169 Other current assets 35 33 - ------------------------------------------------------------------------------ Total current assets 1,612 1,576 Investments and long-term receivables 1,105 1,101 Properties (net of accumulated depreciation and other allowances of $10,910 in 1996 and $11,431 in 1995) 6,949 7,109 Deferred income taxes 27 25 Other assets 116 80 - ------------------------------------------------------------------------------ Total assets $9,809 $9,891 - ------------------------------------------------------------------------------ LIABILITIES AND EQUITY Current liabilities Accounts payable $ 873 $ 804 Taxes payable 242 193 Current portion of long-term debt 119 8 and capital lease obligations Interest payable 46 92 Current portion of environmental 83 83 liabilities Other current liabilities 94 136 - ------------------------------------------------------------------------------ Total current liabilities 1,457 1,316 Long-term debt and capital lease obligations 2,951 3,698 Deferred income taxes 678 722 Accrued abandonment, restoration and 661 607 environmental liabilities Other deferred credits and liabilities 729 618 Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust holding solely 6-1/4% convertible junior subordinated debentures of Unocal 522 - Stockholders' Equity Preferred stock ($0.10 par value; stated at liquidation value of $50 per share) 13 513 Common stock ($1 par value) 250 247 Capital in excess of par value 389 319 Foreign currency translation adjustment (12) (10) Unearned portion of restricted stock issued (15) (13) Retained earnings 2,186 1,874 - ------------------------------------------------------------------------------ Total stockholders' equity 2,811 2,930 - ------------------------------------------------------------------------------ Total liabilities and equity $9,809 $9,891 - ------------------------------------------------------------------------------
See Notes to the Consolidated Financial Statements. 3 CONSOLIDATED CASH FLOWS UNOCAL CORPORATION (UNAUDITED)
For the Nine Months Ended September 30 ------------------- Millions of dollars 1996 1995 - ---------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net earnings $ 533 $ 211 Adjustment to reconcile net earnings to net cash provided by operating activities Depreciation, depletion and amortization 724 704 Dry hole costs 72 50 Deferred income taxes 48 (21) Gain on sales of assets (before-tax) (173) (63) Other 96 (19) Working capital and other changes related to operations Accounts and notes receivable (23) (18) Inventories 4 18 Accounts payable 69 (53) Taxes payable 49 (19) Other (200) (114) - ---------------------------------------------------------------- Net cash provided by operating activities 1,199 676 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (includes dry hole costs) (940) (967) Proceeds from sales of assets 585 130 - ---------------------------------------------------------------- Net cash used in investing activities (355) (837) CASH FLOWS FROM FINANCING ACTIVITIES Long-term borrowings 130 949 Reduction of long-term debt and capital lease obligations (690) (644) Dividends paid on preferred stock (27) (27) Dividends paid on common stock (149) (147) Other 23 50 - ---------------------------------------------------------------- Net cash provided by (used in) financing activities (713) 181 Increase in cash and cash equivalents 131 20 Cash and cash equivalents at beginning of year 94 148 - ---------------------------------------------------------------- Cash and cash equivalents at end of period $ 225 $ 168 - ---------------------------------------------------------------- Supplemental disclosure of cash flow information: Cash paid during the period for: Interest (net of amount capitalized) $ 243 $ 225 Income taxes (net of refunds) $ 239 $ 192
See Notes to the Consolidated Financial Statements. 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (1) The consolidated financial statements included herein are unaudited and, in the opinion of management, include all adjustments necessary for a fair presentation of financial position and results of operations. All adjustments are of a normal recurring nature. Such financial statements are presented in accordance with the Securities and Exchange Commission's (Commission) disclosure requirements for Form 10-Q. These interim consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and the Notes to Consolidated Financial Statements filed with the Commission in Unocal Corporation's 1995 Annual Report on Form 10-K. Results for the nine months ended September 30, 1996, are not necessarily indicative of future financial results. Certain items in the prior year financial statements have been reclassified to conform to the 1996 presentation. (2) For the purpose of this report, Unocal Corporation and its consolidated subsidiary, Union Oil Company of California (Union Oil), together with the consolidated subsidiaries of Union Oil, will be referred to as "Unocal" or "the company". (3) Earnings per share of common stock assuming no dilution are based on net earnings less preferred stock dividend requirements and the non-cash charge related to the exchange of preferred stock, divided by the weighted average shares of common stock outstanding during each period. The computation of fully diluted earnings per share assumes the dilutive effect of common stock equivalents and conversion of Unocal's outstanding convertible preferred stock and the outstanding Convertible Preferred Securities of a subsidiary trust (see Note 12). When the computation of fully diluted earnings per share is antidilutive for any given period presented, the amounts reported for primary and fully diluted are the same. (4) As a result of the corporate staff reduction program initiated during the fourth quarter of 1994, the company recorded in 1994 a pretax charge of $34 million in administrative and general expense for estimated benefits, primarily termination allowance, to be paid to employees affected by the program. At September 30, 1996, the amount of unpaid benefits remaining on the consolidated balance sheet was $7 million. Approximately 30 employees were terminated during the third quarter of 1996, bringing the total number of terminated employees to approximately 650. (5) Capitalized interest totaled $3 million and $9 million for the third quarters of 1996 and 1995, respectively. For the first nine months of 1996 and 1995 capitalized interest totaled $9 million and $25 million, respectively. (6) Cash Flow Information: UNOCAL SAVINGS PLAN During the first nine months of 1996 and 1995, shares of Unocal common stock were purchased by the trustee of the Unocal Savings Plan (the "Plan") either from Unocal or on the open market as directed by Unocal. The trustee used Unocal's matching contributions to the Plan to purchase the shares. The total matching contributions were expensed in Unocal's consolidated earnings statement. In the consolidated cash flow statements, the portions of the matching contributions resulting in the issuance of Unocal common stock, as detailed below, were treated as a noncash transactions since the resulting effect on cash flow was zero.
For the Nine Months Ended September 30 -------------------- 1996 1995 - ----------------------------------------------------------------------------- Shares of Unocal common stock issued (in thousands) 252 700 Fair value of common stock (in millions of dollars) $ 8 $ 20
5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) CONVERTIBLE PREFERRED SECURITIES See Note 12 for discussion of Unocal's third quarter 1996 exchange of 6-1/4 percent Trust Convertible Preferred Securities of a subsidiary trust for outstanding shares of Unocal's $3.50 Convertible Preferred Stock. The exchange was treated as a noncash transaction since the resulting effect on cash flow was zero. (7) Income Taxes: The components of pre-tax earnings and the provision for income taxes were as follows:
For the Three Months For the Nine Months Ended September 30 Ended September 30 -------------------------------------------------- Millions of dollars 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------- Earnings (loss) before income taxes: United States (a) $ 87 $ (7) $ 438 $ (2) Foreign 164 113 427 364 - --------------------------------------------------------------------------------------------- Total $ 251 $ 106 $ 865 $ 362 Income Taxes: Current Federal $ (4) $ (1) $ 100 $ 15 State 1 - 3 5 Foreign 70 45 182 152 - --------------------------------------------------------------------------------------------- Total current $ 67 $ 44 $ 285 $ 172 Deferred Federal $ 7 $ 1 $ 12 $ (18) State 5 (7) 19 (24) Foreign 1 9 16 21 - --------------------------------------------------------------------------------------------- Total deferred $ 13 $ 3 $ 47 $ (21) - --------------------------------------------------------------------------------------------- Total income taxes $ 80 $ 47 $ 332 $ 151
(a) Includes corporate and unallocated expenses. Reconciliation of income taxes at the federal statutory rate of 35% to tax provision:
For the Three Months For the Nine Months Ended September 30 Ended September 30 -------------------------------------------------- Millions of dollars 1996 1995 1996 1995 - --------------------------------------------------------------------------------------------- Earnings before income taxes $ 251 $ 106 $ 865 $ 362 Tax at federal statutory rate $ 88 $ 37 $ 303 $ 126 Taxes on foreign earnings in excess of (less than) statutory rate (5) 18 36 52 Dividend exclusion (3) (4) (11) (11) Deferred California business tax credits, net of federal tax effect - (5) - (16) Other - 1 4 - - --------------------------------------------------------------------------------------------- Total provision $ 80 $ 47 $ 332 $ 151
6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) (8) Long Term Debt and Credit Agreements: During the first quarter of 1996, the company issued $100 million of medium- term notes with interest rates ranging from 5.94 percent to 6.23 percent and maturity dates ranging from February 2003 to February 2006. The company also increased its commercial paper borrowings by $44 million. During the second quarter of 1996, the company reduced long-term debt by approximately $610 million, primarily with the proceeds from the sale of its California oil and gas producing properties. Financing activities for the second quarter of 1996 primarily consisted of: retirement at maturity of the $110 million Swiss Franc bond issue and the corresponding $65 million currency swap agreement; and the early redemption of seven pollution control bond issues totaling $49 million with interest rates ranging from 6-1/8 percent to 7-7/8 percent. The company also reduced its commercial paper balance by $377 million and terminated its $45 million Netherlands revolving credit facility. Third-quarter 1996 financing activities primarily consisted of an additional borrowing of $20 million on the $250 million Thailand revolving credit facility and payment of $80 million on the $1.2 billion credit facility. In addition, the company further reduced its commercial paper balance by $104 million, bringing the outstanding balance to $213 million at September 30, 1996 and terminated its $25 million revolving credit facility with a Canadian bank. (9) Financial Instruments The fair value of the financial instruments described below are based on the company's outstanding balances at September 30, 1996: The Deutsche Mark currency swap agreement had a notional value of $110 million and a fair value of approximately $57 million based on dealer quotes. There were 17 outstanding currency forward contracts to purchase 26 million Pounds Sterling for $40 million to hedge a series of known Pounds Sterling requirements, and the fair market value of the contracts was approximately $1.3 million in assets. The floating interest rate on the swap agreement to hedge $25 million of fixed rate medium-term notes was 5.6 percent, and the fair value was insignificant, based on quoted market prices of comparable instruments. The company had outstanding commodity futures contracts covering the sale of 550 thousand barrels of crude oil and 7 billion cubic feet of natural gas with notional amounts of $11 million and $14 million, respectively. The fair value of the contracts, based on quoted market prices, was insignificant. The estimated fair value of the company's long-term debt and capital lease obligations was $3,140 million. The estimated fair value of the company's obligated mandatorily redeemable Convertible Preferred Securities was $553 million. (10) Accrued abandonment, restoration and environmental liabilities: At September 30, 1996, the company had accrued $500 million for the estimated future costs to abandon and remove wells and production facilities. The total costs for abandonments are estimated to be $640 million to $780 million, of which the lower end of the range is used to calculate the amount to be amortized. At September 30, 1996, the company's reserve for environmental remediation obligations totaled $245 million, of which $83 million was included in current liabilities. The reserve included estimated probable future costs of $29 million for federal Superfund and comparable state-managed multiparty disposal sites; $30 million for formerly-operated sites for which the company has remediation obligations; $67 million for sites related to businesses or operations that have been sold with contractual remediation or indemnification obligations; $67 million for company-owned or controlled sites where facilities have been closed or operations shut down; and 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) $52 million for sites owned and/or controlled by the company and utilized in its ongoing operations. (11) Contingent Liabilities: The company has certain contingent liabilities with respect to material existing or potential claims, lawsuits and other proceedings, including those involving environmental, tax and other matters, certain of which are discussed more specifically below. The company accrues liabilities when it is probable that future costs will be incurred and such costs can be reasonably estimated. Such accruals are based on developments to date, the company's estimates of the outcomes of these matters and its experience in contesting, litigating and settling other matters. As the scope of the liabilities becomes better defined, there will be changes in the estimates of future costs, which could have a material effect on the company's future results of operations and financial condition or liquidity. ENVIRONMENTAL MATTERS The company is subject to loss contingencies pursuant to federal, state and local environmental laws and regulations. These include existing and possible future obligations to investigate the effects of the release or disposal of certain petroleum, chemical and mineral substances at various sites; to remediate or restore these sites; to compensate others for damage to property and natural resources, for remediation and restoration costs and for personal injuries; and to pay civil penalties and, in some cases, criminal penalties and punitive damages. These obligations relate to sites owned by the company or others and are associated with past and present operations, including sites at which the company has been identified as a potentially responsible party (PRP) under the federal Superfund laws and comparable state laws. Liabilities are accrued when it is probable that future costs will be incurred and such costs can be reasonably estimated. However, in many cases, investigations are not yet at a stage where the company is able to determine whether it is liable or, if liability is probable, to quantify the liability or estimate a range of possible exposure. In such cases, the amounts of the company's liabilities are indeterminate due to the potentially large number of claimants for any given site or exposure, the unknown magnitude of possible contamination, the imprecise and conflicting engineering evaluations and estimates of proper cleanup methods and costs, the unknown timing and extent of the corrective actions that may be required, the uncertainty attendant to the possible award of punitive damages, the recent judicial recognition of new causes of action, the present state of the law, which often imposes joint and several and retroactive liabilities on PRPs, and the fact that the company is usually just one of a number of companies identified as a PRP. As disclosed in Note 10, at September 30, 1996, the company had accrued $245 million for estimated future environmental assessment and remediation costs at various sites where liabilities for such costs are probable. At those sites where investigations or feasibility studies have advanced to the stage of analyzing feasible alternative remedies and/or ranges of costs, the company estimates that it could incur additional remediation costs aggregating approximately $180 million. Between August 22 and September 6, 1994, a chemical known as "Catacarb" was released into the environment at the company's San Francisco Refinery near Rodeo, California. Persons in the surrounding area have claimed that they were exposed to the chemical in varying degrees. Since September 22, 1994, forty-eight lawsuits have been filed by or on behalf of all persons, alleged to be several thousand, claiming that they or their property were adversely affected by the releases. Forty-four of the lawsuits have been consolidated in the Superior Court for Contra Costa County. The First Amended Model Complaint in this consolidated action, filed February 1, 1995, on behalf of individual plaintiffs and purported classes of plaintiffs, alleges personal injury, emotional distress and increased risk of future illness on behalf of the named plaintiffs and all persons present in and around or downwind from the San Francisco Refinery, and property damage and loss or diminution of property value on behalf of all owners of real and personal property in the vicinity of the Refinery, resulting from the release of Catacarb by the Refinery. Certain individual plaintiffs allege injury from alleged subsequent releases at the Refinery of hydrogen sulfide and other chemicals. The Model Complaint seeks compensatory and punitive damages in unspecified amounts, equitable relief including the creation of a fund for medical monitoring and treatment of plaintiffs and members of the purported classes, statutory penalties and 8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) other relief. The company has reached agreement with plaintiffs to certify a mandatory non-opt out punitive damages class. Plaintiffs have withdrawn their class claims for personal injury and property damage. In early November, the trial court issued an order declining to certify a medical monitoring class. The court indicated its tentative intention to commence a trial with an undetermined number of test plaintiffs in June 1997. TAX MATTERS In December 1994, the company received a Notice of Proposed Deficiency from the Internal Revenue Service (IRS) related to the years 1985 through 1987. In February 1995, the company filed a protest of the proposed tax deficiency with the Appeals section of the IRS. Discussions with the Appeals Officer are ongoing, but it appears that two substantial issues may proceed to litigation. In an effort to resolve these issues without litigation, in October 1996, the company and the IRS entered into an Agreement to Mediate. While the parties have selected a mediator, no date for the mediation has been set. The most significant issue relates to an IRS challenge of a $341 million deduction taken by the company in its 1985 tax return for amounts paid under a settlement agreement with Mesa Petroleum, T. Boone Pickens and Drexel Burnham Lambert, Incorporated, and certain others which ended a hostile takeover attempt by that group. The IRS contends that the deduction is not allowable because the payment was related solely to the purchase of the company's common stock. Although the company did purchase shares under the settlement agreement, it properly reflected the purchase in its records at the fair market value of the shares purchased. The deduction at issue relates to that portion of the payment made under the settlement agreement that exceeded the value of the shares purchased. The company intends to vigorously dispute the IRS' assertions in court. If the IRS were ultimately to prevail, the company would owe $157 million of tax for 1985 plus tax deductible interest estimated at $295 million as of September 30, 1996. As this matter is not yet before a court, final resolution of this matter is likely to be several years away. The second issue relates to an IRS challenge of a continued deferral of intercompany gains which arose from sales of property between subsidiaries in 1982 and 1983. The IRS contends that the $201 million balance of deferred gain must be recognized in the company's taxable income for 1985 when the subsidiaries contributed the property to a wholly owned master limited partnership. The company intends to vigorously dispute the IRS' assertions in court. If the IRS were ultimately to prevail, the company would owe $92 million in tax for 1985, but would receive credits or refunds for offsetting deductions in later years. For 1986 and 1987 the credits or refunds would total $35 million. In addition to tax, the company would owe tax deductible interest estimated at $120 million as of September 30, 1996. As this matter is not yet before a court, final resolution of this matter is likely to be several years away. The total amount of tax and interest that the company would be required to pay if the IRS were ultimately to prevail on both of the issues described in the two preceding paragraphs is substantially less than the sum of the amounts. As a result of the interplay of these issues, application of foreign tax credits and overpayments related to other issues, the total amount of tax and interest is estimated at $378 million as of September 30, 1996. The company believes it has adequately provided in its accounts for items and issues not yet resolved. In the opinion of management, a successful outcome of the litigation is reasonably likely. However, substantial adverse decisions could have a material effect on the company's financial condition, operating results and liquidity in a given quarter and year when such matters are resolved. OTHER MATTERS The company also has certain other contingent liabilities with respect to litigation, claims and contractual agreements arising in the ordinary course of business. Although these contingencies could result in expenses or judgments that could be material to the company's results of operations for a given reporting period, on the basis of management's best assessment of the ultimate amount and timing of these events, such expenses or judgments are not expected to have a material adverse effect on the company's consolidated financial condition 9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) or liquidity. (12) Convertible Preferred Securities On September 11, 1996, pursuant to an offer which expired on September 5, 1996, Unocal exchanged 10,437,873 new 6-1/4 percent Trust Convertible Preferred Securities (the "Preferred Securities") of Unocal Capital Trust, a Delaware business trust (the "Trust"), for 9,352,962 shares of Unocal's $3.50 Convertible Preferred Stock (the "Preferred Stock") which were tendered in response to the offer. Unocal acquired the Preferred Securities, which have an aggregate liquidation value of $522 million, from the Trust, together with 322,821 common securities of the Trust, which have an aggregate liquidation value of $16 million, in exchange for $538 million principal amount of 6-1/4 percent Convertible Junior Subordinated Debentures (the "Debentures") of Unocal. The Preferred Securities and common securities of the Trust represent undivided beneficial interests in the Debentures, which are the sole assets of the Trust. The Preferred Securities have a liquidation value of $50 per security and will be convertible on and after December 10, 1996, into shares of Unocal common stock at a conversion price of $42.56 per share, subject to adjustment upon the occurrence of certain events. Distributions on the Preferred Securities are cumulative from September 5, 1996, at an annual rate of 6-1/4 percent of their liquidation amount and are payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year, commencing on December 1, 1996, to the extent that the Trust receives interest payments on the Debentures, which payments are subject to deferral by Unocal under certain circumstances. Upon repayment of the Debentures by Unocal, whether at maturity, upon redemption or otherwise, the proceeds thereof must immediately be applied to redeem a corresponding amount of the Preferred Securities and the common securities of the Trust. The Debentures mature on September 1, 2026, and may be redeemed, in whole or in part, at the option of Unocal, at any time on or after September 3, 2000, at a redemption price initially equal to 103.75 percent of the principal amount redeemed, declining annually to 100 percent of the principal amount redeemed in 2006, plus accrued and unpaid interest thereon to the redemption date. The Debentures, and hence the Preferred Securities, may become redeemable at the option of Unocal upon the occurrence of certain special events or restructuring transactions. The Trust is accounted for as a consolidated subsidiary of Unocal, with the Debentures and payments thereon by Unocal to the Trust eliminated in the consolidated financial statements. The payment obligations of the Trust under the Preferred Securities are unconditionally guaranteed by Unocal (the "Guarantee"). The Guarantee, when taken together with Unocal's obligations under the Debentures and the indenture pursuant to which the Debentures were issued and Unocal's obligations under the amended and restated declaration of trust governing the Trust, provides a full and unconditional guarantee of the Trust's obligations under the Preferred Securities. On September 11, 1996, Unocal called the unexchanged 897,038 shares of the Preferred Stock for redemption on October 11, 1996. Of these, 632,263 shares were converted into 1,028,058 shares of Unocal common stock in September and the remaining 264,775 shares were converted into 430,517 shares of common stock in October prior to the redemption date. (13) Unocal guarantees certain indebtedness of Union Oil. Summarized below is financial information for Union Oil and its consolidated subsidiaries:
For the Three Months For the Nine Months Ended September 30 Ended September 30 --------------------------------------------- Millions of dollars 1996 1995 1996 1995 - ----------------------------------------------------------------------------------------------------------- Total revenues $2,611 $ 2,005 $7,573 $6,201 Total costs and other deductions, including income taxes 2,438 1,945 7,037 5,989 --------------------------------------------- Net earnings $ 173 $ 60 $ 536 $ 212 - -----------------------------------------------------------------------------------------------------------
10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Unaudited) (13) Union Oil (continued)
At September 30 At December 31 --------------- -------------- Millions of dollars 1996 1995 - --------------------------------------------------------------- Current assets $1,604 $1,576 Noncurrent assets $8,213 $8,328 Current liabilities $1,464 $1,309 Noncurrent liabilities $5,020 $5,645 Shareholder's equity $3,333 $2,950 ------------------------------------------------------------
11 OPERATING HIGHLIGHTS UNOCAL CORPORATION (UNAUDITED)
For the Three Months For the Nine Months Ended September 30 Ended September 30 -------------------------------------------- 1996 1995 1996 1995 - ------------------------------------------------------------------------------- NET DAILY PRODUCTION CRUDE OIL AND CONDENSATE (THOUSAND BARRELS): United States (a) 86.1 123.6 98.9 126.4 Foreign: Far East (b) 82.2 81.9 82.4 84.6 Other 27.2 29.6 27.6 30.3 -------------------------------------------------- Total foreign 109.4 111.5 110.0 114.9 WORLDWIDE 195.5 235.1 208.9 241.3 -------------------------------------------------- NATURAL GAS (MILLION CUBIC FEET): United States (a) 1,099 1,077 1,091 1,109 Foreign: Far East (b) 667 577 626 597 Other 63 55 71 48 -------------------------------------------------- Total foreign 730 632 697 645 WORLDWIDE 1,829 1,709 1,788 1,754 NATURAL GAS LIQUIDS (THOUSAND BARRELS) (a) 19.3 20.2 19.6 21.4 GEOTHERMAL (MILLION KILOWATT-HOURS) 21.0 17.7 17.3 16.0 - ------------------------------------------------------------------------------- AVERAGE SALES PRICES CRUDE OIL AND CONDENSATE (PER BARREL): United States $20.01 $14.83 $18.31 $15.17 Foreign: Far East $18.89 $15.26 $18.32 $16.11 Other $19.89 $15.12 $18.53 $15.84 Total foreign $19.21 $15.21 $18.39 $16.01 WORLDWIDE $19.62 $14.98 $18.34 $15.51 NATURAL GAS (PER THOUSAND CUBIC FEET): United States $ 2.09 $ 1.43 $ 2.20 $ 1.49 Foreign: Far East $ 2.27 $ 2.05 $ 2.23 $ 2.00 Other $ 2.05 $ 1.21 $ 1.82 $ 1.14 Total foreign $ 2.25 $ 1.97 $ 2.18 $ 1.94 WORLDWIDE $ 2.15 $ 1.64 $ 2.20 $ 1.66 (a) Includes production from California upstream properties of: Crude oil and condensate 1.0 28.7 10.9 29.4 Natural gas - 58 17 64 Natural gas liquids - 0.7 0.2 1.1 (b) Includes host country share in Indonesia of: Crude oil and condensate 26.4 33.0 26.8 31.7 Natural gas 29 20 26 23
12 OPERATING HIGHLIGHTS (continued) UNOCAL CORPORATION (UNAUDITED)
For the Three Months For the Nine Months Ended September 30 Ended September 30 -------------------------------------------- 1996 1995 1996 1995 - ------------------------------------------------------------------------------- INPUT TO CRUDE OIL PROCESSING UNITS (THOUSAND BARRELS DAILY) 229 220 231 207 REFINERY PRODUCTION (THOUSAND BARRELS DAILY) EPA Gasoline 31 120 52 107 CARB gasoline 90 - 64 - Jet fuel, kerosene and 33 29 36 21 heating oil Diesel fuel 19 14 21 12 CARB diesel 27 27 24 24 Other products (lubricants, gas oils, etc.) 58 53 61 62 -------------------------------------------- Total 258 243 258 226 PETROLEUM PRODUCT SALES (THOUSAND BARRELS DAILY) Primarily sold through retail channels EPA Gasoline 27 116 67 116 CARB gasoline 103 - 64 - Diesel fuel 15 12 14 12 CARB diesel 20 17 16 15 Other products (includes lube oil, kerosene and fuel oil) 7 7 7 7 ------------------------------------------------ Total 172 152 168 150 Primarily sold through wholesale or commercial channels EPA Gasoline 4 31 9 23 CARB gasoline 21 - 12 - Jet fuel 38 32 40 29 Diesel fuel 14 14 14 10 CARB diesel 15 11 12 6 Other products (includes petroleum products, gas oils, etc.) 34 35 36 42 ------------------------------------------------- Total 126 123 123 110 ------------------------------------------------- Total petroleum products sales 298 275 291 260 AGRICULTURAL PRODUCTS PRODUCTION VOLUMES (THOUSAND TONS) Ammonia 360 296 1,089 988 Urea 275 242 845 806 Other products 149 169 494 583 AGRICULTURAL PRODUCTS SALES VOLUMES (THOUSAND TONS) Ammonia 206 106 574 500 Urea 198 247 779 773 Other products 302 255 971 962
13 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3 Bylaws of Unocal Corporation, as amended September 30, 1996, and currently in effect. 11* Unocal Corporation statement regarding computation of earnings per common share for the three months ended September 30, 1996 and 1995 and for the nine-month periods ended September 30, 1996 and 1995. 12.1 Unocal Corporation statement regarding computation of ratio of earnings to fixed charges for the nine months ended September 30, 1996 and 1995. 12.2 Unocal Corporation statement regarding computation of ratio of earnings to combined fixed charges and preferred stock dividends for the nine months ended September 30, 1996 and 1995. 12.3 Union Oil Company of California statement regarding computation of ratio of earnings to fixed charges for the nine months ended September 30, 1996 and 1995. 27 Financial data schedule for the quarter ended September 30, 1996 (included only in the copy of this report filed electronically with the Commission). 99 Bylaws of Union Oil Company of California, as amended September 30, 1996, and currently in effect. (b) Reports on Form 8-K During the third quarter of 1996: 1. Current Report on Form 8-K dated and filed July 25, 1996, for the purpose of reporting, under Item 5, Unocal's second quarter and first six months 1996 earnings. 2. Current Report on Form 8-K dated and filed September 3, 1996, for the purpose of reporting, under Item 5, the exchange and conversion ratios for the new 6-1/4 percent Trust Convertible Preferred Securities of Unocal Capital Trust offered by Unocal in exchange for all of the outstanding shares of its $3.50 Convertible Preferred Stock. 3. Current Report on Form 8-K dated and filed September 6, 1996, for the purpose of reporting, under Item 5, the acceptance by Unocal of all shares of its $3.50 Convertible Preferred Stock tendered in response to its exchange offer. 4. Current Report on Form 8-K dated and filed September 11, 1996, for the purpose of reporting, under Item 5, the completion of Unocal's exchange offer and its call for redemption of the remaining shares of its $3.50 Convertible Preferred Stock. During the fourth quarter of 1996 to the date hereof: 1. Current Report on Form 8-K dated and filed October 23, 1996, for the purpose of reporting, under Item 5, Unocal's third quarter and first nine months 1996 earnings. * FILED WITH THIS AMENDMENT 14 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to the report to be signed on its behalf by the undersigned thereunto duly authorized. UNOCAL CORPORATION (Registrant) Dated: May 23, 1997 By: /s/ CHARLES S. MCDOWELL ----------------------- Charles S. McDowell Vice President and Comptroller (Duly Authorized Officer and Principal Accounting Officer) 15 EX-11 2 COMP OF EARNINGS PER COMMON SHARE EXHIBIT 11 UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE
For the Three Months For the Nine Months Ended September 30 Ended September 30 -------------------------------------------------------------------- Dollars and shares in thousands, except 1996 1995 1996 1995 per share amounts - ------------------------------------------------------------------------------------------------------------ EARNINGS PER SHARE ASSUMING NO DILUTION (A) Net earnings $170,765 $ 58,672 $532,906 $ 210,753 Preferred stock dividend - (8,969) (17,938) (26,906) Non-cash charge related to exchange of preferred stock (54,246) - (54,246) - -------------------------------------------------------------- Net earnings applicable to common stock 116,519 49,703 460,722 183,847 Weighted average common stock outstanding 248,668 246,666 248,211 245,754 - ------------------------------------------------------------------------------------------------------------ NET EARNINGS PER COMMON SHARE $ 0.47 $ 0.20 $ 1.86 $ 0.75 - ------------------------------------------------------------------------------------------------------------ EARNINGS PER SHARE ASSUMING FULL DILUTION Net earnings $170,765 $ 58,672 $532,906 $210,753 Distribution on preferred securities (net of tax) 1,720 - 1,720 - Non-cash charge related to exchange of preferred stock (54,246) - (54,246) - -------------------------------------------------------------- Net earnings applicable to common stock 118,239 58,672 480,380 210,753 Weighted average common stock outstanding 248,668 246,666 248,211 245,754 Dilutive common stock equivalents 2,162 1,565 1,917 1,512 Conversion of preferred stock (b) 431 16,667 431 16,667 Conversion of preferred securities 12,264 - 12,264 - -------------------------------------------------------------------- Weighted average common stock and stock equivalents outstanding 263,525 264,898 262,823 263,933 - ------------------------------------------------------------------------------------------------------------ NET EARNINGS PER COMMON SHARE $ 0.45 $ 0.22 $ 1.83 $ 0.80 - ------------------------------------------------------------------------------------------------------------
(a) The dilutive effect of common stock equivalents is less than 3 percent. (b) During 1995, the effect of assumed conversion of preferred stock on earnings per common stock is antidilutive. -----END PRIVACY-ENHANCED MESSAGE-----