-----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, FmMLMZwbEQxkG1L41hFSQB4LTeNoP4C6PIUfuqgZEpHQdsTX6AdnyUZA5T1VCnAZ QrNGtMJ7lAMinXYl/ZtRIQ== 0000898430-97-002316.txt : 19970526 0000898430-97-002316.hdr.sgml : 19970526 ACCESSION NUMBER: 0000898430-97-002316 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19961231 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-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08483 FILM NUMBER: 97613879 BUSINESS ADDRESS: STREET 1: 2141 ROSECRANS AVE STREET 2: SUITE 4000 CITY: EL SEGUNDO STATE: CA ZIP: 90245 BUSINESS PHONE: 3107267718 10-K/A 1 AMENDMNT #1 TO FORM 10-K FOR PERIOD ENDING 12/31/96 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K/A AMENDMENT NO. 1 X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE ----- SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 ----------------- 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 Pacific Exchange Chicago Stock Exchange Preferred Stock Purchase Rights New York Stock Exchange Pacific Exchange Chicago 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 17, 1997 (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 $9,785 million. Shares of Common Stock outstanding as of March 17, 1997: 250,086,778 DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive Proxy Statement for its 1997 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission on or about April 21, 1997) are incorporated by reference into Part III. PART II ITEM 6 - SELECTED FINANCIAL DATA - see page 75. 18 ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Page ----- Report on Management's Responsibilities 35 Report of Independent Accountants 36 Financial Statements Consolidated Earnings 37 Consolidated Balance Sheet 38 Consolidated Cash Flows 39 Consolidated Stockholders' Equity 40 Notes to Consolidated Financial Statements 41-66 Supplemental Information: Oil and Gas Financial Data 67-69 Oil and Gas Reserve Data 69-71 Present Value of Future Net Cash Flow Related to Proved Oil and Gas Reserves 71-73 Selected Quarterly Financial Data 74 Selected Financial Data 75 Supporting Financial Statement Schedule covered by the Foregoing Report of Independent Accountants: Schedule II - Valuation and Qualifying Accounts and Reserves 80
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. 34 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, 1996, 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 Officer President Chief Financial Officer Vice President and Comptroller
February 14, 1997 35 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, 1996 and 1995, and the related consolidated statements of earnings, cash flows and stockholders' equity for each of the three years in the period ended December 31, 1996 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 37 through 68 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, 1996 and 1995 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, 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 and for recognizing the reduction in value of its producing oil and gas properties in 1994. Coopers & Lybrand L.L.P. February 14, 1997 Los Angeles, California 36
CONSOLIDATED EARNINGS UNOCAL CORPORATION Years ended December 31 ---------------------------------------------- Dollars in millions except per share amounts 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------------------- Revenues Sales and operating revenues $5,101 $4,111 $4,118 Interest, dividends and miscellaneous income 49 86 74 Equity in earnings of affiliated companies 106 77 83 Gain (loss) on sales of assets 72 115 (3) - --------------------------------------------------------------------------------------------------------------------- Total revenues 5,328 4,389 4,272 Costs and Other Deductions Crude oil and product purchases 1,502 979 1,064 Operating expense 1,386 1,302 1,366 Selling, administrative and general expense 151 151 194 Depreciation, depletion and amortization 914 911 811 Dry hole costs 139 61 84 Exploration expense 117 139 116 Interest expense 279 291 275 Property and other operating taxes 72 80 91 Distribution on convertible preferred securities 10 - - - --------------------------------------------------------------------------------------------------------------------- Total costs and other deductions 4,570 3,914 4,001 - --------------------------------------------------------------------------------------------------------------------- Earnings from continuing operations before income taxes 758 475 271 Income taxes 302 226 161 - --------------------------------------------------------------------------------------------------------------------- Earnings from continuing operations before cumulative effect of accounting change 456 249 110 Discontinued Operations Earnings from operations (net of tax) 71 11 14 Loss on disposal (net of tax) (491) - - - --------------------------------------------------------------------------------------------------------------------- Earnings (loss) from discontinued operations (420) 11 14 Cumulative effect of accounting change - - (277) - --------------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ 36 $ 260 $ (153) Dividends on preferred stock 18 36 36 Non-cash charge related to exchange of preferred stock 54 - - - --------------------------------------------------------------------------------------------------------------------- Net earnings (loss) applicable to common stock $ (36) $ 224 $ (189) ======== ======= ======== ======= ======== Earnings (loss) per share of common stock assuming no dilution: Continuing operations $ 1.54 $ 0.87 $ 0.30 Discontinued operations (1.69) 0.04 0.06 Cumulative effect of accounting change - - (1.14) -------------------------------------------- Net earnings (loss) per share $(0.15) $ 0.91 $ (0.78) ======== ======= ======== ======= ========
See Notes to Consolidated Financial Statements. 37
CONSOLIDATED BALANCE SHEET UNOCAL CORPORATION At December 31 Millions of dollars 1996 1995 - --------------------------------------------------------------------------------------------------------------------------- Assets Current assets Cash and cash equivalents $217 $94 Accounts and notes receivable 1,027 920 Net assets of discontinued operations 1,774 - Inventories 125 360 Deferred income taxes 57 169 Other current assets 28 33 - ------------------------------------------------------------------------------------------------------------------------- Total current assets 3,228 1,576 Investments and long-term receivables 1,206 1,101 Properties - net 4,590 7,109 Deferred income taxes 21 25 Other assets 78 80 - ------------------------------------------------------------------------------------------------------------------------- Total assets $9,123 $9,891 - ------------------------------------------------------------------------------------------------------------------------- Liabilities and Stockholders' Equity Current liabilities Accounts payable $1,012 $804 Taxes payable 231 193 Current portion of long-term debt and capital lease obligations 118 8 Interest payable 70 92 Other current liabilities 191 219 - -------------------------------------------------------------------------------------------------------------------------- Total current liabilities 1,622 1,316 Long-term debt and capital lease obligations 2,940 3,698 Deferred income taxes 348 722 Accrued abandonment, restoration and environmental liabilities 677 607 Other deferred credits and liabilities 739 618 Company-obligated mandatorily redeemable convertible preferred securities of a subsidiary trust holding solely 6-1/4% convertible junior subordinated debentures of Unocal 522 - Preferred stock ($0.10 par value; stated at liquidation value of $50 per share) Shares authorized: 100,000,000 - 513 Shares outstanding: 10,250,000 in 1995 Common stock ($1 par value) Shares authorized: 750,000,000 Shares outstanding: 250,671,266 in 1996 and 247,310,376 in 1995 251 247 Capital in excess of par value 412 319 Foreign currency translation adjustment (13) (10) Unearned portion of restricted stock issued (14) (13) Retained earnings 1,639 1,874 - -------------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 2,275 2,930 - -------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $9,123 $9,891 - -------------------------------------------------------------------------------------------------------------------------- The company follows the successful efforts method of accounting for its oil and gas activities. See Notes to the Consolidated Financial Statements.
38
CONSOLIDATED CASH FLOWS UNOCAL CORPORATION Years ended December 31 ---------------------------------------------- Millions of dollars 1996 1995 1994 - -------------------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities Net earnings (loss) $ 36 $ 260 (153) Adjustment to reconcile net earnings (loss) to net cash provided by operating activities Loss on disposal of discontinued operations (before-tax) 743 - - Cumulative effect of accounting change - - 277 Depreciation, depletion and amortization 1,059 1,022 947 Dry hole costs 139 61 84 Deferred income taxes (332) 9 (118) (Gain) loss on sales of assets (before-tax) (77) (117) 2 Other 113 - 217 Working capital and other changes related to operations Accounts and notes receivable (130) (5) 91 Inventories 10 (16) (10) Accounts payable 208 115 (49) Taxes payable 38 (33) 18 Other (123) (19) (7) - -------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 1,684 1,277 1,299 Cash Flows from Investing Activities Capital expenditures (includes dry hole costs) (1,398) (1,459) (1,272) Proceeds from sales of assets 609 204 156 - -------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (789) (1,255) (1,116) Cash Flows from Financing Activities Proceeds from issuance of common stock 33 55 54 Long-term borrowings 375 844 732 Reduction of long-term debt and capital lease obligations (943) (734) (788) Dividends paid on preferred stock (27) (36) (36) Dividends paid on common stock (199) (197) (193) Other (11) (8) (9) - -------------------------------------------------------------------------------------------------------------------- Net cash used in financing activities (772) (76) (240) Increase (decrease) in cash and cash equivalents 123 (54) (57) Cash and cash equivalents at beginning of year 94 148 205 - -------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 217 $ 94 $ 148 - -------------------------------------------------------------------------------------------------------------------- Supplemental disclosure of cash flow information: Cash paid during the period for: Interest (net of amount capitalized) $ 276 $ 268 $ 263 Income taxes (net of refunds) $ 332 $ 228 $ 174 See Notes to the Consolidated Financial Statements.
39
CONSOLIDATED STOCKHOLDERS' EQUITY UNOCAL CORPORATION Dollars in millions except per share amounts 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- Preferred Stock Balance at beginning of year $ 513 $ 513 $ 513 Exchange of preferred stock for convertible preferred securities (468) - - Conversion of preferred stock to common stock (45) - - - ----------------------------------------------------------------------------------------------------------------------------------- Balance at end of year - 513 513 Common Stock Balance at beginning of year 247 244 241 Issuance of common stock 4 3 3 - ----------------------------------------------------------------------------------------------------------------------------------- Balance at end of year 251 247 244 Capital in Excess of Par Value Balance at beginning of year 319 237 163 Issuance of common stock 93 82 74 - ----------------------------------------------------------------------------------------------------------------------------------- Balance at end of year 412 319 237 Foreign Currency Translation Adjustment Balance at beginning of year (10) (13) (5) Current year adjustment (3) 3 (8) - ----------------------------------------------------------------------------------------------------------------------------------- Balance at end of year (13) (10) (13) Unearned Portion of Restricted Stock Issued Balance at beginning of year (13) (13) (13) Issuance of restricted stock (5) (3) (4) Current year amortization 4 3 4 - ----------------------------------------------------------------------------------------------------------------------------------- Balance at end of year (14) (13) (13) Retained Earnings Balance at beginning of year 1,874 1,847 2,230 Net earnings (loss) for year 36 260 (153) Cash dividends declared Preferred stock ($1.75 per share in 1996, $3.50 per share in 1995 and in 1994) (18) (36) (36) Common stock ($.80 per share) (199) (197) (194) Exchange of 6-1/4% convertible preferred securities of Unocal Capital Trust for Unocal's $3.50 preferred stock (54) - - - ----------------------------------------------------------------------------------------------------------------------------------- Balance at end of year 1,639 1,874 1,847 - ----------------------------------------------------------------------------------------------------------------------------------- Total Stockholders' Equity $2,275 $2,930 $2,815 - ----------------------------------------------------------------------------------------------------------------------------------- See Notes to the Consolidated Financial Statements.
40 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 undiscounted future cash flows are less than the current net book values of the properties in a field. 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 onshore and offshore producing facilities are calculated at unit-of-production rates based upon estimated proved reserves. Depreciation of other properties is generally on a straight-line method using various rates based on estimated useful lives. 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 10 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 18 and 19. 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 17. STOCK-BASED COMPENSATION The company accounts for its stock-based compensation plans using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees". Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation", encourages, but does not require companies to record stock-based employee compensation plans at fair value. The company has elected to continue accounting for stock-based compensation in accordance with APB No. 25, but will comply with the required disclosures under SFAS No. 123 (see Note 22). OTHER 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 convertible preferred stock and the outstanding convertible preferred securities of a subsidiary trust (see Note 20). When the computation of fully diluted earnings per share is antidilutive for any given period presented, the amounts reported for assuming no dilution and assuming full dilution are the same. 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 1996 presentation. NOTE 2 - ACCOUNTING CHANGES Effective in the fourth quarter of 1995, the company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of." The accounting standard set 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 pre-tax ($53 million after-tax tax or $0.22 per common share) in the fourth quarter of 1995. This charge was principally due to the write down of several oil and gas producing properties where downward revisions in reserve estimates indicated that 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 down in the case of negative future cash flows. The charge was recorded to 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 pre-tax ($277 million after-tax 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). 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 3 - DISCONTINUED OPERATIONS In the fourth quarter of 1996, the company entered into a definitive agreement with Tosco Corporation for the sale of substantially all of its West Coast petroleum refining, marketing and transportation assets, which are operated by the company's 76 Products Company business unit. The sale is valued at approximately $2 billion, which includes $1.4 billion for refining, marketing and transportation fixed assets, approximately $400 million for inventories, and up to $250 million in possible participation payments which are contingent upon increased gasoline margins in the next seven years. With the exception of inventories, the sale excludes all other working capital. Terms of the agreement call for cash payment or cash plus up to $400 million of Tosco stock. See Management's Discussion and Analysis under Item 7 on pages 32 through 33 for additional information. The results for the refining, marketing and transportation operations to be sold have been classified as discontinued operations for all periods presented in the Consolidated Earnings Statement. The assets have been reclassified in the Consolidated Balance Sheet as of December 31, 1996 from their historical classifications to separately reflect them as net assets of discontinued operations. The Consolidated Balance Sheet for the prior period has not been restated. Cash flows related to discontinued operations have not been segregated in the Consolidated Statement of Cash Flows. Consequently, amounts on the Consolidated Earnings Statement may not agree with certain captions on the Consolidated Statement of Cash Flows. The summarized results of discontinued operations and related effect per common share are as follows:
Years ended December 31 ---------------------------------------------- Dollars in millions except per share amounts 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------------------ Revenues $4,271 $4,036 $3,693 Total costs and other deductions 4,156 4,048 3,670 ---------------------------------------------- Earnings (loss) from operations before income taxes 115 (12) 23 Income tax (benefit) 44 (23) 9 ---------------------------------------------- Earnings from operations 71 11 14 Loss on disposal before income taxes (792) - - Income tax (benefit) (301) - - ---------------------------------------------- Loss on disposal (a) (491) - - Total earnings (loss) $ (420) $ 11 $ 14 ---------------------------------------------- Earnings (loss) per common share: Earnings from operations $ 0.28 $ 0.04 $ 0.06 Loss on disposal (1.97) - - ---------------------------------------------- Total earnings (loss) $(1.69) $ 0.04 $ 0.06 ---------------------------------------------- (a) 1996 includes the following estimated losses during the phase-out period: November 17, 1996 - December 31, 1996 $30 (net of income tax benefit of $18) January 1, 1997 - March 31, 1997 $42 (net of income tax benefit of $25)
44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Detailed below are the net assets of discontinued operations as shown on the Consolidated Balance Sheet:
Millions of Dollars - ----------------------------------------------- Inventories $ 225 Properties - net 2,162 Other assets 133 Provision for loss on sale (746) - ----------------------------------------------- Net assets of discontinued operations $1,774 - -----------------------------------------------
NOTE 4 - 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 pre-tax 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 former employees over a period of time. Partially offsetting this charge was an estimated credit of $9 million for reduced pension obligations. At December 31, 1996, approximately 667 employees had been terminated as a result of the program. The program is complete and all termination benefits have been paid. NOTE 5 - WRITE DOWNS OF ASSETS During 1996, in accordance with SFAS No. 121, the company recorded pre-tax charges to earnings for asset write downs of $52 million for certain domestic oil and gas properties and $23 million for domestic geothermal properties. The charges were recorded after evaluation of recent events that indicated future net cash flows would be insufficient to fully recover the carrying values of these properties. Carrying values were written down to estimated future discounted cash flows or completely written down in the case of negative estimated future cash flows. The charges were recorded to depreciation, depletion and amortization expense. During the fourth quarter of 1995, the company adopted SFAS No. 121 and recorded a pre-tax charge to earnings of $87 million for the write down of several oil and gas producing properties. Prior to the adoption of SFAS No. 121 in the second quarter of 1995, the company recorded a pre-tax 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 pre-tax charge of $25 million to write down the carrying value of the Guadalupe oil field due to the shut down of 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 $7 million in 1994 for costs related to the reformulated fuels program at the company's Los Angeles Refinery. NOTE 6 - DISPOSITIONS OF ASSETS Proceeds received from asset sales during 1996 were $609 million with a recorded pre-tax gain of $77 million. The total proceeds from the sale of oil and gas properties included $472 million from the sale of California oil and gas properties with a pre-tax gain of $109 million. Proceeds of $28 million from the sale of geothermal assets were received resulting in a pre-tax loss of $92 million. The company also received $23 million from the sale of exploration blocks in the North Sea with a recorded pre-tax gain of $18 million and $30 million from the sale of miscellaneous real estate assets with a pre-tax gain of $17 million. 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) During 1995, the company received total proceeds from sales of assets of $204 million and recorded a pre-tax gain of $117 million. Of the total proceeds, $134 million was from the sale of oil and gas properties with a pre-tax gain of $52 million. In addition, the company recorded a pre-tax 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 pre-tax loss of $2 million. Of the total proceeds, $118 million was from the sale of oil and gas properties. NOTE 7 - 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 1996 and 1995 cash flow statements excluded $19 million and $30 million, respectively, in transactions primarily related 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. The exchange of preferred stock to convertible preferred securities and the conversion of preferred stock to common stock, as described in Note 20, are non- cash transactions and therefore, are excluded from the 1996 cash flow statement. NOTE 8 - OTHER FINANCIAL INFORMATION Consolidated earnings for the periods ending December 31 included the following:
Millions of Dollars 1996 1995 1994 - ----------------------------------------------------------------------------------- Total interest costs $294 $326 $305 Less capitalized interest 15 35 30 - ----------------------------------------------------------------------------------- Interest expense $279 $291 $275 Maintenance and repair costs $218 $250 $253 - -----------------------------------------------------------------------------------
The consolidated balance sheet at December 31 includes the following:
Millions of Dollars 1996 1995 - ---------------------------------------------------------------------------------- Other deferred credits and liabilities: Postretirement medical benefits obligation $207 $214 Reserve for litigation and other claims 369 262 Other employee benefits 85 50 Other 78 92 - ----------------------------------------------------------------------------------- Total $739 $618 - ----------------------------------------------------------------------------------- Allowances for doubtful accounts and notes receivable $ 35 $ 28 Allowances for investments and long-term receivables $ 13 $ 15 - -----------------------------------------------------------------------------------
46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9 - PROPERTY AND OTHER OPERATING TAXES
Millions of Dollars 1996 1995 1994 - ---------------------------------------------------- ------ ------ Real and personal property taxes $30 $41 $44 Severance and other taxes on production 41 38 38 Other taxes and duties 1 1 9 - ---------------------------------------------------- ------ ------ Total $72 $80 $91 - ---------------------------------------------------- ------ ------
In addition, social security and unemployment insurance taxes, which are charged to earnings and included with salaries and wages, totaled $44 million in 1996, $45 million in 1995 and $44 million in 1994. NOTE 10 - INCOME TAXES Unocal files a consolidated federal income tax return that includes essentially all U.S. subsidiaries. The components of pre-tax earnings and the provision for income taxes are as follows:
Millions of Dollars 1996 1995 1994 - ------------------------------------------------------------------------------------------- Earnings (loss) from continuing operations before income taxes and cumulative effect of accounting changes United States $195 $ 81 $(186) Foreign $563 $394 $ 457 - ------------------------------------------------------------------------------------------- Total $758 $475 $ 271 Income Taxes Current Federal $ 76 $ 3 $ 14 State $ 30 $ 4 $ 16 Foreign $277 $187 $ 245 - ------------------------------------------------------------------------------------------- Total $383 $194 $ 275 Deferred Federal $(70) $ 14 $(117) State $(13) $ 6 $ (7) Foreign $ 2 $ 12 $ 10 - ------------------------------------------------------------------------------------------- Total $(81) $ 32 $(114) - ------------------------------------------------------------------------------------------- Total income taxes $302 $226 $ 161 - -------------------------------------------------------------------------------------------
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.
Millions of Dollars 1996 1995 1994 - ---------------------------------------------------------------------------------------------------- Federal statutory rate 35% 35% 35% Taxes on book earnings computed at statutory rate $265 $166 $ 95 Foreign taxes in excess of statutory rate 82 59 75 Dividend exclusion (15) (15) (13) Statutory rate in excess of taxes on gain from sales of assets (24) - - Other (6) 16 4 - --------------------------------------------------------------------------------------------------- Total $302 $226 $161 - ---------------------------------------------------------------------------------------------------
47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The significant components of deferred income tax assets and liabilities included in the Consolidated Balance Sheet at December 31, 1996 and 1995 are as follows:
Millions of Dollars 1996 1995 - ------------------------------------------------------------------------------ Deferred tax assets (liabilities): Depreciation and intangible drilling costs $(883) $(1,129) Pension assets (154) (145) Investments in affiliates (71) (80) Other deferred tax liabilities (213) (216) Federal alternative minimum tax credits 191 142 Litigation/environmental costs 161 108 Depletion 139 169 Exploratory costs 155 140 Future abandonment costs 141 133 Postretirement benefit costs 78 81 1995 federal net operating loss carryforward - 94 Other deferred tax assets 186 175 - ---------------------------------------------------------------------------- Total $(270) $ (528) - ----------------------------------------------------------------------------
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 $1 billion as of December 31, 1996. At year-end 1996, the company had approximately $100 million of unused foreign tax credits with various expiration dates through the year 2002. No deferred tax asset for these foreign tax credits is recognized for financial statement purposes. The company had approximately $15 million of federal business tax credit carryforwards that will expire between the years 2003 and 2010. The federal alternative minimum tax credits are available to offset future U.S. federal income taxes on an indefinite basis. NOTE 11 - INVENTORIES
Millions of Dollars 1996 1995 - --------------------------------------------------- Crude oil and condensate $ 5 $ 6 Refined products 7 7 Agricultural products 41 40 Minerals 21 30 Supplies, merchandise and other 51 50 - --------------------------------------------------- Total $125 $133 - ---------------------------------------------------
The inventory amounts above exclude $225 million and $227 million for 1996 and 1995, respectively, for discontinued operations. The current replacement cost of inventories exceeded the LIFO inventory value included above by $18 million and $17 million at December 31, 1996 and 1995, respectively. Petroleum refining, marketing and transportation inventories at December 31, 1996 have been included in net assets of discontinued operations. The current replacement cost of these inventories exceeded the LIFO inventory value by $148 million. 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 12 - PROPERTIES AND CAPITAL LEASES Investments in owned and capitalized leased properties at December 31, 1996 and 1995 are set forth below. Total accumulated depreciation, depletion and amortization for continuing operations was $9,502 million and $10,179 million at December 31, 1996 and 1995, respectively.
1996 1995 -------------------- ---------------------- Millions of Dollars Gross Net Gross Net - ------------------------------------------------------------- ---------------------- Owned properties (at cost) Petroleum operations: Exploration United States $ 80 $ 32 $ 113 $ 45 Far East 30 20 119 71 Other Foreign 57 19 54 19 Production United States 6,779 2,218 7,994 2,676 Far East 3,745 1,314 2,977 870 Other Foreign 1,058 78 1,376 365 - ------------------------------------------------------------- ---------------------- Total 11,749 3,681 12,633 4,046 Geothermal Operations 763 307 995 382 Diversified Business Group Agricultural Products 659 212 650 221 Carbon & Minerals 173 71 140 45 Pipelines 332 103 330 99 Corporate and unallocated 402 215 465 254 - ------------------------------------------------------------- ---------------------- Total owned properties 14,078 4,589 15,213 5,047 Capitalized leased properties 14 1 17 4 - ------------------------------------------------------------- ---------------------- Total continuing operations 14,092 4,590 15,230 5,051 Discontinued operations - - 3,310 2,058 - ------------------------------------------------------------- ---------------------- Total $14,092 $4,590 $18,540 $7,109 - ------------------------------------------------------------- ----------------------
Net property, plant and equipment of $2,162 million ($3,520 million gross) for discontinued operations at December 31, 1996 has been reflected in the net assets of discontinued operations (see Note 3). NOTE 13 - 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 the principal U.S. plan during the years 1994 through 1996 as plan assets substantially exceeded the pension obligations. At year-end 1996, 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. 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Pension costs for the funded U.S. plans include the following components:
Millions of Dollars 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------- Service cost - benefits earned during the year $ 29 $ 21 $ 24 Interest cost on projected benefit obligation 53 52 49 Actual return on plan assets (143) (225) 9 Net amortization and deferral 29 129 (109) Net (gain) loss from partial settlement of obligation and curtailment of operations 13 (7) (4) - ------------------------------------------------------------------------------------------------------------- Net pension income $ (19) $ (30) $ (31) - -------------------------------------------------------------------------------------------------------------
Net loss from partial settlement of obligation and curtailment of operations for 1996 includes a loss of $15 million associated with discontinued operations (see Note 3). The following table sets forth the plans' funded status and amounts recognized in the Consolidated Balance Sheet at December 31, 1996 and 1995:
Millions of Dollars 1996 1995 - ------------------------------------------------------------------------------- Plan assets at fair value $1,116 $1,053 - ------------------------------------------------------------------------------- Actuarial present value of benefit obligations: Vested benefits 668 636 Nonvested benefits 15 24 - ------------------------------------------------------------------------------- Accumulated benefit obligation 683 660 Effect of projected future salary increases 75 78 - ------------------------------------------------------------------------------- Projected benefit obligation 758 738 - ------------------------------------------------------------------------------- Plan assets in excess of projected benefit obligation 358 315 Unrecognized net loss 75 115 Unrecognized net assets (40) (63) Unrecognized prior service cost 17 24 - ------------------------------------------------------------------------------- Prepaid pension cost $ 410 $ 391 - -------------------------------------------------------------------------------
The assumed rates used to measure the projected benefit obligation and the expected earnings on plan assets were as follows:
1996 1995 1994 ----------------------- Weighted-average discount rate 7.25% 7.25% 8.50% Increase in future compensation levels 4.00% 4.00% 5.00% Expected long-term return on plan assets 9.50% 9.50% 9.75%
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 $2 million, $5 million and $5 million in 1996, 1995 and 1994, respectively. The accumulated obligation recognized in the Consolidated Balance Sheet at December 31, 1996 was $20 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, 1996 and 1995 amounted to $16 million and $14 million, respectively. 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 14 - 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, 1996 and 1995:
Millions of Dollars 1996 1995 - ----------------------------------------------------------------------- Accumulated postretirement benefit obligations: Retirees $130 $134 Fully eligible active employees 20 23 Other active employees 50 52 - ----------------------------------------------------------------------- Total 200 209 Unrecognized gain and prior service cost 24 4 - ----------------------------------------------------------------------- Accrued postretirement benefit cost $224 $213 - -----------------------------------------------------------------------
Net periodic postretirement benefits cost is comprised of the following components:
Millions of Dollars 1996 1995 1994 - ----------------------------------------------------------------- Service cost $ 7 $ 4 $ 6 Interest cost 15 15 15 - ----------------------------------------------------------------- Total $22 $19 $21 - -----------------------------------------------------------------
The accumulated postretirement benefit obligation at December 31, 1996 was determined using a discount rate of 7.25 percent. The health care cost trend rates used in measuring the 1996 benefit obligations were 6.0 percent for under age 65 and 5.8 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, 1996 by $23 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 $20 million as of December 31, 1996 and $16 million as of December 31, 1995. The reduction in projected postretirement benefit plan cost associated with discontinued operations was $17.5 million and was reflected in loss on disposal in the December 31, 1996 Consolidated Earnings Statement (see Note 3). 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 15 - LONG-TERM DEBT AND CREDIT AGREEMENTS The following table summarizes the company's long-term debt:
Millions of Dollars 1996 1995 - --------------------------------------------------------------------------------------- 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 23 71 Swiss Franc Bonds due 1996 (5.25%) - 175 Deutsche Mark Bonds due 1998 (6.125%) 162 175 Notes Commercial paper (6.68%) (a) 64 650 Medium-term notes due 1997 to 2015 (8.11%) (a) 1,067 1,075 Bank Credit Agreement (5.78%) (a) 250 105 Revolving credit facilities (5.95%) (a) 180 130 9-3/4% Notes due 2000 250 250 8-3/4% Notes due 2001 200 200 6-3/8% Notes due 2004 200 200 7-1/5% Notes due 2005 200 200 Other miscellaneous debt 9 15 - --------------------------------------------------------------------------------------- Total 3,055 3,696 Less current portion of long-term debt 115 4 - --------------------------------------------------------------------------------------- Total long-term debt $2,940 $3,692 - --------------------------------------------------------------------------------------- (a) Weighted average interest rate at December 31, 1996
The amounts of long-term debt maturing in 1998, 1999, 2000 and 2001 are $374 million, $167 million, $759 million and $267 million, respectively. During 1996, the company reduced long-term debt $641 million from the year-end 1995 level, primarily with the proceeds from the sale of its California oil and gas producing properties. In addition, the company's new borrowings during 1996 consisted of: $100 million in medium-term notes with interest rates ranging from 5.94% to 6.23% and maturity dates ranging from 2003 to 2006 and $50 million under a $250 million revolving credit facility. The proceeds were used principally to retire Swiss Franc Bonds. In December 1996, the company repurchased approximately $100 million in medium-term notes with proceeds from commercial paper. During 1996, the company was party to revolving credit facilities with syndicates of major international banks, in order to provide support for its working capital requirements for overseas operations. The company 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 revolving credit facility terminates December 15, 2000. During 1996, the company terminated its $45 million revolving credit facility for operations in the Netherlands and $25 million revolving credit facility with a Canadian bank. The entire committed amounts on these facilities were unborrowed at the time of termination. Borrowings under these 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 2000 at interest rates based on LIBOR and requires a facility fee on the total commitments. Of the total, $250 million had been borrowed at December 31, 1996. This agreement is available for general corporate purposes, including the support of commercial paper. The $200 million 364-day credit facility established in 1995, which has a March 1997 maturity 52 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) date and annual renewal requirement, was undrawn at year-end 1996. The company has other undrawn letters of credit for approximately $128 million. The majority are maintained for operational needs. 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 16 - LEASE RENTAL OBLIGATIONS Future minimum rental payments for operating leases having initial or remaining noncancelable lease terms in excess of one year, excluding those related to discontinued operations, are as follows:
Millions of Dollars - -------------------------------------------------- 1997 $ 48 1998 43 1999 32 2000 31 2001 25 Balance 104 - -------------------------------------------------- Total minimum lease payment $283 - --------------------------------------------------
Net operating rental expense included in consolidated earnings, excluding those related to discontinued operations, is as follows:
Millions of Dollars 1996 1995 1994 - ------------------------------------------------------------------------------------------------------- Fixed rentals $73 $79 $80 Contingent rentals (based primarily on sales and usage) 11 12 14 Sublease rental income (3) (2) (3) - ------------------------------------------------------------------------------------------------------- Net expense $81 $89 $91 - -------------------------------------------------------------------------------------------------------
NOTE 17 - 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 that such losses will be realized. 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 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. 53 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (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. During 1996, the company retired at maturity the $110 million Swiss Franc bond issue and the corresponding $55 million currency swap agreement. The Deutsche Mark swap has the same maturity as the related underlying debt. At year-end 1996 and 1995, the aggregate notional principal amount of the Deutsche Mark swap agreement was $110 million. At year-end 1996, this currency swap agreement had a fair value of approximately $52 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 1996. 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 1999 to 2000, which generally correspond to the related debt obligations. The net fair value of the currency swap agreements at year-end 1996 and 1995, based on dealer quotes, was approximately zero. In December 1996, the company closed out its currency forward contracts which were used to hedge a series of known obligations denominated in Pounds Sterling and due during the period from January 1997 to July 2000. These contracts were closed-out at a realized gain of $3.1 million. INTEREST RATE SWAPS The company 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 Consolidated Balance Sheet. 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 1996 and 1995, the floating interest rates were 5.7 percent and 5.8 percent, respectively. At year-end 1996 and 1995, the interest rate swap agreements had aggregate fair values of approximately $0.1 million in assets and $12 million in liabilities, respectively, based on quoted market prices of comparable instruments. 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 and natural gas. Realized and unrealized changes in the market value of futures contracts are deferred until the hedged transaction is recognized. Notification to the Board of Directors is required if the company hedges more than 15 percent of its production of oil and gas, refined products, and of crude oil purchased for refinery supply. At December 31, 1996, contracts covering 508 thousand barrels of crude oil and 5.64 billion cubic feet of natural gas with notional amounts totaling $13 million for crude oil and $15 million for natural gas were outstanding. At December 31, 1995, the company had outstanding contracts covering 225 thousand barrels of crude oil and 1.02 billion cubic feet of natural gas with notional amounts totaling $4 million for crude oil and $2 million for natural gas. The fair values of the contracts, based on quoted market prices, were insignificant at year-end 1996 and 1995. As of December 31, 1996 and 1995, 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. 54 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The estimated fair value of the company's long-term debt was $3,184 million and $3,983 million at year-end 1996 and 1995, 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 with similar remaining maturities. The estimated fair value of Unocal Capital Trust's 6-1/4 percent convertible preferred securities at year-end 1996 was $591 million. The fair value of the preferred securities was based on the trading price of the preferred securities on December 31, 1996. 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 are a large number of customers in the company's customer base spread across many industries and geographic areas. As of December 31, 1996 and 1995, the company had no significant concentrations of credit risk. NOTE 18 - ACCRUED ABANDONMENT, RESTORATION AND ENVIRONMENTAL LIABILITIES At December 31, 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 predominately accrued for on a units-of-production basis and are estimated to be approximately $675 million. This estimate was derived in large part from abandonment cost studies performed by an outside firm and is used to calculate the amount to be amortized. At December 31, 1996, the company's reserve for environmental remediation obligations totaled $250 million, of which $73 million was included in other current liabilities. The reserve includes estimated probable future costs of $27 million for federal Superfund and comparable state-managed multiparty disposal sites; $26 million for formerly-operated sites for which the company has remediation obligations; $60 million for sites related to businesses or operations that have been sold with contractual remediation or indemnification obligations; $77 million for company-owned or controlled sites where facilities have been closed or operations shut down; and $60 million for active sites owned and/or controlled by the company and utilized in its present operations. NOTE 19 - 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 magnitude of possible 55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 18, at year-end 1996 the company had accrued $250 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 $160 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, fifty- three 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. Fifty-one of the lawsuits have been consolidated in the Superior Court for Contra Costa County. The First Amended Model Complaint in this consolidated action, filed February 1, 1995, on behalf of individual plaintiffs and purported classes of plaintiffs, alleges personal injury, emotional distress and increased risk of future illness on behalf of the named plaintiffs and all persons present in and around or downwind from the San Francisco refinery, and property damage and loss or diminution of property value on behalf of all owners of real and personal property in the vicinity of the Refinery, resulting from the release of Catacarb by the Refinery. Certain individual plaintiffs allege injury from alleged subsequent releases at the Refinery of hydrogen sulfide and other chemicals. The Model Complaint seeks compensatory and punitive damages in unspecified amounts, equitable relief including the creation of a fund for medical monitoring and treatment of plaintiffs and members of the purported classes, statutory penalties and other relief. The company has reached agreement with plaintiffs to certify a mandatory non-opt out punitive damages class. Plaintiffs have withdrawn their class claims for personal injury and property damage. In early November 1996, the trial court issued an order declining to certify a medical monitoring class. 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. If the IRS was ultimately to prevail, the company would owe $157 million of tax for 1985 plus tax deductible interest estimated at $307 million as of December 31, 1996. As noted above, the company is working with the IRS to resolve this matter without litigation. Should that effort fail, final resolution of this matter is likely to be several years away as the matter is not yet before a court. 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' 56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) assertions. If the IRS was 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 $125 million as of December 31, 1996. As noted above, the company is working with the IRS to resolve this matter without litigation. Should that effort fail, final resolution of this matter is likely to be several years away as the matter is not yet before a court. The total amount of tax and interest that the company would be required to pay if the IRS was 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 $400 million as of December 31, 1996. The company believes it has adequately provided in its accounts for items and issues not yet resolved. In the opinion of management, a successful outcome of the litigation is reasonably likely. However, substantial adverse decisions could have a material effect on the company's financial condition, operating results and liquidity in a given quarter and year when such matters are resolved. OTHER MATTERS The company also has certain other contingent liabilities with respect to litigation, claims and contractual agreements arising in the ordinary course of business. Although these contingencies could result in expenses or judgments that could be material to the company's results of operations for a given reporting period, on the basis of management's best assessment of the ultimate amount and timing of these events, such expenses or judgments are not expected to have a material adverse effect on the company's consolidated financial condition or liquidity. NOTE 20 - TRUST CONVERTIBLE PREFERRED SECURITIES On September 11, 1996 Unocal exchanged 10,437,873 new 6-1/4 percent Trust convertible 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 which were tendered in response to Unocal's exchange 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 of Unocal. The convertible preferred securities and common securities of the Trust represent undivided beneficial interests in the debentures, which are the sole assets of the Trust. A charge to retained earnings of $54 million was recorded for the exchange to reflect the excess of the $522 million carrying value of the convertible preferred securities issued (which amount was based on the market value of the shares of Unocal common stock into which the tendered shares of $3.50 convertible preferred stock could have been converted) over the $468 million carrying value of the tendered shares. The convertible preferred securities have a liquidation value of $50 per security and are convertible 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 convertible preferred securities are cumulative 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 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 convertible preferred securities, may become redeemable at the option of Unocal upon the occurrence of certain special events or restructuring transactions. 57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 convertible preferred securities are unconditionally guaranteed on a subordinated basis by Unocal. Such guarantee, when taken together with Unocal's obligations under the debentures and the indenture pursuant to which the debentures were issued and its obligations under the amended and restated declaration of trust governing the Trust, provides a full and unconditional guarantee by Unocal of the Trust's obligations under the convertible preferred securities. On September 11, 1996, Unocal called the 897,038 unexchanged shares of the $3.50 convertible preferred stock for redemption. All of these shares were converted by the holders into 1,458,575 shares of Unocal common stock prior to the October 11, 1996 redemption date. NOTE 21 - CAPITAL STOCK COMMON STOCK
- ------------------------------------------------------------------------------------ Authorized - 750,000,000 $1.00 Par value per share Thousands of Shares 1996 1995 1994 - ------------------------------------------------------------------------------------ Outstanding at beginning of year 247,310 244,199 241,324 Issuance of common stock 3,361 3,111 2,875 - ------------------------------------------------------------------------------------ Outstanding at end of year 250,671 247,310 244,199 - ------------------------------------------------------------------------------------
At December 31, 1996, there were approximately 12.3 million shares reserved for the conversion of preferred securities, 14.8 million shares for the company's employee benefit plans and Directors' Restricted Stock Plan and 4.7 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. During 1996, all outstanding shares of convertible preferred stock were exchanged for 6-1/4 percent Trust convertible preferred securities of Unocal Capital Trust or were converted into Unocal common stock (see Note 20). Prior to the exchange and conversion, the preferred stock accrued annual dividends of $3.50 per share. The dividends were cumulative and payable quarterly in arrears, when and as declared by Unocal's Board of Directors. Holders of the preferred stock had no voting rights, however, there were certain exceptions including the right to elect two additional directors if the equivalent of six quarterly dividends payable on the preferred stock were missed. 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 58 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 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, 1996, none of the Series A preferred stock had been issued nor had the Rights become exercisable. NOTE 22 - STOCK-BASED COMPENSATION PLANS Under the company's Special Stock Option Plan of 1996, Long-Term Incentive Plans of 1991 and 1985, and the Directors' Restricted Stock Plan, non-qualified stock options, restricted stock, performance shares and other common stock-based awards are granted to executives, directors and certain employees to provide incentives and rewards to enhance the profitability of the company and increase shareholder value. The 1996, 1991 and 1985 plans authorized up to 1.1 million, 11 million and 4.5 million shares of common stock, respectively for stock options, restricted stock and performance share awards. The directors' plan authorizes the issuance of up to 300,000 shares of common stock. Stock options granted have a maximum life of ten years and vest over a three-year period at a rate of 50% the first year and 25% per year for the two succeeding years. The option price will not be less than the fair market value of the company's common stock on the date the option is granted. Restrictions may be imposed for a period of five years on certain shares acquired through the exercise of options granted after 1990. Generally, restricted stock awards are based on the average closing price of the company's common stock for the last 30 trading days of the year prior to the grant date. Restricted shares are not delivered until the end of the restricted period which does not exceed ten years. Performance share awards have a four- year term and are paid out 50 percent in shares of common stock and 50 percent in cash. The awards are paid out based on the return of the company's common stock relative to the average return on the common stock of a peer group of companies. A summary of the company's stock plans as of December 31, 1994, 1995 and 1996, and changes during the years ending on those dates is presented below:
Weighted Weighted Average Option Average Grant Number of Exercise Price Date Fair Value Options/Shares Per Share Per Share - ------------------------------------------------------------------------------------------------------------- Options Outstanding at January 1, 1994 3,477,880 $25 $ - Options granted during year 819,628 26 26 Options exercised during year (133,455) 20 - Options canceled/forfeited during year (119,836) 28 - Options expired during year - - - --------------------- Options Outstanding at December 31, 1994 4,044,217 25 - Options Exercisable at December 31, 1994 2,906,236 25 - Restricted stock awarded during year 178,418 - 26 Performance shares awarded during year 295,692 - 26 - -------------------------------------------------------------------------------------------------------------
59 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Weighted Weighted Average Option Average Grant Number of Exercise Price Date Fair Value Options/Shares Per Share Per Share - ----------------------------------------------------------------------------------------------------------------------- Options Outstanding at January 1, 1995 4,044,217 25 - Options granted during year 856,189 28 28 Options exercised during year (272,817) 21 - Options canceled/forfeited during year (145,710) 29 - Options expired during year (8,644) 24 - ----------------- Options Outstanding at December 31, 1995 4,473,235 26 - Options Exercisable at December 31, 1995 3,296,294 25 - Restricted stock awarded during year 141,339 - 29 Performance shares awarded during year 303,449 - 29 - ----------------------------------------------------------------------------------------------------------------------- Options Outstanding at January 1, 1996 4,473,235 26 - Options granted during year 2,107,112 33 33 Options exercised during year (1,328,954) 24 - Options canceled/forfeited during year (47,060) 30 - Options expired during year - - - ----------------- Options Outstanding at December 31, 1996 5,204,333 29 - Options Exercisable at December 31, 1996 2,747,611 27 - Restricted stock awarded during year 152,169 - 33 Performance shares awarded during year 306,713 - 33 - -----------------------------------------------------------------------------------------------------------------------
Under the Plans of 1996, 1991 and the Directors' Plan, there were 19,901 shares, 4,195,976 shares and 225,605 shares, respectively, available at year-end 1996 for stock option awards as well as other awards. No additional grants may be awarded under the 1985 Plan. Significant option groups outstanding at December 31, 1996 and related weighted average price and life information follows:
Options Outstanding Options Exercisable - ------------------------------------------------------------------------------------------------- Weighted Weighted Weighted Number Average Average Number Average Range of Outstanding Remaining Exercise Exercisable Exercise Exercise prices at 12/31/96 Life (years) Price at 12/31/96 Price - ------------------------------------------------------------------------------------------------- $21 - $24 841,674 3.9 $22 841,674 $22 $26 - $29 1,936,419 7.3 $28 1,338,730 $28 $30 - $33 2,426,240 9.0 $33 567,207 $31 - -------------------------------------------------------------------------------------------------
The fair value of options at date of grant was estimated using the Black- Scholes model with the following weighted average assumptions:
1996 1995 1994 - --------------------------------------------------------------- Expected life (years) 4 4 4 Interest rate 6.1% 6.9% 6.1% Volatility 23.8% 20.9% 23.7% Dividend yield 2.4% 2.8% 3.0% - ---------------------------------------------------------------
The company applies APB Opinion No. 25 and related interpretations in accounting for stock-based compensation. Stock-based compensation expense recognized in the company's consolidated earnings statement was $36 million in 1996, $18 million in 1995 and $14 million in 1994. Had the company recorded compensation 60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) expense using the accounting method recommended by SFAS No. 123, net income and earnings per share would have been reduced to the pro-forma amounts indicated below:
Millions of Dollars Except per share amounts 1996 1995 1994 - -------------------------------------------------------------------------- Net earnings (loss) As reported $ 36 $ 260 $(153) Pro forma 32 257 (156) Net earnings (loss) per share As reported ($0.15) $0.91 ($0.78) Pro forma (0.16) 0.90 (0.79) - --------------------------------------------------------------------------
NOTE 23 - SUMMARIZED FINANCIAL DATA OF UNION OIL Unocal Corporation is the parent of Union Oil Company of California. 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 1996 1995 1994 - ----------------------------------------------------------------------------------------------------------------- Total revenues $5,328 $4,389 $4,272 Total costs and other deductions, including income taxes 4,860 4,138 4,161 - ----------------------------------------------------------------------------------------------------------------- Earnings from continuing operations before cumulative effect of accounting change $ 468 $ 251 $ 111 Discontinued operations Earnings from operations (net of taxes) 71 11 14 Loss on disposal (net of taxes) (491) - - Cumulative effect of accounting change - - (277) - ----------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ 48 $ 262 ($152) - ----------------------------------------------------------------------------------------------------------------- At December 31 Millions of Dollars 1996 1995 - ----------------------------------------------------------------------------------------------------------------- Current assets $3,228 $1,576 Noncurrent assets 5,905 8,328 Current liabilities 1,622 1,309 Noncurrent liabilities 4,704 5,645 Shareholder's equity 2,807 2,950 - ------------------------------------------------------------------------------------------------------------------
NOTE 24 - INVESTMENTS IN AFFILIATES Investments in affiliated companies accounted for by the equity method were $578 million, $386 million and $369 million at December 31, 1996, 1995 and 1994, respectively. Dividends or cash distributions received from these affiliates were $89 million, $88 million and $84 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 shares 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, 1996 was $103 million. 61 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The company has a 50 percent 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, 1996 was $54 million. In 1996, the company executed a letter of intent to restructure UNO-VEN. Summarized financial information for these equity investees, excluding investees of discontinued operations, is shown below.
1996 1995 1994 -------------------------------------------------------------- Unocal's Unocal's Unocal's Millions of Dollars Total Share Total Share Total Share - ------------------------------------------------------------------------------------------ Revenues $2,786 $1,155 $2,350 $947 $2,060 $825 Costs and other deductions 2,440 1,049 2,057 870 1,780 742 Net earnings 346 106 293 77 280 83 - ------------------------------------------------------------------------------------------ Current assets $ 792 $ 334 $ 612 $244 $ 419 $177 Noncurrent assets 2,546 800 1,846 568 1,861 576 Current liabilities 711 266 568 212 381 152 Noncurrent liabilities 1,228 366 1,012 273 1,038 291 Net equity 1,399 502 878 327 861 310 - ------------------------------------------------------------------------------------------
NOTE 25 - 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 are 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 cost of the program was $12 million in 1996 and $1 million in 1995. The costs of the program were included in operating expense in the Consolidated Earnings Statement. NOTE 26 - SEGMENT AND GEOGRAPHIC DATA The company's continuing operations include exploration and production, geothermal, agricultural products and carbon and minerals. Exploration and production involves the exploration for, and the production, sale and marketing of crude oil and natural gas. 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 products for agricultural and industrial uses. Carbon and Minerals involves the production and marketing of petroleum coke, graphites, solvents and specialty minerals. Unocal has domestic oil and gas operations in the Louisiana/Gulf, Alaska and Central U.S. regions. In April 1996, the company sold essentially all of its California oil and gas producing properties. 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 or is used in the company's agricultural products operations. 62 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Unocal has oil and gas production in six foreign countries: Thailand, Indonesia, Canada, the Netherlands, the United Kingdom and 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 to third parties at spot market prices. The Geothermal Operations segment supplies geothermal steam for power generation, with major operations in California, the Philippines and Indonesia. This segments' current activities include constructing power plants in Indonesia to capitalize on market-to-resource opportunities. Agricultural Products manufactures and markets nitrogen-based products for wholesale agricultural and industrial markets supplying the western United States and the Pacific Rim. Carbon and Minerals produces and markets petroleum coke, graphites, solvents and specialty minerals. Pipelines principally includes the company's equity interests in affiliated pipeline companies. Other includes the company's equity interest in UNO-VEN. The Corporate and Unallocated category includes the New Ventures group which pursues foreign energy business development projects. Examples of ongoing New Ventures project investments are common carrier pipelines, liquefied petroleum gas plants and power generation plants. The main areas of interest for development opportunities currently include Azerbaijan, Myanmar, Turkmenistan, Pakistan, China, Vietnam, Latin America and Bangladesh. Corporate also includes all unallocated corporate items and miscellaneous operations. In addition, this category, particularly for prior years, includes the financial data related to businesses that were sold or being phased-out.
Millions of Dollars 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------------- Revenues: Exploration and Production United States $3,168 $2,477 $2,501 $2,703 $2,824 Foreign 1,664 1,345 1,258 1,146 1,365 Geothermal Operations 45 133 139 142 134 Diversified Business Group Agricultural Products 530 509 378 331 324 Carbon and Minerals 293 271 241 220 220 Pipelines 120 120 92 90 84 Other 27 16 30 26 32 Corporate and Unallocated 66 86 138 592 1,907 Intersegment Eliminations (585) (568) (505) (520) (643) - ---------------------------------------------------------------------------------------------------------------------------------- Total revenues from continuing operations 5,328 4,389 4,272 4,730 6,247 Discontinued operations (a) 4,271 4,036 3,693 3,614 3,814 - ---------------------------------------------------------------------------------------------------------------------------------- Total $9,599 $8,425 $7,965 $8,344 $10,061 - ---------------------------------------------------------------------------------------------------------------------------------- (a) 1996 excludes $609 million for November 17, 1996 - December 31, 1996 which was included in loss on disposal in the Consolidated Earnings Statement.
63 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Millions of Dollars 1996 1995 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------------------------- Earnings: Exploration and Production United States $669 $386 $289 $376 $346 Foreign 546 330 407 390 377 Geothermal Operations (76) 47 57 51 34 Diversified Business Group Agricultural Products 152 113 43 27 24 Carbon and Minerals 59 72 62 45 21 Pipelines 86 82 70 67 64 Other 22 15 29 26 32 Corporate and Unallocated Administrative and general expense (126) (127) (137) (98) (102) Net interest expense (256) (257) (255) (279) (356) Environmental and litigation expense (230) (148) (293) (130) (98) New Ventures (36) - - - - Other (52) (38) (1) 10 (37) - --------------------------------------------------------------------------------------------------------------------------- Pre-tax earnings from continuing operations before cumulative effect of accounting changes 758 475 271 485 305 Income taxes (302) (226) (161) (213) (137) - --------------------------------------------------------------------------------------------------------------------------- Earnings from continuing operations 456 249 110 272 168 Discontinued operations (420) 11 14 71 28 Cumulative effect of accounting changes - - (277) (130) 24 - --------------------------------------------------------------------------------------------------------------------------- Net earnings (loss) $36 $260 ($153) $213 $220 - ---------------------------------------------------------------------------------------------------------------------------
Millions of Dollars 1996 1995 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------------------- Assets: Exploration and Production United States (a) $2,731 $3,071 $3,214 $3,815 $3,774 Foreign 1,791 1,648 1,509 1,528 1,563 Geothermal Operations 439 481 456 436 461 Diversified Business Group Agricultural Products 302 309 284 281 292 Carbon and Minerals 265 229 204 201 211 Pipelines 314 261 262 264 270 Other 196 174 158 144 132 Corporate and Unallocated 1,311 1,114 928 1,005 1,210 - ----------------------------------------------------------------------------------------------------------------------------- Total assets of continuing operations 7,349 7,287 7,015 7,674 7,913 Discontinued operations (b) 1,774 2,604 2,322 2,032 1,979 - ----------------------------------------------------------------------------------------------------------------------------- Total $9,123 $9,891 $9,337 $9,706 $9,892 - ----------------------------------------------------------------------------------------------------------------------------- (a) The decline in 1996 is principally due to the sale of California oil and gas producing properties. The decline in 1994 is principally due to the write-down of impaired producing oil and gas properties (See Note 2). (b) 1996 reflects net assets of discontinued operations (see Note 3).
64 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Millions of Dollars 1996 1995 1994 1993 1992 - -------------------------------------------------------------------------------------------------------------------------------- Capital expenditures: Exploration and Production United States $ 418 $ 497 $ 486 $ 562 $364 Foreign 509 353 310 330 275 Geothermal Operations 114 51 35 48 33 Diversified Business Group Agricultural Products 12 55 8 8 54 Carbon and Minerals 16 12 8 4 7 Pipelines 54 5 5 4 4 Corporate and Unallocated 51 64 53 62 28 - -------------------------------------------------------------------------------------------------------------------------------- Total capital expenditures for continuing operations 1,174 1,037 905 1,018 765 Discontinued operations 224 422 367 231 194 - -------------------------------------------------------------------------------------------------------------------------------- Total $1,398 $1,459 $1,272 $1,249 $959 - --------------------------------------------------------------------------------------------------------------------------------
Millions of Dollars 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------ Depreciation, depletion and amortization: Exploration and Production United States $ 526 $ 537 $475 $507 $538 Foreign 277 290 240 245 211 Geothermal Operations 49 28 28 49 45 Diversified Business Group Agricultural Products 21 28 20 18 17 Carbon and Minerals 7 6 6 6 12 Pipelines 7 6 6 7 7 Corporate and Unallocated 27 16 36 24 39 - ------------------------------------------------------------------------------------------------------------------------------ Total depreciation, depletion and amortization of continuing operations 914 911 811 856 869 Discontinued operations 145 111 136 107 95 - ------------------------------------------------------------------------------------------------------------------------------ Total $1,059 $1,022 $947 $963 $964 - ------------------------------------------------------------------------------------------------------------------------------
GEOGRAPHIC AREAS OF OPERATIONS
Millions of Dollars 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------ Revenues: United States $3,260 $2,840 $2,792 $2,897 $2,883 Foreign 2,002 1,463 1,342 1,241 1,457 Corporate and Unallocated 66 86 138 592 1,907 - ------------------------------------------------------------------------------------------------------------------------------ Total revenues from continuing operations 5,328 4,389 4,272 4,730 6,247 Discontinued operations (a) 4,271 4,036 3,693 3,614 3,814 - ------------------------------------------------------------------------------------------------------------------------------ Total $9,599 $8,425 $7,965 $8,344 $10,061 - ------------------------------------------------------------------------------------------------------------------------------ (a) 1996 excludes $609 million for November 17, 1996 - December 31, 1996 which was included in loss on disposal in the Consolidated Earnings Statement.
65 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Millions of Dollars 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------- Earnings: United States $ 859 $ 651 $ 663 $ 604 $ 493 Foreign 563 394 457 422 425 Corporate and Unallocated (664) (570) (849) (541) (613) - ---------------------------------------------------------------------------------------------------------------------------- Pretax earnings from continuing operations before cumulative effective of accounting change 758 475 271 485 305 Income taxes (302) (226) (161) (213) (137) Discontinued operations (420) 11 14 71 28 Cumulative effect of accounting change - - (277) (130) 24 - -------------------------------------------------------------------------------------------------------------------------- Net earnings (loss) $ 36 $ 260 $(153) $ 213 $ 220 - --------------------------------------------------------------------------------------------------------------------------
Millions of Dollars 1996 1995 1994 1993 1992 - ---------------------------------------------------------------------------------------------------------------------------- Assets: United States $3,816 $4,245 $4,343 $4,942 $4,955 Foreign 2,222 1,928 1,744 1,727 1,748 Corporate and Unallocated 1,311 1,114 928 1,005 1,210 - ---------------------------------------------------------------------------------------------------------------------------- Total assets for continuing operations 7,349 7,287 7,015 7,674 7,913 Discontinued operations (a) 1,774 2,604 2,322 2,032 1,979 - ---------------------------------------------------------------------------------------------------------------------------- Total $9,123 $9,891 $9,337 $9,706 $9,892 - ---------------------------------------------------------------------------------------------------------------------------- (a) 1996 reflects net assets of discontinued operations (see Note 3).
66 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 Dollars in millions States East Foreign Total - -------------------------------------------------------------------------------------------------- Year 1996 Sales To public $ 545 $617 $213 $1,375 Intercompany 1,065 326 21 1,412 Other revenues 133 1 51 185 - -------------------------------------------------------------------------------------------------- Total 1,743 944 285 2,972 Production costs 300 127 81 508 Exploration expenses 93 91 58 242 Depreciation, depletion and amortization 526 208 69 803 Other operating expenses 155 46 3 204 - -------------------------------------------------------------------------------------------------- Net 669 472 74 1,215 Income tax (benefit) 257 233 (3) 487 - -------------------------------------------------------------------------------------------------- Results of operations $ 412 $239 $ 77 $ 728 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 amortization 537 192 98 827 Other operating expenses 124 46 26 196 - -------------------------------------------------------------------------------------------------- Net 386 364 (34) 716 Income tax (benefit) 146 170 (21) 295 - -------------------------------------------------------------------------------------------------- Results of operations $ 240 $194 $(13) $ 421
67 SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (continued)
United Far Other Dollars in millions States East Foreign Total - -------------------------------------------------------------------------------------------------- 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 amortization 476 165 75 716 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
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 exploration and production activities are presented in Note 12.
United Far Other Dollars in millions States East Foreign Total - -------------------------------------------------------------------------------------------------- 1996 Property acquisition Proved $ 9 $ - $ 7 $ 16 Unproved 15 2 14 31 Exploration 128 106 54 288 Development 322 366 100 788 - -------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------
68 SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (continued) 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 - ------------------------------------------------------------------------------------------------------------------------ 1996 Average sales price: Crude oil and condensate - per barrel $19.21 $19.17 $19.20 $19.20 Natural gas - per mcf (a) 2.30 2.28 1.85 2.27 Natural gas liquids - per barrel 15.62 13.48 14.12 15.09 Average production costs per barrel (b) 2.97 1.78 5.76 2.73 - ------------------------------------------------------------------------------------------------------------------------ 1995 Average sales price: Crude oil and condensate - per barrel $15.03 $16.09 $15.69 $15.40 Natural gas - per mcf (a) 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 (b) 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 (a) 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 (b) 3.60 1.54 5.15 3.00 - ------------------------------------------------------------------------------------------------------------------------ (a) Average natural gas price per mcf excluding Alaska: 1996 $2.45 1995 $1.57 1994 $1.83 (b) Includes host country shares of production in Indonesia and Zaire.
OIL AND GAS RESERVE DATA (UNAUDITED) Estimates of physical quantities of oil and gas reserves, determined by company engineers, for the years 1996, 1995 and 1994 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. These estimated quantities are subject to fluctuations in the price of oil. If oil prices increase, reserve quantities attributable to recovery of operating costs decline. This reduction would be partially offset by an increase in the company's net equity share, however, the overall affect would be a reduction of reserves attributable to the company. The reserve quantities also include barrels of oil which the company is contractually obligated to sell at prices substantially below market. 69 SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (continued) 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 65, 83 and 91 million barrels at December 31, 1996, 1995 and 1994, 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 December 31, 1993 (a) 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 (a) 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 (a) 387 169 111 667 Revisions of estimates (7) (3) (10) (20) Improved recovery 1 1 2 4 Discoveries and extensions 6 30 16 52 Purchases - - 2 2 Sales (116) - - (116) Production (35) (31) (10) (76) - ---------------------------------------------------------------------------------------------------------------- As of December 31, 1996 (a) 236 166 111 513 - ---------------------------------------------------------------------------------------------------------------- Proved Developed Reserves December 31, 1993 360 98 78 536 December 31, 1994 318 103 69 490 December 31, 1995 298 96 64 458 December 31, 1996 184 96 51 331 (a) Includes hosts countries' shares at: December 31, 1993 of: - 54 2 56 December 31, 1994 of: - 60 9 69 December 31, 1995 of: - 63 8 71 December 31, 1996 of: - 64 6 70
70 SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (continued)
Estimated Proved Reserves of Natural Gas United Far Other Billions of Cubic Feet States East Foreign Total - --------------------------------------------------------------------------------------------------------------- Developed and Undeveloped as of December 31, 1993 (a) 3,727 2,669 236 6,632 Revisions of estimates 3 (2) (16) (15) Discoveries and extensions 282 624 88 994 Purchases 117 (b) - - 117 Sales (128) (c) - (3) (131) Production (421) (243) (22) (686) - --------------------------------------------------------------------------------------------------------------- As of December 31, 1994 (a) 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 (a) 3,261 3,255 249 6,765 Revisions of estimates (164) (150) (62) (376) Discoveries and extensions 67 1,213 17 1,297 Purchases 20 - - 20 Sales (198) - (13) (211) Production (411) (261) (28) (700) - --------------------------------------------------------------------------------------------------------------- As of December 31, 1996 (a) 2,575 4,057 163 6,795 - --------------------------------------------------------------------------------------------------------------- Proved Developed Reserves 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 December 31, 1996 1,829 1,715 148 3,692 (a) Includes host countries' shares at: December 31, 1993 of: - 369 - 369 December 31, 1994 of: - 386 - 386 December 31, 1995 of: - 457 - 457 December 31, 1996 of: - 530 - 530 (b) Includes 115 billion cubic feet due to property exchanges. (c) Includes 105 billion cubic feet due to property exchanges.
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 1996, 1995 and 1994 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 pre-tax 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 71 SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (continued) 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 - --------------------------------------------------------------------------------------------------------------------------- 1996 Revenues (a) $14,005 $10,695 $2,424 $27,124 Production costs 3,311 2,913 921 7,145 Development costs (b) 1,164 1,523 261 2,948 Income tax expense 3,258 2,432 361 6,051 - --------------------------------------------------------------------------------------------------------------------------- Future net cash flow 6,272 3,827 881 10,980 10% annual discount 2,227 1,665 342 4,234 - --------------------------------------------------------------------------------------------------------------------------- Present value of future net cash flows $ 4,045 $ 2,162 $ 539 $ 6,746 - --------------------------------------------------------------------------------------------------------------------------- 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 flows $ 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 flows $ 2,297 $ 1,580 $273 $4,150 - --------------------------------------------------------------------------------------------------------------------------- (a) Average prices at year end used in this calculation are as follows: Crude oil per barrel 1996 $22.27 $22.55 $19.89 1995 15.44 17.14 15.20 1994 13.26 16.84 14.81 Natural gas per mcf 1996 $ 3.42 $ 2.58 $ 2.14 1995 1.98 2.18 1.58 1994 1.62 1.88 1.28 (b) Includes dismantlement and abandonment costs.
72 SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES (continued)
Millions of dollars 1996 1995 1994 - ---------------------------------------------------------------------------------------------------------- Present value at beginning of year $ 4,969 $ 4,150 $ 4,417 Discoveries and extensions, net of estimated future costs 1,005 743 602 Net purchases and sales of proved reserves (a) (128) (51) (22) Revisions to prior estimates: Prices net of estimated changes in production costs 4,518 2,321 83 Future development costs (317) (516) (164) Quantity estimates (755) (58) (88) Production schedules and other (511) (548) 39 Accretion of discount 617 636 543 Development costs related to beginning of year reserves 663 635 646 Sales of oil and gas, net of production costs of $508 million in 1996, $575 million in 1995 and $604 million in 1994 (2,281) (1,734) (1,754) Net change in income taxes (1,034) (609) (152) - ---------------------------------------------------------------------------------------------------------- Present value at end of year $ 6,746 $ 4,969 $ 4,150 - ---------------------------------------------------------------------------------------------------------- (a) Purchases of reserves were valued at $64 million, $23 million and $26 million in 1996, 1995 and 1994, respectively. Sales of reserves, including the sale of future production, were valued at $192 million, $74 million and $48 million for the same years, respectively.
73 QUARTERLY FINANCIAL AND MARKET PRICE DATA (UNAUDITED)
1996 Quarters ----------------------------------------------------- Dollars in millions except per share amounts 1st 2nd 3rd 4th - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues (a) $1,201 $1,405 $1,337 $1,385 Total costs and other deductions, including income taxes (b) 1,070 1,217 1,203 1,382 - ------------------------------------------------------------------------------------------------------------------------------------ After-tax earnings from continuing operations 131 188 134 3 Discontinued operations Earnings (loss) from operations (7) 50 37 (9) Loss on disposal (c) - - - $ (491) - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings (loss) $ 124 $ 238 $ 171 $ (497) - ------------------------------------------------------------------------------------------------------------------------------------ Earnings per share of common stock assuming no dilution: (d) - ------------------------------------------------------------------------------------------------------------------------------------ Continuing operations (e) $ 0.50 $ 0.72 $ 0.32 $ 0.01 Discontinued operations $(0.03) $ 0.20 $ 0.15 $(1.99) - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings (loss) per share of common stock assuming no dilution $ 0.47 $ 0.92 $ 0.47 $(1.98) - ------------------------------------------------------------------------------------------------------------------------------------ Earnings per share of common stock assuming full dilution: (d) - ------------------------------------------------------------------------------------------------------------------------------------ Continuing operations (e) $ 0.46 $ 0.67 $ 0.31 $ 0.01 Discontinued operations $(0.03) $ 0.19 $ 0.14 $(1.99) - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings (loss) per share of common stock assuming full dilution (f) $ 0.43 $ 0.86 $ 0.45 $(1.98) - ------------------------------------------------------------------------------------------------------------------------------------ Gross margin (g) $ 159 $ 187 $ 42 $ 81 - ------------------------------------------------------------------------------------------------------------------------------------ (a) Includes sales and operating revenue from continuing operations of $1,143 $1,261 $1,264 $1,433 (b) Includes special items of $ 16 $ 57 $ 51 $ 171 (c) Fourth quarter loss on disposal includes a $42 million estimated loss for the phase-out period January 1, 1997 - March 31, 1997. (d) Due to the conversion of Unocal's $3.50 Convertible Preferred Stock into Unocal common stock in the fourth quarter of 1996, the earnings per share amounts by quarter are not additive. (e) Third quarter amount reflects $54 million non-cash charge related to exchange of preferred stock. (f) There was no dilutive effect in the calculation of fourth quarter earnings per share. (g) 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, and other operating taxes. 1995 Quarters ------------------------------------------------------- Dollars in millions except per share amounts 1st 2nd 3rd 4th - ------------------------------------------------------------------------------------------------------------------------------------ Total revenues (a) $ 976 $1,250 $1,002 $1,161 Total costs and other deductions, including income taxes (b) 884 1,173 955 1,128 - ------------------------------------------------------------------------------------------------------------------------------------ After-tax earnings from continuing operations 92 77 47 33 Discontinued operations Earnings (loss) from operations (18) 1 12 16 Loss on disposal - - - - - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings (loss) $ 74 $ 78 $ 59 $ 49 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings per share of common stock assuming no dilution: - ------------------------------------------------------------------------------------------------------------------------------------ Continuing operations $ 0.34 $ 0.28 $ 0.15 $ 0.10 Discontinued operations $(0.07) $ - $ 0.05 $ 0.06 - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings (loss) per share of common stock assuming no dilution $ 0.27 $ 0.28 $ 0.20 $ 0.16 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings per share of common stock assuming full dilution: - ------------------------------------------------------------------------------------------------------------------------------------ Continuing operations $ 0.32 $ 0.26 $ 0.14 $ 0.09 Discontinued operations $(0.07) $ - $ 0.05 $ 0.06 - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings (loss) per share of common stock assuming full dilution $ 0.25 $ 0.26 $ 0.19 $ 0.15 - ------------------------------------------------------------------------------------------------------------------------------------ Gross margin (c) $ 69 $ 47 $ 24 $ (17) - ------------------------------------------------------------------------------------------------------------------------------------ (a) Includes sales and operating revenue from continuing operations of $ 899 $1,201 $ 934 $1,077 (b) Includes special items of $ 15 $ 50 $ 9 $ 147 (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, and other operating taxes.
74 SELECTED FINANCIAL DATA
Dollars in million except per share amounts 1996 1995 1994 1993 1992 - ----------------------------------------------------------------------------------------------------------------------------------- Sales Revenue Data Crude oil and condensate $2,495 $1,964 $1,996 $1,928 $ 2,270 Natural gas 1,482 1,031 1,109 1,104 1,033 Agricultural products 514 486 373 319 292 Geothermal 131 120 135 145 197 Natural gas liquids 95 97 96 101 116 Petroleum products 16 84 89 458 1,236 Minerals 97 95 79 62 80 Consumer excise taxes - - 5 87 283 Other 161 58 95 134 427 - ----------------------------------------------------------------------------------------------------------------------------------- Total 4,991 3,935 3,977 4,338 5,934 Operating revenues 110 176 141 137 164 Other revenues 227 278 154 255 149 - ----------------------------------------------------------------------------------------------------------------------------------- Total revenues from continuing operations 5,328 4,389 4,272 4,730 6,247 Discontinued operations (a) 4,271 4,036 3,693 3,614 3,814 ----------------------------------------------------------------- Total revenues $9,599 $8,425 $7,965 $8,344 $10,061 - ----------------------------------------------------------------------------------------------------------------------------------- Earnings Data Earnings from continuing operations $ 456 $ 249 $ 110 $ 272 $ 168 Discontinued operations (420) 11 14 71 28 Cumulative effects of accounting change - - (277) (130) 24 ----------------------------------------------------------------- Net earnings (loss) $ 36 $ 260 $ (153) $ 213 $ 220 Net earnings (loss) per common share: Continuing operations $ 1.54 $ 0.87 $ 0.30 $ 0.98 $ 0.63 Discontinued operations (1.69) 0.04 0.06 0.29 0.12 Cumulative effect of accounting change - - (1.14) (0.54) 0.10 - ----------------------------------------------------------------------------------------------------------------------------------- Net earnings (loss) per share $(0.15) $ 0.91 $(0.78) $ 0.73 $ 0.85 - ----------------------------------------------------------------------------------------------------------------------------------- Share Data Cash dividends declared on preferred stock $ 18 $ 36 $ 36 $ 36 $ 17 Per share 1.75 3.50 3.50 3.50 1.62 Cash dividends declared on common stock 199 197 194 181 167 Per share 0.80 0.80 0.80 0.75 0.70 Number of common stockholders of record at year end 32,924 33,028 37,622 41,682 44,870 Weighted average common shares - thousands 248,767 246,112 242,640 241,114 238,278 - ----------------------------------------------------------------------------------------------------------------------------------- Balance Sheet Data Current assets (b) $3,228 $1,576 $1,528 $1,578 $ 1,660 Current liabilities 1,622 1,316 1,257 1,196 1,436 Working capital 1,606 260 271 382 224 Ratio of current assets to current liabilities 2.0:1 1.2:1 1.2:1 1.3:1 1.2:1 Total assets 9,123 9,891 9,337 9,706 9,892 Long-term debt 2,940 3,692 3,452 3,455 3,530 Trust convertible preferred securities 522 - - - - Total stockholders' equity 2,275 2,930 2,815 3,129 3,131 Per common share 9.14 9.87 9.54 10.90 10.93 Return on average stockholders' equity and preferred securities: Continuing operations 15.9% 8.7% (5.6)% 4.6% 6.9% Including discontinued operations 1.3% 9.1% (5.1)% 6.8% 7.9% - ----------------------------------------------------------------------------------------------------------------------------------- General Data Salaries, wages and employee benefits (c) $ 806 $ 797 $ 811 $ 744 $ 817 Number of regular employees at year end 11,658 12,509 13,127 13,613 14,687 - ----------------------------------------------------------------------------------------------------------------------------------- (a) 1996 excludes $609 million for November 17, 1996 - December 31, 1996 which was included in loss on disposal in the Consolidated Earnings Statement. (b) 1996 Includes net assets of discontinued operations (see Note 3). (c) Employee benefits are net of pension income recognized in accordance with current accounting standards for pension costs. For years 1996, 1995 and 1994, such benefits also include the accrued postretirement medical benefits cost.
75 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 34 of this report. (2) Financial Statement Schedules: See the Index to Consolidated Financial Statements and Financial Statement Schedules under Item 8 on page 34 of this report. (3) Exhibits: The Exhibit Index on pages 81 and 82 of this report lists the exhibits that are filed as part of this report. 76 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 1996: (1) Current Report on Form 8-K dated and filed October 23, 1996, for the purpose of reporting, under item 5, third quarter and nine-month 1996 earnings and related information. (2) Current Report on Form 8-K dated and filed November 18, 1996, for the purpose of reporting, under Item 5, the signing of a letter of intent by the company for the sale of its West Coast refining, marketing and transportation assets to Tosco Corporation. (3) Current Report on Form 8-K dated and filed December 4, 1996, for the purpose of reporting, under Item 5, the company's plans for growth through new investments, and for debt repayment and stock repurchase. (4) Current Report on Form 8-K dated and filed December 9, 1996, for the purpose of reporting, under Item 5, the company's 1997 capital spending plan. (5) Current Report on Form 8-K dated and filed December 26, 1996, for the purpose of reporting, under Item 5, the company's signing of a letter of intent to restructure the UNO-VEN Midwest refining and marketing partnership. (6) Current Report on Form 8-K dated and filed December 27, 1996, for the purpose of reporting, under Item 5, the beginning of the company's stock repurchase program. During the first quarter of 1997 to the date hereof: (1) Current Report on Form 8-K dated December 16, 1996, and filed January 3, 1997, for the purpose of reporting, under item 5, the signing of a definitive agreement by the company for the sale of its West Coast refining, marketing and transportation assets to Tosco Corporation, and filing, as exhibits under Item 7, certain agreements relating to such sale. (2) Current Report on Form 8-K dated and filed January 23, 1997, for the purpose of reporting, under item 5, the company's fourth quarter and full-year 1996 earnings and related information. (3) Current Report on Form 8-K dated February 3, 1997, and filed February 7, 1997, for the purpose of reporting, under item 5, the amendment of the company's Bylaws, and filing, as an exhibit under Item 7, a copy of such Bylaws, as so amended. (4) Current Report on Form 8-K dated and filed February 13, 1997 for the purpose of reporting, under item 5, the company's crude oil and natural gas reserve data. 77 SIGNATURES 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) Date: May 23, 1997 By: /s/ CHARLES S. MCDOWELL -------------------------------- (Charles S. McDowell) (Vice President and Comptroller) 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 27, 1997. 78 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 1996 Amounts deducted from applicable assets: Accounts and notes receivable $28 $ 19 $ (1) $(11) $35 Investments and long-term receivables $15 $ (3) $ 1 $ - $13 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 (a) Represents receivables written off, net of recoveries, reinstatement and losses sustained.
80 UNOCAL CORPORATION EXHIBIT INDEX
- ------------------------------------------------------------------------------- Exhibit 2.1 Sale and Purchase Agreement for 76 Products Company, dated December 14, 1996, between Union Oil Company of California and Tosco Corporation (without attachments or schedules) (incorporated by reference to Exhibit 2.1 to Unocal's Current Report on Form 8-K dated December 16, 1996 and filed January 3, 1997, File No. 1-8483). - ------------------------------------------------------------------------------- Exhibit 2.2 Form of Stock Purchase and Shareholder Agreement, to be dated as of January 15, 1997, by and between Tosco Corporation and Union Oil Company of California, together with form of Supplement No. 1 thereto (incorporated by reference to Exhibit 2.2 to Unocal's Current Report on Form 8-K dated December 16, 1996 and filed January 3, 1997, File No. 1-8483). - ------------------------------------------------------------------------------- Exhibit 2.3 Form of Environmental Agreement, to be dated as of closing date, by and between Tosco Corporation and Union Oil Company of California (without schedules) (incorporated by reference to Exhibit 2.3 to Unocal's Current Report on Form 8-K dated December 16, 1996, and filed January 3, 1997, File No. 1-8483). - ------------------------------------------------------------------------------- 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 February 3, 1997, and currently in effect (incorporated by reference to Exhibit 3.1 to Unocal's Current Report on Form 8-K dated February 3, 1997, and filed February 7, 1997, File No. 1-8483). - ------------------------------------------------------------------------------- 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 Unocal 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 The Chase Manhattan Bank, as successor 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 10.11 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 Unocal Revised Incentive Compensation Plan Cash Deferral Program. - ------------------------------------------------------------------------------- Exhibit 10.4 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 10.5 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 10.6 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).
81 UNOCAL CORPORATION EXHIBIT INDEX (continued)
- ------------------------------------------------------------------------------- Exhibit 10.7 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 10.8 Amendments to Directors Restricted Stock Plan, effective February 8, 1996 (incorporated by reference to Exhibit 10.7 to Unocal's Annual Report on Form 10-K for the year ended December 31, 1995, File No. 1-8483). - ------------------------------------------------------------------------------- Exhibit 10.9 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 10.10 Employment Agreement, effective July 1, 1995, 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, 1995, File No. 1-8483). - ------------------------------------------------------------------------------- Exhibit 10.11 Letter dated November 5, 1996, summarizing incentive compensation arrangements for Lawrence M. Higby to be effective upon the sale or other disposition of at least 50 percent of the 76 Products Company. - ------------------------------------------------------------------------------- Exhibit 11* Statement regarding computation of earnings per common share for the five years ended December 31, 1996. - ------------------------------------------------------------------------------- Exhibit 12.1 Statement regarding computation of ratio of earnings to fixed charges of Unocal for the five years ended December 31, 1996. - ------------------------------------------------------------------------------- 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, 1996. - ------------------------------------------------------------------------------- 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, 1996. - ------------------------------------------------------------------------------- Exhibit 21 Subsidiaries of Unocal Corporation. - ------------------------------------------------------------------------------- Exhibit 23* Consent of Coopers & Lybrand L.L.P. - ------------------------------------------------------------------------------- Exhibit 27 Financial data schedule for the period ended December 31, 1996 (included only in the copy of this report filed electronically with the Commission). - ------------------------------------------------------------------------------- Exhibit 99 Bylaws of Union Oil Company of California, as amended September 30, 1996 and currently in effect (incorporated by reference to Exhibit 99 to Unocal's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, File No. 1-8483). - -------------------------------------------------------------------------------
*Filed with this amendment 82 EX-11 2 COMPUTATION OF EARNINGS PER COMMON SHARE EXHIBIT 11 UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON SHARE
YEAR ENDED DECEMBER 31 --------------------------------------------------------------------------- Dollars and shares in thousands, except per share amounts 1996 1995 1994 1993 1992 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings (loss) from continuing operations Per Share Assuming No Dilution (a) Earnings (loss) from continuing operations $455,707 $249,319 ($167,374) $142,106 $191,877 Preferred stock dividend (17,938) (35,875) (35,875) (35,875) (16,642) Non-cash charge related to exchange of preferred stock (54,246) - - - - --------------------------------------------------------------------------- Earnings (loss) from continuing operations applicable to common stock 383,523 213,444 (203,249) 106,231 175,235 Weighted average common stock outstanding 248,767 246,112 242,640 241,114 238,278 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings (loss) from continuing operations per common share $ 1.54 $ 0.87 $ (0.84) $ 0.44 $ 0.73 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings (loss) from discontinued operations Per Share Assuming No Dilution (a) Earnings (loss) applicable to common stock ($419,236) $10,525 $14,026 $70,761 $28,136 Weighted average common stock outstanding 248,767 246,112 242,640 241,114 238,278 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings (loss) from discontinued operations per common share $ (1.69) $ 0.04 $ 0.06 $ 0.29 $ 0.12 - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings (loss) per common share $ (0.15) $ 0.91 $ (0.78) $ 0.73 $ 0.85 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings (loss) from continuing operations Per Share Assuming Full Dilution Earnings (loss) from continuing operations $455,707 $249,319 ($167,374) $142,106 $191,877 Distribution on preferred securities (net of tax) 7,715 - - - - Non-cash charge related to exchange of preferred stock (54,246) - - - - --------------------------------------------------------------------------- Earnings (loss) from continuing operations applicable to common stock 409,176 249,319 (167,374) 142,106 191,877 Weighted average common stock outstanding 248,767 246,112 242,640 241,114 238,278 Dilutive common stock equivalents 2,067 1,511 1,714 1,743 1,561 Conversion of preferred stock (b) - 16,667 16,667 16,667 16,667 Conversion of preferred securities 12,263 - - - - --------------------------------------------------------------------------- Weighted average common stock and stock equivalents outstanding 263,097 264,290 261,021 259,524 256,506 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings (loss) from continuing operations per common share $ 1.56 $ 0.94 $ (0.64) $ 0.55 $ 0.75 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings (loss) from discontinued operations Per Share Assuming Full Dilution Earnings (loss) from discontinued operations applicable to common stock ($419,236) $10,525 $14,026 $70,761 $28,136 Weighted average common stock outstanding 248,767 246,112 242,640 241,114 238,278 Dilutive common stock equivalents 2,067 1,511 1,714 1,743 1,561 Conversion of preferred stock - 16,667 16,667 16,667 16,667 Conversion of preferred securities (c) 12,263 - - - - --------------------------------------------------------------------------- Weighted average common stock and stock equivalents outstanding 263,097 264,290 261,021 259,524 256,506 - ------------------------------------------------------------------------------------------------------------------------------------ Earnings (loss) from discontinued operations per common share $ (1.59) $ 0.04 $ 0.05 $ 0.27 $ 0.11 - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings (loss) per common share $ (0.03) $ 0.98 $ (0.59) $ 0.82 $ 0.86 - ------------------------------------------------------------------------------------------------------------------------------------ (a) The dilutive effect of common stock equivalents is less than 3 percent. (b) The effect of assumed conversion of preferred stock on earnings per common stock is antidilutive. (c) The effect of assumed conversion of preferred securities on earnings per common stock is antidilutive.
EX-23 3 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, 33-65461 and 333-09685) 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 its method of accounting for the impairment of long-lived assets and long-lived assets to be disposed of in 1995 and for recognizing the reduction in value of its oil and gas properties in 1994, dated February 14, 1997, which appears on page 36 of this Annual Report on Form 10-K. COOPERS & LYBRAND L. L. P. Los Angeles, California May 23, 1997 -----END PRIVACY-ENHANCED MESSAGE-----