SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
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or
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________.
Commission file number 1-8483
UNOCAL CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 95-3825062
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1201 West Fifth Street, Los Angeles, California 90017
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (213) 977-7600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No___
Number of shares of Common Stock, $1 par value, outstanding as of
October 31, 1994: 243,389,894
<PAGE>
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
CONSOLIDATED EARNINGS UNOCAL CORPORATION
(Unaudited)
For the Three Months For the Nine Months
Ended September 30 Ended September 30
------------------- --------------------
Dollars in millions except per share amounts 1994 1993 1994 1993
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<S> <C> <C> <C> <C>
Revenues
Sales and operating revenues (a) $1,989 $1,907 $5,841 $6,152
Interest, dividends and miscellaneous income 18 18 71 53
Equity in earnings of affiliated companies 10 17 63 61
Gain on sales of assets 3 21 6 113
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Total revenues 2,020 1,963 5,981 6,379
Costs and Other Deductions
Crude oil and product purchases 739 711 2,133 2,434
Operating expense 407 435 1,239 1,275
Selling, administrative and general expense 136 107 384 356
Depreciation, depletion and amortization 236 230 775 702
Dry hole costs 30 10 64 28
Exploration expense 25 33 79 88
Interest expense 68 72 209 229
Excise, property and other operating taxes (a) 259 221 777 713
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Total costs and other deductions 1,900 1,819 5,660 5,825
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Earnings before income taxes 120 144 321 554
Income taxes 60 74 157 255
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Earnings before cumulative effect of
accounting changes 60 70 164 299
Cumulative effect of accounting changes - - - (130)
- -------------------------------------------------------------------------------------------
Net Earnings $ 60 $ 70 $ 164 $ 169
Dividends on preferred stock 9 9 27 27
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Net Earnings Applicable to Common Stock $ 51 $ 61 $ 137 $ 142
Earnings per share of common stock (b)
Before cumulative effect of accounting
changes $ .21 $ .25 $ .57 $ 1.13
Cumulative effect of accounting changes - - - (.54)
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Net earnings per share $ .21 $ .25 $ .57 $ .59
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Cash dividends declared per share of $ .20 $ .20 $ .60 $ .55
common stock
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(a) Includes consumer excise taxes of $ 229 $ 194 $ 686 $ 608
(b)Based on net earnings applicable to
common stock divided by weighted
average shares outstanding (in thousands) 242,954 241,230 242,269 241,064
</TABLE>
See Notes to Consolidated Financial Statements.
-1-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET UNOCAL CORPORATION
(Unaudited)
September 30 December 31
----------------------------
Millions of Dollars 1994 1993
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<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 193 $ 205
Accounts and notes receivable
Trade 872 877
Refundable income taxes 84 114
Inventories
Crude oil 23 44
Refined products 159 146
Chemicals 39 55
Minerals 15 15
Supplies, merchandise and other 92 66
Other current assets 50 56
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Total current assets 1,527 1,578
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Investments and long-term receivables 880 847
Properties (net of accumulated depreciation and
other allowances of $11,128 in 1994 and
$11,215 in 1993) 7,090 7,175
Other assets 76 106
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Total assets $9,573 $9,706
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Liabilities
Current liabilities
Accounts payable $ 593 $ 735
Taxes payable 199 208
Current portion of long-term debt and capital
lease obligations 55 54
Interest payable 60 92
Other current liabilities 92 107
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Total current liabilities 999 1,196
Long-term debt and capital lease obligations 3,445 3,468
Deferred income taxes 803 875
Accrued abandonment, restoration and environmental costs 607 539
Other deferred credits and liabilities 548 499
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Total liabilities 6,402 6,577
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Stockholders' Equity
Preferred stock ($0.10 par value; stated at
liquidation value of $50 per share) 513 513
Common stock ($1 par value) 243 241
Capital in excess of par value 214 163
Foreign currency translation adjustment (7) (5)
Unearned portion of restricted stock issued (14) (13)
Retained earnings 2,222 2,230
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Total stockholders' equity 3,171 3,129
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Total liabilities and stockholders' equity $9,573 $9,706
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</TABLE>
See Notes to Consolidated Financial Statements.
-2-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CASH FLOWS UNOCAL CORPORATION
(Unaudited)
For the Nine Months
Ended September 30
----------------------
Millions of Dollars 1994 1993
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<S> <C> <C>
CASH FLOWS FORM OPERATING ACTIVITIES
Net earnings $ 164 $169
Adjustments to reconcile net earnings to
net cash provided by operating activities
Cumulative effect of accounting changes - 130
Depreciation, depletion and amortization 775 702
Dry hole costs 64 28
Deferred income taxes (60) 66
Gain on sales of assets (before-tax) (6) (113)
Other 97 78
Working capital and other changes related to operations
Accounts and notes receivable 37 183
Inventories (2) (43)
Accounts payable (144) (87)
Taxes payable (9) (114)
Other (61) (320)
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Net cash provided by operating activities 855 679
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (includes dry hole costs) (839) (813)
Proceeds from sales of assets 136 579
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Net cash used in investing activities (703) (234)
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term borrowings 527 128
Reduction of long-term debt and capital lease obligations (549) (402)
Dividends paid on preferred stock (27) (27)
Dividends paid on common stock (145) (127)
Other 30 (1)
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Net cash used in financing activities (164) (429)
Increase (decrease) in cash and cash equivalents (12) 16
Cash and cash equivalents at beginning of year 205 157
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Cash and cash equivalents at end of period $193 $173
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $221 $240
Income taxes (net of refunds) $201 $258
</TABLE>
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) The consolidated financial statements included herein are unaudited and, in
the opinion of management, include all adjustments necessary for a fair
presentation of financial position and results of operations. All
adjustments are of a normal recurring nature, except for items discussed in
Note 3. Such financial statements are presented in accordance with the
Securities and Exchange Commission's disclosure requirements for Form 10-Q.
These interim consolidated financial statements should be read in
conjunction with the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements filed with the Commission in Unocal
Corporation's 1993 Annual Report on Form 10-K.
Results for the three and nine months ended September 30, 1994, are not
necessarily indicative of future financial results.
(2) For the purpose of this report, Unocal Corporation and its consolidated
subsidiary, Union Oil Company of California (Union Oil), will be referred
to as "Unocal" or "the company".
(3) 1993 Accounting Changes:
(a) Effective January 1, 1993, the company adopted Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This accounting standard
requires the company to recognize its obligation to provide
postretirement health care benefits and to accrue such costs rather than
recording them on a cash basis. The actuarial present value of the
accumulated postretirement health care obligation existing at January 1,
1993 was recognized in the Consolidated Earnings Statement as the
cumulative effect of an accounting change, resulting in a charge to the
first quarter 1993 earnings of $192 million before tax ($121 million
after tax or 50 cents per common share).
(b) The company also adopted SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," effective January 1, 1993. This statement
requires the company to recognize its obligation to provide benefits,
such as workers' compensation and disabled employees' medical care, to
former or inactive employees after employment but before retirement. The
charge to earnings for the cumulative effect of the company's unfunded
obligation prior to 1993 was $14 million before tax ($9 million after tax
or 4 cents per common share).
(4) Capitalized interest totaled $8 million for the third quarter 1994 and $26
million for the first nine months of 1994. For the same periods of 1993,
$8 million and $25 million of interest were capitalized, respectively.
(5) Contingent Liabilities:
The company has certain contingent liabilities with respect to existing or
potential claims, lawsuits and other proceedings, including those involving
environmental, tax and other matters, certain of which are more
specifically discussed below. The company accrues liabilities when it is
probable that future costs will be incurred and such costs can be
reasonably estimated. In some cases, amounts of such future costs are
currently indeterminable. As the scope of the obligations becomes better
defined, there may be changes in the estimates of future costs, which could
result in charges against the company's future results of operations.
Based on developments to date, its estimate of the outcome of these matters
and its experience in contesting, litigating and settling other matters,
management does not expect the resolution of such matters to have a
material adverse effect on the company's financial position or liquidity,
although the resolution of any one or more of such matters in any year or
quarter could have a material effect on the company's results of operations
for such period.
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
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 and criminal penalties and, in
some cases, punitive damages. These obligations relate to sites owned by
the company or others and associated with present and past operations,
including 96 sites at which the company has been identified as a
"potentially responsible party (PRP)" under the federal Superfund laws and
comparable state laws. Reserves have been 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 liability or, if liability is probable, to
quantify the liability or determine a range of possible exposure. The
potentially large number of claimants for any given site or exposure, the
unknown magnitude of possible contamination, the imprecise and conflicting
engineering evaluations and estimates of proper cleanup methods and costs,
the unknown time 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 liability on PRPs and the
fact that the company is usually just one of a number of companies
identified as PRPs all contribute to the difficulty of making reasonable
estimates of the company's liability or possible additional liability for
many of these environmental matters.
At September 30, 1994, reserves for environmental remediation obligations
relating to prior asset sales, for Superfund sites and other sites, totaled
$124 million, compared with $95 million at December 31, 1993. The company
will continue to evaluate the adequacy of the reserves. The company has
also accrued for future costs to abandon and remove wells and production
facilities. The total cost to abandon and remove wells and production
facilities is estimated to be from $840 million to $990 million. The
minimum of the range is accrued over the useful life of the related assets.
Such accrual amounted to $483 million at September 30, 1994. The above
accruals are included in Accrued abandonment, restoration and
environmental costs on the consolidated balance sheet.
The company has received Notices of Proposed Adjustments from the Internal
Revenue Service (IRS) related to a 1985 takeover attempt and efforts
undertaken to defeat it. These proposed adjustments, if sustained, would
increase the company's 1985 taxable income by up to $607 million, of which
$201 million would result in decreases in taxable income in subsequent
years. The company believes it has substantial legal defenses to the
proposed adjustments. Upon receipt of a Notice of Proposed Deficiency for
1985 (expected before the end of 1994), the company will protest the
proposed adjustments to the Appeals section of the IRS. In the opinion of
management, a successful outcome in these disputes is reasonably likely.
Although considered unlikely, substantial adverse decisions could have a
material effect on the company's financial condition or operating results
in a given year or quarter when such matters are resolved.
(6) In the 1993 Consolidated Cash Flow Statement, under working capital
changes, "other" included an adjustment of ($125) million related to the
settlement of crude oil forward sales contracts, for which income was
recognized in 1993 when the oil was produced, but cash was received in
1992. It also included approximately ($100) million of settlement payments
for Alaska tax assessments and a geothermal sales contract dispute.
(7) Between March 24 and April 27, 1994, the company issued $179 million
in Medium Term Notes with interest rates ranging from 6.33% to 7.24% and
maturity dates ranging from February 1997 to March 2001. The proceeds were
used to refinance maturing and callable debt.
(8) In 1994, 1,343,098 shares of common stock were issued under the Dividend
Reinvestment and Common Stock Purchase plan, which generated approximately
$37 million of cash for the company.
(9) Certain items in the prior year financial statements have been reclassified
to conform to the 1994 classification. Among them, the accumulated
provision for future abandonment and restoration costs has been
reclassified on the consolidated balance sheet from the property account to
Accrued abandonment, restoration and environmental costs.
-5-
<PAGE>
<TABLE>
<CAPTION>
OPERATING HIGHLIGHTS UNOCAL CORPORATION
For the Three Months For the Nine Months
Ended September 30 Ended September 30
---------------------------------------------
1994 1993 1994 1993
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<S> <C> <C> <C> <C>
NET DAILY PRODUCTION (a)
Crude oil and condensate (thousand barrels):
United States 135.8 143.9 139.1 148.3
----- ----- ----- -----
Foreign:
Far East 92.2 65.2 85.3 67.5
Other 33.8 29.7 36.4 30.0
----- ----- ----- -----
Total foreign 126.0 94.9 121.7 97.5
----- ----- ----- -----
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Worldwide 261.8 238.8 260.8 245.8
====== ====== ===== =====
Natural gas (million cubic feet):
United States 1,115 956 1,117 936
----- ---- ----- ----
Foreign:
Far East 653 551 605 612
Other 35 38 55 48
--- --- --- ---
Total foreign 688 589 660 660
--- --- --- ---
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Worldwide 1,803 1,545 1,777 1,596
===== ===== ===== =====
Natural gas liquids (thousand barrels) 23.0 19.2 21.4 19.4
Geothermal (million kilowatt-hours) 21.6 19.6 20.6 20.4
Input to crude oil processing units (thousand barrels
daily) (b) 273 293 291 288
Sales of petroleum products (thousand barrels daily) (b) 319 327 311 346
- --------------------------------------------------------------------------------------------------------
AVERAGE SALES PRICES
Crude oil and condensate (per barrel):
United States $14.48 $13.28 $12.83 $14.39
Foreign:
Far East $15.61 $14.96 $14.46 $16.08
Other $15.73 $14.43 $14.05 $15.46
Total foreign $15.66 $14.74 $14.30 $15.83
- --------------------------------------------------------------------------------------------------------
Worldwide $14.95 $13.76 $13.41 $14.86
Natural gas (per thousand cubic feet):
United States $ 1.64 $ 1.96 $ 1.85 $ 1.95
Foreign:
Far East $ 1.97 $ 2.16 $ 1.99 $ 2.12
Other $ 1.65 $ 2.11 $ 1.77 $ 1.63
Total foreign $ 1.96 $ 2.16 $ 1.97 $ 2.07
- --------------------------------------------------------------------------------------------------------
Worldwide $ 1.76 $ 2.04 $ 1.89 $ 1.99
(a) Includes net profits type agreements on a gross basis.
(b) Includes 50% of the volumes of The UNO-VEN Company.
</TABLE>
-6-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Unocal's net earnings for the third quarter of 1994 were $60 million, or 21
cents per common share, compared with $70 million in the third quarter of 1993,
or 25 cents per common share. For the first nine months of 1994, net earnings
were $164 million, or 57 cents per common share. This compares with nine-month
1993 earnings of $169 million, or 59 cents per common share. The comparability
of the company's reported earnings for these periods is affected by the
following special items:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
-------------------------------------------
Millions of dollars 1994 1993 1994 1993
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<S> <C> <C> <C> <C>
Special items:
Cumulative effect of accounting changes:
For postretirement benefits (SFAS 106) $ - $ - $ - $(121)
For postemployment benefits (SFAS 112) - - - (9)
Write-down of investment and provision for abandonment
and remediation of the Guadalupe oil field (4) - (31) -
Litigation - (15) (17) (24)
Mesa settlement - - 24 -
Asset sales 10 9 12 66
Effect of federal tax rate change on deferred taxes - (14) - (14)
Other (5) (1) (10) (6)
----------------------------------------------------------------------------------------------------------
Total $ 1 $(21) $(22) $(108)
----------------------------------------------------------------------------------------------------------
</TABLE>
Excluding the special items, third quarter 1994 net earnings were $59 million,
or 21 cents per common share, compared with $91 million, or 34 cents per common
share, in the third quarter of 1993. The 1994 year-to-date earnings, excluding
special items, were $186 million, or 66 cents per common share, compared with
$277 million, or $1.04 per common share, a year ago. The company experienced
lower natural gas prices and reduced margins from petroleum refining and
marketing operations in the third quarter which also adversely impacted the
nine months results.
The 1994 year-to-date consolidated revenues were $5.98 billion, down from $6.38
billion in the same period a year ago. Total costs and other deductions for
the nine months were $5.66 billion in 1994, compared to $5.83 billion for 1993.
The decrease in both sales revenues and purchase costs reflects the sale of
several businesses during 1993 and the continued phase-out of Southeastern
retail gasoline marketing operations. Lower average sales prices for refined
products also contributed to decreased sales revenues. The increase in
depreciation and depletion expense was attributable to higher worldwide oil and
gas production.
PETROLEUM EXPLORATION AND PRODUCTION. Net earnings for the third quarter 1994
totaled $111 million, compared with $106 million in 1993. For the nine-month
period, net earnings were $261 million in 1994, compared with $361 million in
1993. Both the 1994 quarter and nine-month periods included special items
related to gains on asset sales and charges for the Guadalupe oil field, while
the 1993 periods included gains on asset sales and a $4 million charge due to
the effect of a federal tax rate change on deferred taxes. Excluding these
special items, petroleum exploration and production third quarter earnings were
$105 million and $101 million in 1994 and 1993, respectively, and the nine-
month 1994 earnings were $284 million, compared with $343 million during the
same period a year ago.
The third quarter 1994 results reflect higher worldwide natural gas production
and improved crude oil prices. These increases were partially offset by lower
worldwide natural gas prices and higher foreign exploration expense. Worldwide
natural gas production in the third quarter was about 17 percent above the
level of a year ago. The worldwide average sales price for crude oil in the
third quarter of 1994 was $14.95 per barrel, up from $13.76 per barrel a year
ago, while the worldwide natural gas average sales price was $1.76 per
thousand cubic feet (mcf), down from $2.04 per mcf last year.
-7-
<PAGE>
For the nine-month period, decreased earnings were due mainly to lower
worldwide crude oil and natural gas sales prices. Increases in natural gas and
crude oil production partially offset these reductions. The worldwide average
sales price for crude oil was $13.41 for the nine-month period compared with
$14.86 a year ago. The worldwide average natural gas price was $1.89, down
from $1.99 for the same period last year. Domestic natural gas production was
up 19 percent from a year ago due to the accelerated development program
initiated in 1993. Foreign gas production was the same as last year.
The results for the third quarter and nine months also reflected the earnings
benefit of an increase in the company's worldwide crude oil production.
Although domestic crude oil production declined, mainly due to the asset
divestment program, the decrease was more than offset by increased foreign
production from Indonesia and the Netherlands.
In July 1994, the company completed the sale of its Point Pedernales Unit (the
Unocal-operated Platform Irene, offshore California) and adjacent onshore
fields and facilities. Under the sales agreement, which had an effective date
of January 1, 1993, Unocal sold the properties for $43 million. Included in
that total was an initial cash payment of $25 million (before adjusting for
1993 net cash flows) plus an additional $18 million contingent upon the price
per barrel received for the properties' future production. Unocal took an
after-tax charge in the third quarter of $10 million arising from the asset
sale.
REFINING, MARKETING AND TRANSPORTATION. Unocal's refining, marketing and
transportation segment recorded net earnings of $18 million in the third
quarter of 1994, compared with $49 million a year ago. Net earnings for the
first nine months were $97 million, compared with $143 million in 1993.
Excluding the special items, the operating earnings were $21 million and $56
million in the third quarter of 1994 and 1993, respectively, and the nine
months earnings were $99 million in 1994, compared with $136 million in 1993.
Special items for the third quarter and nine months of 1993 included a $7
million charge due to the effect of the federal tax rate change on deferred
taxes. The 1993 nine months also included gains from asset sales.
The decline for both the third quarter and nine months results reflected
depressed margins on refined products, primarily due to lower average sales
prices. While the nine months earnings benefited from lower crude oil costs,
such costs were higher in the third quarter which put additional pressure on
margins. Petroleum product sales volumes were 311,000 barrels per day in 1994,
down from 346,000 barrels per day in 1993. The decline was mainly due to the
sale of the auto/truckstop system in 1993 and the continued phase-out of
Southeastern retail gasoline marketing. However, the company's West Coast
petroleum product sales volumes in the first nine months of 1994 rose 9 percent
from a year ago.
The company's equity in earnings from The UNO-VEN Company, a refining and
marketing partnership in the Midwest, was lower in the third quarter due to a
scheduled maintenance shut-down at its Chicago Refinery. The refinery returned
to full production in early September.
CHEMICALS. Chemicals recorded net earnings of $12 million for the third
quarter and $34 million for the first nine months of 1994. This compares with
$5 million and $33 million for the same periods in 1993, respectively. The
quarter and nine months results benefited from improved margins on export sales
of urea and ammonia products. However, the nine months 1994 results also
reflected lower earnings from the sale of petroleum coke.
GEOTHERMAL. Net earnings for the third quarter of 1994 were $11 million, up
from $3 million in 1993. Nine months net earnings were $25 million in 1994,
compared with $41 million in 1993. The nine months 1993 earnings included a
$26 million after-tax gain in the first quarter from the sale of the geothermal
Imperial Valley (California) assets and other exploration properties. Both the
third quarter and nine months 1994 results benefited from the beginning of
commercial operations in Indonesia and lower domestic expense.
During the quarter two 55-megawatt power plants began commercial operation at
Unocal's first geothermal energy development in Indonesia. The first 55-
megawatt power plant began commercial operation in late July and the second in
September. The company, under a joint operation contract from Pertamina, the
state oil company, supplies geothermal energy to fuel the power plants at the
Gunung Salak geothermal field on the island of Java, south of Jakarta. The
power plants are operated by PLN, Indonesia's state utility.
-8-
<PAGE>
CORPORATE AND OTHER. Third quarter 1994 corporate expenses and the results of
other businesses were $92 million, compared with $93 million for the same
period in 1993. For the nine-month period, expenses were $253 million in 1994
and $279 million in 1993. Adjusted for special items, net expense for
corporate and other for the third quarter was $89 million in 1994, versus $76
million for the same period a year ago. Nine months expenses were $255 million
and $253 million for 1994 and 1993, respectively. Third quarter 1993 results
included favorable adjustments for California state income tax provisions.
The 1994 nine-month results included a $24 million benefit from the settlement
of a lawsuit against Mesa Petroleum, related to the takeover attempt in 1985.
Additional special items included in the results for each reporting period were
unusual litigation and environmental expenses.
FINANCIAL CONDITION AND CAPITAL EXPENDITURES
For the nine months of 1994, cash flows from operating activities, including
working capital changes, were $855 million, up from $679 million in 1993. Last
year's cash flow reflected an adjustment for the 1992 crude oil forward sales
as well as settlement payments for Alaska tax assessments and other litigation.
See Note 6 to the consolidated financial statements.
Proceeds from asset sales were $136 million for the first nine months of 1994,
compared to $579 million in the same period a year ago. The 1994 proceeds were
mainly from the sale of various oil and gas properties, while 1993 included
$222 million from the sale of the company's Imperial Valley (California)
geothermal assets and other geothermal exploration properties, $176 million
from the sale of the national auto/truckstop network and the balance from the
sale of miscellaneous nonstrategic assets, including oil and gas properties.
Capital expenditures for the nine months 1994 totaled $839 million, compared
with $813 million a year ago. The increase primarily reflected refinery
construction to prepare for manufacturing reformulated gasoline.
Working capital at September 30, 1994 was $528 million, an increase of $146
million from the 1993 year-end level of $382 million. This was primarily due
to lower accounts payable. The company's total debt was $3,500 million, a
decrease of $22 million from the year-end 1993 level. The planned reduction in
total debt for the year is approximately $50 million.
In August 1994, Union Oil and the company filed a new shelf registration
statement with the Securities and Exchange Commission to register for offering
and sale, from time to time, up to $1 billion of debt securities of Union Oil,
to be guaranteed as to payment by Unocal, equity securities of Unocal and
warrants to purchase such securities. The registration statement is expected
to be effective in November 1994.
CURRENT ENVIRONMENTAL MATTERS
The company continues to concentrate on the beach cleanup at the Guadalupe oil
field (central coast of California) of a diesel-like additive formerly used to
produce the heavy crude oil. It became apparent that the cleanup standard
imposed by the California Regional Water Quality Control Board in September
1994 would require the excavation, transportation, stockpiling, thermal
treatment and replacement of approximately three times the amount of sand
previously anticipated. As a consequence, the company accrued an additional
pre-tax $7 million ($4 million after tax) in the third quarter of 1994. At the
end of the third quarter, the company had net total pre-tax accruals for
remediation and abandonment costs of approximately $21 million. In addition to
the amounts accrued to date, it is possible that the company will incur
additional costs. At the present time, however, the reasonably possible range
of additional costs is indeterminable.
See the Legal Proceedings section in Part II of this report for legal actions
regarding Guadalupe and other environmental matters. See also Note 5 to the
consolidated financial statements.
OUTLOOK
Worldwide crude oil prices improved during the third quarter and are expected
to remain stable for the remainder of the year. Natural gas prices declined in
the third quarter due to mild weather and reduced gas storage injections. Any
future improvement in market prices will depend on the upcoming winter
temperatures, among other things.
-9-
<PAGE>
The annual adjustment to the natural gas contract prices in Thailand will cause
the average price to be lower by approximately 10 percent because of the
general energy factors used in the calculation. The adjusted prices became
effective October 1, 1994.
The company's worldwide production of natural gas is expected to average about
1,750 million cubic feet per day during the full-year 1994, up nearly 11
percent from the 1993 level. However, current low natural gas prices have
recently caused some operators of domestic fields in which Unocal has interests
to curtail natural gas production. This may cause a short-term decline in the
company's overall production.
The company's worldwide crude oil and condensate production is expected to
average 258,000 barrels per day for the full-year 1994, up nearly 5 percent
from 1993, reflecting higher foreign production which more than offset a
decline in domestic production. Further decline in domestic production is
expected in the future. This reflects the company's capital spending focus on
natural gas projects worldwide and the possible sales of various U.S. producing
properties.
The company has nearly reached its asset sales target of $700 million in after-
tax proceeds. Through the first nine months of 1994, the company has realized
proceeds of $683 million (after tax) from asset sales under the program
announced in April 1992. Additional asset sales are planned in the fourth
quarter.
The company has signed a letter of intent to sell its process technology and
licensing business. The sale would include approximately 200 U.S. patents and
about 300 licenses with third parties who use various process technologies
developed by Unocal.
Unocal continues to evaluate the sale of the company's crude oil and natural
gas assets in California. The company expects to receive bids from prospective
buyers by mid 1995.
Unocal's subsidiary, Philippines Geothermal, Inc., is currently negotiating to
extend the service contract with the National Power Corporation, the state-
owned utility. The current contract has an initial primary term of 25 years
which will expire in September 1996.
On November 2, 1994, the company announced that it expects to reduce its 1,540
person corporate staff by about 630 positions over the next two years. When
the reductions are complete, the company expects to realize pre-tax savings of
approximately $50 million per year. The company expects to take a one-time
pretax charge of approximately $25 million in the fourth quarter of 1994 for
costs associated with the staff reductions that will occur over the next 12
months. This charge represents essentially all of the costs associated with
the company's corporate staff reductions.
-10-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
1. On November 23, 1993, the California EPA, Department of Toxic
Substances Control, filed a civil action against the company's
Molycorp subsidiary for its plant at Mountain Pass, California, for
alleged continuing hazardous waste permitting and management
violations. The complaint seeks unspecified civil penalties. Any
settlement with the state could involve penalties in excess of
$100,000.
2. On September 13, 1994, the U.S. Minerals Management Service
("MMS") issued an administrative compliance order assessing the
company approximately $21 million in royalty fees and interest
associated with FERC Order No. 94. The company is presently in
informal negotiations with the MMS for a settlement of outstanding
issues which could include this MMS assessment.
3. Although Unocal has not yet received an administrative or civil
complaint, initial meetings with EPA Region 10 suggest that an
enforcement action will be forthcoming regarding alleged NPDES permit
violations at platforms operated by Unocal in the Cook Inlet, Alaska.
Any fine or penalty involved may be in excess of $100,000. Unocal
has received from several environmental groups statutory notices of
intent to file citizens' action with respect to these alleged
violations.
4. On August 18, 1994, Molycorp's Mountain Pass facility and two
of its current employees received a misdemeanor criminal complaint
from the District Attorney, County of San Bernardino, involving seven
alleged releases into the environment. The complaint contains nine
counts alleging the failure to timely report releases, the unlawful
deposit of hazardous materials into the environment, and violation of
the Regional Water Quality Control Board Waste Discharge Order.
(People of the State of California v. Molycorp, Inc., et al., Case No.
------------------------------------------------------------
MSB 10746).
5. On September 22, 1994, a complaint captioned Calli Santos, et
-----------------
al. v. Unocal Corporation, et al. was filed in California Superior
-----------------------------------
Court for Contra Costa County alleging damages on behalf of a purported
class of individuals who were allegedly exposed to chemicals,
including the chemical known as "Catacarb", released from Unocal's
San Francisco Refinery in Rodeo, California, between August 22 and
September 6, 1994. Unocal has determined that an airborne chemical
release did occur. The complaint asserts more than $1 billion in
actual and compensatory damages and seeks punitive damages, as well
as other relief. The complaint has not yet been served.
6. On September 9, 1994, the Regional Water Quality Control Board
issued a Cleanup or Abatement Order relating to past underground
petroleum pipeline leaks along Front Street and vicinity in the town
of Avila Beach, California. The company initiated an administrative
appeal proceeding and a related civil suit for declaratory and
injunctive relief and writ of mandate on October 7, 1994, with
respect to the soil and shallow ground water standard to be applied
to the remediation. The company has been working with local agencies
for several years regarding the hydrocarbon presence in this
location, and with property owners. An environmental and health risk
assessment is currently being conducted. A vapor extraction system
and monitoring and reporting programs have been in place for several
years. Various related civil suits have been filed or threatened.
7. Four California truckstop operators filed a complaint captioned
Forty-Niner Truck Plaza Inc., et al. v. Unocal Corporation, et al. on
-------------------------------------------------------------------
January 28, 1993 in California Superior Court for Sacramento
County. It alleged primarily that Unocal had violated a franchise
statute, California Business and Professions Code ss20999.25(a), by
failing to offer each of the operators a right of first refusal of a
bona fide offer by National Auto Truckstops, Inc. for Unocal's
interest in the truckstops, during the course of the sale of Unocal's
nationwide network of truckstops to National in April, 1993. The
operators also asserted various tort claims against Unocal and
against National, seeking compensatory and punitive damages. Under
the terms of the sale, National is indemnified for
-11-
<PAGE>
ITEM 1. LEGAL PROCEEDINGS (continued)
certain such third-party compensatory damages. The discovery
process is concluding and a trial is scheduled.
8. The Bay Drums, Florida, superfund site, the PAB superfund site
at Abbeville, Louisiana, and Avila Beach, California, should be added
to the list of sites reported as item 1 in the Legal Proceedings
section of the 1993 Form 10-K. The San Diego Terminal in California
should be deleted.
9. In the Exxon Valdez litigation of private damage claims against
------------
Alyeska and its owner companies (reported as item No. 2 in the
Legal Proceedings section of the 1993 Form 10-K), Exxon's appeals
seeking to enjoin the settlement were dismissed.
10. The approximate $80 million judgment in Angelina Hardwood
------------------
Lumber Company v. Prairie Producing Co., awarded in the District Court
---------------------------------------
of Angelina County, Texas, (reported as item No. 3 in the Legal
Proceedings section of the 1993 Form 10-K) was reversed by the Court
of Appeals, Ninth District of Texas at Beaumont (No. 09-93-184 CV),
on August 25, 1994. Under the appellate court's decision, Angelina
is not entitled to any recovery against the company. Angelina has
filed a petition for discretionary appeal to the Texas Supreme Court.
11. With respect to the Guadalupe oil field hydrocarbon
contamination and remediation (reported as item No. 4 in the Legal
Proceedings section of the 1993 Form 10-K), related civil litigation
has been filed or threatened by various organizations and
individuals, each seeking damages and various other forms of relief
similar to those sought by the Attorney General. The company
continues to concentrate on the beach cleanup at the field. It
became apparent that the cleanup standard imposed by the California
Regional Water Quality Control Board in September 1994 would require
the excavation, transportation, stockpiling, thermal treatment and
replacement of approximately three times the amount of sand
previously anticipated.
See also Note 5 to the consolidated financial statements in Part I
hereof, which Note 5 is incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Statement re computation of earnings per common
share.
12.1 Statement re computation of ratio of earnings to fixed
charges.
12.2 Statement re computation of ratio of earnings to
combined fixed charges and preferred stock dividends.
27 Financial data schedule (provided with the Securities and
Exchange Commission "EDGAR" filing only).
-12-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (continued)
(b) Reports on Form 8-K
During the third quarter of 1994:
1. Current Report on Form 8-K dated and filed July 22, 1994, for
the purpose of reporting, under Item 5, and filing, under Item 7,
an opinion of legal counsel concerning the Unocal Profit Sharing
Plan.
2. Current Report on Form 8-K dated and filed July 25, 1994, for
the purpose of reporting, under Item 5, Unocal's 1994 second
quarter and six months earnings.
3. Current Report on Form 8-K dated August 25, 1994 and filed
September 1, 1994, for the purpose of reporting, under Item 5, the
reversal of the Angelina Hardwood judgment.
-----------------
4. Current Report on Form 8-K dated September 9, 1994 and filed
September 19, 1994, for the purpose of reporting, under Item 5,
miscellaneous statistical information.
5. Current Report on Form 8-K dated and filed September 30, 1994,
for the purpose of reporting, under Item 5, and filing, under Item
7, the Calli Santos lawsuit involving the San Francisco refinery.
------------
During the fourth quarter of 1994 to the date of the filing of this
third quarter Form 10-Q:
1. Current Report on Form 8-K dated and filed October 31, 1994,
for the purpose of reporting, under Item 5, Unocal's 1994 third
quarter and nine months earnings.
2. Current Report on Form 8-K dated and filed November 2, 1994,
for the purpose of reporting, under Item 5, Unocal's reduction in
corporate staff.
-13-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
UNOCAL CORPORATION
------------------
(Registrant)
Dated: November 14, 1994 By: CHARLES S. MCDOWELL
- ------------------------ ------------------------
Charles S. McDowell,
Vice President and Comptroller
-14-
<PAGE>
EXHIBIT 11
<TABLE>
<CAPTION>
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
For the Three Months For the Nine Months
Ended September 30 Ended September 30
--------------------- ------------------
Dollars in thousands except per share amounts 1994 1993 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSUMING NO DILUTION:
Net earnings before cumulative effect of
accounting changes $60,387 $70,641 $163,876 $299,057
Preferred stock dividend (8,969) (8,969) (26,906) (26,906)
Cumulative effect of accounting changes - - - (129,594)
- --------------------------------------------------------------------------------------------------
Net earnings applicable to common stock $51,418 $61,672 $136,970 $142,557
- --------------------------------------------------------------------------------------------------
Weighted average common stock outstanding 242,954 241,230 242,269 241,064
Net earnings per common share:
Before cumulative effect of
accounting changes $ .21 $ .25 $ .57 $1.13
Cumulative effect of accounting changes - - - (.54)
- --------------------------------------------------------------------------------------------------
Net earnings per common share $ .21 $ .25 $ .57 $ .59
- --------------------------------------------------------------------------------------------------
ASSUMING FULL DILUTION:
Net earnings before cumulative effect of
accounting changes $60,387 $70,641 $163,876 $299,057
41 $163,876 $299,057
Cumulative effect of accounting changes - - - (129,594)
- --------------------------------------------------------------------------------------------------
Net earnings $60,387 $70,641 $163,876 $169,463
- --------------------------------------------------------------------------------------------------
Fully diluted shares of common stock (a) 261,371 259,596 260,567 259,609
Net earnings per common share:
Before cumulative effect of
accounting changes $ .23 $ .27 $ .63 $1.15
Cumulative effect of accounting changes - - - (.50)
- --------------------------------------------------------------------------------------------------
Net earnings per common share $ .23 $ .27 $ .63 $ .65
- --------------------------------------------------------------------------------------------------
(a) Weighted average common stock outstanding 242,954 241,230 242,269 241,064
Common stock equivalents:
Stock options & performance shares * 1,750 1,699 1,631 1,878
Convertible preferred stock 16,667 16,667 16,667 16,667
16,667
- --------------------------------------------------------------------------------------------------
Total 261,371 259,596 260,567 259,609
- --------------------------------------------------------------------------------------------------
* Stock options exclude those at exercise prices in excess of market
value at the end of each period.
</TABLE>
EXHIBIT 12.1
<TABLE>
<CAPTION>
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
For the Nine Months
Ended September 30
Dollars in millions 1994 1993
- ---------------------------------------------------------------------
<S> <C> <C>
Earnings before cumulative effect of
accounting changes $164 $299
Provision for income taxes 157 255
---- ----
Earnings subtotal 321 554
Fixed charges included in earnings:
Interest expense 209 229
Interest portion of rentals 41 46
---- ----
Subtotal 250 275
Earnings available before fixed charges $571 $829
===== =====
Fixed charges:
Fixed charges included in earnings $250 $275
Capitalized interest 26 25
----- -----
Total fixed charges $276 $300
===== =====
Ratio of earnings to fixed charges 2.1 2.8
</TABLE>
<PAGE>
EXHIBIT 12.2
<TABLE>
<CAPTION>
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
For the Nine Months
Ended September 30
-------------------
Dollars in millions 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C>
Earnings before cumulative effect of
accounting changes $164 $299
Provision for income taxes 157 255
---- ----
Earnings subtotal 321 554
Fixed charges included in earnings:
Interest expense 209 229
Interest portion of rentals 41 46
---- ----
Subtotal 250 275
Earnings available before fixed charges $571 $829
==== ====
Fixed charges and preferred stock dividends:
Fixed charges included in earnings $250 $275
Capitalized interest 26 25
Preferred stock dividends * 43 43
----- -----
Total fixed charges and preferred stock dividends $319 $343
===== =====
Ratio of earnings to fixed charges and
preferred stock dividends 1.8 2.4
* For purposes of this ratio, preferred stock dividends are adjusted to
a pre-tax basis.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated earnings statement and consolidated balance sheet and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 193
<SECURITIES> 0
<RECEIVABLES> 956
<ALLOWANCES> 0
<INVENTORY> 328
<CURRENT-ASSETS> 1527
<PP&E> 18218
<DEPRECIATION> 11128
<TOTAL-ASSETS> 9573
<CURRENT-LIABILITIES> 999
<BONDS> 3445
<COMMON> 243
0
513
<OTHER-SE> 2415
<TOTAL-LIABILITY-AND-EQUITY> 9573
<SALES> 5841
<TOTAL-REVENUES> 5981
<CGS> 2133
<TOTAL-COSTS> 3372
<OTHER-EXPENSES> 1695
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 209
<INCOME-PRETAX> 321
<INCOME-TAX> 157
<INCOME-CONTINUING> 164
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 164
<EPS-PRIMARY> .57
<EPS-DILUTED> 0
</TABLE>
