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, 1995
-------------------
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
-------------- ------------
Commission file number 1-8483
UNOCAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-3825062
--------- ----------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
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,
1995: 247,141,638
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
UNOCAL CORPORATION
CONSOLIDATED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
---------------------------------------------------
Dollars in millions except per share amounts 1995 1994 1995 1994
----------------------------------------------------------------------------------------------------------------------------------
Revenues
<S> <C> <C> <C> <C>
Sales and operating revenues (a) .......................................... $ 1,933 $ 1,989 $ 5,997 $ 5,841
Interest, dividends and miscellaneous income .............................. 50 18 76 71
Equity in earnings of affiliated companies ................................ 20 10 65 63
Gain on sales of assets ................................................... 2 3 63 6
--------------------------------------------------
Total revenues .................................................... 2,005 2,020 6,201 5,981
Costs and Other Deductions
Crude oil and product purchases ........................................... 746 739 2,403 2,133
Operating expense ......................................................... 417 407 1,283 1,239
Selling, administrative and general expense ............................... 108 136 337 384
Depreciation, depletion and amortization .................................. 237 220 704 730
Dry hole costs ............................................................ 31 30 50 64
Exploration expense ....................................................... 30 25 85 79
Interest expense .......................................................... 72 68 218 209
Excise, property and other operating taxes (a) ............................ 258 259 759 777
--------------------------------------------------
Total costs and other deductions .................................. 1,899 1,884 5,839 5,615
--------------------------------------------------
Earnings before income taxes .............................................. 106 136 362 366
Income taxes .............................................................. 47 66 151 174
--------------------------------------------------
Earnings before cumulative effect of accounting changes ................... 59 70 211 192
Cumulative effect of accounting changes ................................... -- -- -- (277)
--------------------------------------------------
Net Earnings (Loss) ....................................................... $ 59 $ 70 $ 211 $ (85)
Dividends on preferred stock .............................................. 9 9 27 27
---------------------------------------------------
Net Earnings (Loss) Applicable to Common Stock ............................ $ 50 $ 61 $ 184 $ (112)
====================================================
Earnings (loss) per share of common stock (b)
Before cumulative effect of accounting changes ....................... $ .20 $.25 $ .75 $ .68
Cumulative effect of accounting changes .............................. -- -- -- (1.14)
---------------------------------------------------
Net earnings (loss) per share ........................................ $ .20 $ .25 $ .75 $ (.46)
====================================================
Cash dividends declared per share of common stock ......................... $ .20 $ .20 $ .60 $ .60
----------------------------------------------------
(a)Includes consumer excise taxes of .................................... $ 228 $ 229 $ 665 $ 686
(b)Based on net earnings (loss) applicable to common stock divided
by weighted average shares outstanding
(in thousands) ....................................................... 246,666 242,954 245,754 242,269
</TABLE>
See Notes to Consolidated Financial Statements.
1
<PAGE>
UNOCAL CORPORATION
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30 December 31
------------------------------------
Millions of Dollars 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Assets
Current assets
<S> <C> <C>
Cash and cash equivalents ................................................................... $ 168 $ 148
Accounts and notes receivable ............................................................... 932 897
Inventories
Crude oil ................................................................................ 34 31
Refined products ......................................................................... 138 161
Chemicals ................................................................................ 49 46
Minerals ................................................................................. 14 16
Supplies, merchandise and other .......................................................... 91 87
Deferred income taxes ....................................................................... 77 109
Other current assets ........................................................................ 38 33
----------------------
Total current assets ................................................................ 1,541 1,528
Investments and long-term receivables ............................................................ 1,083 895
Properties (net of accumulated depreciation and other allowances
of $11,308 in 1995 and $11,096 in 1994) ........................................ 6,967 6,823
Other assets ..................................................................................... 142 91
----------------------
Total assets ................................................................. $ 9,733 $ 9,337
======================
Current liabilities
Accounts payable ............................................................................ $ 637 $ 688
Taxes payable ............................................................................... 207 226
Current portion of long-term debt and capital lease obligations ............................. 7 5
Interest payable ............................................................................ 67 87
Other current liabilities ................................................................... 211 251
----------------------
Total current liabilities ........................................................... 1,129 1,257
Long-term debt and capital lease obligations ..................................................... 3,895 3,461
Deferred income taxes ............................................................................ 586 643
Accrued abandonment, restoration and environmental liabilities ................................... 600 622
Other deferred credits and liabilities ........................................................... 590 539
----------------------
Total liabilities ................................................................ 6,800 6,522
----------------------
Preferred stock ($0.10 par value; stated at liquidation value of $50 per share) .................. 513 513
Common stock ($1 par value) ..................................................................... 247 244
Capital in excess of par value ................................................................... 311 237
Foreign currency translation adjustment .......................................................... (7) (13)
Unearned portion of restricted stock issued ...................................................... (14) (13)
Retained earnings ................................................................................ 1,883 1,847
----------------------
Total stockholders' equity ....................................................... 2,933 2,815
----------------------
Total liabilities and stockholders' equity ................................... $ 9,733 $ 9,337
======================
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
CONSOLIDATED CASH FLOWS UNOCAL CORPORATION
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30
-------------------------
Millions of Dollars 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
<S> <C> <C>
Net earnings (loss) ................................................................................ $ 211 $ (85)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities
Cumulative effect of accounting changes ....................................................... -- 277
Depreciation, depletion and amortization ...................................................... 704 730
Dry hole costs ................................................................................ 50 64
Deferred income taxes ......................................................................... (21) (42)
Gain on sales of assets (before-tax) .......................................................... (63) (6)
Other ......................................................................................... (19) 97
Working capital and other changes related to operations
Accounts and notes receivable ............................................................. (18) 37
Inventories ............................................................................... 18 (2)
Accounts payable .......................................................................... (53) (144)
Taxes payable ............................................................................. (19) (9)
Other ..................................................................................... (114) (62)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities ............................................... 676 855
Cash Flows from Investing Activities
Capital expenditures (includes dry hole costs) ................................................ (967) (839)
Proceeds from sales of assets ................................................................. 130 136
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities ................................................... (837) (703)
Cash Flows from Financing Activities
Long-term borrowings .......................................................................... 949 527
Reduction of long-term debt and capital lease obligations ..................................... (644) (549)
Dividends paid on preferred stock ............................................................. (27) (27)
Dividends paid on common stock ............................................................... (147) (145)
Other ......................................................................................... 50 30
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities ..................................... 181 (164)
Increase (decrease) in cash and cash equivalents ................................................... 20 (12)
Cash and cash equivalents at beginning of year ..................................................... 148 205
====================================================================================================================================
Cash and cash equivalents at end of period ......................................................... $ 168 $ 193
====================================================================================================================================
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest (net of amount capitalized) .......................................................... $ 225 $ 221
Income taxes (net of refunds) ................................................................. $ 192 $ 201
</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 (the "Commission") disclosure
requirements for Form 10-Q.
These interim consolidated financial statements should be read in
conjunction with the Consolidated Financial Statements and the Notes to
Consolidated Financial Statements filed with the Commission in Unocal
Corporation's 1994 Annual Report on Form 10-K.
Results for the three and nine months ended September 30, 1995, are not
necessarily indicative of future financial results.
Certain items in the prior year financial statements have been reclassified
to conform to the 1995 presentation.
(2) For the purpose of this report, Unocal Corporation and its consolidated
subsidiary, Union Oil Company of California (Union Oil), together with the
consolidated subsidiaries of Union Oil, will be referred to as "Unocal" or
"the company".
(3) 1994 Accounting Change:
Effective January 1, 1994, the company changed its accounting policy for
recognizing the reduction in value of its producing oil and gas properties.
Under the new policy, the company evaluates properties for impairment on a
field-by-field basis instead of the country-by-country basis previously
used. Impairment loss is recognized when the estimated undiscounted future
cash flows (after-tax) are less than the current net book values of the
properties. In the opinion of management, the use of a lower level of
aggregation for applying the impairment test to producing oil and gas
properties is preferable.
As a result, the consolidated earnings for the third quarter and the first
nine months of 1994 have been restated to include the cumulative effect of
the accounting change as well as the effect on the 1994 operating earnings.
The cumulative effect of the accounting change was a charge of $447 million
pretax ($277 million after-tax or $1.14 per common share) and the effect on
the third quarter and nine months earnings was a reduction in depreciation
and depletion expense of $15 million ($9 million after-tax) and $45 million
($27 million after-tax), respectively.
(4) As a result of the corporate staff reduction program initiated during the
fourth quarter of 1994, the company recorded in 1994 a pretax charge of $34
million in administrative and general expense for estimated benefits,
primarily termination allowances, to be paid to employees affected by the
program. At September 30, 1995, the amount of unpaid benefits remaining on
the consolidated balance sheet was $19 million. Approximately 100 employees
were terminated during the third quarter of 1995, bringing the total number
of terminated employees to approximately 500.
(5) Capitalized interest totaled $9 million for the third quarter of 1995 and
$8 million for the third quarter of 1994. For the first nine months of 1995
and 1994, capitalized interest totaled $25 million and $26 million,
respectively.
(6) Cash Flow Information:
During the first nine months of 1995, approximately 700,000 shares of
Unocal common stock, valued at $20 million, were purchased by the trustee
of the Unocal Savings Plan (the "Plan") from Unocal. The trustee used
Unocal's matching contributions to the Plan, which were expensed in
Unocal's consolidated earnings statement, to purchase the shares. In the
consolidated cash flow statement for 1995, the issuance of the
4
<PAGE>
Unocal common stock and the matching contribution expense were treated as
noncash transactions since the resulting effect on cash flow was zero.
(7) Income Taxes:
The components of pre-tax earnings and the provision (benefit) for income
taxes were as follows:
<TABLE>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
---------------------------------------------------------
Millions of Dollars 1995 1994 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes:
<S> <C> <C> <C> <C>
United States ........................................... $ (7) $ (20) $ (2) $ 23
Foreign ................................................. 113 156 364 343
- ------------------------------------------------------------------------------------------------------------------------------------
Total ................................................ $ 106 $ 136 $ 362 $ 366
Income Taxes:
Current
Federal .............................................. $ (1) $ 10 $ 15 $ 39
State ................................................ -- 4 5 11
Foreign .............................................. 45 74 152 184
- ------------------------------------------------------------------------------------------------------------------------------------
Total current ...................................... $ 44 $ 88 $ 172 $ 234
Deferred
Federal .............................................. $ 1 $ (23) $ (18) $ (57)
State ................................................ (7) (4) (24) (5)
Foreign .............................................. 9 5 21 2
- ------------------------------------------------------------------------------------------------------------------------------------
Total deferred ..................................... $ 3 $ (22) $ (21) $ (60)
- ------------------------------------------------------------------------------------------------------------------------------------
Total income taxes ......................................... $ 47 $ 66 $ 151 $ 174
</TABLE>
Reconciliation of income taxes at the federal statutory rate of 35% to tax
provision (benefit):
<TABLE>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
--------------------------------------------------------
Millions of Dollars 1995 1994 1995 1994
----------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes and cumulative effect
<S> <C> <C> <C> <C>
of accounting changes ......................................... $ 106 $ 136 $ 362 $ 366
Tax at federal statutory rate ...................................... $ 37 $ 48 $ 126 $ 128
Foreign taxes in excess of statutory rate .......................... 18 22 52 56
Dividend exclusion ................................................. (4) (3) (11) (10)
Investment tax credits ............................................. (5) -- (16) --
Other .............................................................. 1 (1) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total provision ............................................... $ 47 $ 66 $ 151 $ 174
</TABLE>
(8) Long Term Debt and Credit Agreements:
During March 1995, the company established two credit facilities with banks for
general corporate purposes: a $200 million revolving credit facility maturing in
March 1996; and a $50 million credit facility maturing in March 1998, which the
company has fully drawn. Borrowings under these two credit facilities bear
interest at different margins above London Interbank Offered Rates, and the $200
million credit facility requires payment of a commitment fee on the undrawn
portion. In March 1995, the company redeemed $200 million of floating-rate
Eurodollar notes due in 1996. Floating-rate commercial paper and the new $50
million bank credit facility were used to refinance this debt. In March and May
of 1995, the company issued $250 million of fixed rate medium term notes with an
average maturity of 9 years and an average interest rate of 7.7%. Proceeds were
used to refinance commercial paper. In May 1995, the company retired $250
million of 9-5/8% notes. This debt was refinanced with $200 million of 7.20%
notes due in 2005 and floating-rate commercial paper. In October 1995, the
company issued a $100 million of fixed rate medium term note with a maturity of
12 years and an interest rate of 6.72%. Proceeds were used to refinance floating
rate commercial paper.
5
<PAGE>
(9) Financial Instruments
At September 30, 1995, there were 21 outstanding currency forward contracts
to purchase 33 million Pounds Sterling for $50 million. The obligations
will come due during the period from October 1995 to July 2000. The fair
market value of these currency contracts at September 30, 1995, was
approximately $1 million in assets.
The company did not terminate the interest rate swap agreement that was
entered into in 1986 to hedge the $200 million floating-rate Eurodollar
notes which were redeemed early in March 1995. The interest rate swap,
maturing in 1996, is currently used to hedge floating-rate debt consisting
of $150 million of outstanding commercial paper and the draw-down of the
$50 million credit facility as discussed in Note 8. At September 30, 1995,
the fair value of all the interest rate swap agreements was approximately
$13 million in liabilities based on quoted market prices of comparable
instruments.
The carrying value of debt-related currency swaps in the amount of $124
million was classified as a long-term receivable at September 30, 1995. As
a result, the principal amounts of the company's foreign-currency debt,
when stated at the current exchange rates, totaled $352 million, an
increase of $132 million from year-end 1994. The difference between the
carrying value of the currency swaps and the increase in the principal
amount of the related foreign-currency debt represents the net loss that
would have occurred if the currency swaps and debt were settled at the end
of September 1995. This classification has no effect on the consolidated
cash flow statement.
At September 30, 1995, the company had outstanding commodity futures
contracts covering the sale of 615 thousand barrels of crude oil and 18
billion cubic feet of natural gas with notional amounts totaling $11
million for crude oil and $29 million for natural gas. The fair values of
the contracts, based on quoted market prices, were insignificant at
September 30, 1995.
(10) Accrued abandonment, restoration and environmental liabilities:
At September 30, 1995, the company had accrued $470 million for the
estimated future costs to abandon and remove wells and production
facilities, primarily related to worldwide offshore operations. The total
costs for abandonments are estimated to be $850 million to $990 million, of
which the lower end of the range is used to calculate the amount to be
amortized.
At September 30, 1995, the company's reserve for environmental remediation
obligations totaled $227 million, of which $97 million was included in
other current liabilities. The reserve included estimated probable future
costs of $32 million for federal Superfund and comparable state-managed
multiparty disposal sites; $32 million for formerly-operated sites for
which the company has remediation obligations; $76 million for sites
related to businesses or operations that have been sold with contractual
remediation or indemnification obligations; $67 million for company-owned
or controlled sites where facilities have been closed or operations shut
down; and $20 million for sites owned and/or controlled by the company and
utilized in its ongoing operations.
(11) Contingent Liabilities:
The company has certain contingent liabilities with respect to material
existing or potential claims, lawsuits and other proceedings, including
those involving environmental, tax and other matters, certain of which are
discussed more specifically below. The company accrues liabilities when it
is probable that future costs will be incurred and such costs can be
reasonably estimated. Such accruals are based on developments to date, the
company's estimates of the outcomes of these matters and its experience in
contesting, litigating and settling other matters. As the scope of the
liabilities becomes better defined, there will be changes in the estimates
of future costs, which could have a material effect on the company's future
results of operations and financial condition or liquidity.
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
6
<PAGE>
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 amount of the company's liabilities is
indeterminate due to the potentially large number of claimants for any
given site or exposure, the unknown magnitude of possible contamination,
the imprecise and conflicting engineering evaluations and estimates of
proper cleanup methods and costs, the unknown timing and extent of the
corrective actions that may be required, the uncertainty attendant to the
possible award of punitive damages, the recent judicial recognition of new
causes of action, the present state of the law, which often imposes joint
and several and retroactive liabilities on PRPs, and the fact that the
company is usually just one of a number of companies identified as a PRP.
As disclosed in Note 10, at September 30, 1995, the company had accrued
$227 million for estimated future environmental assessment and remediation
costs at various sites where liability for such costs is 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.
The company has received a Notice of Proposed Deficiency from the Internal
Revenue Service (IRS) related to a 1985 takeover attempt and efforts
undertaken to defeat it. The proposed deficiency, 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 deficiency. In February 1995, the company filed a protest of the
proposed deficiency with 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.
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.
(12) Unocal guarantees certain indebtedness of Union Oil. For the information of
holders of such debt, summarized financial information for Union Oil and
its consolidated subsidiaries is presented below:
<TABLE>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
Millions of Dollars ................................................................ 1995 1994* 1995 1994 *
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues ..................................................................... $ 2,005 $ 2,020 $ 6,201 $ 5,981
Total costs and other deductions, including income taxes ........................... 1,945 1,949 5,989 5,788
Earnings before cumulative effect of accounting change ............................. 60 71 212 193
Cumulative effect of accounting change ............................................. -- -- -- (277)
Net earnings (loss) ................................................................ 60 71 212 (84)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Restated to include the effects of the accounting change discussed in Note 3.
7
<PAGE>
(12) summarized financial information for Union Oil and its consolidated
subsidiaries (continued)
<TABLE>
At September 30 At December 31
----------------------------------
Millions of Dollars 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets ..................................................................................... $1,531 $1,528
Noncurrent assets .................................................................................. 8,206 7,822
Current liabilities ................................................................................ 1,129 1,275
Noncurrent liabilities ............................................................................. 5,672 5,264
Shareholder's equity ............................................................................... 2,936 2,811
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
UNOCAL CORPORATION
OPERATING HIGHLIGHTS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
---------------------------------------------------
1995 1994 1995 1994
----------------------------------------------------------------------------------------------------------------------------------
NET DAILY PRODUCTION (a)
Crude oil and condensate (thousand barrels):
<S> <C> <C> <C> <C>
United States ...................................................... 123.6 135.8 126.4 139.1
----------------------------------------------------------
Foreign:
Far East .................................................... 81.9 92.2 84.6 85.3
Other ....................................................... 29.6 33.8 30.3 36.4
----------------------------------------------------------
Total Foreign ............................................ 111.5 126.0 114.9 121.7
----------------------------------------------------------
Worldwide .......................................................... 235.1 261.8 241.3 260.8
==========================================================
Natural Gas (million cubic feet):
United States ....................................................... 1,077 1,115 1,109 1,117
---------------------------------------------------------
Far East ..................................................... 577 653 597 605
Other
55 35 48 55
----------------------------------------------------------
Total Foreign ............................................. 632 688 645 660
----------------------------------------------------------
Worldwide ........................................................... 1,709 1,803 1,754 1,777
=========================================================
Natural gas liquids (thousand barrels) ............................. 20.2 23.0 21.4 21.4
Geothermal (million kilowatt-hours) ................................ 17.7 21.6 16.0 20.6
Input to crude oil processing units (thousand ...................... 220 235 207 230
barrels daily) (b)
Sales of petroleum products (thousand barrels ...................... 269 247 251 243
daily) (b)
AVERAGE SALES PRICES Crude oil and condensate (per barrel):
United States ................................................. $ 14.83 $ 14.48 $ 15.17 $ 12.83
Foreign:
Far East ............................................... $ 15.26 $ 15.61 $ 16.11 $ 14.46
Other .................................................. $ 15.12 $ 15.73 $ 15.84 $ 14.05
Total Foreign ....................................... $ 15.21 $ 15.66 $ 16.01 $ 14.30
----------------------------------------------------------
Worldwide ..................................................... $ 14.98 $ 14.95 $ 15.51 $ 13.41
==========================================================
Natural gas (per thousand cubic feet):
United States ................................................. $ 1.43 $ 1.64 $ 1.49 $ 1.85
Foreign:
Far East ............................................... $ 2.05 $ 1.97 $ 2.00 $ 1.99
Other .................................................. $ 1.21 $ 1.65 $ 1.14 $ 1.77
Total Foreign ....................................... $ 1.97 $ 1.96 $ 1.94 $ 1.97
----------------------------------------------------------
Worldwide ..................................................... $ 1.64 $ 1.76 $ 1.66 $ 1.89
==========================================================
</TABLE>
(a) Includes production sharing agreements on a gross basis.
(b) Excludes volumes of The UNO-VEN Company. The 1994 volumes have been
restated to exclude The UNO-VEN Company.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Unocal's net earnings for the third quarter of 1995 were $59 million, or 20
cents per common share, compared with $70 million, or 25 cents per common share,
in the third quarter of 1994. For the first nine months of 1995, net earnings
were $211 million, or 75 cents per common share. This compared with a nine-month
net loss of $85 million, or 46 cents per common share, for 1994. The
comparability of the company's reported earnings for these periods was affected
by the following special items:
<TABLE>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
----------------------------------------------------
Millions of dollars 1995 1994 1995 1994
-------------------------------------------------------------------------------------------------------------------------------
Special items:
<S> <C> <C> <C> <C>
Cumulative effect of accounting change ............................. $-- $-- $-- $(277)
Write-down of investment and provision for abandonment
and remediation of the Guadalupe oil field ...................... -- (4) -- (31)
Florida and Alaska OCS settlement .................................. 18 -- 18 --
Environmental provision ............................................ (1) (4) (19) (5)
Litigation provision ............................................... (5) -- (17) (17)
Mesa settlement .................................................... -- -- -- 24
Asset sales ........................................................ 1 11 38 13
Write-down of assets ............................................... -- (2) (10) (6)
Other .............................................................. (4) -- (4) --
-------------------------------------------------------------------------------------------------------------------------------
Total ........................................................... $ 9 $ 1 $ 6 $(299)
</TABLE>
Excluding the special items, third quarter 1995 net operating earnings were $50
million, or 17 cents per common share, compared with $69 million, or 25 cents
per common share, in the third quarter of 1994. The 1995 year-to-date earnings,
excluding special items, were $205 million, or 72 cents per common share,
compared with $214 million, or 77 cents per common share, a year ago. Both the
quarter and the nine-month 1995 results reflected lower worldwide natural gas
prices and crude oil production, as well as depressed refined product margins in
the West Coast markets. On the positive side, both periods had the benefits of
higher average worldwide crude oil sales prices and increased refined product
sales. The year-to-date results also reflected higher agricultural product
sales.
The nine-month 1995 consolidated revenues were $6.2 billion, up from $5.98
billion for the same period last year. The increased revenues were primarily due
to higher sales volumes of certain refined products and significantly improved
prices and higher volumes for nitrogen-based fertilizers. These increases were
partially offset by lower domestic natural gas prices.
Petroleum exploration and production. Third quarter earnings for 1995 totaled
$98 million, compared with $122 million in 1994. Earnings for the nine-month
period of 1995 were $312 million, compared with $292 million in 1994. The 1995
third-quarter and nine-month earnings included special items consisting of a
one-time benefit from a $34 million pretax settlement to recover lease bonus and
rentals relating to Outer Continental Shelf leases offshore Florida and Alaska,
and the effects of asset sales. In addition, nine-month 1995 earnings included
special items consisting of asset write-downs. Third quarter and nine-month 1995
earnings excluding special items were $81 million and $294 million,
respectively. Both the third quarter and nine months 1994 periods included
special items consisting of asset sales and charges for the Guadalupe oil field.
Excluding these special items, third quarter and nine-month 1994 earnings were
$116 million and $315 million, respectively.
The lower operating earnings for both the quarter and nine months of 1995
reflected lower average worldwide natural gas sales prices and crude oil
production. However, both periods benefited from higher average worldwide crude
oil sales prices and increased natural gas production from the Gulf of Mexico.
The nine-month results also reflected lower domestic operating expense and
foreign exploration expense.
10
<PAGE>
REFINING AND MARKETING. This segment includes the results of 76 Products
Company, Unocal's West Coast refining and marketing unit, and other marketing
operations. The 76 Products Company recorded earnings of $6 million in the third
quarters of both 1995 and 1994. For the first nine months of 1995, 76 Products
Company reported a loss of $17 million, compared with earnings of $27 million in
1994. While there were no special items recorded during 1995, the 1994 results
included special items consisting of asset write-downs, an environmental
provision, and the effect of asset sales. Excluding the special items, the third
quarter and nine-month 1994 earnings were $10 million and $34 million,
respectively.
The lower 1995 operating earnings, especially for the nine-month period,
reflected lower refined product margins in the West Coast markets primarily due
to a refinery turnaround in the first quarter. Partially offsetting these
decreases were increased refined product sales volumes and lower operating and
selling expenses.
GEOTHERMAL. Third quarter 1995 earnings were $7 million, compared with $11
million in 1994. Nine-month earnings were $22 million in 1995, compared with $25
million in 1994. Excluding a gain from the sale of a small interest in the
Indonesian geothermal operations, this year's third quarter and nine-month
earnings were $5 million and $15 million, respectively. The earnings were
adversely affected by discretionary electrical generating curtailments by the
public utility at The Geysers in Northern California, which ended during the
third quarter, and lower generation at MakBan in the Philippines. The segment
also benefited from higher Indonesia earnings as the company continues to expand
and develop its activities.
DIVERSIFIED BUSINESSES. This group consists of the company's agricultural
products, carbon and minerals, and real estate operations; and the company's
equity interests in various pipelines and The UNO-VEN Company. Third quarter
1995 earnings were $32 million, compared with $31 million in 1994. The
nine-month 1995 earnings were $156 million, compared to $104 million last year.
The nine-month 1995 results benefited from significant increases in nitrogen
fertilizer sales prices and volumes and higher carbon earnings. The third
quarter 1995 earnings were impacted by lower lanthanide earnings and costs
associated with the start-up of the Kennewick, Washington, fertilizer
manufacturing plant and the turnaround at the Kenai, Alaska, plant. Offsetting
these negative factors were the continuing strong sales prices in both the
domestic and export markets.
Earnings for the first two quarters of 1995 were higher than the third quarter
due to the seasonality of the agricultural products market.
CORPORATE AND OTHER. This category includes administrative and general expense,
net interest expense, environmental and litigation expense and other unallocated
items. Third quarter and nine-month 1995 expenses were $84 million ($74 million
excluding special items) and $263 million ($239 million excluding special
items), respectively. For the third quarter and nine-month 1994 periods,
expenses were $101 million ($98 million excluding special items) and $265
million ($271 million excluding special items), respectively. Special items for
each reporting period included provisions for environmental remediation and
litigation. The special items for the nine months of 1995 included a $16 million
gain from the sale of the process, technology and licensing (PTL) business and a
$4 million charge for a deferred tax adjustment. For the same period of 1994,
special items included a $24 million gain from the settlement of the Mesa
lawsuit.
The reductions principally reflected lower administrative and general expense
and benefits from California tax credits earned as a result of the capital
investment required to begin manufacturing reformulated gasolines (RFG) to
specifications set by the Federal Environmental Protection Agency and the
California Air Resources Board (CARB).
FINANCIAL CONDITION AND CAPITAL EXPENDITURES
For the first nine months of 1995, cash flows from operating activities,
including working capital changes, were $676 million, down from $855 million in
1994. The decrease was primarily due to reduced operating earnings.
Proceeds from asset sales were $130 million for the first nine months of 1995,
compared to $136 million in the same period a year ago. The 1995 proceeds were
mainly from the sale of nonstrategic oil and gas properties and the sale of the
PTL business.
Capital expenditures for the nine months of 1995 totaled $967 million, compared
with $839 million a year ago. The increase primarily reflected construction at
both the Los Angeles and San Francisco refineries to prepare for manufacturing
RFG as well as development in the Gulf of Mexico.
11
<PAGE>
Consolidated working capital at September 30, 1995 was $412 million, an increase
of $141 million from the 1994 year-end level of $271 million. The company's
total debt was $3,902 million, an increase of $436 million from the year-end
1994 level. Of the total increase, $132 million was due to the 1995
classification of debt-related currency swaps as required by new financial
accounting standards. See Notes 8 and 9 to the consolidated financial statements
for additional information.
ENVIRONMENTAL MATTERS
At September 30, 1995, the company's reserve for environmental remediation
obligations totaled $227 million, of which $97 million was included in other
current liabilities. During the first nine months of 1995, cash payments of $69
million were applied against the reserves and an additional $34 million in
liabilities was recorded to the reserve account, primarily due to changes in
estimated future remediation costs for numerous sites. At year-end 1994, Unocal
reported 60 sites where it had received notification from the federal
Environmental Protection Agency that the company may be a potentially
responsible party (PRP). In addition, various state agencies and private parties
had identified 30 other sites that may require investigation and remediation.
During the first nine months of 1995, 11 sites were added to the list and 32
sites were removed, resulting in a total of 69 sites. The company removed the 32
sites from its list of PRP sites in the third quarter because there was no
evidence of potential liability and there had been no further indication of
liability by government agencies or third parties at these sites for at least a
12 month period. Of the total 69 sites, the company has denied responsibility at
2 sites and at another 14 sites the company's liability, although unquantified,
appears to be de minimis. The total also includes 24 sites which are under
investigation or in litigation, for which the company's potential liability is
not presently determinable. Of the remaining 29 sites, where probable costs can
be reasonably estimated, a reserve of $32 million was included in the total
environmental reserve as of September 30, 1995.
FUTURE ACCOUNTING CHANGE
In the fourth quarter of 1995, the company will adopt Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long Lived
Assets and for Long-Lived Assets to be Disposed Of". The after-tax charge for
impairment of oil and gas properties and other operating assets is estimated to
approximately $50 million.
OUTLOOK
In August, the company and Torch Energy Advisors Incorporated (Torch) reached an
agreement in principle on the sale price for the company's crude oil and natural
gas holdings in California. The company and Torch are continuing negotiations
toward a final agreement. The company expects to receive more than $500 million
in cash from the sale of the properties if an agreement is reached. The company
could potentially receive additional payments that are contingent upon the price
per barrel received by Torch from the properties' future oil production. The
sale is not expected to have a material effect on the company's future operating
earnings.
Hurricane Opal threatened off-shore platforms in the Gulf of Mexico in October,
resulting in the shut-in of production. Consequently, the company may report
lower natural gas production for the fourth quarter.
In October, Unocal entered into agreements with Circle K Corporation, pursuant
to which Circle K will sell Unocal 76-branded gasoline at approximately 400
convenience store sites in Arizona. In addition, Unocal will supply its gasoline
to approximately twenty Circle K sites in the Las Vegas, Nevada, market and the
parties will jointly develop eight new service station/convenience store sites
in the Las Vegas area.
In November, the company entered into an agreement with Oklahoma City-based
Devon Energy Corporation for the sale of the company's 80 percent working
interest in the Worland oil and gas field and a natural gas plant in Wyoming for
$51 million.
Typhoon Angela struck the island of Luzon in the Philippines during the first
week in November, damaging the National Power Corporation of the Philippines'
(NPC) transmission facilities throughout central and southern Luzon and the
power plants near Tiwi. The company and NPC are currently assessing the damages
and steps to be taken to bring NPC's power plants back on-line. Consequently,
12
<PAGE>
the company anticipates that generation at Tiwi will be curtailed for the
remainder of the year.
Modifications to the company's refineries to prepare for manufacturing RFG, as
required by CARB specifications, are nearly complete, and the actual costs will
total less than $400 million, approximately $50 million less than originally
estimated.
The company will continue to be affected by the uncertainty and volatility of
crude oil and natural gas prices. Striving to further reduce operating expenses
and corporate administrative and general expense is an ongoing objective for the
company.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There is incorporated by reference the information regarding environmental
remediation reserves in Note 10 to the consolidated financial statements in Item
1 of Part I, the discussion thereof in the Environmental Matters section of
Management's Discussion and Analysis in Item 2 of Part I, and the information
regarding contingent liabilities in Note 11 to the consolidated financial
statements in Item 1 of Part I.
1. In the litigation previously reported as Forty Niner Truck Plaza Inc., et
--------------------------------
al. v. Unocal Corporation, et al., No. 531830 in California Superior Court
---------------------------------
for Sacramento County, the trial court denied the company's Motion for
Judgment Notwithstanding the Verdict but granted the Motion for a New
Trial. The Orders were entered on August 21, 1995.
2. In a matter previously reported concerning claimed NPDES permit violations
at platforms operated by Unocal in the Cook Inlet, the Environmental
Protection Agency and Greenpeace cases have been settled. The company's
settlement payments are $134,000 in civil penalties to the EPA; $499,000 to
Greenpeace; and $36,524 to the Trustees for Alaska as payment for Unocal's
share of attorney's fees.
ITEM 5. OTHER INFORMATION
The principal executive offices of Unocal are located at 1201 West Fifth Street,
Los Angeles, California 90017, and the telephone number at that address is (213)
977-7600. On and after November 27, 1995, the principal executive offices will
be located at 2141 Rosecrans Avenue, Suite 4000, El Segundo, California 90245,
and the telephone number at that address will be (310) 726-7600.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
11 Unocal Corporation statement regarding computation of earnings per common
share for the three months ended September 30, 1995 and 1994 and for the
nine-month periods ended September 30, 1995 and 1994.
12.1 Unocal Corporation statement regarding computation of ratio of earnings
to fixed charges for the nine months ended September 30, 1995 and 1994.
12.2 Unocal Corporation statement regarding computation of ratio of earnings
to combined fixed charges and preferred stock dividends for the nine
months ended September 30, 1995 and 1994.
12.3 Union Oil Company of California statement regarding computation of ratio
of earnings to fixed charges for the nine months ended September 30, 1995
and 1994.
27 Financial data schedule for the nine months ended September 30, 1995
(included only in the copy of this report filed electronically with
the Commission).
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
(B) REPORTS ON FORM 8-K
During the third quarter of 1995:
1. Current Report on Form 8-K dated and filed July 24, 1995, for the purpose
of reporting, under Item 5, Unocal's 1995 second quarter and six months
earnings.
2. Current Report on Form 8-K dated and filed August 29, 1995, for the purpose
of reporting, under Item 5, Unocal's pending sale of its California
properties.
During the fourth quarter of 1995 to the date hereof:
1. Current Report on Form 8-K dated and filed October 26, 1995, for the
purpose of reporting, under Item 5, Unocal's 1995 third quarter and nine
months earnings.
14
<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 8, 1995 By: /s/ CHARLES S. MCDOWELL
-----------------------
Charles S. McDowell,
Vice President and Comptroller
15
<PAGE>
EXHIBIT 11
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Computations of net earnings per share for the periods ended September 30, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
----------------------------------------------------------------
Dollars in thousands except per share amounts 1995 1994 1995 1994
-----------------------------------------------------------------------------------------------------------------------------------
Primary
<S> <C> <C> <C> <C>
Net earnings (loss) ........................................... $ 58,672 $ 69,925 $ 210,753 $ (85,053)
Less: preferred stock dividends .............................. 8,969 8,969 26,906 26,906
-------------------------------------------------------------
Net earnings (loss) applicable to common stock ................ $ 49,703 $ 60,956 $ 183,847 $(111,959)
Average shares of common stock outstanding .................... 246,666 242,954 245,754 242,269
Dilutive common stock equivalent shares ....................... 991 1,084 961 1,010
-------------------------------------------------------------
247,657 244,038 246,715 243,279
Net earnings (loss) per common share .................... $ .20 $ .25 $ .75 $ (.46)
Fully Diluted
Net earnings (loss) applicable to common stock ................ $ 49,703 $ 60,956 $ 183,847 $(111,959)
Add: preferred stock dividends ............................... 8,969 8,969 26,906 26,906
-------------------------------------------------------------
Net earnings (loss) ........................................... $ 58,672 $ 69,925 $ 210,753 $ (85,053)
Average shares of common stock outstanding .................... 246,666 242,954 245,754 242,269
Dilutive common stock equivalent shares ....................... 1,565 1,750 1,512 1,631
Conversion of preferred stock* ................................ 16,667 16,667 16,667 16,667
-------------------------------------------------------------
264,898 261,371 263,933 260,567
Net earnings (loss) per common share .................... $ .22 $ .27 $ .80 $ (.33)
</TABLE>
* The effect of assumed conversion of preferred stock on earnings per common
share is antidilutive.
EXHIBIT 12.1
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30
-------------------
Dollars in millions 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Earnings before cumulative effect of accounting changes .............................................. $211 $192
Provision for income taxes ........................................................................... 151 174
---- ----
Earnings subtotal .............................................................................. 362 366
Fixed charges included in earnings:
Interest expense ............................................................................... 218 209
Interest portion of rentals .................................................................... 37 41
---- ----
Subtotal .................................................................................... 255 250
Earnings available before fixed charges .............................................................. $617 $616
==== ====
Fixed charges:
Fixed charges included in earnings ............................................................. $255 $250
Capitalized interest ........................................................................... 25 26
---- ----
Total fixed charges ......................................................................... $280 $276
==== ====
Ratio of earnings to fixed charges ................................................................... 2.2 2.2
</TABLE>
EXHIBIT 12.2
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30
Dollars in millions --------------------
1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Earnings before cumulative effect of accounting changes .............................................. $211 $192
Provision for income taxes ........................................................................... 151 174
---- ----
Earnings subtotal .............................................................................. 362 366
Fixed charges included in earnings:
Interest expense ............................................................................... 218 209
Interest portion of rentals .................................................................... 37 41
---- ----
Subtotal .................................................................................... 255 250
Earnings available before fixed charges .............................................................. $617 $616
==== ====
Fixed charges and preferred stock dividends:
Fixed charges included in earnings ............................................................. $255 $250
Capitalized interest ........................................................................... 25 26
Preferred stock dividends * .................................................................... 43 43
---- ----
Total fixed charges and preferred stock dividends ........................................... $323 $319
==== ====
Ratio of earnings to fixed charges and preferred stock dividends ..................................... 1.9 1.9
</TABLE>
* For purposes of this ratio, preferred stock dividends are adjusted to a
pre-tax basis.
EXHIBIT 12.3
UNION OIL COMPANY OF CALIFORNIA AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30
-----------------
Dollars in millions 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Earnings before cumulative effect of accounting change ............................................... $212 $193
Provision for income taxes ........................................................................... 151 174
---- ----
Earnings subtotal .............................................................................. 363 367
Fixed charges included in earnings:
Interest expense ............................................................................... 218 209
Interest portion of rentals .................................................................... 37 41
---- ----
Subtotal .................................................................................... 255 250
Earnings available before fixed charges .............................................................. $618 $617
==== ====
Fixed charges:
Fixed charges included in earnings ............................................................. $255 $250
Capitalized interest ........................................................................... 25 26
---- ----
Total fixed charges ......................................................................... $280 $276
==== ====
Ratio of earnings to fixed charges ................................................................... 2.2 2.2
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 168
<SECURITIES> 0
<RECEIVABLES> 932
<ALLOWANCES> 0
<INVENTORY> 326
<CURRENT-ASSETS> 1,541
<PP&E> 18,275
<DEPRECIATION> 11,308
<TOTAL-ASSETS> 9,733
<CURRENT-LIABILITIES> 1,129
<BONDS> 3,895
<COMMON> 247
0
513
<OTHER-SE> 2,195
<TOTAL-LIABILITY-AND-EQUITY> 9,733
<SALES> 5,997
<TOTAL-REVENUES> 6,201
<CGS> 3,686
<TOTAL-COSTS> 5,839
<OTHER-EXPENSES> 2,153
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 218
<INCOME-PRETAX> 362
<INCOME-TAX> 151
<INCOME-CONTINUING> 211
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 211
<EPS-PRIMARY> .75
<EPS-DILUTED> 0
</TABLE>
