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 JUNE 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 July 31, 1995:
246,316,309
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED EARNINGS UNOCAL CORPORATION
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30 Ended June 30
-----------------------------------------
Dollars in millions except per share amounts 1995 1994 1995 1994
- -----------------------------------------------------------------------------------------
<S>
Revenues <C> <C> <C> <C>
Sales and operating revenues (a) $2,238 $2,023 $ 4,064 $3,852
Interest, dividends and miscellaneous income 14 4 26 53
Equity in earnings of affiliated companies 24 28 45 52
Gain (loss) on sales of assets 14 (10) 61 4
- ---------------------------------------------------------------------------------------
Total revenues 2,290 2,045 4,196 3,961
Costs and Other Deductions
Crude oil and product purchases 982 783 1,657 1,394
Operating expense 448 400 866 832
Selling, administrative and general 117 128 229 248
expense
Depreciation, depletion and 240 253 467 510
amortization
Dry hole costs 15 10 19 34
Exploration expense 26 29 55 54
Interest expense 76 67 146 141
Excise, property and other operating taxes (a) 261 265 501 518
- -------------------------------------------------------------------------------------------
Total costs and other deductions 2,165 1,935 3,940 3,731
- -------------------------------------------------------------------------------------------
Earnings before income taxes 125 110 256 230
Income taxes 47 51 104 108
- -------------------------------------------------------------------------------------------
Earnings before cumulative effect of 78 59 152 122
accounting changes
Cumulative effect of accounting changes - - - (277)
- -------------------------------------------------------------------------------------------
Net Earnings (Loss) $ 78 $ 59 $ 152 $ (155)
Dividends on preferred stock 9 9 18 18
- -------------------------------------------------------------------------------------------
Net Earnings (Loss) Applicable to Common Stock $ 69 $ 50 $ 134 $ (173)
========================================
Earnings (loss) per share of common stock (b)
Before cumulative effect of accounting changes $ .28 $ .21 $ .55 $ .43
Cumulative effect of accounting changes - - - (1.14)
----------------------------------------
Net earnings (loss) per share $ .28 $ .21 $ .55 $ (.71)
========================================
Cash dividends declared per share of common stock $ .20 $ .20 $ .40 $ .40
- -------------------------------------------------------------------------------------------
(a) Includes consumer excise taxes of $ 228 $ 234 $ 437 $ 457
(b)Based on net earnings (loss)
applicable to common stock divided by
weighted average shares outstanding 245,804 242,210 245,298 241,926
(in thousands)
See Notes to Consolidated Financial Statements.
</TABLE>
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<PAGE> 2
CONSOLIDATED BALANCE SHEET UNOCAL CORPORATION
(UNAUDITED)
June 30 December 31
---------------------
Millions of Dollars 1995 1994
- ----------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 130 $ 148
Accounts and notes receivable 893 897
Inventories
Crude oil 30 31
Refined products 136 161
Chemicals 39 46
Minerals 19 16
Supplies, merchandise and other 89 87
Deferred income taxes 97 109
Other current assets 42 33
---------------------------------------------------------------------
Total current assets 1,475 1,528
Investments and long-term receivables 1081 895
Properties (net of accumulated depreciation
and other allowances of $11,168 in 1995 and
$11,096 in 1994) 6,894 6,823
Other assets 119 91
- ----------------------------------------------------------------------
Total assets $9,569 $9,337
LIABILITIES
Current liabilities
Accounts payable $ 604 $ 688
Taxes payable 165 226
Current portion of long-term debt and capital 7 5
lease obligations
Interest payable 76 87
Other current liabilities 218 251
---------------------------------------------------------------------
Total current liabilities 1,070 1,257
Long-term debt and capital lease obligations 3,771 3,461
Deferred income taxes 603 643
Accrued abandonment, restoration and 631 622
environmental liabilities
Other deferred credits and liabilities 588 539
- ---------------------------------------------------------------------
Total liabilities 6,663 6,522
- ---------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Preferred stock ($0.10 par value; stated at 513 513
liquidation value of $50 per share)
Common stock ($1 par value) 246 244
Capital in excess of par value 289 237
Foreign currency translation adjustment (10) (13)
Unearned portion of restricted stock issued (15) (13)
Retained earnings 1,883 1,847
- ---------------------------------------------------------------------
Total stockholders' equity 2,906 2,815
- ---------------------------------------------------------------------
Total liabilities and stockholders'equity $9,569 $9,337
- ---------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
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<PAGE> 3
CONSOLIDATED CASH FLOWS UNOCAL CORPORATION
(Unaudited)
For the Six Months
Ended June 30
-------------------
Millions of Dollars 1995 1994
Cash Flows from Operating Activities
Net earnings (loss) $152 $(155)
Adjustments to reconcile net earnings (loss) to
net cash provided by operating activities
Cumulative effect of accounting changes - 277
Depreciation, depletion and amortization 467 509
Dry hole costs 19 34
Deferred income taxes (24) (26)
Gain on sales of assets (before-tax) (61) (4)
Other - 54
Working capital and other changes related to operations
Accounts and notes receivable 21 20
Inventories 30 23
Accounts payable (84) (127)
Taxes payable (61) (36)
Other (101) (41)
- ------------------------------------------------------------------------------
Net cash provided by operating activities 358 528
Cash Flows from Investing Activities
Capital expenditures (includes dry hole costs) (596) (518)
Proceeds from sales of assets 128 55
- ------------------------------------------------------------------------------
Net cash used in investing activities (468) (463)
Cash Flows from Financing Activities
Long-term borrowings 712 547
Reduction of long-term debt and capital lease obligations (536) (570)
Dividends paid on preferred stock (18) (18)
Dividends paid on common stock (99) (97)
Other 33 18
- ------------------------------------------------------------------------------
Net cash provided by (used) in financing activities 92 (120)
Decrease in cash and cash equivalents (18) (55)
Cash and cash equivalents at beginning of year 148 205
Cash and cash equivalents at end of period $130 $ 150
- ------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $152 $ 151
Income taxes (net of refunds) $184 $ 155
See Notes to Consolidated Financial Statements.
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<PAGE> 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) The consolidated financial statements included herein are unaudited
and, in the opinion of management, include all adjustments necessary for
a fair presentation of financial position and results of operations.
All adjustments are of a normal recurring nature, 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 1994 Annual Report on Form 10-K.
Results for the six months ended June 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 second quarter and the
first six months of 1994 have been restated to include the cumulative
effect of the accounting change as well as the effect on the current
periods. 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 second quarter and six months earnings was a
reduction in depreciation and depletion expense of $15 million ($9
million after-tax) and $30 million ($18 million after-tax),
respectively.
(4) As a result of the corporate staff reduction program initiated during
the fourth quarter 1994, the company recorded in 1994 a pretax charge of
$34 million in administrative and general expense for estimated
benefits, primarily termination allowance, to be paid to employees
affected by the program. At June 30, 1995, the amount of unpaid
benefits remaining on the consolidated balance sheet was $28 million.
Approximately 200 employees were terminated during the second quarter of
1995, bringing the total number of terminated employees to approximately
400.
(5) Capitalized interest totaled $8 million for the second quarter of 1995
and $9 million for the second quarter of 1994. For the first six months
of 1995 and 1994, capitalized interest totaled $16 million and $18
million, respectively.
(6) Cash Flow Information:
During the first half of 1995, approximately 515,000 shares of
Unocal common stock, valued at $14 million, were purchased by the
trustee of the Unocal Savings Plan from Unocal. The trustee used
Unocal's 401(k) 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 Unocal shares and
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<PAGE> 5
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:
For The Three For The Six
Months Ended Ended Months
June 30 June 30
-------------------------------
Millions of Dollars 1995 1994 1995 1994
- ---------------------------------------------------------------------------
Earnings(loss) before income taxes:
United States $ (1) $ 28 $ 5 $ 43
Foreign 126 82 251 187
--------------------------------
Total $125 $110 $ 256 $ 230
Income Taxes:
Current
Federal $ 9 $ 9 $ 16 $ 29
State 2 3 5 7
Foreign 54 50 107 110
--------------------------------
Total current $ 65 $ 62 $ 128 $ 146
Deferred
Federal $(12) $ (11) $ (19) $(34)
State (11) - (17) (1)
Foreign 5 - 12 (3)
- ---------------------------------------------------------------------------
Total deferred $(18) $ (11) $ (24) $ (38)
- ---------------------------------------------------------------------------
Total income taxes $ 47 $ 51 $ 104 $ 108
Reconciliation of income taxes at the federal statutory rate of 35% to tax
provision (benefit):
For The Three For The Six
Months Ended Months Ended
June 30 June 30
---------------------------------
Millions of Dollars 1995 1994 1995 1994
- ---------------------------------------------------------------------------
Earnings before income taxes and
cumulative effect of accounting changes $125 $110 $256 $230
Tax at federal statutory rate $ 44 $ 39 $ 90 $ 81
Foreign taxes in excess of statutory rate 15 16 34 35
Dividend exclusion (4) (4) (8) (7)
Investment tax credits (7) - (11) -
Other (1) - (1) (1)
- ----------------------------------------------------------------------------
Total provision $ 47 $ 51 $104 $108
(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 March 1996; and a $50 million credit facility maturing
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 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 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.
(9) Financial Instruments:
During the first half of 1995, the company entered into 11 currency
forward contracts to purchase 21 million Pounds Sterling for $32 million
to hedge a series of known Pounds Sterling requirements. At June 30,
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<PAGE> 6
1995, there were 22 outstanding currency forward contracts to purchase
33 million Pounds Sterling for $50 million. The obligations will come due
during the period from July 1995 to July 2000. The fair market value of
these currency contracts at June 30, 1995, was approximately $1.3
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 retired 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 June
30, 1995, the fair value of all the interest rate swap agreements was
approximately $6 million in liabilities based on quoted market prices of
comparable instruments.
The carrying value of debt-related currency swaps in the amount of $133
million was classified as a long-term receivable at June 30, 1995. As
a result, the principal amounts of the company's foreign-currency debt,
when stated at the current exchange rates, totaled $356 million, an
increase of $136 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 June 1995. This classification has no effect on the consolidated
cash flow statement.
At June 30, 1995, the company had outstanding contracts covering 325
thousand barrels of crude oil and 13 billion cubic feet of natural gas
with notional amounts totaling $6 million for crude oil and $4 million
for natural gas. The fair values of the contracts, based on quoted
market prices, were insignificant at June 30, 1995.
(10) Accrued abandonment, restoration and environmental liabilities:
At June 30, 1995, the company had accrued $485 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 June 30, 1995, the company's reserves for environmental remediation
obligations totaled $243 million, of which $97 million were included in
other current liabilities. The reserve included estimated probable
future costs of $38 million for federal Superfund and comparable state-
managed multiparty disposal sites; $31 million for formerly-operated
sites for which the company has remediation obligations; $80 million for
sites related to businesses or operations that have been sold with
contractual remediation or indemnification obligations; $75 million for
company-owned or controlled sites where facilities have been closed or
operations shut down; and $19 million for sites owned and/or controlled
by the company and utilized in its ongoing operations.
(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 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
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<PAGE> 7
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 June 30, 1995, the company had accrued $243
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:
For the Three For the Six
Months Ended Months Ended
June 30 June 30
---------------------------------
Millions of Dollars 1995 1994* 1995 1994*
- -----------------------------------------------------------------------------
Total revenues $2,235 $2,045 $4,196 $3,961
Total costs and other deductions,
including income taxes 2,157 1,986 4,044 3,839
Earnings before cumulative effect 78 59 152 122
of accounting change
Cumulative effect of accounting change - - - (277)
Net earnings (loss) 78 59 152 (155)
--------------------------------------------------------------------------
At June 30 At December 31
-----------------------------
Millions of Dollars 1995 1994
- ----------------------------------------------------------------------------
Current assets $1,466 $1,528
Noncurrent assets 8,109 7,822
Current liabilities 1,039 1,275
Noncurrent liabilities 5,593 5,264
Shareholder's equity 2,943 2,811
- ----------------------------------------------------------------------------
*Restated to include the effect of accounting change as discussed in Note 3.
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<PAGE> 8
UNOCAL CORPORATION
(Unaudited) OPERATING HIGHLIGHTS
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30 Ended June 30
-----------------------------------------
1995 1994 1995 1994
- -----------------------------------------------------------------------------------
NET DAILY PRODUCTION (a)
Crude oil and condensate (thousand barrels):
<S> <C> <C> <C> <C>
United States 124.3 139.8 128.0 140.9
-----------------------------------------
Foreign:
Far East 85.1 86.3 86.2 81.9
Other 30.1 37.6 30.6 37.7
-----------------------------------------
Total Foreign
115.2 123.9 116.8 119.6
-----------------------------------------
Worldwide 239.5 263.7 244.8 260.5
==========================================
Natural Gas (million cubic feet):
United States 1,128 1,119 1,126 1,118
-----------------------------------------
Foreign:
Far East 602 573 608 581
Other 44 34 41 66
-----------------------------------------
Total Foreign 646 607 649 647
- -----------------------------------------------------------------------------------
Worldwide 1,774 1,726 1,775 1,765
=========================================
Natural gas liquids (thousand barrels) 21.9 21.9 21.7 20.6
Geothermal (million kilowatt-hours) 14.9 20.7 15.2 20.0
Input to crude oil processing units 210 230 200 226
(thousand barrels daily) (b)
Sales of petroleum products (thousand 242 237 242 233
barrels daily) (b)
- -----------------------------------------------------------------------------------
AVERAGE SALES PRICES
Crude oil and condensate (per barrel):
United States $15.96 $13.59 $15.33 $12.03
Foreign:
Far East $16.77 $14.39 $16.49 $13.83
Other $16.77 $14.42 $16.19 $13.28
Total Foreign $16.77 $14.40 $16.39 $13.61
- -----------------------------------------------------------------------------------
Worldwide $16.30 $13.92 $16.39 $12.64
=========================================
Natural gas (per thousand cubic feet):
United States $1.57 $1.84 $1.51 $1.96
Foreign:
Far East $2.00 $1.99 $1.98 $2.00
Other $1.00 $1.84 $1.10 $1.80
Total Foreign $1.93 $1.99 $1.92 $1.98
- -----------------------------------------------------------------------------------
Worldwide $1.70 $1.89 $1.66 $1.97
========================================
(a) Includes production sharing agreements on a gross basis.
(b) Excludes volumes of The UNO-VEN Company.
</TABLE>
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<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial Condition and
RESULTS OF OPERATIONS
Unocal's net earnings for the second quarter of 1995 were $78 million, or
28 cents per common share, compared with $59 million in the second quarter
of 1994, or 21 cents per common share. For the first six months of 1995,
net earnings were $152 million, or 55 cents per common share. This
compares with a six-month net loss of $155 million, or 71 cents per common
share for the same period in 1994. 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 Six Months
Ended June 30 Ended June 30
------------------------------------------
Millions of dollars 1995 1994 1995 1994
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Special items:
Cumulative effect of accounting change: $ - $ - $ - $(277)
Write-down of investment and
provision for abandonment and
remediation of the Guadalupe oil field - (4) - (27)
Environmental provision (14) (1) (18) (1)
Litigation provision (8) - (12) (17)
Mesa settlement - - - 24
Asset sales 8 (6) 37 2
Write-down of assets (9) (4) (10) (4)
------------------------------------------------------------------------------
Total $(23) $(15) $ (3) $(300)
</TABLE>
Excluding the special items, second quarter 1995 net operating earnings
were $101 million, or 37 cents per common share, compared with $74 million,
or 27 cents per common share, in the second quarter of 1994. The 1995 year-
to-date earnings, excluding special items, were $155 million, or 56 cents
per common share, compared with $145 million, or 52 cents per common share,
a year ago. The increases in earnings were principally due to higher
earnings from foreign exploration and production activities, agricultural
products and carbon and minerals, and a reduction in administrative and
general costs. These positive factors were partially offset by losses from
West Coast refining and marketing operations and lower earnings from
domestic exploration and production activities.
The six months 1995 consolidated revenues were $4.2 billion, up from $3.96
billion in the same period a year ago. Increased revenues were primarily
due to higher sales volumes and prices for certain refined products, and
significantly improved prices for nitrogen-based fertilizers. These
increases were partially offset by lower domestic natural gas prices.
PETROLEUM EXPLORATION AND PRODUCTION. Earnings for the second quarter 1995
totaled $105 million, compared with $89 million in 1994. For the six-month
period, earnings were $214 million in 1995, compared with $170 million in
1994. This year's second quarter and six months earnings included special
items consisting of the sales of various oil and gas properties and the
write-down of assets. Last year's second quarter and six months results
included special items consisting of asset sales and charges for the
Guadalupe oil field. Excluding these special items, this year's second
quarter earnings were $115 million, up from $102 million in the same period
a year ago and the six-month earnings were $213 million compared with $199
million a year ago.
The 1995 results primarily reflected higher worldwide crude oil prices,
increased natural gas production, and a lower foreign income tax rate.
These factors were partially offset by lower crude production and domestic
natural gas prices. The company's average worldwide sales price for crude
oil in the second quarter of 1995 was $16.30 per barrel, up from $13.92 per
barrel a year ago. For the six-month period, the 1995 average sales price
was $16.39 versus $12.64 in 1994. During the second quarter 1995, natural
gas production increased three percent to 1,774 million cubic feet per day
compared with the same period a year ago; however, the worldwide average
sales price dropped by 10 percent to $1.70 per thousand cubic feet. The
company's oil and gas production costs per barrel of oil equivalent for the
first six months of 1995 averaged $3.39 in the United States, $2.05 for
foreign operations and $2.84 worldwide.
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<PAGE> 10
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 a loss of $4
million in the second quarter of 1995, compared with earnings of $5 million
a year ago. For the first six months of 1995, 76 Products Company reported
a loss of $23 million, compared with earnings of $21 million in 1994. The
results for both the second quarter and six months of 1995 were adversely
affected by low product margins in the West Coast markets despite reduced
operating and selling expenses and slightly higher sales volumes. The 1995
results were also affected by major refinery turnarounds in the first
quarter.
GEOTHERMAL. Earnings for the second quarter of 1995 were $11 million, up
from $9 million in 1994. Six-month earnings were $15 million in 1995,
compared with $14 million in 1994. Excluding a gain from the sale of a
small interest in the Indonesian geothermal operations, this year's second
quarter and six-month earnings were $6 million and $10 million,
respectively. Reflected in the current year results were increased
earnings from new operations in Indonesia; however, the earnings were
adversely affected by electrical generating curtailments by the public
utility at The Geysers in Northern California.
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.
Net earnings for this year's second quarter were $69 million compared with
$39 a year ago. Six-month 1995 earnings were $124 million compared to $73
million last year. Excluding special items for the sale of miscellaneous
assets, this year's second quarter and six-month earnings were $64 million
and $119 million, respectively. The significant earnings increases were
the result of strong nitrogen fertilizer sales prices and volumes and
improved lanthanide earnings. Prices for ammonia and urea products on
average rose 49 percent compared with the first six months of 1994 while
volumes were up by 11 percent.
CORPORATE AND OTHER. This category includes administrative and general
expense, net interest expense, environmental and litigation expense and
other unallocated items. Second quarter 1995 expenses were $103 million
($80 million excluding special items) compared with $88 million ($89
million excluding special items) a year ago. For the six-month period,
expenses were $179 million ($165 million excluding special items) and $164
million ($173 million excluding special items) for 1995 and 1994,
respectively. Special items for each reporting period included provisions
for environmental remediation and litigation. The special items for the
six months of 1995 included a $16 million gain from the sale of the
process, technology and licensing (PTL) business; and for the same period
of 1994, special items included a $24 million gain from the settlement of
the Mesa lawsuit.
FINANCIAL CONDITION AND CAPITAL EXPENDITURES
For the first six months of 1995, cash flows from operating activities,
including working capital changes, were $358 million, down from $528
million in 1994. The decrease was primarily due to lower refining and
marketing product margins and domestic natural gas prices. The 1994 cash
flow included $38 million of proceeds from the settlement of the Mesa
Petroleum lawsuit.
Proceeds from asset sales were $128 million for the first six months of
1995, compared to $55 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 six months of 1995 totaled $596 million,
compared with $518 million a year ago. The increase primarily reflects
construction at both the Los Angeles and San Francisco refineries to
prepare for manufacturing reformulated gasoline by March 1, 1996 that will
meet the more stringent standards for reduced vehicle emissions set by the
California Air Resources Board, as well as increased development in the
Gulf of Mexico.
Consolidated working capital at June 30, 1995 was $405 million, an increase
of $134 million from the 1994 year-end level of $271 million. The
company's total debt was $3,778 million, an increase of $312 million from
the year-end 1994 level. Of the total increase, $136 million was due to
the current 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.
-10-
<PAGE> 11
ENVIRONMENTAL MATTERS
At June 30, 1995, the company's reserves for environmental remediation
obligations totaled $243 million, of which $97 million were included in
other current liabilities. During the first half of 1995, cash payments of
$51 million were applied against the reserves and an additional $32 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 six months of 1995, six
sites were added to the list and six sites were removed. As a result, the
total remained at 90 sites. Of the total, the company has denied
responsibility at 28 sites and at another 12 sites the company's liability,
although unquantified, appears to be de minimis. The total also includes
25 sites which are under investigation or in litigation, for which the
company's potential liability is not presently determinable. Of the
remaining 25 sites, where probable costs can be reasonably estimated, a
reserve of $38 million was included in the total environmental reserve as
of June 30, 1995.
The Guadalupe oil field beach cleanup of underground releases of a diesel-
like additive formerly used to produce the field's heavy crude oil has been
completed. However, the company will reinforce and monitor the remediation
measures that were installed for the cleanup. The company is also
assessing and investigating the extent of contamination of the inland
portion of the field. An environmental impact report and a natural
resource damage assessment will also be completed to identify remediation
alternatives. As a consequence, the company accrued an additional $8
million in the second quarter of 1995 for the above
remediation/investigation work. Other costs are expected to be incurred
which will not be determined until the assessments, investigations and
studies are concluded.
During the second quarter of 1995, an additional $9 million was added to
the reserve for the estimated costs of investigations and remedial
activities at the Questa molybdenum mine in New Mexico.
OTHER MATTERS
On August 8, 1995, a consent judgment was entered in the United States
Court of Federal Claims confirming a settlement pursuant to which the
company is to be paid $34 million by the United States government in
consideration for relinquishing its interests in federal Outer Continental
Shelf oil and gas leases in Bristol Bay, Alaska, and offshore southwest
Florida, releasing claims arising from Congressional moratoria on the
exploration and development of such leases, and releasing claims that its
interests in certain leases offshore North Carolina were unconstitutionally
taken by federal legislation. The company expects to receive the $34
million prior to the end of the third quarter and will recognize a
substantial portion of it as earnings.
FUTURE ACCOUNTING CHANGE
The Financial Accounting Standards Board recently issued Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-Lived Assets to Be Disposed
Of." The company will adopt SFAS No. 121 in 1996. This statement requires
the company to review long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. If it is determined that an impairment loss has
occurred based on expected future cash flows, the loss should be recognized
in the earnings statement. The company periodically reviews its oil and
gas properties and other operating assets for impairment. The financial
impact of adopting the new accounting standard is not expected to be
significant.
OUTLOOK
Worldwide crude oil prices improved slightly during the second quarter
compared to the first quarter of 1995; however, prices are expected to
decline in the third quarter due to the weak spot market. Natural gas
prices in the United States are expected to stay lower due to low demand
and ample supplies. Prices may improve by the end of the year depending
upon winter weather temperatures.
The company's worldwide production of natural gas is expected to average
about 1,786 million cubic feet per day during the full-year 1995, compared
with 1,766 million cubic feet per day during 1994. Crude oil and
condensate production is expected to average 242,000 barrels per day for
the full-year 1995, down nearly 7 percent from 1994.
-11-
<PAGE> 12
The decrease in crude oil and condensate production is due to the sale of
various domestic oil and gas properties.
76 Products Company is implementing a plan which, if successful, could
improve annual pre-tax cash flow from its refining and mardeting operations
by $120 to $180 million by year-end 1997 from the 1994 level. The
improvement would result from further cost reductions, more efficient
refining operations, increased output of higher-valued products, improved
gasoline sales volumes and new marketing format initiatives.
Earnings for agricultural products are expected to decline during the
third quarter due to a seasonal decrease in demand.
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 Angelina Hardwood Lumber
--------------------------
Company v. Prairie Producing Co., in the Court of Appeals, Ninth
-----------------------------------
District of Texas at Beaumont (No. 09-93-184 CV), Angelina has exhausted
all appeals. This matter is now concluded, and the company paid
nothing.
2.In the Guadalupe oil field litigation (previously reported as People v.
----------
Union Oil Company of California, Civil No. 75194, Superior Court for San
-------------------------------
Luis Obispo County) the trial date of October 2, 1995 was vacated by the
court on a motion filed by the California Attorney General. A status
conference is scheduled for February 2, 1996.
3.On July 19, 1995 the company pleaded "no contest" to twelve misdemeanor
criminal charges relating to the Catacarb release at the San Francisco
Refinery in September 1994. This matter was previously reported in
connection with the filing of several civil lawsuits. All charges were
filed against the company, not against individuals. The charges
included the intentional emission of air contaminants causing a public
nuisance on September 5 and 6, 1994, and the failure to give timely
notification of the release of a hazardous material to the Health
Services Office of Contra Costa County and the California Office of
Emergency Services.
Under the terms of a consent decree, Unocal must pay approximately $3
million, which includes civil penalties, the purchase of emergency
response equipment, and the funding of education programs for local
communities. The company must also provide additional training for its
employees for emergency response and compliance with Bay Area Air
Quality Management District regulations. (Bay Area Air Quality
-------------------------
Management District, et al. v. Union Oil Company of California, Superior
--------------------------------------------------------------
Court of California, County of Contra Costa, No. C95-03165).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1995 Annual Meeting of Stockholders of Unocal Corporation was held on
May 22, 1995. The following actions were taken by the stockholders at the
Annual Meeting, for which proxies were solicited pursuant to Regulation 14
under the Securities Exchange Act of 1934, as amended.
1. The six nominees proposed by the board of directors were elected as
directors by the following votes:
Name Votes For Votes Withheld
---- --------- ---------------
Frank C. Herringer 199,087,521 2,448,587
John F. Imle, Jr. 197,815,167 3,720,941
Donald P. Jacobs 198,987,395 2,548,713
J. Steven Whisler 199,065,338 2,470,770
Marina v.N. Whitman 199,017,664 2,518,444
John W. Creighton, Jr. 199,041,503 2,494,605
-12-
<PAGE> 13
Messrs. Herringer and Imle, Dr. Jacobs, Mr. Whisler and Dr. Whitman were
elected for three-year terms expiring at the 1998 Annual Meeting of
Stockholders and Mr. Creighton was elected for a two-year term expiring
at the 1997 Annual Meeting of Stockholders or, in each case, until their
successors are duly elected and qualified.
2.A proposal to ratify the selection of Coopers & Lybrand L.L.P. as
Unocal's independent accountants for 1995 was passed by a vote of
199,231,147 for versus 1,349,292 against. There were 955,669
abstentions and no broker non-votes.
3.A stockholder proposal regarding a report on a gas plant expansion in
Northern Alberta, Canada, failed to pass, receiving 8,548,037 votes for
versus 164,141,272 against. There were 10,328,502 abstentions and
20,518,297 broker non-votes.
4.A stockholder proposal regarding a review of and report on the company's
statement of principles regarding international business failed to pass,
receiving 10,459,152 votes for versus 153,424,210 against. There were
17,030,249 abstentions and 20,622,497 broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
3 Bylaws of Unocal Corporation, as amended through May 22, 1995, and
currently in effect (incorporated by reference to Exhibit 3 to
Unocal's Quarterly Report on Form 10-Q for the quarter ended March
31, 1995, File No. 1-8483).
11 Unocal Corporation statement regarding computation of earnings per
common share for the three months ended June 30, 1995 and 1994 and
for the six-month periods ended June 30, 1995 and 1994.
12.1 Unocal Corporation statement regarding computation of ratio of
earnings to fixed charges for the six months ended June 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 six months ended June 30, 1995 and 1994.
12.3 Union Oil Company of California statement regarding computation
of ratio of earnings to fixed charges for the six months ended June
30, 1995 and 1994.
27 Financial data schedule for the six months ended June 30, 1995
(included only in the copy of this report filed electronically with
the Commission).
(B) REPORTS ON FORM 8-K
During the second quarter of 1995:
1. Current Report on Form 8-K dated and filed April 26, 1995, for the
purpose of reporting, under Item 5, Unocal's 1995 first quarter
earnings.
During the third quarter of 1995 to the date hereof:
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.
-13-
<PAGE> 14
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: August 10, 1995 By: /s/ CHARLES S. MCDOWELL
----------------------------
Charles S. McDowell,
Vice President and Comptroller
-14-
EXHIBIT 11
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Computations of net earnings per share for the quarters ended June 30,
1995 and 1994 are as follows:
<TABLE>
<CAPTION
For the Three Months For the Six Months
Ended June 30 Ended June 30
---------------------------------------------
Dollars in thousands except per share amounts 1995 1994 1995 1994
- ----------------------------------------------------------------------------------------
Primary
<S> <C> <C> <C> <C>
Net earnings (loss) $ 77,944 $ 59,059 $152,081 $(154,978)
Less: preferred stock dividends 8,969 8,969 17,938 17,938
-------------------------------------------
Net earnings (loss) applicable to
common stock $ 8,975 $ 50,090 $134,143 $(172,916)
Average shares of common stock 245,804 242,210 245,298 241,926
outstanding
Dilutive common stock equivalent shares 1,050 900 947 865
-------------------------------------------
246,854 243,110 246,245 242,791
Net earnings (loss) per common share $ .28 $.21 $.54 (.71)
Fully Diluted
Net earnings (loss) applicable to
common stock $ 68,975 $ 50,090 $134,143 $(172,916)
Add: preferred stock dividends 8,969 8,969 17,938 17,938
--------------------------------------------
Net earnings (loss) $ 77,944 $ 59,059 $152,081 $(154,978)
Average shares of common stock 245,804 242,210 245,298 241,926
outstanding
Dilutive common stock equivalent
shares 1,616 1,575 1,483 1,457
Conversion of preferred stock* 16,667 16,667 16,667 16,667
--------------------------------------------
264,087 260,452 263,448 260,050
Net earnings (loss) per common share $.30 $.23 $ .58 $(.60)
* The effect of assumed conversion of preferred stock on earnings per
common share is antidilutive.
</TABLE>
EXHIBIT 12.1
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION
For the Six Months
Ended June 30
-------------------
Dollars in millions 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C>
Earnings before cumulative effect of accounting change $152 $122
Provision for income taxes 104 108
--- ---
Earnings subtotal 256 230
Fixed charges included in earnings:
Interest expense 146 141
Interest portion of rentals 25 28
--- ---
Subtotal 171 169
Earnings available before fixed charges $427 $399
==== ====
Fixed charges:
Fixed charges included in earnings $171 $169
Capitalized interest 16 18
---- ----
Total fixed charges $187 $187
==== ====
Ratio of earnings to fixed charges 2.3 2.1
</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 Six Months
Ended June 30
-------------------
Dollars in millions 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C>
Earnings before cumulative effect of accounting changes $152 $122
Provision for income taxes 104 108
--- ---
Earnings subtotal 256 230
Fixed charges included in earnings:
Interest expense 146 141
Interest portion of rentals 25 28
--- ---
Subtotal 171 169
Earnings available before fixed charges $427 $399
==== ====
Fixed charges and preferred stock dividends:
Fixed charges included in earnings $171 $169
Capitalized interest 16 18
Preferred stock dividends * 29 29
---- ----
Total fixed charges and preferred stock dividends $216 $216
==== ====
Ratio of earnings to fixed charges and preferred stock 2.0 1.8
dividends
*For purposes of this ratio, preferred stock dividends are adjusted to a pre-tax basis.
</TABLE>
EXHIBIT 12.3
UNION OIL COMPANY OF CALIFORNIA AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
For the Six Months
Ended June 30
------------------
Dollars in millions 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C>
Earnings before cumulative effect of accounting change $ 152 $ 122
accounting change
Provision for income taxes 104 108
--- ---
Earnings subtotal 256 230
Fixed charges included in earnings:
Interest expense 146 141
Interest portion of rentals 25 28
--- ---
Subtotal 171 169
Earnings available before fixed charges $427 $399
==== ====
Fixed charges:
Fixed charges included in earnings $ 171 $ 169
Capitalized interest 16 18
----- -----
Total fixed charges $ 187 $ 187
===== =====
Ratio of earnings to fixed charges 2.3 2.1
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 130
<SECURITIES> 0
<RECEIVABLES> 893
<ALLOWANCES> 0
<INVENTORY> 313
<CURRENT-ASSETS> 1,475
<PP&E> 18,062
<DEPRECIATION> 11,168
<TOTAL-ASSETS> 9,569
<CURRENT-LIABILITIES> 1,070
<BONDS> 3,771
<COMMON> 246
0
513
<OTHER-SE> 2,172
<TOTAL-LIABILITY-AND-EQUITY> 9,569
<SALES> 4,064
<TOTAL-REVENUES> 4,196
<CGS> 2523
<TOTAL-COSTS> 3,940
<OTHER-EXPENSES> 1,417
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 146
<INCOME-PRETAX> 256
<INCOME-TAX> 104
<INCOME-CONTINUING> 152
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 152
<EPS-PRIMARY> .55
<EPS-DILUTED> 0
</TABLE>
