SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q/A
(Amendment No. 1)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995
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or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
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Commission file number 1-8483
UNOCAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-3825062
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(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification No.)
1201 WEST FIFTH STREET, LOS ANGELES, CALIFORNIA 90017
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (213) 977-7600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Number of shares of Common Stock, $1 par value, outstanding as of October 31,
1995: 247,141,638
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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
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Millions of dollars 1995 1994 1995 1994
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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) --
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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.
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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.
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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
be 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,
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<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.
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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 9, 1995 By: /s/ CHARLES S. MCDOWELL
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Charles S. McDowell,
Vice President and Comptroller
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