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, 1996
------------------
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.)
2141 Rosecrans Avenue, Suite 4000, El Segundo, California 90245
--------------------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 726-7600
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, 1996: 250,414,750
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED EARNINGS UNOCAL CORPORATION
(Unaudited)
For the Three Months For the Nine Months
Ended September 30 Ended September 30
--------------------------------------------------
Dollars in millions except per share amounts 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Revenues
<S> <C> <C> <C> <C>
Sales and operating revenues (a) ................................... $2,531 $1,933 $7,272 $5,997
Interest, dividends and miscellaneous income ....................... 14 50 50 76
Equity in earnings of affiliated companies ......................... 30 20 78 65
Gain on sales of assets ............................................ 36 2 173 63
------------------------------------------------------
Total revenues ............................................... 2,611 2,005 7,573 6,201
Costs and Other Deductions
Crude oil and product purchases .................................... 1,152 746 3,142 2,403
Operating expense .................................................. 442 417 1,315 1,302
Selling, administrative and general expense ........................ 112 108 341 318
Depreciation, depletion and amortization ........................... 228 237 724 704
Dry hole costs ..................................................... 53 31 72 50
Exploration expense ................................................ 33 30 83 85
Interest expense ................................................... 67 72 215 218
Excise, property and other operating taxes (a) ..................... 271 258 814 759
Distributions on convertible preferred securities
of subsidiary trust................................................ 2 -- 2 --
------------------------------------------------------
Total costs and other deductions ............................. 2,360 1,899 6,708 5,839
------------------------------------------------------
Earnings before income taxes ....................................... 251 106 865 362
Income taxes ....................................................... 80 47 332 151
------------------------------------------------------
Net Earnings ....................................................... $ 171 $ 59 $ 533 $ 211
Dividends on preferred stock ....................................... -- 9 18 27
------------------------------------------------------
Net earnings applicable to common stock ...................... $ 171 $ 50 $ 515 $ 184
======================================================
Earnings per share of common stock assuming
no dilution (b) ................................................... $ 0.69 $ 0.20 $ 2.08 $0.75
Earnings per share of common and equivalent
stock assuming full dilution (c) ................................... $ 0.65 $ 0.20 $ 2.03 $0.75
Cash dividends declared per share of common stock .................. $ 0.20 $ 0.20 $ 0.60 $0.60
- -----------------------------------------------------------------------------------------------------------------------------------
(a) Includes consumer excise taxes of .................................. $ 249 $ 228 $ 735 $ 665
(b) Based on net earnings applicable to common stock divided
by weighted average shares outstanding (in thousands) ............ 248,668 246,666 248,211 245,754
(c) Based on net earnings applicable to common stock divided
by weighted average shares outstanding and common
stock equivalents (in thousands) .................................. 263,525 -- 262,823 --
See Notes to Consolidated Financial Statements.
1
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET UNOCAL CORPORATION
(Unaudited)
September 30 December 31
----------------------------------
Millions of dollars 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Assets
Current assets
<S> <C> <C>
Cash and cash equivalents ..................................................................... $ 225 $ 94
Accounts and notes receivable ................................................................. 921 920
Inventories
Crude oil .................................................................................. 50 48
Refined products ........................................................................... 162 161
Agricultural products ...................................................................... 35 40
Minerals ................................................................................... 21 30
Supplies, merchandise and other ............................................................ 88 81
Deferred income taxes ......................................................................... 75 169
Other current assets .......................................................................... 35 33
------------------------
Total current assets ....................................................................... 1,612 1,576
Investments and long-term receivables ............................................................ 1,105 1,101
Properties (net of accumulated depreciation and other allowances
of $10,910 in 1996 and $11,431 in 1995) ......................................... 6,949 7,109
Deferred income taxes ............................................................................ 27 25
Other assets ..................................................................................... 116 80
-------------------------
Total assets ............................................................................... $ 9,809 $ 9,891
-------------------------
Liabilities and Equity
Current liabilities
Accounts payable .............................................................................. $ 873 $ 804
Taxes payable ................................................................................. 242 193
Current portion of long-term debt and capital lease obligations ............................... 119 8
Interest payable .............................................................................. 46 92
Current portion of environmental liabilities .................................................. 83 83
Other current liabilities ..................................................................... 94 136
-------------------------
Total current liabilities .................................................................. 1,457 1,316
Long-term debt and capital lease obligations ..................................................... 2,951 3,698
Deferred income taxes ............................................................................ 678 722
Accrued abandonment, restoration and environmental liabilities ................................... 661 607
Other deferred credits and liabilities ........................................................... 729 618
Company-obligated mandatorily redeemable convertible preferred securities of a
subsidiary trust holding solely 6-1/4% convertible junior subordinated
debentures of Unocal ........................................................................... 522 --
Stockholders' Equity
Preferred stock ($0.10 par value; stated at liquidation
value of $50 per share) ..................................................................... 13 513
Common stock ($1 par value) ................................................................... 250 247
Capital in excess of par value ................................................................ 389 319
Foreign currency translation adjustment ....................................................... (12) (10)
Unearned portion of restricted stock issued ................................................... (15) (13)
Retained earnings ............................................................................. 2,186 1,874
-------------------------
Total stockholders' equity ................................................................. 2,811 2,930
-------------------------
Total liabilities and equity ............................................................ $ 9,809 $ 9,891
-------------------------
</TABLE>
See Notes to the Consolidated Financial Statements.
2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CASH FLOWS UNOCAL CORPORATION
(Unaudited)
For the Nine Months
Ended September 30
-------------------------------
Millions of dollars 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net earnings ..................................................................................... $ 533 $ 211
Adjustment to reconcile net earnings to
net cash provided by operating activities
Depreciation, depletion and amortization ................................................... 724 704
Dry hole costs ............................................................................. 72 50
Deferred income taxes ...................................................................... 48 (21)
Gain on sales of assets (before-tax) ....................................................... (173) (63)
Other ...................................................................................... 96 (19)
Working capital and other changes related to operations
Accounts and notes receivable ........................................................... (23) (18)
Inventories ............................................................................. 4 18
Accounts payable ........................................................................ 69 (53)
Taxes payable ........................................................................... 49 (19)
Other ................................................................................... (200) (114)
-----------------------
Net cash provided by operating activities ............................................ 1,199 676
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (includes dry hole costs) ................................................ (940) (967)
Proceeds from sales of assets ................................................................. 585 130
-----------------------
Net cash used in investing activities ................................................ (355) (837)
CASH FLOWS FROM FINANCING ACTIVITIES
Long-term borrowings .......................................................................... 130 949
Reduction of long-term debt and capital lease obligations ..................................... (690) (644)
Dividends paid on preferred stock ............................................................. (27) (27)
Dividends paid on common stock ................................................................ (149) (147)
Other ......................................................................................... 23 50
-----------------------
Net cash provided by (used in) financing activities ..................................... (713) 181
Increase in cash and cash equivalents ............................................................ 131 20
Cash and cash equivalents at beginning of year ................................................... 94 148
-----------------------
Cash and cash equivalents at end of period ....................................................... $ 225 $ 168
-----------------------
Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest (net of amount capitalized) ....................................................... $ 243 $ 225
Income taxes (net of refunds) .............................................................. $ 239 $ 192
</TABLE>
See Notes to the 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. Such financial statements are
presented in accordance with the Securities and Exchange Commission's
(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 1995 Annual Report on Form 10-K.
Results for the nine months ended September 30, 1996, are not necessarily
indicative of future financial results.
Certain items in the prior year financial statements have been reclassified
to conform to the 1996 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) Earnings per share of common stock assuming no dilution are based on net
earnings less preferred stock dividend requirements, divided by the
weighted average shares of common stock outstanding during each period. The
computation of fully diluted earnings per share assumes the dilutive effect
of common stock equivalents and conversion of the Unocal's outstanding
convertible preferred stock and the outstanding Convertible Preferred
Securities of a subsidiary trust (see Note 12). When the computation of
fully diluted earnings per share is antidilutive for any given period
presented, the amounts reported for primary and fully diluted are the same.
(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 allowance, to be paid to employees affected by the
program. At September 30, 1996, the amount of unpaid benefits remaining on
the consolidated balance sheet was $7 million. Approximately 30 employees
were terminated during the third quarter of 1996, bringing the total number
of terminated employees to approximately 650.
(5) Capitalized interest totaled $3 million and $9 million for the third
quarters of 1996 and 1995, respectively. For the first nine months of 1996
and 1995 capitalized interest totaled $9 million and $25 million,
respectively.
(6) Cash Flow Information:
UNOCAL SAVINGS PLAN
During the first nine months of 1996 and 1995, shares of Unocal common
stock were purchased by the trustee of the Unocal Savings Plan (the "Plan")
either from Unocal or on the open market as directed by Unocal. The trustee
used Unocal's matching contributions to the Plan to purchase the shares.
The total matching contributions were expensed in Unocal's consolidated
earnings statement. In the consolidated cash flow statements, the portions
of the matching contributions resulting in the issuance of Unocal common
stock, as detailed below, were treated as a noncash transactions since the
resulting effect on cash flow was zero.
For the Nine Months
Ended September 30
-----------------------------
1996 1995
- --------------------------------------------------------------------------------
Shares of Unocal common stock issued (in thousands) 252 700
Fair value of common stock (in millions of dollars) $8 $20
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
CONVERTIBLE PREFERRED SECURITIES
See Note 12 for discussion of Unocal's third quarter 1996 exchange of 6-1/4
percent Trust Convertible Preferred Securities of a subsidiary trust for
outstanding shares of Unocal's $3.50 Convertible Preferred Stock. The exchange
was treated as a noncash transaction since the resulting effect on cash flow was
zero.
(7) Income Taxes:
The components of pre-tax earnings and the provision for income taxes were
as follows:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
-------------------------------------------------------------------------------------
Millions of dollars 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) before income taxes:
<S> <C> <C> <C> <C>
United States (a) ............................ $ 87 $ (7) $ 438 $ (2)
Foreign ...................................... 164 113 427 364
--------------------------------------------------------------------
Total ..................................... $ 251 $ 106 $ 865 $ 362
Income Taxes:
Current
Federal ................................... $ (4) $ (1) $ 100 $ 15
State ..................................... 1 -- 3 5
Foreign ................................... 70 45 182 152
--------------------------------------------------------------------
Total current ........................... $ 67 $ 44 $ 285 $ 172
Deferred
Federal ................................... $ 7 $ 1 $ 12 $ (18)
State ..................................... 5 (7) 19 (24)
Foreign ................................... 1 9 16 21
--------------------------------------------------------------------
Total deferred .......................... $ 13 $ 3 $ 47 $ (21)
--------------------------------------------------------------------
Total income taxes .............................. $ 80 $ 47 $ 332 $ 151
</TABLE>
(a) Includes corporate and unallocated expenses.
Reconciliation of income taxes at the federal statutory rate of 35% to tax
provision:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
--------------------------------------------------------
Millions of dollars 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earnings before income taxes ................................... $ 251 $ 106 $ 865 $ 362
Tax at federal statutory rate .................................. $ 88 $ 37 $ 303 $ 126
Taxes on foreign earnings in excess of
(less than) statutory rate ................................. (5) 18 36 52
Dividend exclusion ............................................. (3) (4) (11) (11)
Deferred California business tax credits,
net of federal tax effect ................................... -- (5) -- (16)
Other .......................................................... -- 1 4 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total provision ........................................... $ 80 $ 47 $ 332 $ 151
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(8) LONG TERM DEBT AND CREDIT AGREEMENTS:
During the first quarter of 1996, the company issued $100 million of
medium-term notes with interest rates ranging from 5.94 percent to 6.23
percent and maturity dates ranging from February 2003 to February 2006. The
company also increased its commercial paper borrowings by $44 million.
During the second quarter of 1996, the company reduced long-term debt by
approximately $610 million, primarily with the proceeds from the sale of
its California oil and gas producing properties. Financing activities for
the second quarter of 1996 primarily consisted of: retirement at maturity
of the $110 million Swiss Franc bond issue and the corresponding $65
million currency swap agreement; and the early redemption of seven
pollution control bond issues totaling $49 million with interest rates
ranging from 6-1/8 percent to 7-7/8 percent. The company also reduced its
commercial paper balance by $377 million and terminated its $45 million
Netherlands revolving credit facility.
Third-quarter 1996 financing activities primarily consisted of an
additional borrowing of $20 million on the $250 million Thailand revolving
credit facility and payment of $80 million on the $1.2 billion credit
facility. In addition, the company further reduced its commercial paper
balance by $104 million, bringing the outstanding balance to $213 million
at September 30, 1996 and terminated its $25 million revolving credit
facility with a Canadian bank.
(9) FINANCIAL INSTRUMENTS
The fair value of the financial instruments described below are based on
the company's outstanding balances at September 30, 1996:
The Deutsche Mark currency swap agreement had a notional value of $110
million and a fair value of approximately $57 million based on dealer
quotes.
There were 17 outstanding currency forward contracts to purchase 26 million
Pounds Sterling for $40 million to hedge a series of known Pounds Sterling
requirements, and the fair market value of the contracts was approximately
$1.3 million in assets.
The floating interest rate on the swap agreement to hedge $25 million of
fixed rate medium-term notes was 5.6 percent, and the fair value was
insignificant, based on quoted market prices of comparable instruments.
The company had outstanding commodity futures contracts covering the sale
of 550 thousand barrels of crude oil and 7 billion cubic feet of natural
gas with notional amounts of $11 million and $14 million, respectively. The
fair value of the contracts, based on quoted market prices, was
insignificant.
The estimated fair value of the company's long-term debt and capital lease
obligations was $3,140 million. The estimated fair value of the company's
obligated mandatorily redeemable Convertible Preferred Securities was $553
million.
(10) ACCRUED ABANDONMENT, RESTORATION AND ENVIRONMENTAL LIABILITIES:
At September 30, 1996, the company had accrued $500 million for the
estimated future costs to abandon and remove wells and production
facilities. The total costs for abandonments are estimated to be $640
million to $780 million, of which the lower end of the range is used to
calculate the amount to be amortized.
At September 30, 1996, the company's reserve for environmental remediation
obligations totaled $245 million, of which $83 million was included
in current liabilities. The reserve included estimated probable future
costs of $29 million for federal Superfund and comparable state-managed
multiparty disposal sites; $30 million for formerly-operated sites for
which the company has remediation obligations; $67 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 $52 million for sites owned and/or controlled by the company and
utilized in its ongoing operations.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(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.
ENVIRONMENTAL MATTERS
The company is subject to loss contingencies pursuant to federal, state and
local environmental laws and regulations. These include existing and
possible future obligations to investigate the effects of the release or
disposal of certain petroleum, chemical and mineral substances at various
sites; to remediate or restore these sites; to compensate others for damage
to property and natural resources, for remediation and restoration costs
and for personal injuries; and to pay civil penalties and, in some cases,
criminal penalties and punitive damages. These obligations relate to sites
owned by the company or others and are associated with past and present
operations, including sites at which the company has been identified as a
potentially responsible party (PRP) under the federal Superfund laws and
comparable state laws. Liabilities are accrued when it is probable that
future costs will be incurred and such costs can be reasonably estimated.
However, in many cases, investigations are not yet at a stage where the
company is able to determine whether it is liable or, if liability is
probable, to quantify the liability or estimate a range of possible
exposure. In such cases, the amounts of the company's liabilities are
indeterminate due to the potentially large number of claimants for any
given site or exposure, the unknown magnitude of possible 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, 1996, the company had accrued
$245 million for estimated future environmental assessment and remediation
costs at various sites where liabilities for such costs are probable. At
those sites where investigations or feasibility studies have advanced to
the stage of analyzing feasible alternative remedies and/or ranges of
costs, the company estimates that it could incur additional remediation
costs aggregating approximately $180 million.
Between August 22 and September 6, 1994, a chemical known as "Catacarb" was
released into the environment at the company's San Francisco Refinery near
Rodeo, California. Persons in the surrounding area have claimed that they
were exposed to the chemical in varying degrees. Since September 22, 1994,
forty-eight lawsuits have been filed by or on behalf of all persons,
alleged to be several thousand, claiming that they or their property were
adversely affected by the releases. Forty-four of the lawsuits have been
consolidated in the Superior Court for Contra Costa County. The First
Amended Model Complaint in this consolidated action, filed February 1,
1995, on behalf of individual plaintiffs and purported classes of
plaintiffs, alleges personal injury, emotional distress and increased risk
of future illness on behalf of the named plaintiffs and all persons present
in and around or downwind from the San Francisco Refinery, and property
damage and loss or diminution of property value on behalf of all owners of
real and personal property in the vicinity of the Refinery, resulting from
the release of Catacarb by the Refinery. Certain individual plaintiffs
allege injury from alleged subsequent releases at the Refinery of hydrogen
sulfide and other chemicals. The Model Complaint seeks compensatory and
punitive damages in unspecified amounts, equitable relief including the
creation of a fund for medical monitoring and treatment of plaintiffs and
members of the purported classes, statutory penalties and other relief. The
company has reached agreement with plaintiffs to certify a mandatory
non-opt out punitive damages class. Plaintiffs have withdrawn their class
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
claims for personal injury and property damage. In early November, the
trial court issued an order declining to certify a medical monitoring
class. The court indicated its tentative intention to commence a trial with
an undetermined number of test plaintiffs in June 1997.
TAX MATTERS
In December 1994, the company received a Notice of Proposed Deficiency from
the Internal Revenue Service (IRS) related to the years 1985 through 1987.
In February 1995, the company filed a protest of the proposed tax
deficiency with the Appeals section of the IRS. Discussions with the
Appeals Officer are ongoing, but it appears that two substantial issues may
proceed to litigation. In an effort to resolve these issues without
litigation, in October 1996, the company and the IRS entered into an
Agreement to Mediate. While the parties have selected a mediator, no date
for the mediation has been set.
The most significant issue relates to an IRS challenge of a $341 million
deduction taken by the company in its 1985 tax return for amounts paid
under a settlement agreement with Mesa Petroleum, T. Boone Pickens and
Drexel Burnham Lambert, Incorporated, and certain others which ended a
hostile takeover attempt by that group. The IRS contends that the deduction
is not allowable because the payment was related solely to the purchase of
the company's common stock. Although the company did purchase shares under
the settlement agreement, it properly reflected the purchase in its records
at the fair market value of the shares purchased. The deduction at issue
relates to that portion of the payment made under the settlement agreement
that exceeded the value of the shares purchased. The company intends to
vigorously dispute the IRS' assertions in court. If the IRS were ultimately
to prevail, the company would owe $157 million of tax for 1985 plus tax
deductible interest estimated at $295 million as of September 30, 1996. As
this matter is not yet before a court, final resolution of this matter is
likely to be several years away.
The second issue relates to an IRS challenge of a continued deferral of
intercompany gains which arose from sales of property between subsidiaries
in 1982 and 1983. The IRS contends that the $201 million balance of
deferred gain must be recognized in the company's taxable income for 1985
when the subsidiaries contributed the property to a wholly owned master
limited partnership. The company intends to vigorously dispute the IRS'
assertions in court. If the IRS were ultimately to prevail, the company
would owe $92 million in tax for 1985, but would receive credits or refunds
for offsetting deductions in later years. For 1986 and 1987 the credits or
refunds would total $35 million. In addition to tax, the company would owe
tax deductible interest estimated at $120 million as of September 30, 1996.
As this matter is not yet before a court, final resolution of this matter
is likely to be several years away.
The total amount of tax and interest that the company would be required to
pay if the IRS were ultimately to prevail on both of the issues described
in the two preceding paragraphs is substantially less than the sum of the
amounts. As a result of the interplay of these issues, application of
foreign tax credits and overpayments related to other issues, the total
amount of tax and interest is estimated at $378 million as of September 30,
1996.
The company believes it has adequately provided in its accounts for items
and issues not yet resolved. In the opinion of management, a successful
outcome of the litigation is reasonably likely. However, substantial
adverse decisions could have a material effect on the company's financial
condition, operating results and liquidity in a given quarter and year when
such matters are resolved.
OTHER MATTERS
The company also has certain other contingent liabilities with respect to
litigation, claims and contractual agreements arising in the ordinary
course of business. Although these contingencies could result in expenses
or judgments that could be material to the company's results of operations
for a given reporting period, on the basis of management's best assessment
of the ultimate amount and timing of these events, such expenses or
judgments are not expected to have a material adverse effect on the
company's consolidated financial condition or liquidity.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
(12) CONVERTIBLE PREFERRED SECURITIES AND PREFERRED STOCK
On September 11, 1996, pursuant to an offer which expired on September 5, 1996,
Unocal exchanged 10,437,873 new 6-1/4 percent Trust Convertible Preferred
Securities (the "Preferred Securities") of Unocal Capital Trust, a Delaware
business trust (the "Trust"), for 9,352,962 shares of Unocal's $3.50 Convertible
Preferred Stock (the "Preferred Stock") which were tendered in response to the
offer. Unocal acquired the Preferred Securities, which have an aggregate
liquidation value of $522 million, from the Trust, together with 322,821 common
securities of the Trust, which have an aggregate liquidation value of $16
million, in exchange for $538 million principal amount of 6-1/4 percent
Convertible Junior Subordinated Debentures (the "Debentures") of Unocal. The
Preferred Securities and common securities of the Trust represent undivided
beneficial interests in the Debentures, which are the sole assets of the Trust.
The Preferred Securities have a liquidation value of $50 per security and will
be convertible on and after December 10, 1996, into shares of Unocal common
stock at a conversion price of $42.56 per share, subject to adjustment upon the
occurrence of certain events. Distributions on the Preferred Securities are
cumulative from September 5, 1996, at an annual rate of 6-1/4 percent of their
liquidation amount and are payable quarterly in arrears on March 1, June 1,
September 1 and December 1 of each year, commencing on December 1, 1996, to the
extent that the Trust receives interest payments on the Debentures, which
payments are subject to deferral by Unocal under certain circumstances.
Upon repayment of the Debentures by Unocal, whether at maturity, upon redemption
or otherwise, the proceeds thereof must immediately be applied to redeem a
corresponding amount of the Preferred Securities and the common securities of
the Trust. The Debentures mature on September 1, 2026, and may be redeemed, in
whole or in part, at the option of Unocal, at any time on or after September 3,
2000, at a redemption price initially equal to 103.75 percent of the principal
amount redeemed, declining annually to 100 percent of the principal amount
redeemed in 2006, plus accrued and unpaid interest thereon to the redemption
date. The Debentures, and hence the Preferred Securities, may become redeemable
at the option of Unocal upon the occurrence of certain special events or
restructuring transactions.
The Trust is accounted for as a consolidated subsidiary of Unocal, with the
Debentures and payments thereon by Unocal to the Trust eliminated in the
consolidated financial statements. The payment obligations of the Trust under
the Preferred Securities are unconditionally guaranteed by Unocal (the
"Guarantee"). The Guarantee, when taken together with Unocal's obligations under
the Debentures and the indenture pursuant to which the Debentures were issued
and Unocal's obligations under the amended and restated declaration of trust
governing the Trust, provides a full and unconditional guarantee of the Trust's
obligations under the Preferred Securities.
On September 11, 1996, Unocal called the unexchanged 897,038 shares of the
Preferred Stock for redemption on October 11, 1996. Of these, 632,263 shares
were converted into 1,028,058 shares of Unocal common stock in September and the
remaining 264,775 shares were converted into 430,517 shares of common stock in
October prior to the redemption date.
(13) Unocal guarantees certain indebtedness of Union Oil. Summarized below is
financial information for Union Oil and its consolidated subsidiaries:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
----------------------------------------------------
Millions of dollars 1996 1995 * 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues ................................................................. $2,611 $2,005 $7,573 $6,201
Total costs and other deductions, including income taxes ....................... 2,438 1,945 7,037 5,989
---------------------------------------------
Net earnings ................................................................... $ 173 $ 60 $ 536 $ 212
- -------------------------------------------------------------------------------- ---------------------------------------------
At September 30 At December 31
Millions of dollars 1996 1995
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets ............................................................................... $1,604 $1,576
Noncurrent assets ............................................................................ $8,213 $8,328
Current liabilities .......................................................................... $1,464 $1,309
Noncurrent liabilities ....................................................................... $5,020 $5,645
Shareholder's equity ......................................................................... $3,333 $2,950
- -----------------------------------------------------------------------------------------------------------------------------------=
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
OPERATING HIGHLIGHTS UNOCAL CORPORATION
(Unaudited)
For the Three Months For the Nine Months
Ended September 30 Ended September 30
-------------------------------------------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
NET DAILY PRODUCTION
Crude oil and condensate (thousand barrels):
<S> <C> <C> <C> <C>
United States (a) 86.1 123.6 98.9 126.4
Foreign:
Far East (b) 82.2 81.9 82.4 84.6
Other 27.2 29.6 27.6 30.3
--------------------------------------------------
Total foreign 109.4 111.5 110.0 114.9
Worldwide 195.5 235.1 208.9 241.3
--------------------------------------------------
Natural gas (million cubic feet):
United States (a) 1,099 1,077 1,091 1,109
Foreign:
Far East (b) 667 577 626 597
Other 63 55 71 48
--------------------------------------------------
Total foreign 730 632 697 645
Worldwide 1,829 1,709 1,788 1,754
Natural gas liquids (thousand barrels) (a) 19.3 20.2 19.6 21.4
Geothermal (million kilowatt-hours) 21.0 17.7 17.3 16.0
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE SALES PRICES
Crude oil and condensate (per barrel):
United States $20.01 $14.83 $18.31 $15.17
Foreign:
Far East $18.89 $15.26 $18.32 $16.11
Other $19.89 $15.12 $18.53 $15.84
Total foreign $19.21 $15.21 $18.39 $16.01
Worldwide $19.62 $14.98 $18.34 $15.51
Natural gas (per thousand cubic feet):
United States $ 2.09 $ 1.43 $ 2.20 $ 1.49
Foreign:
Far East $ 2.27 $ 2.05 $ 2.23 $ 2.00
Other $ 2.05 $ 1.21 $ 1.82 $ 1.14
Total foreign $ 2.25 $ 1.97 $ 2.18 $ 1.94
Worldwide $ 2.15 $ 1.64 $ 2.20 $ 1.66
(a) Includes production from California upstream properties of:
Crude oil and condensate 1.0 28.7 10.9 29.4
Natural gas - 58 17 64
Natural gas liquids - 0.7 0.2 1.1
(b) Includes host country share in Indonesia of:
Crude oil and condensate 26.4 33.0 26.8 31.7
Natural gas 29 20 26 23
</TABLE>
<TABLE>
<CAPTION>
10
<PAGE>
OPERATING HIGHLIGHTS (continued) UNOCAL CORPORATION
(Unaudited)
For the Three Months For the Nine Months
Ended September 30 Ended September 30
-------------------------------------------------
1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INPUT TO CRUDE OIL PROCESSING UNITS (thousand barrels daily) ...................... 229 220 231 207
REFINERY PRODUCTION (thousand barrels daily)
EPA Gasoline ................................................................. 31 120 52 107
CARB gasoline ................................................................ 90 -- 64 --
Jet fuel, kerosene and heating oil ........................................... 33 29 36 21
Diesel fuel .................................................................. 19 14 21 12
CARB diesel .................................................................. 27 27 24 24
Other products (lubricants, gas oils , etc.) ................................. 58 53 61 62
----------------------------------------
Total ................................................................... 258 243 258 226
PETROLEUM PRODUCT SALES (thousand barrels daily)
Primarily sold through retail channels
EPA Gasoline ................................................................. 27 116 67 116
CARB gasoline ................................................................ 103 -- 64 --
Diesel fuel .................................................................. 15 12 14 12
CARB diesel .................................................................. 20 17 16 15
Other products ( includes lube oil, kerosene and fuel oil) ................... 7 7 7 7
----------------------------------------
Total ................................................................... 172 152 168 150
Primarily sold through wholesale or commercial channels
EPA Gasoline ................................................................. 4 31 9 23
CARB gasoline ................................................................ 21 -- 12 --
Jet fuel ..................................................................... 38 32 40 29
Diesel fuel .................................................................. 14 14 14 10
CARB diesel .................................................................. 15 11 12 6
Other products (includes petroleum products, gas oils , etc.) ................ 34 35 36 42
----------------------------------------
Total ................................................................... 126 123 123 110
----------------------------------------
Total petroleum products sales ....................................... 298 275 291 260
AGRICULTURAL PRODUCTS PRODUCTION VOLUMES (thousand tons)
Ammonia ......................................................................... 360 296 1,089 988
Urea ............................................................................ 275 242 845 806
Other products .................................................................. 149 169 494 583
AGRICULTURAL PRODUCTS SALES VOLUMES (thousand tons)
Ammonia ......................................................................... 206 106 574 500
Urea ............................................................................ 198 247 779 773
Other products .................................................................. 302 255 971 962
</TABLE>
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CONSOLIDATED RESULTS
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
-------------------------- ---------------------------
Millions of dollars 1996 1995 * 1996 1995
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings excluding special items: .............................. $ 153 $ 50 $ 478 $ 205
Special items:
Sale of California oil and gas properties * .................... -- -- 70 --
Florida and Alaska OCS settlement .............................. -- 18 -- 18
Other asset sales .............................................. 49 1 63 38
Environmental provision ........................................ (12) (1) (38) (19)
Litigation provision ........................................... (22) (5) (34) (17)
Write-down of assets ........................................... -- -- (4) (10)
Other .......................................................... 3 (4) (2) (4)
------------------------------------------------------
Net earnings including special items ........................ $ 171 $ 59 $ 533 $ 211
</TABLE>
* Net of provision for environmental remediation of $10 million
During the third quarter and first nine months of 1996, operating earnings
continued to improve over the prior year results primarily due to higher
worldwide crude oil and natural gas sales prices; improved refined product
margins; improved foreign natural gas production and increased production and
sales volumes of agricultural products. Partially offsetting these positive
factors were decreased worldwide crude oil production, primarily due to asset
sales and increased exploration costs. During the third quarter of 1996, other
asset sales consisted of the sale of exploration blocks in the North sea and
miscellaneous real estate assets. Year-to-date 1996 other asset sales primarily
consisted of the sale of miscellaneous oil and gas properties and miscellaneous
real estate assets. Year-to-date 1995 other asset sales primarily consisted of
the sale of miscellaneous oil and gas properties and the company's Process
Technology and Licensing business.
Consolidated sales and operating revenues for the third quarter of 1996
increased by $598 million, or 31 percent, compared with the third quarter of
1995, and consolidated sales and operating revenues for the first nine months of
1996 increased by $1,275 million, or 21 percent, compared with the first nine
months of 1995. The increased sales and operating revenues were primarily the
result of higher crude oil, natural gas and gasoline sales prices.
OIL AND GAS EXPLORATION AND PRODUCTION
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
----------------------------------------------------
Millions of dollars 1996 1995 * 1996 1995
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings excluding special items: ............................ $ 137 $ 82 $ 459 $ 290
Special items:
Sale of California oil and gas properties * .................. -- -- 68 --
Other asset sales ............................................ 40 (1) 46 8
Florida and Alaska OCS settlement ............................ -- 18 -- 18
Write-down of assets ......................................... -- -- -- (8)
-------------------------------------------------------
Net earnings including special items ...................... $ 177 $ 99 $ 573 $ 308
</TABLE>
* Net of provision for environmental remediation of $10 million
During the third quarter and first nine months of 1996, average worldwide sales
prices for crude oil and natural gas and foreign natural gas production were
higher than the 1995 levels. Partially offsetting these positive factors were
declining worldwide crude oil production and increased exploration costs.
Worldwide crude oil production decreased principally due to the sale of the
California properties and other oil and gas assets and natural decline. Another
factor offsetting improved earnings was increased dry hole costs, which were the
result of increased exploratory drilling in the United States.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Oil and Gas Exploration and Production sales and operating revenues (including
intercompany) for the third quarter and first nine months of 1996 were $664
million and $2,000 million, respectively, compared with $543 million and $1,701
million for the corresponding periods in 1995.
Average worldwide crude oil sales prices increased during the third quarter of
1996 by $4.64 per barrel, or 31 percent, and worldwide natural gas sales prices
increased by $.51 per thousand cubic feet, or 31 percent, compared with the
third quarter of 1995. During the first nine months of 1996, worldwide crude oil
sales prices increased by $2.83 per barrel, or 18 percent, and worldwide natural
gas sales prices increased by $.54 per thousand cubic feet, or 33 percent,
compared with the first nine months of 1995.
During the third quarter and first nine months of 1996, foreign natural gas
production increased by 16 percent and 8 percent, respectively, over the same
periods a year ago. The increase was primarily due to activities in Thailand and
the Netherlands.
REFINING, MARKETING AND TRANSPORTATION - 76 PRODUCTS COMPANY
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
-----------------------------------------------------
Millions of dollars 1996 1995 * 1996 1995
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings (loss) excluding special items: ................................ $ 35 $ 12 $ 76 $ (5)
Special items:
Sale of California oil and gas properties (pipelines) ................... -- -- 2 --
Other asset sales ....................................................... 1 -- 1 --
Litigation provision .................................................... (2) -- (2) --
Write-down of assets .................................................... -- -- (4) --
Other ................................................................... 3 -- 7 --
----------------------------------------------
Net earnings (loss) including special items .......................... $ 37 $ 12 $ 80 $ (5)
</TABLE>
The 76 Products Company's increased earnings during the third quarter and first
nine months of 1996 reflected significantly improved product margins, higher
product sales volumes and increased refinery production of light oil products as
compared to the same periods in 1995.
76 Products Company's sales and operating revenues (including intercompany and
excise taxes) for the third quarter and first nine months of 1996 were $1,243
million and $3,536 million, respectively, compared with $977 million and $2,899
million (including intercompany and excise taxes) for the corresponding periods
in 1995.
During the third quarter and first nine months of 1996, product sales volumes
through retail channels increased by 13 percent and 12 percent, respectively,
compared with the corresponding periods in 1995. Compared with the third quarter
and first nine months of 1995, refinery production increased by 6 percent and 14
percent, respectively.
GEOTHERMAL AND POWER OPERATIONS
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
----------------------------------------------------
Millions of dollars 1996 1995 * 1996 1995
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net earnings excluding special items: .............................. $ 6 $ 4 $15 $14
Special items:
Sale of assets ................................................. -- 2 -- 7
---------------------------------------------------
Net earnings including special items ........................ $ 6 $ 6 $15 $21
</TABLE>
The 1995 gain was from the sale of a small interest in the Indonesian geothermal
operations.
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Diversified Businesses
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
-----------------------------------------------------
Millions of dollars 1996 1995 * 1996 1995
----------------------------------------------------------------------------------------------------------------------------------
Net earnings excluding special items:
<S> <C> <C> <C> <C>
Agricultural Products .......................................... $ 20 $ 3 $ 73 $ 51
Carbon and Minerals ............................................ 13 13 40 40
Pipelines ...................................................... 14 15 44 50
Other .......................................................... 2 2 5 8
----------------------------------------------------
Total ..................................................... $ 49 $ 33 $162 $149
Special items:
Asset sales
Agricultural Products ....................................... -- -- -- 4
Pipeline .................................................... -- -- 7 --
Miscellaneous (Other) ....................................... 8 -- 8 1
----------------------------------------------------
Net earnings including special items ........................ $ 57 $ 33 $177 $154
</TABLE>
Increased earnings for Diversified Businesses were primarily due to increased
production and sales volumes for agricultural products. During the third quarter
and first nine months of 1996, ammonia production volumes increased 22 percent
and 10 percent, respectively, compared with the same periods in 1995. Ammonia
sales volumes increased by 94 percent and 15 percent during the third-quarter
and first nine-months of 1996, respectively, compared with the corresponding
periods in 1995.
CORPORATE AND UNALLOCATED
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
-----------------------------------------------------
Millions of dollars 1996 1995 * 1996 1995
----------------------------------------------------------------------------------------------------------------------------------
Net earnings excluding special items:
<S> <C> <C> <C> <C>
Administrative and general expense ................................. $ (21) $ (22) $ (55) $ (57)
Net interest expense ............................................... (37) (50) (135) (140)
Environmental and litigation expense ............................... (5) (4) (14) (21)
Other .............................................................. (11) (5) (30) (25)
------------------------------------------------------
Total ......................................................... (74) (81) (234) (243)
Special items:
Environmental and litigation provisions ......................... (32) (6) (70) (36)
Asset sales (Other) ............................................. -- -- 1 18
Write-down of assets (Other) .................................... -- -- -- (2)
Other ........................................................... -- (4) (9) (4)
------------------------------------------------------
Net earnings effect including special items .................. $(106) $ (91) $(312) $(267)
</TABLE>
Asset sales for 1995 consisted primarily of the sale of the company's Process,
Technology and Licensing business.
FINANCIAL CONDITION AND CAPITAL EXPENDITURES
For the first nine months of 1996, cash flow from operating activities,
including working capital changes, was $1,199 million, compared with $676
million in 1995. This increase was principally due to higher commodity prices.
Proceeds from asset sales were $585 million for the first nine months of 1996.
The total principally included: $490 million from the sale of oil and gas
producing properties, which included $480 million from the sale of the
California properties; $20 million from the 1995 sale of geothermal assets; $12
million from the sale of the company's interest in the Platte Pipeline; $23
million from the sale of exploration blocks in the North Sea; and $30 million
from the sale of miscellaneous real estate assets. The company used most of the
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
proceeds from these sales to repay long-term debt. Proceeds from asset sales for
the first nine months of 1995 were $130 million, mainly from the sale of
nonstrategic oil and gas properties and the Process, Technology and Licensing
business.
Consolidated working capital at September 30, 1996 was $155 million, a decrease
of $105 million from the year-end 1995 level of $260 million. The company's
total debt was $3,070 million at September 30, 1996, a decrease of $636 million
from the year-end 1995 level. The debt-to-total capitalization ratio dropped to
48 percent from 55.8 percent at year-end 1995. See Notes 8 and 9 to the
Consolidated Financial Statements for additional information.
Capital expenditures for the first nine months of 1996 totaled $940 million, a
decrease of $27 million from the 1995 level of $967 million. Estimated
expenditures for the full year 1996 are expected to reach $1.3 billion.
ENVIRONMENTAL MATTERS
At September 30, 1996, the company's reserves for environmental remediation
obligations totaled $245 million, of which $83 million was included in current
liabilities. During the first nine months of 1996, cash payments of $49 million
were charged against reserves and an additional $80 million in liabilities were
added to the reserve account, primarily due to changes in estimated future
remediation costs for numerous sites. The company estimates that it could incur
additional remediation costs aggregating approximately $180 million as discussed
in Note 11 to the Consolidated Financial Statements.
The company is subject to federal, state and local environmental laws and
regulations, including the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, and the Resource Conservation and
Recovery Act (RCRA). Under these laws, the company is subject to possible
obligations to remove or mitigate the environmental effects of the disposal or
release of certain chemical and petroleum substances at various sites.
At year-end 1995, the company had received notification from the Federal
Environmental Protection Agency that the company may be a potentially
responsible party (PRP) at 40 Superfund sites. In addition, various state
agencies and private parties had identified 30 other similar PRP sites that may
require investigation and remediation. During the first nine months of 1996, 12
sites were added and five sites were removed resulting in a total of 77 sites.
Of the total, the company has denied responsibility at four sites and at another
14 sites the company's liability, although unquantified, appears to be de
minimis. At another four sites, the company is in the process of resolving its
liability. The total also includes 28 sites which are under investigation or in
litigation, for which the company's potential liability is not determinable. Of
the remaining 27 sites, where probable costs can be reasonably estimated, a
reserve of $29 million was included in the total environmental remediation
reserve as of September 30, 1996.
Unocal does not consider the number of sites for which it has been named a PRP
as a relevant measure of liability. Although the liability of a PRP is generally
joint and several, the company is usually only one of several companies
designated as a PRP. The company's ultimate share of the remediation costs at
those sites often is not determinable due to many unknown factors as discussed
in Note 11 to the Consolidated Financial Statements. The solvency of other
responsible parties and disputes regarding responsibilities may also impact the
company's ultimate costs.
Corrective investigations and actions pursuant to RCRA are being performed at
the San Francisco and Los Angeles refineries, Beaumont facility and at the
company's closed shale oil project and Molycorp Inc., Washington, Pennsylvania,
facility. The company also must provide financial assurance for future closure
and post-closure costs of its RCRA permitted facilities. Because these costs
will be incurred at different times and over a period of many years, the company
believes that these obligations are not likely to have a material adverse effect
on the company's results of operations or financial condition.
In the third quarter of 1996, the company added $18 million to the reserve for
estimated costs associated with the remediation of retail marketing sites. Some
of the remediation is being performed as the company replaces underground
storage tank (UST) systems at its service stations. Federal regulations require
all UST systems to meet new standards by December 1998. The addition also
includes remediation to be performed in conjunction with the company's program
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
to upgrade its service stations. Estimates for possible additional expenses are
included in the $180 million total of future estimated remediation costs
disclosed in Note 11 to the consolidated financial statements.
In November 1996, the company submitted a remedial action plan to the Regional
Water Quality Control Board (RWQCB) for the remediation of petroleum hydrocarbon
contamination from the beach area in Avilia Beach, California. Interim beach
protection measures will continue until the remedial action plan is evaluated as
part of the Environmental Impact Report process and approved by the RWQCB. Cost
estimates for the implementation of the plan are approximately $9 million. The
company expects to incur additional costs related to this site. These costs
however, cannot be determined at this time.
OTHER MATTERS
In the Philippines, the company's subsidiary, Philippine Geothermal, Inc.,
reached provisional agreement with Philippine National Power Corporation to
continue operating and maintaining two geothermal fields in the northern
Philippines until a legal dispute over the extension of the service contract for
an additional 25 years is settled. The original 25-year service contract expired
on September 30, 1996. The interim contract is for six months and is renewable
for another three months. Both parties will continue to observe the rights and
obligations under the original contract except for the terms of payment. Under
the interim agreement, 60 percent of the company's revenue from the steam fee is
being held in escrow until the courts reach a decision.
FUTURE ACCOUNTING CHANGE
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities". This Statement is to be
applied prospectively to transactions occuring after December 31, 1996. The
company is reviewing the potential financial impact of adopting the new
accounting standard.
OUTLOOK
Certain of the statements in this discussion, as well as other forward-looking
statements within this document, contain estimates and projections of amounts of
or increases in future revenues, earnings, cash flows, capital expenditures,
assets, liabilities and other financial items and of future levels of or
increases in reserves, production, sales including related costs and prices, and
other statistical items; plans and objectives of management regarding the
company's future operations, products and services; and certain assumptions
underlying such estimates, projection plans and objectives. While these
forward-looking statements are made in good faith, future operating, market,
competitive, legal, economic, political, environmental, and other conditions and
events could cause actual results to differ materially from those in the
forward-looking statements.
While third quarter 1996 refined product margins were above 1995 levels, they
were significantly below the levels of the second quarter of 1996. This decline
has continued into the fourth quarter of 1996 due to the competitive conditions
that have developed in the California market. Crude oil and natural gas prices
are expected to remain strong; however, crude oil prices could be adversely
impacted if the United Nations Resolution 986 on the limited sale of Iraq oil is
implemented. The company will continue to be affected by the uncertainty and
volatility of prices.
During the fourth quarter of 1996, gross natural gas production in Thailand is
expected to increase by 35 percent to an average of approximately 990 mmcfd.
Gross natural gas production for the first nine months averaged 735 mmcfd.
Associated condensate is expected to average about 32,500 barrels per day during
the fourth quarter compared to 26,482 barrels per day for the first nine months.
The increased production was in response to Petroleum Authority of Thailand's
(PTT) requirement for additional gas to meet customer demand. In order to
continue to respond to increased demand, the company expects average gross
production to be at or above one billion cubic feet per day by the second
quarter of 1997 when PTT's second offshore pipeline and related onshore
pipelines and processing facilities are fully operational. Unocal has a 65
percent average net interest in the nine fields it operates in the Gulf of
Thailand. On November 11, 1996, the company announced the outcome of 11
successful wells drilled in the Gulf of Thailand, which resulted in the
discovery of one new field and extensions and/or delineations of five existing
fields.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The company's subsidiary, Unocal Yangtze, Ltd., joined an equity joint venture
that plans to construct and operate a liquefied petroleum gas (LPG) terminal in
the People's Republic of China. The terminal construction is expected to be
completed by December 1997, with LPG available for delivery to customers by
January 1998. The initial planned annual throughput capacity for the terminal is
500,000 metric tons. The company has a 30 percent interest in thejoint venture.
On November 12, 1996, the company entered into an agreement to sell 80 percent
of the stock of its wholly owned subsidiary, NEC Acquisition Company (NEC), for
a sales price of $28 million. The company's after-tax loss is expected to be
approximately $57 million. NEC has a 25 percent interest in The Geysers
geothermal operations located in Northern California. It is contemplated that
the sale will be effective on November 30, 1996.
On October 29, 1996, the company announced its intention to establish 76
Products Company as a wholly owned subsidiary and transfer its West Coast
downstream refining, marketing and transportation assets to the subsidiary by
the end of 1996.
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 Citizens for a Better Environment, et al. v. Union Oil Company of
California (No. C94-0712, U.S.D.C., N.D. California) regarding allegations
of NPDES violations from selenium discharges, the Ninth Circuit Court of
Appeals denied the request for a rehearing en banc. The company is now
evaluating whether to file a Petition for Writ of Certiorari with the U. S.
Supreme Court.
(2) In People v. Union Oil Company of California, Superior Court of San Luis
Obispo County (Civil No. 75194), trial settings have been vacated on motion
of the California Attorney General. The next status conference is scheduled
for November 15, 1996.
(3) The company has been served with a lawsuit which is purportedly brought by
unidentified representatives on behalf of an alleged class of plaintiffs
consisting of all residents of the Tenasserim region of Myanmar who are
affected by the defendants' alleged acts of mistreatment and forced labor,
and by a California resident, Louisa Benson, who claims that the defendants
have engaged in unfair business practices (John Doe, et al. and Louisa
Benson v. Unocal Corp., et al., U.S.D.C, C.D. Calif., Civil No 96-6959-LGB,
filed October 3, 1996). Defendants include Total S.A., Myanma Oil and Gas
Enterprise, the State Law and Order Restoration Council (SLORC), John Imle
and Roger C. Beach.
Plaintiffs' claims are based on the company's joint-venture activities in
Myanmar for the exploration and production of natural gas in the Andaman
Sea and shipment of that gas to Thailand through a pipeline crossing
Myanmar (the Yadana Project). The complaint contains numerous counts and
alleged violations of several U.S. and California laws and U.S. treaties.
Plaintiffs seek compensatory and punitive damages on behalf of the
purported class, and Louisa Benson seeks disgorgement of profits.
Injunctive and declaratory relief is also requested to direct defendants
to cease payments to SLORC and to cease participation in the Yadana
Project.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3 Bylaws of Unocal Corporation, as amended September 30, 1996, and currently
in effect.
11 Unocal Corporation statement regarding computation of earnings per common
share for the three months ended September 30, 1996 and 1995 and for the
nine-month periods ended September 30, 1996 and 1995.
17
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (CONTINUED)
12.1 Unocal Corporation statement regarding computation of ratio of earnings to
fixed charges for the nine months ended September 30, 1996 and 1995.
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, 1996 and 1995.
12.3 Union Oil Company of California statement regarding computation of ratio of
earnings to fixed charges for the nine months ended September 30, 1996 and
1995.
27 Financial data schedule for the quarter ended September 30, 1996 (included
only in the copy of this report filed electronically with the Commission).
99 Bylaws of Union Oil Company of California, as amended September 30, 1996,
and currently in effect.
(b) Reports on Form 8-K
During the third quarter of 1996:
1. Current Report on Form 8-K dated and filed July 25, 1996, for the
purpose of reporting, under Item 5, Unocal's second quarter and first
six months 1996 earnings.
2. Current Report on Form 8-K dated and filed September 3, 1996, for the
purpose of reporting, under Item 5, the exchange and conversion ratios
for the new 6-1/4 percent Trust Convertible Preferred Securities of
Unocal Capital Trust offered by Unocal in exchange for all of the
outstanding shares of its $3.50 Convertible Preferred Stock.
3. Current Report on Form 8-K dated and filed September 6, 1996, for the
purpose of reporting, under Item 5, the acceptance by Unocal of all
shares of its $3.50 Convertible Preferred Stock tendered in its
exchange offer.
4. Current Report on Form 8-K dated and filed September 11, 1996, for the
purpose of reporting, under Item 5, the completion of Unocal's
exchange offer and its call for redemption of the remaining shares of
its $3.50 Convertible Preferred Stock.
During the fourth quarter of 1996 to the date hereof:
1. Current Report on Form 8-K dated and filed October 23, 1996, for the
purpose of reporting, under Item 5, Unocal's third quarter and first
nine months 1996 earnings.
18
<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 13, 1996 By: /s/ CHARLES S. MCDOWELL
-----------------------
Charles S. McDowell
Vice President and Comptroller
(Duly Authorized Officer and
Principal Accounting Officer)
19
EXHIBIT 3
BYLAWS
OF
UNOCAL CORPORATION
ARTICLE I
FISCAL YEAR
Section 1. The fiscal year of Unocal Corporation (hereinafter called
the "Corporation") shall end on the thirty-first day of December of each year.
ARTICLE II
OFFICES
Section 1. Principal Office. The principal office for the transaction
of business of the Corporation is hereby fixed and located at 2141 Rosecrans
Avenue, Suite 4000, in the City of El Segundo, County of Los Angeles, State of
California. The Board of Directors (hereinafter sometimes called the "Board") is
hereby granted full power and authority to change said principal office from one
location to another.
ARTICLE III
STOCKHOLDERS
Section 1. Annual Meetings. The annual meetings of the stockholders
shall be held at 10:00 o'clock A.M. on the fourth Monday in May of each year if
not a legal holiday, for the purpose of electing directors, consideration of
reports of the affairs of the Corporation, and for the transaction of any other
business which is within the powers of the stockholders and properly brought
before the meeting. If the fourth Monday in May is a legal holiday, the annual
meeting of the stockholders shall be held at 10:00 o'clock A.M. on the preceding
or subsequent Monday as fixed by resolution of the Board.
Section 2. Notice of Meetings. Written notice of each annual or special
meeting of stockholders shall be given to each stockholder entitled to vote
thereat not less than ten nor more than sixty days before the meeting.
Section 3. Place of Meetings. All meetings of stockholders, whether
annual or special, shall be held at the principal office of the Corporation or
at such other place, within or without the State of Delaware, as the Board may
from time to time designate pursuant to authority hereinafter granted it. In the
absence of any such designation stockholders' meetings shall be held at the
principal office of the Corporation.
Section 4. Voting Rights. Stockholders entitled to vote at stockholder
meetings shall be entitled to one vote for each full share. A fraction of a
share or a fractional interest in a share shall not be entitled to any voting
rights whatsoever.
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Section 5. Conduct of Meetings. The decisions of the Chairman of the Board
or officer presiding at all stockholders' meetings shall govern in all matters
relating to the conduct of the meeting.
Section 6. Voting. Directors shall be divided into three classes with
each director serving a three-year term. At each annual meeting, all directors
of one class shall be elected in accordance with the provisions of ARTICLE
SEVENTH of the Corporation's Certificate of Incorporation by the holders of
shares entitled to vote in the election. A nomination shall be accepted, and
votes cast for a proposed nominee shall be counted by the inspectors of
election, only if the Secretary of the Corporation has received at least 30 days
prior to the meeting a statement over the signature of the proposed nominee that
such person consents to being a nominee and, if elected, intends to serve as a
director. Such statement shall also contain the Unocal stock ownership of the
proposed nominee, occupations and business history for the previous five years,
other directorships, names of business entities in which the proposed nominee
owns a 10 percent or more equity interest, listing of any criminal convictions,
including federal or state securities violations, and all other information
required by the federal proxy rules in effect at the time the proposed nominee
submits said statement.
Section 7. Notice of Stockholder Business. At any meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before a meeting, business
must be (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors, (b) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (c)
otherwise properly brought before the meeting by a stockholder. For business to
be properly brought before the meeting by a stockholder, the Secretary must have
received written notice at least thirty (30) days prior to the meeting. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (a) a brief description of the
business desired to be brought before the meeting, (b) the name and address, as
they appear on the Corporation's books, of the stockholder proposing such
business, (c) the class and the number of shares of the Corporation which are
beneficially owned by the stockholder, and (d) any material interest of the
stockholder in such business. Notwithstanding anything in the Bylaws to the
contrary, no business shall be conducted at a meeting except in accordance with
the procedures set forth herein.
Section 8. Quorum. The holders of one-third (1/3) of all of the
outstanding shares of the stock of the Corporation entitled to vote at a meeting
of stockholders, present in person or by proxy, shall constitute a quorum for
the transaction of any business at such meeting.
ARTICLE IV
BOARD OF DIRECTORS
Section 1. Powers. Subject to the limitations of the Certificate of
Incorporation of the Corporation and of the Delaware General Corporation Law as
to action which shall be authorized or approved by the stockholders, all
corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation shall be managed by, the Board of
Directors.
Section 2. Number. The exact number of directors of the Corporation,
within the limits specified in ARTICLE SEVENTH of the Corporation's Certificate
of Incorporation, shall be twelve until changed in the manner provided by law.
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Section 3. Chairman and Vice Chairman of the Board. The Board shall
appoint a Chairman, who shall preside at all meetings of the Board of Directors
and shall have such other powers and duties as may from time to time be assigned
by the Board of Directors or prescribed by the Bylaws. The Board may also
appoint a Vice Chairman, who shall preside at all meetings of the Board of
Directors in the absence of the Chairman and shall have such other powers and
duties as may from time to time be assigned by the Board of Directors or
prescribed by the Bylaws.
Section 4. Annual Meetings. Immediately following each annual meeting
of stockholders, the Board shall hold its annual meeting for the purpose of
organization, election of officers and the transaction of any other business.
Section 5. Regular Meetings. Regular meetings of the Board shall be held at
the times and on the dates fixed by resolution of the Board.
Section 6. Special Meetings. Special meetings of the Board for any
purpose or purposes whatsoever may be called by the Chairman of the Board or the
Chief Executive Officer or, in the absence or inability of either of them, by
the President, the Chief Financial Officer, or by at least two of the directors
at the time in office.
Section 7. Notice of Meetings. Notice of annual meetings and of regular
meetings of the Board is hereby dispensed with. Notice of special meetings must
be given at least two days in advance if given by mail, or at least twenty-four
hours in advance if delivered personally or given by telephone or telegram.
Section 8. Place of Meetings. All meetings of the Board, whether
annual, regular or special meetings, shall be held at any place within or
without the State of Delaware which has been designated from time to time by
resolution of the Board or in the notice of the meeting. In the absence of such
designation all directors' meetings shall be held at the principal office of the
Corporation.
Section 9. Quorum. A majority of the exact number of directors
specified in Section 2 of ARTICLE IV of the Bylaws shall constitute a quorum of
the Board of Directors for the transaction of business; provided, however, that
vacancies on the Board may be filled by a majority of the remaining directors,
though less than a quorum, or by a sole remaining director, each such director
to hold office until a successor is elected at an annual or special meeting of
the stockholders.
Section 10. Compensation of Directors. Directors and members of
committees appointed by the Board shall receive such compensation, if any, for
their services, and such reimbursement for their expenses, as may be fixed or
determined by resolution of the Board. The Board may, however, in any such
resolution provide that directors who are also employees of the Corporation or
any of its subsidiaries shall not receive additional compensation for services
as a director or member of a committee appointed by the Board.
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Section 11. Indemnification of Directors, Officers, Employees and Other Agents.
(a) Right to Indemnification. Each person who was or is made a party or
is threatened to be made a party to or involved in any action, suit, or
proceeding, whether civil, criminal, administrative, or investigative
("Proceeding"), by reason of the fact that he or she, or a person of whom he or
she is the legal representative, is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, trustee, or fiduciary, or in a similar capacity
(collectively, "Agent") of another foreign or domestic corporation, limited
liability company, partnership, joint venture, trust, or any other enterprise or
entity whatsoever, including without limitation employee benefit plans
(collectively, "Affiliate"), whether the basis of such Proceeding is alleged
action in an official capacity, or in any other capacity while serving as a
director or officer of the Corporation or as an Agent of an Affiliate, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability, and loss, including without
limitation, attorneys' fees, judgments, fines, ERISA excise taxes, penalties,
amounts paid or to be paid in settlement, and any other amounts actually
incurred or suffered by such person in connection with any Proceeding; and such
indemnification shall continue as to a person who has ceased to be a director or
officer of the Corporation or Agent of an Affiliate and shall inure to the
benefit of his or her heirs, executors, and administrators; provided, however,
that, except as provided in paragraph (b) hereof with respect to Proceedings
seeking to enforce rights to indemnification, the Corporation shall indemnify
any such person seeking indemnification in connection with a Proceeding (or part
thereof) initiated by such person only if such Proceeding (or part thereof) was
authorized by the board of directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such Proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including without
limitation, service to an employee benefit plan) in advance of the final
disposition of a Proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section or otherwise. The
Corporation may, to the extent authorized from time to time by its board of
directors, either on a general basis or as to specific employees or agents,
provide indemnification to employees and agents of the Corporation with similar
scope and effect as the foregoing indemnification of directors and officers.
(b) Right to Bring Suit. If a claim under paragraph (a) of this Section
is not paid in full by the Corporation within sixty (60) days after a written
claim has been received by the Corporation, except in the case of a claim for
expenses incurred in a Proceeding in advance of its final disposition in which
case the applicable period shall be twenty (20) days, the person seeking
indemnification (the "Party to be Indemnified") may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim. If
successful in whole or in part in any such suit, or in a suit brought by the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the Party to be Indemnified shall be entitled to be paid also the
expense of prosecuting or defending such claim. The Corporation's sole defense
to an action seeking indemnification (other than an action brought to enforce a
claim for expenses incurred in defending a Proceeding in advance of its final
disposition where the required
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undertaking, if any is required, has been tendered to the Corporation) shall be
that the Party to be Indemnified has not met the standards of conduct which make
it permissible under the Delaware General Corporation Law for the Corporation to
indemnify the Party to be Indemnified for the amount claimed, and the burden of
providing such defense shall be on the Corporation. Neither the failure of the
Corporation (including its board of directors, its independent legal counsel, or
its stockholders) to have made a determination prior to the commencement of such
action that indemnification of the Party to be Indemnified is proper in the
circumstances because he or she has met the applicable standard of conduct set
forth in the Delaware General Corporation Law, nor an actual determination by
the Corporation (including its board of directors, its independent legal
counsel, or its stockholders) that the Party to be Indemnified has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the Party to be Indemnified has not met the applicable standard
of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification and the
payment of expenses incurred in defending a Proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, Bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
(d) Insurance. The Corporation shall maintain in full force and effect,
at its own expense, director and officer liability insurance ("Insurance")
coverage for each director and officer in amounts and scope at least as
favorable as that maintained by the Corporation on September 30, 1996, or, to
the extent more favorable, any Insurance policy entered into or renewed by the
Corporation following such date. Notwithstanding the foregoing, if the
Corporation, after using its best efforts, cannot obtain and purchase such
coverage for an amount no more than what it paid for the most recent expiring
Insurance policy plus a reasonable additional amount, the Corporation shall only
be required to purchase such Insurance coverage for any act or omission
occurring at or prior to the time of such date.
(e) Enforceability; Amendment. The rights provided to any person by
this bylaw shall be enforceable against the Corporation by such person, who
shall be presumed to have relied upon it in serving or continuing to serve as an
Agent, as provided above. No amendment of this bylaw shall impair the rights of
any person arising at any time with respect to events occurring prior to such
amendment, including, without limitation, any right of a director or officer to
Insurance for any act or omission occurring at or prior to the time of such
amendment.
Section 12. Authority to Designate Place of Stockholders' Meetings. The
Board is hereby granted full power and authority to designate from time to time
any place within or without the State of Delaware for the holding of any
stockholders' meeting.
Section 13. Committees. The Board may, by resolution, appoint one or
more committees, in addition to an Executive Committee and a Management
Committee, to consist of two or more of the directors of the Corporation, and
prescribe their duties and powers. A majority of the members of any such
committee may determine its action and fix the time and place of its meetings
unless the Board shall otherwise provide. The Board shall have the power at any
time to fill vacancies in, to change the membership of, or to dissolve any such
committee.
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Section 14. Action by Written Consent. Any action required or permitted
to be taken by the Board or any committee thereof may be taken without a
meeting, if all members of the Board or such committee, as the case may be,
shall individually or collectively consent in writing to such action. Such
written consent or consents shall be filed with the minutes of the proceedings
of the Board.
Section 15. Conference Calls. Members of the Board or any committee
thereof may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another.
ARTICLE V
EXECUTIVE COMMITTEE
Section 1. Number and Composition. The Board of Directors shall appoint
from its membership, annually, an Executive Committee of three or more
directors. Included on the Executive Committee shall be the Chief Executive
Officer of the Corporation. Each member of the Executive Committee shall hold
membership at the pleasure of the Board, which shall have the exclusive power to
fill vacancies thereon as they may occur. The Chairman of the Executive
Committee shall be the Chief Executive Officer of the Corporation.
Section 2. Powers. The Executive Committee, during the intervals
between meetings of the Board, shall have and there is hereby granted to it all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, except that the Executive Committee
shall not be permitted to fill vacancies on the Board or on any committee,
approve any action for which stockholder approval is also required by the
Delaware General Corporation Law, amend or repeal any resolution of the Board
which by its express terms is not so amendable or repealable, or appoint other
committees of the Board or the members thereof and shall not have any powers
restricted by Section 141(c) of the Delaware General Corporation Law unless the
Board shall have specifically delegated authority to the Executive Committee to
take action with respect to a matter listed in such Section as permitted to be
so delegated.
Section 3. Procedure. Two members of the Executive Committee shall
constitute a quorum of the Executive Committee for the transaction of business.
The Executive Committee, by vote of a majority of its members, shall fix its own
times and places of meetings and shall prescribe its own rules of procedure; no
change in which shall be made save by a majority vote of its members.
Section 4. Records and Reports. The Executive Committee shall keep
regular minutes of all business transacted at its meetings, and all action of
the Executive Committee shall be reported to the Board at its next ensuing
meeting.
Section 5. Compensation. Members of the Executive Committee may receive
such compensation, if any, for their services, and such reimbursement for their
expenses, as may be fixed or determined by the Board.
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ARTICLE VI
MANAGEMENT COMMITTEE
Section 1. Number and Composition. The Board of Directors shall appoint
from its membership, annually, a Management Committee composed of the directors
who are salaried officers of the Corporation. The Chairman of the Management
Committee shall be the Chief Executive Officer of the Corporation.
Section 2. Powers. The Management Committee, during the intervals
between meetings of the Board, shall have and there is hereby granted to it all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, subject to approval limits established
by resolution of the Board of Directors as deemed appropriate from time to time,
but the Management Committee shall not be permitted to fill vacancies on the
Board or on any committee, appoint officers, approve any action for which
stockholder approval is also required by the Delaware General Corporation Law,
amend or repeal any resolution of the Board or of the Executive Committee, which
by its express terms is not so amendable or repealable, or appoint other
committees of the Board or the members thereof and shall not have any powers
restricted by Section 141(c) of the Delaware General Corporation Law unless the
Board shall have specifically delegated authority to the Management Committee to
take action with respect to a matter listed in such Section as permitted to be
so delegated.
Section 3. Procedure. Two members of the Management Committee shall
constitute a quorum of the Management Committee for the transaction of business.
The Management Committee, by vote of a majority of its members, shall fix its
own times and places of meetings, and shall prescribe its own rules of
procedure; no change in which shall be made save by a majority vote of its
members.
Section 4. Records. The Management Committee shall keep regular minutes of
all business transacted at its meetings.
ARTICLE VII
OFFICERS
Section 1. Officers. The officers of the Corporation shall be a Chief
Executive Officer, a President, a Chief Financial Officer, a Vice President, a
Secretary, a Comptroller, a Treasurer, and a Chief Legal Officer. The
Corporation may also have, at the discretion of the Board, one or more
additional Vice Presidents, one or more Assistant Secretaries, one or more
Assistant Treasurers, and one or more Assistant Comptrollers, and the Board may
appoint such other officers as it may deem necessary or advisable, who shall
have such authority and perform such duties as from time to time may be
prescribed by the Board, the Chairman of the Board, or the Chief Executive
Officer. Any two or more offices may be held by the same person.
Section 2. Election and Removal. The officers of the Corporation shall
be chosen annually by the Board at its annual meeting and each shall hold office
until the corresponding annual meeting of the Board in the next year and until a
successor shall be elected and qualified unless such officer shall theretofore
resign or shall be removed or otherwise disqualified to serve. The Board may
remove any officer either with or without cause or under such other terms or
conditions as it may prescribe. Vacancies may be filled by the Board as they may
occur.
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Section 3. Powers and Duties.
(a) Chief Executive Officer. The Chief Executive Officer shall be the
officer, reporting directly to the Board, responsible for overall management of
the Corporation and shall have general supervision, direction and control over
the business and affairs of the Corporation and its officers. The Chief
Executive Officer shall be a member of the Executive Committee and of the
Management Committee and in general shall perform all duties incident to the
office of Chief Executive Officer and shall have such powers and duties as may
from time to time be assigned by the Board of Directors or prescribed by the
Bylaws.
(b) President. The President in general shall perform all duties
incident to the office of President, and shall have such powers and duties as
may from time to time be assigned by the Board of Directors, the Chief Executive
Officer or prescribed by the Bylaws.
(c) Chief Financial Officer and Vice Presidents. The Chief Financial
Officer and each Vice President shall have such authority and shall perform such
duties as shall from time to time be assigned by the Board, the Chief Executive
Officer or prescribed by the Bylaws.
(d) Secretary. The Secretary shall keep, or cause to be kept, a book of
minutes, at the principal office and/or such other place or places as the Board
may order, of all meetings of directors and stockholders, with the time and
place of holding, whether regular or special, and if special how authorized, the
notice thereof given, the names of those present at directors' meetings, the
number of shares present or represented at stockholders' meetings, and the
proceedings thereof.
The Secretary shall keep or cause to be kept at the principal office,
or at the office of the Corporation's transfer agent, a stock register, which
may be an electronic database, showing the names of the stockholders of record
and their addresses, the number and classes of shares held by each, the numbers
and dates of the certificates issued for those shares, and the numbers and dates
of cancellation of every certificate surrendered for cancellation.
The Secretary shall give or cause to be given notice of all meetings of
the stockholders and the Board required to be given by the Bylaws or by law. The
Secretary shall have charge of and be custodian of the seal of the Corporation
and the minute books and documents relating to the existence and governance of
the Corporation.
The Secretary shall have such other powers and perform such other
duties as may from time to time be prescribed by the Board, the Chairman of the
Board, the Chief Executive Officer or the Bylaws, and shall in general, subject
to control of the Board, the Chairman of the Board and the Chief Executive
Officer, perform all the duties usually incident to the office of secretary of a
corporation.
(e) Assistant Secretaries. Each Assistant Secretary shall assist the
Secretary and, in the absence or disability of the Secretary, may perform the
duties of the Secretary unless and until the contrary is expressed by the Board,
and may perform such other duties as may be prescribed by the Board or the
Secretary.
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(f) Treasurer. The Treasurer shall have custody of and be responsible
for all the monies and funds of the Corporation. The Treasurer shall deposit or
cause to be deposited all Corporation monies, funds and other valuables in the
name and to the credit of the Corporation in such bank or banks as shall be
judged proper or as shall be directed by the Board, the Chief Executive Officer,
or the Chief Financial Officer, and shall disburse the funds of the Corporation
which have been duly approved for disbursement. The Treasurer shall enter or
cause to be entered regularly in the books of the Corporation full and accurate
accounts of all monies received and paid out on account of the Corporation.
The Treasurer shall have such other powers and perform such other
duties as may from time to time be prescribed by the Board, the Chief Executive
Officer, the Chief Financial Officer or the Bylaws, and shall in general,
subject to control of the Board, the Chief Executive Officer, and the Chief
Financial Officer, perform all the duties usually incident to the office of
treasurer of a corporation.
(g) Assistant Treasurers. Each Assistant Treasurer shall assist the
Treasurer and, in the absence or disability of the Treasurer, may perform the
duties of the Treasurer unless and until the contrary is expressed by the Board,
and shall perform such other duties as may be prescribed by the Board or the
Treasurer.
(h) Comptroller. The Comptroller shall be the principal officer in
charge of the general accounting books, accounting records and forms of the
Corporation and shall see that all monies and obligations due the Corporation
and all properties and assets are properly accounted for. The Comptroller shall
prepare the Corporation's balance sheets, income accounts and other financial
statements and reports, and render to the Board, the Chief Executive Officer,
and the Chief Financial Officer, such periodic reports covering the results of
operations of the Corporation as may be required by them or any of them.
The Comptroller shall have such other powers and perform such other
duties as may from time to time be prescribed by the Board, the Chief Executive
Officer, the Chief Financial Officer or the Bylaws and shall in general, subject
to control of the Board, the Chief Executive Officer, and the Chief Financial
Officer, perform all the duties usually incident to the office of comptroller of
a corporation.
(I) Assistant Comptrollers. Each Assistant Comptroller shall assist the
Comptroller and, in the absence or disability of the Comptroller, may perform
the duties of the Comptroller unless and until the contrary is expressed by the
Board, and shall perform such other duties as may be prescribed by the Board or
the Comptroller.
(j) Chief Legal Officer. The Chief Legal Officer shall be in charge of
the Corporation's legal affairs. The Chief Legal Officer shall advise the Board,
the Chairman of the Board and/or the officers of the Corporation on such legal
matters and prepare such reports as may be required by them or any of them.
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ARTICLE VIII
MISCELLANEOUS
Section 1. Execution of Documents. Unless otherwise authorized or
prescribed by the Board of Directors, all contracts, leases, deeds, deeds of
trust, mortgages, bonds, indentures, endorsements, assignments, powers of
attorney, and other documents and instruments of whatsoever kind shall be
executed for and on behalf of the Corporation by the Chief Executive Officer,
the President, the Chief Financial Officer, a Vice President, the Treasurer, the
Comptroller, or by any such officer and shall be attested by the Secretary or an
Assistant Secretary, who shall have authority to affix the corporate seal to the
same.
The Board also may authorize, and delegate to any one or more of the
Chief Executive Officer, the President and the Chief Financial Officer the power
to so authorize, any other officer or officers, employee or employees, or agent
or agents, to execute any contract, document or instrument of whatever kind for
and on behalf of the Corporation and such authority may be general or be
confined to specific instances.
Section 2. Undertakings and Commitments. No undertaking, commitment,
contract, instrument or document shall be binding upon the Corporation unless
previously authorized or subsequently ratified by the Board or executed by an
officer or officers, an employee or employees or an agent or agents of the
Corporation acting under powers conferred by the Board or by these Bylaws.
Section 3. Checks, Drafts, etc. All checks, notes and other obligations
for collection, deposit or transfer, and all checks and drafts for disbursement
from Corporation funds, and all bills of exchange and promissory notes, and all
acceptances, obligations and other instruments for the payment of money, shall
be endorsed or signed by such officer or officers, employee or employees or
agent or agents as shall be thereunto authorized from time to time by the Board
of Directors, which may delegate the power to so authorize to any one or more of
the Chief Executive Officer, the President and the Chief Financial Officer.
Section 4. Representation of Shares of Other Corporations. Shares
standing in the name of the Corporation may be voted or represented and all
rights incident thereto may be exercised on behalf of the Corporation by the
Chief Executive Officer, the President, the Chief Financial Officer, a Vice
President, the Secretary, the Treasurer or the Comptroller, or by such other
officers upon whom the Board of Directors may from time to time confer like
powers.
ARTICLE IX
AMENDMENTS TO BYLAWS
Section 1. Power of Stockholders. New Bylaws may be adopted or these
Bylaws may be amended or repealed by the vote of seventy-five percent of the
outstanding stock of the Corporation entitled to vote thereon.
Section 2. Power of Directors. Subject to the right of stockholders as
provided in Section 1 of this ARTICLE IX to adopt, amend or repeal Bylaws,
Bylaws may be adopted, amended or repealed by the Board of Directors as provided
or permitted by law; however, any Bylaw amendment adopted by the Board of
Directors increasing or reducing the authorized number of directors or amending
this section shall require a resolution adopted by the affirmative vote of not
less than seventy-five percent of the directors.
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ARTICLE X
EMERGENCY
Section 1. "Emergency" as used in this Article means disorder,
disturbance or damage caused by war, enemy attack, other warlike acts or by
catastrophe, disaster or other similar emergency condition, which prevents the
conduct and management of the affairs and business of the Corporation by the
Board of Directors and officers in the manner provided for in other Articles of
these Bylaws. The powers and duties conferred and imposed by this Article, and
any resolutions adopted pursuant hereto, shall be effective only during an
emergency. This Article may be implemented from time to time by resolutions
adopted by the Board of Directors before or during an emergency, or during an
emergency by the emergency Board of Directors constituted and then acting
pursuant hereto. An emergency, once commenced, shall be deemed to continue until
terminated by resolutions adopted for that purpose by the Board of Directors.
Section 2. If, during an emergency, a majority of the Board of
Directors cannot be found or is unable to act, one-third of the exact number of
the Board of Directors shall constitute a quorum thereof.
Section 3. During any emergency, the officers and employees of the
Corporation shall continue, so far as possible, to conduct the Corporation's
affairs and business under the guidance of the Board of Directors acting
pursuant to this Article and in accordance with known orders of governmental
authorities.
Section 4. If, during any emergency, a quorum of the Board of
Directors, as provided in Section 3 of this Article, cannot be found or is
unable to act, any three available members of the Executive Committee, including
the Chief Executive Officer, shall be and constitute the Board of Directors,
with two thereof constituting a quorum, and as such shall have and exercise the
fullest power of the Board of Directors for the conduct and management of the
affairs and business of the Corporation, permitted by law, without the
limitations set forth in Section 2 of ARTICLE V of these Bylaws, provided that
such emergency Board of Directors as so constituted shall comply to the extent
practicable under the circumstances with the provisions of ARTICLE III of these
Bylaws relating to annual and special meetings of stockholders. If three members
of the Executive Committee, including the Chief Executive Officer, are not able
to serve, any three available directors shall be and constitute such emergency
Board of Directors, with two thereof constituting a quorum, for the exercise of
the powers conferred and performance of the duties imposed by this Section 4.
Section 5. If, during any emergency, neither a quorum of the Board of
Directors, as provided in Section 3 of this Article, nor a quorum of the
emergency Board of Directors, as provided for in Section 4 of this Article is
available to serve, then the powers conferred and duties imposed by Section 4
shall vest in and devolve upon any three of (in the following order of priority)
available directors, including any one or more of the Chief Executive Officer,
the President and the Chief Financial Officer, and as many Vice Presidents (or,
in case of their inability, any other officers), in order of seniority, as may
be necessary from time to time to constitute a total of three emergency
directors. The Chief Executive Officer and any other one emergency director
shall constitute a quorum of such emergency Board of Directors for exercise of
the powers conferred and performance of the duties imposed hereunder, but if the
Chief Executive Officer is not available, any two of such emergency directors
shall constitute a quorum.
EXHIBIT 11
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
----------------------------------------------------------
Dollars and shares in thousands, except per share amounts 1996 1995 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share Assuming No Dilution (a)
<S> <C> <C> <C> <C>
Net earnings .................................................... $ 170,765 $ 58,672 $ 532,906 $ 210,753
Preferred stock dividend ........................................ -- (8,969) (17,938) (26,906)
------------------------------------------------------------
Net earnings applicable to common stock ...................... 170,765 49,703 514,968 183,847
Weighted average common stock outstanding ....................... 248,668 246,666 248,211 245,754
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings per common share ............................. $ 0.69 $ 0.20 $ 2.08 $ 0.75
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings Per Share Assuming Full Dilution
Net earnings .................................................... $ 170,765 $ 58,672 $ 532,906 $ 210,753
Distribution on preferred securities (net of tax) ............... 1,720 -- 1,720 --
------------------------------------------------------------
Net earnings applicable to common stock ...................... 172,485 58,672 534,626 210,753
Weighted average common stock outstanding ....................... 248,668 246,666 248,211 245,754
Dilutive common stock equivalents ............................... 2,162 1,565 1,917 1,512
Conversion of preferred stock (b) ............................... 431 16,667 431 16,667
Conversion of preferred securities .............................. 12,264 -- 12,264 --
------------------------------------------------------------
Weighted average common and equivalent
stock outstanding ............................................ 263,525 264,898 262,823 263,933
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings per common share ............................. $ 0.65 $ 0.22 $ 2.03 $ 0.80
- ------------------------------------------------------------------------------------------------------------------------------------
(a) The dilutive effect of common stock equivalents is less than 3 percent.
(b) During 1995, the effect of assumed conversion of preferred stock on earnings
per common stock is antidilutive.
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 12.1
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
For the Nine Months
Ended September 30
------------------------------
Millions of dollars 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net earnings ..................................................................... $ 533 $ 211
Provision for income taxes ....................................................... 332 151
-------------------------------
Earnings subtotal ............................................................. 865 362
Fixed charges included in earnings:
Interest expense .............................................................. 215 218
Distributions on preferred securities ......................................... 2 --
Interest portion of rentals ................................................... 31 37
-------------------------------
Subtotal ................................................................... 248 255
Earnings available before fixed charges .......................................... $1,113 $ 617
-------------------------------
Fixed charges:
Fixed charges included in earnings ............................................ 248 255
Capitalized interest .......................................................... 9 25
-------------------------------
Total fixed charges ........................................................ $ 257 $ 280
Ratio of earnings to fixed charges ............................................... 4.3 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
------------------------------
Millions of dollars 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net earnings ..................................................................... $ 533 $ 211
Provision for income taxes ....................................................... 332 151
-------------------------------
Earnings subtotal ............................................................. 865 362
Fixed charges included in earnings:
Interest expense .............................................................. 215 218
Distributions on preferred securities ......................................... 2 --
Interest portion of rentals ................................................... 31 37
-------------------------------
Subtotal ................................................................... 248 255
Earnings available before fixed charges .......................................... $1,113 $ 617
-------------------------------
Fixed charges:
Fixed charges included in earnings ............................................ 248 255
Capitalized interest .......................................................... 9 25
Preferred stock dividends * ................................................... 29 43
-------------------------------
Total fixed charges ........................................................ $ 286 $ 323
Ratio of earnings to fixed charges ............................................... 3.9 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
------------------------
Millions of dollars 1996 1995
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Net earnings ..................................................................... $ 536 $ 212
Provision for income taxes ....................................................... 332 151
-------------------------------
Earnings subtotal ............................................................. 868 363
Fixed charges included in earnings:
Interest expense .............................................................. 215 218
Interest portion of rentals ................................................... 31 37
-------------------------------
Subtotal ................................................................... 246 255
Earnings available before fixed charges .......................................... $1,114 $ 618
-------------------------------
Fixed charges:
Fixed charges included in earnings ............................................ 246 255
Capitalized interest .......................................................... 9 25
-------------------------------
Total fixed charges ........................................................ $ 255 $ 280
-------------------------------
Ratio of earnings to fixed charges ............................................... 4.4 2.2
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Unocal Corporation FDS
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 225
<SECURITIES> 0
<RECEIVABLES> 921
<ALLOWANCES> 0
<INVENTORY> 356
<CURRENT-ASSETS> 1,612
<PP&E> 17,859
<DEPRECIATION> 10,910
<TOTAL-ASSETS> 9,809
<CURRENT-LIABILITIES> 1,457
<BONDS> 2,951
0
13
<COMMON> 250
<OTHER-SE> 2,575
<TOTAL-LIABILITY-AND-EQUITY> 9,809
<SALES> 7,202
<TOTAL-REVENUES> 7,573
<CGS> 4,456
<TOTAL-COSTS> 6,708
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 215
<INCOME-PRETAX> 865
<INCOME-TAX> 332
<INCOME-CONTINUING> 533
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 533
<EPS-PRIMARY> 2.08
<EPS-DILUTED> 2.03
</TABLE>
- EXHIBIT 99.B2
BYLAWS
OF
UNION OIL COMPANY OF CALIFORNIA
ARTICLE I
FISCAL YEAR
Section 1. The fiscal year of Union Oil Company of California
(hereinafter called the "Company") shall end on the thirty-first day of December
of each year.
ARTICLE II
OFFICES
Section 1. Principal Office. The principal office for the transaction
of business of the Company is hereby fixed and located at 2141 Rosecrans Avenue,
Suite 4000, in the City of El Segundo, County of Los Angeles, State of
California. The Board of Directors (hereinafter sometimes called the "Board") is
hereby granted full power and authority to change said principal office from one
location to another in said county.
ARTICLE III
SHAREHOLDERS
Section 1. Annual Meetings. The annual meetings of the shareholders
shall be held at 10:00 o'clock A.M. on the fourth Monday in May of each year if
not a legal holiday, for the purpose of electing directors, consideration of
reports of the affairs of the Company, and for the transaction of any other
business which is within the powers of the shareholders and properly brought
before the meeting. If the fourth Monday in May is a legal holiday, the annual
meeting of the shareholders shall be held at 10:00 o'clock A.M. on the preceding
or subsequent Monday as fixed by resolution of the Board.
Section 2. Special Meetings. Special meetings of the shareholders for
any purpose whatsoever may be called at any time by the Chairman of the Board,
the Chief Executive Officer, the Board, or by one or more shareholders holding
not less than ten percent of the voting power of the Company upon request in
writing to the Chairman of the Board, the Chief Executive Officer, the
President, a Vice President or the Secretary. The business transacted at special
meetings shall be confined to the purpose or purposes stated in the notice of
such meetings.
Section 3. Notice of Meetings. Written notice of each annual or special
meeting of shareholders shall be given to each shareholder entitled to vote
thereat not less than ten nor more than sixty days before the meeting.
Section 4. Place of Meetings. All meetings of shareholders, whether
annual or special, shall be held at the principal office of the Company or at
such other place, within or without the State of California, as the Board may
from time to time designate pursuant to authority hereinafter granted it. In the
absence of any such designation, shareholders' meetings shall be held at the
principal office of the Company.
2
<PAGE>
Section 5. Voting Rights. Shareholders entitled to vote at shareholder
meetings shall be entitled to one vote for each full share. A fraction of a
share or a fractional interest in a share shall not be entitled to any voting
rights whatsoever.
Section 6. Conduct of Meetings. The decisions of the Chairman of the Board
or officer presiding at all shareholders' meetings shall govern in all matters
relating to the conduct of the meeting.
Section 7. Voting. Directors shall be elected in accordance with the
provisions of the California Corporations Code by holders of shares entitled to
vote in the election; provided, however, a nomination shall be accepted, and
votes cast for a nominee shall be counted by the inspectors of election, only if
the Secretary of the Company has received at least twenty-four hours prior to
the meeting a statement over the signature of the nominee that such person
consents to being a nominee and, if elected, intends to serve as a director.
Section 8. Action Without a Meeting. Any action which may be taken at
any annual or special meeting may be taken without a meeting and without prior
notice, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of the outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Directors may not be elected by written consent except by unanimous written
consent of all shares entitled to vote for the election of directors.
ARTICLE IV
BOARD OF DIRECTORS
Section 1. Powers. Subject to the limitations of the Restated Articles
of Incorporation of the Company and of the California General Corporation Law as
to action required or authorized to be approved by the shareholders, all
corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Company shall be managed by, the Board of Directors.
Section 2. Number. The exact number of directors of the Company, within
the limits specified in Article Fourth of the Company's Restated Articles of
Incorporation, shall be twelve until changed in the manner provided by law.
Section 3. Chairman and Vice Chairman of the Board. The Board shall
appoint a Chairman, who shall preside at all meetings of the Board of Directors
and shall have such other powers and duties as may from time to time be assigned
by the Board of Directors or prescribed by the Bylaws. The Board may also
appoint a Vice Chairman, who shall preside at all meetings of the Board of
Directors in the absence of the Chairman and shall have such other powers and
duties as may from time to time be assigned by the Board of Directors or
prescribed by the Bylaws.
Section 4. Annual Meetings. Immediately following each annual meeting
of shareholders, the Board shall hold its annual meeting for the purpose of
organization, election of officers and the transaction of any other business.
Section 5. Regular Meetings. Regular meetings of the Board shall be held at
the times and on the dates fixed by resolution of the Board.
3
<PAGE>
Section 6. Special Meetings. Special meetings of the Board for any
purpose or purposes whatsoever may be called by the Chairman of the Board or the
Chief Executive Officer or, in the absence or inability of either of them, by
the President, the Chief Financial Officer, or by at least two of the directors
at the time in office.
Section 7. Notice of Meetings. Notice of annual meetings and of regular
meetings of the Board is hereby dispensed with. Notice of special meetings must
be given at least two days in advance if given by mail, or at least twenty-four
hours in advance if delivered personally or given by telephone or telegram.
Section 8. Place of Meetings. All meetings of the Board, whether
annual, regular or special meetings, shall be held at any place within or
without the State of California which has been designated from time to time by
resolution of the Board or in the notice of the meeting. In the absence of such
designation all directors' meetings shall be held at the principal office of the
Company.
Section 9. Quorum. A majority of the exact number of directors
specified in Section 2 of ARTICLE IV of the Bylaws shall constitute a quorum of
the Board of Directors for the transaction of business; provided, however, that
vacancies on the Board may be filled by a majority of the remaining directors,
though less than a quorum, or by a sole remaining director, each such director
to hold office until a successor is elected at an annual or special meeting of
the shareholders.
Section 10. Compensation of Directors. Directors and members of
committees appointed by the Board shall receive such compensation, if any, for
their services, and such reimbursement for their expenses as may be fixed or
determined by resolution of the Board. The Board may, however, in any such
resolution provide that directors who are also employees of the Company or any
of its subsidiaries shall not receive additional compensation for services as a
director or member of a committee appointed by the Board.
Section 11. Indemnification of Directors, Officers, Employees and Other
Agents.
(a) The Company shall, to the maximum extent permitted by the General
Corporation Law of California, indemnify each of its directors and officers
against all expense, liability, and loss, including without limitation,
attorneys' fees, judgments, fines, ERISA excise taxes, penalties, amounts paid
or to be paid in settlement, and any other amounts actually incurred in
connection with any proceeding arising by reason of the fact any such person is
or was a director or officer of the Company and shall advance to such director
or officer expenses incurred in defending any such proceeding to the maximum
extent permitted by such law. For purposes of this section, a "director" or
"officer" of the Company includes any person who is or was a director or officer
of the Company, or is or was serving at the request of the Company as a
director, officer, trustee, or fiduciary, or in a similar capacity, of another
foreign or domestic corporation, limited liability company, partnership, joint
venture, trust, or any other enterprise or entity whatsoever, including without
limitation service with respect to employee benefit plans.
(b) The Board of Directors may in its discretion provide by resolution,
either on a general basis or as to specific employees or agents, for similar
indemnification of, or advance of expenses to, other employees or agents of the
Company, and likewise may refuse to provide for such indemnification or advance
of expenses except to the extent such indemnification is mandatory under the
California General Corporation Law.
4
<PAGE>
(c) The Company shall maintain in full force and effect, at its own
expense, director and officer liability insurance ("Insurance") coverage for
each director and officer in amounts and scope at least as favorable as that
maintained by the Corporation on September 30, 1996, or, to the extent more
favorable, any Insurance policy entered into or renewed by the Company following
such date. Notwithstanding the foregoing, if the Company, after using its best
efforts, cannot obtain and purchase such coverage for an amount no more than
what it paid for the most recent expiring Insurance policy plus a reasonable
additional amount, the Company shall only be required to purchase such Insurance
coverage for any act or omission occurring at or prior to the time of such date.
(d) The rights provided to any person by this bylaw shall be
enforceable against the Company by such person, who shall be presumed to have
relied upon it in serving or continuing to serve as a director or officer, as
provided above. No amendment of this bylaw shall impair the rights of any person
arising at any time with respect to events occurring prior to such amendment,
including, without limitation, any right of a director or officer to Insurance
for any act or omission occurring at or prior to the time of such amendment.
Section 12. Authority to Designate Place of Shareholders' Meetings. The
Board is hereby granted full power and authority to designate from time to time
any place within or without the State of California for the holding of any
shareholders' meeting, whether annual or special.
Section 13. Committees. The Board may, by resolution, appoint one or
more committees, in addition to an Executive Committee and a Management
Committee, to consist of two or more of the directors of the Company, and
prescribe their duties and powers. A majority of the members of any such
committee may determine its action and fix the time and place of its meetings
unless the Board shall otherwise provide. The Board shall have the power at any
time to fill vacancies in, to change the membership of, or to dissolve any such
committee.
Section 14. Action by Written Consent. Any action required or permitted
to be taken by the Board or any committee thereof may be taken without a
meeting, if all members of the Board or such committee, as the case may be,
shall individually or collectively consent in writing to such action. Such
written consent or consents shall be filed with the minutes of the proceedings
of the Board.
Section 15. Conference Calls. Members of the Board or any committee
thereof may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another.
ARTICLE V
EXECUTIVE COMMITTEE
Section 1. Number and Composition. The Board of Directors shall appoint
from its membership, annually, an Executive Committee of three or more
directors. Included on the Executive Committee shall be the Chief Executive
Officer of the Company. Each member of the Executive Committee shall hold
membership at the pleasure of the Board, which shall have the exclusive power to
fill vacancies thereon as they may occur. The Chairman of the Executive
Committee shall be the Chief Executive Officer of the Company.
5
<PAGE>
Section 2. Powers. The Executive Committee, during the intervals
between meetings of the Board, shall have and there is hereby granted to it all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Company, except that the Executive Committee shall
not be permitted to fill vacancies on the Board or on any committee, approve any
action for which approval of the shareholders is also required by the California
General Corporation Law, amend or repeal any resolution of the Board which by
its express terms is not so amendable or repealable, or appoint other committees
of the Board or the members thereof or take any other action which may not be
delegated to a committee of the Board under the California General Corporation
Law.
Section 3. Procedure. Two members of the Executive Committee shall
constitute a quorum of the Executive Committee for the transaction of business.
The Executive Committee, by vote of a majority of its members, shall fix its own
times and places of meetings and shall prescribe its own rules of procedure; no
change in which shall be made save by a majority vote of its members.
Section 4. Records and Reports. The Executive Committee shall keep
regular minutes of all business transacted at its meetings, and all action of
the Executive Committee shall be reported to the Board at its next ensuing
meeting.
Section 5. Compensation. Members of the Executive Committee may receive
such compensation, if any, for their services, and such reimbursement for their
expenses, as may be fixed or determined by the Board.
ARTICLE VI
MANAGEMENT COMMITTEE
Section 1. Number and Composition. The Board of Directors shall appoint
from its membership, annually, a Management Committee composed of the directors
who are employee officers of the Company. The Chairman of the Management
Committee shall be the Chief Executive Officer of the Company.
Section 2. Powers. The Management Committee, during the intervals
between meetings of the Board, shall have and there is hereby granted to it all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Company, subject to approval limits established by
resolution of the Board of Directors as deemed appropriate from time to time,
but the Management Committee shall not be permitted to fill vacancies on the
Board or on any committee, appoint officers, approve any action for which
approval is also required by the California General Corporation Law, to amend or
repeal any resolution of the Board or of the Executive Committee which by its
express terms is not so amendable or repealable, or to appoint other committees
of the Board or the members thereof or take any other action which may not be
delegated to a committee of the Board under the California General Corporation
Law.
Section 3. Procedure. Two members of the Management Committee shall
constitute a quorum of the Management Committee for the transaction of business.
The Management Committee, by vote of a majority of its members, shall fix its
own times and places of meetings and shall prescribe its own rules of procedure;
no change in which shall be made save by a majority vote of its members.
6
<PAGE>
Section 4. Records. The Management Committee shall keep regular minutes of
all business transacted at its meetings.
ARTICLE VII
OFFICERS
Section 1. Officers. The officers of the Company shall be a Chief
Executive Officer, a President, a Chief Financial Officer, a Vice President, a
Secretary, a Comptroller, a Treasurer, and a Chief Legal Officer. The Company
may also have, at the discretion of the Board, one or more additional Vice
Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers,
and one or more Assistant Comptrollers, and the Board may appoint such other
officers as it may deem necessary or advisable, who shall have such authority
and perform such duties as from time to time may be prescribed by the Board, the
Chairman of the Board, or the Chief Executive Officer. Any two or more offices
may be held by the same person.
Section 2. Election and Removal. The officers of the Company shall be
chosen annually by the Board at its annual meeting and each shall hold office
until the corresponding annual meeting of the Board in the next year and until a
successor shall be elected and qualified unless such officer shall theretofore
resign or shall be removed or otherwise disqualified to serve. The Board may
remove any officer either with or without cause or under such other terms or
conditions as it may prescribe. Vacancies may be filled by the Board as they may
occur.
Section 3. Powers and Duties.
(a) Chief Executive Officer. The Chief Executive Officer shall be the
officer, reporting directly to the Board, responsible for overall management of
the Company and shall have general supervision, direction and control over the
business and affairs of the Company and its officers. The Chief Executive
Officer shall be a member of the Executive Committee and of the Management
Committee and in general shall perform all duties incident to the office of
Chief Executive Officer and shall have such powers and duties as may from time
to time be assigned by the Board of Directors or prescribed by the Bylaws.
(b) President. The President in general shall perform all duties
incident to the office of President, and shall have such powers and duties as
may from time to time be assigned by the Board of Directors, the Chief Executive
Officer or prescribed by the Bylaws.
(c) Chief Financial Officer and Vice Presidents. The Chief Financial
Officer and each Vice President shall have such authority and shall perform such
duties as shall from time to time be assigned by the Board, the Chief Executive
Officer or prescribed by the Bylaws.
(d) Secretary. The Secretary shall keep, or cause to be kept, a book of
minutes, at the principal office and/or such other place or places as the Board
may order, of all meetings of directors and shareholders, with the time and
place of holding, whether regular or special, and if special how authorized, the
notice thereof given, the names of those present at directors' meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings thereof.
The Secretary shall keep or cause to be kept at the principal office,
or at the office of the Company's transfer agent, a share register, which may be
an electronic database, showing the names of the shareholders of record and
their addresses, the number and classes of shares held by each, the numbers and
dates of the
7
<PAGE>
certificates issued for those shares, and the numbers and dates of cancellation
of every certificate surrendered for cancellation.
The Secretary shall give or cause to be given notice of all meetings of
the shareholders and the Board required to be given by the Bylaws or by law. The
Secretary shall have charge of and be custodian of the seal of the Company and
the minute books and documents relating to the existence and governance of the
Company.
The Secretary shall have such other powers and perform such other
duties as may from time to time be prescribed by the Board, the Chairman of the
Board, the Chief Executive Officer or the Bylaws, and shall in general, subject
to control of the Board, the Chairman of the Board and the Chief Executive
Officer, perform all the duties usually incident to the office of secretary of a
corporation.
(e) Assistant Secretaries. Each Assistant Secretary shall assist the
Secretary and, in the absence or disability of the Secretary, may perform the
duties of the Secretary unless and until the contrary is expressed by the Board,
and shall perform such other duties as may be prescribed by the Board or the
Secretary.
(f) Treasurer. The Treasurer shall have custody of and be responsible
for all the monies and funds of the Company. The Treasurer shall deposit or
cause to be deposited all Company monies, funds and other valuables in the name
and to the credit of the Company in such bank or banks as shall be proper or as
shall be directed by the Board, the Chief Executive Officer, or the Chief
Financial Officer, and shall disburse the funds of the Company which have been
duly approved for disbursement. The Treasurer shall enter or cause to be entered
regularly in the books of the Company full and accurate accounts of all monies
received and paid out on account of the Company.
The Treasurer shall have such other powers and perform such other
duties as may from time to time be prescribed by the Board, the Chief Executive
Officer, the Chief Financial Officer or the Bylaws, and shall in general,
subject to control of the Board, the Chief Executive Officer, and the Chief
Financial Officer, perform all the duties usually incident to the office of
treasurer of a corporation.
(g) Assistant Treasurers. Each Assistant Treasurer shall assist the
Treasurer and, in the absence or disability of the Treasurer, may perform the
duties of Treasurer unless and until the contrary is expressed by the Board, and
shall perform such other duties as may be prescribed by the Board or the
Treasurer.
(h) Comptroller. The Comptroller shall be the principal officer in
charge of the general accounting books, accounting records and forms of the
Company and shall see that all monies and obligations due the Company and all
properties and assets are properly accounted for. The Comptroller shall prepare
the Company's balance sheets, income accounts and other financial statements and
reports, and render to the Board, the Chief Executive Officer, and the Chief
Financial Officer, such periodic reports covering the results of operations of
the Company as may be required by them or any of them.
The Comptroller shall have such other powers and perform such other
duties as may from time to time be prescribed by the Board, the Chief Executive
Officer, the Chief Financial Officer or the Bylaws, and shall in general,
subject to control of the Board, the Chief Executive Officer, and the Chief
Financial Officer, perform all the duties usually incident to the office of
comptroller of a corporation.
8
<PAGE>
(I) Assistant Comptrollers. Each Assistant Comptroller shall assist the
Comptroller and, in the absence or disability of the Comptroller, may perform
the duties of the Comptroller unless and until the contrary is expressed by the
Board, and shall perform such other duties as may be prescribed by the Board or
the Comptroller.
(j) Chief Legal Officer. The Chief Legal Officer shall be in charge of
the Company's legal affairs. The Chief Legal Officer shall advise the Board, the
Chairman of the Board and/or the officers of the Company on such legal matters
and prepare such reports as may be required by them or any of them.
ARTICLE VIII
MISCELLANEOUS
Section 1. Execution of Documents. Unless otherwise authorized or
prescribed by the Board of Directors, all contracts, leases, deeds, deeds of
trust, mortgages, bonds, indentures, endorsements, assignments, powers of
attorney to transfer stock or for other purposes, and other documents and
instruments of whatsoever kind shall be executed for and on behalf of the
Company by the Chief Executive Officer, the President, the Chief Financial
Officer, a Vice President, the Treasurer, the Comptroller, or by any such
officer and shall be attested by the Secretary or an Assistant Secretary, who
shall have authority to affix the corporate seal to the same.
The Board also may authorize, and delegate to any one or more of the
Chief Executive Officer, the President and the Chief Financial Officer the power
to so authorize, any other officer or officers, employee or employees, or agent
or agents, to execute any contract, document or instrument of whatever kind for
and on behalf of the Company and such authority may be general or be confined to
specific instances.
Section 2. Undertakings and Commitments. No undertaking, commitment,
contract, instrument or document shall be binding upon the Company unless
previously authorized or subsequently ratified by the Board or executed by an
officer or officers, an employee or employees or an agent or agents of the
Company acting under powers conferred by the Board or by these Bylaws.
Section 3. Checks, Drafts, etc. All checks, notes and other obligations
for collection, deposit or transfer, and all checks and drafts for disbursement
from Company funds, and all bills of exchange and promissory notes, and all
acceptances, obligations and other instruments for the payment of money, shall
be endorsed or signed by such officer or officers, employee or employees or
agent or agents as shall be thereunto authorized from time to time by the Board
of Directors, which may delegate the power to so authorize to any one or more of
the Chief Executive Officer, the President and the Chief Financial Officer.
Section 4. Representation of Shares of Other Corporations. Shares
standing in the name of the Company may be voted or represented and all rights
incident thereto may be exercised on behalf of the Company by the Chief
Executive Officer, President, the Chief Financial Officer, a Vice President, the
Secretary, the Treasurer or the Comptroller, or by such other officers upon to
whom the Board of Directors may from time to time confer like powers.
9
<PAGE>
ARTICLE IX
REPEAL OF BYLAWS
Section 1. All existing Bylaws of the Company and all amendments
thereto are hereby repealed.
ARTICLE X
AMENDMENTS
Section 1. Power of Shareholders. New Bylaws may be adopted or these
Bylaws may be amended or repealed by the vote or written assent of shareholders
entitled to exercise a majority of the voting power of the Company.
Section 2. Power of Directors. Subject to the right of shareholders as
provided in Section 1 of this ARTICLE X to adopt, amend or repeal Bylaws, Bylaws
may be adopted, amended or repealed by the Board of Directors as provided or
permitted by law.
ARTICLE XI
EMERGENCY
Section 1. "Emergency" as used in this Article means disorder,
disturbance or damage caused by war, enemy attack, other warlike acts or by
catastrophe, disaster or other similar emergency condition, which prevents the
conduct and management of the affairs and business of the Company by the Board
of Directors and officers in the manner provided for in other Articles of these
Bylaws. The powers and duties conferred and imposed by this Article, and any
resolutions adopted pursuant hereto, shall be effective only during an
emergency. This Article may be implemented from time to time by resolutions
adopted by the Board of Directors before or during an emergency, or during an
emergency by the emergency Board of Directors constituted and then acting
pursuant hereto. An emergency, once commenced, shall be deemed to continue until
terminated by resolutions adopted for that purpose by the Board of Directors.
Section 2. If, during an emergency, a majority of the Board of
Directors cannot be found or is unable to act, one-third of the exact number of
the Board of Directors shall constitute a quorum thereof.
Section 3. During any emergency, the officers and employees of the
Company shall continue, so far as possible, to conduct the Company's affairs and
business under the guidance of the Board of Directors acting pursuant to this
Article and in accordance with known orders of governmental authorities.
Section 4. If, during any emergency, a quorum of the Board of
Directors, as provided in Section 3 of this Article, cannot be found or is
unable to act, any three available members of the Executive Committee, including
the Chief Executive Officer, shall be and constitute the Board of Directors,
with two thereof constituting a quorum, and as such shall have and exercise the
fullest power of the Board of Directors for the conduct and management of the
affairs and business of the Company, permitted by law, without the limitations
set forth in Section 2 of ARTICLE V of these Bylaws, provided that such
emergency Board of Directors as so constituted shall comply to the extent
practicable under the circumstances with the provisions of ARTICLE III of these
Bylaws relating to annual and special meetings of shareholders. If three members
of the Executive Committee, including the Chief Executive Officer, are not able
to serve, any three available directors shall be and constitute such emergency
Board of Directors, with two thereof constituting a quorum, for the exercise of
the powers conferred and performance of the duties imposed by this Section 4.
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Section 5. If, during any emergency, neither a quorum of the Board of
Directors, as provided in Section 3 of this Article, nor a quorum of the
emergency Board of Directors, as provided for in Section 4 of this Article is
available to serve, then the powers conferred and duties imposed by Section 4
shall vest in and devolve upon any three of (in the following order of priority)
available directors, including any one or more of the Chief Executive Officer,
the President and the Chief Financial Officer, and as many Vice Presidents (or,
in case of their inability, any other officers), in order of seniority, as may
be necessary from time to time to constitute a total of three emergency
directors. The Chief Executive Officer and any other one emergency director
shall constitute a quorum of such emergency Board of Directors for exercise of
the powers conferred and performance of the duties imposed hereunder, but if the
Chief Executive Officer is not available, any two of such emergency directors
shall constitute a quorum.
