<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K/A
AMENDMENT NO. 1
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
-----
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
-----------------
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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, par value $1.00 per share New York Stock Exchange
Pacific Exchange
Chicago Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Pacific Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 17, 1997 (based upon the average of the high and low
prices of these shares reported in the New York Stock Exchange Composite
Transactions listing for that date) was $9,785 million.
Shares of Common Stock outstanding as of March 17, 1997: 250,086,778
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for its 1997 Annual
Meeting of Stockholders (to be filed with the Securities and Exchange Commission
on or about April 21, 1997) are incorporated by reference into Part III.
<PAGE>
PART II
ITEM 6 - SELECTED FINANCIAL DATA - see page 75.
18
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS AND FINANCIAL STATEMENT
SCHEDULES
Page
-----
<S> <C>
Report on Management's Responsibilities 35
Report of Independent Accountants 36
Financial Statements
Consolidated Earnings 37
Consolidated Balance Sheet 38
Consolidated Cash Flows 39
Consolidated Stockholders' Equity 40
Notes to Consolidated Financial Statements 41-66
Supplemental Information:
Oil and Gas Financial Data 67-69
Oil and Gas Reserve Data 69-71
Present Value of Future Net Cash Flow
Related to Proved Oil and Gas Reserves 71-73
Selected Quarterly Financial Data 74
Selected Financial Data 75
Supporting Financial Statement Schedule
covered by the Foregoing Report of Independent
Accountants:
Schedule II - Valuation and Qualifying Accounts
and Reserves 80
</TABLE>
All other financial statement schedules have been omitted as they are not
applicable, not material or the required information is included in the
financial statements or notes thereto.
34
<PAGE>
REPORT ON MANAGEMENT'S RESPONSIBILITIES
----------------------------------------
TO THE STOCKHOLDERS OF UNOCAL CORPORATION:
Unocal's management is responsible for the integrity and objectivity of the
financial information contained in this Annual Report. The financial statements
included in this report have been prepared in accordance with generally accepted
accounting principles and, where necessary, reflect the informed judgments and
estimates of management.
The financial statements have been audited by the independent accounting firm
of Coopers & Lybrand L.L.P. Management has made available to Coopers & Lybrand
L.L.P. all the company's financial records and related data, minutes of the
company's executive and management committee meetings and directors' meetings
and all internal audit reports. The independent accountants conduct a review of
internal accounting controls to the extent required by generally accepted
auditing standards and perform such tests and procedures as they deem necessary
to arrive at an opinion on the fairness of the financial statements presented
herein.
Management maintains and is responsible for systems of internal accounting
controls designed to provide reasonable assurance that the company's assets are
properly safeguarded, transactions are executed in accordance with management's
authorization and the books and records of the company accurately reflect all
transactions. The systems of internal accounting controls are supported by
written policies and procedures and by an appropriate segregation of
responsibilities and duties. The company maintains an extensive internal
auditing program that independently assesses the effectiveness of these internal
controls with written reports and recommendations issued to the appropriate
levels of management. Management believes that the existing systems of internal
controls are achieving the objectives discussed herein.
Unocal assessed its internal control systems in relation to criteria for
effective internal control over financial reporting following the Treadway
Commission's Committee of Sponsoring Organizations "Internal Control -
Integrated Framework." Based on this assessment, Unocal believes that, as of
December 31, 1996, its systems of internal controls over financial reporting met
those criteria.
Unocal's Accounting, Auditing and Ethics Committee, consisting solely of
directors who are not employees of Unocal, is responsible for: reviewing the
company's financial reporting, accounting and internal control practices;
recommending the selection of independent accountants (which in turn are
approved by the Board of Directors and annually ratified by the stockholders);
monitoring compliance with applicable laws and company policies; and initiating
special investigations as deemed necessary. The independent accountants and the
internal auditors have full and free access to the Accounting, Auditing and
Ethics Committee and meet with it, with and without the presence of management,
to discuss all appropriate matters.
<TABLE>
<S> <C> <C> <C>
Roger C. Beach John F. Imle, Jr. Neal E. Schmale Charles S. McDowell
Chief Executive Officer President Chief Financial Officer Vice President and Comptroller
</TABLE>
February 14, 1997
35
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
TO THE STOCKHOLDERS OF UNOCAL CORPORATION:
We have audited the accompanying consolidated balance sheets of Unocal
Corporation and its subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of earnings, cash flows and stockholders' equity
for each of the three years in the period ended December 31, 1996 and the
related financial statement schedule. These financial statements are the
responsibility of Unocal Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, which appear on
pages 37 through 68 of this Annual Report on Form 10-K, present fairly, in all
material respects, the consolidated financial position of Unocal Corporation and
its subsidiaries as of December 31, 1996 and 1995 and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements, taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
As discussed in Note 2 to the consolidated financial statements, Unocal
Corporation and its subsidiaries changed their method of accounting for the
impairment of long-lived assets and long-lived assets to be disposed of in 1995
and for recognizing the reduction in value of its producing oil and gas
properties in 1994.
Coopers & Lybrand L.L.P.
February 14, 1997
Los Angeles, California
36
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED EARNINGS UNOCAL CORPORATION
Years ended December 31
----------------------------------------------
Dollars in millions except per share amounts 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Sales and operating revenues $5,101 $4,111 $4,118
Interest, dividends and miscellaneous income 49 86 74
Equity in earnings of affiliated companies 106 77 83
Gain (loss) on sales of assets 72 115 (3)
- ---------------------------------------------------------------------------------------------------------------------
Total revenues 5,328 4,389 4,272
Costs and Other Deductions
Crude oil and product purchases 1,502 979 1,064
Operating expense 1,386 1,302 1,366
Selling, administrative and general expense 151 151 194
Depreciation, depletion and amortization 914 911 811
Dry hole costs 139 61 84
Exploration expense 117 139 116
Interest expense 279 291 275
Property and other operating taxes 72 80 91
Distribution on convertible preferred securities 10 - -
- ---------------------------------------------------------------------------------------------------------------------
Total costs and other deductions 4,570 3,914 4,001
- ---------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before income taxes 758 475 271
Income taxes 302 226 161
- ---------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before
cumulative effect of accounting change 456 249 110
Discontinued Operations
Earnings from operations (net of tax) 71 11 14
Loss on disposal (net of tax) (491) - -
- ---------------------------------------------------------------------------------------------------------------------
Earnings (loss) from discontinued operations (420) 11 14
Cumulative effect of accounting change - - (277)
- ---------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 36 $ 260 $ (153)
Dividends on preferred stock 18 36 36
Non-cash charge related to exchange of preferred stock 54 - -
- ---------------------------------------------------------------------------------------------------------------------
Net earnings (loss) applicable to common stock $ (36) $ 224 $ (189)
======== ======= ======== ======= ========
Earnings (loss) per share of common stock assuming no dilution:
Continuing operations $ 1.54 $ 0.87 $ 0.30
Discontinued operations (1.69) 0.04 0.06
Cumulative effect of accounting change - - (1.14)
--------------------------------------------
Net earnings (loss) per share $(0.15) $ 0.91 $ (0.78)
======== ======= ======== ======= ========
</TABLE>
See Notes to Consolidated Financial Statements.
37
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET UNOCAL CORPORATION
At December 31
Millions of dollars 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents $217 $94
Accounts and notes receivable 1,027 920
Net assets of discontinued operations 1,774 -
Inventories 125 360
Deferred income taxes 57 169
Other current assets 28 33
- -------------------------------------------------------------------------------------------------------------------------
Total current assets 3,228 1,576
Investments and long-term receivables 1,206 1,101
Properties - net 4,590 7,109
Deferred income taxes 21 25
Other assets 78 80
- -------------------------------------------------------------------------------------------------------------------------
Total assets $9,123 $9,891
- -------------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $1,012 $804
Taxes payable 231 193
Current portion of long-term debt and capital lease obligations 118 8
Interest payable 70 92
Other current liabilities 191 219
- --------------------------------------------------------------------------------------------------------------------------
Total current liabilities 1,622 1,316
Long-term debt and capital lease obligations 2,940 3,698
Deferred income taxes 348 722
Accrued abandonment, restoration and environmental liabilities 677 607
Other deferred credits and liabilities 739 618
Company-obligated mandatorily redeemable convertible preferred
securities of a subsidiary trust holding solely 6-1/4% convertible
junior subordinated debentures of Unocal 522 -
Preferred stock ($0.10 par value; stated at liquidation value of $50 per share)
Shares authorized: 100,000,000 - 513
Shares outstanding: 10,250,000 in 1995
Common stock ($1 par value)
Shares authorized: 750,000,000
Shares outstanding: 250,671,266 in 1996 and 247,310,376 in 1995 251 247
Capital in excess of par value 412 319
Foreign currency translation adjustment (13) (10)
Unearned portion of restricted stock issued (14) (13)
Retained earnings 1,639 1,874
- --------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 2,275 2,930
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $9,123 $9,891
- --------------------------------------------------------------------------------------------------------------------------
The company follows the successful efforts method of accounting for its oil and gas activities.
See Notes to the Consolidated Financial Statements.
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CASH FLOWS UNOCAL CORPORATION
Years ended December 31
----------------------------------------------
Millions of dollars 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net earnings (loss) $ 36 $ 260 (153)
Adjustment to reconcile net earnings (loss) to
net cash provided by operating activities
Loss on disposal of discontinued operations (before-tax) 743 - -
Cumulative effect of accounting change - - 277
Depreciation, depletion and amortization 1,059 1,022 947
Dry hole costs 139 61 84
Deferred income taxes (332) 9 (118)
(Gain) loss on sales of assets (before-tax) (77) (117) 2
Other 113 - 217
Working capital and other changes related to operations
Accounts and notes receivable (130) (5) 91
Inventories 10 (16) (10)
Accounts payable 208 115 (49)
Taxes payable 38 (33) 18
Other (123) (19) (7)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,684 1,277 1,299
Cash Flows from Investing Activities
Capital expenditures (includes dry hole costs) (1,398) (1,459) (1,272)
Proceeds from sales of assets 609 204 156
- --------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (789) (1,255) (1,116)
Cash Flows from Financing Activities
Proceeds from issuance of common stock 33 55 54
Long-term borrowings 375 844 732
Reduction of long-term debt and capital lease obligations (943) (734) (788)
Dividends paid on preferred stock (27) (36) (36)
Dividends paid on common stock (199) (197) (193)
Other (11) (8) (9)
- --------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (772) (76) (240)
Increase (decrease) in cash and cash equivalents 123 (54) (57)
Cash and cash equivalents at beginning of year 94 148 205
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 217 $ 94 $ 148
- --------------------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 276 $ 268 $ 263
Income taxes (net of refunds) $ 332 $ 228 $ 174
See Notes to the Consolidated Financial Statements.
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STOCKHOLDERS' EQUITY UNOCAL CORPORATION
Dollars in millions except per share amounts 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Preferred Stock
Balance at beginning of year $ 513 $ 513 $ 513
Exchange of preferred stock for convertible preferred securities (468) - -
Conversion of preferred stock to common stock (45) - -
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year - 513 513
Common Stock
Balance at beginning of year 247 244 241
Issuance of common stock 4 3 3
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 251 247 244
Capital in Excess of Par Value
Balance at beginning of year 319 237 163
Issuance of common stock 93 82 74
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 412 319 237
Foreign Currency Translation Adjustment
Balance at beginning of year (10) (13) (5)
Current year adjustment (3) 3 (8)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (13) (10) (13)
Unearned Portion of Restricted Stock Issued
Balance at beginning of year (13) (13) (13)
Issuance of restricted stock (5) (3) (4)
Current year amortization 4 3 4
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (14) (13) (13)
Retained Earnings
Balance at beginning of year 1,874 1,847 2,230
Net earnings (loss) for year 36 260 (153)
Cash dividends declared
Preferred stock ($1.75 per share in 1996, $3.50 per
share in 1995 and in 1994) (18) (36) (36)
Common stock ($.80 per share) (199) (197) (194)
Exchange of 6-1/4% convertible preferred securities of
Unocal Capital Trust for Unocal's $3.50 preferred stock (54) - -
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 1,639 1,874 1,847
- -----------------------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity $2,275 $2,930 $2,815
- -----------------------------------------------------------------------------------------------------------------------------------
See Notes to the Consolidated Financial Statements.
</TABLE>
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
For the purpose of this report, Unocal Corporation (Unocal) and its
consolidated subsidiary, Union Oil Company of California (Union Oil) and its
consolidated subsidiaries, will be referred to as the company.
The consolidated financial statements of the company include the accounts of
subsidiaries more than 50 percent owned. Investments in affiliates owned 50
percent or less are accounted for by the equity method. Under the equity
method, the investments are stated at cost plus the company's equity in
undistributed earnings after acquisition. Income taxes estimated to be payable
when earnings are distributed are included in deferred income taxes.
USE OF ESTIMATES
The consolidated financial statements are prepared in conformity with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the amounts of assets and liabilities and
the disclosures of contingent liabilities as of the financial statement date and
the amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
INVENTORIES
Inventories are valued at lower of cost or market. The costs of crude oil,
refined products and agricultural products inventories are determined using the
last-in, first-out (LIFO) method. The costs of other inventories are determined
by using various methods. Cost elements primarily consist of raw materials and
production expenses.
IMPAIRMENT OF ASSETS
Oil and gas producing properties are regularly assessed for possible
impairment on a field-by-field basis using the estimated undiscounted future
cash flows of each field. Impairment loss is charged to depreciation, depletion
and amortization expense when the estimated undiscounted future cash flows are
less than the current net book values of the properties in a field.
Impairment charges are also made for the write down of other long-lived assets
when it is determined that the carrying values of the assets may not be
recoverable. A long-lived asset is reviewed for impairment whenever events or
changes in circumstances indicate that the carrying value of the asset may not
be recoverable.
OIL AND GAS EXPLORATION AND DEVELOPMENT COSTS
The company follows the successful-efforts method of accounting for its oil
and gas activities.
Acquisition costs of exploratory acreage are capitalized. Full amortization
of such costs related to the portion of unproved properties is provided over the
shorter of the exploratory period or the lease holding period. Costs of
successful leases are transferred to proved properties. Exploratory drilling
costs are initially capitalized. If exploratory wells are determined to be
commercially unsuccessful, the related costs are expensed. Geological and
geophysical costs for exploration and leasehold rentals for unproved properties
are expensed.
Development costs of proved properties, including unsuccessful development
wells, are capitalized.
DEPRECIATION, DEPLETION AND AMORTIZATION
Depreciation, depletion and amortization related to proved oil and gas
properties and estimated future abandonment and removal costs for onshore and
offshore producing facilities are calculated at unit-of-production rates based
upon estimated proved reserves. Depreciation of other properties is generally
on a straight-line method using various rates based on estimated useful lives.
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAINTENANCE AND REPAIRS
Expenditures for maintenance and repairs are expensed. In general,
improvements are charged to the respective property accounts and such accounts
are relieved of the original cost of property replaced.
RETIREMENT AND DISPOSAL OF PROPERTIES
Upon retirement of facilities depreciated on an individual basis, remaining
book values are charged to depreciation expense. For facilities depreciated on
a group basis, remaining book values are charged to accumulated allowances.
Gains or losses on sales of properties are included in current earnings.
INCOME TAXES
The company uses the liability method for reporting income taxes in which
current or deferred tax liabilities or assets are recorded in accordance with
enacted tax laws and rates. Under this method, the amount of deferred tax
liabilities or assets at the end of each period is determined using the tax rate
expected to be in effect when taxes are actually paid or recovered. Future tax
benefits are recognized to the extent that realization of such benefits is more
likely than not.
Deferred income taxes are provided for the estimated income tax effect of
temporary differences between financial and tax bases in assets and liabilities.
Deferred tax assets are also provided for certain tax credit carryforwards. A
valuation allowance to reduce deferred tax assets is established when deemed
appropriate. See Note 10 for the principal temporary differences and unused tax
credits.
FOREIGN CURRENCY TRANSLATION
Foreign exchange gains and losses as a result of translating a foreign
entity's financial statements from its functional currency into U.S. dollars are
included as a separate component of stockholders' equity. The functional
currency for all foreign operations, except Canada, is the U.S. dollar. Gains
or losses incurred on currency transactions in other than a country's functional
currency are included in net earnings.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that create future benefits or contribute to future
revenue generation are capitalized. Expenditures that relate to existing
conditions caused by past operations are expensed.
Liabilities related to environmental assessment and future remediation costs
are recorded when such liabilities are probable and the amounts can be
reasonably estimated. The company considers a site to present a probable
liability when an investigation has identified environmental remediation
requirements for which the company is responsible. The timing of accruing for
remediation costs generally coincides with the company's completion of
investigation or feasibility work and its recommendation of a remedy or
commitment to an appropriate plan of action.
Environmental liabilities are not discounted or reduced by possible recoveries
from third parties. However, accrued liabilities for Superfund and similar
sites reflect anticipated allocations of liabilities among settling
participants.
Environmental remediation expenditures required for properties held for sale
are capitalized. A valuation allowance is established when the aggregate book
values of the properties, including capitalized remediation costs, exceed net
aggregate realizable values.
See Notes 18 and 19.
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FINANCIAL INSTRUMENTS
The company has only limited involvement with derivative financial instruments
and does not use them for trading purposes. They are used to manage well-
defined interest rate, foreign currency exchange rate and commodity price risks.
Gains and losses arising from currency swap agreements are recognized in income
and offset the foreign exchange gains and losses on the underlying transactions.
Gains and losses arising from commodity future contracts are deferred and
included in the basis of the underlying transactions. Income or expense
associated with interest rate swap agreements is recognized on the accrual basis
over the life of the swap agreement as a component of interest income or
interest expense.
See Note 17.
STOCK-BASED COMPENSATION
The company accounts for its stock-based compensation plans using the
intrinsic value method prescribed in Accounting Principles Board (APB) Opinion
No. 25, "Accounting for Stock Issued to Employees". Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation",
encourages, but does not require companies to record stock-based employee
compensation plans at fair value. The company has elected to continue
accounting for stock-based compensation in accordance with APB No. 25, but will
comply with the required disclosures under SFAS No. 123 (see Note 22).
OTHER
Earnings per share of common stock assuming no dilution are based on net
earnings less preferred stock dividend requirements and the non-cash charge
related to the exchange of preferred stock, 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 Unocal's convertible preferred stock and the
outstanding convertible preferred securities of a subsidiary trust (see Note
20). When the computation of fully diluted earnings per share is antidilutive
for any given period presented, the amounts reported for assuming no dilution
and assuming full dilution are the same.
Interest is capitalized on major construction and development projects as part
of the costs of the assets.
Certain items in prior year financial statements have been reclassified to
conform to the 1996 presentation.
NOTE 2 - ACCOUNTING CHANGES
Effective in the fourth quarter of 1995, the company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be
Disposed Of." The accounting standard set guidelines to be used for determining
and measuring impairment of certain assets. As a result, the company recorded a
charge to earnings of $87 million pre-tax ($53 million after-tax tax or $0.22
per common share) in the fourth quarter of 1995. This charge was principally due
to the write down of several oil and gas producing properties where downward
revisions in reserve estimates indicated that future net cash flows would be
insufficient to fully recover the carrying value of these properties. The
carrying values were written down to estimated future discounted cash flows or
fully written down in the case of negative future cash flows. The charge was
recorded to depreciation, depletion and amortization expense and reflected the
reduction in value of various properties located in the United States ($44
million), the Netherlands ($37 million) and Canada ($6 million).
Effective January 1, 1994, the company changed its accounting policy for
recognizing the reduction in value of its producing oil and gas properties and
commenced to evaluate properties for impairment on a field-by-field basis
instead of a country-by-country basis which was previously used. The cumulative
effect of the accounting change resulted in a charge to earnings of $447 million
pre-tax ($277 million after-tax tax or $1.14 per common share) in the first
quarter of 1994. The charge reflected the reduction in value of certain oil and
gas properties in the U.S. from which the estimated undiscounted future cash
flows were less than the current net book values of the properties. As a result
of the property write downs, the company's depreciation and depletion expense in
1994 was reduced by approximately $61 million ($38 million after-tax).
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - DISCONTINUED OPERATIONS
In the fourth quarter of 1996, the company entered into a definitive agreement
with Tosco Corporation for the sale of substantially all of its West Coast
petroleum refining, marketing and transportation assets, which are operated by
the company's 76 Products Company business unit. The sale is valued at
approximately $2 billion, which includes $1.4 billion for refining, marketing
and transportation fixed assets, approximately $400 million for inventories, and
up to $250 million in possible participation payments which are contingent upon
increased gasoline margins in the next seven years. With the exception of
inventories, the sale excludes all other working capital. Terms of the agreement
call for cash payment or cash plus up to $400 million of Tosco stock. See
Management's Discussion and Analysis under Item 7 on pages 32 through 33 for
additional information.
The results for the refining, marketing and transportation operations to be
sold have been classified as discontinued operations for all periods presented
in the Consolidated Earnings Statement. The assets have been reclassified in
the Consolidated Balance Sheet as of December 31, 1996 from their historical
classifications to separately reflect them as net assets of discontinued
operations. The Consolidated Balance Sheet for the prior period has not been
restated. Cash flows related to discontinued operations have not been
segregated in the Consolidated Statement of Cash Flows. Consequently, amounts
on the Consolidated Earnings Statement may not agree with certain captions on
the Consolidated Statement of Cash Flows.
The summarized results of discontinued operations and related effect per
common share are as follows:
<TABLE>
<CAPTION> Years ended December 31
----------------------------------------------
Dollars in millions except per share amounts 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $4,271 $4,036 $3,693
Total costs and other deductions 4,156 4,048 3,670
----------------------------------------------
Earnings (loss) from operations before
income taxes 115 (12) 23
Income tax (benefit) 44 (23) 9
----------------------------------------------
Earnings from operations 71 11 14
Loss on disposal before income taxes (792) - -
Income tax (benefit) (301) - -
----------------------------------------------
Loss on disposal (a) (491) - -
Total earnings (loss) $ (420) $ 11 $ 14
----------------------------------------------
Earnings (loss) per common share:
Earnings from operations $ 0.28 $ 0.04 $ 0.06
Loss on disposal (1.97) - -
----------------------------------------------
Total earnings (loss) $(1.69) $ 0.04 $ 0.06
----------------------------------------------
(a) 1996 includes the following estimated losses during the phase-out period:
November 17, 1996 - December 31, 1996 $30 (net of income tax benefit of $18)
January 1, 1997 - March 31, 1997 $42 (net of income tax benefit of $25)
</TABLE>
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Detailed below are the net assets of discontinued operations as shown on the
Consolidated Balance Sheet:
<TABLE>
<CAPTION>
Millions of Dollars
- -----------------------------------------------
<S> <C>
Inventories $ 225
Properties - net 2,162
Other assets 133
Provision for loss on sale (746)
- -----------------------------------------------
Net assets of discontinued operations $1,774
- -----------------------------------------------
</TABLE>
NOTE 4 - RESTRUCTURING COSTS
During the fourth quarter of 1994, as a result of an overhead study, the
company began a two-year program to reduce its 1,540-person corporate staff by
630 positions and to eliminate another 126 positions in the operating groups. A
pre-tax charge of $25 million was recorded in administrative and general expense
for net costs associated with the staff reductions. This charge included $34
million of estimated benefits to be paid to former employees over a period of
time. Partially offsetting this charge was an estimated credit of $9 million
for reduced pension obligations. At December 31, 1996, approximately 667
employees had been terminated as a result of the program. The program is
complete and all termination benefits have been paid.
NOTE 5 - WRITE DOWNS OF ASSETS
During 1996, in accordance with SFAS No. 121, the company recorded pre-tax
charges to earnings for asset write downs of $52 million for certain domestic
oil and gas properties and $23 million for domestic geothermal properties. The
charges were recorded after evaluation of recent events that indicated future
net cash flows would be insufficient to fully recover the carrying values of
these properties. Carrying values were written down to estimated future
discounted cash flows or completely written down in the case of negative
estimated future cash flows. The charges were recorded to depreciation,
depletion and amortization expense.
During the fourth quarter of 1995, the company adopted SFAS No. 121 and
recorded a pre-tax charge to earnings of $87 million for the write down of
several oil and gas producing properties. Prior to the adoption of SFAS No. 121
in the second quarter of 1995, the company recorded a pre-tax charge of $13
million to write down the carrying values of certain domestic oil and gas
properties and $5 million for miscellaneous asset write downs.
During 1994, the company recorded a pre-tax charge of $25 million to write
down the carrying value of the Guadalupe oil field due to the shut down of the
field for environmental reasons. The company also closed certain facilities
used in refining and marketing operations and research activities, which
resulted in write-downs of $39 million. Due to project modifications, the
company wrote off $7 million in 1994 for costs related to the reformulated fuels
program at the company's Los Angeles Refinery.
NOTE 6 - DISPOSITIONS OF ASSETS
Proceeds received from asset sales during 1996 were $609 million with a
recorded pre-tax gain of $77 million. The total proceeds from the sale of oil
and gas properties included $472 million from the sale of California oil and gas
properties with a pre-tax gain of $109 million. Proceeds of $28 million from
the sale of geothermal assets were received resulting in a pre-tax loss of $92
million. The company also received $23 million from the sale of exploration
blocks in the North Sea with a recorded pre-tax gain of $18 million and $30
million from the sale of miscellaneous real estate assets with a pre-tax gain of
$17 million.
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1995, the company received total proceeds from sales of assets of $204
million and recorded a pre-tax gain of $117 million. Of the total proceeds,
$134 million was from the sale of oil and gas properties with a pre-tax gain of
$52 million. In addition, the company recorded a pre-tax gain of $26 million on
proceeds of $32 million from the sale of its Process, Technology and Licensing
business.
In 1994, asset sales generated total proceeds of $156 million with a pre-tax
loss of $2 million. Of the total proceeds, $118 million was from the sale of
oil and gas properties.
NOTE 7 - CASH FLOW INFORMATION
The company considers cash equivalents to be all highly liquid investments
purchased with a maturity of three months or less. All income taxes paid are
included in determining cash flows from operating activities. As a result,
income taxes paid on taxable income from sales of assets are not included in
cash flows from investing activities.
The 1996 and 1995 cash flow statements excluded $19 million and $30 million,
respectively, in transactions primarily related to the purchase of Unocal common
stock by the trustee of the Unocal Savings Plan (the "Plan") from Unocal. The
trustee used the company's matching contributions to the Plan, which were
expensed in the company's consolidated earnings statements, to purchase the
shares. In the consolidated cash flow statements, the issuance of Unocal common
stock and the matching contribution expense were treated as non-cash
transactions since the resulting effect on cash flow was zero.
The exchange of preferred stock to convertible preferred securities and the
conversion of preferred stock to common stock, as described in Note 20, are non-
cash transactions and therefore, are excluded from the 1996 cash flow statement.
NOTE 8 - OTHER FINANCIAL INFORMATION
Consolidated earnings for the periods ending December 31 included the
following:
<TABLE>
<CAPTION>
Millions of Dollars 1996 1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Total interest costs $294 $326 $305
Less capitalized interest 15 35 30
- -----------------------------------------------------------------------------------
Interest expense $279 $291 $275
Maintenance and repair costs $218 $250 $253
- -----------------------------------------------------------------------------------
</TABLE>
The consolidated balance sheet at December 31 includes the following:
<TABLE>
<CAPTION>
Millions of Dollars 1996 1995
- ----------------------------------------------------------------------------------
<S> <C> <C>
Other deferred credits and liabilities:
Postretirement medical benefits obligation $207 $214
Reserve for litigation and other claims 369 262
Other employee benefits 85 50
Other 78 92
- -----------------------------------------------------------------------------------
Total $739 $618
- -----------------------------------------------------------------------------------
Allowances for doubtful accounts and notes receivable $ 35 $ 28
Allowances for investments and long-term receivables $ 13 $ 15
- -----------------------------------------------------------------------------------
</TABLE>
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - PROPERTY AND OTHER OPERATING TAXES
<TABLE>
<CAPTION>
Millions of Dollars 1996 1995 1994
- ---------------------------------------------------- ------ ------
<S> <C> <C> <C>
Real and personal property taxes $30 $41 $44
Severance and other taxes on production 41 38 38
Other taxes and duties 1 1 9
- ---------------------------------------------------- ------ ------
Total $72 $80 $91
- ---------------------------------------------------- ------ ------
</TABLE>
In addition, social security and unemployment insurance taxes, which are
charged to earnings and included with salaries and wages, totaled $44 million in
1996, $45 million in 1995 and $44 million in 1994.
NOTE 10 - INCOME TAXES
Unocal files a consolidated federal income tax return that includes
essentially all U.S. subsidiaries. The components of pre-tax earnings and the
provision for income taxes are as follows:
<TABLE>
<CAPTION>
Millions of Dollars 1996 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings (loss) from continuing operations before income
taxes and cumulative effect of accounting changes
United States $195 $ 81 $(186)
Foreign $563 $394 $ 457
- -------------------------------------------------------------------------------------------
Total $758 $475 $ 271
Income Taxes
Current
Federal $ 76 $ 3 $ 14
State $ 30 $ 4 $ 16
Foreign $277 $187 $ 245
- -------------------------------------------------------------------------------------------
Total $383 $194 $ 275
Deferred
Federal $(70) $ 14 $(117)
State $(13) $ 6 $ (7)
Foreign $ 2 $ 12 $ 10
- -------------------------------------------------------------------------------------------
Total $(81) $ 32 $(114)
- -------------------------------------------------------------------------------------------
Total income taxes $302 $226 $ 161
- -------------------------------------------------------------------------------------------
</TABLE>
The following table is a reconciliation of income taxes at the federal
statutory income tax rates to income taxes as reported in the consolidated
earnings statement.
<TABLE>
<CAPTION>
Millions of Dollars 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35% 35% 35%
Taxes on book earnings computed at statutory rate $265 $166 $ 95
Foreign taxes in excess of statutory rate 82 59 75
Dividend exclusion (15) (15) (13)
Statutory rate in excess of taxes on gain from sales of assets (24) - -
Other (6) 16 4
- ---------------------------------------------------------------------------------------------------
Total $302 $226 $161
- ---------------------------------------------------------------------------------------------------
</TABLE>
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The significant components of deferred income tax assets and liabilities
included in the Consolidated Balance Sheet at December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
Millions of Dollars 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets (liabilities):
Depreciation and intangible drilling costs $(883) $(1,129)
Pension assets (154) (145)
Investments in affiliates (71) (80)
Other deferred tax liabilities (213) (216)
Federal alternative minimum tax credits 191 142
Litigation/environmental costs 161 108
Depletion 139 169
Exploratory costs 155 140
Future abandonment costs 141 133
Postretirement benefit costs 78 81
1995 federal net operating loss carryforward - 94
Other deferred tax assets 186 175
- ----------------------------------------------------------------------------
Total $(270) $ (528)
- ----------------------------------------------------------------------------
</TABLE>
No deferred U.S. income tax liability has been recognized on the undistributed
earnings of foreign subsidiaries that have been retained for reinvestment. If
distributed, no additional U.S. tax is expected due to the availability of
foreign tax credits. Such undistributed earnings for tax purposes, excluding
previously taxed earnings, are estimated at $1 billion as of December 31, 1996.
At year-end 1996, the company had approximately $100 million of unused foreign
tax credits with various expiration dates through the year 2002. No deferred
tax asset for these foreign tax credits is recognized for financial statement
purposes. The company had approximately $15 million of federal business tax
credit carryforwards that will expire between the years 2003 and 2010.
The federal alternative minimum tax credits are available to offset future
U.S. federal income taxes on an indefinite basis.
NOTE 11 - INVENTORIES
<TABLE>
<CAPTION>
Millions of Dollars 1996 1995
- ---------------------------------------------------
<S> <C> <C>
Crude oil and condensate $ 5 $ 6
Refined products 7 7
Agricultural products 41 40
Minerals 21 30
Supplies, merchandise and other 51 50
- ---------------------------------------------------
Total $125 $133
- ---------------------------------------------------
</TABLE>
The inventory amounts above exclude $225 million and $227 million for 1996 and
1995, respectively, for discontinued operations.
The current replacement cost of inventories exceeded the LIFO inventory value
included above by $18 million and $17 million at December 31, 1996 and 1995,
respectively.
Petroleum refining, marketing and transportation inventories at December 31,
1996 have been included in net assets of discontinued operations. The current
replacement cost of these inventories exceeded the LIFO inventory value by $148
million.
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - PROPERTIES AND CAPITAL LEASES
Investments in owned and capitalized leased properties at December 31, 1996
and 1995 are set forth below. Total accumulated depreciation, depletion and
amortization for continuing operations was $9,502 million and $10,179 million at
December 31, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
1996 1995
-------------------- ----------------------
Millions of Dollars Gross Net Gross Net
- ------------------------------------------------------------- ----------------------
<S> <C> <C> <C> <C>
Owned properties (at cost)
Petroleum operations:
Exploration
United States $ 80 $ 32 $ 113 $ 45
Far East 30 20 119 71
Other Foreign 57 19 54 19
Production
United States 6,779 2,218 7,994 2,676
Far East 3,745 1,314 2,977 870
Other Foreign 1,058 78 1,376 365
- ------------------------------------------------------------- ----------------------
Total 11,749 3,681 12,633 4,046
Geothermal Operations 763 307 995 382
Diversified Business Group
Agricultural Products 659 212 650 221
Carbon & Minerals 173 71 140 45
Pipelines 332 103 330 99
Corporate and unallocated 402 215 465 254
- ------------------------------------------------------------- ----------------------
Total owned properties 14,078 4,589 15,213 5,047
Capitalized leased properties 14 1 17 4
- ------------------------------------------------------------- ----------------------
Total continuing operations 14,092 4,590 15,230 5,051
Discontinued operations - - 3,310 2,058
- ------------------------------------------------------------- ----------------------
Total $14,092 $4,590 $18,540 $7,109
- ------------------------------------------------------------- ----------------------
</TABLE>
Net property, plant and equipment of $2,162 million ($3,520 million gross) for
discontinued operations at December 31, 1996 has been reflected in the net
assets of discontinued operations (see Note 3).
NOTE 13 - RETIREMENT PLANS
The company and its subsidiaries have several non-contributory retirement
plans covering substantially all employees. Plan benefits are primarily based
on years of service and employees' compensation near retirement. All U.S. plans
are administered by corporate trustees. There was no company contribution to
the principal U.S. plan during the years 1994 through 1996 as plan assets
substantially exceeded the pension obligations. At year-end 1996, plan assets
principally consisted of equity securities, U.S. government and agency issues,
corporate bonds and cash.
Employees of certain foreign subsidiaries of the company are covered by
separate plans. Total obligations for all foreign plans are not material.
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Pension costs for the funded U.S. plans include the following components:
<TABLE>
<CAPTION>
Millions of Dollars 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 29 $ 21 $ 24
Interest cost on projected benefit obligation 53 52 49
Actual return on plan assets (143) (225) 9
Net amortization and deferral 29 129 (109)
Net (gain) loss from partial settlement of obligation and curtailment of operations 13 (7) (4)
- -------------------------------------------------------------------------------------------------------------
Net pension income $ (19) $ (30) $ (31)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Net loss from partial settlement of obligation and curtailment of operations
for 1996 includes a loss of $15 million associated with discontinued operations
(see Note 3).
The following table sets forth the plans' funded status and amounts recognized
in the Consolidated Balance Sheet at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Millions of Dollars 1996 1995
- -------------------------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value $1,116 $1,053
- -------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits 668 636
Nonvested benefits 15 24
- -------------------------------------------------------------------------------
Accumulated benefit obligation 683 660
Effect of projected future salary increases 75 78
- -------------------------------------------------------------------------------
Projected benefit obligation 758 738
- -------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 358 315
Unrecognized net loss 75 115
Unrecognized net assets (40) (63)
Unrecognized prior service cost 17 24
- -------------------------------------------------------------------------------
Prepaid pension cost $ 410 $ 391
- -------------------------------------------------------------------------------
</TABLE>
The assumed rates used to measure the projected benefit obligation and the
expected earnings on plan assets were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------
<S> <C> <C> <C>
Weighted-average discount rate 7.25% 7.25% 8.50%
Increase in future compensation levels 4.00% 4.00% 5.00%
Expected long-term return on plan assets 9.50% 9.50% 9.75%
</TABLE>
The amount of benefits which can be covered by the funded plans described
above are limited by the Employee Retirement Income Security Act of 1974 and the
Internal Revenue Code. Therefore, the company has a supplemental retirement
plan designed to maintain benefits for all employees at the plan formula level.
The amounts expensed for this plan were $2 million, $5 million and $5 million in
1996, 1995 and 1994, respectively. The accumulated obligation recognized in the
Consolidated Balance Sheet at December 31, 1996 was $20 million.
The company has established a grantor trust to provide funding for the
benefits payable under the supplemental retirement plan. Total assets held in
the trust at December 31, 1996 and 1995 amounted to $16 million and $14 million,
respectively.
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14 - POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT PLANS
The company's medical plan provides health care benefits for eligible
employees and retired employees. Employees may become eligible for
postretirement benefits if they reach the normal retirement age while working
for the company. The plan is contributory and the benefits are subject to
deductibles and co-payments.
The following table sets forth the postretirement benefit obligation
recognized in the Consolidated Balance Sheet at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Millions of Dollars 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees $130 $134
Fully eligible active employees 20 23
Other active employees 50 52
- -----------------------------------------------------------------------
Total 200 209
Unrecognized gain and prior service cost 24 4
- -----------------------------------------------------------------------
Accrued postretirement benefit cost $224 $213
- -----------------------------------------------------------------------
</TABLE>
Net periodic postretirement benefits cost is comprised of the following
components:
<TABLE>
<CAPTION>
Millions of Dollars 1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 7 $ 4 $ 6
Interest cost 15 15 15
- -----------------------------------------------------------------
Total $22 $19 $21
- -----------------------------------------------------------------
</TABLE>
The accumulated postretirement benefit obligation at December 31, 1996 was
determined using a discount rate of 7.25 percent. The health care cost trend
rates used in measuring the 1996 benefit obligations were 6.0 percent for under
age 65 and 5.8 percent for age 65 and over, gradually decreasing to 5.0 percent
by the year 2001 and remaining at that level thereafter. The rates are subject
to change in the future. The health care cost trend rate assumption has a
significant effect on the amounts reported. For example, an increase in the
assumed health care cost trend rate of one percentage point in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1996 by $23 million and net periodic benefits cost by $3 million.
The company also provides benefits such as workers' compensation and disabled
employees' medical care to former or inactive employees after employment but
before retirement. The accumulated postemployment benefit obligation was $20
million as of December 31, 1996 and $16 million as of December 31, 1995.
The reduction in projected postretirement benefit plan cost associated with
discontinued operations was $17.5 million and was reflected in loss on disposal
in the December 31, 1996 Consolidated Earnings Statement (see Note 3).
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 - LONG-TERM DEBT AND CREDIT AGREEMENTS
The following table summarizes the company's long-term debt:
<TABLE>
<CAPTION>
Millions of Dollars 1996 1995
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Bonds and debentures
9-1/4% Debentures due 2003 $ 250 $ 250
9-1/8% Debentures due 2006 200 200
6-1/8% to 7-7/8% Industrial Development Revenue
Bonds due 1998 to 2008 23 71
Swiss Franc Bonds due 1996 (5.25%) - 175
Deutsche Mark Bonds due 1998 (6.125%) 162 175
Notes
Commercial paper (6.68%) (a) 64 650
Medium-term notes due 1997 to 2015 (8.11%) (a) 1,067 1,075
Bank Credit Agreement (5.78%) (a) 250 105
Revolving credit facilities (5.95%) (a) 180 130
9-3/4% Notes due 2000 250 250
8-3/4% Notes due 2001 200 200
6-3/8% Notes due 2004 200 200
7-1/5% Notes due 2005 200 200
Other miscellaneous debt 9 15
- ---------------------------------------------------------------------------------------
Total 3,055 3,696
Less current portion of long-term debt 115 4
- ---------------------------------------------------------------------------------------
Total long-term debt $2,940 $3,692
- ---------------------------------------------------------------------------------------
(a) Weighted average interest rate at December 31, 1996
</TABLE>
The amounts of long-term debt maturing in 1998, 1999, 2000 and 2001 are $374
million, $167 million, $759 million and $267 million, respectively.
During 1996, the company reduced long-term debt $641 million from the year-end
1995 level, primarily with the proceeds from the sale of its California oil and
gas producing properties.
In addition, the company's new borrowings during 1996 consisted of: $100
million in medium-term notes with interest rates ranging from 5.94% to 6.23% and
maturity dates ranging from 2003 to 2006 and $50 million under a $250 million
revolving credit facility. The proceeds were used principally to retire Swiss
Franc Bonds. In December 1996, the company repurchased approximately $100
million in medium-term notes with proceeds from commercial paper.
During 1996, the company was party to revolving credit facilities with
syndicates of major international banks, in order to provide support for its
working capital requirements for overseas operations. The company borrowed an
additional $50 million under a $250 million revolving credit facility that was
established in 1993 for the purpose of funding its oil and gas development
program in Thailand. This revolving credit facility terminates December 15,
2000. During 1996, the company terminated its $45 million revolving credit
facility for operations in the Netherlands and $25 million revolving credit
facility with a Canadian bank. The entire committed amounts on these facilities
were unborrowed at the time of termination. Borrowings under these credit
facilities bear interest at different margins above London Interbank Offered
Rates (LIBOR) and the agreements call for facility fees on either the total or
undrawn commitment.
The Bank Credit Agreement provides a revolving credit of $1.2 billion through
June 2000 at interest rates based on LIBOR and requires a facility fee on the
total commitments. Of the total, $250 million had been borrowed at December 31,
1996. This agreement is available for general corporate purposes, including the
support of commercial paper. The $200 million 364-day credit facility
established in 1995, which has a March 1997 maturity
52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
date and annual renewal requirement, was undrawn at year-end 1996. The company
has other undrawn letters of credit for approximately $128 million. The
majority are maintained for operational needs.
The Bank Credit Agreement and certain of the other revolving credit facilities
described above provide for the termination of the commitments and require the
prepayment of all outstanding borrowings in the event (a) any person or group
becomes the beneficial owner of more than 30 percent of the then outstanding
voting stock of Unocal, otherwise than in a transaction having the approval of
the Board of Directors of Unocal (the Board), at least a majority of which are
continuing directors (as defined therein), or (b) continuing directors shall
cease to constitute at least a majority of the Board.
NOTE 16 - LEASE RENTAL OBLIGATIONS
Future minimum rental payments for operating leases having initial or
remaining noncancelable lease terms in excess of one year, excluding those
related to discontinued operations, are as follows:
<TABLE>
<CAPTION>
Millions of Dollars
- --------------------------------------------------
<S> <C>
1997 $ 48
1998 43
1999 32
2000 31
2001 25
Balance 104
- --------------------------------------------------
Total minimum lease payment $283
- --------------------------------------------------
</TABLE>
Net operating rental expense included in consolidated earnings, excluding
those related to discontinued operations, is as follows:
<TABLE>
<CAPTION>
Millions of Dollars 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed rentals $73 $79 $80
Contingent rentals (based primarily on sales and usage) 11 12 14
Sublease rental income (3) (2) (3)
- -------------------------------------------------------------------------------------------------------
Net expense $81 $89 $91
- -------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 17 - FINANCIAL INSTRUMENTS
Unocal does not hold or issue financial instruments for trading purposes.
Notional amounts are not included in the Consolidated Balance Sheet and
generally exceed the future cash requirements relating to the instruments.
The counterparties to the company's financial instruments are regulated
exchanges or major international financial institutions with high credit
ratings. Even though the company may be exposed to losses in the event of non-
performance by these counterparties, it does not anticipate that such losses
will be realized. In the opinion of management, the off-balance-sheet risk
associated with these instruments is minimal and immaterial.
FOREIGN CURRENCY FORWARD AND SWAP CONTRACTS
Unocal enters into various foreign currency forward and swap contracts to
manage its exposures to adverse impacts of foreign currency fluctuations under
debt and other obligations. Foreign currency gains or losses on the outstanding
contracts essentially offset the foreign currency gains or losses of the
underlying obligations.
53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During 1986, the company entered into two currency swap agreements to hedge
foreign currency exchange exposures related to the interest and principal
payments on the company's Swiss Franc bonds due in 1996 and Deutsche Mark bonds
due in 1998. During 1996, the company retired at maturity the $110 million
Swiss Franc bond issue and the corresponding $55 million currency swap
agreement. The Deutsche Mark swap has the same maturity as the related
underlying debt. At year-end 1996 and 1995, the aggregate notional principal
amount of the Deutsche Mark swap agreement was $110 million. At year-end 1996,
this currency swap agreement had a fair value of approximately $52 million,
based on dealer quotes, which is included in long-term receivables on the
Consolidated Balance Sheet.
In addition, the company had two currency swap agreements outstanding on
borrowings of its Canadian subsidiary, with notional amounts totaling $250
million at year-end 1996. The agreements, entered into by the subsidiary, have
the effect of changing the subsidiary's U.S. dollar denominated borrowings into
its functional Canadian currency. The objective of these agreements is to limit
the subsidiary's exposure to currency exchange gains and losses. The parent
company also has two currency swap agreements to offset the subsidiary's
currency swaps with the objective of maintaining the underlying debt in U.S.
dollars for reporting in the consolidated financial statements. The maturities
of the agreements range from 1999 to 2000, which generally correspond to the
related debt obligations. The net fair value of the currency swap agreements at
year-end 1996 and 1995, based on dealer quotes, was approximately zero.
In December 1996, the company closed out its currency forward contracts which
were used to hedge a series of known obligations denominated in Pounds Sterling
and due during the period from January 1997 to July 2000. These contracts were
closed-out at a realized gain of $3.1 million.
INTEREST RATE SWAPS
The company enters into interest rate swap agreements to manage its debt with
the objective of minimizing the company's borrowing costs. Net payments or
receipts under the agreements are recorded in interest expense on a current
basis. The related amounts payable to, or receivable from, the counterparties
are included in interest payable on the Consolidated Balance Sheet.
In 1994, the company entered into a three-year interest rate swap with a
notional amount of $25 million. This swap was entered into to hedge $25 million
in medium-term notes. The company pays interest at a floating rate based on
LIBOR and receives interest at a fixed rate of 6.7 percent. At year-end 1996
and 1995, the floating interest rates were 5.7 percent and 5.8 percent,
respectively. At year-end 1996 and 1995, the interest rate swap agreements had
aggregate fair values of approximately $0.1 million in assets and $12 million in
liabilities, respectively, based on quoted market prices of comparable
instruments.
OTHER
The company uses commodity futures contracts with maturities of one year or
less to hedge the impact of fluctuations in prices of crude oil and natural gas.
Realized and unrealized changes in the market value of futures contracts are
deferred until the hedged transaction is recognized. Notification to the Board
of Directors is required if the company hedges more than 15 percent of its
production of oil and gas, refined products, and of crude oil purchased for
refinery supply.
At December 31, 1996, contracts covering 508 thousand barrels of crude oil and
5.64 billion cubic feet of natural gas with notional amounts totaling $13
million for crude oil and $15 million for natural gas were outstanding. At
December 31, 1995, the company had outstanding contracts covering 225 thousand
barrels of crude oil and 1.02 billion cubic feet of natural gas with notional
amounts totaling $4 million for crude oil and $2 million for natural gas. The
fair values of the contracts, based on quoted market prices, were insignificant
at year-end 1996 and 1995.
As of December 31, 1996 and 1995, the carrying amounts of certain financial
instruments employed by the company, including cash, cash equivalents, and trade
receivables and payables are representative of fair value because of the short-
term maturity of these instruments.
54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The estimated fair value of the company's long-term debt was $3,184 million
and $3,983 million at year-end 1996 and 1995, respectively. The fair values of
debt instruments were based on the discounted amount of future cash outflows
using the rates offered to the company for debt with similar remaining
maturities.
The estimated fair value of Unocal Capital Trust's 6-1/4 percent convertible
preferred securities at year-end 1996 was $591 million. The fair value of the
preferred securities was based on the trading price of the preferred securities
on December 31, 1996.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the company to concentrations
of credit risk consist primarily of temporary cash investments and trade
receivables. The company places its temporary cash investments with high credit
quality financial institutions and, by policy, limits the amount of credit
exposure to any one financial institution. Concentrations of credit risk with
respect to trade receivables are limited because there are a large number of
customers in the company's customer base spread across many industries and
geographic areas. As of December 31, 1996 and 1995, the company had no
significant concentrations of credit risk.
NOTE 18 - ACCRUED ABANDONMENT, RESTORATION AND ENVIRONMENTAL LIABILITIES
At December 31, 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 predominately accrued for on a units-of-production
basis and are estimated to be approximately $675 million. This estimate was
derived in large part from abandonment cost studies performed by an outside firm
and is used to calculate the amount to be amortized.
At December 31, 1996, the company's reserve for environmental remediation
obligations totaled $250 million, of which $73 million was included in other
current liabilities. The reserve includes estimated probable future costs of
$27 million for federal Superfund and comparable state-managed multiparty
disposal sites; $26 million for formerly-operated sites for which the company
has remediation obligations; $60 million for sites related to businesses or
operations that have been sold with contractual remediation or indemnification
obligations; $77 million for company-owned or controlled sites where facilities
have been closed or operations shut down; and $60 million for active sites owned
and/or controlled by the company and utilized in its present operations.
NOTE 19 - 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 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
55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 18, at year-end 1996 the company had accrued $250 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 $160
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, fifty-
three 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. Fifty-one 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 claims for personal injury and property damage. In early November 1996,
the trial court issued an order declining to certify a medical monitoring class.
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. If
the IRS was ultimately to prevail, the company would owe $157 million of tax for
1985 plus tax deductible interest estimated at $307 million as of December 31,
1996. As noted above, the company is working with the IRS to resolve this
matter without litigation. Should that effort fail, final resolution of this
matter is likely to be several years away as the matter is not yet before a
court.
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'
56
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
assertions. If the IRS was 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 $125 million as of December 31, 1996. As noted above, the company
is working with the IRS to resolve this matter without litigation. Should that
effort fail, final resolution of this matter is likely to be several years away
as the matter is not yet before a court.
The total amount of tax and interest that the company would be required to pay
if the IRS was 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 $400 million as of December 31, 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.
NOTE 20 - TRUST CONVERTIBLE PREFERRED SECURITIES
On September 11, 1996 Unocal exchanged 10,437,873 new 6-1/4 percent Trust
convertible 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 which were tendered in response to Unocal's exchange 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 of Unocal. The convertible preferred securities and common securities
of the Trust represent undivided beneficial interests in the debentures, which
are the sole assets of the Trust.
A charge to retained earnings of $54 million was recorded for the exchange to
reflect the excess of the $522 million carrying value of the convertible
preferred securities issued (which amount was based on the market value of the
shares of Unocal common stock into which the tendered shares of $3.50
convertible preferred stock could have been converted) over the $468 million
carrying value of the tendered shares.
The convertible preferred securities have a liquidation value of $50 per
security and are convertible 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 convertible preferred securities are cumulative 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
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 convertible preferred
securities, may become redeemable at the option of Unocal upon the occurrence
of certain special events or restructuring transactions.
57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 convertible preferred securities are unconditionally guaranteed on a
subordinated basis by Unocal. Such guarantee, when taken together with Unocal's
obligations under the debentures and the indenture pursuant to which the
debentures were issued and its obligations under the amended and restated
declaration of trust governing the Trust, provides a full and unconditional
guarantee by Unocal of the Trust's obligations under the convertible preferred
securities.
On September 11, 1996, Unocal called the 897,038 unexchanged shares of the
$3.50 convertible preferred stock for redemption. All of these shares were
converted by the holders into 1,458,575 shares of Unocal common stock prior to
the October 11, 1996 redemption date.
NOTE 21 - CAPITAL STOCK
COMMON STOCK
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
Authorized - 750,000,000
$1.00 Par value per share
Thousands of Shares 1996 1995 1994
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year 247,310 244,199 241,324
Issuance of common stock 3,361 3,111 2,875
- ------------------------------------------------------------------------------------
Outstanding at end of year 250,671 247,310 244,199
- ------------------------------------------------------------------------------------
</TABLE>
At December 31, 1996, there were approximately 12.3 million shares reserved
for the conversion of preferred securities, 14.8 million shares for the
company's employee benefit plans and Directors' Restricted Stock Plan and 4.7
million shares for the company's Dividend Reinvestment and Common Stock Purchase
Plan.
PREFERRED STOCK
The company has authorized 100,000,000 shares of preferred stock with a par
value of $0.10 per share. In July 1992, the company issued 10,250,000 shares of
$3.50 convertible preferred stock. During 1996, all outstanding shares of
convertible preferred stock were exchanged for 6-1/4 percent Trust convertible
preferred securities of Unocal Capital Trust or were converted into Unocal
common stock (see Note 20).
Prior to the exchange and conversion, the preferred stock accrued annual
dividends of $3.50 per share. The dividends were cumulative and payable
quarterly in arrears, when and as declared by Unocal's Board of Directors.
Holders of the preferred stock had no voting rights, however, there were certain
exceptions including the right to elect two additional directors if the
equivalent of six quarterly dividends payable on the preferred stock were
missed.
STOCKHOLDER RIGHTS PLAN
In January 1990, the Board adopted a stockholder rights plan (Rights Plan) and
declared a dividend of one preferred stock purchase right (Right) for each share
of common stock outstanding. The Board also authorized the issuance of one
Right for each common share issued after February 12, 1990, and prior to the
earlier of the date on which the rights become exercisable, the redemption date,
or the expiration date.
The Board has designated 3,000,000 shares of preferred stock as Series A
Junior Participating cumulative preferred stock (Series A preferred stock) in
connection with the Rights Plan. The Rights Plan provides that in the event any
person, or group of affiliated persons, becomes, or commences a tender offer or
exchange offer pursuant to which such person or group would become, the
beneficial owner of 15 percent or more of the outstanding common shares, each
Right (other than Rights held by the 15 percent stockholder) will be
exercisable, on and after the close of business on the tenth business day
following such event, unless the Rights are redeemed by the Board of Directors
of the company, to purchase units of Series A preferred stock (each consisting
of one one-hundredth of a share) having a market value equal to two times the
then-current exercise price (initially $75). The Rights Plan
58
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
further provides that if, on or after the occurrence of such event, the company
is merged into any other corporation or 50 percent or more of the company's
assets or earning power are sold, each Right (other than Rights held by the 15
percent stockholder) will be exercised to purchase shares of the acquiring
corporation having a market value equal to two times the exercise price.
The Rights expire on January 29, 2000, unless previously redeemed by the Board.
The Rights do not have voting or dividend rights and, until they become
exercisable, have no diluting effect on the earnings of the company. As of
December 31, 1996, none of the Series A preferred stock had been issued nor had
the Rights become exercisable.
NOTE 22 - STOCK-BASED COMPENSATION PLANS
Under the company's Special Stock Option Plan of 1996, Long-Term Incentive
Plans of 1991 and 1985, and the Directors' Restricted Stock Plan, non-qualified
stock options, restricted stock, performance shares and other common stock-based
awards are granted to executives, directors and certain employees to provide
incentives and rewards to enhance the profitability of the company and increase
shareholder value. The 1996, 1991 and 1985 plans authorized up to 1.1 million,
11 million and 4.5 million shares of common stock, respectively for stock
options, restricted stock and performance share awards. The directors' plan
authorizes the issuance of up to 300,000 shares of common stock. Stock options
granted have a maximum life of ten years and vest over a three-year period at a
rate of 50% the first year and 25% per year for the two succeeding years. The
option price will not be less than the fair market value of the company's common
stock on the date the option is granted. Restrictions may be imposed for a
period of five years on certain shares acquired through the exercise of options
granted after 1990.
Generally, restricted stock awards are based on the average closing price of
the company's common stock for the last 30 trading days of the year prior to the
grant date. Restricted shares are not delivered until the end of the restricted
period which does not exceed ten years. Performance share awards have a four-
year term and are paid out 50 percent in shares of common stock and 50 percent
in cash. The awards are paid out based on the return of the company's common
stock relative to the average return on the common stock of a peer group of
companies.
A summary of the company's stock plans as of December 31, 1994, 1995 and 1996,
and changes during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
Weighted Weighted
Average Option Average Grant
Number of Exercise Price Date Fair Value
Options/Shares Per Share Per Share
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options Outstanding at January 1, 1994 3,477,880 $25 $ -
Options granted during year 819,628 26 26
Options exercised during year (133,455) 20 -
Options canceled/forfeited during year (119,836) 28 -
Options expired during year - - -
---------------------
Options Outstanding at December 31, 1994 4,044,217 25 -
Options Exercisable at December 31, 1994 2,906,236 25 -
Restricted stock awarded during year 178,418 - 26
Performance shares awarded during year 295,692 - 26
- -------------------------------------------------------------------------------------------------------------
</TABLE>
59
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Weighted Weighted
Average Option Average Grant
Number of Exercise Price Date Fair Value
Options/Shares Per Share Per Share
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options Outstanding at January 1, 1995 4,044,217 25 -
Options granted during year 856,189 28 28
Options exercised during year (272,817) 21 -
Options canceled/forfeited during year (145,710) 29 -
Options expired during year (8,644) 24 -
-----------------
Options Outstanding at December 31, 1995 4,473,235 26 -
Options Exercisable at December 31, 1995 3,296,294 25 -
Restricted stock awarded during year 141,339 - 29
Performance shares awarded during year 303,449 - 29
- -----------------------------------------------------------------------------------------------------------------------
Options Outstanding at January 1, 1996 4,473,235 26 -
Options granted during year 2,107,112 33 33
Options exercised during year (1,328,954) 24 -
Options canceled/forfeited during year (47,060) 30 -
Options expired during year - - -
-----------------
Options Outstanding at December 31, 1996 5,204,333 29 -
Options Exercisable at December 31, 1996 2,747,611 27 -
Restricted stock awarded during year 152,169 - 33
Performance shares awarded during year 306,713 - 33
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Under the Plans of 1996, 1991 and the Directors' Plan, there were 19,901
shares, 4,195,976 shares and 225,605 shares, respectively, available at year-end
1996 for stock option awards as well as other awards. No additional grants may
be awarded under the 1985 Plan.
Significant option groups outstanding at December 31, 1996 and related
weighted average price and life information follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- -------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Number Average Average Number Average
Range of Outstanding Remaining Exercise Exercisable Exercise
Exercise prices at 12/31/96 Life (years) Price at 12/31/96 Price
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$21 - $24 841,674 3.9 $22 841,674 $22
$26 - $29 1,936,419 7.3 $28 1,338,730 $28
$30 - $33 2,426,240 9.0 $33 567,207 $31
- -------------------------------------------------------------------------------------------------
</TABLE>
The fair value of options at date of grant was estimated using the Black-
Scholes model with the following weighted average assumptions:
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------
<S> <C> <C> <C>
Expected life (years) 4 4 4
Interest rate 6.1% 6.9% 6.1%
Volatility 23.8% 20.9% 23.7%
Dividend yield 2.4% 2.8% 3.0%
- ---------------------------------------------------------------
</TABLE>
The company applies APB Opinion No. 25 and related interpretations in
accounting for stock-based compensation. Stock-based compensation expense
recognized in the company's consolidated earnings statement was $36 million in
1996, $18 million in 1995 and $14 million in 1994. Had the company recorded
compensation
60
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
expense using the accounting method recommended by SFAS No. 123, net income and
earnings per share would have been reduced to the pro-forma amounts indicated
below:
<TABLE>
<CAPTION>
Millions of Dollars
Except per share amounts 1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings (loss)
As reported $ 36 $ 260 $(153)
Pro forma 32 257 (156)
Net earnings (loss) per share
As reported ($0.15) $0.91 ($0.78)
Pro forma (0.16) 0.90 (0.79)
- --------------------------------------------------------------------------
</TABLE>
NOTE 23 - SUMMARIZED FINANCIAL DATA OF UNION OIL
Unocal Corporation is the parent of Union Oil Company of California.
Virtually all operations are conducted by Union Oil and its subsidiaries.
Summarized financial information for Union Oil and its consolidated
subsidiaries is presented below:
<TABLE>
<CAPTION>
For Years Ended
Millions of Dollars 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenues $5,328 $4,389 $4,272
Total costs and other deductions, including income taxes 4,860 4,138 4,161
- -----------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before cumulative
effect of accounting change $ 468 $ 251 $ 111
Discontinued operations
Earnings from operations (net of taxes) 71 11 14
Loss on disposal (net of taxes) (491) - -
Cumulative effect of accounting change - - (277)
- -----------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 48 $ 262 ($152)
- -----------------------------------------------------------------------------------------------------------------
At December 31
Millions of Dollars 1996 1995
- -----------------------------------------------------------------------------------------------------------------
Current assets $3,228 $1,576
Noncurrent assets 5,905 8,328
Current liabilities 1,622 1,309
Noncurrent liabilities 4,704 5,645
Shareholder's equity 2,807 2,950
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 24 - INVESTMENTS IN AFFILIATES
Investments in affiliated companies accounted for by the equity method were
$578 million, $386 million and $369 million at December 31, 1996, 1995 and 1994,
respectively. Dividends or cash distributions received from these affiliates
were $89 million, $88 million and $84 million for the same years, respectively.
These affiliated companies are primarily engaged in pipeline ventures, refining
and marketing operations, and the manufacture of needle coke.
The excess of the company's investments in Colonial Pipeline Company and West
Texas Gulf Pipeline Company over its shares in the related underlying equity in
net assets is being amortized on a straight-line basis over a period of 40
years. The remaining unamortized balance at December 31, 1996 was $103 million.
61
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The company has a 50 percent interest in The UNO-VEN Company (UNO-VEN), a
refining and marketing partnership in the midwestern United States. The
company's share of the underlying equity in the net assets of UNO-VEN over the
carrying value of its investment is being amortized on a straight-line basis
over a period of 25 years. The remaining unamortized balance at December 31,
1996 was $54 million. In 1996, the company executed a letter of intent to
restructure UNO-VEN.
Summarized financial information for these equity investees, excluding
investees of discontinued operations, is shown below.
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------------------------------------
Unocal's Unocal's Unocal's
Millions of Dollars Total Share Total Share Total Share
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $2,786 $1,155 $2,350 $947 $2,060 $825
Costs and other
deductions 2,440 1,049 2,057 870 1,780 742
Net earnings 346 106 293 77 280 83
- ------------------------------------------------------------------------------------------
Current assets $ 792 $ 334 $ 612 $244 $ 419 $177
Noncurrent assets 2,546 800 1,846 568 1,861 576
Current liabilities 711 266 568 212 381 152
Noncurrent liabilities 1,228 366 1,012 273 1,038 291
Net equity 1,399 502 878 327 861 310
- ------------------------------------------------------------------------------------------
</TABLE>
NOTE 25 - SALE OF ACCOUNTS RECEIVABLE
On December 15, 1995, the company entered into an agreement to sell, on a
revolving basis, an undivided interest in a defined pool of the company's trade
receivables. As collections reduce the amount of receivables included in the
pool, the company sells new receivables to bring the amount sold up to the $200
million maximum permitted by the agreement. Under the terms of the agreement,
the company retains the risk of credit loss and the collection and
administrative responsibilities for the receivables sold.
The $200 million proceeds from the sale were used to reduce borrowings and are
reflected as a reduction of accounts receivable in the Consolidated Balance
Sheet and as operating cash flows in the Consolidated Statement of Cash Flows.
The cost of the program was $12 million in 1996 and $1 million in 1995. The
costs of the program were included in operating expense in the Consolidated
Earnings Statement.
NOTE 26 - SEGMENT AND GEOGRAPHIC DATA
The company's continuing operations include exploration and production,
geothermal, agricultural products and carbon and minerals. Exploration and
production involves the exploration for, and the production, sale and marketing
of crude oil and natural gas. Geothermal involves the exploration for, and the
production and sale of, geothermal resources and the construction and eventual
operation of electrical generating plants served by the resources. Agricultural
Products involves the manufacture, transportation and marketing of nitrogen-
based products for agricultural and industrial uses. Carbon and Minerals
involves the production and marketing of petroleum coke, graphites, solvents and
specialty minerals.
Unocal has domestic oil and gas operations in the Louisiana/Gulf, Alaska and
Central U.S. regions. In April 1996, the company sold essentially all of its
California oil and gas producing properties. Most of the company's crude oil
produced in the United States is sold to third parties. A substantial portion
of the natural gas produced domestically is sold to third parties under
contracts having terms of less than two years. The remainder is sold to third
parties in the spot market or is used in the company's agricultural products
operations.
62
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Unocal has oil and gas production in six foreign countries: Thailand,
Indonesia, Canada, the Netherlands, the United Kingdom and Zaire. The company
sells most of its foreign natural gas production to third parties under long-
term contracts. The crude oil and condensate produced overseas are primarily
sold to third parties at spot market prices.
The Geothermal Operations segment supplies geothermal steam for power
generation, with major operations in California, the Philippines and Indonesia.
This segments' current activities include constructing power plants in Indonesia
to capitalize on market-to-resource opportunities.
Agricultural Products manufactures and markets nitrogen-based products for
wholesale agricultural and industrial markets supplying the western United
States and the Pacific Rim. Carbon and Minerals produces and markets petroleum
coke, graphites, solvents and specialty minerals. Pipelines principally
includes the company's equity interests in affiliated pipeline companies. Other
includes the company's equity interest in UNO-VEN.
The Corporate and Unallocated category includes the New Ventures group which
pursues foreign energy business development projects. Examples of ongoing New
Ventures project investments are common carrier pipelines, liquefied petroleum
gas plants and power generation plants. The main areas of interest for
development opportunities currently include Azerbaijan, Myanmar, Turkmenistan,
Pakistan, China, Vietnam, Latin America and Bangladesh. Corporate also includes
all unallocated corporate items and miscellaneous operations. In addition, this
category, particularly for prior years, includes the financial data related to
businesses that were sold or being phased-out.
<TABLE>
<CAPTION>
Millions of Dollars 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Exploration and Production
United States $3,168 $2,477 $2,501 $2,703 $2,824
Foreign 1,664 1,345 1,258 1,146 1,365
Geothermal Operations 45 133 139 142 134
Diversified Business Group
Agricultural Products 530 509 378 331 324
Carbon and Minerals 293 271 241 220 220
Pipelines 120 120 92 90 84
Other 27 16 30 26 32
Corporate and Unallocated 66 86 138 592 1,907
Intersegment Eliminations (585) (568) (505) (520) (643)
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenues from continuing operations 5,328 4,389 4,272 4,730 6,247
Discontinued operations (a) 4,271 4,036 3,693 3,614 3,814
- ----------------------------------------------------------------------------------------------------------------------------------
Total $9,599 $8,425 $7,965 $8,344 $10,061
- ----------------------------------------------------------------------------------------------------------------------------------
(a) 1996 excludes $609 million for November 17, 1996 - December 31, 1996 which was included in loss on disposal
in the Consolidated Earnings Statement.
</TABLE>
63
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Millions of Dollars 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
Exploration and Production
United States $669 $386 $289 $376 $346
Foreign 546 330 407 390 377
Geothermal Operations (76) 47 57 51 34
Diversified Business Group
Agricultural Products 152 113 43 27 24
Carbon and Minerals 59 72 62 45 21
Pipelines 86 82 70 67 64
Other 22 15 29 26 32
Corporate and Unallocated
Administrative and general expense (126) (127) (137) (98) (102)
Net interest expense (256) (257) (255) (279) (356)
Environmental and litigation expense (230) (148) (293) (130) (98)
New Ventures (36) - - - -
Other (52) (38) (1) 10 (37)
- ---------------------------------------------------------------------------------------------------------------------------
Pre-tax earnings from continuing operations before
cumulative effect of accounting changes 758 475 271 485 305
Income taxes (302) (226) (161) (213) (137)
- ---------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 456 249 110 272 168
Discontinued operations (420) 11 14 71 28
Cumulative effect of accounting changes - - (277) (130) 24
- ---------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $36 $260 ($153) $213 $220
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Millions of Dollars 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
Assets:
<S> <C> <C> <C> <C> <C>
Exploration and Production
United States (a) $2,731 $3,071 $3,214 $3,815 $3,774
Foreign 1,791 1,648 1,509 1,528 1,563
Geothermal Operations 439 481 456 436 461
Diversified Business Group
Agricultural Products 302 309 284 281 292
Carbon and Minerals 265 229 204 201 211
Pipelines 314 261 262 264 270
Other 196 174 158 144 132
Corporate and Unallocated 1,311 1,114 928 1,005 1,210
- -----------------------------------------------------------------------------------------------------------------------------
Total assets of continuing operations 7,349 7,287 7,015 7,674 7,913
Discontinued operations (b) 1,774 2,604 2,322 2,032 1,979
- -----------------------------------------------------------------------------------------------------------------------------
Total $9,123 $9,891 $9,337 $9,706 $9,892
- -----------------------------------------------------------------------------------------------------------------------------
(a) The decline in 1996 is principally due to the sale of California oil and gas producing properties.
The decline in 1994 is principally due to the write-down of impaired producing oil and gas
properties (See Note 2).
(b) 1996 reflects net assets of discontinued operations (see Note 3).
</TABLE>
64
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Millions of Dollars 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Capital expenditures:
Exploration and Production
United States $ 418 $ 497 $ 486 $ 562 $364
Foreign 509 353 310 330 275
Geothermal Operations 114 51 35 48 33
Diversified Business Group
Agricultural Products 12 55 8 8 54
Carbon and Minerals 16 12 8 4 7
Pipelines 54 5 5 4 4
Corporate and Unallocated 51 64 53 62 28
- --------------------------------------------------------------------------------------------------------------------------------
Total capital expenditures for continuing operations 1,174 1,037 905 1,018 765
Discontinued operations 224 422 367 231 194
- --------------------------------------------------------------------------------------------------------------------------------
Total $1,398 $1,459 $1,272 $1,249 $959
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Millions of Dollars 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Depreciation, depletion and amortization:
Exploration and Production
United States $ 526 $ 537 $475 $507 $538
Foreign 277 290 240 245 211
Geothermal Operations 49 28 28 49 45
Diversified Business Group
Agricultural Products 21 28 20 18 17
Carbon and Minerals 7 6 6 6 12
Pipelines 7 6 6 7 7
Corporate and Unallocated 27 16 36 24 39
- ------------------------------------------------------------------------------------------------------------------------------
Total depreciation, depletion and amortization
of continuing operations 914 911 811 856 869
Discontinued operations 145 111 136 107 95
- ------------------------------------------------------------------------------------------------------------------------------
Total $1,059 $1,022 $947 $963 $964
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
GEOGRAPHIC AREAS OF OPERATIONS
<TABLE>
<CAPTION>
Millions of Dollars 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
United States $3,260 $2,840 $2,792 $2,897 $2,883
Foreign 2,002 1,463 1,342 1,241 1,457
Corporate and Unallocated 66 86 138 592 1,907
- ------------------------------------------------------------------------------------------------------------------------------
Total revenues from continuing operations 5,328 4,389 4,272 4,730 6,247
Discontinued operations (a) 4,271 4,036 3,693 3,614 3,814
- ------------------------------------------------------------------------------------------------------------------------------
Total $9,599 $8,425 $7,965 $8,344 $10,061
- ------------------------------------------------------------------------------------------------------------------------------
(a) 1996 excludes $609 million for November 17, 1996 - December 31, 1996 which was included in loss on disposal
in the Consolidated Earnings Statement.
</TABLE>
65
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Millions of Dollars 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
United States $ 859 $ 651 $ 663 $ 604 $ 493
Foreign 563 394 457 422 425
Corporate and Unallocated (664) (570) (849) (541) (613)
- ----------------------------------------------------------------------------------------------------------------------------
Pretax earnings from continuing operations before
cumulative effective of accounting change 758 475 271 485 305
Income taxes (302) (226) (161) (213) (137)
Discontinued operations (420) 11 14 71 28
Cumulative effect of accounting change - - (277) (130) 24
- --------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 36 $ 260 $(153) $ 213 $ 220
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Millions of Dollars 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Assets:
United States $3,816 $4,245 $4,343 $4,942 $4,955
Foreign 2,222 1,928 1,744 1,727 1,748
Corporate and Unallocated 1,311 1,114 928 1,005 1,210
- ----------------------------------------------------------------------------------------------------------------------------
Total assets for continuing operations 7,349 7,287 7,015 7,674 7,913
Discontinued operations (a) 1,774 2,604 2,322 2,032 1,979
- ----------------------------------------------------------------------------------------------------------------------------
Total $9,123 $9,891 $9,337 $9,706 $9,892
- ----------------------------------------------------------------------------------------------------------------------------
(a) 1996 reflects net assets of discontinued operations (see Note 3).
</TABLE>
66
<PAGE>
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
RESULTS OF OPERATIONS
Results of operations of oil and gas exploration and production activities are
shown below. Sales revenues are net of royalty payments, net profits interests
and marketing related purchases. Other revenues primarily include gains or
losses on sales of oil and gas properties and miscellaneous rental income.
Production costs include lifting costs and taxes other than income.
Exploration expenses consist of geological and geophysical costs, leasehold
rentals and dry hole costs. Other operating expenses primarily include
administrative and general expense. Income tax expense is based on the tax
effects arising from the operations. Results of operations do not include
general corporate overhead and interest costs.
<TABLE>
<CAPTION>
United Far Other
Dollars in millions States East Foreign Total
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year 1996
Sales
To public $ 545 $617 $213 $1,375
Intercompany 1,065 326 21 1,412
Other revenues 133 1 51 185
- --------------------------------------------------------------------------------------------------
Total 1,743 944 285 2,972
Production costs 300 127 81 508
Exploration expenses 93 91 58 242
Depreciation, depletion and amortization 526 208 69 803
Other operating expenses 155 46 3 204
- --------------------------------------------------------------------------------------------------
Net 669 472 74 1,215
Income tax (benefit) 257 233 (3) 487
- --------------------------------------------------------------------------------------------------
Results of operations $ 412 $239 $ 77 $ 728
Year 1995
Sales
To public $ 580 $514 $176 $1,270
Intercompany 772 249 18 1,039
Other revenues 164 5 29 198
- --------------------------------------------------------------------------------------------------
Total 1,516 768 223 2,507
Production costs 394 102 79 575
Exploration expenses 75 64 54 193
Depreciation, depletion and amortization 537 192 98 827
Other operating expenses 124 46 26 196
- --------------------------------------------------------------------------------------------------
Net 386 364 (34) 716
Income tax (benefit) 146 170 (21) 295
- --------------------------------------------------------------------------------------------------
Results of operations $ 240 $194 $(13) $ 421
</TABLE>
67
<PAGE>
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
(continued)
<TABLE>
<CAPTION>
United Far Other
Dollars in millions States East Foreign Total
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year 1994
Sales
To public $ 639 $495 $198 $1,332
Intercompany 749 263 14 1,026
Other revenues 17 - 41 58
- --------------------------------------------------------------------------------------------------
Total 1,405 758 253 2,416
Production costs 420 108 76 604
Exploration expenses 69 67 56 192
Depreciation, depletion and amortization 476 165 75 716
Other operating expenses 151 39 18 208
- --------------------------------------------------------------------------------------------------
Net 289 379 28 696
Income taxes 109 194 15 318
- --------------------------------------------------------------------------------------------------
Results of operations $ 180 $185 $ 13 $ 378
</TABLE>
COSTS INCURRED
Costs incurred in oil and gas property acquisition, exploration and
development activities, either capitalized or charged to expense, are shown
below. Data for the company's capitalized costs related to petroleum
exploration and production activities are presented in Note 12.
<TABLE>
<CAPTION>
United Far Other
Dollars in millions States East Foreign Total
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Property acquisition
Proved $ 9 $ - $ 7 $ 16
Unproved 15 2 14 31
Exploration 128 106 54 288
Development 322 366 100 788
- --------------------------------------------------------------------------------------------------
1995
Property acquisition
Proved $ 7 $ - $ 6 $ 13
Unproved 13 2 5 20
Exploration 138 117 62 317
Development 383 181 91 655
- --------------------------------------------------------------------------------------------------
1994
Property acquisition
Proved $ 5 $ - $ - $ 5
Unproved 4 - 7 11
Exploration 115 94 58 267
Development 398 189 62 649
- --------------------------------------------------------------------------------------------------
</TABLE>
68
<PAGE>
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
(continued)
AVERAGE SALES PRICE AND PRODUCTION COSTS PER UNIT (UNAUDITED)
The average sales price is based on sales revenues and volumes attributable to
net working interest production. The average production costs per barrel
presented below are based on equivalent petroleum barrels, including natural gas
converted at a ratio of 6.0 mcf to one barrel of oil which represents the energy
content of the wet gas.
<TABLE>
<CAPTION>
United Far Other
States East Foreign Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Average sales price:
Crude oil and condensate - per barrel $19.21 $19.17 $19.20 $19.20
Natural gas - per mcf (a) 2.30 2.28 1.85 2.27
Natural gas liquids - per barrel 15.62 13.48 14.12 15.09
Average production costs per barrel (b) 2.97 1.78 5.76 2.73
- ------------------------------------------------------------------------------------------------------------------------
1995
Average sales price:
Crude oil and condensate - per barrel $15.03 $16.09 $15.69 $15.40
Natural gas - per mcf (a) 1.56 2.04 1.39 1.72
Natural gas liquids - per barrel 11.57 12.99 9.02 11.73
Average production costs per barrel (b) 3.49 1.50 5.40 2.94
- ------------------------------------------------------------------------------------------------------------------------
1994
Average sales price:
Crude oil and condensate - per barrel $13.06 $14.55 $14.36 $13.63
Natural gas - per mcf (a) 1.78 2.01 1.76 1.86
Natural gas liquids - per barrel 11.38 8.32 8.31 10.60
Average production costs per barrel (b) 3.60 1.54 5.15 3.00
- ------------------------------------------------------------------------------------------------------------------------
(a) Average natural gas price per mcf excluding Alaska:
1996 $2.45
1995 $1.57
1994 $1.83
(b) Includes host country shares of production in Indonesia and Zaire.
</TABLE>
OIL AND GAS RESERVE DATA (UNAUDITED)
Estimates of physical quantities of oil and gas reserves, determined by
company engineers, for the years 1996, 1995 and 1994 are shown below. As
defined by the Securities and Exchange Commission, proved oil and gas reserves
are the estimated quantities of crude oil, natural gas and natural gas liquids
that geological and engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs under existing economic and
operating conditions. Accordingly, these estimates do not include probable or
possible reserves. Estimated oil and gas reserves are based on available
reservoir data and are subject to future revision. Proved reserve quantities
exclude royalties owned by others, however, foreign reserves held under certain
production-sharing agreements, principally with Indonesia, are reported on a
gross basis. The gross basis includes the company's net working interest and
host country's interest. These estimated quantities are subject to fluctuations
in the price of oil. If oil prices increase, reserve quantities attributable to
recovery of operating costs decline. This reduction would be partially offset
by an increase in the company's net equity share, however, the overall affect
would be a reduction of reserves attributable to the company. The reserve
quantities also include barrels of oil which the company is contractually
obligated to sell at prices substantially below market.
69
<PAGE>
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
(continued)
Natural gas reserves are reported on a wet-gas basis, which include natural
gas liquids reserves. For informational purposes, natural gas liquids reserves
in the U.S. were 65, 83 and 91 million barrels at December 31, 1996, 1995 and
1994, respectively. They are derived from the natural gas reserves by applying
a national average shrinkage factor obtained from the Department of Energy
published statistics. Foreign natural gas liquids reserves were insignificant
for the above periods.
<TABLE>
<CAPTION>
Estimated Proved Reserves of Crude Oil and Condensate United Far Other
Millions of Barrels States East Foreign Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Developed and Undeveloped as of December 31, 1993 (a) 483 169 112 764
Revisions of estimates (7) 6 3 2
Improved recovery 2 - - 2
Discoveries and extensions 9 28 7 44
Sales (18) - (2) (20)
Production (50) (32) (13) (95)
- ----------------------------------------------------------------------------------------------------------------
As of December 31, 1994 (a) 419 171 107 697
Revisions of estimates 9 8 (11) 6
Improved recovery 19 - - 19
Discoveries and extensions 4 21 7 32
Purchases - - 20 20
Sales (18) - (1) (19)
Production (46) (31) (11) (88)
- ----------------------------------------------------------------------------------------------------------------
As of December 31, 1995 (a) 387 169 111 667
Revisions of estimates (7) (3) (10) (20)
Improved recovery 1 1 2 4
Discoveries and extensions 6 30 16 52
Purchases - - 2 2
Sales (116) - - (116)
Production (35) (31) (10) (76)
- ----------------------------------------------------------------------------------------------------------------
As of December 31, 1996 (a) 236 166 111 513
- ----------------------------------------------------------------------------------------------------------------
Proved Developed Reserves
December 31, 1993 360 98 78 536
December 31, 1994 318 103 69 490
December 31, 1995 298 96 64 458
December 31, 1996 184 96 51 331
(a) Includes hosts countries' shares at:
December 31, 1993 of: - 54 2 56
December 31, 1994 of: - 60 9 69
December 31, 1995 of: - 63 8 71
December 31, 1996 of: - 64 6 70
</TABLE>
70
<PAGE>
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
(continued)
<TABLE>
<CAPTION>
Estimated Proved Reserves of Natural Gas United Far Other
Billions of Cubic Feet States East Foreign Total
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Developed and Undeveloped as of December 31, 1993 (a) 3,727 2,669 236 6,632
Revisions of estimates 3 (2) (16) (15)
Discoveries and extensions 282 624 88 994
Purchases 117 (b) - - 117
Sales (128) (c) - (3) (131)
Production (421) (243) (22) (686)
- ---------------------------------------------------------------------------------------------------------------
As of December 31, 1994 (a) 3,580 3,048 283 6,911
Revisions of estimates (55) 40 (20) (35)
Discoveries and extensions 209 408 - 617
Purchases - - 7 7
Sales (54) - - (54)
Production (419) (241) (21) (681)
- ---------------------------------------------------------------------------------------------------------------
As of December 31, 1995 (a) 3,261 3,255 249 6,765
Revisions of estimates (164) (150) (62) (376)
Discoveries and extensions 67 1,213 17 1,297
Purchases 20 - - 20
Sales (198) - (13) (211)
Production (411) (261) (28) (700)
- ---------------------------------------------------------------------------------------------------------------
As of December 31, 1996 (a) 2,575 4,057 163 6,795
- ---------------------------------------------------------------------------------------------------------------
Proved Developed Reserves
December 31, 1993 2,520 1,601 147 4,268
December 31, 1994 2,437 1,768 127 4,332
December 31, 1995 2,194 1,807 188 4,189
December 31, 1996 1,829 1,715 148 3,692
(a) Includes host countries' shares at:
December 31, 1993 of: - 369 - 369
December 31, 1994 of: - 386 - 386
December 31, 1995 of: - 457 - 457
December 31, 1996 of: - 530 - 530
(b) Includes 115 billion cubic feet due to property exchanges.
(c) Includes 105 billion cubic feet due to property exchanges.
</TABLE>
PRESENT VALUE OF FUTURE NET CASH FLOW (UNAUDITED)
The present value of future net cash flows from proved oil and gas reserves
for the years 1996, 1995 and 1994 are presented below. Revenues are based on
estimated production of proved reserves from existing and planned facilities and
on average prices of oil and gas at year-end. Development and production costs
related to future production are based on year-end cost levels and assume
continuation of existing economic conditions. Income tax expense is computed by
applying the appropriate year-end statutory tax rates to pre-tax future cash
flows less recovery of the tax basis of proved properties, and reduced by
applicable tax credits.
The company cautions readers that the data on the present value of future net
cash flow of oil and gas reserves are based on many subjective judgments and
assumptions. Different, but equally valid, assumptions and judgments could lead
to significantly different results. Additionally, estimates of physical
quantities of oil and gas
71
<PAGE>
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
(continued)
reserves, future rates of production and related prices and costs for such
production are subject to extensive revisions and a high degree of variability
as a result of economic and political changes. Any subsequent price changes
will alter the results and the indicated present value of oil and gas reserves.
It is the opinion of the company that this data can be highly misleading and may
not be indicative of the value of underground oil and gas reserves.
<TABLE>
<CAPTION>
United Far Other
Millions of dollars States East Foreign Total
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Revenues (a) $14,005 $10,695 $2,424 $27,124
Production costs 3,311 2,913 921 7,145
Development costs (b) 1,164 1,523 261 2,948
Income tax expense 3,258 2,432 361 6,051
- ---------------------------------------------------------------------------------------------------------------------------
Future net cash flow 6,272 3,827 881 10,980
10% annual discount 2,227 1,665 342 4,234
- ---------------------------------------------------------------------------------------------------------------------------
Present value of future net cash flows $ 4,045 $ 2,162 $ 539 $ 6,746
- ---------------------------------------------------------------------------------------------------------------------------
1995
Revenues (a) $12,395 $ 7,617 $1,939 $21,951
Production costs 4,532 1,423 1,013 6,968
Development costs (b) 1,696 1,025 253 2,974
Income tax expense 1,824 2,176 298 4,298
- ---------------------------------------------------------------------------------------------------------------------------
Future net cash flow 4,343 2,993 375 7,711
10% annual discount 1,496 1,129 117 2,742
- ---------------------------------------------------------------------------------------------------------------------------
Present value of future net cash flows $ 2,847 $ 1,864 $258 $4,969
- ---------------------------------------------------------------------------------------------------------------------------
1994
Revenues (a) $11,291 $ 6,610 $1,798 $19,699
Production costs 4,829 1,321 890 7,040
Development costs (b) 1,835 1,122 217 3,174
Income tax expense 1,189 1,729 290 3,208
- ---------------------------------------------------------------------------------------------------------------------------
Future net cash flow 3,438 2,438 401 6,277
10% annual discount 1,141 858 128 2,127
- ---------------------------------------------------------------------------------------------------------------------------
Present value of future net cash flows $ 2,297 $ 1,580 $273 $4,150
- ---------------------------------------------------------------------------------------------------------------------------
(a) Average prices at year end used in this calculation are as follows:
Crude oil per barrel
1996 $22.27 $22.55 $19.89
1995 15.44 17.14 15.20
1994 13.26 16.84 14.81
Natural gas per mcf
1996 $ 3.42 $ 2.58 $ 2.14
1995 1.98 2.18 1.58
1994 1.62 1.88 1.28
(b) Includes dismantlement and abandonment costs.
</TABLE>
72
<PAGE>
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
(continued)
<TABLE>
<CAPTION>
Millions of dollars 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Present value at beginning of year $ 4,969 $ 4,150 $ 4,417
Discoveries and extensions, net of estimated future costs 1,005 743 602
Net purchases and sales of proved reserves (a) (128) (51) (22)
Revisions to prior estimates:
Prices net of estimated changes in production costs 4,518 2,321 83
Future development costs (317) (516) (164)
Quantity estimates (755) (58) (88)
Production schedules and other (511) (548) 39
Accretion of discount 617 636 543
Development costs related to beginning of year reserves 663 635 646
Sales of oil and gas, net of production costs of $508 million
in 1996, $575 million in 1995 and $604 million in 1994 (2,281) (1,734) (1,754)
Net change in income taxes (1,034) (609) (152)
- ----------------------------------------------------------------------------------------------------------
Present value at end of year $ 6,746 $ 4,969 $ 4,150
- ----------------------------------------------------------------------------------------------------------
(a) Purchases of reserves were valued at $64 million, $23 million and $26 million in 1996, 1995 and 1994,
respectively. Sales of reserves, including the sale of future production, were valued at $192 million,
$74 million and $48 million for the same years, respectively.
</TABLE>
73
<PAGE>
QUARTERLY FINANCIAL AND MARKET PRICE DATA (UNAUDITED)
<TABLE>
<CAPTION>
1996 Quarters
-----------------------------------------------------
Dollars in millions except per share amounts 1st 2nd 3rd 4th
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues (a) $1,201 $1,405 $1,337 $1,385
Total costs and other deductions, including income taxes (b) 1,070 1,217 1,203 1,382
- ------------------------------------------------------------------------------------------------------------------------------------
After-tax earnings from continuing operations 131 188 134 3
Discontinued operations
Earnings (loss) from operations (7) 50 37 (9)
Loss on disposal (c) - - - $ (491)
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 124 $ 238 $ 171 $ (497)
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share of common stock assuming no dilution: (d)
- ------------------------------------------------------------------------------------------------------------------------------------
Continuing operations (e) $ 0.50 $ 0.72 $ 0.32 $ 0.01
Discontinued operations $(0.03) $ 0.20 $ 0.15 $(1.99)
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per share of common stock assuming no dilution $ 0.47 $ 0.92 $ 0.47 $(1.98)
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share of common stock assuming full dilution: (d)
- ------------------------------------------------------------------------------------------------------------------------------------
Continuing operations (e) $ 0.46 $ 0.67 $ 0.31 $ 0.01
Discontinued operations $(0.03) $ 0.19 $ 0.14 $(1.99)
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per share of common stock assuming full dilution (f) $ 0.43 $ 0.86 $ 0.45 $(1.98)
- ------------------------------------------------------------------------------------------------------------------------------------
Gross margin (g) $ 159 $ 187 $ 42 $ 81
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Includes sales and operating revenue from continuing operations of $1,143 $1,261 $1,264 $1,433
(b) Includes special items of $ 16 $ 57 $ 51 $ 171
(c) Fourth quarter loss on disposal includes a $42 million estimated loss for the phase-out period January 1, 1997 - March 31,
1997.
(d) Due to the conversion of Unocal's $3.50 Convertible Preferred Stock into Unocal common stock in the fourth quarter
of 1996, the earnings per share amounts by quarter are not additive.
(e) Third quarter amount reflects $54 million non-cash charge related to exchange of preferred stock.
(f) There was no dilutive effect in the calculation of fourth quarter earnings per share.
(g) Gross margin equals sales and operating revenues less crude oil and product purchases, operating and selling
expenses, depreciation, depletion and amortization, dry hole costs, exploration expense, and other operating taxes.
<CAPTION>
1995 Quarters
-------------------------------------------------------
Dollars in millions except per share amounts 1st 2nd 3rd 4th
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues (a) $ 976 $1,250 $1,002 $1,161
Total costs and other deductions, including income taxes (b) 884 1,173 955 1,128
- ------------------------------------------------------------------------------------------------------------------------------------
After-tax earnings from continuing operations 92 77 47 33
Discontinued operations
Earnings (loss) from operations (18) 1 12 16
Loss on disposal - - - -
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 74 $ 78 $ 59 $ 49
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share of common stock assuming no dilution:
- ------------------------------------------------------------------------------------------------------------------------------------
Continuing operations $ 0.34 $ 0.28 $ 0.15 $ 0.10
Discontinued operations $(0.07) $ - $ 0.05 $ 0.06
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per share of common stock assuming no dilution $ 0.27 $ 0.28 $ 0.20 $ 0.16
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings per share of common stock assuming full dilution:
- ------------------------------------------------------------------------------------------------------------------------------------
Continuing operations $ 0.32 $ 0.26 $ 0.14 $ 0.09
Discontinued operations $(0.07) $ - $ 0.05 $ 0.06
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per share of common stock assuming full dilution $ 0.25 $ 0.26 $ 0.19 $ 0.15
- ------------------------------------------------------------------------------------------------------------------------------------
Gross margin (c) $ 69 $ 47 $ 24 $ (17)
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Includes sales and operating revenue from continuing operations of $ 899 $1,201 $ 934 $1,077
(b) Includes special items of $ 15 $ 50 $ 9 $ 147
(c) Gross margin equals sales and operating revenues less crude oil and product purchases, operating and selling expenses,
depreciation, depletion and amortization, dry hole costs, exploration expense, and other operating taxes.
</TABLE>
74
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Dollars in million except per share amounts 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales Revenue Data
Crude oil and condensate $2,495 $1,964 $1,996 $1,928 $ 2,270
Natural gas 1,482 1,031 1,109 1,104 1,033
Agricultural products 514 486 373 319 292
Geothermal 131 120 135 145 197
Natural gas liquids 95 97 96 101 116
Petroleum products 16 84 89 458 1,236
Minerals 97 95 79 62 80
Consumer excise taxes - - 5 87 283
Other 161 58 95 134 427
- -----------------------------------------------------------------------------------------------------------------------------------
Total 4,991 3,935 3,977 4,338 5,934
Operating revenues 110 176 141 137 164
Other revenues 227 278 154 255 149
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues from continuing operations 5,328 4,389 4,272 4,730 6,247
Discontinued operations (a) 4,271 4,036 3,693 3,614 3,814
-----------------------------------------------------------------
Total revenues $9,599 $8,425 $7,965 $8,344 $10,061
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings Data
Earnings from continuing operations $ 456 $ 249 $ 110 $ 272 $ 168
Discontinued operations (420) 11 14 71 28
Cumulative effects of accounting change - - (277) (130) 24
-----------------------------------------------------------------
Net earnings (loss) $ 36 $ 260 $ (153) $ 213 $ 220
Net earnings (loss) per common share:
Continuing operations $ 1.54 $ 0.87 $ 0.30 $ 0.98 $ 0.63
Discontinued operations (1.69) 0.04 0.06 0.29 0.12
Cumulative effect of accounting change - - (1.14) (0.54) 0.10
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per share $(0.15) $ 0.91 $(0.78) $ 0.73 $ 0.85
- -----------------------------------------------------------------------------------------------------------------------------------
Share Data
Cash dividends declared on preferred stock $ 18 $ 36 $ 36 $ 36 $ 17
Per share 1.75 3.50 3.50 3.50 1.62
Cash dividends declared on common stock 199 197 194 181 167
Per share 0.80 0.80 0.80 0.75 0.70
Number of common stockholders of record at year end 32,924 33,028 37,622 41,682 44,870
Weighted average common shares - thousands 248,767 246,112 242,640 241,114 238,278
- -----------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
Current assets (b) $3,228 $1,576 $1,528 $1,578 $ 1,660
Current liabilities 1,622 1,316 1,257 1,196 1,436
Working capital 1,606 260 271 382 224
Ratio of current assets to current liabilities 2.0:1 1.2:1 1.2:1 1.3:1 1.2:1
Total assets 9,123 9,891 9,337 9,706 9,892
Long-term debt 2,940 3,692 3,452 3,455 3,530
Trust convertible preferred securities 522 - - - -
Total stockholders' equity 2,275 2,930 2,815 3,129 3,131
Per common share 9.14 9.87 9.54 10.90 10.93
Return on average stockholders' equity and preferred securities:
Continuing operations 15.9% 8.7% (5.6)% 4.6% 6.9%
Including discontinued operations 1.3% 9.1% (5.1)% 6.8% 7.9%
- -----------------------------------------------------------------------------------------------------------------------------------
General Data
Salaries, wages and employee benefits (c) $ 806 $ 797 $ 811 $ 744 $ 817
Number of regular employees at year end 11,658 12,509 13,127 13,613 14,687
- -----------------------------------------------------------------------------------------------------------------------------------
(a) 1996 excludes $609 million for November 17, 1996 - December 31, 1996 which was included in loss on disposal
in the Consolidated Earnings Statement.
(b) 1996 Includes net assets of discontinued operations (see Note 3).
(c) Employee benefits are net of pension income recognized in accordance with current accounting standards for pension costs.
For years 1996, 1995 and 1994, such benefits also include the accrued postretirement medical benefits cost.
</TABLE>
75
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial statements, financial statement schedules and exhibits filed as
part of this annual report:
(1) Financial Statements: See the Index to Consolidated Financial
Statements and Financial Statement Schedules under Item 8 on page 34
of this report.
(2) Financial Statement Schedules: See the Index to Consolidated Financial
Statements and Financial Statement Schedules under Item 8 on page 34
of this report.
(3) Exhibits: The Exhibit Index on pages 81 and 82 of this report lists
the exhibits that are filed as part of this report.
76
<PAGE>
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(continued)
(b) Reports filed on Form 8-K:
During the fourth quarter of 1996:
(1) Current Report on Form 8-K dated and filed October 23, 1996, for the
purpose of reporting, under item 5, third quarter and nine-month 1996
earnings and related information.
(2) Current Report on Form 8-K dated and filed November 18, 1996, for the
purpose of reporting, under Item 5, the signing of a letter of intent
by the company for the sale of its West Coast refining, marketing and
transportation assets to Tosco Corporation.
(3) Current Report on Form 8-K dated and filed December 4, 1996, for the
purpose of reporting, under Item 5, the company's plans for growth
through new investments, and for debt repayment and stock repurchase.
(4) Current Report on Form 8-K dated and filed December 9, 1996, for the
purpose of reporting, under Item 5, the company's 1997 capital spending
plan.
(5) Current Report on Form 8-K dated and filed December 26, 1996, for the
purpose of reporting, under Item 5, the company's signing of a letter
of intent to restructure the UNO-VEN Midwest refining and marketing
partnership.
(6) Current Report on Form 8-K dated and filed December 27, 1996, for the
purpose of reporting, under Item 5, the beginning of the company's
stock repurchase program.
During the first quarter of 1997 to the date hereof:
(1) Current Report on Form 8-K dated December 16, 1996, and filed January
3, 1997, for the purpose of reporting, under item 5, the signing of a
definitive agreement by the company for the sale of its West Coast
refining, marketing and transportation assets to Tosco Corporation, and
filing, as exhibits under Item 7, certain agreements relating to such
sale.
(2) Current Report on Form 8-K dated and filed January 23, 1997, for the
purpose of reporting, under item 5, the company's fourth quarter and
full-year 1996 earnings and related information.
(3) Current Report on Form 8-K dated February 3, 1997, and filed February
7, 1997, for the purpose of reporting, under item 5, the amendment of
the company's Bylaws, and filing, as an exhibit under Item 7, a copy of
such Bylaws, as so amended.
(4) Current Report on Form 8-K dated and filed February 13, 1997 for the
purpose of reporting, under item 5, the company's crude oil and natural
gas reserve data.
77
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to the report to be signed on its
behalf by the undersigned, thereunto duly authorized.
UNOCAL CORPORATION
(Registrant)
Date: May 23, 1997 By: /s/ CHARLES S. MCDOWELL
--------------------------------
(Charles S. McDowell)
(Vice President and Comptroller)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 27, 1997.
78
<PAGE>
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Millions of Dollars)
<TABLE>
<CAPTION>
Additions
-------------------
Charged or Charged or
Balance at (credited) (credited) Deductions Balance
beginning to costs & to other from at end
Description of period expenses accounts reserves (a) of period
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR 1996
Amounts deducted from
applicable assets:
Accounts and notes receivable $28 $ 19 $ (1) $(11) $35
Investments and long-term receivables $15 $ (3) $ 1 $ - $13
YEAR 1995
Amounts deducted from
applicable assets:
Accounts and notes receivable $15 $ 22 $ - $ (9) $28
Investments and long-term receivables $ 3 $ - $ 12 $ - $15
YEAR 1994
Amounts deducted from
applicable assets:
Accounts and notes receivable $16 $ 10 $ 1 $(12) $15
Investments and long-term receivables $ 4 $ (1) $ - $ - $ 3
(a) Represents receivables written off, net of recoveries, reinstatement and losses sustained.
</TABLE>
80
<PAGE>
UNOCAL CORPORATION
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------
Exhibit 2.1 Sale and Purchase Agreement for 76 Products
Company, dated December 14, 1996, between Union
Oil Company of California and Tosco Corporation
(without attachments or schedules) (incorporated
by reference to Exhibit 2.1 to Unocal's Current
Report on Form 8-K dated December 16, 1996 and
filed January 3, 1997, File No. 1-8483).
- -------------------------------------------------------------------------------
Exhibit 2.2 Form of Stock Purchase and Shareholder
Agreement, to be dated as of January 15, 1997,
by and between Tosco Corporation and Union Oil
Company of California, together with form of
Supplement No. 1 thereto (incorporated by
reference to Exhibit 2.2 to Unocal's Current
Report on Form 8-K dated December 16, 1996 and
filed January 3, 1997, File No. 1-8483).
- -------------------------------------------------------------------------------
Exhibit 2.3 Form of Environmental Agreement, to be dated as
of closing date, by and between Tosco
Corporation and Union Oil Company of California
(without schedules) (incorporated by reference
to Exhibit 2.3 to Unocal's Current Report on
Form 8-K dated December 16, 1996, and filed
January 3, 1997, File No. 1-8483).
- -------------------------------------------------------------------------------
Exhibit 3.1 Certificate of Incorporation of Unocal, as
amended through July 23, 1992, and currently in
effect (incorporated by reference to Exhibit 3.1
to Amendment No. 2 on Form 10-K/A to Unocal's
Annual Report on Form 10-K for the year ended
December 31, 1993, File No. 1-8483).
- -------------------------------------------------------------------------------
Exhibit 3.2 Bylaws of Unocal, as amended though February 3,
1997, and currently in effect (incorporated by
reference to Exhibit 3.1 to Unocal's Current
Report on Form 8-K dated February 3, 1997, and
filed February 7, 1997, File No. 1-8483).
- -------------------------------------------------------------------------------
Exhibit 4.1 Standard Multiple-Series Indenture Provisions,
January 1991, dated as of January 2, 1991
(incorporated by reference to Exhibit 4.1 to the
Registration Statement on Form S-3 of Union Oil
Company of California and Unocal (File Nos.
33-38505 and 33-38505-01)).
- --------------------------------------------------------------------------------
Exhibit 4.2 Form of Indenture, dated as of January 30, 1991,
among Union Oil Company of California, Unocal
and The Bank of New York (incorporated by
reference to Exhibit 4.2 to the Registration
Statement on Form S-3 of Union Oil Company of
California and Unocal (File Nos. 33-38505 and
33-38505-01)).
- --------------------------------------------------------------------------------
Exhibit 4.3 Form of Indenture, dated as of February 3, 1995,
among Union Oil Company of California, Unocal
and Chemical Trust Company of California
(incorporated by reference to Exhibit 4.6 to the
Registration Statement on Form S-3 of Union Oil
Company of California and Unocal (File Nos.
33-54861 and 33-54861-01)).
Other instruments defining the rights of holders
of long term debt of Unocal and its subsidiaries
are not being filed since the total amount of
securities authorized under each of such
instruments does not exceed 10 percent of the
total assets of Unocal and its subsidiaries on a
consolidated basis. Unocal agrees to furnish a
copy of any such instrument to the Securities
and Exchange Commission (Commission) upon
request.
- -------------------------------------------------------------------------------
Exhibit 10.1 Rights Agreement, dated as of January 29, 1990,
between the Unocal and The Chase Manhattan Bank,
as successor Rights Agent (incorporated by
reference to Exhibit 1 to Unocal's Current
Report on Form 8-K dated January 29, 1990, File
No. 1-8483).
- --------------------------------------------------------------------------------
</TABLE>
The following Exhibits 10.2 through 10.11 are management contracts or
compensatory plans, contracts or arrangements required to be filed by Item 601
(b) (10) (iii) (A) of Regulation S-K.
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------
Exhibit 10.2 Management Incentive Program (incorporated by
reference to Exhibit A to Unocal's Proxy
Statement dated March 18, 1991, for its 1991
Annual Meeting of Stockholders,
File No. 1-8483).
- -------------------------------------------------------------------------------
Exhibit 10.3 Unocal Revised Incentive Compensation Plan Cash
Deferral Program.
- -------------------------------------------------------------------------------
Exhibit 10.4 Long-Term Incentive Plan of 1985 (incorporated
by reference to Unocal's Proxy Statement dated
March 24, 1984, for its 1984 Annual Meeting of
Stockholders, File No. 1-8483).
- -------------------------------------------------------------------------------
Exhibit 10.5 Supplemental Retirement Plan for Key Management
Personnel, as amended and effective January 1,
1989 (incorporated by reference to Exhibit 10.3
to Unocal's Annual Report on Form 10-K for the
year ended December 31, 1990, File No. 1-8483).
- -------------------------------------------------------------------------------
Exhibit 10.6 Other Compensatory Arrangements (incorporated by
reference to Exhibit 10.4 to Unocal's Annual
Report on Form 10-K for the year ended December
31, 1990, File No. 1-8483).
</TABLE>
81
<PAGE>
UNOCAL CORPORATION
EXHIBIT INDEX (continued)
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------
Exhibit 10.7 Directors' Restricted Stock Plan of 1991
(incorporated by reference to Exhibit B to
Unocal's Proxy Statement dated March 18, 1991,
for its 1991 Annual Meeting of Stockholders,
File No. 1-8483).
- -------------------------------------------------------------------------------
Exhibit 10.8 Amendments to Directors Restricted Stock Plan,
effective February 8, 1996 (incorporated by
reference to Exhibit 10.7 to Unocal's Annual
Report on Form 10-K for the year ended December
31, 1995, File No. 1-8483).
- -------------------------------------------------------------------------------
Exhibit 10.9 Form of Indemnity Agreement between Unocal and
each of its directors (incorporated by reference
to Exhibit A to Unocal's Proxy Statement dated
March 20, 1987, for its 1987 Annual Meeting of
Stockholders, File No. 1-8483).
- -------------------------------------------------------------------------------
Exhibit 10.10 Employment Agreement, effective July 1, 1995,
between Union Oil Company of California and
Lawrence M. Higby (incorporated by reference to
Exhibit 10 to Unocal's Quarterly Report on Form
10-Q for the quarter ended June 30, 1995, File
No. 1-8483).
- -------------------------------------------------------------------------------
Exhibit 10.11 Letter dated November 5, 1996, summarizing
incentive compensation arrangements for Lawrence
M. Higby to be effective upon the sale or other
disposition of at least 50 percent of the 76
Products Company.
- -------------------------------------------------------------------------------
Exhibit 11* Statement regarding computation of earnings per
common share for the five years ended December
31, 1996.
- -------------------------------------------------------------------------------
Exhibit 12.1 Statement regarding computation of ratio of
earnings to fixed charges of Unocal for the
five years ended December 31, 1996.
- -------------------------------------------------------------------------------
Exhibit 12.2 Statement regarding computation of ratio of
earnings to combined fixed charges and preferred
stock dividends of Unocal for the five years
ended December 31, 1996.
- -------------------------------------------------------------------------------
Exhibit 12.3 Statement regarding computation of ratio of
earnings to fixed charges of Union Oil Company
of California for the five years ended December
31, 1996.
- -------------------------------------------------------------------------------
Exhibit 21 Subsidiaries of Unocal Corporation.
- -------------------------------------------------------------------------------
Exhibit 23* Consent of Coopers & Lybrand L.L.P.
- -------------------------------------------------------------------------------
Exhibit 27 Financial data schedule for the period ended
December 31, 1996 (included only in the copy of
this report filed electronically with the
Commission).
- -------------------------------------------------------------------------------
Exhibit 99 Bylaws of Union Oil Company of California, as
amended September 30, 1996 and currently in
effect (incorporated by reference to Exhibit 99
to Unocal's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996, File No.
1-8483).
- -------------------------------------------------------------------------------
</TABLE>
*Filed with this amendment
82
<PAGE>
EXHIBIT 11
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------------------------------------------------
Dollars and shares in thousands, except per share amounts 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings (loss) from continuing operations
Per Share Assuming No Dilution (a)
Earnings (loss) from continuing operations $455,707 $249,319 ($167,374) $142,106 $191,877
Preferred stock dividend (17,938) (35,875) (35,875) (35,875) (16,642)
Non-cash charge related to exchange of preferred stock (54,246) - - - -
---------------------------------------------------------------------------
Earnings (loss) from continuing operations
applicable to common stock 383,523 213,444 (203,249) 106,231 175,235
Weighted average common stock outstanding 248,767 246,112 242,640 241,114 238,278
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing
operations per common share $ 1.54 $ 0.87 $ (0.84) $ 0.44 $ 0.73
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from discontinued operations
Per Share Assuming No Dilution (a)
Earnings (loss) applicable to common stock ($419,236) $10,525 $14,026 $70,761 $28,136
Weighted average common stock outstanding 248,767 246,112 242,640 241,114 238,278
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from discontinued
operations per common share $ (1.69) $ 0.04 $ 0.06 $ 0.29 $ 0.12
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per common share $ (0.15) $ 0.91 $ (0.78) $ 0.73 $ 0.85
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing operations
Per Share Assuming Full Dilution
Earnings (loss) from continuing operations $455,707 $249,319 ($167,374) $142,106 $191,877
Distribution on preferred securities (net of tax) 7,715 - - - -
Non-cash charge related to exchange of preferred stock (54,246) - - - -
---------------------------------------------------------------------------
Earnings (loss) from continuing operations
applicable to common stock 409,176 249,319 (167,374) 142,106 191,877
Weighted average common stock outstanding 248,767 246,112 242,640 241,114 238,278
Dilutive common stock equivalents 2,067 1,511 1,714 1,743 1,561
Conversion of preferred stock (b) - 16,667 16,667 16,667 16,667
Conversion of preferred securities 12,263 - - - -
---------------------------------------------------------------------------
Weighted average common stock and
stock equivalents outstanding 263,097 264,290 261,021 259,524 256,506
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from continuing
operations per common share $ 1.56 $ 0.94 $ (0.64) $ 0.55 $ 0.75
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from discontinued operations
Per Share Assuming Full Dilution
Earnings (loss) from discontinued operations
applicable to common stock ($419,236) $10,525 $14,026 $70,761 $28,136
Weighted average common stock outstanding 248,767 246,112 242,640 241,114 238,278
Dilutive common stock equivalents 2,067 1,511 1,714 1,743 1,561
Conversion of preferred stock - 16,667 16,667 16,667 16,667
Conversion of preferred securities (c) 12,263 - - - -
---------------------------------------------------------------------------
Weighted average common stock and
stock equivalents outstanding 263,097 264,290 261,021 259,524 256,506
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from discontinued
operations per common share $ (1.59) $ 0.04 $ 0.05 $ 0.27 $ 0.11
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) per common share $ (0.03) $ 0.98 $ (0.59) $ 0.82 $ 0.86
- ------------------------------------------------------------------------------------------------------------------------------------
(a) The dilutive effect of common stock equivalents is less than 3 percent.
(b) The effect of assumed conversion of preferred stock on earnings per common stock is antidilutive.
(c) The effect of assumed conversion of preferred securities on earnings per common stock is antidilutive.
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the following Registration
Statements of Unocal Corporation, Registration Statements on Form S-8 (Nos. 33-
43231, 33-43232, 33-65461 and 333-09685) and Registration Statements on Form S-3
(Nos. 33-54861-01 and 33-63719) of our report, which includes an explanatory
paragraph regarding Unocal Corporation's change in its method of accounting for
the impairment of long-lived assets and long-lived assets to be disposed of in
1995 and for recognizing the reduction in value of its oil and gas properties in
1994, dated February 14, 1997, which appears on page 36 of this Annual Report on
Form 10-K.
COOPERS & LYBRAND L. L. P.
Los Angeles, California
May 23, 1997
