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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
X Annual Report Pursuant to Section 13 or 15(d) of the
----- Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997 or
-----------------
____ Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
---------- -----------
Commission file number 1-8483
UNOCAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-3825062
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2141 ROSECRANS AVENUE, SUITE 4000, EL SEGUNDO, CALIFORNIA 90245
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 726-7600
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 New York Stock Exchange
$1.00 per share 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. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 16, 1998 (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 $9,220 million.
Shares of Common Stock outstanding as of March 16, 1998: 241,185,875
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for its 1998 Annual
Meeting of Stockholders (to be filed with the Securities and Exchange Commission
on or about April 20, 1998) are incorporated by reference into Part III.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM (S) PART I PAGE
<S> <C> <C>
1. and 2. Business and Properties.............................................................................. 1
3. Legal Proceedings.................................................................................... 11
4. Submission of Matters to a Vote of Security Holders.................................................. 18
Executive Officers of the Registrant................................................................. 18
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters................................ 19
6. Selected Financial Data.............................................................................. 19
7. Management's Discussion and Analysis of Financial Condition and Results of Operations................ 20
7A. Quantitative and Qualitative Disclosures about Market Risk........................................... 41
8. Financial Statements and Supplementary Data.......................................................... 42
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................. 85
PART III
10. Directors and Executive Officers of the Registrant................................................... 85
11. Executive Compensation............................................................................... 85
12. Security Ownership of Certain Beneficial Owners and Management....................................... 85
13. Certain Relationships and Related Transactions....................................................... 85
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K..................................... 85
</TABLE>
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PART I
ITEMS 1 AND 2 - BUSINESS AND PROPERTIES
Unocal Corporation was incorporated in Delaware on March 18, 1983, to operate as
the parent of Union Oil Company of California (Union Oil), which was
incorporated in California on October 17, 1890. Virtually all operations are
conducted by Union Oil and its subsidiaries. The terms "Unocal" and "the
company" as used in this report mean Unocal Corporation and its subsidiaries,
except where the text indicates otherwise.
Unocal is a leading global resource and project development company, with major
oil and gas exploration and production activities in Asia, Latin America and the
United States Gulf of Mexico. Unocal is also the world's leading producer of
geothermal energy; a provider of electrical power; and a manufacturer and
marketer of nitrogen-based fertilizers, petroleum coke, graphites and specialty
minerals.
STRATEGIC FOCUS
In 1997, Unocal further transitioned itself from a fully integrated oil company
by completing the sale of its West Coast refining, marketing and transportation
assets. The company continued to shift its focus toward growth through
higher-return resource drilling and market-to-resource project development.
To help accomplish this growth strategy, the company acquired a number of new
exploration blocks in prospective areas in Argentina and in deepwater areas in
the Gulf of Mexico and offshore Indonesia. Advanced technology provides
deepwater exploration and production opportunities to the company that were
previously uneconomic. In 1997, the company participated in its first deepwater
discovery in the Gulf of Mexico and made several discoveries confirming
significant resources in the East Kalimantan area, offshore Indonesia.
The company plans to grow through greater exploration success, increased
international production, effective cost controls and active portfolio
management. To help achieve these goals, the company is focusing its 1998
capital spending on the Lower 48 United States, international operations and new
ventures activities.
ASIAN ECONOMIC CRISIS
Unocal has major operations in Thailand and Indonesia, two of the countries most
impacted by the current economic crisis. While the current problems are
significant, the company remains optimistic about Asia's long-term economic
growth. To date, there has been little impact on the company's operations.
Most of the company's operating revenues are protected from foreign currency
fluctuations through existing contracts. In Indonesia, oil and liquefied
natural gas exports are sold in dollar-based world markets. In Thailand, the
company's contracts are indexed to the dollar. To date, the company's
production has not been affected. However, if growth in energy demand slows in
the region, the company could see delays in the implementation of future
projects.
For more than 30 years, the company has operated in Southeast Asia, building
strong relationships based on trust and mutual interest. The company intends to
continue to work closely with host governments and business associates through
this difficult period. For further information on the Asian economic crisis,
see the Outlook section of the Management's Discussion and Analysis under Item
7.
DISPOSITION AND RESTRUCTURINGS OF COMPANY ASSETS
In March 1997, the company completed the sale of substantially all of its West
Coast petroleum refining, marketing and transportation assets to Tosco
Corporation (Tosco). The company received cash proceeds of $1.4 billion and
14,092,482 shares of Tosco common stock valued at $397 million. In May 1997,
the company sold the stock back to Tosco for $394 million (net of expenses). A
participation agreement also provides for up to $250 million in possible
payments, which are contingent upon increased refining premiums and gasoline
marketing margins in the years through 2003. For further information, see note
8 to the consolidated financial statements under Item 8.
During 1997, the company and PDV America Inc., a unit of Petroleos de Venezuela,
S. A. completed the restructuring of The UNO-VEN Company (UNO-VEN), a refining
and marketing partnership in the midwestern United States, whereby substantially
all of the assets and liabilities of UNO-VEN were conveyed to PDV Midwest
1
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Refining, L.L.C. (PDV Midwest), an affiliate of PDV America, in exchange for
PDV America's partnership interest. This restructuring also resulted in PDV
Midwest securing a 25 percent interest in the Needle Coker Company. In
addition, as a separate transaction, the company sold its petrochemical
marketing business previously conducted by Unocal Hydrocarbon Sales to PDV
Midwest.
In September 1997, the company formed the Unocal Global Trade group to
consolidate its worldwide crude oil and natural gas marketing and trading
activities. Unocal Global Trade is also responsible for capturing new
commercial asset opportunities in the gas and power marketplace.
In February 1998, the company's Unocal Canada Limited subsidiary reached an
agreement with Tarragon Oil and Gas Limited (Tarragon) to exchange certain of
its Canadian oil and gas assets for approximately $215 million in Tarragon
common stock and debentures. This transaction is subject to customary Canadian
regulatory approvals as well as approval of the Tarragon stockholders. For
further information, see the Outlook section of the Management's Discussion and
Analysis under Item 7.
Unocal's anticipated reporting segments for 1998 are as follows:
EXPLORATION AND PRODUCTION
UNITED STATES
. Spirit Energy 76 (Spirit Energy) - The company's United States Lower 48
business conducts production, development and exploration operations, with
emphasis on the Gulf Coast region. This encompasses deepwater, continental
shelf, and onshore areas, including the Permian Basin in West Texas.
. Other Oil and Gas Operations - Primarily consist of the company's Alaska oil
and gas operations. This business unit includes the Cook Inlet operations
and North Slope interests.
INTERNATIONAL
. The company has oil and gas exploration and production operations in several
foreign countries. Indonesia and Thailand make up a significant portion of
these overseas operations. International also includes the exploration
activities of the company's New Ventures group. International operations
focuses on low-cost operations, on growth in core areas and the transfer of
New Ventures projects into operations.
UNOCAL GLOBAL TRADE
. This group consolidates worldwide crude oil and natural gas marketing and
trading activities and captures new asset opportunities in the gas and power
marketplace.
GEOTHERMAL AND POWER OPERATIONS
. The company has major geothermal operations in California, the Philippines
and Indonesia. This segment also operates power plants in Indonesia and is
participating in the development of Thailand's first independent gas-fired
power project.
DIVERSIFIED BUSINESS GROUP
. Agricultural Products - The company's manufacturing complex in Alaska
manufactures fertilizers for export to the Asian Pacific Rim and the United
States West Coast. Additional facilities operate in California, Oregon and
Washington.
. Carbon and Minerals - The company operates petroleum coke and specialty
graphite businesses; mines and markets lanthanides and molybdenum through
its wholly owned Molycorp subsidiary; and has an equity interest in a
Brazilian niobium producer.
. Pipelines - The company has ownership in more than 14,000 miles of oil, gas
and product pipelines worldwide and serves as operator for four joint-
venture pipelines.
For detailed analysis of the company's results of operations and financial
condition, see Management's Discussion and Analysis under Item 7 beginning on 20
of this report.
2
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SEGMENT AND GEOGRAPHIC INFORMATION
Information regarding oil and gas financial data, oil and gas reserve data
and the related present value of future net cash flows from oil and gas
operations is presented on pages 76 through 82 of this report. During 1997,
certain estimates of underground oil and gas reserves were filed with the
Department of Energy under the name of Union Oil. Such estimates were
consistent with reserve data filed with the Securities and Exchange Commission.
WORLDWIDE OIL AND GAS ACTIVITIES
Unocal is a leading global energy resource and project development company with
oil and gas exploration and production activities primarily in Asia, the United
States Gulf of Mexico, Latin America and Canada. Exploration and production
operations accounted for approximately 59 percent of Unocal's total assets at
December 31, 1997. Approximately 51 percent of the company's exploration and
production assets are located in the United States. With the sale of the
company's West Coast refining, marketing and transportation assets, Unocal has
re-positioned itself for growth by focusing its exploration activities
principally in the Far East, Central Asia and Gulf of Mexico areas. The company
continues to direct its worldwide oil and gas exploration efforts towards areas
with high resource potential and low-risk market-to-resource potential.
<TABLE>
<CAPTION>
WORLDWIDE 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net proved reserves at year end: (a)
Crude oil and condensate - million barrels 533 513 667
Natural gas - billion cubic feet 6,550 6,795 6,765
Net daily production: (a)
Crude oil and condensate - thousand barrels 197 207 240
Natural gas - million cubic feet 1,848 1,812 1,765
Natural gas liquids - thousand barrels 18 20 21
Natural gas production available for sale - million cubic feet daily 1,633 1,596 1,513
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes foreign production sharing agreements on a gross basis (see
Foreign Reserve/Production table on page 6 for host country share
information). Natural gas is reported on a wet-gas basis; production
excludes gas consumed on lease.
Worldwide average daily production of crude oil and condensate in 1997 decreased
due to reduced output in the United States. Natural production declines,
weather related shut-ins and temporary mechanical problems in some high output
wells were the principal factors. Higher international crude oil and condensate
production, predominantly in the Far East, partially offset the domestic
decline. Worldwide natural gas production increased in 1997, as natural
declines in domestic production were more than offset by international
production gains.
Worldwide average crude oil and condensate prices fell in 1997 to $17.71 per
barrel from $18.82 per barrel in 1996. The 1997 average natural gas sales prices
rose to $2.33 per thousand cubic feet (mcf) per day from the 1996 level of $2.26
per mcf. Higher worldwide revenues in 1997 were attributable to increased
average natural gas sales prices, increased natural gas production, higher
affiliate earnings and increased crude oil marketing and trading activities.
Increases in crude oil and product purchase expense in 1997 were attributable to
increased commodity purchases and trading activities related to the Global Trade
group and to transactions involving the restructuring of the UNO-VEN midwest
refining and marketing partnership. The company continued to decrease its
operating costs per barrel in 1997 as lifting costs fell to $2.66 per barrel of
oil equivalent from $2.73 in 1996 and $2.94 in 1995.
UNITED STATES
EXPLORATION
The Spirit Energy group is responsible for conducting the company's oil and gas
exploration activities onshore in the contiguous United States and offshore in
the Gulf of Mexico. The company expects to increase its domestic production in
the coming years, primarily through new discoveries, further development of
existing reserves and selective acquisition and alliances. In 1998, Spirit
Energy plans to participate in approximately 90 exploration wells,
3
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nearly three times the amount of its 1997 exploration well participation.
During 1997, Spirit Energy participated in its first commercial deepwater oil
discovery in the Gulf of Mexico at its partner-operated Garden Banks 409. The
project lies approximately 150 miles off the southwest Louisiana coast and is
located in 1,355 feet of water. Current plans call for the project's wells to
be developed as sub-sea completions and tied in to a host facility on an
existing platform located 18 miles to the north. The company has a 50 percent
working interest in the prospect. Spirit Energy also entered into an agreement
in 1997 to participate in a deepwater prospect in Mississippi Canyon block 941.
The block is located in 4,000 feet of water. Drilling is scheduled to begin in
mid-1998 at the partner-operated site. Spirit Energy has a 25 percent working
interest in the prospect.
During 1997, Spirit Energy added 115 offshore lease blocks to its exploratory
acreage including 89 deepwater blocks. In 1998, the company signed a letter of
commitment to secure a deepwater drilling rig. The drill ship will be capable of
drilling in water depths of up to 10,000 feet and is designed with dual drilling
capabilities. The contract has a five-year term with an option to extend on a
yearly basis for the following five years. Delivery is scheduled for the first
quarter 2000. Drilling alliances brokered in 1997 for acreage in the
continental shelf area of the Gulf of Mexico off the Southeast coast of
Louisiana and for acreage onshore in the Cotton Valley area of East Texas
provides Spirit Energy with a ready inventory of drilling prospects available in
the interim. The company also plans to continue its efforts to accelerate
partner-operated drilling, utilize spot rig slots and participate in joint
ventures. In addition, Spirit Energy expects to drill or participate in four to
six exploratory wells on its deepwater prospects during 1998.
The company holds approximately 1,431,000 net acres of unproved lands in the
United States. Nearly 60 percent of the prospective acreage is located offshore
in the Gulf of Mexico. Onshore prospective lands are primarily located in
Alaska, Texas, Colorado, Oklahoma, New Mexico, Louisiana and Florida.
PRODUCTION
In the lower 48 states, Spirit Energy continues to expand its efforts to
increase production through the development of new and existing fields. During
1997, the business unit employed horizontal drilling to boost production from
its Ship Shoal block 266 field offshore Louisiana. The company acquired the
property in 1993 from another operator and has since drilled eight additional
wells and quadrupled field production. Due to advances in drilling technology,
the company also boosted natural gas production by more than 15 percent and
doubled the liquids recovery rate at its North Fresh Water Bayou field, onshore
Louisiana. Additional onshore oil and gas discoveries in 1997 and early 1998 in
the Texas counties of Orange and Van Zandt and in Terrebone Parish, Louisiana
will contribute to Spirit Energy's production.
The company's Alaska upstream oil and gas operations are managed by the
Agricultural Products business unit. With the exclusion of its North Slope
interests, substantially all of the natural gas produced by the company's Alaska
natural gas fields is used for feedstock at the company's fertilizer
manufacturing facility in Kenai. The company consolidated the Alaska oil and
gas and agricultural products operations during 1996 to reduce costs and take
advantage of existing synergies.
The company holds approximately 641,000 net acres of proved lands in 19
states. Approximately 32 percent of these lands are located offshore in the
Gulf of Mexico. Onshore proven acreage is primarily located in Texas,
Louisiana, Alaska, Oklahoma, New Mexico and Alabama.
Unocal's 1997 domestic crude oil was produced from fields in the offshore Gulf
of Mexico (44 percent), Alaska (22 percent), Texas (12 percent), Louisiana (12
percent), New Mexico (3 percent) and Oklahoma (3 percent). Various other states
contributed the remaining amount (4 percent). The company's domestic natural
gas production in 1997 came principally from fields in the offshore Gulf of
Mexico (53 percent), Louisiana (14 percent), Alaska (13 percent), Texas (8
percent), New Mexico (4 percent) and Oklahoma (4 percent). Various other states
contributed the remainder (4 percent).
Unocal has various ownership interests in 18 natural gas processing plants
located near major gas fields in the United States. The company operates nine
of these plants and has full ownership in two. Seventeen of the 18 plants were
active in 1997.
4
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<TABLE>
<CAPTION>
UNITED STATES 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net proved reserves at year end:
Crude oil and condensate - million barrels 209 236 387
Natural gas - billion cubic feet (a) 2,120 2,575 3,261
Net daily production:
Crude oil and condensate - thousand barrels 76 96 125
Natural gas - million cubic feet (a) 993 1,075 1,103
Natural gas liquids - thousand barrels 12 14 16
Natural gas available for sale -
million cubic feet daily 813 891 882
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Natural gas is reported on a wet-gas basis; production excludes gas
consumed on lease.
Most of the company's domestic crude oil and natural gas production is sold to
the Global Trade group. A small portion is sold to third parties under long-
term contracts and at spot market prices.
FOREIGN
EXPLORATION
Unocal is involved in oil and gas exploration projects around the world. Unocal
is also pursuing oil and gas exploration opportunities in Thailand, Indonesia,
Myanmar, Azerbaijan, Bangladesh, China, Pakistan, Vietnam, the Democratic
Republic of Congo, Brunei, Yemen and Argentina.
THAILAND. During 1997, the company discovered commercial quantities of natural
gas at the Moragot field, which is adjacent to the Pailin natural gas field,
currently under development in the Gulf of Thailand. The company is the
operator and has a 35 percent working interest in the fields. The company is
evaluating development options for the Moragot field.
In December 1997, the company signed an agreement with the Thai Ministry of
Industry for the exploration of blocks 10A and 11A in the Gulf of Thailand.
Unocal has a 60 percent interest in the blocks and is the operator. The company
also extended its exploration agreement for block B10/32. This block is located
to the west of Unocal's prolific Erawan gas field in the Gulf of Thailand. The
company is the operator and has a 45 percent working interest.
INDONESIA. Unocal has extended its exploration program offshore East Kalimantan
with the addition of four new Production Sharing Contract (PSC) areas. In
September, the company earned a 50 percent working interest in the Makassar
Strait PSC area by successfully drilling and testing the Merah Besar No. 6 well.
The Merah Besar No. 6 well followed the drilling of six other successful
deepwater exploration wells drilled in Unocal's existing East Kalimantan PSC
area. Unocal is the operator of the East Kalimantan PSC and has a 100 percent
working interest in the contract area. During the first two months of 1998, two
wells, the Merah Besar No. 5 and the Hitam Besar No. 1 have confirmed
significant hydrocarbon potential on a previously untested section of the East
Kalimantan PSC area.
Other recently awarded PSC areas acquired offshore Indonesia include:
. Sesulu - 690,000 acres - Unocal is the operator and has a 90 percent working
interest.
. Rapak - 734,000 acres - The company is the operator and has a 90 percent
working interest (30 percent of the company's working interest in
the Rapak PSC has been offered to another multi-national oil company
subject to Indonesian government approval).
. Ganal - 1,200,000 acres - Unocal is the operator and has a 90 percent
working interest.
MYANMAR. The company is currently reviewing its exploration options on blocks
M5, M6 and M8 in the Andaman Sea. Production from the Yadana natural gas field
in blocks M5 and M6 should begin in the summer of 1998. Construction of the
offshore section of the pipeline is complete and the onshore section is expected
to be completed by June 1998.
5
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AZERBAIJAN. Unocal is a member of the North Absheron Operating Company Limited
which is currently conducting exploration operations in the Caspian Sea. In
January 1998, the consortium drilled its first well, which tested oil and gas
flow equivalent to approximately 3,500 barrels of oil per day.
BANGLADESH. The company has a 50 percent working interest in a PSC covering
three blocks in the northeast part of the country. The blocks include several
prospects as well as the proven Jalalabad natural gas field. Additional wells
are planned in the area over the next two years.
PRODUCTION
Unocal currently operates or participates in oil and gas production operations
in seven foreign countries: Thailand, Indonesia, Canada, the Netherlands,
Azerbaijan, Yemen and the Democratic Republic of Congo. 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 at
spot market prices to third parties.
<TABLE>
<CAPTION>
FOREIGN 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net proved reserves at year end: (a)
Crude oil and condensate - million barrels 324 277 280
Natural gas - billion cubic feet 4,430 4,220 3,504
Net daily production: (b)
Crude oil and condensate - thousand barrels 121 111 115
Natural gas - million cubic feet 855 737 662
Natural gas liquids - thousand barrels 6 6 5
Natural gas available for sale - million cubic feet daily 820 705 631
- -------------------------------------------------------------------------------------------------------------
(a) Includes host countries' shares under certain production sharing contracts of:
Crude oil and condensate - million barrels 58 70 71
Natural gas - billion cubic feet 444 530 457
Natural gas is reported on a wet basis.
(b) Includes host country share in Indonesia of:
Crude oil and condensate - thousand barrels 28 28 30
Natural gas - million cubic feet 28 27 22
Natural gas is reported on a wet basis; production excludes gas consumed on lease. Host country share
of natural gas liquids production is insignificant.
</TABLE>
THAILAND. During 1997, the company reached 3 billion cubic feet of cumulative
natural gas production from its three contract areas offshore in the Gulf of
Thailand. The company currently operates 10 producing natural gas fields in
these contract areas. Additional pipeline facilities brought on line by
Petroleum Authority of Thailand (PTT) in 1997, allowed the company to boost its
gross average daily natural gas production from 789 million cubic feet (mmcf)
(509 mmcf net) in 1996 to 972 mmcf (623 mmcf net). The company expects further
increases in 1998 as the Pailin field is brought on-line. Additional natural gas
resources have also been discovered in the Pakarang, Trat, Pladang and Moragot
fields.
The company has drilled nearly 1,100 wells in Thailand since 1973. There are
currently 78 platforms and over 625 kilometers of company owned pipelines in the
company's producing areas in the Gulf of Thailand. The company employs over
1,100 workers (excluding contractors) in its Thailand oil and gas operations.
Approximately 91 percent of these employees are Thai nationals.
Unocal's natural gas production in Thailand is sold domestically under long-term
contracts. The contract prices are based on formulas that allow prices to
fluctuate with market prices and are indexed to the U.S. dollar. The company
has typically supplied more natural gas to PTT than is called for in the daily
contract quantity provisions of its sales contracts. In the summer of 1998, the
company will begin delivering gas to Thailand from the Yadana field, offshore
Myanmar. The company's obligation to deliver gas to PTT is limited to the
available economic production from its properties in Thailand and Myanmar.
6
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INDONESIA. Unocal currently operates nine producing oil and gas fields offshore
East Kalimantan, Indonesia. These fields include Indonesia's largest offshore
oil and gas field, Attaka, which the company discovered in 1970. In 1997,
Unocal operated fields averaged gross production of approximately 96,000 barrels
of crude oil and condensate per day (bopd) (73,000 net bopd) and 282 mmcf of
natural gas per day (172 net mmcf). This compares to 1996 gross production of
90,000 bopd (66,000 net bopd) and 255 mmcf of natural gas per day (160 net mmcf)
in 1996. Production increases were primarily due to the company's successful
horizontal drilling program at the Attaka and Yakin fields and the start-up of
production at the Santan field.
The company has approximately 1,400 employees in its Indonesian oil and gas
operations and has interests in 53 offshore platforms. Approximately 97 percent
of the company's 1,400 employees are Indonesian nationals. The company works
closely with the government of Indonesia to create jobs, provide technical
training and foster advancement opportunities for citizens.
CANADA. Crude oil production averaged 13,800 barrels per day (net) in 1997, up
from 13,400 barrels per day in 1996. The increase was primarily due to a
horizontal drilling program initiated at the Southwest Saskatchewan field in
late 1996.
In February 1998, the company's Unocal Canada Limited subsidiary reached
agreement to exchange certain of its Canadian oil and gas assets with Tarragon
Oil and Gas Limited for approximately $215 million in Tarragon common stock and
debentures. For further information, see the Outlook section of Management's
Discussion and Analysis under Item 7.
NETHERLANDS. Gross daily production from the company's five offshore fields
averaged nearly 9,400 bopd down from 11,000 bopd in 1996. Unocal holds an 80
percent working interest in all five fields. Gross natural gas production from
the L-11 and Halfweg offshore gas fields averaged 54 mmcf per day in 1997, down
from 58 mmcf per day in 1996. Unocal holds a 48 percent working interest in the
L-11 gas field and a 46 percent working interest in the Halfweg gas field.
AZERBAIJAN. Unocal is a member of the Azerbaijan International Operating
Company (AIOC), which is currently developing the Azeri, Chirang and Gunashli
oil fields in the Caspian Sea. The consortium expects to export more than
200,000 bopd through two pipeline routes. The northern pipeline route connects
to an existing system in Russia and began operation in late 1997. The western
route is planned to go from Baku through Georgia to the Black Sea. The western
pipeline is expected to begin operations in 1999.
UNITED KINGDOM. In 1997, the company sold its interests in the oil and gas
properties in the United Kingdom.
YEMEN. Production began in December 1997 from the Kharir field in Yemen. Gross
production averaged 17,000 bopd (4,900 net bopd) at start up and is expected to
increase to 20,000 bopd (5,700 net bopd) in 1998 as additional wells come on-
line. The company's working interest in the field is 28.57 percent.
DEMOCRATIC REPUBLIC OF CONGO. Gross production decreased nearly 300 barrels of
oil per day in 1997, to 21,500 bopd. The company's net production averaged
3,800 bopd during 1997. Additional wells are planned in 1998.
OTHER. The company expects to begin production from the Yadana natural gas
field, offshore Myanmar and the Jalalabad natural gas field in Bangladesh in the
summer of 1998.
Changing political climates and relationships between international oil
companies and host governments in the foregoing countries and other parts of the
world, including changes in posted or tax-reference prices for crude oil,
increases in tax rates (sometimes retroactive) and demands for increased
participation in the ownership of operations, could lead to changes in the
status of Unocal's exploration and production activities in these and other
foreign countries during the coming years. In addition, circumstances could
arise that may have a material adverse impact on the company's future
operations. These circumstances may include, but not be limited to, further
devaluation of Asian currencies, decreased demand for energy products in areas
where the company has operations, civil unrest, increased inflation and any
prolonged international economic slowdowns.
7
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OIL AND GAS ACREAGE
<TABLE>
<CAPTION>
As of December 31, 1997
(thousands of acres)
------------------------------------------------------------------------------------
Proved Acreage Prospective Acreage
----------------------------------------- ------------------------------------
Gross Net Gross Net
------------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
United States 950 641 1,960 1,431
Far East 330 239 31,401 14,688
Other Foreign 251 146 9,061 4,320
=================== =============== =============== ===============
Total 1,531 1,026 42,422 20,439
------------------- --------------- --------------- ---------------
</TABLE>
PRODUCIBLE OIL AND GAS WELLS
<TABLE>
<CAPTION>
As of December 31, 1997
Oil Gas
------------------------------------- ----------------------------------
Gross Net Gross Net
---------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
United States 3,155 1,755 1,544 762
Far East 263 198 438 318
Other Foreign 1,916 754 158 97
================ =============== =============== =============
Total 5,334 2,707 2,140 1,177
================ =============== =============== =============
</TABLE>
The company had 287 gross and 200 net producible wells with multiple
completions.
DRILLING IN PROGRESS *
<TABLE>
<CAPTION>
As of December 31, 1997
Oil and Gas Wells
-------------------------------------
Gross Net
---------------- ---------------
<S> <C> <C>
United States 20 15
Far East 43 24
Other Foreign 9 4
================ ===============
Total 72 43
================ ===============
</TABLE>
* Excludes service wells in progress (27 Gross, 10 Net).
The company had two waterflood projects in progress at December 31, 1997.
NET OIL AND GAS WELLS COMPLETED AND DRY HOLES
<TABLE>
<CAPTION>
Productive Dry
------------------------------------------ ---------------------------------------------------
1997 1996 1995 1997 1996 1995
---------- ---------- ---------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Exploratory
United States 14 13 15 7 11 11
Far East 7 2 7 17 14 7
Other Foreign 1 2 3 1 5 5
========== ========== ========== ============= ============= =============
Total 22 17 25 25 30 23
========== ========== ========== ============= ============= =============
Development
United States 48 76 113 - 4 5
Far East 124 90 38 1 - -
Other Foreign 64 26 32 6 2 1
---------- ========== ---------- ------------- ------------- -------------
Total 236 192 183 7 6 6
---------- ---------- ---------- ------------- ------------- -------------
</TABLE>
CRUDE OIL AND NATURAL GAS MARKETING AND TRADING
GLOBAL TRADE - In 1997, the company formed the Global Trade group to consolidate
its worldwide crude oil, condensate and natural gas marketing and trading
activities. Most of the company's domestic crude oil and natural gas production
is sold to the Global Trade group. Global Trade also purchases crude oil,
condensate and natural gas from the company's joint venture partners, royalty
owners and other unaffiliated oil and gas producers for resale.
8
<PAGE>
GEOTHERMAL AND POWER OPERATIONS
The Geothermal and Power Operations business segment explores for, produces and
sells geothermal steam and constructs and operates electrical power generating
plants. Unocal is the world's largest supplier of geothermal energy for power
generation, with major operations in California, the Philippines and Indonesia.
The production of geothermal resources for power generation has been a core
business for Unocal for a quarter of a century. Unocal holds over 100 geothermal
patents primarily in the United States and the Philippines. The company
currently supplies geothermal energy for 2,123 megawatts of installed generating
capacity worldwide.
In Indonesia, at the Salak field on the island of Java, the company supplies
steam to six 55-megawatt power plants. PLN, Indonesia's state-owned electricity
corporation, built and operates three of the 55-megawatt power units, and a 50
percent owned affiliate of UNOCAL built and operates the three remaining power
plants.
In early 1998, the Indonesian Government postponed an 80-megawatt power project
in the Sarulla contract area on the island of Sumatra. The company believes
that the project may be allowed to go forward as it would help fill a current
need for power in the area.
Negotiations are in progress to replace the existing service contract between
Philippine Geothermal, Inc. (PGI) and National Power Corporation of the
Philippines (NPC) with a new arrangement that would combine both the steam field
operations of PGI and the electricity generation facilities of NPC. PGI has
also brought the issue of a service contract renewal to arbitration by the
International Chamber of Commerce. A provisional agreement was in effect until
December 31, 1997 providing for PGI to receive 40 percent of its original
service fee, and the for the remaining 60 percent of the service fee to be
distributed according to the negotiated arrangement or to be given to the
prevailing party in the legal proceedings. An interlocutory order issued by the
arbitration court requires both parties to maintain the status quo beyond
December 31, 1997. The provisional agreement is expected to be extended,
together with a suspension of the arbitration proceedings. The current economic
crisis in the region is not expected to significantly impair the Philippine
proceedings.
The company's geothermal reserves and operating data are summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net proved geothermal reserves at year end: (a)
billion kilowatt-hours 149 155 144
million equivalent oil barrels 223 232 216
Net daily production
million kilowatt-hours 18 18 16
thousand equivalent oil barrels 27 26 24
Net geothermal lands in acres
proved 16,450 16,450 20,240
prospective 383,563 383,563 457,380
Net producible geothermal wells 241 208 260
- --------------------------------------------------------------------------------
</TABLE>
(a) Includes reserves underlying a service fee arrangement in the Philippines.
DIVERSIFIED BUSINESS GROUP
AGRICULTURAL PRODUCTS - The Agricultural Products business unit manufactures and
markets nitrogen-based products for wholesale agricultural and industrial
markets supplying the western United States and the Pacific Rim.
Agricultural Products' largest fertilizer manufacturing facility, located in
Kenai, Alaska, produces ammonia and urea for agricultural applications using
natural gas as feedstock and sells a portion of this production abroad for
industrial uses. Natural gas from the company's Southern Alaska operations is
the feedstock for the Kenai facilities. Agricultural Products also produces
ammonia at its Finley, Washington facility and manufactures upgraded nitrogen-
based fertilizer products at its Kennewick, Washington and Sacramento,
California facilities. The company distributes its nitrogen-based products
primarily in California, Washington, Oregon and Idaho through its terminal and
distribution network.
9
<PAGE>
CARBON AND MINERALS - The Carbon and Minerals business unit produces and markets
petroleum coke, graphites and specialty minerals.
Green petroleum coke, a by-product of refining operations, is calcined for use
in aluminum production and other industrial applications. Green coke is also
sold in the United States and overseas as fuel.
The Needle Coker Company, a joint venture owned by the company (75 percent) and
PDV Midwest (25 percent), produces calcined needle coke at facilities located in
Chicago, Illinois. Needle coke is a high quality petroleum coke used to make
graphite electrodes for the production of steel in electric arc furnaces.
Through its wholly owned subsidiary, Poco Graphite, Inc., the company
manufactures premium graphite materials for use in electrodes, semiconductors,
biomedical products and other advanced technologies.
Unocal's mineral operations are carried out by Molycorp, Inc. (Molycorp), a
wholly owned subsidiary, which mines, processes and markets lanthanides and
molybdenum products. It operates a lanthanide mine at Mountain Pass,
California. Lanthanides have a variety of applications in industrial and
electronic products, including high-strength magnets, television phosphors, and
automobile and refining catalysts. Lanthanide markets have become highly
competitive over the past 10 years with the entry of suppliers from China, Japan
and Eastern Europe. In March 1998, Molycorp temporarily suspended operations at
the separations plant at the Mountain Pass facility.
Molycorp also operates a molybdenum mine and mill in Questa, New Mexico.
Molybdenum is used in the production of stainless and alloy steels, nonferrous
alloys, pigments, lubricants and catalysts.
Molycorp also owns approximately 45 percent equity interest in Companhia
Brasileira de Metalurgia e Mineracao, the world's largest niobium producer.
Niobium is used as a hardening agent in steel.
PIPELINES - The Pipelines business unit principally includes the company's
equity interests in petroleum pipeline companies and wholly owned pipeline
systems throughout the United States.
Included in Unocal's pipeline investments is the Colonial Pipeline Company, in
which the company holds a 20.75 percent equity interest. The Colonial Pipeline
system runs from Texas to New Jersey and transports a significant portion of all
petroleum products consumed in its 13-state market area. Also included is the
Unocal Pipeline Company, a wholly owned subsidiary of Unocal, which holds a 1.36
percent participation interest in the TransAlaska Pipeline System (TAPS). TAPS
transports crude oil from the North Slope of Alaska to the port of Valdez in
Alaska. In addition, the company holds a 27.75 percent interest in the
Trans-Andean oil pipeline, which transports crude oil from Argentina to Chile.
In 1997, the company increased its equity interest in the Alliance Pipeline
project from five percent to over nine percent. The Alliance Pipeline system is
designed to carry natural gas from western Canada to the Chicago area for
distribution throughout the northeastern United States. The proposed 1,900-mile
pipeline and natural gas liquids (NGL) extraction plant is expected to cost
nearly $3 billion, of which 70 percent is expected to be financed. The pipeline
and NGL plant to be built near chicago are scheduled to start up in mid-2000,
subject to necessary Canadian and U.S. approvals.
OTHER OPERATIONS - In 1997, the company completed the UNO-VEN partnership
restructuring. Under the terms of the agreement, the refining and marketing
assets of UNO-VEN, together with substantially all of its liabilities, were
distributed to an affiliate of the partner.
COMPETITION - The energy resource industry is highly competitive. As an
independent oil and gas company, Unocal competes against integrated companies,
independent companies and individual producers and operators for finding,
developing and producing oil and gas resources. The company believes that it is
in a position to compete effectively. Competition occurs in bidding for
domestic prospective leases or foreign exploration rights, acquisition of
geological, geophysical and engineering knowledge, and the cost-efficient
development and production of proved oil and gas reserves. The future
availability of prospective domestic leases is subject to competing land uses
and federal, state and local statutes and policies. The principal factors
affecting competition for oil and gas are product sales prices, consumer demand,
worldwide production levels, alternative fuels and government and environmental
regulations. The company's geothermal and power operations are in competition
with producers of other energy resources. In the Agricultural Products
business, the key competitive factors for the
10
<PAGE>
company's ammonia, urea and fertilizer products are prices, cost, availability
of natural gas and other raw materials and foreign manufacturers.
EMPLOYEES - As of December 31, 1997, Unocal had 8,394 employees compared to
11,568 in 1996. The decrease principally reflects the impact of the sale of the
company's West Coast refining, marketing and transportation assets, which had
approximately 3,100 employees. Of the total Unocal employees at year-end 1997,
658 were represented by various labor unions.
Collective bargaining agreements covering represented employees at Unocal's
various facilities were entered into during 1997. Most of these new labor
agreements are for three-year terms. See page 84 of this report for information
on total payroll and employee benefits costs.
GOVERNMENT REGULATION - Certain interstate crude oil pipeline subsidiaries of
Unocal are regulated (as common carriers) by the Federal Energy Regulatory
Commission. As a lessee from the United States government, Unocal is subject to
Department of the Interior regulations covering activities onshore and on the
Outer Continental Shelf (OCS). In addition, state regulations impose strict
controls on both state-owned and privately-owned lands.
Some federal and state bills would, if enacted, significantly and adversely
affect Unocal and the petroleum industry. These include the imposition of
additional taxes, land use controls, prohibitions against operating in certain
foreign countries and restrictions on development.
Regulations promulgated by the Environmental Protection Agency (EPA), the
Department of the Interior, the Department of Energy, the State Department, the
Department of Commerce and other government agencies are complex and subject to
change. New regulations may be adopted. The company cannot predict how
existing regulations may be interpreted by enforcement agencies or court
rulings, whether amendments or additional regulations will be adopted, or what
effect such changes may have on its business or financial condition.
ENVIRONMENTAL REGULATION - Federal, state and local laws and provisions
regulating the discharge of materials into the environment or otherwise relating
to environmental protection have continued to impact the company's operations.
Significant federal legislation applicable to the company's operations includes
the following: the Clean Water Act, as amended in 1977; the Clean Air Act, as
amended in 1977 and 1990; the Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act of 1976, as amended in 1984; the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended in 1986; the Toxic Substances Control Act of 1976, as amended in 1986;
and the Oil Pollution Act of 1990. Various state and local governments have
adopted or are considering the adoption of similar laws and regulations. The
company believes that it can continue to meet the requirements of existing
environmental laws and regulations.
The company has been a party to a number of administrative and judicial
proceedings under federal, state and local provisions relating to environmental
protection. These proceedings include actions for civil penalties or fines for
alleged environmental violations, permit proceedings including hearing requests
into the issuance or modification of National Pollution Discharge Elimination
System (NPDES) permits, requests for temporary variances from air pollution
regulations for refinery operations, and similar matters. The company has also
joined or intervened with the American Petroleum Institute, the Western States
Petroleum Association and with other oil companies in actions relating to
guidelines and proposed and final regulations of the EPA, the Department of the
Interior and other agencies.
For information regarding the company's environment-related capital
expenditures, charges to earnings and possible future environmental exposure,
see Item 3 - Legal Proceedings below, the Environmental Matters section of
Management's Discussion and Analysis under Item 7 of this report and note 19 to
the consolidated financial statements under Item 8 of this report.
ITEM 3 - LEGAL PROCEEDINGS
There is incorporated by reference the information regarding environmental
remediation reserves in note 18 to the consolidated financial statements on
page 63, the discussion thereof in the Environmental Matters section of
Management's Discussion and Analysis, on pages 31 through 34, and the
information regarding certain legal proceedings and other contingent liabilities
in note 19 to the consolidated financial statements on pages 63 through 64 of
this report. Information with respect to certain additional legal proceedings
is set forth below:
11
<PAGE>
(1) In Portland 76 Auto/Truck Plaza Inc. v. Union Oil Company of California, et
------------------------------------------------------------------------
al., filed in the U.S. District Court for the District of Oregon in
---
December 1992 (Civil No. 92-1635 JE) the jury returned a verdict against
the company in May 1995. The jury awarded $1 million for claimed breach of
lease and $2.3 million for violation of the Robinson-Patman Act claim that
the Company failed to implement facility upgrades and improvements thus
making the Truckstop less able to compete. If the verdict is upheld, the
Robinson-Patman Act award will be trebled under U.S. antitrust law. The
adverse decision is now on appeal in the Ninth Circuit Court of Appeals.
(2) The lawsuit filed by four California truckstop operators captioned Forty-
-----
Niner Truck Plaza Inc., et al. v. Unocal Corporation, et al. in January
------------------------------------------------------------
1993 in the California Superior Court for Sacramento County is now on
appeal. The lawsuit alleged that the company had violated a franchise
statute, California Business and Professions Code (S)20999.25(a), by
failing to offer each of the operators a right of first refusal of a bona
fide offer by National Auto Truckstops, Inc., for the company's interest in
the truckstops, during the course of the sale of the company's nationwide
network of truckstops to National in April 1993. The operators also
asserted various tort claims against the company and against National,
seeking compensatory and punitive damages. Under the terms of the sale,
National is indemnified for certain such third-party compensatory damages.
The company settled with two operators and went to trial on the remaining
claims. After a jury verdict for the operators, the trial judge denied the
company's motion for judgment notwithstanding the verdict but granted the
company's motion for a new trial. The orders were entered in August 1995.
All parties appealed. In October 1997, the California Court of Appeal
issued a decision affirming the trial court's order. Following the denial
of review by the California Supreme Court on February 18, 1998, the case
has been returned to the trial court.
(3) Citizens for a Better Environment, et al. v. Union Oil Company of
-----------------------------------------------------------------
California, No. C94-0712, filed in the U.S. District Court for the Northern
----------
District of California, alleges that as of February 28, 1994, the company's
former refinery at Rodeo, California, was in violation of the selenium
limit in its National Pollutant Discharge Elimination System permit. By a
prior Cease and Desist Order, issued after notice and hearing, the
permitting agency, the California Regional Water Quality Control Board
(RWQCB), had deferred to July 1998 the effective date of the selenium
limitation in question. In April 1997, the court granted the plaintiffs'
motion for a partial summary judgment against the company as to liability
for its violations of the selenium limit in its permit. The case will
continue with respect to remedies, including civil penalties, injunctive
relief and attorneys' fees, which will be sought by the plaintiffs. Trial
is set for June 1998. The parties are engaged in mediation in an attempt
to settle the case.
(4) In March 1994, a civil suit seeking various forms of penalties, restitution
and remediation regarding contamination at the Guadalupe oil field was
filed against the company by the California Attorney General on behalf of
the Department of Fish and Game, the RWQCB and the Department of Toxic
Substances Control (People v. Union Oil Company of California, Superior
-----------------------------------------
Court of California for San Luis Obispo County, Civil No. 75194). The
complaint alleges several categories of violations, namely, discharge into
marine and state waters, failure to report discharge, destruction of
natural resources, failure to warn and exposure to known carcinogens,
public nuisance, unauthorized disposal of hazardous waste, and labeling
violations for "recycled" diluent material. Injunctive relief and civil
penalties are demanded for the various claimed violations as well as
prejudgment and postjudgment interest, costs, and attorneys fees. Trial
has been set for July 1998. Settlement discussions with the Attorney
General's office have resulted in a tentative resolution of this case,
which would provide for monetary damages, remediation and mitigation
efforts. However, documentation and individual agency approvals are still
necessary.
A related follow-on private civil action, including a purported class
action, was filed in the same court in March 1994, seeking damages and
various other forms of relief similar to those sought by the Attorney
General (Surfers' Environmental Alliance, et al. v. Union Oil Company of
---------------------------------------------------------------
California, et al., Civil No. 75205). In addition,
------------------
12
<PAGE>
the company is aware that the same private plaintiffs filed a citizens'
suit action on March 9, 1998, in the U.S. District Court for the Central
District of California (Surfers' Environmental Alliance v. Unocal
-----------------------------------------
Corporation, et al., No. 98-1651DDP), which has not yet been served on the
-------------------
company, alleging violations of the federal Resource Conservation and
Recovery Act and other laws and seeking relief similar to that sought by
the Attorney General.
The company has been working with the County of San Luis Obispo and the
RWQCB in accordance with environmental laws, regarding the cleanup of
hydrocarbons from the field. The County compiled a draft Environmental
Impact Report (EIR) in an effort to address the impacts associated with
remediation. Public hearings for certification of the final EIR are
scheduled for completion in early April 1998. The company has preserved all
of its rights to appeal or contest the certification of the EIR or any
associated permits.
(5) In September 1994, the RWQCB issued a Cleanup and Abatement Order relating
to past underground petroleum pipeline leaks along Front Street and
vicinity in the town of Avila Beach, California. The company initiated an
administrative appeal proceeding and a related civil suit for declaratory
and injunctive relief and writ of mandate in October 1994 with respect to
the soil and shallow ground water standard to be applied to the
remediation. In accordance with applicable environmental laws, the company
has been working with local agencies for several years regarding the
cleanup of hydrocarbons in this location, including the installation of a
vapor extraction system and monitoring and reporting programs. Two health
risk assessments have been conducted, one by the company and the other by
the County of San Luis Obispo. Both studies resulted in a "no significant
risk" finding. The RWQCB and the County have compiled a draft
Environmental Impact Report which attempts to review the impacts associated
with remediation. The County Planning Commission certified the final EIR
on February 26, 1998, with no significant changes to the draft EIR. The
RWQCB has scheduled a public hearing for similar action on April 3, 1998.
The company has preserved all of its rights to appeal or contest the
certification of the EIR or any associated permits.
There are currently 14 private lawsuits filed in the California Superior
Court for San Luis Obispo County that have been served on the company.
Thirteen of the suits are individually based, with a total of 123
plaintiffs. The other suit is a purported class action filed by owners of a
local time-share complex. In addition, the California Attorney General's
Office contacted the company and held a "pre-filing" meeting to discuss
remediation alternatives, mitigation, penalties and possible claims for
natural resource damages. The Attorney General's Office and the County have
both filed notices of intent to sue based on Resource Conservation and
Recovery Act Section 7002 allegations. The company has reached a tentative
resolution with the State of California, the County, Avila Alliance,
Communities for a Better Environment and Environmental Law Foundation,
which would provide for monetary damages, remediation and mitigation
efforts. However, final documentation and agency approvals are still
required.
In an effort to resolve property damage and business loss claims by the
local community and discourage additional lawsuits from being filed, the
company has announced a voluntary settlement program for property and
business owners in the town of Avila Beach.
(6) In April 1995, Atlantic Richfield Company (Arco), Chevron U.S.A., Inc.,
Exxon Corporation, Mobil Oil Corporation, Shell Oil Products Company and
Texaco Refining and Marketing, Inc., filed a lawsuit against the company in
the U.S. District Court for the Central District of California regarding
U.S. Letters Patent No. 5,288,393 issued to the company containing several
patent claims for the composition of reformulated gasolines (Atlantic
--------
Richfield Company, et al. v. Unocal Corporation, et al., No. CV-95-2379-
-------------------------------------------------------
RG). The plaintiffs alleged that the company's patent was invalid and
unenforceable. In the first phase of a trial, the jury, in October 1997,
upheld all of the claims of the patent and found that Arco and the five
other oil companies had infringed the patent with respect to approximately
29 percent, or 1.2 billion gallons, of the gasoline produced by them for
California markets during the five-month period ended July 31, 1996. In
the following damage phase, the jury, in November 1997, awarded the company
5.75 cents per infringing gallon, or $69 million for the five-month period.
The company has filed for an accounting as to the infringement by the six
companies for additional months of production subsequent to the period
covered by the jury's damage award. A third phase of the trial was held in
December 1997, with respect to the plaintiffs' request that the judge find
the company's patent unenforceable because of alleged "inequitable conduct"
during prosecution of the patent. The trial court's decision on this issue
is pending.
13
<PAGE>
In a related matter, Talbert Fuel Systems Patents Company filed suit
against the company on January 16, 1998, in the U.S. District Court for the
Central District of California, alleging that Talbert had a prior patent
covering reformulated gasolines (Talbert Fuel Systems Patents Company v.
---------------------------------------
Unocal Corp., Union Oil Company of California and Tosco Corporation, No.
-------------------------------------------------------------------
CV-98-0412). The suit seeks to have the company's Patent No. 5,288,393
invalidated as interfering with Talbert's prior patent and seeks damages
for the company's alleged infringement for the period ended March 31, 1997.
(7) In October 1995, the State of Texas and several individuals filed a class
action lawsuit in the District Court of Lee County, Texas (State of Texas,
---------------
et al. v. Amerada Hess Corporation, et al.), alleging that the defendants,
------------------------------------------
including the company, had engaged in a conspiracy to fix posted prices for
crude oil at artificially low levels and had also discriminated against the
class of Texas royalty owners by purchasing oil "attributable" to the
plaintiff class at prices lower than the prices realized by defendants for
their own production from the same fields. Since that time, the company
has been named a defendant in eight additional class action lawsuits
alleging crude oil royalty and working interest underpayments. Until
recently, six of these cases were on file in federal courts in Alabama,
Louisiana, Mississippi and Texas. The other three cases, including the
original Lee County case, are on file in state courts in Alabama and Texas.
On January 14, 1998, the Multi-District Panel ruled that the posted price
cases pending in federal courts were appropriate for consolidation and
transfer to a single court for pre-trial proceedings. Following that
order, four of the federal cases have been transferred to the U.S. District
Court in Corpus Christi, Texas, as MDL 1206. The other two federal cases
are also subject to consolidation and transfer and should be transferred to
Corpus Christi in the near future.
As a group, the lawsuits allege that crude postings are lower than true
value and assert claims of breach of contract, fraud, conversion, and
violations of federal and state antitrust laws. Punitive state-wide and
nation-wide class representatives seek recovery of unspecified actual and
punitive damages, including treble damages for antitrust violations from
1986 forward, as well as attorneys' fees and costs.
In November 1997, the company and twenty-five other oil companies, signed a
settlement agreement with the plaintiffs in one of the above-described
federal actions, The McMahon Foundation et al. v. Amerada Hess Corporation,
----------------------------------------------------------
et al., in the U.S. District Court for the Southern District of Texas.
------
Collectively, the defendants agreed to pay $143 million to settle all crude
oil royalty and working interest underpayment claims nation-wide. The
settlement is subject to approval by the court presiding over MDL 1206. If
approved, it will bring to an end virtually all of the class action
litigation described above. The company is aware, however, that some
royalty owners, including various state governmental entities, could elect
to opt out of the settlement.
One of the lawsuits, The State of Texas, et al. v. Amerada Hess
------------------------------------------
Corporation, et al., in the 53rd District Court of Travis County, Texas,
-------------------
alleges that the underpayment of royalties constitutes a violation of the
Texas Common Purchaser Act, and seeks recovery of monetary penalties in an
unspecified amount on behalf of the State of Texas and a state-wide class
of royalty owners. These claims have been excluded from the claims settled
in the McMahon action. The company is vigorously contesting these claims.
-------
In litigation related to the above-described posted price class actions,
various state taxing authorities are pursuing attempts to collect
additional severance taxes on the theory that oil companies have
undervalued crude oil they produce within those states. To date, two
states have initiated lawsuits. State of Louisiana and Secretary of the
---------------------------------------
Department of Revenue and Taxation v. Union Oil Company of California,
---------------------------------------------------------------------
Fifteenth Judicial Court of Lafayette Parish, Louisiana; and State of
--------
Alabama and State of Alabama Department of Revenue v. Amerada Hess
------------------------------------------------------------------
Corporation, et al., Circuit Court of Mobile County, Alabama. The company
-------------------
believes it has paid all state severance tax obligations correctly and is
vigorously contesting these lawsuits.
(8) The U.S. Department of Interior, Minerals Management Service (MMS)
announced in July 1996, that it would pursue claims against several oil
companies for their alleged underpayment of royalties for crude oil
produced from federal leases in California covering the period 1980
forward. Following that announcement, the company has received from MMS
three separate orders to pay additional royalties, penalties and interest,
covering periods from January 1, 1980, to April 30, 1996, and totaling in
excess of $75 million. The company vigorously disputes the validity of
these orders and is pursuing appropriate administrative appeals.
14
<PAGE>
(9) In December 1997, the company received a Civil Investigative Demand issued
by the U.S. Department of Justice to determine whether various oil
companies, including the company, have violated the federal False Claims
Act (FCA) by undervaluing and underpaying royalties on crude oil produced
from federal and Indian land leases and to aid in its determination whether
to intervene in the prosecution of a lawsuit brought under seal by private
plaintiffs on behalf of the United States alleging FCA violations. The
company has cooperated fully with the Justice Department in connection with
this investigation. On February 19, 1998, the Justice Department announced
its decision to intervene in the prosecution of the false claims lawsuit
against four of the fourteen oil companies named as defendants. Although
the company was not one of these four defendants, it was disclosed that the
company is one of the defendants named by the private plaintiffs. The
Justice Department announced it will continue to consider whether to
intervene against some or all of the remaining defendants. On March 9,
1998, the company was served with the private plaintiffs' complaint. The
case, which covers the time period from 1986 forward is on file in the U.S.
District Court for the Eastern District of Texas, Lufkin Division (Johnson,
--------
et al. ex rel. United States v. Shell Oil Company, et al., Civil No.
---------------------------------------------------------
9:96CV66), and seeks recovery of unspecified monetary damages, to be
trebled as provided by the FCA, and also seeks an award of attorney's fees
and the imposition of civil penalties. The company believes its royalty
payments on federal and Indian land leases have been made correctly.
Accordingly, it does not believe it has engaged in conduct that violates
the FCA, and it will vigorously contest this lawsuit.
(10) Since December 30, 1997, the company has received from the MMS preliminary
determinations of underpaid royalties in connection with various gas
contract settlements entered into by the company during the period 1984
through 1992. The notices allege underpaid royalties totaling
approximately $28 million, as well as undetermined late payment charges.
(11) In February 1996, Bridas Corporation filed a petition against the company
and others in the District Court of Fort Bend County, Texas, alleging that
the defendants conspired to and did tortiously interfere with Bridas'
rights under agreements with the government of Turkmenistan to develop the
Yashlar Field and to transport gas from that field to Pakistan. It also
alleges that defendants interfered with Bridas' exclusive right to lay a
gas pipeline in Afghanistan (Bridas Corporation v. Unocal Corporation, et
--------------------------------------------
al., Case No. 94144, 268th Judicial District). Bridas seeks actual damages
---
as well as punitive damages, plus interest at the highest lawful rate.
Bridas' expert witnesses have stated in pre-trial discovery that Bridas'
total actual damages for loss of future profits are approximately $1.7
billion. In the alternative, Bridas is expected to seek an award of
approximately $430 million with respect to its total expenditures in
Turkmenistan. The company believes the assertions made by Bridas are
without merit and is vigorously defending the lawsuit.
(12) In June 1996, the case of Aguilar, et al. v. Atlantic Richfield, et al.
---------------------------------------------
(Civil No. 00700810), was filed in the California Superior Court for San
--------------------
Diego County against nine California oil companies, including the company,
which refined and marketed Phase 2 gasoline mandated by the California Air
Resources Board ("CARB"). The plaintiffs allege that the defendants
conspired to limit the supply and increase the price of CARB gasoline in
violation of California antitrust and unfair competition laws. The
plaintiffs seek treble damages and injunctive relief on behalf of all
purchasers of CARB gasoline at retail since March 1, 1996. In May 1997,
the court certified the case as a class action. In October 1997, the court
granted the defendants' motion for summary judgment. On January 29, 1998,
the court granted the plaintiffs' motion for a new trial, effectively
reversing the earlier grant of summary judgment. The company and its co-
defendants have appealed the court's orders which certified the class and
granted a new trial to the California Court of Appeal.
On February 4, 1998, the company and the co-defendants in Aguilar were
-------
served with a new class action in the United States District Court for the
Southern District of California (Gilley, et al. v. Atlantic Richfield, et
----------------------------------------
al., Case No. 98 CV 0123 BTM (RRB)). This case is filed on behalf of a
---
class consisting of lessee gasoline dealers who purchased gasoline at the
wholesale level from the defendants during the period from January 1, 1996
to the present. The complaint alleges that the company and the co-
defendants conspired to restrict the supply of CARB gasoline in violation
of the Sherman Act, 15 U.S.C. Section 1. This case will also be vigorously
defended.
(13) The company is a defendant in a lawsuit, filed in October 1996, by
anonymous representatives purportedly on behalf of an alleged class of
plaintiffs consisting of certain residents of the Tenasserim region of
Myanmar allegedly affected by alleged acts of mistreatment and forced labor
by the government of
15
<PAGE>
Myanmar allegedly in connection with the construction of the Yadana natural
gas pipeline. (John Doe I, et al. v. Unocal Corp., et al., U.S. District
-----------------------------------------
Court for the Central District of California, Civil No. 96-6959-RAP). Other
defendants include Total S.A., John F. Imle, Jr. and Roger C. Beach.
The plaintiffs' claims are based on the company's participation in
activities in Myanmar for the exploration for and production of natural gas
in the Andaman Sea and shipment of that gas to Thailand through a pipeline
crossing Myanmar (the Yadana project). The complaint contains numerous
counts and alleges violations of several U.S. and California laws and U.S.
treaties. The plaintiffs seek compensatory and punitive damages on behalf
of the named plaintiffs, as well as disgorgement of profits. Injunctive
and declaratory relief is also requested on behalf of the named plaintiffs
and the alleged class to direct the defendants to cease payments to the
Myanmar government and to cease participation in the Yadana project.
The court entered orders in March 1997 and April 1997, granting in part and
denying in part the company's motion to dismiss the action. In its answer
to an amended complaint, the company denied that it was either properly
named as a party or subject to joint venture, partnership, or other
liability with respect to the Yadana pipeline. On January 26, 1998, the
court heard argument on the class certification question and took the
matter under advisement. On February 19, 1998, the court entered an order
denying the plaintiffs' motion for a preliminary injunction.
The company has also been served with a lawsuit, filed in September 1996,
making similar claims but without the class action allegations (National
---------
Coalition Government of the Union of Burma, et al. v. Unocal Inc. and the
-------------------------------------------------------------------------
Yadana Natural Gas Project, U.S. District Court for the Central District of
--------------------------
California, Civil No. 96-6112-RAP).
The court, in November 1997, entered an order granting in part and denying
in part the company's motion to dismiss the action. Among other things, the
court's order dismissed the National Coalition Government of the Union of
Burma as a plaintiff in the action. The remaining plaintiffs thereafter
filed a second amended complaint. In December 1997, the company filed its
answer to the second amended complaint. In its answer, the company denied
that it was either properly named as a party or subject to joint venture,
partnership or other liability with respect to the Yadana pipeline. On
March 13, 1998, the court entered an order dismissing the Federation of
Trade Unions of Burma as a plaintiff.
(14) In September 1996, a criminal investigation was commenced by the Office of
the District Attorney of San Bernardino County, California (District
Attorney), arising from wastewater pipeline incidents occurring at the
Mountain Pass, California, lanthanide facility of the company's Molycorp,
Inc., subsidiary in July and August 1996. Molycorp has been engaged in
extensive settlement negotiations with the District Attorney, who is acting
on behalf of various local and state agencies, in an effort to achieve an
appropriate civil resolution of this matter.
On March 4, 1998, Molycorp was served by the RWQCB with an administrative
civil liability complaint which seeks civil penalties in the amount of
$527,000, together with staff costs, for alleged failures to submit self-
monitoring reports and discharge reports in a timely manner. The reports
related to Molycorp's operation of a wastewater evaporation pond and to the
1996 wastewater pipeline incidents discussed above. Molycorp intends to
contest the proposed civil penalties at a hearing scheduled in July 1998.
In addition, Molycorp has been put on notice by the RWQCB that three
cleanup and abatement orders will be issued relating to the present
wastewater evaporation pond, a former and now-closed wastewater evaporation
pond and a mine tailings pond, all located at the Mountain Pass facility.
These three orders will not carry civil penalties, but may require
significant expenditures for environmental investigation and remediation.
(15) In April 1997, the Attorney General of the State of Illinois filed an
action against the company in the Circuit Court of the Twelfth Judicial
Circuit, Will County, Illinois, Chancery Division (State of Illinois v.
--------------------
Union Oil Company of California, No. 97 CH 5503), seeking approximately
-------------------------------
$2.1 million in civil penalties and injunctive relief for alleged
violations of the state's environmental statute and air pollution
regulations as a consequence of particulate emissions at the company's
carbon plant in Lemont, Illinois. The action was settled on March 18,
1998, with the company agreeing to pay penalties of $651,000 to the State
of Illinois.
16
<PAGE>
(16) In June 1997, the State of Arizona filed a lawsuit against the company
(State of Arizona v. Union Oil Company of California, Superior Court of
----------------------------------------------------
Maricopa County, No. CV97-10829) alleging that it has not diligently
pursued the investigation of the extent of contamination resulting from a
release of petroleum from underground storage tanks at a service station
formerly operated by the company in Tempe, Arizona. The state seeks civil
penalties of up to $10,000 per day. The company is in the process of
investigating this matter, and it is possible that penalties aggregating in
excess of $100,000 could be imposed.
(17) In July 1997, the company received a notice from the U.S. Environmental
Protection Agency, Region X (EPA), regarding alleged violations of the
Prevention of Significant Deterioration Standards and the New Source
Performance Standards of the federal Clean Air Act at the company's Kenai,
Alaska, fertilizer plant. In October 1997, a civil complaint was filed by
the EPA against the company in the U.S. District Court for the District of
Alaska (United States of America v. Union Oil Company of California, No.
-----------------------------------------------------------
A97 397 CIV (JWS)). These allegations have been settled pursuant to a
proposed consent decree under which the company has agreed to pay civil
penalties in the amount of $550,000 and to install additional pollution-
abatement equipment.
(18) Over the past several years, the company's former San Francisco refinery in
Rodeo, California, received a number of notices from the Bay Area Air
Quality Management District (District) for alleged violations of various
California laws and District regulations relating to emissions, permit
exceedences and public nuisances. In connection with the sale of the
refinery in March 1997, the company has been endeavoring to reach a global
settlement of all of these claims. While none of the individual notices
involve penalties exceeding $100,000, it is likely that the aggregate
settlement will exceed that amount.
17
<PAGE>
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None.
EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME, AGE AND PRESENT
POSITIONS WITH UNOCAL BUSINESS EXPERIENCE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
ROGER C. BEACH, 61 Mr. Beach has been Chairman of the Board since 1995 and Chief Executive
Chairman of the Board and Chief Executive Officer since 1994. He served as President and Chief Operating Officer
Officer from 1992 to 1994. Mr. Beach was President of the Unocal Refining &
Director since 1988 Marketing Division from 1986 to 1992, and from 1987 to 1992 also served
Chairman of Executive and Board Management as Senior Vice President of the company.
Committees
- -----------------------------------------------------------------------------------------------------------------------
JOHN F. IMLE, JR., 57 Mr. Imle has been President since 1994. He is responsible for corporate
President strategic planning and for all major new ventures and business
Director since 1988 development activities worldwide. From 1992 to 1994, he served as
Member of Board Management Committee Executive Vice President and President of the Energy Resources Division,
which encompassed the company's worldwide oil, gas and geothermal
businesses. Mr. Imle was Senior Vice President from 1988 until his
appointment as Executive Vice President.
- -----------------------------------------------------------------------------------------------------------------------
TIMOTHY H. LING, 40 Mr. Ling has been Chief Financial Officer since October 1997. He was a
Chief Financial Officer partner of McKinsey & Company (McKinsey) from 1994 to October 1997 and
an employee of the firm from 1989 to 1994. From 1990 to 1997, Mr. Ling
was a leader of the McKinsey consulting team working with the company,
focusing on development of the company's new corporate strategies and
the improvement of the company's asset and growth portfolios.
- -----------------------------------------------------------------------------------------------------------------------
RANDOLPH L. HOWARD, 47 Mr. Howard has been Group Vice President, International
Group Vice President, International Operations/Geothermal, since February 1998. Mr. Howard was Group Vice
Operations/Geothermal President of the company's 76 Products Company business unit from 1996
until the sale of the West Coast refining, marketing and transportation
assets in March 1997. From 1994 to 1996, he was in charge of supply and
transportation for the refining and marketing operations. In 1994, he
also headed planning for the refining and marketing operations. From 1992
to 1994, Mr. Howard was General Manager of the company's Los Angeles
refinery.
- -----------------------------------------------------------------------------------------------------------------------
JOHN W. SCHANCK, 46 Mr. Schanck has been Group Vice President and President of Spirit Energy
Group Vice President and President, Spirit 76, the company's U.S. Lower 48 exploration and production business
Energy 76 unit, since 1996. He served as Group Vice President, Oil and Gas
Operations, from 1994 to 1996. From 1992 to 1994, he was Vice
President, Worldwide Exploration, of the Energy Resources Division.
From 1989 through 1991, he was President of Unocal Canada Limited.
- -----------------------------------------------------------------------------------------------------------------------
L. E. (ED) SCOTT, 55 Mr. Scott has been Group Vice President of the company's Diversified
Group Vice President, Diversified Business Business Group since 1994. From 1990 to 1994, he was Vice President,
Group Petroleum Supply and Transportation.
- -----------------------------------------------------------------------------------------------------------------------
CHARLES R. WILLIAMSON, 49 Mr. Williamson has been Group Vice President, Asia Operations, since
Group Vice President, Asia Operations February 1998, having previously served as Group Vice President,
International Operations, since 1996. He had been Vice President,
Planning and Economics, from 1995 to 1996 and served as Vice President,
Technology, from 1992 to 1994.
- -----------------------------------------------------------------------------------------------------------------------
DENNIS P.R. CODON, 49 Mr. Codon has been Vice President, General Counsel and Chief Legal
Vice President, General Counsel and Officer since 1992. He also served as Corporate Secretary from 1990 to
Chief Legal Officer 1996.
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------
JOE D. CECIL, 49 Mr. Cecil has been Vice President and Comptroller since December 1997.
Vice President and Comptroller From March 1997 to December 1997, Mr. Cecil was Comptroller of
International Operations. He was Comptroller of the 76 Products Company
from 1995 until the sale of the West Coast refining, marketing and
transportation assets in March 1997. From 1994 to 1995, Mr. Cecil was
Assistant Comptroller, New Ventures, and from 1992 to 1994, he was
Comptroller of the Energy Resources Division.
- -----------------------------------------------------------------------------------------------------------------------
JOSEPH A. HOUSEHOLDER, 42 Mr. Householder became Vice President, Corporate Development, in December
Vice President, Corporate Development 1997. He was Vice President, Tax and Comptroller, from June 1997 until
December 1997. He was Vice President, Tax, from 1994 until 1997, and
General Tax Counsel from 1990 to 1994.
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The bylaws of the company provide that each executive officer shall hold office
until the annual organizational meeting of the Board of Directors held June 1,
1998 and until his successor shall be elected and qualified, unless he shall
resign or shall be removed or otherwise disqualified to serve.
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
<TABLE>
<CAPTION>
1997 Quarters 1996 Quarters
------------------------------------------- -----------------------------------------------
1st 2nd 3rd 4th 1st 2nd 3rd 4th
- ------------------------------------------------------------------------------- -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Market price per share
of common stock
- High $45 7/8 $44 $45 7/8 $45 1/4 $34 $34 1/2 $37 3/8 $42 1/8
- Low $38 $36 1/4 $36 1/8 $37 9/16 $27 3/4 $29 5/8 $30 1/2 $35 1/2
------------------------------------------ -----------------------------------------------
Cash dividends paid per
share of common stock $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.20
- ------------------------------------------------------------------------------- -----------------------------------------------
</TABLE>
Prices in the foregoing table are from the New York Stock Exchange Composite
Transactions listing. On March 16, 1998, the high price per share was $38-9/16
and the low price per share was $38.
Unocal common stock is listed for trading on the New York, Pacific and Chicago
Stock Exchanges in the United States, and on the Stock Exchanges of Singapore
and Switzerland.
As of March 16, 1998, the approximate number of holders of record of Unocal
common stock was 31,446 and the number of shares outstanding was 241,185,875.
Unocal's quarterly dividend declared has been $.20 per common share since the
third quarter of 1993. The previous quarterly dividend rate was $.175 per share
since the third quarter of 1989. The company has paid a quarterly dividend for
82 consecutive years.
During the fourth quarter of 1997, the company awarded 2,784 restricted stock
units to certain directors pursuant to the terms of the company's Directors'
Restricted Stock Plan. The Units were not registered under the Securities Act
of 1933 (the Act) in reliance upon the exemption contained in Section 4(2) of
the Act for transactions by an issuer not involving any public offering. The
units were awarded (1) in consideration of the prior election by each of the
nonemployee directors to defer all or a portion of his or her cash and (2) upon
the credit of dividend equivalents upon units previously issued. The units are
paid out in an equal number of shares of Unocal common stock at the end of a
restriction period elected by each director, or upon his or her earlier
termination of service as a director for reasons other than cause as defined in
the Plan.
ITEM 6 - SELECTED FINANCIAL DATA - see page 84.
19
<PAGE>
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Unocal is a leading global energy resource and project development company, with
major oil and gas exploration and production activities in Asia and the United
States Gulf of Mexico. Unocal is also the world's leading producer of
geothermal energy; a provider of electrical power; and a manufacturer and
marketer of nitrogen-based fertilizers, petroleum coke, graphites and specialty
minerals.
The following discussion and analysis of the consolidated financial condition
and results of operations of Unocal should be read in conjunction with the
historical financial information provided in the consolidated financial
statements and accompanying notes. Unless otherwise specified, the
following discussion pertains to the company's continuing operations.
CONSOLIDATED RESULTS
<TABLE>
<CAPTION>
Millions of dollars 1997 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Reported after-tax earnings from continuing operations $669 $ 456 $249
Special items:
Deferred tax adjustments 207 - -
Impairment of long-lived assets (43) (46) (65)
Environmental and litigation provisions (84) (123) (63)
Asset sales 43 70 70
Other 31 (7) 20
- --------------------------------------------------------------------------------------------
Total special items 154 (106) (38)
- --------------------------------------------------------------------------------------------
ADJUSTED AFTER-TAX EARNINGS FROM CONTINUING OPERATIONS 515 562 287
- --------------------------------------------------------------------------------------------
After-tax earnings (loss) from discontinued operations (50) (420) 11
Special item: discontinued operations (50) (486) 1
- --------------------------------------------------------------------------------------------
ADJUSTED AFTER-TAX EARNINGS FROM DISCONTINUED OPERATIONS - 66 10
- --------------------------------------------------------------------------------------------
Extraordinary item - early extinguishment of debt (38) - -
Special item: extraordinary item - early extinguishment of debt (38) - -
- --------------------------------------------------------------------------------------------
ADJUSTED AFTER-TAX EXTRAORDINARY ITEM - - -
- --------------------------------------------------------------------------------------------
ADJUSTED AFTER-TAX EARNINGS $515 $ 628 $297
- --------------------------------------------------------------------------------------------
</TABLE>
1997 VS 1996 - With the completion of the sale of its West Coast downstream
refining, marketing and transportation assets, the company's focus continued to
shift toward international energy project development in Asia and intensive
United States Gulf Coast exploration.
The 1997 adjusted after-tax earnings from continuing operations reflected lower
average worldwide crude oil sales prices and decreased domestic crude oil and
natural gas production. In addition, the 1997 results were impacted by higher
worldwide exploration expense, higher international depreciation and
substantially decreased average sales prices for agricultural products. These
negative factors were partially offset by higher average worldwide natural gas
sales prices, increased international crude oil and natural gas production and
lower interest expense.
1996 VS 1995 - During 1996, the company built on its operational strengths by
selling assets that had historically low returns and by increasing capital
spending in international areas in which the company has a strong competitive
position. Unocal completed the sale of its California oil and gas properties
and entered into agreements to sell its West Coast refining, marketing and
transportation assets.
Adjusted 1996 after-tax earnings from continuing operations reflected higher
worldwide average sales prices for crude oil, condensate and natural gas;
increased foreign natural gas production; and increased production and sales
volumes for agricultural products. Partially offsetting these positive factors
were lower worldwide crude oil production and lower agricultural products sales
prices.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
SPECIAL ITEMS
Certain transactions that are unrelated to, or are not representative of, the
company's ongoing operations are included in net income. The company's
management determines which of these transactions will be defined as "special
items" based on how these transactions may impact the underlying results of
operations for a year and how they affect comparability between years. The
following transactions were defined by management as special items for the years
presented:
DEFERRED TAX ADJUSTMENTS - During 1997, the company reported a $103 million
reduction of deferred taxes primarily related to the assessment of the company's
exposure for pending federal income tax appeals; a $94 million tax benefit
related to the devaluation of the baht in Thailand; a $7 million benefit related
to prior year geothermal exploration expenses incurred for the Sarulla project
in Indonesia; and a $3 million benefit for geothermal exploration expenses in
Japan.
IMPAIRMENT OF LONG-LIVED ASSETS - During 1997, the company reported charges to
earnings of $43 million for asset impairments primarily for domestic oil and gas
properties. In 1996, the company reported charges to earnings of $46 million for
impairments for domestic oil and gas and geothermal properties. In 1995, the
company recorded $65 million in charges to earnings for the impairment of
several domestic and international oil and gas producing properties.
ENVIRONMENTAL AND LITIGATION PROVISIONS - These provisions represent the
estimated new and additional probable future costs for environmental clean-up
programs and estimated probable future costs for litigation.
ASSET SALES - In 1997, asset sales consisted of a $40 million gain on the sale
of Unocal Hydrocarbon Sales, a $16 million loss on the sale of the United
Kingdom oil and gas operations, a $7 million gain on the sale of miscellaneous
oil and gas properties and a $12 million gain on the sales of miscellaneous real
estate properties.
In 1996, asset sales consisted of a $65 million gain on the sale of the
California oil and gas properties, a $57 million loss on the sale of domestic
geothermal assets, a $37 million gain on the sale of exploration blocks in the
United Kingdom sector of the North Sea, a $7 million gain on the sale of the
company's interest in the Platte Pipeline company and an $18 million gain on the
sale of various domestic and international properties.
Assets sales in 1995 consisted of a $35 million gain on the sale of various oil
and gas properties, an $18 million gain on the sale of the Process, Technology
and Licensing business and a $17 million gain on the sale of miscellaneous
properties.
OTHER - For 1997, the Other category primarily reflected a $40 million UNO-VEN
restructuring benefit and an $8 million charge related to a gas-ignited
exploration well blowout in northeast Bangladesh.
The Other category for 1996 principally consisted of a $7 million restructuring
charge for Spirit Energy 76, a $7 million benefit from the settlement of federal
lease claims and a $6 million receivable write down.
For 1995, the Other category included a $34 million benefit from a bankruptcy
settlement with Columbia Gas Transmission Corporation, an $18 million benefit
from the settlement of federal lease claims, an $18 million charge for a
deferred tax adjustment and a $14 million receivable write down.
DISCONTINUED OPERATIONS - In March 1997, the company completed the sale of
substantially all of its West Coast petroleum refining, marketing and
transportation assets. The results of operations and assets of the refining,
marketing and transportation segment have been classified as discontinued
operations. During 1997, the company reported an additional $50 million net loss
on these assets. In 1996, the company reported a loss of $491 million and a $5
million gain primarily related to asset sales that took place prior to the sale.
For summarized results and other detailed financial information see note 8 to
the consolidated financial statements.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
EXTRAORDINARY ITEM - In 1997, the company recorded a $38 million after-tax
charge related to the purchase of approximately $507 million in aggregate
principal amount of three of its outstanding issues of debt securities.
REVENUES
In 1997, higher revenues primarily were due to increased activities related to
the marketing and trading of crude oil, condensate and natural gas. Also
contributing to increased revenues were higher affiliate earnings, higher
average worldwide natural gas prices, increased international crude oil and
natural gas production and transactions related to the UNO-VEN restructuring.
Partially offsetting these positive factors were lower domestic crude oil,
condensate and natural gas production and lower average worldwide crude oil and
condensate prices.
The increase in 1996 from 1995 was largely due to higher average worldwide crude
oil and natural gas sales prices, increased natural gas production and
agricultural products volumes.
COSTS AND OTHER DEDUCTIONS
<TABLE>
<CAPTION>
Millions of dollars 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Pre-tax costs and other deductions:
Crude oil and product purchases $2,246 $1,502 $ 979
Operating expense 1,389 1,386 1,302
Special items:
Environmental and litigation provisions (135) (196) (101)
Other - (11) -
- --------------------------------------------------------------------------------
Adjusted crude oil and product
purchases and operating expense $3,500 $2,681 $2,180
- --------------------------------------------------------------------------------
Selling, administrative and general expense $ 107 $ 151 $ 151
- --------------------------------------------------------------------------------
Depreciation, depletion and amortization $ 962 $ 914 $ 911
Special items:
Impairment of long-lived assets (69) (75) (87)
Write-downs of assets - - (19)
- --------------------------------------------------------------------------------
Adjusted depreciation, depletion and
amortization expense $ 893 $ 839 $ 805
- --------------------------------------------------------------------------------
Dry hole costs $ 110 $ 139 $ 61
- --------------------------------------------------------------------------------
Interest expense $ 183 $ 279 $ 291
- --------------------------------------------------------------------------------
</TABLE>
In 1997, higher adjusted crude oil and product purchases were primarily due to
activities related to the marketing and trading of crude oil, condensate and
natural gas and by transactions related to the UNO-VEN restructuring.
Delays in exploratory drilling resulted in a 57 percent decrease in domestic dry
hole costs during 1997. In 1996, dry hole costs were higher primarily due to
increased exploratory drilling activity in the United States Gulf of Mexico.
Decreased interest expense in 1997 was the result of paying down debt and
increased capitalized interest. In 1996, decreased interest expense was the
result of paying down debt.
UNITED STATES EXPLORATION AND PRODUCTION
Spirit Energy 76 is the company's domestic oil and gas business unit that is
responsible for the exploration and exploitation of the company's assets in the
Lower 48 United States. The Other United States category primarily consists of
Alaska oil and gas operations.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
Millions of dollars 1997 1996 1995
-----------------------------------------------------------------------------------------
<S> <C> <C> <C>
After-tax earnings:
Spirit Energy 76 $191 $276 $177
Other 60 122 58
-----------------------------------------------------------------------------------------
Total after-tax earnings 251 398 235
Special items:
Impairment of long-lived assets (41) (32) (27)
Sale of California oil and gas properties (a) - 65 -
Settlement of federal lease claims - 7 18
Write-downs of assets - - (8)
Asset sales 7 - 32
Columbia Gas settlement - - 34
Other - (3) -
-----------------------------------------------------------------------------------------
Total special items (34) 37 49
-----------------------------------------------------------------------------------------
Adjusted after-tax earnings $285 $361 $186
=========================================================================================
</TABLE>
(a) Net of provision for environmental remediation of $10 million.
1997 VS 1996 - The United States adjusted after-tax earnings decreased 21
percent from the 1996 results. This decrease was due primarily to lower crude
oil, condensate and natural gas production, lower average crude oil and
condensate sales prices and higher exploration expense. Partially offsetting
these factors was increased average natural gas sales prices.
During 1997, United States crude oil production decreased 20 percent to
approximately 76 thousand barrels per day from 96 thousand barrels per day.
Natural gas production decreased eight percent to 993 million cubic feet (mmcf)
per day from 1,075 mmcf per day. These decreases were due primarily to natural
declines, hurricane related shut-ins, temporary mechanical problems in some high
output wells and delays in development drilling.
Average crude oil sale prices decreased to $17.13 per barrel in 1997 from $18.51
per barrel in 1996, a seven percent decrease. Average natural gas sales prices
increased to $2.36 per thousand cubic feet (mcf) in 1997 from $2.27 per mcf in
1996, a four percent increase.
Exploration expense, excluding dry hole costs, increased to $60 million in 1997
from $26 million in 1996 due to increased geological and geophysical activities
in the Gulf Coast shelf and deepwater exploration areas. In 1996, exploration
expenses decreased due to the business unit's focus on the development of key
natural gas projects.
1996 VS 1995 - Increases in the average sales price for crude oil and condensate
contributed significantly to improved earnings. The average sales price for
crude oil and condensate increased $3.88 per barrel (or 27 percent) and the
average sales price for natural gas increased $0.71 per mcf (or 46 percent)
above the 1995 levels.
Crude oil and condensate production averaged 96 thousand barrels per day
compared to 125 thousand barrels per day in 1995. This decrease of 23 percent
was primarily due to the sale of California oil and gas properties and natural
production declines.
INTERNATIONAL EXPLORATION AND PRODUCTION
Unocal's international operations pursue oil and gas exploration and
exploitation opportunities outside the United States. Major areas of operations
include Thailand, Indonesia, Myanmar, Azerbaijian, Canada and the Netherlands.
The company also pursues oil and gas exploration and development opportunities
in Bangladesh, China, Pakistan, Turkmenistan, Vietnam, the Democratic Republic
of Congo, Brunei, Yemen and Argentina.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
Millions of dollars 1997 1996 1995
============================================================================
<S> <C> <C> <C>
After-tax earnings $373 $314 $180
Special items:
Deferred tax adjustment 94 - -
Impairment of long-lived assets (2) - (26)
Uninsured loss - Bangladesh (8) - -
Asset sales (16) 41 3
--------------------------------------------------------------------------
Total special items 68 41 (23)
--------------------------------------------------------------------------
Adjusted afte-tax earnings $305 $273 $203
==========================================================================
</TABLE>
1997 VS 1996 - The international adjusted after-tax earnings increased $32
million in 1997 due primarily to increased Far East crude oil and natural gas
production and higher average natural gas sales prices. Partially offsetting
these positive factors were lower average crude oil and condensate sales prices
and increased depreciation and exploration expenses.
During 1997, crude oil and condensate production increased eight percent to 121
thousand barrels per day from 111 thousand barrels per day. Natural gas
production increased 16 percent to 855 mmcf per day from 737 mmcf per day.
These positive factors were mainly the result of increased production in
Indonesia and Thailand.
Average crude oil and condensate prices decreased to $18.21 per barrel from
$19.18 per barrel. Average natural gas sales prices increased to $2.30 per mcf
from $2.23 per mcf.
In 1997 and 1996, exploration expense increased 30 percent and 26 percent,
respectively, as a result of the company's increased exploration programs in
Indonesia, Thailand, Brunei, Azerbaijian and Bangladesh.
1996 VS 1995 - Increases in average sales prices for crude oil and condensate
contributed significantly to improved earnings. Average sales prices for crude
oil and condensate increased approximately 20 percent. In addition, natural gas
production increased 11 percent, principally due to improved production levels
in Thailand, Indonesia and the Netherlands. Also contributing to improved
earnings was decreased depreciation expense, which decreased to $277 million
from $290 million primarily due to operations in Thailand and Indonesia.
Partially offsetting these positive factors was reduced crude oil and condensate
production, which decreased to 111 thousand barrels per day from 115 thousand
barrels per day in 1995.
UNOCAL GLOBAL TRADE
The Unocal Global Trade group was formed in September 1997 to consolidate the
company's worldwide crude oil, condensate and natural gas marketing and trading
activities. Global Trade also purchases crude oil, condensate and natural gas
from the company's joint venture partners, royalty owners and other unaffiliated
oil and gas producers for resale. Global Trade's focus is on improving trading
margins and creating efficient, innovative ways to meet growing global energy
needs.
During 1997, Global Trade's after-tax earnings were $16 million compared with
$16 million in 1996. Gross margins on total natural gas volumes averaged $0.038
per million Btu (MMBtu) over the IFERC index price in 1997. The IFERC index
price is a standard price reference point in the natural gas industry which is
published in the trade newsletter "Inside FERC". This index price is a
combination of prices, at particular locations, for gas sold on the first day of
the month and is used as a reference point in negotiating the purchase or sales
price of natural gas. Global Trade averaged 1.3 billion cubic feet of gas traded
daily in 1997. Gross margins on crude oil trading averaged $0.40 per barrel over
the applicable indices, a 14 percent increase over the 1996 average margin.
Total revenues were $3.5 billion, up nearly 7 percent from the 1996 levels.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
GEOTHERMAL AND POWER OPERATIONS
This business segment explores for, produces and sells geothermal resources, and
constructs and operates electrical plants.
<TABLE>
<CAPTION>
Millions of dollars 1997 1996 1995
==========================================================================
<S> <C> <C> <C>
After-tax earnings (loss) $26 $(55) $26
Special items:
Impairment of long-lived assets - (14) -
Deferred tax adjustment 10 - -
Asset sales - (57) 7
Other - 2 -
--------------------------------------------------------------------------
Total special items 10 (69) 7
--------------------------------------------------------------------------
Adjusted after-tax earnings $16 $ 14 $19
==========================================================================
</TABLE>
1997 VS 1996 - Adjusted 1997 earnings reflected lower depreciation expense due
to the sale of certain domestic geothermal assets in 1996. In Indonesia, at the
Salak field, three new 55-megawatt power units came on line in 1997, which
contributed to the improved results. Offsetting these positive factors was
decreased earnings in the Philippines due to a contract dispute between the
Philippine Geothermal, Inc. subsidiary and the Philippine National Power
Corporation. Under the terms of an interim agreement, 60 percent of the
company's contract revenues and related earnings are deferred, pending
settlement of the dispute. In addition, earnings were negatively impacted by
foreign exchange translation losses and increased dry hole expense.
1996 VS 1995 - During 1996, the company experienced higher development,
exploratory and dry hole expense principally in Indonesia. In addition, the
Philippine contract dispute previously described adversely impacted earnings.
Partially offsetting these negative factors was a 12 percent increase in steam
generation, primarily due to the use of discount pricing at The Geysers in
Northern California and electrical generation expansion at Mak-Ban in the
Philippines.
DIVERSIFIED BUSINESS GROUP
The Agricultural Products business unit manufactures and markets nitrogen-based
products for wholesale agricultural and industrial markets supplying the western
United States and the Pacific Rim. The Carbon and Minerals business unit
produces and markets petroleum coke, graphites and specialty minerals. The
Pipelines business unit principally includes the company's equity interests in
petroleum pipeline companies. The Other category includes the company's equity
interest in The UNO-VEN Company prior to the May 1, 1997 restructuring.
<TABLE>
<CAPTION>
Millions of dollars 1997 1996 1995
==========================================================================
<S> <C> <C> <C>
After-tax earnings (loss)
Agricultural Products $ 54 $ 98 $ 74
Carbon and Minerals 76 47 52
Pipelines 59 69 66
Other 38 14 9
--------------------------------------------------------------------------
Total 227 228 201
Special items:
Asset sales 41 9 4
Environment and litigation provisions (6) (1) -
Restructuring costs (1) - -
UNO-VEN restructuring 40 - -
--------------------------------------------------------------------------
Total special items 74 8 4
--------------------------------------------------------------------------
Adjusted after-tax earnings $153 $220 $197
==========================================================================
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
1997 VS 1996 - Adjusted after-tax earnings decreased 30 percent due primarily to
lower Agricultural Products sales prices and volumes and lower production levels
at the Kenai, Alaska manufacturing plant. Worldwide nitrogen fertilizer prices
were significantly lower in 1997 due to reduced demand for import products into
China and India and increased worldwide production levels. The Agricultural
Products' production rates were lower in 1997 due to scheduled maintenance at
the Kenai manufacturing plant. In addition, urea production at the Kenai
manufacturing plant was curtailed in the third and fourth quarters of 1997 due
to the low margins on urea and in order to optimize ammonia. Carbon and
Minerals results were lower in 1997 due to lower margins on lanthanides products
and lower operating results from its Unocal Hydrocarbon Sales business unit,
which was sold on May 1, 1997. The lower lanthanides margins were primarily due
to increased competitive pressures from Chinese manufacturers and suppliers.
Partially offsetting these negative results was higher operating earnings from
petroleum coke operations.
1996 VS 1995 - The Agricultural Products business unit's adjusted after-tax
earnings for 1996 were 40 percent higher due to increased sales and production
volumes primarily resulting from the startup of the Finley, Washington ammonia
plant. In addition, maintenance expenses were lower in 1996 than in 1995. The
higher 1995 expenses were the result of the Finley plant start-up and scheduled
maintenance at the Kenai, Alaska ammonia plant. Partially offsetting these
positive factors were lower sales prices for ammonia and urea. During 1996, the
Carbon and Minerals business unit's adjusted after-tax earnings decreased
principally due to higher mining expenses and lower solvent margins. The
increased mining expenses were primarily the result of the start up of the
Questa molybdenum mine.
CORPORATE AND UNALLOCATED
Corporate and unallocated expense includes general corporate overhead, the non-
exploration and production related activities of the New Ventures group and
other unallocated costs. Net interest expense represents interest expense, net
of interest income and capitalized interest.
<TABLE>
<CAPTION>
Millions of dollars 1997 1996 1995
==============================================================================
<S> <C> <C> <C>
After-tax earnings effect:
Administrative and general expense $ (56) $ (79) $ (84)
Net interest expense (106) (175) (178)
Environmental and litigation expense (91) (143) (92)
New Ventures (33) (23) -
Other 62 (25) (45)
------------------------------------------------------------------------------
Total (224) (445) (399)
Special items:
Environment and litigation provisions (78) (122) (63)
Tax adjustments (Other) - - (18)
Deferred tax adjustments 103 - -
Receivable write down (Other) - (6) (14)
Write downs of assets (Other) - - (4)
Asset sales (Other) 11 11 24
Miscellaneous (Other) - (6) -
------------------------------------------------------------------------------
Total special items 36 (123) (75)
------------------------------------------------------------------------------
Adjusted after-tax earnings effect $(260) $(322) $(324)
===============================================================================
</TABLE>
1997 VS 1996 - Net interest expense decreased 39 percent as a result of a
decreased debt level and increased capitalized interest.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (continued)
FINANCIAL CONDITION
<TABLE>
<CAPTION> At December 31
--------------------------------------
Millions of dollars 1997 1996 1995
===========================================================================================
<S> <C> <C> <C>
Current ratio (a) 1.3:1 2.0:1 1.2:1
Total debt and capital lease obligations $2,170 $3,058 $3,706
Convertible preferred securities 522 522 -
Stockholders' equity 2,314 2,275 2,930
Capitalization 5,006 5,855 6,636
Total debt/capitalization 43% 52% 56%
Floating-rate debt/total debt 12% 17% 24%
-------------------------------------------------------------------------------------------
(a) 1996 includes net assets of discontinued operations.
</TABLE>
Cash flows from operating activities, including discontinued operations and
working capital and other changes, was $1,133 million in 1997, $1,684 million in
1996 and $1,277 million in 1995. The 1997 amount reflects a one time payment of
$80 million for the settlement of the Catacarb civil lawsuits, cash effects of
the UNO-VEN restructuring and lower domestic crude oil and natural gas
production. Lower average worldwide sales prices for crude oil and condensate
and lower average worldwide sales prices for nitrogen-based agricultural
products also impacted cash flows. Cash flows from working capital decreased in
1997 largely due to cash payments for accounts payable relating to the company's
discontinued operations (see note 8 to the consolidated financial statements).
Partially offsetting these negative factors were higher international crude oil
and natural gas production and higher average worldwide sales prices for natural
gas.
The 1996 amount includes increased sales of nitrogen-based agricultural
products, increased natural gas production and higher commodity prices.
Increased working capital requirements partially offset these benefits in 1996.
Cash flows from operating activities for 1995 included $200 million of proceeds
from the sale of trade receivables, $71 million from the Columbia Gas settlement
and $34 million for the settlement of federal lease claims. These benefits were
more than offset by temporary working capital changes.
In 1997, the company produced $1,889 million in pre-tax proceeds from asset
sales. The sale of the company's West Coast refining, marketing and
transportation assets contributed $1,789 million during the year (see note 8 to
the consolidated financial statements). The remaining proceeds consisted of $29
million for the sale of miscellaneous real estate properties, $29 million for
certain oil and gas properties, $25 million from the sale of Unocal Hydrocarbon
Sales and $17 million for the sale of miscellaneous corporate assets and
pipeline interests. In 1996, the company generated $609 million in pre-tax
proceeds from asset sales. The 1996 amount included $472 million in proceeds
from the sale of California oil and gas properties, $28 million from the sale of
certain domestic geothermal assets and $23 million from the sale of exploration
blocks in the United Kingdom sector of the North Sea. Proceeds from asset sales
in 1995 amounted to $204 million, principally from the sale of miscellaneous oil
and gas properties and the company's Process, Technology and Licensing business.
The company's debt at year-end 1997, including the current portion and capital
lease obligations, decreased $888 million from year-end 1996 to $2,170 million.
The principal decrease was due to the company's purchase of approximately $507
million in debt securities, pursuant to its tender offer of May 15, 1997. The
debt securities were purchased at an aggregate price of approximately $555
million, including a pre-tax premium of $48 million over their total carrying
value. The premium and related costs were recorded as an extraordinary item in
the company's consolidated statement of earnings (see note 9 to the consolidated
financial statements). Cash flows associated with the premium were reported in
the Other category of cash flows from financing activities in the consolidated
statement of cash flows. The remaining $381 million in debt reduction
principally consisted of scheduled maturities and bank credit agreement
prepayments. The debt repayments and debt securities repurchased completed the
company's program to reduce outstanding debt by approximately $800 million,
essentially through the use of proceeds from the sale of the company's West
Coast refining, marketing and transportation assets. The company anticipates an
annual after-tax debt interest savings of approximately $34 million due to the
$507 million debt buyback.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Lower dividend payments in 1997 principally reflected the effects of the
company's completed preferred stock exchange offering of 1996 (see note 21 to
the consolidated financial statements). In September 1996, the company
exchanged 10,437,873 new 6-1/4 percent Trust convertible preferred securities of
Unocal Capital Trust for 9,352,962 shares of Unocal's outstanding $3.50
convertible preferred stock. Following the exchange offer, the company called
for redemption of the 897,038 unexchanged shares of $3.50 convertible preferred
stock. All of the unexchanged shares of preferred stock were converted into
Unocal common stock by the redemption date.
During 1997, the company repurchased 9,262,100 shares of its common stock at a
cost of approximately $362 million, primarily with proceeds received from the
sale of its West Coast refining, marketing and transportation assets (see note
22 to the consolidated financial statements). In January 1998, the Board of
Directors authorized the company to repurchase up to $200 million of additional
common stock on an opportunistic basis. In 1997 and 1996, the company
generated approximately $14 million and $33 million, respectively, in cash from
the sale of its common stock, primarily through the exercise of employee stock
options and the Dividend Reinvestment and Common Stock Purchase Plan.
The company expects cash generated from operating earnings, asset sales and cash
on hand to be sufficient to cover most of its operating requirements, capital
spending and dividend payments in 1998. Any shortfalls may be covered by
increases in debt. In addition, the company has substantial borrowing capacity
to meet unanticipated cash requirements. At December 31, 1997, the company had
approximately $1 billion of undrawn credit facilities available with major
banks.
During 1997, the company's international activities were impacted by an economic
crisis in Asia which caused substantial declines in the region's local
currencies. While these currency declines were significant in relation to the
U.S. dollar, the company's earnings and cash flows were mostly protected from a
foreign exchange perspective. In Indonesia, the company's cost recovery and
equity oil is sold on the world market for U.S. dollars. The company's
Indonesian gas is sold for U.S. dollars. Sales contracts for Indonesian
geothermal steam and electricity are also designed to insulate the company
against currency fluctuations. In Thailand, the company is paid for its gas and
domestically sold condensate in Thai baht indexed to U.S. dollars. Condensate
exported from Thailand is sold in the world market for U.S. dollars. In the
Philippines, the company is paid under its geothermal service contract in
Philippine pesos indexed to the U.S. dollar. As a result of the structure of its
financial arrangements, the Asian economic crisis did not have a significant
negative financial impact on the company in 1997.
DISCLOSURES ABOUT MARKET RISK
Market risk generally represents the risk that losses may occur in the value of
financial instruments as a result of movements in interest rates, foreign
currency exchange rates and commodity prices. As part of its overall risk
management strategies, the company uses derivative financial instruments to
manage and reduce risks associated with these factors. The company does not
use derivative financial instruments for trading purposes other than those that
are hydrocarbon commodity based.
Interest Rate Risk - From time to time the company invests its excess cash in
interest-bearing temporary investments of high-quality issuers. Company policies
limit the amount of investment to any one financial institution. Due to the
short time the investments are outstanding and their general liquidity, these
instruments are classified as cash equivalents in the consolidated balance sheet
and do not represent a material interest rate risk to the company. The company's
primary market risk exposure for changes in interest rates relates to the
company's long-term debt obligations. The company manages its exposure to
changing interest rates principally through the use of a combination of fixed
and floating rate debt (see note 24 to the consolidated financial statements).
Interest rate swaps may also be used to adjust interest rates where appropriate,
based upon market conditions. At year-end 1997, the company had no interest rate
swaps outstanding and floating rate debt approximated 12 percent of the
company's total debt outstanding. The company does not expect to decrease its
total debt level significantly over the coming years. For those debt instruments
that will mature prior to the year 2003, the company intends to continually
refinance the amounts at periods extending beyond the year 2002. The table below
provides principal amounts and related weighted average interest rates for the
company's debt obligations by expected maturity dates
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
and constitutes a forward looking statement. Circumstances could arise which
may cause the timing of actual cash flows to differ materially from the
projections.
DEBT OBLIGATIONS PRINCIPAL AMOUNTS BY EXPECTED MATURITY DATED AT DECEMBER 31,
1997 (EXLUDES CAPITAL LEASES)
<TABLE>
<CAPTION>
Millions of U.S. dollars 1998-2002 There-after Total Fair Value
==========================================================================================================
<S> <C> <C> <C> <C>
Fixed rate $ - $1,770 $1,770 $1,915
Average Interest Rates - 8.19% 8.19%
Fixed rate (DM denominated) (a) - 139 139 139
Average Interest Rates - 6.125% 6.125%
Variable rate - 259 259 259
Average Interest Rates - 6.43% 6.43%
-----------------------------------------------------------------
$ - $2,168 $2,168 $2,313
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(a) The underlying debt obligation is a 6.125 percent Deutsche Mark (DM) 250
million bond. The foreign exchange rate at December 31, 1997 was DM 1.7993
per US$. The DM debt is hedged by a currency swap agreement. Under the
terms of the currency swap agreement, the company will pay $110 million and
receive DM 250 million at maturity. The terms require the company to make
interest payments at 8.4 percent (US$) on $110 million and receive interest
payments at 6.125 percent (DM) on DM 250 million. The fair market value of
the swap agreement at December 31, 1997 was approximately $29 million. The
swap agreement and the DM bonds mature in May 1998. The company intends to
refinance this amount on a long-term basis in US dollars.
Foreign Exchange Rate Risk - The company conducts business in various parts of
the world and in various foreign currencies. To limit the company's foreign
currency exchange risk related to operating income, foreign sales agreements
generally contain price provisions designed to insulate the company's sales
revenues against adverse foreign exchange rates. In most countries, energy
products are valued and sold in U.S. dollars and foreign currency operating cost
exposures have not been significant. In other countries, the company is paid for
product deliveries in local currencies but at prices indexed to the U.S. dollar.
These funds, less amounts retained for operating costs, are converted to U.S.
dollars as soon as practical. The company's Canadian subsidiary is paid in
Canadian dollars for its crude oil and natural gas sales. Excess Canadian funds
generally have been invested in other Unocal foreign operations rather than
remitted to the U.S. parent.
A portion of the company's borrowings are denominated in foreign currencies,
which exposes the company to market risk associated with foreign currency
exchange rate movements. Where warranted, the company uses derivative financial
instruments, such as foreign currency swap agreements, to mitigate these risks.
The company had two currency swap agreements outstanding at year end 1997
related to its Canadian subsidiary, with notional amounts totaling $250 million.
The agreements effectively change the subsidiary's U.S. dollar denominated
borrowings into its functional Canadian currency. The parent company also had
two outstanding currency swap agreements which offset the subsidiary's currency
swap and essentially maintain the subsidiary's debt in U.S. dollars for
consolidated financial statement purposes. The net fair value of these swap
agreements at December 31, 1997 is approximately zero. The Canadian and U.S.
dollar swap agreements mature in 1999 and 2000, and cash flows related to these
agreements are virtually offset.
The company also had a currency swap agreement outstanding at year end 1997,
related to its Deutsche Mark (DM) bonds due in 1998. The notional amount of the
swap agreement is $110 million (250 million DM) and its fair value at December
31, 1997 was approximately $29 million. The DM bonds and the swap agreement will
mature on May 6, 1998. The company expects to refinance this amount on a long-
term basis.
Commodity Price Risk - The company is a producer, purchaser, marketer and trader
of certain hydrocarbon commodities such as crude oil and condensate, natural gas
and petroleum-based products and is subject to the associated price risks. The
company generally uses hydrocarbon commodity based derivative instruments, such
as
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
options or future contracts with maturities of 18 months or less, to mitigate
its exposure to fluctuations in petroleum commodity prices.
On a limited basis, the company has traded hydrocarbon commodity based
derivative financial instruments. The company has controls in place and monitors
its trading activities to ensure compliance. The company uses a value at risk
model to assess the market risk of its commodity price sensitive derivative
instruments for internal risk management purposes. Value at risk represents the
potential loss in fair value the company would experience on its commodity price
sensitive derivative instruments, using calculated volatilities and correlations
over a specified time period with a given confidence level. The company's
calculation model is based on historical data and uses a one week time interval
and a 95 percent confidence level. Trading and non-trading activities have been
segregated in the model. The total amount of hydrocarbon commodity derivative
instruments held for trading purposes and held for purposes other than trading
are not material. Based upon the company's calculations, the value at risk
related to commodity price sensitive derivative financial instruments at
December 31, 1997 was immaterial.
CAPITAL EXPENDITURES FOR CONTINUING OPERATIONS
<TABLE>
<CAPTION>
Estimated
Millions of dollars 1998 1997 1996 1995
============================================================================================================
<S> <C> <C> <C> <C>
Exploration and Production
United States $ 549 $ 367 $ 418 $ 497
International 775 801 509 353
------------------------------------------------------------------------------------------------------------
Total 1,324 1,168 927 850
Geothermal and Power Operations 73 102 114 51
Diversified Business Group
Agricultural Products 15 18 12 55
Carbon and Minerals 26 30 16 12
Pipelines 27 11 54 5
Corporate and Unallocated
New Ventures 4 5 5 6
Other 37 44 46 58
------------------------------------------------------------------------------------------------------------
Total $1,506 (a) $1,378 $1,174 $1,037
------------------------------------------------------------------------------------------------------------
</TABLE>
(a) In light of the recent decline in commodity prices, the company is
currently planning to defer about $250 million in capital spending
projects.
Forecasted 1998 capital expenditures for the company's Spirit Energy 76 (Spirit
Energy) group are nearly 50 percent over the 1997 levels. Domestic exploration
will increase significantly over the 1997 amount as Spirit Energy focuses on
exploratory drilling in deepwater prospects in the Gulf of Mexico.
International oil and gas exploration and production capital spending in 1997
increased 57 percent from 1996, reflecting increased expenditures in Thailand,
Indonesia, Myanmar, Azerbaijan, Bangladesh and Canada. Geothermal energy
projects in 1997 included the completion and start up of three 55-megawatt power
units at the Salak field on the island of Java. During the year, exploratory
drilling on the island of Sumatra confirmed commercial quantities of the
Sarulla area geothermal resource. However, drilling at Sarulla was put on hold
due to the postponed development of a related steam-based 80-megawatt power
plant by the Indonesian government.
In 1998, the international oil and gas operation's capital spending plan is
expected to approximate 97 percent of the 1997 level. Capital spending will
focus on the exploration and development of oil and gas fields in Thailand,
Indonesia, Myanmar, Azerbaijan, Vietnam and Bangladesh, as well as developing
new power plants and pipelines in Asia. International oil and gas exploration
expenditures in 1998 are projected to increase 65 percent from 1997, as the
company pursues opportunities in areas offshore Vietnam, in Thailand and in
deepwater areas offshore Indonesia. The company is planning exploration drilling
to test the Makassar Strait production sharing contract area, offshore East
Kalimantan, Indonesia. International development capital is expected to
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
decrease slightly to 81 percent of the 1997 amount as development of the Yadana
offshore natural gas field in Myanmar and the Pailin natural gas field in
Thailand near completion. Both fields are expected to begin producing in 1998.
The 1998 capital expenditures for the Geothermal and Power Operations segment
are expected to decrease from the 1997 level as the company put its drilling
activities in the Sarulla contract area on hold. Should the Indonesian
government reactivate the Sarulla project in the future, the company would
proceed with its plan to conduct further exploration and development drilling at
the site. Also, the company is in the process of demonstrating additional
reserve capacity at Salak in anticipation of future expansion up to the 495-
megawatt contract limitation.
Capital spending for the Diversified Business Group as a whole in 1998 is
estimated to be up 15 percent as compared to the 1997 amount. The Pipelines
business unit's capital expenditures in 1998 are expected to more than double as
compared to 1997, as miscellaneous upgrades to existing facilities and
acquisition of new or additional pipelines interests are planned. The 1998
capital expenditures for the Agricultural Products business unit is expected to
decrease slightly from last year. Carbon and Mineral's 1998 capital
expenditures are projected to be approximately 87 percent of the 1997 amount.
Capital spending for the Carbon and Minerals business unit in 1997 was up due to
the capital requirements for its lanthanides operations in Mountain Pass,
California.
The company's capital spending plans are reviewed periodically depending on
current economic conditions.
ENVIRONMENTAL MATTERS
The company continues to incur substantial capital and operating expenditures
for environmental protection and to comply with federal, state and local laws
and provisions regulating the discharge of materials into the environment. In
many cases, investigatory or remedial work is now required at various sites even
though past operations followed practices and procedures that were considered
acceptable under environmental laws and regulations, if any, existing at the
time.
<TABLE>
<CAPTION>
Estimated
Millions of dollars 1998 1997 1996 1995
============================================================================================================
<S> <C> <C> <C> <C>
Environment-related capital expenditures
Continuing operations $34 $40 $15 $ 33
Discontinued operations $ - $16 $57 $197
------------------------------------------------------------------------------------------------------------
</TABLE>
Environment-related capital expenditures include additions and modifications to
company facilities to mitigate and/or eliminate emissions and waste generation.
Most of these capital expenditures are required to comply with federal, state
and local laws and regulations. The decrease in 1997 capital expenditures for
discontinued operations reflected the sale of the company's refining, marketing
and transportation facilities on March 31, 1997. The decrease in 1996 was
primarily due to the completion of major modifications to the company's
refineries to manufacture cleaner burning reformulated gasoline for the
California market. These modifications were performed between 1993 and 1995 at
a cost of approximately $400 million.
Amounts charged to earnings for environment-related expense were $180 million in
1997, $230 million in 1996 and $170 million in 1995. The reduction in 1997 was
the result of the sale of the refining, marketing and transportation assets.
Environmental expenses include remediation costs and operating, maintenance and
administrative costs related to environmental compliance. These expenses
include provisions for future remediation costs that were identified during the
company's ongoing review of its environmental obligations. In 1997, these
provisions consisted primarily of remediation costs for Guadalupe, Avila Beach
and the company's adoption of the provisions of Statement of Position (SOP) 96-
1, "Environmental Remediation Liabilities," issued by the American Institute of
Certified Public Accountants. The provisions are discussed in more detail
below.
At December 31, 1997, the company's reserves for environmental remediation
obligations totaled $268 million, of which $100 million was included in current
liabilities. The total amount is grouped into the following five categories:
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
ENVIRONMENTAL RESERVE SUMMARY
<TABLE>
<CAPTION>
Year end
Millions of dollars 1997
========================================================================
<S> <C>
Superfund and similar sites $ 24
Former company-operated sites 27
Company facilities sold with retained liabilities 74
Inactive or closed company facilities 110
Active company facilities 33
------------------------------------------------------------------------
Total reserves $268
------------------------------------------------------------------------
</TABLE>
SUPERFUND AND SIMILAR SITES - At year end 1997, Unocal had received notification
from the U.S. Environmental Protection Agency that the company may be a
potentially responsible party (PRP) at 41 sites and may share certain
liabilities at these sites. In addition, various state agencies and private
parties had identified 41 other similar PRP sites that may require investigation
and remediation. Of the total, the company has denied responsibility at six
sites and at another eight sites the company's liability, although unquantified,
appears to be de minimis. The total also includes 27 sites which are under
investigation or in litigation, for which the company's potential liability is
not presently determinable. At another two sites, the company has made
settlement payments and is in the final process of resolving its liabilities.
Of the remaining 39 sites, where probable costs can be estimated, reserves of
$24 million have been established for future remediation and settlement costs.
These 82 sites exclude 60 sites where the company's liability has been settled,
or where the company has no evidence of liability and there has been no further
indication of liability by government agencies or third parties for at least a
12-month period.
Unocal does not consider the number of sites for which it has been named a PRP
as a relevant measure of liability. Although the liability of a PRP is
generally joint and several, the company is usually just one of several
companies designated as a PRP. The company's ultimate share of the remediation
costs at those sites often is not determinable due to many unknown factors as
discussed in note 19 to the consolidated financial statements. The solvency of
other responsible parties and disputes regarding responsibilities may also
impact the company's ultimate costs.
FORMER COMPANY-OPERATED SITES - Reserves of $27 million have been established
for this category of sites. Included are service station sites on leased
properties at which operations have ceased and which the company is obligated to
remediate before returning the properties to the owners. Also included are
service station sites that the company previously owned or leased. The current
owners of such properties are holding the company responsible for environmental
remediation costs. This reserve also includes estimated remediation costs for
oil and gas fields in California that were previously operated by the company.
COMPANY FACILITIES SOLD WITH RETAINED LIABILITIES - This category has reserves
of $74 million for environmental liabilities related to former company
businesses and assets that have been sold. Included are the company's former
West Coast refining, marketing and transportation assets sold to Tosco
Corporation on March 31, 1997. Also included are the auto/truckstop facilities,
a former mine site in Wyoming, California oil and gas properties, industrial
chemical and polymer sites and agricultural chemical sites. In each sale, the
company retained a contractual remediation or indemnification obligation and is
responsible only for certain environmental problems associated with its past
operations. The reserves represent presently estimated future costs for
investigation/feasibility studies and identified remediation work as a result of
claims made by buyers of the properties.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Inactive or closed company facilities - Reserves of $110 million have been
established for these types of facilities. The major sites in this category are
the Guadalupe site, on the central California coast and the Avila Beach,
California, site. Also included in this category are oil and gas properties in
California and the former Beaumont refinery in Texas.
On May 14, 1997, a draft environmental impact report (EIR) prepared by a
consultant to the County of San Luis Obispo, California, was issued for use by
the County, the Regional Water Quality Board -- Central Coast Region and others
in evaluating the company's proposed remedial action plan, as well as
alternative courses of action, for remediation of the underground petroleum
hydrocarbon contamination at Avila Beach, California, resulting from former
company operations. The company reviewed the alternatives addressed therein
versus the expected environmental benefits and issued comments in this regard as
well as comments on other procedural and substantive issues subject to appeal.
Certain of the alternatives addressed in the draft EIR would, if implemented,
entail remediation costs significantly higher than the costs for the company's
plan. The county accepted public comments on the draft EIR and on a subsequent
draft environmental impact statement (EIS) that was also issued. The final
EIR/EIS was issued on February 18, 1998. The final EIR was certified by the
county on February 26, 1998 with no significant changes from the draft EIR.
On August 25, 1997, the County of San Luis Obispo issued a draft EIR on the
company's remediation and abandonment plans for Guadalupe. The field is
contaminated with diluent, a kerosene-like additive used in the company's former
operations at the site. The draft EIR will allow the company, the general
public, the county and other regulatory agencies to evaluate the company's
proposed remediation and abandonment plan, as well as alternative courses of
action, for the field. Certain of the alternatives addressed in the draft EIR
would, if implemented, result in significantly higher remediation costs than the
costs for the company's proposed plan. The company has completed its review of
the draft EIR and issued extensive comments to the county on November 4, 1997.
The final EIR was issued in March 1998. Public hearings for certification of
the final EIR are scheduled for completion in early April 1998.
In 1997, the company added approximately $55 million to the remediation reserve
for updated cost estimates related to its proposed remedial action plans and
other costs associated with the clean-up of Avila Beach and Guadalupe. There is
a possibility that the company may incur additional expenses for these sites.
The actual clean-up costs for both sites will be affected by possible settlement
agreements with the California Attorney General, applicable agencies and other
parties of suits previously filed against the company. The company is in
negotiation with the California Attorney General and believes that the
settlements may be finalized in 1998. Estimates for possible additional
remediation costs for these sites are included in the $270 million total
possible additional remediation costs disclosed in note 19 to the consolidated
financial statements.
ACTIVE COMPANY FACILITIES - The company has provided $33 million for estimated
future costs of remedial orders, corrective actions and other investigation,
remediation and monitoring obligations at certain operating facilities and
producing oil and gas fields. Also included in this category are the Questa
molybdenum mine in New Mexico, which resumed operations in 1996, and the
Mountain Pass, California lanthanide facility, both operated by the company's
Molycorp, Inc. (Molycorp) subsidiary.
During 1997, $7 million was accrued for the cost to clean-up spills from
Molycorp's wastewater pipeline near the Mountain Pass facility. The spills
occurred in 1996 on federal land in California near the Nevada border. Clean-up
work started in 1996 and should be completed in 1998. Molycorp has been engaged
in settlement negotiations with the District Attorney since May 1997 in an
effort to achieve a civil resolution of this matter. In March 1998, Molycorp
was notified by the Regional Water Quality Control Board of its intent to issue
three administrative orders with respect to the wastewater evaporation and mine
tailings ponds at the Mountain Pass facility. Molycorp temporarily suspended
operation of the separations plant and wastewater pipeline. The temporary
suspension of operations will not affect Molycorp's ongoing efforts to comply
with existing regulatory orders.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The company added approximately $14 million to the remediation reserve related
to the adoption of Statement of Position 96-1, issued in late 1996 by the
American Institute of Certified Public Accountants. Although the existing
company accounting policies were substantially consistent with most of the
provisions specified by SOP 96-1, some modifications to the policies were made
regarding cost measurement.
The company is subject to federal, state and local environmental laws and
regulations, including the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, and the Resource Conservation and
Recovery Act (RCRA). Under these laws, the company is subject to possible
obligations to remove or mitigate the environmental effects of the disposal or
release of certain chemical and petroleum substances at various sites.
Corrective investigations and actions pursuant to RCRA are being performed at
the company's Beaumont facility, the company's closed shale oil project and the
company's Washington, Pennsylvania molybdenum roasting facility. The company
also must provide financial assurance for future closure and post-closure costs
of its RCRA-permitted facilities. Because these costs will be incurred at
different times and over a period of many years, the company believes that these
obligations are not likely to have a material adverse effect on the company's
results of operations or financial condition.
The total environmental remediation reserves recorded on the consolidated
balance sheet represent the company's estimates of assessment and remediation
costs based on currently available facts, existing technology, and presently
enacted laws and regulations. The remediation cost estimates, in many cases,
are based on plans recommended to the regulatory agencies for approval and are
subject to future revisions. The ultimate costs to be incurred will likely
exceed the total amounts reserved, since many of the sites are relatively early
in the remedial investigation or feasibility study phases. Additional
liabilities may be accrued as the assessment work is completed and formal
remedial plans are formulated.
The company has estimated, to the extent that it was able to do so, that it
could incur approximately $270 million of additional costs in excess of the $268
million accrued at December 31, 1997. The amount of such possible additional
costs reflects, in most cases, the high end of the range of costs of feasible
alternatives identified by the company for those sites with respect to which
investigation or feasibility studies have advanced to the stage of analyzing
such alternatives. However, such estimated possible additional costs are not an
estimate of the total remediation costs beyond the amounts reserved, because at
a large number of sites the company is not yet in a position to estimate all, or
in some cases any possible additional costs. Both the amounts reserved and
estimates of possible additional costs may change in the near term, in some
cases, substantially, as additional information becomes available regarding the
nature and extent of site contamination, required or agreed-upon remediation
methods, and other actions by government agencies and private parties.
See notes 18 and 19 to the consolidated financial statements for additional
information.
FUTURE ACCOUNTING CHANGES
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting comprehensive income and its
components in a full set of financial statements. The standard requires
presentation of other items of comprehensive income by their nature in a
financial statement and requires a separate presentation of the accumulated
balance of other comprehensive income items from retained earnings and
additional paid-in capital in the stockholders' equity section of the balance
sheet. The company plans to adopt SFAS No. 130 for the year ended December 31,
1998.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which changes standards for reporting
financial information about operating segments in annual financial statements.
SFAS No. 131 also changes standards for reporting certain information about
geographic areas, products and services and major customers. In addition, the
standard requires the disclosure of certain information about operating segments
in interim period financial reports. The company is currently evaluating the
impact the accounting standard will have on its operating segment disclosures.
The company plans to adopt SFAS No. 131 for the year ended December 31, 1998.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". This statement standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable. The Company is examining the potential impact the adoption
of this accounting requirement will have on its disclosures.
OTHER MATTERS
In May 1997, the company reached an agreement to settle the "Catabarb" civil
lawsuits with the payment of an aggregate of $80 million, including full
releases by all of the plaintiffs of record. The court certified the settlement
in June 1997.
In October 1997, following the first phase of a trial, a federal district court
jury rendered a verdict upholding the claims of the company's patent for certain
compositions of reformulated gasoline. In November, following a second phase of
the trial, a jury awarded the company 5-3/4 cents per gallon, for a total of $69
million, in damages for infringement of the company's reformulated gasoline
patent from March through July 1996 by six of the nations largest oil companies.
A third phase of the trial was held in December 1997, with respect to the
plaintiffs' request that the judge find the patent unenforceable because of
alleged "inequitable conduct" during its prosecution of the patent. The judge's
decision is pending. Accordingly, the company had not recorded any amounts
attributable to potential payments for these damages at December 31, 1997.
In January 1998, the holder of a prior patent on reformulated gasolines filed an
action against the company in the same court seeking to have the company's
patent invalidated and seeking damages for infringement of the prior patent.
The company believes the assertion is without merit and is vigorously defending
the lawsuit.
Bridas Corporation (Bridas) filed a petition against the company and others in a
Texas district court in February 1996, alleging that the defendants conspired
to and did tortiously interfere with Bridas' rights under agreements with the
government of Turkmenistan to develop the Yashlar field and to transport gas
from that field to Pakistan. Bridas seeks substantial actual and punitive
damages. The company believes the assertions made by Bridas are without merit
and is vigorously defending the lawsuit. For further information see note 19 to
the consolidated financial statements.
OUTLOOK
Certain of the statements in this discussion, as well as other forward-looking
statements within this document, contain estimates and projections of amounts of
or increases in future revenues, earnings, cash flows, capital expenditures,
assets, liabilities and other financial items. Certain statements may also
contain estimates and projections of future levels of or increases in reserves,
production, sales including related costs and prices, and other statistical
items; plans and objectives of management regarding the company's future
operations, products and services; and certain assumptions underlying such
estimates, projection plans and objectives. While these forward-looking
statements are made in good faith, future operating, market, competitive, legal,
economic, political, environmental, and other conditions and events could cause
actual results to differ materially from those in the forward-looking
statements.
Energy prices are expected to remain volatile in 1998 due, in part, to OPEC's
November 1997 production quota increase and the effect of a warmer winter in the
Northern Hemisphere. Non-OPEC oil supplies should expand slightly this year as a
result of new production in the North Sea. Tensions in Iraq relating to the
United Nations' weapons inspections may also lead to increased price volatility.
In addition, economic turbulence in Asia is expected to slow short-term regional
demand for energy products from their rapid growth rate of recent years.
ASIAN ECONOMIC CRISIS
During 1997, Asia experienced an economic downturn which led to financial
turmoil in the area. Currency exchange rates fell, as did stock prices and
investor confidence in the region. In an effort to arrest the currency slide
and calm investors' fears, many of the countries' governments initiated
austerity programs and major financial restructurings. Several Asian countries
also appealed to the International Monetary Fund (IMF) for loan
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
assistance. As part of the IMF recovery package negotiations, many countries
agreed to reshape their financial policies including easing certain rules for
foreign investment. The company believes that these initiatives may lead to
future opportunities for Unocal, which is committed to Asia for the long term.
The company's oil, gas and geothermal operations in Asia were impacted slightly
from the decline in foreign exchange values in 1997. Long-term growth in energy
demand is expected to slow in the region, which may cause delays in some of the
company's future projects. However, most of the company's Far East operating
revenues are protected from a foreign exchange perspective through existing
contracts. In Indonesia, the company sells its cost recovery and equity oil on
the world market for U.S. dollars. The company also has a cost recovery contract
that effectively insulates it from foreign currency exchange fluctuations. In
addition, oil and liquefied natural gas are exported from Indonesia and are
sources of U.S. dollars for the country. The company believes it is in
Indonesia's best interest to increase exploration and production of these
commodities to maximize its cash flows. The company's position as a low cost
operator should enable it to expand its exploration and production program from
the continental shelf and the deepwater Mahakam Delta area for many years to
come.
In Indonesia, the company's geothermal operations at Salak are also designed to
insulate the company from foreign currency fluctuations. The energy sales
agreement calls for payment in U.S. dollars and is guaranteed by the Government
of Indonesia. It may be necessary to call on the Government of Indonesia's
guarantee if PLN, the state electricity company, is unable to pay the full
amounts due under the energy sales agreement. The company and its 50 percent
owned affiliate have received payment for all amounts related to operations
through December 31, 1997. The Government of Indonesia has advised that payment
of amounts for operations through the first quarter of 1998 will be made in
full.
The Indonesian Government recently postponed an 80 megawatt power project in the
Sarulla block in North Sumatra. The company believes that the project may be
allowed to go forward as it would help fill a current need for power in the
area. The company is working toward having the project placed back on the
continued project list.
The Asian economic crisis had little impact on the company's Philippine
Geothermal, Inc. (PGI) earnings in 1997 as payments to PGI have been tied to the
dollar exchange rate. Demand for electricity produced from the PGI facilities
remains strong.
Negotiations are in progress to replace PGI's existing service contract with a
new arrangement that would combine both the steam field operations of PGI and
the electricity generation facilities of the National Power Corporation of the
Philippines (NPC). PGI has also brought the issue of the service contract
renewal to arbitration by the International Chamber of Commerce. A provisional
agreement was in effect until December 31, 1997 providing for PGI to receive 40
percent of its original service fee, and for the remaining 60 percent of the
service fee to be distributed according to the negotiated arrangement or to be
given to the prevailing party in the legal proceedings. An interlocutory order
issued by the arbitration court requires both parties to maintain the status quo
beyond December 31, 1997. The provisional agreement is expected to be extended,
together with a suspension of the arbitration proceedings. The current
financial situation in the region is not expected to significantly impair the
Philippine negotiations.
In Thailand, the company's gas sales contracts are designed to adjust for
foreign currency exchange fluctuations. These provisions have helped protect
revenues from most of the decline in the baht in 1997. The company expects a
modest natural gas price decline in 1998, as compared to 1997, if current
conditions continue. Demand for electricity could slow in the country, however,
the company is confident that Thailand will honor all contracts in force. This
includes the new contracts for the Yadana field, offshore Myanmar and the Pailin
field, offshore Thailand. Future projects in the area may be delayed, however,
if energy demand continues to be slow. Yadana gas is slated to fuel Thailand's
2,800-megawatt power plant near Bangkok, which is scheduled for completion and
start up in the summer of 1998. The much publicized protests by political and
environmental groups opposed to the completion of the Thailand portion of the
pipeline are not expected to cause major delays in the project. The Yadana
contract has a take-or-pay provision with an international escrow arrangement.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The Thai government continues to support projects to reduce the use of imported
fuel oil and substitute natural gas for power generation. There are
opportunities in Thailand to displace oil-fired power, as fuel oil represents
approximately 22 percent of all power fuels consumed. As a low cost supplier,
the company is in a favorable position to work with the government to increase
the use of natural gas as the most economical and environmentally desirable fuel
for power generation.
UNITED STATES EXPLORATION AND PRODUCTION
The Spirit Energy group's capital expenditures for 1998 are budgeted at $500
million with nearly 60 percent of the total going to exploration projects. The
company expects to participate in 91 exploration wells in 1998, up from 35 in
1997. In October 1997, Spirit Energy found its first commercial deepwater oil
discovery in the Gulf of Mexico at its partner operated Garden Banks Block 409,
approximately 150 miles off the Southeast Louisiana coast. Also in 1997, the
company added 115 offshore lease blocks to its exploration inventory, including
89 deepwater blocks, during the U.S. Minerals Management Service Lease sales
conducted in March and August. By year-end 1998, the company expects to drill or
participate in four to six exploratory wells on its deepwater prospects. In
January 1998, Spirit Energy signed a letter of commitment with Transocean
Offshore, Inc. to contract for a deepwater drill ship. The drill ship will be
capable of operating in water depths of up to 10,000 feet and is designed with
dual drilling activity capabilities. Spirit Energy is scheduled to take delivery
of the drill ship in the first quarter 2000. Drilling alliances brokered in 1997
for acreage in the productive areas offshore Southeast Louisiana and onshore
Cotton Valley, East Texas, will ensure a ready inventory of onshore and
continental shelf prospects is available in the interim.
In December 1997, the company forecasted that Spirit Energy's production for
1998 would approximate its 1997 levels. The company currently estimates that
Spirit Energy's 1998 production will be lower than originally forecast due to
the possibility of reduced capital spending and pipeline curtailments in the
Gulf of Mexico.
INTERNATIONAL EXPLORATION AND PRODUCTION
The company's foreign natural gas production is expected to increase 11 percent
over 1997, primarily due to the projected start up of natural gas production
from the Yadana field, offshore Myanmar, the Pailin field, offshore Thailand and
the Jalalabad field in Bangladesh. The offshore section of the Yadana pipeline
is complete and the onshore section is expected to be completed in the summer of
1998. Foreign crude oil and condensate production for 1998 is expected to be up
nearly nine percent over last year primarily due to full-year production from
Azerbaijan and Yemen.
In Thailand, the company expects to spend approximately $200 million on
development of crude oil and natural gas projects in 1998, primarily for the
development of the Pailin field in the Gulf of Thailand. Initial production
from the Pailin field is expected to begin at 165 mmcf of natural gas per day in
late 1998, rising to as high as 330 mmcf per day by 2001. In 1997, the company
discovered commercial quantities of natural gas in the Moragot field. Unocal
has a 35 percent working interest and is the operator in the B12/27 concession
block where the Pailin field and the Moragot field are located. The company is
evaluating development options for the Moragot field and hope to bring the field
on-line following the development of the Pailin field. In December, the company
signed a new exploration agreement with the Thai Ministry of Industry to explore
on blocks 10A and 11A which only recently became available after a boundary
dispute resolution with Thailand's neighboring countries. These blocks are
located in the prolific Pattani Basin, northeast of Unocal's existing Kaphong
and Platong producing gas fields and North of the Trat field, where the company
has successfully delineated additional gas resources. The company is the
operator and has a 60 percent working interest in the concession. The company
also signed an extension on its B10/32A concession block which lies west of the
Erawan field, one of Unocal's major gas-producing fields in the Gulf of
Thailand. The block is in the western part of the Pattani Basin. The company is
the operator and holds a 45 percent working interest in the block. In December
1997, the company completed its exploratory drilling commitment on blocks W8/38
and W9/39 offshore Thailand in the Andaman Sea. The five well drilling program
did not encounter commercial quantities of hydrocarbons. The company is
evaluating the data to determine if any further exploration is appropriate.
In Indonesia, the company plans to spend over $230 million in 1998, on oil and
natural gas projects, including further exploration of the Merah Besar structure
of the Mahakam Delta. The Merah Besar structure extends into
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
the East Kalimantan Production Sharing Contract (PSC) area and the Makassar
Strait PSC area. The company recently completed the drilling and testing of the
Merah Besar No. 5 well which, confirmed significant oil potential. This well is
located in the East Kalimantan PSC area. Unocal is the operator of the East
Kalimantan PSC area and has a 100 percent working interest in the PSC. In
September 1997, the company completed the drilling and testing of the Merah
Besar No. 6 well in the Makassar Strait PSC area. The well confirmed
significant oil and gas potential and earned the company a 50 percent working
interest in the Makassar Strait PSC. In March 1998, the company successfully
drilled two more wells in the deepwater Merah Besar area. The two wells, Merah
Besar No. 9 and Hitam Besar No. 1, both encountered shallow gas on the East
Kalimantan PSC area. The company expects to submit a plan of development for
the Merah Besar area in the fourth quarter of 1998, and could begin production
by early 2001. The new development would include deepwater portions of the East
Kalimantan and Makassar Strait PSCs.
In September 1997, the company signed the Sesulu PSC which is adjacent to the
southern section of the company's East Kalimantan PSC area. The company is the
operator and holds a 100 percent working interest in the Sesulu PSC area.
Several prospects have been identified and the company plans to drill three to
four additional wells during the next three years. In December 1997, the
company also signed the Rapak PSC which is a natural extension of its deepwater
exploration program initiated in the Mahakam Delta area. The Rapak PSC area is
adjacent to the company's Makassar Strait PSC and also borders the northern
section of the company's East Kalimantan PSC area. The company is the operator
of the Rapak PSC and currently has a 90 percent working interest in the contract
area, although 30 percent of the company's working interest has been offered to
another multinational oil company subject to Indonesian Government approval. In
February 1998, the company signed the Ganal PSC, which lies in the Mahakam Delta
area, east of the southern portion of the Makassar Strait PSC. Ganal covers
nearly 112 million acres with water depths ranging from 2,400 feet to 6,600
feet. Unocal is the operator of the Ganal PSC and has a 90 percent working
interest in the contract area.
In Myanmar, capital spending is expected to decrease to approximately $90
million in 1998, as the Yadana field complex and related pipeline near
completion. Construction efforts on the Yadana field include two wellhead
platforms, one producing platform, one living quarters platform and one offshore
pipeline. The onshore section of the Myanmar to Thailand natural gas pipeline
is scheduled for completion in the summer of 1998. First production, which is
scheduled for sale to Thailand under a 30-year gas sales contract and a pipeline
agreement, will begin in the summer of 1998, increasing to 525 mmcf per day in
1999. A separate agreement calls for 125 mmcf per day of natural gas to be
supplied to Myanmar for its domestic use once a pipeline is constructed from the
field to Yangon. Unocal has a 28.26 percent working interest in the Yadana
project. The French energy company, Total, is the operator of the Yadana field.
The United States Congress passed legislation which allowed the President to ban
future investment by United States companies in new projects within Myanmar if
certain acts occurred. In 1997, the President banned all investment in new
projects in Myanmar. The company believes that its current projects are not
impacted by this legislation. The company's current projects include the Yadana
field and related natural gas pipeline and facilities, construction of a second
natural gas transmission line from the Yadana field to the city of Yangon,
construction of a 200 megawatt electricity generating plant and possible
construction of a 1,750-ton per day fertilizer plant. Further exploration
activities include PSC's signed for blocks M5, M6 and M8. The company holds a
28.26 percent working interest in blocks M5 and M6 and holds a 33.25 percent
working interest in block M8.
Beginning in 1998, the company expects to begin receiving its 10 percent working
interest share of revenues for early oil production from the Azerbaijan
International Operating Company (AIOC) production-sharing agreement located in
the Azerbaijan portion of the Caspian Sea. The consortium has upgraded an
existing northern pipeline system which connects in Russia for the export of its
early oil. A proposed western pipeline route would go from Baku, Azerbaijan
through Georgia and incorporate into existing pipeline segments. All contracts
have been negotiated and are now being formalized for ratification. The western
pipeline could begin operation in the first quarter of 1999.
Production from the Kharir field in the East Shabwa contract area in the
Republic of Yemen began in December 1997. At start-up, gross production
averaged approximately 17,000 barrels of oil per day (bopd). This is expected
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
to increase to 20,000 bopd in 1998, as additional wells come on production. The
company has a 28.57 percent working interest in the field.
On February 13, 1998, the company's Unocal Canada Limited subsidiary reached an
agreement to exchange certain of its Canadian oil and gas assets with Tarragon
Oil and Gas Limited for approximately $215 million in Tarragon common stock and
debentures. Unocal Canada will transfer all of its producing oil and gas assets
in Alberta, essentially all of its producing assets in British Columbia,
substantially all of its undeveloped lands in Alberta and certain of its
undeveloped lands in British Columbia to Tarragon. In exchange, Unocal Canada
Limited will receive 21 million shares of Tarragon common stock and $70 million
in Tarragon subordinated debentures. This transaction is subject to customary
Canadian regulatory approvals as well as approval of the Tarragon stockholders.
In Bangladesh, the company is a non-operator 50 percent working interest owner
in a PSC covering three blocks. These blocks include the Jalalabad natural gas
field at Sylkhet. A sales contract calls for initial delivery of 100 mmcf per
day of natural gas by mid-year 1998. Additional development and delineation
wells are scheduled over the next two years. The joint venture will also
conduct additional exploration on the blocks.
In Brunei, the company has a non-operator 26.95 percent working interest in two
offshore blocks covering an area of 600,000 acres. The first well, Perdana #1,
was unsuccessful. However, the company is optimistic about the possibilities of
exploring this oil and gas rich area and additional wells are planned in 1998 or
early 1999.
In China, the company has a 30 percent interest in an equity joint venture
company that has constructed a liquefied petroleum gas terminal near the city of
Shanghai, on the Yangtze River. The terminal is scheduled for start up in the
first quarter of 1999 and will have an initial throughput capacity of 500,000
metric tons.
NEW VENTURES
Azerbaijan - The company is part of the North Absheron Operating Company
Limited (NAOC) consortium that is exploring for oil on a block that includes the
Ashrafi and Dan Ulduzu exploration prospects in the Caspian Sea. In January
1998, the consortium confirmed oil and gas flow equivalent to 3,500 barrels a
day from the first exploration well drilled. Located north of the AIOC
concession, the company has a 25.5 percent working interest in the venture.
Argentina - The company has signed a joint operating agreement with YPF, S.A.
for joint exploration and development of two large exploration permit areas
offshore Argentina. The offshore blocks cover approximately 3,500 square miles
and include the offshore extension of the San Jorge Basin. The onshore section
of the basin has already produced more than 2.5 billion barrels of oil. The
company also recently signed a farm-in agreement to acquire a 40 percent working
interest in an onshore exploration block covering 800 square miles in the
hydrocarbon-prolific Neuquen Basin.
Vietnam - In 1996, the company signed a PSC with PetroVietnam, the Vietnam State
oil company, for petroleum exploration on offshore block B. The company has a
45 percent working interest initially in the block. In December 1997, the
company tested a significant gas discovery in its first exploration well on
block B. The company is evaluating the commerciality of this block.
Pakistan - The company has exploration agreements with the government of
Pakistan for two blocks and is participating in the drilling of an exploration
well on a third block. These blocks lie on the Middle Indus gas trend in
central Pakistan. The company was also recently awarded an interest in an
exploration license for the Karachi Urban Block. This block covers
approximately 1,430 square miles.
Bangladesh - The company is in negotiations for a major western region
integrated project that includes the development of the Shahbazpur gas field in
Bhola, a pipeline system and multiple power plants with an aggregate capacity of
approximately 400 megawatts. The company bid on four blocks in the current bid
round.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
India - The company is negotiating the terms of a power plant agreement in the
state of Karnatka in Southern India and a joint venture fertilizer project in
West Bengal. The company is also part of a consortium that is actively pursuing
a liquefied natural gas (LNG) power project facility at Ennore in Tamil Nadu and
a general cargo port, including an LNG receiving facility, at Moroli near the
Maha Rashtra/Gujarat border.
Turkmenistan - The company leads an international consortium pursuing plans to
build and operate crude oil and natural gas pipelines from Turkmenistan to ready
markets in Pakistan. The company signed an agreement in 1995 with the
government of Turkmenistan for rights to purchase natural gas and transport it
through a proposed pipeline. These projects fit with the company's strategy of
extending its expertise to areas with strong emerging markets. However, the
company cannot move forward with these projects until the political situation
stabilizes in the region.
China - The company has conducted joint cooperation projects with the China
National State Petroleum Corporation, the State Planning Commission and the
China National Offshore Oil Corporation related to the development of
significant natural gas resources offshore. In addition, the company is
involved in joint technical evaluations of hydrocarbon resources in Western
Sichuan. The company is also actively pursuing oil and gas-fired power projects
in east China, southwest China and north China.
GEOTHERMAL AND POWER OPERATIONS
The company is pursuing geothermal development and power generation
opportunities in Latin America and recently signed an agreement with the
government of Nicaragua to explore the El Najo-Santa Isabel concession, located
east of Leon. The concession is in the same volcanic complex as the San Jacinto-
Tizate field, a proven geothermal resource.
The company has a 24 percent equity interest in the construction of a 700
megawatt gas-fired power plant in Thailand. The consortium has an agreement with
the state-run Electrical Generating Authority of Thailand to purchase power from
the consortium when production begins in late 1999.
The provisional agreement between the company's wholly owned subsidiary
Philippine Geothermal, Inc. (PGI) and the National Power Corporation of the
Philippines (NPC) covering the operations of the Tiwi and Mak-Ban steam fields
expired on December 31, 1997. PGI continues to operate the steam fields as
required by an order from the arbitration court, and PGI and NPC are currently
negotiating to extend the provisional agreement and to resolve the contract
dispute with respect to the service agreement. For further information on PGI
see page 36.
DIVERSIFIED BUSINESS GROUP
In 1997, the Agricultural Products business unit experienced lower prices for
its nitrogen-based agricultural products. The company expects these lower
prices to continue into 1998. Consolidation of the company's Alaska upstream
oil and gas operations with the Kenai fertilizer manufacturing plant provided
operating synergy in 1997, and operating efficiencies are expected to continue.
The company's efforts to expand its sales in its existing markets in South
Korea, Japan, China, Vietnam and India have been impacted by the Asian economic
downturn and increased competition from abroad.
The Carbon and Minerals business unit restructured its Molycorp mining
operations in 1997, in response to continued competitive mining pressures and
lower ore prices. The work forces at the company's Mountain Pass, California
lanthanide mine and processing facility and its Questa, New Mexico molybdenum
mine have been reduced in an effort to more closely coordinate production with
customer requirements. This work force reduction is expected to reduce future
operating costs and return the mining operations to more competitive conditions.
In a separate action, Molycorp has decided to temporarily suspend operation of
the separations plant and wastewater pipeline at the Mountain Pass facility. The
mine and mill will continue to operate to produce bastnasite products.
In December 1997, the company's Pipelines business unit increased its equity
interest in the Alliance Pipeline project from five percent to just over nine
percent. The Alliance Pipeline system is designed to carry natural gas from
western Canada to the Chicago area for distribution throughout Northeastern
United States. The proposed
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
1,900 mile pipeline and natural gas liquids (NGL) extraction plant is expected
to cost nearly $3 billion, of which 70 percent is expected to be
financed. The pipeline and NGL plant is scheduled to start up in mid-2000,
subject to necessary Canadian and U.S. approvals.
YEAR 2000 ISSUE
The issue surrounding the year 2000 (Y2K) is the result of computer programs
that were written using two digits rather than four digits to define the
applicable year. It is possible that computer programs that have time sensitive
software may recognize a date using "00" as the year 1900 as opposed to 2000.
This could result in miscalculations or system failures causing disruption of
operations and failure to engage in normal business activities with possible
material adverse effects on the company's operations.
The company is actively addressing the Y2K issue within its office environments
and field operations. Some of the company's computer software applications have
already been replaced with year 2000 compliant software. For those software
applications that have not been upgraded, the company has developed a plan to
correct or mitigate potential problems. In order to accomplish this task, the
company has mobilized various teams to identify, assess, correct and test these
software applications. The company estimates that the costs of assessing and
correcting existing software programs for the Y2K issue will range between $15
million and $20 million. There can be no assurance however, that there will not
be a delay in, or increased costs associated with the implementation of such
changes.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information required by Item 7A, see the Disclosures about Market Risk in
the Management's Discussion and Analysis on page 28 of this report.
41
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report on Management's Responsibilities 43
Report of Independent Accountants 44
Financial Statements
Consolidated Earnings 45
Consolidated Balance Sheet 46
Consolidated Cash Flows 47
Consolidated Stockholders' Equity 48
Notes to Consolidated Financial Statements 49-75
Supplemental Information:
Oil and Gas Financial Data 76-78
Oil and Gas Reserve Data 78-80
Present Value of Future Net Cash Flow Related
to Proved Oil and Gas Reserves 80-82
Selected Quarterly Financial Data 83
Selected Financial Data 84
Supporting Financial Statement Schedule covered
by the Foregoing Report of Independent Accountants:
Schedule II - Valuation and Qualifying Accounts and Reserves 89
</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.
42
<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'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. Timothy H. Ling Joe D. Cecil
Chief Executive Officer President Chief Financial Officer Vice President and
Comptroller
</TABLE>
February 16, 1998
43
<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, 1997 and 1996, and the
related consolidated statements of earnings, cash flows and stockholders' equity
for each of the three years in the period ended December 31, 1997 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 45 through 77 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, 1997 and 1996 and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, 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.
Coopers & Lybrand L.L.P.
February 16, 1998
Los Angeles, California
44
<PAGE>
CONSOLIDATED EARNINGS UNOCAL CORPORATION
<TABLE>
<CAPTION>
Years ended December 31
-------------------------------------
Millions of dollars except per share amounts 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Sales and operating revenues $5,781 $5,101 $4,111
Interest, dividends and miscellaneous income 49 49 86
Equity in earnings of affiliated companies 154 106 77
Gain on sales of assets 80 72 115
- ---------------------------------------------------------------------------------------------------------------------------
Total revenues 6,064 5,328 4,389
COSTS AND OTHER DEDUCTIONS
Crude oil and product purchases 2,246 1,502 979
Operating expense 1,389 1,386 1,302
Selling, administrative and general expense 107 151 151
Depreciation, depletion and amortization 962 914 911
Dry hole costs 110 139 61
Exploration expense 193 117 139
Interest expense (a) 183 279 291
Property and other operating taxes 70 72 80
Distribution on convertible preferred securities of subsidiary trust 33 10 -
- ---------------------------------------------------------------------------------------------------------------------------
Total costs and other deductions 5,293 4,570 3,914
- ---------------------------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 771 758 475
Income taxes 102 302 226
- ---------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before discontinued
operations and extraordinary item 669 456 249
DISCONTINUED OPERATIONS
Earnings from operations (b) - 71 11
Loss on disposal (c) (50) (491) -
- ---------------------------------------------------------------------------------------------------------------------------
Earnings (loss) from discontinued operations (50) (420) 11
EXTRAORDINARY ITEM
Early extinguishment of debt (d) (38) - -
- ---------------------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 581 $ 36 $ 260
Dividends on preferred stock - 18 36
Non-cash charge related to exchange of preferred securities - 54 -
- ---------------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) APPLICABLE TO COMMON STOCK $ 581 $ (36) $ 224
======================================
BASIC EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Continuing operations $ 2.69 $ 1.54 $ 0.87
Net earnings (loss) $ 2.34 $(0.15) $ 0.91
DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Continuing operations $ 2.65 $ 1.53 $ 0.86
Net earnings (loss) $ 2.31 $(0.07) $ 0.90
- ---------------------------------------------------------------------------------------------------------------------------
(a) Net of capitalized interest of : $ (35) $ (15) $ (35)
(b) Net of tax expense (benefit) of : $ - $ 44 $ (23)
(c) Net of tax expense (benefit) of : $ (31) $ (301) $ -
(d) Net of tax expense (benefit) of : $ (14) $ - $ -
</TABLE>
See Notes to Consolidated Financial Statements.
45
<PAGE>
CONSOLIDATED BALANCE SHEET UNOCAL CORPORATION
<TABLE>
<CAPTION>
At December 31
-------------------------------
Millions of dollars 1997 1996
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 338 $ 217
Accounts and notes receivable 897 1,027
Net assets of discontinued operations - 1,774
Inventories 172 125
Deferred income taxes 71 57
Other current assets 23 28
- ---------------------------------------------------------------------------------------------------------
Total current assets 1,501 3,228
Investments and long-term receivables 1,113 1,206
Properties - net 4,816 4,590
Deferred income taxes 7 21
Other assets 93 78
- ---------------------------------------------------------------------------------------------------------
Total assets $ 7,530 $ 9,123
- ---------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 785 $ 1,012
Taxes payable 126 231
Current portion of long-term debt and capital lease obligations 1 118
Interest payable 54 70
Current portion of environmental liabilities 100 73
Other current liabilities 94 118
- ---------------------------------------------------------------------------------------------------------
Total current liabilities 1,160 1,622
Long-term debt and capital lease obligations 2,169 2,940
Deferred income taxes 137 348
Accrued abandonment, restoration and environmental liabilities 627 677
Other deferred credits and liabilities 601 739
Company-obligated mandatorily redeemable convertible preferred
securities of a subsidiary trust holding solely 6-1/4% convertible
junior subordinated debentures of Unocal 522 522
Common stock ($1.00 par value)
Shares authorized: 750,000,000 (a) 252 251
Capital in excess of par value 452 412
Foreign currency translation adjustment (18) (13)
Unearned portion of restricted stock issued (31) (14)
Retained earnings 2,021 1,639
Treasury stock - at cost (b) (362) -
- ---------------------------------------------------------------------------------------------------------
Total stockholders' equity 2,314 2,275
- ---------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 7,530 $ 9,123
- ---------------------------------------------------------------------------------------------------------
(a) Number of shares outstanding 242,526,174 250,671,266
(b) Number of shares 9,262,100 -
</TABLE>
The company follows the successful efforts method of accounting for its oil and
gas activities.
See Notes to the Consolidated Financial Statements.
46
<PAGE>
CONSOLIDATED CASH FLOWS UNOCAL CORPORATION
<TABLE>
<CAPTION>
Years ended December 31
--------------------------------------------
Millions of dollars 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 581 $ 36 $ 260
Adjustment to reconcile net earnings to
net cash provided by operating activities
Loss on disposal of discontinued operations (pre-tax) 81 743 -
Extraordinary item - early extinguishment of debt (pre-tax) 52 - -
Depreciation, depletion and amortization 962 1,059 1,022
Dry hole costs 110 139 61
Deferred income taxes (249) (332) 9
(Gain) on sales of assets (before tax) (80) (77) (117)
Other (162) 113 -
Working capital and other changes related to operations
Accounts and notes receivable 142 (130) (5)
Inventories (60) 10 (16)
Accounts payable (223) 208 115
Taxes payable (107) 38 (33)
Other 86 (123) (19)
- -----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,133 1,684 1,277
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (includes dry hole costs) (1,427) (1,398) (1,459)
Proceeds from sale of discontinued operations 1,789 - -
Proceeds from sales of assets 100 609 204
- -----------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 462 (789) (1,255)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 14 33 55
Long-term borrowings 470 375 844
Reduction of long-term debt and capital lease obligations (1,336) (943) (734)
Dividends paid on preferred stock - (27) (36)
Dividends paid on common stock (199) (199) (197)
Repurchase of common stock (362) - -
Other (61) (11) (8)
- -----------------------------------------------------------------------------------------------------------
Net cash used in financing activities (1,474) (772) (76)
Increase (decrease) in cash and cash equivalents 121 123 (54)
Cash and cash equivalents at beginning of year 217 94 148
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 338 $ 217 $ 94
- -----------------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 187 $ 276 $ 268
Income taxes (net of refunds) $ 313 $ 332 $ 228
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STOCKHOLDERS' EQUITY UNOCAL CORPORATION
Millions of dollars except per share amounts 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK
Balance at beginning of year $ - $ 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
COMMON STOCK
Balance at beginning of year 251 247 244
Issuance of common stock 1 4 3
- -------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 252 251 247
CAPITAL IN EXCESS OF PAR VALUE
Balance at beginning of year 412 319 237
Issuance of common stock 40 93 82
- -------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 452 412 319
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance at beginning of year (13) (10) (13)
Current year adjustment (5) (3) 3
- -------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (18) (13) (10)
UNEARNED PORTION OF RESTRICTED STOCK ISSUED
Balance at beginning of year (14) (13) (13)
Issuance of restricted stock (26) (5) (3)
Current year amortization 9 4 3
- -------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (31) (14) (13)
RETAINED EARNINGS
Balance at beginning of year 1,639 1,874 1,847
Net earnings for year 581 36 260
Cash dividends declared
Preferred stock ($1.75 per share in 1996, and $3.50 per share in 1995) - (18) (36)
Common stock ($.80 per share) (199) (199) (197)
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 2,021 1,639 1,874
TREASURY STOCK
Balance at beginning of year - - -
Purchased at cost (362) - -
- -------------------------------------------------------------------------------------------------------------------------------
Balance at end of year (362) - -
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $2,314 $2,275 $2,930
- -------------------------------------------------------------------------------------------------------------------------------
See Notes to the Consolidated Financial Statements.
</TABLE>
48
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - For the purpose of this report, Unocal Corporation
(Unocal) and its consolidated subsidiaries, Union Oil Company of California
(Union Oil) along with its consolidated subsidiaries and Unocal Capital Trust,
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 and losses 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, other petroleum 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 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.
MAINTENANCE AND REPAIRS - Expenditures for maintenance and repairs are expensed.
in general, improvements are charged to the respective property accounts.
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.
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 7 for the principal temporary differences and unused tax
credits.
FOREIGN CURRENCY TRANSLATION - Foreign exchange translation adjustments 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.
RISK MANAGEMENT
The primary objectives of the company's risk management policies are to reduce
the overall volatility of the company's cash flows and to preserve revenues. As
part of its overall risk strategy, the company enters into various derivative
instrument contracts to protect its exposure to changes in interest rates,
changes in foreign currency exchange rates, and fluctuations in crude oil and
natural gas prices.
Interest Rates - The company enters into interest rate swap agreements to manage
the interest cost of its debt with the objective of minimizing the volatility
and magnitude of the company's borrowing costs. Net amounts under the
agreements are recorded on the accrual basis as interest expense. Net related
counterparty amounts are included in interest payable. Associated cash flows
are presented in the operating activities section of the consolidated cash flows
statement.
Foreign Currency - Various foreign currency forward and swap contracts are
entered into by the company to manage its exposures to adverse impacts of
foreign currency fluctuations under debt and other obligations. Foreign
currency gains and losses on the outstanding contracts are recognized in
earnings and offset the foreign currency gains or losses of the underlying
obligations. Net related counterparty amounts are included in accounts
receivable. Associated cash flows at settlement are presented in the financing
activities section of the consolidated cash flows statement for contracts
related to debt obligations. Cash flows related to other foreign currency
obligations are presented in the operating activities section of the
consolidated cash flow statement.
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Commodities - The company's Global Trade group generally enters into futures,
swaps and other hydrocarbon based commodity derivative contracts with maturities
of 18 months or less to mitigate the company's overall exposure to fluctuations
in crude oil and natural gas prices. While the intent of the company is to
initially establish price protection for its forecasted oil and gas
transactions, market conditions may arise causing certain positions to be closed
prior to their scheduled maturity dates. Accordingly, the enterprise's overall
risk management crude oil and natural gas derivative instrument activities are
marked to market, and gains and losses are recognized on a current basis in the
underlying commodity revenues. Net related counterparty amounts are included in
accounts receivable.
For operating reasons, a business unit may occasionally request the company's
Global Trade group to hedge a portion of the operating group's future crude oil
or natural gas production to price exposure. These agreements are designated as
hedges for accounting purposes. To qualify for hedge accounting the item must
be designated as a hedge at the inception of the derivative contract, the hedged
item must expose the company to price risk, the derivative instrument must
reduce the company's price risk exposure, and there must be a high correlation
of changes in the fair value of the derivative instrument and the fair value of
the underlying item being hedged. Gains or losses in the fair value of the
derivative are deferred and recognized as part of the underlying commodity
revenue when the designated item is sold, extinguished or terminated. If a
designated transaction is no longer expected to occur or if correlation no
longer exists, then a gain or loss on the derivative is recognized to the extent
the future results are not offset by the changes on the hedged item since the
inception of the hedge. Net related counterparty amounts are included in
accounts receivable. Cash flows related to derivative contracts settled during
the period are reported in the operating activities section of the consolidated
cash flows statement.
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", allows 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 complies with the required
disclosures under SFAS No. 123 (see note 23).
EARNINGS PER SHARE - Basic and diluted earnings per share were computed using
the method prescribed by SFAS No. 128, "Earnings Per Share (EPS)." Basic EPS
was computed by dividing earnings available to common stockholders by the
weighted average number of common shares outstanding during the period. Diluted
EPS is similar to basic EPS except that the denominator is increased to include
the number of additional common shares that would have been outstanding if
potential dilutive common shares had been issued. The numerator was also
adjusted for convertible securities by adding back any convertible preferred
distributions. Each group of potential dilutive common shares must be ranked
and included in the diluted EPS calculation by first including the most
dilutive, then the next dilutive, and so on, to the least dilutive shares. The
process stops when the resulting diluted EPS is the lowest figure obtainable.
CAPITALIZED INTEREST - Interest is capitalized on certain construction and
development projects as part of the costs of the assets.
OTHER - The company considers cash equivalents to be all highly liquid
investments purchased with a maturity of three months or less.
Certain items in prior year financial statements have been reclassified to
conform to the 1997 presentation.
NOTE 2 - ACCOUNTING CHANGES
During the fourth quarter of 1997, the company adopted SFAS No. 128, which
establishes standards for computing and presenting EPS. This statement
simplifies the previous standards for computing EPS and makes them comparable to
international EPS standards. The company restated all prior period EPS
data presented to conform to the new standard.
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
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 impairment 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 values of
these properties. The carrying values were written down to estimated future
discounted cash flows or fully impaired 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).
NOTE 3 - DISPOSITIONS OF ASSETS
In 1997, the company's proceeds from assets sales were $100 million, with a pre-
tax gain of $80 million. The proceeds from assets sales consisted of: $29
million for miscellaneous real estate properties, with a pre-tax gain of $13
million; $29 million for the sale of miscellaneous oil and gas assets, with a
pre-tax loss of $4 million; $25 million for the sale of Unocal Hydrocarbon
Sales, with a pre-tax gain of $66 million; and $17 million for miscellaneous
assets, with a pre-tax gain of $5 million. The company also received proceeds
of $1,789 million from the sale of the West Coast refining, marketing and
transportation assets, resulting in a pre-tax loss on disposal of $792 million
recognized in 1996.
Proceeds received from asset sales during 1996 were $609 million with a pre-tax
recorded 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 and a note receivable
totaling $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 United Kingdom sector of 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.
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.
NOTE 4 - 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>
1998 $ 68
1999 44
2000 29
2001 23
2002 21
BALANCE 113
-----------------------------------------------
Total minimum lease payments $298
-----------------------------------------------
</TABLE>
Net operating rental expense included in consolidated earnings, excluding those
related to discontinued operations, is as follows:
<TABLE>
<CAPTION>
MILLIONS OF DOLLARS 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed rentals $ 61 $ 73 $ 79
Contingent rentals (based primarily on sales and usage) 9 11 12
Sublease rental income (7) (3) (2)
- --------------------------------------------------------------------------------------------------------------------
Net expense $ 63 $ 81 $ 89
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
52
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - IMPAIRMENT OF ASSETS
During 1997, the company recorded pre-tax charges of $69 million to earnings for
impairment of certain domestic and international oil and gas properties.
In 1996, the company recorded pre-tax charges of $52 million to earnings for
asset impairment for certain domestic oil and gas properties and $23 million for
domestic geothermal properties.
In 1995, the company recorded a pre-tax charge to earnings of $87 million for
impairment 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 for impairment of the carrying values of certain domestic
oil and gas properties and $5 million for miscellaneous asset write-downs.
NOTE 6 - PROPERTY AND OTHER OPERATING TAXES
<TABLE>
<CAPTION>
Millions of dollars 1997 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Real and personal property taxes $ 31 $ 30 $ 41
Severance and other taxes on production 38 41 38
Other taxes and duties 1 1 1
- ----------------------------------------------------------------------------------------
Total $ 70 $ 72 $ 80
========================================================================================
</TABLE>
In addition, social security and unemployment insurance taxes, which are charged
to earnings and included with salaries and wages, totaled $37 million in 1997,
$44 million in 1996 and $45 million in 1995.
NOTE 7 - INCOME TAXES
The components of the income tax provison for continuing operations are as
follows:
<TABLE>
<CAPTION>
Millions of dollars 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings from continuing operations before income taxes (a)
United states 303 195 81
Foreign 468 563 394
--------------------------------------------------------------------------------------------------------------------
Total $ 771 $ 758 $ 475
--------------------------------------------------------------------------------------------------------------------
Income taxes
Current
Federal $ 87 $ 76 $ 3
State 12 30 4
Foreign 285 277 187
--------------------------------------------------------------------------------------------------------------------
Total 384 383 194
Deferred
Federal (168) (70) 14
State 5 (13) 6
Foreign (119) 2 12
--------------------------------------------------------------------------------------------------------------------
Total (282) (81) 32
--------------------------------------------------------------------------------------------------------------------
Total income taxes $ 102 $ 302 $ 226
====================================================================================================================
</TABLE>
(a) Amounts attributable to the Corporate and Unallocated segment are
allocated.
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.
53
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Millions of dollars 1997 1996 1995
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35% 35% 35%
Taxes on earnings from continuing operations at statutory rate $ 270 $ 265 $ 166
Taxes on foreign earnings in excess of (less than) statutory rate (45) 75 61
U.S. deferred tax adjustment (126) (11) 17
Dividend exclusion (13) (15) (15)
Other 16 (12) (3)
------------------------------------------------------------------------------------------------------------------------
Total $ 102 $ 302 $ 226
========================================================================================================================
</TABLE>
The significant components of deferred income tax assets and liabilities
included in the consolidated balance sheet at December 31, 1997 and 1996 are as
follows:
<TABLE>
<CAPTION>
Millions of dollars 1997 1996
-------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets (liabilities):
Depreciation and intangible drilling costs $(696) $(883)
Pension assets (166) (154)
Other deferred tax liabilities (240) (284)
Exploratory costs 236 155
Federal alternative minimum tax credits 188 191
Litigation/environmental costs 146 161
Future abandonment costs 144 141
Depletion 98 139
Postretirement benefit costs 84 78
Other deferred tax assets 147 186
-------------------------------------------------------------------------------------------
Total $ (59) $(270)
===========================================================================================
</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 $800 million as of December 31,
1997.
The company estimates that approximately $93 million of unused foreign tax
credits will be available after the filing of the 1997 consolidated tax return
with various expiration dates through the year 2002. No deferred tax asset for
these foreign credits is recognized for financial statement purposes. The
federal alternative minimum tax credits are available to offset future U.S.
federal income taxes on an indefinite basis.
NOTE 8 - DISCONTINUED OPERATIONS
In March 1997, the company sold substantially all of its West Coast refining,
marketing and transportation assets to Tosco Corporation (Tosco). In addition
to cash proceeds of $1.4 billion, the company received 14,092,482 shares of
Tosco common stock valued at $397 million. In May 1997, the company sold the
stock back to Tosco for $394 million (net of expenses). A participation
agreement also provides for up to $250 million in possible payments, which are
contingent upon increased refining premiums and gasoline marketing margins in
the years through 2003.
In 1997, the company recorded an additional loss on disposal of $50 million (net
of a $31 million tax benefit). The additional provision was primarily due to
adjustments in closing inventory amounts and higher than anticipated termination
costs. Included in the $50 million amount was a favorable adjustment of $6
million (net of $4 million tax) related to a lower than expected first quarter
operating loss.
54
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The consolidated earnings statements reflect the results for the refining,
marketing and transportation operations as discontinued operations. At December
31, 1996, the assets held for sale were reclassified in the consolidated balance
sheet from their historical classifications to separately reflect them as net
assets of discontinued operations. Cash flows related to discontinued
operations have not been segregated in the consolidated statement of cash flows.
Consequently, amounts on the consolidated earnings statements 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. For earnings per share information see note 10.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
------------------------------------------------------
MILLIONS OF DOLLARS 1997 1996 1995
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ - $4,271 $4,036
Total costs and other deductions - 4,156 4,048
------------------------------------------------------
Earnings (loss) from operations before
income taxes - 115 (12)
Income tax (benefit) - 44 (23)
------------------------------------------------------
Earnings from operations - 71 11
Loss on disposal before income taxes (81) (792) -
Income tax (benefit) (31) (301) -
------------------------------------------------------
Loss on disposal (a) (50) (491) -
------------------------------------------------------
TOTAL EARNINGS (LOSS) $ (50) $ (420) $ 11
======================================================
</TABLE>
(a) 1996 Includes the following estimated operating 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).
NOTE 9 - EXTRAORDINARY ITEM
In May 1997, the company purchased approximately $507 million in aggregate
principal amount of three of its outstanding issues of debt securities. The
debt securities consisted of $161 million in debentures with an interest rate of
9-1/4 percent and $346 million in notes with interest rates of 8-3/4 percent and
9-3/4 percent. The debt securities were purchased for an aggregate price of
$555 million, including a pre-tax premium of approximately $48 million over
their aggregate carrying value. The premium, together with related costs of $4
million, was recorded as an extraordinary item on the company's consolidated
statement of earnings.
NOTE 10 - EARNINGS PER SHARE
The following are reconcilations of the numerators and denominators of the basic
and diluted EPS computations for earnings from continuing operations for the
years ended December 31, 1997, 1996 and 1995:
55
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Millions except per share amounts
-----------------------------------------------------------------------------------------------------------------------
Earnings Shares Per Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
EARNINGS FROM CONTINUING OPERATIONS $669 248
BASIC EPS $2.69
=====
EFFECT OF DILUTIVE SECURITIES
Options - 1
-----------------------
669 249 $2.68
=====
Distributions on preferred securities (after-tax) 24 13
-----------------------
$693 262 $2.65
=====
YEAR ENDED DECEMBER 31, 1996
EARNINGS FROM CONTINUING OPERATIONS $456
Less:
Dividends on preferred stock 18
Non-cash charge related to exchange of
preferred stock 54
BASIC EPS
Earnings from continuing operations ----------------------
applicable to common stock 384 249 $1.54
=====
EFFECT OF DILUTIVE SECURITIES
Options - 1
-----------------------
384 250 $1.54
=====
Convertible preferred stock 18 13
-----------------------
402 263 $1.53
=====
Distributions on preferred securities (after-tax) 8 3
-----------------------
$410 266 $1.54 (a)
YEAR ENDED DECEMBER 31, 1995
EARNINGS FROM CONTINUING OPERATIONS $249
Less:
Dividends on preferred stock 36
----
BASIC EPS
Earnings from continuing operations
applicable to common stock 213 246 $0.87
=====
EFFECT OF DILUTIVE SECURITIES
Options - 1
-----------------------
213 247 $0.86
=====
Dividends on preferred stock 36 17
-----------------------
$249 264 $0.94 (b)
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The effect of assumed conversion of preferred securities on earnings per
share is antidilutive.
(b) The effect of assumed conversion of preferred stock on earnings per
share is antidilutive.
Not included in the computation of diluted EPS were options to purchase
approximately 104,000 shares of common stock. These options were not included in
the computation, because the exercise prices were greater than the average
market prices of common shares. The exercise prices of these options range from
$39.47 to $44.75 per share. The options were outstanding at December 31, 1997,
and will expire in 2007.
Basic and diluted earnings per common share for discontinued operations and the
extraordinary item related to the early extinguishment of debt were as follows:
56
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Millions except per share amounts Years ended December 31
- -----------------------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BASIC EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Discontinued operations:
Earnings (loss) from discontinued operations $ (50) $ (420) $ 11
Weighted average common stock outstanding 248 249 246
Earnings (loss) from discontinued operations $(0.20) $(1.69) $0.04
Extraordinary item :
Early extinguishment of debt (net of tax) $ (38) $ - $ -
Weighted average common stock outstanding 248 249 246
Loss from extraordinary item $(0.15) $ - $ -
DILUTIVE EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Discontinued operations:
Earnings (loss) from discontinued operations $ (50) $ (420) $ 11
Weighted average common stock outstanding 262 263 247
Earnings (loss) from discontinued operations $(0.19) $(1.60) $0.04
Extraordinary item :
Early extinguishment of debt (net of tax) $ (38) $ - $ -
Weighted average common stock outstanding 262 263 247
Loss from extraordinary item $(0.15) $ - $ -
===========================================================================================================
</TABLE>
NOTE 11 - NOTES AND OTHER RECEIVABLES
At December 31, 1997 and 1996, the company had collateralized notes, together
with other receivables, totaling $62 million and $27 million, respectively, due
from a number of affiliated Indonesian and other corporations and entities. the
notes bear interest at rates ranging from 8 percent to 10 percent. These
affiliated companies participate with subsidiaries of the company in certain
Indonesian and U.S. geothermal and petroleum projects. About $3 million is
currently payable on the notes.
NOTE 12 - INVENTORIES
<TABLE>
<CAPTION>
Millions of dollars 1997 1996
------------------------------------------------------------------------------
<S> <C> <C>
Crude oil and other petroleum products $ 34 $ 12
Agricultural products 43 31
Carbon and minerals 56 31
Materials, supplies and other 39 51
------------------------------------------------------------------------------
Total $ 172 $ 125
==============================================================================
</TABLE>
The inventory amounts above exclude $225 million for 1996 discontinued
operations.
The current replacement cost of inventories exceeded the LIFO inventory value
included above by $18 million at December 31, 1997 and 1996. Petroleum
refining, marketing and transportation inventories at December 31, 1996 have
been included in net assets of discontinued operations. At December 31, 1996,
the replacement cost of these inventories exceeded the LIFO inventory value by
$148 million.
57
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - INVESTMENTS IN AFFILIATES
Investments in affiliated companies accounted for by the equity method were $413
million, $578 million and $386 million at December 31, 1997, 1996 and 1995,
respectively. Dividends or cash distributions received from these affiliates
were $83 million, $89 million and $88 million for the same years, respectively.
In 1997, these affiliated companies are primarily engaged in pipeline ventures.
The excess of the company's investments over its shares in the related
underlying equity in net assets of Colonial Pipeline Company, Inc., West Texas
Gulf Pipeline Company and various other pipeline companies is being amortized on
a straight-line basis over range of 20 to 40 years. The remaining unamortized
balance for these companies at December 31, 1997 was $113 million.
During 1997, the company and PDV America, Inc. a unit of Petroleos de Venezuela,
S. A., completed the restructuring of the UNO-VEN Company (UNO-VEN), a refining
and marketing partnership in the midwestern United States. In a separate
transaction, the company sold to PDV Midwest Refining, L.L.C. (PDV Midwest), an
affiliate of PDV America, the petrochemical business previously conducted by
Unocal Hydrocarbon Sales, an Illinois-based bulk distributor of solvents.
In restructuring the UNO-VEN partnership, PDV Midwest received substantially all
of the refining and marketing assets of UNO-VEN and assumed certain liabilities
associated with those assets. The transaction also included the transfer of a
25 percent interest in the Needle Coker Company from the partnership to PDV
Midwest.
At December 31, 1997, 1996 and 1995, the company's share of the net capitalized
costs of affiliates engaged in oil and gas exploration and production activities
are $158 million, $75 million and $9 million, respectively.
Summarized financial information for these equity investees, excluding investees
of discontinued operations, is shown below.
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------------------------
Unocal's Unocal's Unocal's
Millions of dollars Total Share Total Share Total Share
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $1,764 $620 $2,786 $1,155 $2,350 $947
Costs and other
deductions 1,453 536 2,440 1,049 2,057 870
------------------------------------------------------------------------------------------------------
Net earnings $ 311 $ 84 $ 346 $ 106 $ 293 $ 77
------------------------------------------------------------------------------------------------------
Current assets $ 493 $176 $ 792 $ 334 $ 612 $244
Noncurrent assets 2,295 610 2,546 800 1,846 568
Current liabilities 506 160 711 266 568 212
Noncurrent liabilities 1,157 325 1,228 366 1,012 273
Net equity $1,125 $301 $1,399 $ 502 $ 878 $327
======================================================================================================
</TABLE>
NOTE 14 - PROPERTIES AND CAPITAL LEASES
Investments in owned and capitalized leased properties at December 31, 1997 and
1996 are set forth below. Total accumulated depreciation, depletion and
amortization for continuing operations was $9,896 million and $9,502 million at
December 31, 1997 and 1996, respectively.
58
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------------------------------------
Millions of dollars Gross Net Gross Net
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Owned properties (at cost)
Oil and gas operations:
Exploration
United States
Spirit Energy $ 165 $ 140 $ 58 $ 28
Other 8 4 4 -
International
Far East 145 132 111 101
Other Foreign 83 31 85 30
Production
United States
Spirit Energy 5,474 1,582 5,610 1,826
Other 1,189 335 1,162 388
International
Far East 3,668 1,029 3,264 916
Other Foreign 1,369 506 1,450 390
- --------------------------------------------------------------------------------------------------------------------------------
Total 12,101 3,759 11,744 3,679
Global Trade 3 2 5 3
Geothermal and Power Operations 846 375 763 307
Diversified Business Group
Agricultural Products 679 216 659 212
Carbon & Minerals 303 160 173 71
Pipelines 337 99 332 103
Corporate and Unallocated 428 204 402 214
- --------------------------------------------------------------------------------------------------------------------------------
Total owned properties 14,697 4,815 14,078 4,589
Capitalized leased properties 15 1 14 1
- --------------------------------------------------------------------------------------------------------------------------------
Total continuing operations $14,712 $4,816 $14,092 $4,590
Discontinued operations - - 3,520 2,162
- --------------------------------------------------------------------------------------------------------------------------------
Total $14,712 $4,816 $17,612 $6,752
================================================================================================================================
</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 8).
NOTE 15 - 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 1995 through 1997, as plan assets
substantially exceeded the pension obligations. At year end 1997, 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 pension costs for the funded U.S. plans
include the following components:
59
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Millions of dollars 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned during the year $ 22 $ 29 $ 21
Interest cost on projected benefit obligation 58 53 52
Actual return on plan assets (179) (143) (225)
Net amortization and deferral 59 29 129
Net (gain) loss from partial settlement of obligation and curtailment of operations - 13 (7)
- ----------------------------------------------------------------------------------------------------------------------------------
Net pension income $ (40) $ (19) $ (30)
- ----------------------------------------------------------------------------------------------------------------------------------
</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 8).
The following table sets forth the plans' funded status and amounts recognized
in the consolidated balance sheet at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Millions of dollars 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Plan assets at fair value $1,154 $1,116
- -----------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits 672 668
Nonvested benefits 43 15
- -----------------------------------------------------------------------------------------------
Accumulated benefit obligation 715 683
Effect of projected future salary increases 73 75
- -----------------------------------------------------------------------------------------------
Projected benefit obligation 788 758
- -----------------------------------------------------------------------------------------------
Plan assets in excess of projected benefit obligation 366 358
Unrecognized net loss 72 75
Unrecognized net assets (18) (40)
Unrecognized prior service cost 16 17
- -----------------------------------------------------------------------------------------------
Prepaid pension cost $ 436 $ 410
- -----------------------------------------------------------------------------------------------
</TABLE>
The assumed rates used to measure the projected benefit obligation and the
expected earnings on plan assets were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Weighted-average discount rate 7.00% 7.25% 7.25%
Increase in future compensation levels 4.00% 4.00% 4.00%
Expected long-term return on plan assets 9.50% 9.50% 9.50%
- -----------------------------------------------------------------------------------------------
</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, $2 million and $5 million in
1997, 1996 and 1995, respectively. The accumulated obligation recognized in the
consolidated balance sheet at December 31, 1997 was $15 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, 1997 and 1996 amounted to $19 million and $16 million,
respectively.
NOTE 16 - 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.
60
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth the postretirement benefit obligation recognized
in the consolidated balance sheet at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Millions of dollars 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligations:
Retirees $146 $130
Fully eligible active employees 13 20
Other active employees 32 50
- ------------------------------------------------------------------------------
Total 191 200
Unrecognized gain and prior service cost 18 24
- ------------------------------------------------------------------------------
Accrued postretirement benefit cost $209 $224
- ------------------------------------------------------------------------------
</TABLE>
Net periodic postretirement benefits cost is comprised of the following
components:
<TABLE>
<CAPTION>
Millions of dollars 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 3 $ 7 $ 4
Interest cost 13 15 15
- ------------------------------------------------------------------------------
Total Cost $ 16 $ 22 $ 19
- ------------------------------------------------------------------------------
</TABLE>
The accumulated postretirement benefit obligation at December 31, 1997 was
determined using a discount rate of 7.0 percent. The health care cost trend
rates used in measuring the 1997 benefit obligations were 5.7 percent for under
age 65 and 5.5 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,
1997 by $21 million and net periodic benefits cost by $2 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 $18
million as of December 31, 1997 and $20 million as of December 31, 1996.
NOTE 17 - LONG-TERM DEBT AND CREDIT AGREEMENTS
The following table summarizes the company's long-term debt and capital lease
obligations:
61
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Millions of dollars 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
BONDS AND DEBENTURES
9-1/4% Debentures due 2003 $ 89 $250
9-1/8% Debentures due 2006 200 200
6-1/8% to 7-7/8% Industrial Development Revenue
Bonds due 1999 to 2008 23 23
Deutsche Mark Bonds due 1998(6.125%)(a) 139 162
NOTES
Commercial paper (6.20%)(a) 99 64
Medium-term notes due 1998 to 2015 (8.33%)(a)(b) 952 1,067
Bank Credit Agreement - 250
Revolving credit facilities (6.47%)(b) 160 180
9-3/4% Notes due 2000 65 250
8-3/4% Notes due 2001 39 200
6-3/8% Notes due 2004 200 200
7-1/5% Notes due 2005 200 200
OTHER MISCELLANEOUS DEBT AND CAPTIAL LEASES 4 12
- -------------------------------------------------------------------------------
Total debt and capital leases 2,170 3,058
Less current portion of long-term debt and capital leases 1 118
- -------------------------------------------------------------------------------
Total long-term debt and capital leases $ 2,169 $ 2,940
- -------------------------------------------------------------------------------
</TABLE>
(a) The company has the intent and the ability to refinance current maturities.
(b) Weighted average interest rate at December 31, 1997
The amounts of long-term debt maturing in 1999, 2000, 2001 and 2002 are $167
million, $281 million, $106 million and $273 million, respectively.
The company's debt reduction program was a primary focus during 1997. The
amount of total debt and capital leases was reduced $888 million from the
year end 1996 level, primarily with the proceeds from the sale of the company's
West Coast refining, marketing and transportation assets. Debt reductions
primarily consisted of: approximately $507 million in debt securities purchased
in a tender offer on May 15, 1997; reduction in credit facilities; and scheduled
maturities. The debt securities consisted of $161 million in debentures with an
interest rate of 9-1/4 percent and $346 million in notes with interest rates of
8-3/4 percent and 9-3/4 percent. The debt securities were purchased for
aggregate prices of approximately $555 million, including a pre-tax premium of
approximately $48 million over their aggregate carrying value. The premium,
together with related costs, was recorded as an extraordinary item in the
company's consolidated statement of earnings. The debt repayments and debt
securities purchased substantially completed the company's program to reduce
outstanding debt by $800 million.
During 1997, the company borrowed an additional $30 million under a $250 million
revolving credit facility that was established in 1993 for the purpose of
funding certain oil and gas developments in Thailand. The balance drawn against
this revolving credit facility, which terminates December 15, 2000, was $160
million at December 31, 1997. During the year, $115 million in medium-term notes
matured and the company terminated its $50 million revolving credit facility.
Cash on hand was used to retire the medium-term notes and prepay the credit
facility. Borrowings under 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.
On October 10, 1997, the company signed a new Bank Credit Agreement providing a
revolving credit facility of $1 billion through October 2002. This agreement is
available for general corporate purposes, including the support of commercial
paper. The $1.2 billion Bank Credit Agreement balance of $250 million was paid
off during the third quarter of 1997. The $1.2 billion Bank Credit Agreement
and the $200 million 364-day credit facility established in 1995 were canceled
in October 1997. The company has other undrawn letters of credit for
approximately $149 million. The majority are maintained for operational needs.
62
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 other 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 18 - ACCRUED ABANDONMENT, RESTORATION AND ENVIRONMENTAL LIABILITIES
At December 31, 1997, the company had accrued $459 million for the estimated
future costs to abandon and remove wells and production facilities. The total
cost for abandonments are predominantly accrued for on a units-of-production
basis and are estimated to be approximately $629 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, 1997, the company's reserve for environmental remediation
obligations totaled $268 million, of which $100 million was included in current
liabilities. The reserve includes estimated probable future costs of $24
million for federal Superfund and comparable state-managed multi-party disposal
sites, $27 million for formerly-operated sites for which the company has
remediation obligations; $74 million for sites related to businesses or
operations that have been sold with contractual remediation or indemnification
obligations; $110 million for company-owned or controlled sites where facilities
have been closed or operations shut down; and $33 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 are associated with past and present
operations, including sites at which the company has been identified as a
potentially responsible party (PRP) under the federal Superfund laws and
comparable state laws. Liabilities are accrued when it is probable that future
costs will be incurred and such costs can be reasonably estimated. However, in
many cases, investigations are not yet at a stage where the company is able to
determine whether it is liable or, if liability is probable, to quantify the
liability or estimate a range of possible exposure. In such cases, the amounts
of the company's liabilities are indeterminate due to the potentially large
number of claimants for any given site or exposure, the unknown magnitude of
possible contamination, the imprecise and conflicting engineering evaluations
and estimates of proper clean-up 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 1997 the company had accrued $268 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 $270
million.
63
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
TAX MATTERS - In December 1994, the company received a Notice of Proposed
Deficiency (Notice) 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 nearly complete, and it now appears unlikely that any
issues raised in the Notice will proceed to either litigation or mediation, and
it is expected that all matters will be settled. The settlement will require
approval by the Joint Committee on Taxation of the U.S. Congress and such
approval should be granted.
The total amount of tax and interest that the company would be required to pay
if the IRS were ultimately to prevail on the material issues described in the
Notice, after application of foreign tax credits and overpayments related to
other issues, and assuming a full disallowance of the claim for refund discussed
below, is estimated at $508 million as of December 31, 1997.
During the first quarter of 1997, the IRS examination team completed its review
of a claim for refund filed by the company relating to its 1985 tax liability.
The IRS has not formally allowed the claim, however, as a result of the expected
settlement described above, the company believes that a portion of the claim
will be allowed and that such allowance should entitle it to a small refund for
overpayment of tax or interest for all open taxable years preceding 1988.
The company believes it has adequately provided in its accounts for items and
issues not yet resolved.
OTHER MATTERS - In February 1996, Bridas Corporation filed a petition against
the company and others in the District Court of Fort Bend County, Texas,
alleging that the defendants conspired to and did tortiously interfere with
Bridas' rights under agreements with the government of Turkmenistan to develop
the Yashlar Field and to transport gas from that field to Pakistan. The
petition also alleges that the defendants interfered with Bridas' exclusive
right to lay a gas pipeline in Afghanistan. Bridas seeks actual damages as well
as punitive damages, plus interest. Bridas' expert witnesses have stated in
pre-trial discovery that Bridas' total actual damages for loss of future profits
are approximately $1.7 billion. In the alternative, Bridas is expected to seek
an award of approximately $430 million with respect to its total expenditures in
Turkmenistan. The company believes the assertions made by Bridas are without
merit and is vigorously defending the lawsuit.
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 - OTHER FINANCIAL INFORMATION
The consolidated balance sheet at December 31 includes the following:
<TABLE>
<CAPTION>
Millions of dollars 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Other deferred credits and liabilities:
Postretirement medical benefits obligation $210 $207
Reserve for litigation and other claims 181 369
Other employee benefits 70 85
Advances related to future production 47 51
Minority interest 29 7
Other 64 20
- ----------------------------------------------------------------------------
Total $601 $739
- ----------------------------------------------------------------------------
Allowances for doubtful accounts and notes receivable $ 35 $ 35
Allowances for investments and long-term recivables $ 32 $ 13
- ----------------------------------------------------------------------------
</TABLE>
64
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21 - TRUST CONVERTIBLE PREFERRED SECURITIES
In September 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.
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 exchange of preferred stock to
convertible securities and the conversion of preferred stock to common stock
were non-cash transactions and, therefore, were excluded from the 1996 cash flow
statement. 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.
Following the exchange offer, 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 redemption date.
The number of Trust preferred securities outstanding on December 31, 1997 and
December 31, 1996 were 10,437,212 and 10,437,873, respectively.
65
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 22 - CAPITAL STOCK
<TABLE>
<CAPTION>
Common Stock
Authorized - 750,000,000
$1.00 Par value per share
Thousands of shares 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding at beginning of year 250,671 247,310 244,199
Issuance of common stock 1,117 3,361 3,111
Purchase of treasury stock (9,262) - -
- ------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 242,526 250,671 247,310
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1997, there were approximately 12.3 million shares reserved for
the conversion of Unocal Capital Trust preferred securities, 14.3 million shares
for the company's employee benefit plans and Directors' Restricted Stock Plan
and 3.9 million shares for the company's Dividend Reinvestment and Common Stock
Purchase Plan.
TREASURY STOCK - In December 1996, the company established a common stock
repurchase program. The common shares were purchased through the open market or
privately negotiated transactions at the discretion of company management. The
purchases were made depending upon financial and market conditions or as
otherwise permitted under applicable rules. The board of directors authorized
the repurchase of up to $400 million of the company's stock. At December 31,
1997, the company had 9,262,100 common shares in treasury stock, which is shown
at a cost of $362 million. The program was completed on January 13, 1998. In
January 1998, the board of directors extended the repurchase program and
authorized management to repurchase up to an additional $200 million of the
company's common stock.
CONVERTIBLE 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 21).
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 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.
66
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, 1997, none of the Series A preferred stock had been issued nor had
the Rights become exercisable.
NOTE 23 - STOCK-BASED COMPENSATION PLANS
Under the company's Special Stock Option Plans of 1996 and 1997, 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 9 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 10 years and generally vest over a
three-year period at a rate of 50 percent the first year and 25 percent 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 under the Long-Term Incentive Plans of 1985 and 1991.
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 or on the average price of the company's common stock on the trading
day that the stock is awarded. Restricted shares are not delivered until the
end of the restricted period which does not exceed 10 years. Performance share
awards have a four-year term and are generally 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, 1995, 1996 and 1997,
and changes during the years ending on those dates is presented below:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Option Grant
Exercise Date Fair
Number of Price 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 2,011,983 33 33
Options exercised during year (1,328,954) 24 -
Options canceled/forfeited during year (47,060) 30 -
-------------------
Options outstanding at December 31, 1996 5,109,204 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>
67
<PAGE>
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Option Grant
Exercise Date Fair
Number of Price Value
Options/Shares Per Share Per Share
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding at January 1, 1997 5,109,204 29 -
Options granted during year 872,720 39 39
Options exercised during year (605,430) 28 -
Options canceled/forfeited during year (454,466) 31 -
-------------------
Options outstanding at December 31, 1997 4,922,028 31 -
Options exercisable at December 31, 1997 3,370,712 29 -
Restricted stock awarded during year 642,187 - 38
Performance shares awarded during year 197,505 - 40
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Under the Special Stock Option Plan of 1997, the Management Incentive Program,
and the Directors' Restricted Stock Plan, there were 2,000,000 shares, 3,029,522
shares and 205,982 shares, respectively, available at year end 1997 for stock
option awards as well as other awards. No additional grants may be awarded
under the Long-Term Incentive Plan of 1985 and the Special Stock Option Plan of
1996.
Significant option groups outstanding at December 31, 1997 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 12/31/97 Life (years) Price at 12/31/97 Price
- -------------------------------------------------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C>
$21 - $24 659,394 2.9 $22 659,394 $22
$26 - $29 1,697,032 6.3 $28 1,528,713 $28
$30 - $34 1,718,687 7.2 $33 985,694 $32
$37 - $45 846,915 9.5 $39 196,911 $39
- -------------------------------------------------------------------------------------- ---------------------------------------
</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>
1997 1996 1995
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected life (years) 4 4 4
Interest rate 6.4% 6.1% 6.9%
Volatility 28.1% 23.8% 20.9%
Dividend yield 2.0% 2.4% 2.8%
- -------------------------------------------------------------------------------------------------
</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 $24 million in 1997, $36
million in 1996 and $18 million in 1995. Had the company recorded compensation
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:
68
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Millions of dollars except per share amounts 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net earnings
As reported $ 581 $ 36 $ 260
Pro forma 575 32 257
Net basic earnings (loss) per share
As reported $2.34 ($0.15) $0.91
Pro forma 2.32 (0.16) 0.90
- -------------------------------------------------------------------------------------------------------
1996 reported earnings per share have been restated to reflect a non-cash charge of
$54 million related to a premium on the exchange of preferred stock (see note 21).
</TABLE>
NOTE 24 - FINANCIAL INSTRUMENTS
The company does not hold or issue financial instruments for trading purposes
other than those that are hydrocarbon commodity based.
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 include regulated
exchanges, international and domestic financial institutions and other
industrial companies. All of the counterparties to the company's financial
instruments must pass certain credit requirements deemed sufficient by
management before trading physical commodities or financial instruments with
Unocal. 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.
During 1986, the company entered into a currency swap agreement to hedge foreign
currency exchange exposures related to the interest and principal payments on
the company's Deutsche Mark bonds due in 1998. The Deutsche Mark swap has the
same maturity as the related underlying debt. At year-end, 1997 and 1996,
the aggregate notional principal amount of the Deutsche Mark swap agreement was
$110 million. At year end 1997, this currency swap agreement had a fair value
of approximately $29 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 1997 and 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 December 31, 1997 and 1996, based on dealer quotes, was
approximately zero.
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.
69
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 1994, the company entered into a three-year interest rate swap with a
notional amount of $25 million. This swap, which was entered into to hedge $25
million in medium-term notes, matured in February 1997.
OTHER - The company generally uses hydrocarbon based commodity futures contracts
with maturities of eighteen months or less to mitigate the impact of
fluctuations in prices of crude oil and natural gas. Realized and unrealized
changes in the market value of futures contracts for general risk management
activities are recorded currently in underlying commodities revenues. For
operating reasons, a business unit may occasionally request the company's Global
Trade group to hedge a portion of the operating group's future crude oil or
natural gas production against price exposure. Realized and unrealized changes
in the market value of futures contracts related to these hedges are deferred
until the hedged transaction is recognized. Notification to the Board of
Directors is required if the company commits more than 15 percent of its annual
production of oil and gas, refined products, and of crude oil purchased for
refinery supply. In 1997, the company stopped its crude oil hedging activities
related to refinery supplies due to the sale of its West Coast refining,
marketing and transportation assets (see note 8).
At December 31, 1997, contracts covering 1,580 thousand barrels of crude oil and
900 million cubic feet of natural gas, with notional amounts totaling $31
million for crude oil and $2 million for natural gas, were outstanding. At
December 31, 1996, the company had outstanding 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.
Differences between the contract notional amounts and the fair values of the
contracts, based on quoted market prices, were insignificant at year-ends
1997 and 1996.
As of December 31, 1997 and 1996, 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.
The estimated fair value of the company's long-term debt was $2,284 million and
$3,184 million at year end 1997 and 1996, 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 was $519 million and $591 million at year end 1997 and
1996, respectively. The fair value of the preferred securities was based on the
trading prices of the preferred securities on December 31, 1997 and 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. The
concentrations of credit risk with respect to trade receivables are limited
because the company's customers are spread across several industries and
countries.
NOTE 25 - 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.
70
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Summarized financial information for Union Oil and its consolidated subsidiaries
is presented below:
<TABLE>
<CAPTION>
For Years Ended
Millions of dollars 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenues $6,064 $5,328 $4,389
Total costs and other deductions, including income taxes 5,377 4,860 4,138
- --------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations before discontinued
operations and extraordinary item $ 687 $ 468 $ 251
Discontinued operations
Earnings from operations (net of taxes) - 71 11
Loss on disposal (net of taxes) (50) (491) -
Extraordinary item - early extinguishment of debt (net of tax) (38) - -
- --------------------------------------------------------------------------------------------------------------------
Net earnings $ 599 $ 48 $ 262
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
At December 31
Millions of Dollars 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets $1,576 $3,228
Noncurrent assets 6,053 5,905
Current liabilities 1,124 1,622
Noncurrent liabilities 3,534 4,704
Shareholder's equity 2,971 2,807
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 26 - SEGMENT AND GEOGRAPHIC DATA
Unocal's operations include exploration and production, trading and marketing,
geothermal, electrical power generation, agricultural products, and carbon
and minerals. Exploration and Production involves the exploration for, and the
production of crude oil and natural gas. Marketing and trading activities
involves the purchase and resale of crude oil, natural gas and products from the
company's exploration and production segment as well as from unaffiliated
parties. Geothermal and Power Operations involves the exploration for, and the
production and sale of, geothermal resources and the construction and operation
of electrical generating plants. 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 and specialty minerals. Pipelines
principally includes the company's equity interest in affiliated pipeline
companies.
Unocal's Spirit Energy group is responsible for oil and gas operations in the
Lower 48 United States. The Other United States category consists primarily of
Alaska oil and gas operations. A substantial portion of crude oil and natural
gas produced domestically is sold to the company's Global Trade group. The
remainder is sold to third parties in the spot market or used in the company's
agricultural products operations.
The company's International Operations group includes the company's foreign
exploration and production activities and the exploration activities performed
by the company's New Ventures group. The company currently has oil and gas
production in seven foreign countries: Thailand, Indonesia, Canada, The
Netherlands, Azerbaijian, Yemen and the Democratic Republic of Congo. The
company sells most of its foreign natural gas production to third parties under
long-term contracts. Crude oil and condensate are primarily sold to third
parties at spot market prices.
The Global Trade group was formed in 1997 to consolidate the company's worldwide
crude oil, condensate and natural gas trading and marketing activities. Global
Trade also purchases crude oil, condensate and natural gas from the company's
joint venture partners, royalty owners and other unaffiliated oil and gas
producers for resale.
The Geothermal and Power Operations segment supplies geothermal steam for power
generation, with major operations in California, the Philippines and Indonesia.
The segment's current activities also include operating power plants in
Indonesia and the construction of a gas-fired power plant in Thailand.
71
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 and specialty minerals. Pipelines principally includes the
company's equity interests in affiliated pipeline companies. The Other category
primarily included the company's equity interest in UNO-VEN, prior to its
restructuring in May 1997.
The Corporate and Unallocated segment includes all unallocated corporate items,
miscellaneous operations and non-exploration and production activities of the
New Ventures group. New Ventures non-exploration and production includes
project development of common carrier pipelines, liquefied petroleum gas plants
and electrical power generating plants. Main areas of interest for these
development opportunities currently include Myanmar, Turkmenistan, Pakistan,
China, Vietnam, and Bangladesh. Financial data for businesses that were sold or
being phased-out, particularly for prior years, are also included in the
Corporate and Unallocated segment.
The following tables represent the company's financial data by business segments
and geographic areas of operations. Prior year segment data was reclassified to
present comparable segment information for Global Trade. Intersegment revenue
eliminations in business segment data are primarily transfers from the
exploration and production segment to the Global Trade group and in geographic
areas of operations, essentially represent transfers from foreign countries to
the United States. Intersegment sales prices approximate market prices.
SEGMENT DATA
<TABLE>
<CAPTION>
Millions of dollars 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Exploration and Production
United States
Spirit Energy $ 1,428 $ 1,460 $ 1,150 $ 1,083 $ 1,161
Other 274 594 523 484 548
International 1,397 1,661 1,344 1,257 1,145
Global Trade 3,452 3,240 2,343 2,543 2,788
Geothermal and Power Operations 117 45 133 139 142
Diversified Business Group
Agricultural Products 439 530 509 378 331
Carbon and Minerals 538 293 271 241 220
Pipelines 107 120 120 92 90
Other 58 27 16 30 26
Corporate and Unallocated 98 66 86 138 592
Intersegment Eliminations $(1,844) (2,708) (2,106) (2,113) (2,313)
-----------------------------------------------------------------------------------
Total revenues from continuing operations 6,064 5,328 4,389 4,272 4,730
Discontinued operations (a) - 4,271 4,036 3,693 3,614
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 6,064 $ 9,599 $ 8,425 $ 7,965 $ 8,344
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) 1996 excluded $609 million for November 17, 1996 - December 31, 1996 which
was included in loss on disposal
72
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Millions of dollars 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CAPITAL EXPENDITURES:
Exploration and Production
United States
Spirit Energy $ 331 $ 371 $ 409 $ 368 $ 414
Other 36 47 88 118 148
International 801 509 353 310 330
Geothermal and Power Operations 102 114 51 35 48
Diversified Business Group
Agricultural Products 18 12 55 8 8
Carbon and Minerals 30 16 12 8 4
Pipelines 11 54 5 5 4
Corporate and Unallocated 49 51 64 53 62
- ------------------------------------------------------------------------------------------------------------------------------------
Total capital expenditures for 1,378 1,174 1,037 905 1,018
continuing operations
Discontinued operations 49 224 422 367 231
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 1,427 $ 1,398 $ 1,459 $ 1,272 $ 1,249
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Millions of dollars 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Exploration and Production
United States
Spirit Energy $ 305 $ 449 $ 285 $ 304 $ 335
Other 96 197 93 (20) 31
International 470 543 329 406 389
Global Trade 27 26 9 6 11
Geothermal and Power Operations 31 (76) 47 57 51
Diversified Business Group
Agricultural Products 83 152 113 43 27
Carbon and Minerals 109 59 72 62 45
Pipelines 70 86 82 70 67
Other 45 22 15 29 26
Corporate and Unallocated
Administrative and general expense (82) (126) (127) (137) (98)
Net interest expense (133) (256) (257) (255) (279)
Environmental and litigation expense (146) (230) (148) (293) (130)
New Ventures (49) (36) - - -
Other (55) (52) (38) (1) 10
- ------------------------------------------------------------------------------------------------------------------------------------
Pre-tax earnings from continuing operations before
discontinued operations, extraordinary item and
cumulative effect of accounting changes 771 758 475 271 485
Income taxes (102) (302) (226) (161) (213)
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings from continuing operations 669 456 249 110 272
Discontinued operations (50) (420) 11 14 71
Extraordinary item (38) - - - -
Cumulative effect of accounting changes - - - (277) (130)
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 581 $ 36 $ 260 $ (153) $ 213
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
73
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Millions of dollars 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DEPRECIATION, DEPLETION AND AMORTIZATION:
Exploration and Production
United States
Spirit Energy $ 468 $ 398 $ 398 $ 332 $ 361
Other 53 128 139 143 146
International 372 277 290 240 245
Geothermal and Power Operations 20 49 28 28 49
Diversified Business Group
Agricultural Products 18 21 28 20 18
Carbon and Minerals 12 7 6 6 6
Pipelines 7 7 6 6 7
Corporate and Unallocated 12 27 16 36 24
- ------------------------------------------------------------------------------------------------------------------------------------
Total depreciation, depletion and amortization
of continuing operations 962 914 911 811 856
Discontinued operations - 145 111 136 107
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 962 $1,059 $1,022 $ 947 $ 963
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Millions of dollars 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Exploration and Production
United States
Spirit Energy $1,878 $1,998 $1,980 $2,088 $2,672
Other (a) 388 416 805 863 893
International 2,192 1,752 1,610 1,486 1,506
Global Trade 357 356 324 286 272
Geothermal and Power Operations 511 439 481 456 436
Diversified Business Group
Agricultural Products 316 302 309 284 281
Carbon and Minerals 376 265 229 204 201
Pipelines 308 314 261 262 264
Other (b) - 196 174 158 144
Corporate and Unallocated 1,204 1,311 1,114 928 1,005
- ------------------------------------------------------------------------------------------------------------------------------------
Total assets of continuing operations 7,530 7,349 7,287 7,015 7,674
Discontinued operations (c) - 1,774 2,604 2,322 2,032
- ------------------------------------------------------------------------------------------------------------------------------------
Total $7,530 $9,123 $9,891 $9,337 $9,706
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The decline in 1996 is principally due to the sale of California oil and
gas producing properties.
(b) 1997 reflects the restructuring of UNO-VEN.
(c) 1996 reflects net assets of discontinued operations (see note 8).
74
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
GEOGRAPHIC AREAS OF OPERATIONS
<TABLE>
<CAPTION>
Millions of dollars 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
United States $3,929 $3,260 $2,840 $2,792 $2,897
Foreign 2,037 2,002 1,463 1,342 1,241
Corporate and Unallocated 98 66 86 138 592
- --------------------------------------------------------------------------------------------------------------
Total revenues from continuing operations 6,064 5,328 4,389 4,272 4,730
Discontinued operations (a) - 4,271 4,036 3,693 3,614
- --------------------------------------------------------------------------------------------------------------
Total $6,064 $9,599 $8,425 $7,965 $8,344
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(a) 1996 excluded $609 million for November 17, 1996 - December 31, 1996 which
was included in loss on disposal in the consolidated earnings statement.
<TABLE>
<CAPTION>
Millions of dollars 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
EARNINGS:
United States $ 718 $ 859 $ 651 $ 663 $ 604
Foreign 468 563 394 457 422
Corporate and Unallocated (415) (664) (570) (849) (541)
- --------------------------------------------------------------------------------------------------------------
Pretax earnings from continuing operations 771 758 475 271 485
Income taxes (102) (302) (226) (161) (213)
Discontinued operations (net of tax) (50) (420) 11 14 71
Extraordinary charge (net of tax) (38) - - - -
Cumulative effect of accounting change - - - (277) (130)
- --------------------------------------------------------------------------------------------------------------
Net earnings (loss) $ 581 $ 36 $ 260 $ (153) $ 213
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
Millions of dollars 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
United States $3,768 $3,816 $4,245 $4,343 $4,942
Foreign 2,832 2,222 1,928 1,744 1,727
Corporate and Unallocated 930 1,311 1,114 928 1,005
- --------------------------------------------------------------------------------------------------------------
Total assets for continuing operations 7,530 7,349 7,287 7,015 7,674
Discontinued operations (a) - 1,774 2,604 2,322 2,032
- --------------------------------------------------------------------------------------------------------------
Total $7,530 $9,123 $9,891 $9,337 $9,706
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(a) 1996 reflects net assets of discontinued operations (see note 8).
75
<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 shown net of
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, interest costs, or Global Trading activities.
<TABLE>
<CAPTION>
Spirit Other Far Other
Millions of dollars Energy Domestic East International Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR 1997
Sales
To public $ 114 $111 $ 773 $187 $1,185
Intercompany 996 138 347 24 $1,505
Other revenues 21 6 5 8 40
- ------------------------------------------------------------------------------------------------------------------------
Total 1,131 255 1,125 219 2,730
Production costs 193 93 130 74 490
Exploration expenses 88 1 142 52 283
Depreciation, depletion and amortization 468 53 303 69 893
Other operating expenses 77 12 47 57 193
- ------------------------------------------------------------------------------------------------------------------------
Net 305 96 503 (33) 871
Income tax 114 36 85 12 247
- ------------------------------------------------------------------------------------------------------------------------
Results of operations $ 191 $ 60 $ 418 $(45) $ 624
========================================================================================================================
YEAR 1996
Sales
To public $ 125 $161 $ 615 $213 $1,114
Intercompany 1,089 201 326 21 1,637
Other revenues 24 109 - 51 184
- ------------------------------------------------------------------------------------------------------------------------
Total 1,238 471 941 285 2,935
Production costs 178 122 127 81 508
Exploration expenses 88 5 91 58 242
Depreciation, depletion and amortization 398 128 208 69 803
Other operating expenses 125 19 46 3 193
- ------------------------------------------------------------------------------------------------------------------------
Net 449 197 469 74 1,189
Income tax (benefit) 173 75 232 (3) 477
- ------------------------------------------------------------------------------------------------------------------------
Results of operations $ 276 $122 $ 237 $ 77 $ 712
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
76
<PAGE>
SUPPLEMENTAL INFORMATION ON OIL AND GAS
EXPLORATION AND PRODUCTION ACTIVITIES (CONTINUED)
<TABLE>
<S>
YEAR 1995
Sales <C> <C> <C> <C> <C>
To public $ 92 $197 $513 $176 $ 978
Intercompany 803 244 249 18 1,314
Other revenues 149 15 5 29 198
- -------------------------------------------------------------------------------------------
Total 1,044 456 767 223 2,490
Production costs 206 188 102 79 575
Exploration expenses 71 4 64 54 193
Depreciation, depletion and amortization 398 139 192 98 827
Other operating expenses 84 32 46 26 188
- -------------------------------------------------------------------------------------------
Net 285 93 363 (34) 707
Income tax (benefit) 108 35 170 (21) 292
- -------------------------------------------------------------------------------------------
Results of operations $ 177 $ 58 $193 $(13) $ 415
- -------------------------------------------------------------------------------------------
</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 14.
<TABLE>
<CAPTION>
Spirit Other Far Other
Millions of dollars Energy Domestic East International Total
========================================================================================================
<S> <C> <C> <C> <C> <C>
1997
Property acquisition
Proved $ 4 $ - $ - $ (1) $ 3
Unproved 61 - 17 1 79
Exploration 182 7 186 67 442
Development 144 30 399 200 773
Development costs of equity companies (a) - - 83 - 83
- --------------------------------------------------------------------------------------------------------
1996
Property acquisition
Proved $ 6 $ 3 $ - $ 7 $ 16
Unproved 15 - 2 14 31
Exploration 123 5 102 44 274
Development 278 43 297 81 699
Development costs of equity companies (a) - - 66 - 66
- --------------------------------------------------------------------------------------------------------
1995
Property acquisition
Proved $ 7 $ - $ - $ 6 $ 13
Unproved 12 1 2 5 20
Exploration 133 5 117 62 317
Development 297 86 172 91 646
Development costs of equity companies (a) - - 9 - 9
- --------------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents Unocal's share of net capitalized costs of investees accounted
for on the equity method.
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. Where intersegment sales occur, intersegment transfer
prices approximate market prices. 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.
77
<PAGE>
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
(CONTINUED)
<TABLE>
<CAPTION>
Spirit Other Far Other
Energy Domestic East International Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Average sales price: (a)
Crude oil and condensate - per barrel $18.47 $15.25 $18.52 $17.39 $17.71
Natural gas - per mcf 2.51 1.41 2.30 2.25 2.33
Natural gas liquids - per barrel 13.53 15.67 16.20 13.35 14.28
Average production costs per barrel (b) 2.81 4.75 1.58 5.62 2.66
- ------------------------------------------------------------------------------------------------------------------------------------
1996
Average sales price: (a)
Crude oil and condensate - per barrel $19.96 $16.83 $19.17 $19.20 $18.82
Natural gas - per mcf 2.43 1.40 2.28 1.85 2.26
Natural gas liquids - per barrel 15.41 19.41 13.48 14.12 15.09
Average production costs per barrel (b) 2.39 4.69 1.78 5.76 2.73
- ------------------------------------------------------------------------------------------------------------------------------------
1995
Average sales price:
Crude oil and condensate - per barrel $16.19 $13.37 $16.09 $15.69 $15.16
Natural gas - per mcf 1.59 1.41 2.04 1.39 1.72
Natural gas liquids - per barrel 11.19 15.37 12.99 9.02 11.73
Average production costs per barrel (b) 2.72 5.06 1.50 5.40 2.94
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Excludes Global Trade margins.
(b) Includes host country shares of production in Indonesia, Yemen and the
Democratic Republic of Congo.
OIL AND GAS RESERVE DATA (UNAUDITED) - Estimates of physical quantities of oil
and gas reserves, determined by company engineers, for the years 1997, 1996 and
1995 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. Significant portions of the company's undeveloped reserves,
principally in offshore areas, require the installation or completion of related
infrastructure facilities such as platforms, pipelines, and the drilling of
development wells. Proved reserve quantities exclude royalty interests owned by
others; however, foreign reserves held under certain production-sharing
contracts, principally in 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 effect 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 in Indonesia
at prices substantially below market.
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. are estimated to be 54, 65 and 83 million barrels at December 31, 1997,
1996 and 1995, 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.
78
<PAGE>
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
(CONTINUED)
<TABLE>
<CAPTION>
ESTIMATED PROVED RESERVES OF CRUDE OIL AND CONDENSATE Spirit Other Far Other
Millions of barrels Energy Domestic East International Total
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DEVELOPED AND UNDEVELOPED AS OF DECEMBER 31, 1994 (a) 197 222 171 107 697
Revisions of estimates (8) 17 8 (11) 6
Improved recovery - 19 - - 19
Discoveries and extensions 10 (6) 21 7 32
Purchases - - - 20 20
Sales (18) - - (1) (19)
Production (20) (26) (31) (11) (88)
- --------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1995 (a) 161 226 169 111 667
Revisions of estimates (7) - (3) (10) (20)
Improved recovery - 1 1 2 4
Discoveries and extensions 6 - 30 16 52
Purchases - - - 2 2
Sales (1) (115) - - (116)
Production (19) (16) (31) (10) (76)
- --------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1996 (a) 140 96 166 111 513
Revisions of estimates (10) (6) (3) (7) (26)
Improved recovery 2 2 - - 4
Discoveries and extensions 11 2 29 71 113
Purchases - - - 2 2
Sales - - - (1) (1)
Production (17) (11) (34) (10) (72)
- --------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1997 (a) 126 83 158 166 533
PROVED DEVELOPED RESERVES
December 31, 1994 143 175 103 69 490
December 31, 1995 120 178 96 64 458
December 31, 1996 109 75 96 51 331
December 31, 1997 97 63 91 63 314
(a) Includes hosts countries' shares at:
December 31, 1994 of: - - 60 9 69
December 31, 1995 of: - - 63 8 71
December 31, 1996 of: - - 64 6 70
December 31, 1997 of: - - 52 6 58
</TABLE>
79
<PAGE>
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
(CONTINUED)
<TABLE>
<CAPTION>
ESTIMATED PROVED RESERVES OF NATURAL GAS Spirit Other Far Other
Billions of cubic feet Energy Domestic East International Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DEVELOPED AND UNDEVELOPED AS OF DECEMBER 31, 1994 (A) 2,769 811 3,048 283 6,911
Revisions of estimates (33) (22) 40 (20) (35)
Discoveries and extensions 177 32 408 - 617
Purchases - - - 7 7
Sales (52) (2) - - (54)
Production (339) (80) (241) (21) (681)
- ----------------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1995 (a) 2,522 739 3,255 249 6,765
Revisions of estimates (151) (13) (150) (62) (376)
Discoveries and extensions 67 - 1,213 17 1,297
Purchases 20 - - - 20
Sales (41) (157) - (13) (211)
Production (347) (64) (261) (28) (700)
- ----------------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1996 (a) 2,070 505 4,057 163 6,795
Revisions of estimates (151) (2) 92 4 (57)
Improved Recovery 1 - 4 - 5
Discoveries and extensions 102 - 351 6 459
Purchases 29 1 - 91 121
Sales (52) - - - (52)
Production (322) (61) (315) (23) (721)
- ----------------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1997 (a) 1,677 443 4,189 241 6,550
PROVED DEVELOPED RESERVES
December 31, 1994 1,878 559 1,768 127 4,332
December 31, 1995 1,721 473 1,807 188 4,189
December 31, 1996 1,540 289 1,715 148 3,692
December 31, 1997 1,251 243 2,002 149 3,645
(a) Includes host countries' shares at:
December 31, 1994 of: - - 386 - 386
December 31, 1995 of: - - 457 - 457
December 31, 1996 of: - - 530 - 530
December 31, 1997 of: - - 444 - 444
</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 1997, 1996 and 1995 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 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.
80
<PAGE>
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
(CONTINUED)
PRESENT VALUE OF FUTURE NET CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
Spirit Other Far Other
Millions of dollars Energy 76 Domestic East International Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Revenues (a) $ 5,849 $1,530 $8,928 $2,748 $19,055
Production costs 2,092 656 2,913 854 6,515
Development costs (b) 741 228 1,385 559 2,913
Income tax expense 899 210 1,785 292 3,186
- -----------------------------------------------------------------------------------------------------------------------------
Future net cash flow 2,117 436 2,845 1,043 6,441
10% annual discount 681 118 979 499 2,277
- -----------------------------------------------------------------------------------------------------------------------------
Present value of future net cash flows $ 1,436 $ 318 $1,866 $ 544 $4,164
Present value of future net cash flows of equity companies (c) - - 254 - 254
- -----------------------------------------------------------------------------------------------------------------------------
Total $ 1,436 $ 318 $2,120 $ 544 $ 4,418
- -----------------------------------------------------------------------------------------------------------------------------
1996
Revenues (a) $11,464 $2,541 $9,812 $2,424 $26,241
Production costs 2,445 866 2,549 921 6,781
Development costs (b) 808 356 1,389 261 2,814
Income tax expense 2,757 501 2,377 361 5,996
- -----------------------------------------------------------------------------------------------------------------------------
Future net cash flow 5,454 818 3,497 881 10,650
10% annual discount 1,966 261 1,453 342 4,022
- -----------------------------------------------------------------------------------------------------------------------------
Present value of future net cash flows 3,488 557 2,044 539 6,628
Present value of future net cash flows of equity companies (c) - - 118 - 118
- -----------------------------------------------------------------------------------------------------------------------------
Total $ 3,488 $ 557 $2,162 $ 539 $ 6,746
- -----------------------------------------------------------------------------------------------------------------------------
1995
Revenues (a) $ 8,463 $3,932 $7,241 $1,939 $21,575
Production costs 2,412 2,120 1,376 1,013 6,921
Development costs (b) 951 745 909 253 2,858
Income tax expense 1,511 313 2,108 298 4,230
- -----------------------------------------------------------------------------------------------------------------------------
Future net cash flow 3,589 754 2,848 375 7,566
10% annual discount 1,279 217 1,027 117 2,640
- -----------------------------------------------------------------------------------------------------------------------------
Present value of future net cash flows 2,310 537 1,821 258 4,926
Present value of future net cash flows of equity companies (c) - - 43 - 43
- -----------------------------------------------------------------------------------------------------------------------------
Total $ 2,310 $ 537 $1,864 $ 258 $ 4,969
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Average prices used in this calculation are based upon year-end prices and
are as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Crude oil per barrel
1997 $ 16.04 $13.05 $18.14 $13.21
1996 23.81 20.06 22.55 19.89
1995 18.98 12.95 17.14 15.20
Natural gas per mcf 1997 $ 2.39 $ 1.47 $ 2.22 $ 2.28
1996 3.97 1.35 2.58 2.14
1995 2.18 1.33 2.18 1.58
</TABLE>
(b) Includes dismantlement and abandonment costs.
(c) Represents Unocal's share of investees accounted for on the equity method.
81
<PAGE>
SUPPLEMENTAL INFORMATION ON OIL AND GAS EXPLORATION AND PRODUCTION ACTIVITIES
(CONTINUED)
CHANGES IN PRESENT VALUE OF FUTURE NET CASH FLOW (UNAUDITED)
<TABLE>
<CAPTION>
Millions of dollars 1997 1996 1995
=============================================================================================================
<S> <C> <C> <C>
Present value at beginning of year $ 6,746 $ 4,969 $ 4,150
Discoveries and extensions, net of estimated future costs 606 1,005 743
Net purchases and sales of proved reserves (a) (16) (128) (51)
Revisions to prior estimates:
Prices net of estimated changes in production costs (2,939) 4,518 2,321
Future development costs (312) (317) (516)
Quantity estimates (204) (755) (58)
Production schedules and other (581) (549) (565)
Accretion of discount 865 617 636
Development costs related to beginning of year reserves 790 663 635
Sales of oil and gas, net of production costs of $490 million
in 1997, $508 million in 1996 and $575 million in 1995 (2,200) (2,243) (1,717)
Net change in income taxes 1,663 (1,034) (609)
- -----------------------------------------------------------------------------------------------------------
Present value at end of year $ 4,418 $ 6,746 $ 4,969
===========================================================================================================
</TABLE>
(a) Purchases of reserves were valued at $52 million, $64 million and $23
million in 1997, 1996 and 1995, respectively. Sales of reserves were valued
at $68 million, $192 million and $74 million for the same years,
respectively.
82
<PAGE>
QUARTERLY FINANCIAL AND MARKET PRICE DATA (UNAUDITED)
<TABLE>
<CAPTION>
1997 QUARTERS
----------------------------------------------------
Millions of dollars except per share amounts 1st 2nd 3rd 4th
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenues $1,456 $1,654 $1,397 $1,557
Total costs and other deductions, including income taxes (a) 1,268 1,498 1,220 1,409
- ------------------------------------------------------------------------------------------------------------------------
After-tax earnings from continuing operations 188 156 177 148
Loss on disposal of discontinued operations (44) - - (6)
Extraordinary charge - extinguishment of debt (net of tax) - (38) - -
- ------------------------------------------------------------------------------------------------------------------------
Net earnings $ 144 $ 118 $ 177 $ 142
- ------------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share of common stock (b)
Continuing operations 0.75 0.62 0.71 0.60
Discontinued operations (0.18) - - (0.02)
Extraordinary item - (0.15) - -
- ------------------------------------------------------------------------------------------------------------------------
Basic earnings per share of common stock $ 0.57 $ 0.47 $ 0.71 $ 0.58
- ------------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share of common of stock (b)
Continuing operations 0.73 0.61 0.70 0.59
Discontinued operations (0.17) - - (0.02)
Extraordinary item - (0.14) - -
- ------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share of $ 0.56 $ 0.47 $ 0.70 $ 0.57
- ------------------------------------------------------------------------------------------------------------------------
Gross margin (c) $ 378 $ 166 $ 41 $ 199
- ------------------------------------------------------------------------------------------------------------------------
(a) Includes special items of $ 9 $ 5 $ (85) $ -
(b) Due to the repurchase of Unocal's common stock, the earnings per share amounts by quarter may not be additive.
(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, and other operating taxes.
</TABLE>
<TABLE>
<CAPTION>
1997 QUARTERS
----------------------------------------------------
Millions of dollars 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)
- ------------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share of common stock (e)
Continuing operations (d) $ 0.49 $ 0.72 $ 0.32 $ 0.01
Discontinued operations (0.03) 0.20 0.15 (2.00)
- ------------------------------------------------------------------------------------------------------------------------
Basic earnings (loss) per share of common stock $ 0.46 $ 0.92 $ 0.47 $(1.99)
- ------------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share of common stock (e)
Continuing operations $ 0.49 $ 0.71 $ 0.31 $ 0.01
Discontinued operations (0.03) 0.19 0.14 (1.98)
- ------------------------------------------------------------------------------------------------------------------------
Diluted earnings (loss) per share of common stock $ 0.46 $ 0.90 $ 0.45 $(1.97)
- ------------------------------------------------------------------------------------------------------------------------
Gross margin (f) $ 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 $ 10 $ 37 $ 32 $ 106
(c) Fourth quarter loss on disposal includes a $42 million estimated loss for the phase-out period January 1, 1997-March 31, 1997.
(d) Third quarter amount reflects a $54 million non-cash charge related to the exchange of preferred stock.
(e) 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.
(f) 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, and other operating taxes.
</TABLE>
83
<PAGE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Millions of dollars except per share amounts 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SALES REVENUE DATA
Crude oil and condensate $ 2,707 $ 2,495 $ 1,964 $ 1,996 $ 1,928
Natural gas 1,857 1,482 1,031 1,109 1,104
Agricultural products 435 514 486 373 319
Geothermal 119 131 120 135 145
Natural gas liquids 105 95 97 96 101
Petroleum products 13 16 84 89 458
Minerals 106 97 95 79 62
Consumer excise taxes - - - 5 87
Other 319 161 58 95 134
- ---------------------------------------------------------------------------------------------------------------------------
Total 5,661 4,991 3,935 3,977 4,338
Operating revenues 120 110 176 141 137
Other revenues 283 227 278 154 255
- ---------------------------------------------------------------------------------------------------------------------------
Total revenues from continuing operations 6,064 5,328 4,389 4,272 4,730
Discontinued operations (a) - 4,271 4,036 3,693 3,614
--------------------------------------------------------------------
Total revenues $ 6,064 $ 9,599 $ 8,425 $ 7,965 $ 8,344
===========================================================================================================================
EARNINGS DATA
Earnings from continuing operations $ 669 $ 456 $ 249 $ 110 $ 272
Discontinued operations (50) (420) 11 14 71
Extraordinary item - early extinguishment of debt (38) - - - -
Cumulative effects of accounting change - - - (277) (130)
---------------------------------------------------------------------
Net earnings (loss) $ 581 $ 36 $ 260 $ (153) $ 213
Basic earnings (loss) per common share:
Continuing operations $ 2.69 $ 1.54 $ 0.87 $ 0.30 $ 0.98
Discontinued operations (0.20) (1.69) 0.04 0.06 0.29
Extraordinary item - extinguishment of debt
(net of tax) (0.15) - - - -
Cumulative effect of accounting change - - - (1.14) (0.54)
===========================================================================================================================
Net earnings (loss) per share $ 2.34 $ (0.15) $ 0.91 $ (0.78) $ 0.73
===========================================================================================================================
SHARE DATA
Cash dividends declared on preferred stock $ - $ 18 $ 36 $ 36 $ 36
Per share - 1.75 3.50 3.50 3.50
Cash dividends declared on common stock 199 199 197 194 181
Per share 0.80 0.80 0.80 0.80 0.75
Number of common stockholders of record at year end 31,919 32,924 33,028 37,622 41,682
Weighted average common shares - thousands 248,190 248,767 246,112 242,640 241,114
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Current assets (b) $ 1,501 $ 3,228 $ 1,576 $ 1,528 $ 1,578
Current liabilities 1,160 1,622 1,316 1,257 1,196
Working capital 341 1,606 260 271 382
Ratio of current assets to current liabilities 1.3:1 2.0:1 1.2:1 1.2:1 1.3:1
Total assets 7,530 9,123 9,891 9,337 9,706
Long-term debt 2,169 2,940 3,692 3,452 3,455
Trust convertible preferred securities 522 522 - - -
Total stockholders' equity 2,314 2,275 2,930 2,815 3,129
Per common share 9.32 9.14 9.87 9.54 10.90
Return on average stockholders' equity and preferred
securities:
Continuing operations 23.8% 15.9% 8.7% (5.6)% 4.6%
Including discontinued operations and
extraordinary item 20.6% 1.3% 9.1% (5.1)% 6.8%
===========================================================================================================================
GENERAL DATA
Salaries, wages and employee benefits (c) $ 640 $ 806 $ 797 $ 811 $ 744
Number of regular employees at year end 8,394 11,658 12,509 13,127 13,613
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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 8).
(c) Employee benefits are net of pension income recognized in accordance with
current accounting standards for pension costs. For years 1997, 1996, 1995
and 1994, such benefits also include the accrued postretirement medical
benefits cost.
84
<PAGE>
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE: None.
--------
PART III
The information required by Items 10 through 12 (except for information
regarding the company's executive officers) is incorporated by reference to
Unocal's Proxy Statement for its 1998 Annual Meeting of Stockholders (the "1998
Proxy Statement") (File No. 1-8483), as indicated below. The 1998 Proxy
Statement is expected be filed with the Securities and Exchange Commission on or
about April 20, 1998.
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the information regarding Unocal's directors and nominees for election as
directors to appear under the captions "Item 1. Election of Directors" and
"Board and Committee Meetings" in the 1998 Proxy Statement. Also, see the list
of Unocal's executive officers and related information under the caption
"Executive Officers of the Registrant" in Part I of this report on pages 18 and
19.
ITEM 11 - EXECUTIVE COMPENSATION
See the 1998 Proxy Statement for information regarding executive compensation to
appear under the captions "Summary Compensation Table," "Option Grants in 1997,"
"Aggregated Option/SAR Exercises in 1997 and December 31, 1997 Option Values,"
"Long-Term Incentive Plan - Awards in 1997," "Pension Plan Benefits- Estimated
Annual Retirement Benefits," "Employment Contracts, Termination of Employment
and Change of Control Arrangements" and for information regarding directors'
compensation to appear under the caption "Directors' Compensation."
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the 1998 Proxy Statement for information regarding security ownership to
appear under the caption "Security Ownership of Management."
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: Not required.
--------
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
42 of this report.
(2) Financial Statement Schedules: See the Index to Consolidated
Financial Statements and Financial Statement Schedules under Item
8 on page 42 of this report.
(3) Exhibits: The Exhibit Index on pages 90 and 91 of this report
lists the exhibits that are filed as part of this report.
85
<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 1997:
(1) Current Report on Form 8-K dated and filed October 14, 1997, for
the purpose of reporting, under Item 5, Unocal's intent to
consider the restructuring of certain of its Canadian oil and gas
assets held by its Unocal Canada Limited subsidiary.
(2) Current Report on Form 8-K dated and filed October 14, 1997, for
the purpose of reporting, under Item 5, the resignation of Neal E.
Schmale as Chief Financial Officer and the appointment of Timothy
H. Ling as Chief Financial Officer.
(3) Current Report on Form 8-K dated October 14, 1997, and filed
October 15, 1997, for the purpose of reporting, under Item 5, a
jury's verdict validating Unocal's reformulated gasoline patent.
(4) Current Report on Form 8-K dated and filed October 27, 1997, for
the purpose of reporting, under Item 5, third quarter and nine-
month 1997 earnings and related information.
(5) Current Report on Form 8-K dated November 3, 1997, and filed
November 4, 1997, for the purpose of reporting, under Item 5,
damages awarded to Unocal in the reformulated gasoline patent
infringement lawsuit.
(6) Current Report on Form 8-K dated and filed November 26, 1997, for
the purpose of reporting, under Item 5, lower earnings from the
company's Molycorp, Inc., subsidiary.
(7) Current Report on Form 8-K dated December 17, 1997, and filed
December 19, 1997, for the purpose of reporting, under Item 5, the
company's 1998 capital spending plan.
During the first quarter of 1998 to the date hereof:
(1) Current Report on Form 8-K dated and filed January 28, 1998, for
the purpose of reporting, under Item 5, the company's fourth
quarter and full-year 1997 earnings and related information.
(2) Current Report on Form 8-K dated February 13, 1998, and filed
February 17, 1998, for the purpose of reporting, under Item 5, the
company's Unocal Canada Limited subsidiary's agreement to exchange
certain of its Canadian oil and gas properties with Tarragon Oil
and Gas Limited for Tarragon common stock and debentures.
(3) Current Report on Form 8-K dated February 25, 1998, and filed
March 3, 1998, for the purpose of reporting, under Item 5, the
company's 1997 crude oil and natural gas reserve data.
86
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
of 1934, the registrant has dully caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
UNOCAL CORPORATION
(Registrant)
Date:
March 30, 1998 By: /s/ TIMOTHY H. LING
- -------------- ------------------------
Timothy H. Ling
Chief Financial Officer
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 30, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------------------------------------------------------------------
<S> <C>
/s/ ROGER C. BEACH Chairman of the Board of Directors and
- ---------------------------------- Chief Executive
Roger C. Beach Officer
/s/ JOHN F. IMLE, JR. Director and President
- ----------------------------------
John F. Imle, Jr.
/s/ TIMOTHY H. LING Chief Financial Officer
- ----------------------------------
Timothy H. Ling
/s/ JOE D. CECIL Vice President and Comptroller
- ----------------------------------
Joe D. Cecil
/s/ JOHN W. AMERMAN Director
- ----------------------------------
John W. Amerman
/s/ JOHN W. CREIGHTON, JR. Director
- ----------------------------------
John W. Creighton, Jr.
/s/ MALCOLM R. CURRIE Director
- ----------------------------------
Malcolm R. Currie
/s/ FRANK C. HERRINGER Director
- ----------------------------------
Frank C. Herringer
/s/ DONALD P. JACOBS Director
- ----------------------------------
Donald P. Jacobs
</TABLE>
87
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C>
/s/ KEVIN W. SHARER Director
- ----------------------------------
Kevin W. Sharer
/s/ CHARLES R. WEAVER Director
- ----------------------------------
Charles R. Weaver
/s/ MARINA V.N. WHITMAN Director
- ----------------------------------
Marina v.N. Whitman
</TABLE>
88
<PAGE>
<TABLE>
<CAPTION>
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(MILLIONS OF DOLLARS)
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 1997
Amounts deducted from
applicable assets:
Accounts and notes receivable $35 $ 7 $ 1 $ (8) $35
Investments and long-term
receivables $13 $ 1 $31 $(13) $32
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
</TABLE>
(a) Represents receivables written off, net of recoveries, reinstatement and
losses sustained.
89
<PAGE>
UNOCAL CORPORATION
EXHIBIT INDEX
<TABLE>
<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 Stock Purchase and Shareholder Agreement, 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 Amendment No. 1 and Supplement, dated as of March 31, 1997, to Stock Purchase and Shareholder Agreement,
dated as of January 15, 1997, by and between Tosco Corporation and Union Oil Company of California
(incorporated by reference to Exhibit C to Unocal's and Union Oil Company of California's statement on
Schedule 13D relating to Tosco Corporation, dated and filed April 10, 1997, File No. 1-7910).
- ------------------------------------------------------------------------------------------------------------------------------------
Exhibit 2.4 Environmental Agreement, dated as of March 31, 1997, by and between Union Oil Company of California and
Tosco Corporation (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 through March 30, 1998, and currently in effect.
- ------------------------------------------------------------------------------------------------------------------------------------
Exhibit 3.3 Bylaws of Unocal, as amended to be effective June 1, 1998.
- -----------------------------------------------------------------------------------------------------------------------------------
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 Chase
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 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 10.14 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>
<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 (incorporated by reference to Exhibit
10.3 to Unocal's Annual Report on Form 10-K for the year ended December 31, 1996, File No. 1-8483).
- ------------------------------------------------------------------------------------------------------------------------------------
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).
</TABLE>
90
<PAGE>
<TABLE>
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Exhibit 10.5 Supplemental Retirement Plan for Key Management Personnel, as amended and restated effective as of April
1, 1994.
- -----------------------------------------------------------------------------------------------------------------------------------
Exhibit 10.6 Unocal Supplemental Savings Plan, effective January 1, 1997.
- -----------------------------------------------------------------------------------------------------------------------------------
Exhibit 10.7 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).
- ------------------------------------------------------------------------------------------------------------------------------------
Exhibit 10.8 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 10.9 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 10.10 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 10.11 Employment Agreement, effective as of December 8, 1997, by and between Unocal and Roger C. Beach.
- -----------------------------------------------------------------------------------------------------------------------------------
Exhibit 10.12 Form of Change in Control Agreement, effective as of December 8, 1997, by and between Unocal and each of
John F. Imle and Timothy H. Ling.
- -----------------------------------------------------------------------------------------------------------------------------------
Exhibit 10.13 Form of Change in Control Agreement, effective as of December 8, 1997, by and between Unocal and each of
Randolph L. Howard, John W. Schanck, L.E. (Ed) Scott, Charles R. Williamson and Dennis P.R. Codon.
- -----------------------------------------------------------------------------------------------------------------------------------
Exhibit 10.14 Termination and Employment Agreement and Release, dated November 14, 1997, among Neal E. Schmale, Union
Oil Company of California and Unocal (incorporated by reference to Exhibit 10 to Unocal's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1997, File No. 1-8483).
- -----------------------------------------------------------------------------------------------------------------------------------
Exhibit 12.1 Statement regarding computation of ratio of earnings to fixed charges of Unocal
for the five years ended December 31, 1997.
- -----------------------------------------------------------------------------------------------------------------------------------
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, 1997.
- -----------------------------------------------------------------------------------------------------------------------------------
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, 1997.
- -----------------------------------------------------------------------------------------------------------------------------------
Exhibit 21 Subsidiaries of Unocal Corporation.
- ------------------------------------------------------------------------------------------------------------------------------------
Exhibit 23 Consent of Coopers & Lybrand L.L.P.
- -----------------------------------------------------------------------------------------------------------------------------------
Exhibit 27.1 Financial data schedule for the period ended December 31, 1997 (included only in the copy of this report
filed electronically with the Commission).
- -----------------------------------------------------------------------------------------------------------------------------
Exhibit 27.2 Restated financial data schedule for the period ended December 31, 1996 (included only in the copy of
this report filed electronically with the Commission).
- -----------------------------------------------------------------------------------------------------------------------------
Exhibit 27.3 Restated financial data schedule for the period ended December 31, 1995 (included only in the copy of
this report filed electronically with the Commission).
- -----------------------------------------------------------------------------------------------------------------------------
Exhibit 27.4 Restated financial data schedule for the period ended March 31, 1997 (included only in the copy of this
report filed electronically with the Commission).
- -----------------------------------------------------------------------------------------------------------------------------
Exhibit 27.5 Restated financial data schedule for the period ended June 30, 1997 (included only in the copy of this
report filed electronically with the Commission).
- -----------------------------------------------------------------------------------------------------------------------------
Exhibit 27.6 Restated financial data schedule for the period ended September 30, 1997 (included only in the copy of
this report filed electronically with the Commission).
- -----------------------------------------------------------------------------------------------------------------------------
Exhibit 27.7 Restated financial data schedule for the period ended March 31, 1996 (included only in the copy of this
report filed electronically with the Commission).
- -----------------------------------------------------------------------------------------------------------------------------
Exhibit 27.8 Restated financial data schedule for the period ended June 30, 1996 (included only in the copy of this
report filed electronically with the Commission).
- -----------------------------------------------------------------------------------------------------------------------------
Exhibit 27.9 Restated financial data schedule for the period ended September 30, 1996 (included only in the copy of
this report filed electronically with the Commission).
- -----------------------------------------------------------------------------------------------------------------------------
Exhibit 99.1 Restated and Amended Articles of Incorporation of Union Oil Company of California, as amended through
October 24, 1996, and currently in effect.
- -----------------------------------------------------------------------------------------------------------------------------
Exhibit 99.2 Bylaws of Union Oil Company of California, as amended through March 30, 1998, and currently in effect.
- -----------------------------------------------------------------------------------------------------------------------------
Exhibit 99.3 Bylaws of Union Oil Company of California, as amended to be effective June 1, 1998.
</TABLE>
91
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
UNOCAL CORPORATION
A DELAWARE CORPORATION
(AS AMENDED THROUGH MARCH 30, 1998)
ARTICLE I
FISCAL YEAR
Section 1. The fiscal year of Unocal Corporation (hereinafter called the
"Corporation") shall end on the thirty-first (31st) day of December of each
year.
ARTICLE II
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office for the transaction of
business of the Corporation is hereby fixed and located at 2141 Rosecrans
Avenue, Suite 4000, in the City of El Segundo, County of Los Angeles, State of
California. The Board of Directors (hereinafter sometimes called the "Board")
is hereby granted full power and authority to change said principal office from
one location to another.
ARTICLE III
STOCKHOLDERS
Section 1. ANNUAL MEETINGS. The annual meetings of the stockholders shall be
held at 10:00 o'clock A.M. on the fourth (4th) Monday in May of each year if not
a legal holiday, for the purpose of electing directors, consideration of reports
of the affairs of the Corporation, and for the transaction of any other business
which is within the powers of the stockholders and properly brought before the
meeting. If the fourth (4th) Monday in May is a legal holiday, the annual
meeting of the stockholders shall be held at 10:00 o'clock A.M. on the preceding
or subsequent Monday as fixed by resolution of the Board.
Section 2. NOTICE OF MEETINGS. Written notice of each annual or special
meeting of stockholders shall be given to each stockholder entitled to vote
thereat not less than ten (10) nor more than sixty (60) days before the meeting.
Section 3. PLACE OF MEETINGS. All meetings of stockholders, whether annual
or special, shall be held at the principal office of the Corporation or at such
other place, within or without the State of Delaware, as the Board may from time
to time designate pursuant to authority hereinafter granted it. In the absence
of any such designation stockholders' meetings shall be held at the principal
office of the Corporation.
<PAGE>
Section 4. VOTING RIGHTS. Stockholders entitled to vote at stockholder
meetings shall be entitled to one (1) vote for each full share. A fraction of a
share or a fractional interest in a share shall not be entitled to any voting
rights whatsoever.
Section 5. CONDUCT OF MEETINGS. The decisions of the Chairman of the Board
or officer presiding at all stockholders' meetings shall govern in all matters
relating to the conduct of the meeting.
Section 6. VOTING. Directors shall be divided into three (3) classes with
each director serving a three (3)-year term. At each annual meeting, all
directors of one (1) class shall be elected in accordance with the provisions of
ARTICLE SEVENTH of the Corporation's Certificate of Incorporation by the holders
of shares entitled to vote in the election. A nomination shall be accepted, and
votes cast for a proposed nominee shall be counted by the inspectors of
election, only if the Secretary of the Corporation has received at least sixty
(60) days prior to the meeting a statement over the signature of the proposed
nominee that such person consents to being a nominee and, if elected, intends to
serve as a director. Such statement shall also contain the Unocal stock
ownership of the proposed nominee, occupations and business history for the
previous five (5) years, other directorships, names of business entities in
which the proposed nominee owns a ten (10) percent or more equity interest,
listing of any criminal convictions, including federal or state securities
violations, and all other information as would be required to be disclosed in
solicitations of proxies for the election of such nominee as director pursuant
to Regulation 14A under the Securities Exchange Act of 1934, as amended.
Section 7. NOTICE OF STOCKHOLDER BUSINESS. At any meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before a meeting, business
must be (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors, (b) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (c)
otherwise properly brought before the meeting by a stockholder or a beneficial
owner of the Corporation's stock ("Proponent"). For business to be properly
brought before the meeting by a Proponent, such business must be a proper matter
for stockholder action under the general corporation law of the state of
Delaware, and the Secretary must have received at least sixty (60) days prior to
the meeting written notice by the Proponent containing (a) a brief description
of each matter desired to be brought before the meeting, (b) the Proponent's
name and address, as they appear on the Corporation's books, (c) the class and
the number of shares of the Corporation which are beneficially owned by the
Proponent and, if the Proponent is a beneficial owner, proof of beneficial
ownership, (d) any material interest of the Proponent in such business, (e) an
indication as to whether the Proponent intends to solicit or participate in the
solicitation of proxies in favor of such business, and (f) as to each person
whom the Proponent proposes to nominate for election or reelection as a
director, all information relating to such person as would be required to be
disclosed in solicitations of proxies for the election of such person as a
director pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended. Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at a meeting except in accordance with the procedures set
forth herein.
Section 8. QUORUM. The holders of one-third (1/3) of all of the outstanding
shares of the stock of the Corporation entitled to vote at a meeting of
stockholders, present in person or by proxy, shall constitute a quorum for the
transaction of any business at such meeting.
2
<PAGE>
ARTICLE IV
BOARD OF DIRECTORS
Section 1. POWERS. Subject to the limitations of the Certificate of
Incorporation of the Corporation and of the Delaware General Corporation Law as
to action which shall be authorized or approved by the stockholders, all
corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation shall be managed by, the Board of
Directors.
Section 2. NUMBER. The exact number of directors of the Corporation, within
the limits specified in ARTICLE SEVENTH of the Corporation's Certificate of
Incorporation, shall be ten (10) until changed in the manner provided by law.
Section 3. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The Board shall appoint
a Chairman, who shall preside at all meetings of the Board of Directors and
shall have such other powers and duties as may from time to time be assigned by
the Board of Directors or prescribed by the Bylaws. The Board may also appoint
a Vice Chairman, who shall preside at all meetings of the Board of Directors in
the absence of the Chairman and shall have such other powers and duties as may
from time to time be assigned by the Board of Directors or prescribed by the
Bylaws.
Section 4. ANNUAL MEETINGS. Immediately following each annual meeting of
stockholders, the Board shall hold its annual meeting for the purpose of
organization, election of officers and the transaction of any other business.
Section 5. REGULAR MEETINGS. Regular meetings of the Board shall be held at
the times and on the dates fixed by resolution of the Board.
Section 6. SPECIAL MEETINGS. Special meetings of the Board for any purpose
or purposes whatsoever may be called by the Chairman of the Board or the Chief
Executive Officer or, in the absence or inability of either of them, by the
President, the Chief Financial Officer, or by at least two (2) of the directors
at the time in office.
Section 7. NOTICE OF MEETINGS. Notice of annual meetings and of regular
meetings of the Board is hereby dispensed with. Notice of special meetings must
be given at least two (2) days in advance if given by mail, or at least twenty-
four (24) hours in advance if delivered personally or given by telephone or
telegram.
Section 8. PLACE OF MEETINGS. All meetings of the Board, whether annual,
regular or special meetings, shall be held at any place within or without the
State of Delaware which has been designated from time to time by resolution of
the Board or in the notice of the meeting. In the absence of such designation
all directors' meetings shall be held at the principal office of the
Corporation.
Section 9. QUORUM. A majority of the exact number of directors specified in
Section 2 of ARTICLE IV of the Bylaws shall constitute a quorum of the Board of
Directors for the transaction of business; provided, however, that vacancies on
the Board may be filled by a majority of the remaining directors, through less
than a quorum, or by a sole remaining director, each such
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director to hold office until a successor is elected at an annual or special
meeting of the stockholders.
Section 10. COMPENSATION OF DIRECTORS. Directors and members of committees
appointed by the Board shall receive such compensation, if any, for their
services, and such reimbursement for their expenses, as may be fixed or
determined by resolution of the Board. The Board may, however, in any such
resolution provide that directors who are also employees of the Corporation or
any of its subsidiaries shall not receive additional compensation for services
as a director or member of a committee appointed by the Board.
Section 11. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS.
(a) RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is
threatened to be made a party to or involved in any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative ("Proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, trustee, or
fiduciary, or in a similar capacity (collectively, "Agent") of another foreign
or domestic corporation, limited liability company, partnership, joint venture,
trust, or any other enterprise or entity whatsoever, including without
limitation employee benefit plans (collectively, "Affiliate"), whether the basis
of such Proceeding is alleged action in an official capacity, or in any other
capacity while serving as a director or officer of the Corporation or as an
Agent of an Affiliate, shall be indemnified and held harmless by the Corporation
to the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment), against all expense, liability, and loss,
including without limitation, attorneys' fees, judgments, fines, ERISA excise
taxes, penalties, amounts paid or to be paid in settlement, and any other
amounts actually incurred or suffered by such person in connection with any
Proceeding; and such indemnification shall continue as to a person who has
ceased to be a director or officer of the Corporation or Agent of an Affiliate
and shall inure to the benefit of his or her heirs, executors, and
administrators; PROVIDED, HOWEVER, that, except as provided in paragraph (b)
hereof with respect to Proceedings seeking to enforce rights to indemnification,
the Corporation shall indemnify any such person seeking indemnification in
connection with a Proceeding (or part thereof) initiated by such person only if
such Proceeding (or part thereof) was authorized by the board of directors of
the Corporation. The right to indemnification conferred in this Section shall be
a contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such Proceeding in advance of its final
disposition; PROVIDED, HOWEVER, that, if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer, including
without limitation, service to an employee benefit plan) in advance of the final
disposition of a Proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section or otherwise. The
Corporation may, to the extent authorized from time to time by its board of
directors, either on a general basis or as to specific employees or agents,
provide
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indemnification to employees and agents of the Corporation with similar scope
and effect as the foregoing indemnification of directors and officers.
(b) RIGHT TO BRING SUIT. If a claim under paragraph (a) of this Section is
not paid in full by the Corporation within sixty (60) days after a written claim
has been received by the Corporation, except in the case of a claim for expenses
incurred in a Proceeding in advance of its final disposition in which case the
applicable period shall be twenty (20) days, the person seeking indemnification
(the "Party to be Indemnified") may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim. If successful in
whole or in part in any such suit, or in a suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
Party to be Indemnified shall be entitled to be paid also the expense of
prosecuting or defending such claim. The Corporation's sole defense to an action
seeking indemnification (other than an action brought to enforce a claim for
expenses incurred in defending a Proceeding in advance of its final disposition
where the required undertaking, if any is required, has been tendered to the
Corporation) shall be that the Party to be Indemnified has not met the standards
of conduct which make it permissible under the Delaware General Corporation Law
for the Corporation to indemnify the Party to be Indemnified for the amount
claimed, and the burden of providing such defense shall be on the Corporation.
Neither the failure of the Corporation (including its board of directors, its
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the Party to be
Indemnified is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its board of
directors, its independent legal counsel, or its stockholders) that the Party to
be Indemnified has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the Party to be Indemnified
has not met the applicable standard of conduct.
(c) NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the payment
of expenses incurred in defending a Proceeding in advance of its final
disposition conferred in this Section shall not be exclusive of any other right
which any person may have or hereafter acquire under any statute, provision of
the Certificate of Incorporation, Bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
(d) INSURANCE. The Corporation shall maintain in full force and effect, at
its own expense, director and officer liability insurance ("Insurance") coverage
for each director and officer in amounts and scope at least as favorable as that
maintained by the Corporation on September 30, 1996, or, to the extent more
favorable, any Insurance policy entered into or renewed by the Corporation
following such date. Notwithstanding the foregoing, if the Corporation, after
using its best efforts, cannot obtain and purchase such coverage for an amount
no more than what it paid for the most recent expiring Insurance policy plus a
reasonable additional amount, the Corporation shall only be required to purchase
such Insurance coverage for any act or omission occurring at or prior to the
time of such date.
(e) ENFORCEABILITY; AMENDMENT. The rights provided to any person by this
bylaw shall be enforceable against the Corporation by such person, who shall be
presumed to have relied upon it in serving or continuing to serve as an Agent,
as provided above. No amendment of this bylaw shall impair the rights of any
person arising at any time with respect to events occurring prior to
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such amendment, including, without limitation, any right of a director or
officer to Insurance for any act or omission occurring at or prior to the time
of such amendment.
Section 12. AUTHORITY TO DESIGNATE PLACE OF STOCKHOLDERS' MEETINGS. The
Board is hereby granted full power and authority to designate from time to time
any place within or without the State of Delaware for the holding of any
stockholders' meeting.
Section 13. COMMITTEES. The Board may, by resolution, appoint one (1) or
more committees, in addition to an Executive Committee and a Board Management
Committee, to consist of two (2) or more of the directors of the Corporation,
and prescribe their duties and powers. A majority of the members of any such
committee may determine its action and fix the time and place of its meetings
unless the Board shall otherwise provide. The Board shall have the power at any
time to fill vacancies in, to change the membership of, or to dissolve any such
committee.
Section 14. ACTION BY WRITTEN CONSENT. Any action required or permitted to
be taken by the Board or any committee thereof may be taken without a meeting,
if all members of the Board or such committee, as the case may be, shall
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board.
Section 15. CONFERENCE CALLS. Members of the Board or any committee thereof
may participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another.
ARTICLE V
EXECUTIVE COMMITTEE
Section 1. NUMBER AND COMPOSITION. The Board of Directors shall appoint from
its membership, annually, an Executive Committee of three (3) or more directors.
Included on the Executive Committee shall be the Chief Executive Officer of the
Corporation. Each member of the Executive Committee shall hold membership at
the pleasure of the Board, which shall have the exclusive power to fill
vacancies thereon as they may occur. The Chairman of the Executive Committee
shall be the Chief Executive Officer of the Corporation.
Section 2. POWERS. The Executive Committee, during the intervals between
meetings of the Board, shall have and there is hereby granted to it all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, except that the Executive Committee shall not be
permitted to fill vacancies on the Board or on any committee, approve any action
for which stockholder approval is also required by the Delaware General
Corporation Law, amend or repeal any resolution of the Board which by its
express terms is not so amendable or repealable, or appoint other committees of
the Board or the members thereof and shall not have any powers restricted by
Section 141(c) of the Delaware General Corporation Law unless the Board shall
have specifically delegated authority to the Executive Committee to take action
with respect to a matter listed in such Section as permitted to be so delegated.
Section 3. PROCEDURE. Two (2) members of the Executive Committee shall
constitute a quorum of the Executive Committee for the transaction of business.
The Executive Committee, by vote of a majority of its members, shall fix its own
times and places of meetings and shall prescribe its
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own rules of procedure; no change in which shall be made save by a majority vote
of its members.
Section 4. RECORDS AND REPORTS. The Executive Committee shall keep regular
minutes of all business transacted at its meetings, and all action of the
Executive Committee shall be reported to the Board at its next ensuing meeting.
Section 5. COMPENSATION. Members of the Executive Committee may receive such
compensation, if any, for their services, and such reimbursement for their
expenses, as may be fixed or determined by the Board.
ARTICLE VI
BOARD MANAGEMENT COMMITTEE
Section 1. NUMBER AND COMPOSITION. The Board of Directors shall appoint from
its membership, annually, a Board Management Committee composed of the directors
who are salaried officers of the Corporation. The Chairman of the Board
Management Committee shall be the Chief Executive Officer of the Corporation.
Section 2. POWERS. The Board Management Committee, during the intervals
between meetings of the Board, shall have and there is hereby granted to it all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, subject to approval limits established
by resolution of the Board of Directors as deemed appropriate from time to time,
but the Board Management Committee shall not be permitted to fill vacancies on
the Board or on any committee, appoint officers, approve any action for which
stockholder approval is also required by the Delaware General Corporation Law,
amend or repeal any resolution of the Board or of the Executive Committee, which
by its express terms is not so amendable or repealable, or appoint other
committees of the Board or the members thereof and shall not have any powers
restricted by Section 141(c) of the Delaware General Corporation Law unless the
Board shall have specifically delegated authority to the Board Management
Committee to take action with respect to a matter listed in such Section as
permitted to be so delegated.
Section 3. PROCEDURE. Two (2) members of the Board Management Committee
shall constitute a quorum of the Board Management Committee for the transaction
of business. The Board Management Committee, by vote of a majority of its
members, shall fix its own times and places of meetings, and shall prescribe its
own rules of procedure; no change in which shall be made save by a majority vote
of its members.
Section 4. RECORDS. The Board Management Committee shall keep regular
minutes of all business transacted at its meetings.
ARTICLE VII
OFFICERS
Section 1. OFFICERS. The officers of the Corporation shall be a Chief
Executive Officer, a President, a Chief Financial Officer, a Vice President, a
Secretary, a Comptroller, a Treasurer, and a Chief Legal Officer. The
Corporation may also have, at the discretion of the Board, one (1) or more
additional Vice Presidents, one (1) or more Assistant Secretaries, one (1) or
more
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Assistant Treasurers, and one (1) or more Assistant Comptrollers, and the
Board may appoint such other officers as it may deem necessary or advisable, who
shall have such authority and perform such duties as from time to time may be
prescribed by the Board, the Chairman of the Board, or the Chief Executive
Officer. Any two (2) or more offices may be held by the same person.
Section 2. ELECTION AND REMOVAL. The officers of the Corporation shall be
chosen annually by the Board at its annual meeting and each shall hold office
until the corresponding annual meeting of the Board in the next year and until a
successor shall be elected and qualified unless such officer shall theretofore
resign or shall be removed or otherwise disqualified to serve. The Board may
remove any officer either with or without cause or under such other terms or
conditions as it may prescribe. Vacancies may be filled by the Board as they
may occur.
Section 3. POWERS AND DUTIES.
(a) CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be the
officer, reporting directly to the Board, responsible for overall management of
the Corporation and shall have general supervision, direction and control over
the business and affairs of the Corporation and its officers. The Chief
Executive Officer shall be a member of the Executive Committee and of the Board
Management Committee and in general shall perform all duties incident to the
office of Chief Executive Officer and shall have such powers and duties as may
from time to time be assigned by the Board of Directors or prescribed by the
Bylaws.
(b) PRESIDENT. The President in general shall perform all duties incident
to the office of President, and shall have such powers and duties as may from
time to time be assigned by the Board of Directors, the Chief Executive Officer
or prescribed by the Bylaws.
(c) CHIEF FINANCIAL OFFICER AND VICE PRESIDENTS. The Chief Financial Officer
and each Vice President shall have such authority and shall perform such duties
as shall from time to time be assigned by the Board, the Chief Executive Officer
or prescribed by the Bylaws.
(d) SECRETARY. The Secretary shall keep, or cause to be kept, a book of
minutes, at the principal office and/or such other place or places as the Board
may order, of all meetings of directors and stockholders, with the time and
place of holding, whether regular or special, and if special how authorized, the
notice thereof given, the names of those present at directors' meetings, the
number of shares present or represented at stockholders' meetings, and the
proceedings thereof.
The Secretary shall keep or cause to be kept at the principal office, or at
the office of the Corporation's transfer agent, a stock register, which may be
an electronic database, showing the names of the stockholders of record and
their addresses, the number and classes of shares held by each, the numbers and
dates of the certificates issued for those shares, and the numbers and dates of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give or cause to be given notice of all meetings of the
stockholders and the Board required to be given by the Bylaws or by law. The
Secretary shall have charge of and be custodian of the seal of the Corporation
and the minute books and documents relating to the existence and governance of
the Corporation.
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The Secretary shall have such other powers and perform such other duties as
may from time to time be prescribed by the Board, the Chairman of the Board, the
Chief Executive Officer or the Bylaws, and shall in general, subject to control
of the Board, the Chairman of the Board and the Chief Executive Officer, perform
all the duties usually incident to the office of secretary of a corporation.
(e) ASSISTANT SECRETARIES. Each Assistant Secretary shall assist the
Secretary and, in the absence or disability of the Secretary, may perform the
duties of the Secretary unless and until the contrary is expressed by the Board,
and may perform such other duties as may be prescribed by the Board or the
Secretary.
(f) TREASURER. The Treasurer shall have custody of and be responsible for
all the monies and funds of the Corporation. The Treasurer shall deposit or
cause to be deposited all Corporation monies, funds and other valuables in the
name and to the credit of the Corporation in such bank or banks as shall be
judged proper or as shall be directed by the Board, the Chief Executive Officer,
or the Chief Financial Officer, and shall disburse the funds of the Corporation
which have been duly approved for disbursement. The Treasurer shall enter or
cause to be entered regularly in the books of the Corporation full and accurate
accounts of all monies received and paid out on account of the Corporation.
The Treasurer shall have such other powers and perform such other duties as
may from time to time be prescribed by the Board, the Chief Executive Officer,
the Chief Financial Officer or the Bylaws, and shall in general, subject to
control of the Board, the Chief Executive Officer, and the Chief Financial
Officer, perform all the duties usually incident to the office of treasurer of a
corporation.
(g) ASSISTANT TREASURERS. Each Assistant Treasurer shall assist the
Treasurer and, in the absence or disability of the Treasurer, may perform the
duties of the Treasurer unless and until the contrary is expressed by the Board,
and shall perform such other duties as may be prescribed by the Board or the
Treasurer.
(h) COMPTROLLER. The Comptroller shall be the principal officer in charge of
the general accounting books, accounting records and forms of the Corporation
and shall see that all monies and obligations due the Corporation and all
properties and assets are properly accounted for. The Comptroller shall prepare
the Corporation's balance sheets, income accounts and other financial statements
and reports, and render to the Board, the Chief Executive Officer, and the Chief
Financial Officer, such periodic reports covering the results of operations of
the Corporation as may be required by them or any of them.
The Comptroller shall have such other powers and perform such other duties as
may from time to time be prescribed by the Board, the Chief Executive Officer,
the Chief Financial Officer or the Bylaws and shall in general, subject to
control of the Board, the Chief Executive Officer, and the Chief Financial
Officer, perform all the duties usually incident to the office of comptroller of
a corporation.
(I) ASSISTANT COMPTROLLERS. Each Assistant Comptroller shall assist the
Comptroller and, in the absence or disability of the Comptroller, may perform
the duties of the Comptroller unless and
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until the contrary is expressed by the Board, and shall perform such other
duties as may be prescribed by the Board or the Comptroller.
(j) CHIEF LEGAL OFFICER. The Chief Legal Officer shall be in charge of the
Corporation's legal affairs. The Chief Legal Officer shall advise the Board, the
Chairman of the Board and/or the officers of the Corporation on such legal
matters and prepare such reports as may be required by them or any of them.
ARTICLE VIII
MISCELLANEOUS
Section 1. EXECUTION OF DOCUMENTS. Unless otherwise authorized or prescribed
by the Board of Directors, all contracts, leases, deeds, deeds of trust,
mortgages, bonds, indentures, endorsements, assignments, powers of attorney, and
other documents and instruments of whatsoever kind shall be executed for and on
behalf of the Corporation by the Chief Executive Officer, the President, the
Chief Financial Officer, a Vice President, the Treasurer, the Comptroller, or by
any such officer and shall be attested by the Secretary or an Assistant
Secretary, who shall have authority to affix the corporate seal to the same.
The Board also may authorize, and delegate to any one (1) or more of the Chief
Executive Officer, the President and the Chief Financial Officer the power to so
authorize, any other officer or officers, employee or employees, or agent or
agents, to execute any contract, document or instrument of whatever kind for and
on behalf of the Corporation and such authority may be general or be confined to
specific instances.
Section 2. UNDERTAKINGS AND COMMITMENTS. No undertaking, commitment,
contract, instrument or document shall be binding upon the Corporation unless
previously authorized or subsequently ratified by the Board or executed by an
officer or officers, an employee or employees or an agent or agents of the
Corporation acting under powers conferred by the Board or by these Bylaws.
Section 3. CHECKS, DRAFTS, ETC. All checks, notes and other obligations for
collection, deposit or transfer, and all checks and drafts for disbursement from
Corporation funds, and all bills of exchange and promissory notes, and all
acceptances, obligations and other instruments for the payment of money, shall
be endorsed or signed by such officer or officers, employee or employees or
agent or agents as shall be thereunto authorized from time to time by the Board
of Directors, which may delegate the power to so authorize to any one (1) or
more of the Chief Executive Officer, the President and the Chief Financial
Officer.
Section 4. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. Shares standing
in the name of the Corporation may be voted or represented and all rights
incident thereto may be exercised on behalf of the Corporation by the Chief
Executive Officer, the President, the Chief Financial Officer, a Vice President,
the Secretary, the Treasurer or the Comptroller, or by such other officers upon
whom the Board of Directors may from time to time confer like powers.
ARTICLE IX
AMENDMENTS TO BYLAWS
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Section 1. POWER OF STOCKHOLDERS. New Bylaws may be adopted or these Bylaws
may be amended or repealed by the vote of seventy-five (75) percent of the
outstanding stock of the Corporation entitled to vote thereon.
Section 2. POWER OF DIRECTORS. Subject to the right of stockholders as
provided in Section 1 of this ARTICLE IX to adopt, amend or repeal Bylaws,
Bylaws may be adopted, amended or repealed by the Board of Directors as provided
or permitted by law; however, any Bylaw amendment adopted by the Board of
Directors increasing or reducing the authorized number of directors or amending
this Section shall require a resolution adopted by the affirmative vote of not
less than seventy-five (75) percent of the directors.
ARTICLE X
EMERGENCY
Section 1. "Emergency" as used in this Article means disorder, disturbance or
damage caused by war, enemy attack, other warlike acts or by catastrophe,
disaster or other similar emergency condition, which prevents the conduct and
management of the affairs and business of the Corporation by the Board of
Directors and officers in the manner provided for in other Articles of these
Bylaws. The powers and duties conferred and imposed by this Article, and any
resolutions adopted pursuant hereto, shall be effective only during an
emergency. This Article may be implemented from time to time by resolutions
adopted by the Board of Directors before or during an emergency, or during an
emergency by the emergency Board of Directors constituted and then acting
pursuant hereto. An emergency, once commenced, shall be deemed to continue
until terminated by resolutions adopted for that purpose by the Board of
Directors.
Section 2. If, during an emergency, a majority of the Board of Directors
cannot be found or is unable to act, one-third (1/3) of the exact number of the
Board of Directors shall constitute a quorum thereof.
Section 3. During any emergency, the officers and employees of the
Corporation shall continue, so far as possible, to conduct the Corporation's
affairs and business under the guidance of the Board of Directors acting
pursuant to this Article and in accordance with known orders of governmental
authorities.
Section 4. If, during any emergency, a quorum of the Board of Directors, as
provided in Section 3 of this Article, cannot be found or is unable to act, any
three (3) available members of the Executive Committee, including the Chief
Executive Officer, shall be and constitute the Board of Directors, with two (2)
thereof constituting a quorum, and as such shall have and exercise the fullest
power of the Board of Directors for the conduct and management of the affairs
and business of the Corporation, permitted by law, without the limitations set
forth in Section 2 of ARTICLE V of these Bylaws, provided that such emergency
Board of Directors as so constituted shall comply to the extent practicable
under the circumstances with the provisions of ARTICLE III of these Bylaws
relating to annual and special meetings of stockholders. If three (3) members
of the Executive Committee, including the Chief Executive Officer, are not able
to serve, any three (3) available directors shall be and constitute such
emergency Board of Directors, with two (2) thereof constituting a quorum, for
the exercise of the powers conferred and performance of the duties imposed by
this Section 4.
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Section 5. If, during any emergency, neither a quorum of the Board of
Directors, as provided in Section 3 of this Article, nor a quorum of the
emergency Board of Directors, as provided for in Section 4 of this Article is
available to serve, then the powers conferred and duties imposed by Section 4
shall vest in and devolve upon any three (3) of (in the following order of
priority) available directors, including any one (1) or more of the Chief
Executive Officer, the President and the Chief Financial Officer, and as many
Vice Presidents (or, in case of their inability, any other officers), in order
of seniority, as may be necessary from time to time to constitute a total of
three (3) emergency directors. The Chief Executive Officer and any other one
(1) emergency director shall constitute a quorum of such emergency Board of
Directors for exercise of the powers conferred and performance of the duties
imposed hereunder, but if the Chief Executive Officer is not available, any two
(2) of such emergency directors shall constitute a quorum.
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EXHIBIT 3.3
BYLAWS
OF
UNOCAL CORPORATION
A DELAWARE CORPORATION
(As Amended to be Effective June 1, 1998)
ARTICLE I
FISCAL YEAR
Section 1. The fiscal year of Unocal Corporation (hereinafter called the
"Corporation") shall end on the thirty-first (31st) day of December of each
year.
ARTICLE II
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office for the transaction of
business of the Corporation is hereby fixed and located at 2141 Rosecrans
Avenue, Suite 4000, in the City of El Segundo, County of Los Angeles, State of
California. The Board of Directors (hereinafter sometimes called the "Board")
is hereby granted full power and authority to change said principal office from
one location to another.
ARTICLE III
STOCKHOLDERS
Section 1. ANNUAL MEETINGS. The annual meetings of the stockholders shall be
held at 10:00 o'clock A.M. on the fourth (4th) Monday in May of each year if not
a legal holiday, for the purpose of electing directors, consideration of reports
of the affairs of the Corporation, and for the transaction of any other business
which is within the powers of the stockholders and properly brought before the
meeting. If the fourth (4th) Monday in May is a legal holiday, the annual
meeting of the stockholders shall be held at 10:00 o'clock A.M. on the preceding
or subsequent Monday as fixed by resolution of the Board.
Section 2. NOTICE OF MEETINGS. Written notice of each annual or special
meeting of stockholders shall be given to each stockholder entitled to vote
thereat not less than ten (10) nor more than sixty (60) days before the meeting.
Section 3. PLACE OF MEETINGS. All meetings of stockholders, whether annual
or special, shall be held at the principal office of the Corporation or at such
other place, within or without the State of Delaware, as the Board may from time
to time designate pursuant to authority hereinafter granted it. In the absence
of any such designation stockholders' meetings shall be held at the principal
office of the Corporation.
<PAGE>
Section 4. VOTING RIGHTS. Stockholders entitled to vote at stockholder
meetings shall be entitled to one (1) vote for each full share. A fraction of a
share or a fractional interest in a share shall not be entitled to any voting
rights whatsoever.
Section 5. CONDUCT OF MEETINGS. The decisions of the Chairman of the Board
or officer presiding at all stockholders' meetings shall govern in all matters
relating to the conduct of the meeting.
Section 6. VOTING. Directors shall be divided into three (3) classes with
each director serving a three (3)-year term. At each annual meeting, all
directors of one (1) class shall be elected in accordance with the provisions of
ARTICLE SEVENTH of the Corporation's Certificate of Incorporation by the holders
of shares entitled to vote in the election. A nomination shall be accepted, and
votes cast for a proposed nominee shall be counted by the inspectors of
election, only if the Secretary of the Corporation has received at least sixty
(60) days prior to the meeting a statement over the signature of the proposed
nominee that such person consents to being a nominee and, if elected, intends to
serve as a director. Such statement shall also contain the Unocal stock
ownership of the proposed nominee, occupations and business history for the
previous five (5) years, other directorships, names of business entities in
which the proposed nominee owns a ten (10) percent or more equity interest,
listing of any criminal convictions, including federal or state securities
violations, and all other information as would be required to be disclosed in
solicitations of proxies for the election of such nominee as director pursuant
to Regulation 14A under the Securities Exchange Act of 1934, as amended.
Section 7. NOTICE OF STOCKHOLDER BUSINESS. At any meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before a meeting, business
must be (a) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors, (b) otherwise properly brought
before the meeting by or at the direction of the Board of Directors, or (c)
otherwise properly brought before the meeting by a stockholder or a beneficial
owner of the Corporation's stock ("Proponent"). For business to be properly
brought before the meeting by a Proponent, such business must be a proper matter
for stockholder action under the general corporation law of the state of
Delaware, and the Secretary must have received at least sixty (60) days prior to
the meeting written notice by the Proponent containing (a) a brief description
of each matter desired to be brought before the meeting, (b) the Proponent's
name and address, as they appear on the Corporation's books, (c) the class and
the number of shares of the Corporation which are beneficially owned by the
Proponent and, if the Proponent is a beneficial owner, proof of beneficial
ownership, (d) any material interest of the Proponent in such business, (e) an
indication as to whether the Proponent intends to solicit or participate in the
solicitation of proxies in favor of such business, and (f) as to each person
whom the Proponent proposes to nominate for election or reelection as a
director, all information relating to such person as would be required to be
disclosed in solicitations of proxies for the election of such person as a
director pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended. Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at a meeting except in accordance with the procedures set
forth herein.
Section 8. QUORUM. The holders of one-third (1/3) of all of the outstanding
shares of the stock of the Corporation entitled to vote at a meeting of
stockholders, present in person or by proxy, shall constitute a quorum for the
transaction of any business at such meeting.
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ARTICLE IV
BOARD OF DIRECTORS
Section 1. POWERS. Subject to the limitations of the Certificate of
Incorporation of the Corporation and of the Delaware General Corporation Law as
to action which shall be authorized or approved by the stockholders, all
corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation shall be managed by, the Board of
Directors.
Section 2. NUMBER. The exact number of directors of the Corporation, within
the limits specified in ARTICLE SEVENTH of the Corporation's Certificate of
Incorporation, shall be nine (9) until changed in the manner provided by law.
Section 3. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The Board shall appoint
a Chairman, who shall preside at all meetings of the Board of Directors and
shall have such other powers and duties as may from time to time be assigned by
the Board of Directors or prescribed by the Bylaws. The Board may also appoint
a Vice Chairman, who shall preside at all meetings of the Board of Directors in
the absence of the Chairman and shall have such other powers and duties as may
from time to time be assigned by the Board of Directors or prescribed by the
Bylaws.
Section 4. ANNUAL MEETINGS. Immediately following each annual meeting of
stockholders, the Board shall hold its annual meeting for the purpose of
organization, election of officers and the transaction of any other business.
Section 5. REGULAR MEETINGS. Regular meetings of the Board shall be held at
the times and on the dates fixed by resolution of the Board.
Section 6. SPECIAL MEETINGS. Special meetings of the Board for any purpose
or purposes whatsoever may be called by the Chairman of the Board or the Chief
Executive Officer or, in the absence or inability of either of them, by the
President, the Chief Financial Officer, or by at least two (2) of the directors
at the time in office.
Section 7. NOTICE OF MEETINGS. Notice of annual meetings and of regular
meetings of the Board is hereby dispensed with. Notice of special meetings must
be given at least two (2) days in advance if given by mail, or at least twenty-
four (24) hours in advance if delivered personally or given by telephone or
telegram.
Section 8. PLACE OF MEETINGS. All meetings of the Board, whether annual,
regular or special meetings, shall be held at any place within or without the
State of Delaware which has been designated from time to time by resolution of
the Board or in the notice of the meeting. In the absence of such designation
all directors' meetings shall be held at the principal office of the
Corporation.
Section 9. QUORUM. A majority of the exact number of directors specified in
Section 2 of ARTICLE IV of the Bylaws shall constitute a quorum of the Board of
Directors for the transaction of business; provided, however, that vacancies on
the Board may be filled by a majority of the remaining directors, though less
than a quorum, or by a sole remaining director, each such
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director to hold office until a successor is elected at an annual or special
meeting of the stockholders.
Section 10. COMPENSATION OF DIRECTORS. Directors and members of committees
appointed by the Board shall receive such compensation, if any, for their
services, and such reimbursement for their expenses, as may be fixed or
determined by resolution of the Board. The Board may, however, in any such
resolution provide that directors who are also employees of the Corporation or
any of its subsidiaries shall not receive additional compensation for services
as a director or member of a committee appointed by the Board.
Section 11. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS.
(a) RIGHT TO INDEMNIFICATION. Each person who was or is made a party or is
threatened to be made a party to or involved in any action, suit, or proceeding,
whether civil, criminal, administrative, or investigative ("Proceeding"), by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, trustee, or
fiduciary, or in a similar capacity (collectively, "Agent") of another foreign
or domestic corporation, limited liability company, partnership, joint venture,
trust, or any other enterprise or entity whatsoever, including without
limitation employee benefit plans (collectively, "Affiliate"), whether the basis
of such Proceeding is alleged action in an official capacity, or in any other
capacity while serving as a director or officer of the Corporation or as an
Agent of an Affiliate, shall be indemnified and held harmless by the Corporation
to the fullest extent authorized by the Delaware General Corporation Law, as the
same exists or may hereafter be amended (but, in the case of any such amendment,
only to the extent that such amendment permits the Corporation to provide
broader indemnification rights than said law permitted the Corporation to
provide prior to such amendment), against all expense, liability, and loss,
including without limitation, attorneys' fees, judgments, fines, ERISA excise
taxes, penalties, amounts paid or to be paid in settlement, and any other
amounts actually incurred or suffered by such person in connection with any
Proceeding; and such indemnification shall continue as to a person who has
ceased to be a director or officer of the Corporation or Agent of an Affiliate
and shall inure to the benefit of his or her heirs, executors, and
administrators; PROVIDED, HOWEVER, that, except as provided in paragraph (b)
hereof with respect to Proceedings seeking to enforce rights to indemnification,
the Corporation shall indemnify any such person seeking indemnification in
connection with a Proceeding (or part thereof) initiated by such person only if
such Proceeding (or part thereof) was authorized by the board of directors of
the Corporation. The right to indemnification conferred in this Section shall be
a contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such Proceeding in advance of its final
disposition; PROVIDED, HOWEVER, that, if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer, including
without limitation, service to an employee benefit plan) in advance of the final
disposition of a Proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under this Section or otherwise. The
Corporation may, to the extent authorized from time to time by its board of
directors, either on a general basis or as to specific employees or agents,
provide
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indemnification to employees and agents of the Corporation with similar
scope and effect as the foregoing indemnification of directors and officers.
(b) RIGHT TO BRING SUIT. If a claim under paragraph (a) of this Section is not
paid in full by the Corporation within sixty (60) days after a written claim has
been received by the Corporation, except in the case of a claim for expenses
incurred in a Proceeding in advance of its final disposition in which case the
applicable period shall be twenty (20) days, the person seeking indemnification
(the "Party to be Indemnified") may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim. If successful in
whole or in part in any such suit, or in a suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
Party to be Indemnified shall be entitled to be paid also the expense of
prosecuting or defending such claim. The Corporation's sole defense to an action
seeking indemnification (other than an action brought to enforce a claim for
expenses incurred in defending a Proceeding in advance of its final disposition
where the required undertaking, if any is required, has been tendered to the
Corporation) shall be that the Party to be Indemnified has not met the standards
of conduct which make it permissible under the Delaware General Corporation Law
for the Corporation to indemnify the Party to be Indemnified for the amount
claimed, and the burden of providing such defense shall be on the Corporation.
Neither the failure of the Corporation (including its board of directors, its
independent legal counsel, or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the Party to be
Indemnified is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its board of
directors, its independent legal counsel, or its stockholders) that the Party to
be Indemnified has not met such applicable standard of conduct, shall be a
defense to the action or create a presumption that the Party to be Indemnified
has not met the applicable standard of conduct.
(c) NON-EXCLUSIVITY OF RIGHTS. The right to indemnification and the payment of
expenses incurred in defending a Proceeding in advance of its final disposition
conferred in this Section shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
(d) INSURANCE. The Corporation shall maintain in full force and effect, at its
own expense, director and officer liability insurance ("Insurance") coverage for
each director and officer in amounts and scope at least as favorable as that
maintained by the Corporation on September 30, 1996, or, to the extent more
favorable, any Insurance policy entered into or renewed by the Corporation
following such date. Notwithstanding the foregoing, if the Corporation, after
using its best efforts, cannot obtain and purchase such coverage for an amount
no more than what it paid for the most recent expiring Insurance policy plus a
reasonable additional amount, the Corporation shall only be required to purchase
such Insurance coverage for any act or omission occurring at or prior to the
time of such date.
(e) ENFORCEABILITY; AMENDMENT. The rights provided to any person by this bylaw
shall be enforceable against the Corporation by such person, who shall be
presumed to have relied upon it in serving or continuing to serve as an Agent,
as provided above. No amendment of this bylaw shall impair the rights of any
person arising at any time with respect to events occurring prior to
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such amendment, including, without limitation, any right of a director or
officer to Insurance for any act or omission occurring at or prior to the time
of such amendment.
Section 12. AUTHORITY TO DESIGNATE PLACE OF STOCKHOLDERS' MEETINGS. The
Board is hereby granted full power and authority to designate from time to time
any place within or without the State of Delaware for the holding of any
stockholders' meeting.
Section 13. COMMITTEES. The Board may, by resolution, appoint one (1) or
more committees, in addition to an Executive Committee and a Board Management
Committee, to consist of two (2) or more of the directors of the Corporation,
and prescribe their duties and powers. A majority of the members of any such
committee may determine its action and fix the time and place of its meetings
unless the Board shall otherwise provide. The Board shall have the power at any
time to fill vacancies in, to change the membership of, or to dissolve any such
committee.
Section 14. ACTION BY WRITTEN CONSENT. Any action required or permitted to
be taken by the Board or any committee thereof may be taken without a meeting,
if all members of the Board or such committee, as the case may be, shall
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board.
Section 15. CONFERENCE CALLS. Members of the Board or any committee thereof
may participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another.
ARTICLE V
EXECUTIVE COMMITTEE
Section 1. NUMBER AND COMPOSITION. The Board of Directors shall appoint from
its membership, annually, an Executive Committee of three (3) or more directors.
Included on the Executive Committee shall be the Chief Executive Officer of the
Corporation. Each member of the Executive Committee shall hold membership at
the pleasure of the Board, which shall have the exclusive power to fill
vacancies thereon as they may occur. The Chairman of the Executive Committee
shall be the Chief Executive Officer of the Corporation.
Section 2. POWERS. The Executive Committee, during the intervals between
meetings of the Board, shall have and there is hereby granted to it all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, except that the Executive Committee shall not be
permitted to fill vacancies on the Board or on any committee, approve any action
for which stockholder approval is also required by the Delaware General
Corporation Law, amend or repeal any resolution of the Board which by its
express terms is not so amendable or repealable, or appoint other committees of
the Board or the members thereof and shall not have any powers restricted by
Section 141(c) of the Delaware General Corporation Law unless the Board shall
have specifically delegated authority to the Executive Committee to take action
with respect to a matter listed in such Section as permitted to be so delegated.
Section 3. PROCEDURE. Two (2) members of the Executive Committee shall
constitute a quorum of the Executive Committee for the transaction of business.
The Executive Committee, by vote of a majority of its members, shall fix its own
times and places of meetings and shall prescribe its
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own rules of procedure; no change in which shall be made save by a majority vote
of its members.
Section 4. RECORDS AND REPORTS. The Executive Committee shall keep regular
minutes of all business transacted at its meetings, and all action of the
Executive Committee shall be reported to the Board at its next ensuing meeting.
Section 5. COMPENSATION. Members of the Executive Committee may receive such
compensation, if any, for their services, and such reimbursement for their
expenses, as may be fixed or determined by the Board.
ARTICLE VI
BOARD MANAGEMENT COMMITTEE
Section 1. NUMBER AND COMPOSITION. The Board of Directors shall appoint from
its membership, annually, a Board Management Committee composed of the directors
who are salaried officers of the Corporation. The Chairman of the Board
Management Committee shall be the Chief Executive Officer of the Corporation.
Section 2. POWERS. The Board Management Committee, during the intervals
between meetings of the Board, shall have and there is hereby granted to it all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, subject to approval limits established
by resolution of the Board of Directors as deemed appropriate from time to time,
but the Board Management Committee shall not be permitted to fill vacancies on
the Board or on any committee, appoint officers, approve any action for which
stockholder approval is also required by the Delaware General Corporation Law,
amend or repeal any resolution of the Board or of the Executive Committee, which
by its express terms is not so amendable or repealable, or appoint other
committees of the Board or the members thereof and shall not have any powers
restricted by Section 141(c) of the Delaware General Corporation Law unless the
Board shall have specifically delegated authority to the Board Management
Committee to take action with respect to a matter listed in such Section as
permitted to be so delegated.
Section 3. PROCEDURE. Two (2) members of the Board Management Committee
shall constitute a quorum of the Board Management Committee for the transaction
of business. The Board Management Committee, by vote of a majority of its
members, shall fix its own times and places of meetings, and shall prescribe its
own rules of procedure; no change in which shall be made save by a majority vote
of its members.
Section 4. RECORDS. The Board Management Committee shall keep regular
minutes of all business transacted at its meetings.
ARTICLE VII
OFFICERS
Section 1. OFFICERS. The officers of the Corporation shall be a Chief
Executive Officer, a President, a Chief Financial Officer, a Vice President, a
Secretary, a Comptroller, a Treasurer, and a Chief Legal Officer. The
Corporation may also have, at the discretion of the Board, one (1) or more
additional Vice Presidents, one (1) or more Assistant Secretaries, one (1) or
more
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Assistant Treasurers, and one (1) or more Assistant Comptrollers, and the
Board may appoint such other officers as it may deem necessary or advisable, who
shall have such authority and perform such duties as from time to time may be
prescribed by the Board, the Chairman of the Board, or the Chief Executive
Officer. Any two (2) or more offices may be held by the same person.
Section 2. ELECTION AND REMOVAL. The officers of the Corporation shall be
chosen annually by the Board at its annual meeting and each shall hold office
until the corresponding annual meeting of the Board in the next year and until a
successor shall be elected and qualified unless such officer shall theretofore
resign or shall be removed or otherwise disqualified to serve. The Board may
remove any officer either with or without cause or under such other terms or
conditions as it may prescribe. Vacancies may be filled by the Board as they
may occur.
Section 3. POWERS AND DUTIES.
(a) CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be the officer,
reporting directly to the Board, responsible for overall management of the
Corporation and shall have general supervision, direction and control over the
business and affairs of the Corporation and its officers. The Chief Executive
Officer shall be a member of the Executive Committee and of the Board Management
Committee and in general shall perform all duties incident to the office of
Chief Executive Officer and shall have such powers and duties as may from time
to time be assigned by the Board of Directors or prescribed by the Bylaws.
(b) PRESIDENT. The President in general shall perform all duties incident to
the office of President, and shall have such powers and duties as may from time
to time be assigned by the Board of Directors, the Chief Executive Officer or
prescribed by the Bylaws.
(c) CHIEF FINANCIAL OFFICER AND VICE PRESIDENTS. The Chief Financial Officer
and each Vice President shall have such authority and shall perform such duties
as shall from time to time be assigned by the Board, the Chief Executive Officer
or prescribed by the Bylaws.
(d) SECRETARY. The Secretary shall keep, or cause to be kept, a book of
minutes, at the principal office and/or such other place or places as the Board
may order, of all meetings of directors and stockholders, with the time and
place of holding, whether regular or special, and if special how authorized, the
notice thereof given, the names of those present at directors' meetings, the
number of shares present or represented at stockholders' meetings, and the
proceedings thereof.
The Secretary shall keep or cause to be kept at the principal office, or at
the office of the Corporation's transfer agent, a stock register, which may be
an electronic database, showing the names of the stockholders of record and
their addresses, the number and classes of shares held by each, the numbers and
dates of the certificates issued for those shares, and the numbers and dates of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give or cause to be given notice of all meetings of the
stockholders and the Board required to be given by the Bylaws or by law. The
Secretary shall have charge of and be custodian of the seal of the Corporation
and the minute books and documents relating to the existence and governance of
the Corporation.
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The Secretary shall have such other powers and perform such other duties as
may from time to time be prescribed by the Board, the Chairman of the Board, the
Chief Executive Officer or the Bylaws, and shall in general, subject to control
of the Board, the Chairman of the Board and the Chief Executive Officer, perform
all the duties usually incident to the office of secretary of a corporation.
(e) ASSISTANT SECRETARIES. Each Assistant Secretary shall assist the Secretary
and, in the absence or disability of the Secretary, may perform the duties of
the Secretary unless and until the contrary is expressed by the Board, and may
perform such other duties as may be prescribed by the Board or the Secretary.
(f) TREASURER. The Treasurer shall have custody of and be responsible for all
the monies and funds of the Corporation. The Treasurer shall deposit or cause to
be deposited all Corporation monies, funds and other valuables in the name and
to the credit of the Corporation in such bank or banks as shall be judged proper
or as shall be directed by the Board, the Chief Executive Officer, or the Chief
Financial Officer, and shall disburse the funds of the Corporation which have
been duly approved for disbursement. The Treasurer shall enter or cause to be
entered regularly in the books of the Corporation full and accurate accounts of
all monies received and paid out on account of the Corporation.
The Treasurer shall have such other powers and perform such other duties as
may from time to time be prescribed by the Board, the Chief Executive Officer,
the Chief Financial Officer or the Bylaws, and shall in general, subject to
control of the Board, the Chief Executive Officer, and the Chief Financial
Officer, perform all the duties usually incident to the office of treasurer of a
corporation.
(g) ASSISTANT TREASURERS. Each Assistant Treasurer shall assist the Treasurer
and, in the absence or disability of the Treasurer, may perform the duties of
the Treasurer unless and until the contrary is expressed by the Board, and shall
perform such other duties as may be prescribed by the Board or the Treasurer.
(h) COMPTROLLER. The Comptroller shall be the principal officer in charge of
the general accounting books, accounting records and forms of the Corporation
and shall see that all monies and obligations due the Corporation and all
properties and assets are properly accounted for. The Comptroller shall prepare
the Corporation's balance sheets, income accounts and other financial statements
and reports, and render to the Board, the Chief Executive Officer, and the Chief
Financial Officer, such periodic reports covering the results of operations of
the Corporation as may be required by them or any of them.
The Comptroller shall have such other powers and perform such other duties as
may from time to time be prescribed by the Board, the Chief Executive Officer,
the Chief Financial Officer or the Bylaws and shall in general, subject to
control of the Board, the Chief Executive Officer, and the Chief Financial
Officer, perform all the duties usually incident to the office of comptroller of
a corporation.
(i) ASSISTANT COMPTROLLERS. Each Assistant Comptroller shall assist the
Comptroller and, in the absence or disability of the Comptroller, may perform
the duties of the Comptroller unless and
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until the contrary is expressed by the Board, and shall perform such other
duties as may be prescribed by the Board or the Comptroller.
(j) CHIEF LEGAL OFFICER. The Chief Legal Officer shall be in charge of the
Corporation's legal affairs. The Chief Legal Officer shall advise the Board, the
Chairman of the Board and/or the officers of the Corporation on such legal
matters and prepare such reports as may be required by them or any of them.
ARTICLE VIII
MISCELLANEOUS
Section 1. EXECUTION OF DOCUMENTS. Unless otherwise authorized or prescribed
by the Board of Directors, all contracts, leases, deeds, deeds of trust,
mortgages, bonds, indentures, endorsements, assignments, powers of attorney, and
other documents and instruments of whatsoever kind shall be executed for and on
behalf of the Corporation by the Chief Executive Officer, the President, the
Chief Financial Officer, a Vice President, the Treasurer, the Comptroller, or by
any such officer and shall be attested by the Secretary or an Assistant
Secretary, who shall have authority to affix the corporate seal to the same.
The Board also may authorize, and delegate to any one (1) or more of the Chief
Executive Officer, the President and the Chief Financial Officer the power to so
authorize, any other officer or officers, employee or employees, or agent or
agents, to execute any contract, document or instrument of whatever kind for and
on behalf of the Corporation and such authority may be general or be confined to
specific instances.
Section 2. UNDERTAKINGS AND COMMITMENTS. No undertaking, commitment,
contract, instrument or document shall be binding upon the Corporation unless
previously authorized or subsequently ratified by the Board or executed by an
officer or officers, an employee or employees or an agent or agents of the
Corporation acting under powers conferred by the Board or by these Bylaws.
Section 3. CHECKS, DRAFTS, ETC. All checks, notes and other obligations for
collection, deposit or transfer, and all checks and drafts for disbursement from
Corporation funds, and all bills of exchange and promissory notes, and all
acceptances, obligations and other instruments for the payment of money, shall
be endorsed or signed by such officer or officers, employee or employees or
agent or agents as shall be thereunto authorized from time to time by the Board
of Directors, which may delegate the power to so authorize to any one (1) or
more of the Chief Executive Officer, the President and the Chief Financial
Officer.
Section 4. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. Shares standing
in the name of the Corporation may be voted or represented and all rights
incident thereto may be exercised on behalf of the Corporation by the Chief
Executive Officer, the President, the Chief Financial Officer, a Vice President,
the Secretary, the Treasurer or the Comptroller, or by such other officers upon
whom the Board of Directors may from time to time confer like powers.
ARTICLE IX
AMENDMENTS TO BYLAWS
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Section 1. POWER OF STOCKHOLDERS. New Bylaws may be adopted or these Bylaws
may be amended or repealed by the vote of seventy-five (75) percent of the
outstanding stock of the Corporation entitled to vote thereon.
Section 2. POWER OF DIRECTORS. Subject to the right of stockholders as
provided in Section 1 of this ARTICLE IX to adopt, amend or repeal Bylaws,
Bylaws may be adopted, amended or repealed by the Board of Directors as provided
or permitted by law; however, any Bylaw amendment adopted by the Board of
Directors increasing or reducing the authorized number of directors or amending
this Section shall require a resolution adopted by the affirmative vote of not
less than seventy-five (75) percent of the directors.
ARTICLE X
EMERGENCY
Section 1. "Emergency" as used in this Article means disorder, disturbance or
damage caused by war, enemy attack, other warlike acts or by catastrophe,
disaster or other similar emergency condition, which prevents the conduct and
management of the affairs and business of the Corporation by the Board of
Directors and officers in the manner provided for in other Articles of these
Bylaws. The powers and duties conferred and imposed by this Article, and any
resolutions adopted pursuant hereto, shall be effective only during an
emergency. This Article may be implemented from time to time by resolutions
adopted by the Board of Directors before or during an emergency, or during an
emergency by the emergency Board of Directors constituted and then acting
pursuant hereto. An emergency, once commenced, shall be deemed to continue
until terminated by resolutions adopted for that purpose by the Board of
Directors.
Section 2. If, during an emergency, a majority of the Board of Directors
cannot be found or is unable to act, one-third (1/3) of the exact number of the
Board of Directors shall constitute a quorum thereof.
Section 3. During any emergency, the officers and employees of the
Corporation shall continue, so far as possible, to conduct the Corporation's
affairs and business under the guidance of the Board of Directors acting
pursuant to this Article and in accordance with known orders of governmental
authorities.
Section 4. If, during any emergency, a quorum of the Board of Directors, as
provided in Section 3 of this Article, cannot be found or is unable to act, any
three (3) available members of the Executive Committee, including the Chief
Executive Officer, shall be and constitute the Board of Directors, with two (2)
thereof constituting a quorum, and as such shall have and exercise the fullest
power of the Board of Directors for the conduct and management of the affairs
and business of the Corporation, permitted by law, without the limitations set
forth in Section 2 of ARTICLE V of these Bylaws, provided that such emergency
Board of Directors as so constituted shall comply to the extent practicable
under the circumstances with the provisions of ARTICLE III of these Bylaws
relating to annual and special meetings of stockholders. If three (3) members
of the Executive Committee, including the Chief Executive Officer, are not able
to serve, any three (3) available directors shall be and constitute such
emergency Board of Directors, with two (2) thereof constituting a quorum, for
the exercise of the powers conferred and performance of the duties imposed by
this Section 4.
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Section 5. If, during any emergency, neither a quorum of the Board of
Directors, as provided in Section 3 of this Article, nor a quorum of the
emergency Board of Directors, as provided for in Section 4 of this Article is
available to serve, then the powers conferred and duties imposed by Section 4
shall vest in and devolve upon any three (3) of (in the following order of
priority) available directors, including any one (1) or more of the Chief
Executive Officer, the President and the Chief Financial Officer, and as many
Vice Presidents (or, in case of their inability, any other officers), in order
of seniority, as may be necessary from time to time to constitute a total of
three (3) emergency directors. The Chief Executive Officer and any other one
(1) emergency director shall constitute a quorum of such emergency Board of
Directors for exercise of the powers conferred and performance of the duties
imposed hereunder, but if the Chief Executive Officer is not available, any two
(2) of such emergency directors shall constitute a quorum.
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EXHIBIT 10.5
SUPPLEMENTAL RETIREMENT PLAN FOR KEY MANAGEMENT PERSONNEL
(Amended and restated effective as of April 1, 1994)
Article I - Eligibility
- -----------------------
The Employee, or in the proper case, the Spouse of an Employee, shall be
eligible if each of the following provisions are satisfied:
A. The Employee is a Member of the Unocal Retirement Plan;
B. At the time of the Employee's separation from service with an Employer,
either:
1. Employee had attained at least 55 years of age and had at least 10
years of Retirement Service under the Unocal Retirement Plan, or
2. Employee had a Spouse entitled to a "Spouse's Benefit" or a "Special
Spouse's Benefit" under the Unocal Retirement Plan and the Employee's
separation from service was by reason of Employee's death, or
3. The Employee had at least 10 years of Benefit Service under the Unocal
Retirement Plan and his/her service was terminated because of a
workforce reduction or a job elimination.
C. The Employee retires or dies on or after April 1, 1994; and
D. At the time of the Employee's separation from service with an Employer, the
Employee's "Final Average Monthly Pay" determined under the Unocal
Retirement Plan was limited because of the requirements of Section
401(a)(17) of the Code, and/or the Employee has received an Incentive
Compensation Plan award within the ten-year period used in determining
"Final Average Monthly Pay" under the Unocal Retirement Plan.
Article II - Benefit
- --------------------
A. The amount of the Employee's benefit (or the Spouse's benefit, if
applicable) shall be equal to the difference, if any, between:
1. The amount of the monthly benefit that would have been payable under the
Unocal Retirement Plan if:
(a) "Final Average Monthly Pay" included the greater of (I) one-thirty-
sixth of the sum of the highest three calendar year awards
(disregarding Employee deferral elections) under the Incentive
Compensation Plan of Unocal Corporation ("ICP") made to the
participant which are attributable to years within the ten-year
period used in determining the Employee's "Final Average Monthly
Pay" or (ii) the amount of ICP awards which were includable in the
calculation of "Final Average Monthly Pay" under the Unocal
Retirement Plan (before any limitations imposed by Section
<PAGE>
401(a)(17) of the Code), in lieu of the ICP component actually
included in such calculation, and
(b) Any limitations imposed because of Section 415 and/or Section
401(a)(17) of the Code were disregarded, and
2. The amount of the monthly benefit payable to the recipient under the
Unocal Retirement Plan, using the Employee's actual "Final Average
Monthly Pay" but disregarding the limits imposed by Section 415 of the
Code.
B. For purposes of the above calculation, Incentive Compensation Plan awards
shall exclude any "special" awards but shall include 5/6 of the value of
Restricted Stock granted in 1988 under the Unocal Corporation Long-Term
Incentive Plan of 1985.
C. NOTWITHSTANDING THE FOREGOING, IN THE EVENT THAT MORE THAN THREE INCENTIVE
COMPENSATION PLAN AWARDS WERE INCLUDED IN THE CALCULATION OF "FINAL AVERAGE
MONTHLY PAY" UNDER THE UNOCAL RETIREMENT PLAN, FOR PURPOSES OF THE
CALCULATION OF A BENEFIT UNDER THIS PLAN, ARTICLE II A(1)(a)(ii) ABOVE SHALL
BE IGNORED AND THE CALCULATION UNDER ARTICLE II A(2) ABOVE SHALL DISREGARD
ANY LIMITATION UNDER SECTION 401(a)(17) AS WELL AS SECTION 415 OF THE CODE.
ARTICLE III - FORM AND TIME OF PAYMENT
- --------------------------------------
A. Benefits under this Plan shall commence at the same time as benefits under
the Unocal Retirement Plan, except that benefits paid under this Plan in
the Installment Payment Form shall commence on the date elected by the
Employee. Benefits under this Plan shall, in addition to any Iimits
imposed herein, be subject to the provisions of the Unocal Retirement Plan,
except as specifically provided otherwise by this Plan.
B. An eligible Employee may elect to receive payments under this Plan under
any of the forms of payments available under the Unocal Retirement Plan
with respect to all or any part of his or her benefit under this Plan.
C. The forms of payment under this Plan shall be subject to the same terms,
conditions and actuarial adjustments as are applicable to such forms under
the Unocal Retirement Plan.
D. Notwithstanding the foregoing, an Employee may elect, subject to such terms
and conditions as the Company deems appropriate, to receive the 'Lump Sum
Cash Settlement" amount, as determined above, in up to eight annual
installments. No interest shall accrue or be credited to such payments or
amounts.
E. An eligible Employee may make a timely election of the form of payment of
his or her benefits under this Plan, and may change such election without
penalty by making a subsequent timely election, at any time at least one
year prior to the Employee's retirement.
2
<PAGE>
F. If an Employee does not make a timely election of the form of payment of
benefits, then benefits under this Plan will be paid as a life annuity if
the Employee is not married, or as a 100% joint and survivor annuity for
the Employee and his Spouse if the Employee is married, unless the Employee
makes an election which is subject to a reduction of benefits under Article
III G or H below.
G. An eligible Employee may change his or her election of the form of payment
of benefits under this Plan within one year before retirement, subject to a
6% reduction of his or her benefit which will be forfeited to the Company
or Employer, or may change such election after retirement and before
commencement of payment of benefits, subject to a 10% reduction of his or
her benefit which will be forfeited to the Company or Employer.
H. After commencement of payment of benefits, an Employee (or beneficiary who
is receiving payments) may elect to receive his or her remaining benefits
under this Plan in a lump sum payment, subject to a 10% reduction of the
lump sum payment, which will be forfeited to the Company or Employer.
I. The lump sum payment to an Employee under Article III H (prior to the 10%
reduction), except when the Employee was receiving payments under the
Installment Payment Form, shall be equal to the difference between 1. and
2. below, determined as of the commencement date of benefit payments,
accumulated to the date of the lump sum payment using the interest rate
specified below.
1. The lump sum value of the benefits payable to the Employee as a
single life annuity under this Plan determined as of the commencement
date of benefit payments.
2. The lump sum value of the benefits previously paid to the Employee
under this Plan (based on the actual form of payments, unless the
Employee was receiving payments under a Joint and Survivor Life
Annuity Form and the joint annuitant has died, in which case the
value of benefits previously paid shall be considered to be the
benefits which would have been paid to the Employee as a single life
annuity) discounted to the commencement date of benefit payments.
When an Employee was receiving payments under the Installment Payment Form,
the lump sum payment to the Employee under Article III H (prior to the 10%
reduction) shall be equal to the remaining unpaid installment payments,
without interest.
When a beneficiary of a deceased Participant elects to receive a lump sum
payment, the amount of the lump sum payment shall be calculated in a
similar manner.
Lump sum payments shall be valued using the interest rate used by the
Unocal Retirement Plan to determine lump sum payments for the month in
which the election under Section III H above is received by the Company.
F. Within two years after a Change of Control, the reduction of benefits under
Article III G and H shall be 5%, in lieu of the 6% or 10% reduction which
otherwise would apply. For
3
<PAGE>
this purpose a "Change of Control" shall have the same meaning as a
"Triggering Event" as such term is defined in the Rights Agreement entered
into by Unocal Corporation and Manufacturers Hanover Trust Company of
California dated January 29, 1990, as amended from time to time.
G. The Committee which administers the Plan, in its discretion, may waive
reductions in benefits for changes in elections of form of payment of
benefits or elections to receive lump sum payments which are due to a
financial hardship of the Employee (or beneficiary).
H. If any provision of this Plan causes Plan benefits to be includable for
federal income tax purposes in the gross income of an Employee (or
beneficiary) prior to actual payment of such Plan benefits to the Employee
(or beneficiary), the Company shall pay such Plan benefits to the Employee
(or beneficiary) upon a final determination to such effect, notwithstanding
any other provision of this Plan to the contrary.
Article IV - Administration and Termination
- -------------------------------------------
A. The Company and Union Oil Company of California shall administer the Plan.
Such responsibilities shall be carried out through its corporate officers
and employees acting in their capacities as officers and employees and not
as fiduciaries.
A. The Board of Directors may terminate or amend any or all of the
provisions of or add provisions to this Plan at any time. However, no
termination or amendment of this Plan shall reduce or adversely affect (i) the
benefit then being paid under this Plan, or (ii) the benefit (including optional
forms of benefit) that an Employee would be eligible to receive under this Plan
in the event that within ten years of the effective date of the termination or
amendment of this Plan he or she retires with an immediate retirement benefit
under the Unocal Retirement Plan or dies. After a Change of Control, the Plan
may not be amended to eliminate or modify the right of an Employee (or
beneficiary) to receive a lump sum payment of his or her benefits pursuant to
Article III.
B. No Employee, beneficiary or joint annuitant may assign, transfer,
hypothecate, encumber, commute or anticipate his or her interest in any benefits
under this Plan. Interests and payments under this Plan are to be free from
voluntary or involuntary assignment, and judicial levy and execution to the full
extent permissible under applicable law.
C. Payments under this Plan shall be made from the general funds of the
Company or an Employer or from a grantor (Rabbi) trust established by the
Company or Union Oil Company of California, unless otherwise provided for by the
Board of Directors.
D. The Retirement Plan Committee of the Board of Directors shall be solely
responsible for interpretation of this Plan and making factual determinations
related thereto. Unless defined below or otherwise indicated, capitalized or
quoted materials refer to the meanings and definitions under the Unocal
Retirement Plan. Any questions that arise as to the rights to any benefits under
this Plan or as to the interpretation of any of its provisions shall be
determined by said Committee.
4
<PAGE>
E. Nothing in this Plan shall give any person a right to remain in the
employment of the Employer or affect the right of the Employer to terminate the
employment of an Employee at any time, with or without cause.
F. Any controversy or claim arising out of or relating to this Plan shall
be settled by binding arbitration in Los Angeles, California, in accordance with
the Commercial Arbitration Rules of the American Arbitration Association. The
parties shall seek to agree upon appointment of the arbitrator and the
arbitration procedures. If the parties are unable to reach such agreement, a
single arbitrator who is a retired judge of a Federal or California state court
shall be appointed pursuant to the AAA Commercial Arbitration Rules, and the
arbitrator shall determine the arbitration procedures. Any award pursuant to
such arbitration shall be included in a written decision which shall state the
legal and factual reasons upon which the award was based, including all the
elements involved in the calculation of any award. Any such award shall be
deemed final and binding and may be entered and enforced in any state or federal
court of competent jurisdiction. The arbitrator shall interpret the Plan in
accordance with the laws of California. The arbitrator shall be authorized to
award reasonable attorney's fees and other arbitration-related costs to a
Participant or his or her beneficiary if an award is made in favor of the
Participant or beneficiary. The award shall be limited to Plan benefits at
issue, reasonable attorney's fees and arbitration-related costs.
Article V - Definitions
- -----------------------
A. Board of Directors - The Board of Directors of Unocal Corporation.
------------------
B. Code - The Internal Revenue Code of 1986 as amended from time to time.
----
C. Company - Unocal Corporation.
-------
D. Employee - A person who is in the employment of an Employer on or after the
--------
effective date of this Plan.
E. Employer - Unocal Corporation, Union Oil Company of California and any
--------
other subsidiary or affiliate of the Company so designated by the Board of
Directors.
F. ERISA - The Employee Retirement Income Security Act of 1974, as amended
-----
from time to time.
G. Plan Supplemental Retirement Plan for Key Management Personnel.
----
H. Law - The Plan shall be governed by and construed in accordance with the
---
laws of the State of California.
I. Effective Date - This amended and restated Plan shall apply to
--------------
Participants who retire or die on or after April 1, 1994. The Plan, as
previously in effect, shall continue to apply to Participants who retired
or died prior to April 1, 1994.
Dated: April 1, 1994
Supplemental retirement plan for key management personnel
5
<PAGE>
EXHIBIT 10.6
UNOCAL SUPPLEMENTAL SAVINGS PLAN
The Unocal Supplemental Savings Plan (the "Plan") is adopted effective January
1, 1997. The Plan is established and maintained by the Company for the purpose
of permitting certain of its employees who are Participants in the Unocal
Savings Plan to receive contributions if they are subject to limitations on
contributions resulting from the operation of Section 401(a)(17) of the Internal
Revenue Code of 1986, as amended, on defined contribution plans to which that
section applies.
Accordingly, Union Oil Company of California, dba Unocal, hereby adopts the
Plan pursuant to the terms and provisions set forth below:
ARTICLE I
DEFINITIONS
Wherever used herein, the following terms shall have the meanings hereafter
set forth:
1.1. "Accounting Date" means any date adopted by the Company for purposes of
contributions to the Plan and interest accruals thereunder.
1.2. "Board" means the Board of Directors of the Company.
1.3. "Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any regulations relating thereto.
1.4. "Company" means Union Oil Company of California, dba Unocal, a
California corporation, or, to the extent provided in Section 8.8 below, any
successor corporation or other entity resulting from a merger or consolidation
into or with the Company or a transfer or sale of substantially all of the
assets of the Company.
1.5. "Participant" means an employee of the Company or a subsidiary or
affiliate thereof who is eligible for participation under the Qualified Plan and
to whom or with respect to whom contributions may be made under the Plan.
1.6. "Plan" means the Unocal Supplemental Savings Plan.
1.7. "Plan Year" means the calendar year or any other 12-consecutive-month
period that may be designated by the Company as its fiscal year and the fiscal
year of the Qualified Plan.
1.8. "Qualified Plan" means the Unocal Savings Plan, and each predecessor,
successor or replacement cash or deferred arrangement.
1.9. "Qualified Plan Company Matching Contribution" means the total of all
matching contributions made by the Company for the benefit of a Participant
under and in accordance with the terms of the Qualified Plan in any Plan Year.
1.10. "Qualified Plan Accounts" means the accounts established for a
Participant under the Qualified Plan.
1.11. "Supplemental Matching Contribution" means the matching contribution
made by the Company for the benefit of a Participant under and in accordance
with the terms of the Plan in any Plan Year.
1.12. "Supplemental Account" means the account maintained by the Company
under the Plan for a Participant that is credited with amounts contributed under
Section 3.1 of the Plan.
<PAGE>
1.13. "Vested" shall have the same meaning as such term is defined
under the Qualified Plan.
1.14. Words in the masculine gender shall include the feminine and
the singular shall include the plural, and vice versa, unless qualified by the
context. Any headings used herein are included for ease of reference only, and
are not to be construed so as to alter the terms hereof.
ARTICLE II
ELIGIBILITY
A Participant who is eligible to receive Qualified Plan Company
Matching Contributions, the total amount of which is reduced by reason of the
application of the limitations on contributions imposed under Section 401(a)(17)
of the Code, as in effect on any date for allocation of the amount of the
Qualified Plan Company Matching Contribution, or as in effect at any time
thereafter, to the Qualified Plan shall be eligible to participate in the Plan.
ARTICLE III
SUPPLEMENTAL CONTRIBUTIONS
3.1. Supplemental Matching Contributions. (a) Each Plan Year, the
Company will make a Supplemental Matching Contribution to this Plan on behalf of
each Participant in an amount equal to the difference between (i) and (ii)
below:
(i.) The Qualified Plan Company Matching Contribution that would have
been allocated to the Qualified Plan for the Participant for the Plan Year
if the Participant elected to make a pretax contribution of 6% of base pay,
without giving effect to any reductions required by the limitations imposed
by the Code on the Qualified Plan;
LESS
(ii.) The amount of the Qualified Plan Company Matching Contribution
that would have been allocated to the Participant for the Plan Year if such
Participants elected to contribute 6% (six percent) of base pay as a pretax
contribution to said Plan.
3.2 The Company may at its sole discretion elect to make any of the
contributions required above either as of the close of the Plan Year or with
respect to Qualified Plan Company Matching Contributions limited by Section
401(a)(17) of the Code as of an Accounting Date selected by the Company.
ARTICLE IV
INTEREST ON SUPPLEMENTAL CONTRIBUTIONS
4.1. Amounts in a Participant's Supplemental Account shall be
credited with interest from the applicable Accounting Date until a Distribution
Date.
4.2. For each Plan Year or portion thereof, interest shall be
credited based on the average 10-year U.S. Treasury bond rate for December of
the year prior to such Plan Year, plus 2% (two percent).
2
<PAGE>
4.3. The Company may elect to invest funds in any manner it elects to
provide for benefits hereunder or not to invest funds. Any returns, gains or
losses of Company shall not alter the interest credited to a Participant under
Section 4.2 above.
ARTICLE V
DISTRIBUTIONS
5.1. Distribution. All amounts credited to a Participant's
------------
Supplemental Account which are Vested, including interest credited in accordance
with Article IV of the Plan, shall be distributed to or with respect to a
Participant only upon termination of the Participant's employment with the
Company and all affiliates thereof for any reason including death. All amounts
distributable under the Plan shall be distributed in the manner and within 60
days of the distribution of the Participant's accounts under the Qualified Plan
following termination of employment with the Company and all affiliates, except
where an alternate election as to distribution is provided by the Company under
this Plan and properly elected by the Participant.
If a Participant should die before distribution of the full amount of
Supplemental Account has been made, any remaining amounts shall be distributed
to the beneficiary and in the method designated by the Participant in a writing
delivered to the Company prior to his death. If a Participant has not
designated a beneficiary or method of distribution, or if no designated
beneficiary is living on the date of distribution, such amounts shall be
distributed to those persons entitled to receive distributions of the
Participant's accounts under the Qualified Plan and in the same method as
distribution is made under the Qualified Plan.
ARTICLE VI
ADMINISTRATION OF THE PLANS
6.1. Administration by the Company. The Company shall be responsible
-----------------------------
for the general operation and administration of the Plan and for carrying out
the provisions thereof.
6.2. General Powers of Administration. All provisions set forth in
--------------------------------
the Qualified Plan with respect to the administrative powers and duties of the
Company, expenses of administration, and procedures for filing claims shall also
be applicable with respect to the Plan.
The Company shall be entitled to rely conclusively upon all tables, valuations,
certificates, opinion and reports furnished by any actuary, accountant, counsel
or other person employed or engaged by the Company with respect to the Plan.
ARTICLE VII
AMENDMENT OR TERMINATION
7.1. Amendment or Termination. The Company intends the Plan to be
------------------------
permanent but reserves the right to amend or terminate the Plan when, in the
sole opinion of the Company, such amendment or termination is advisable. Any
such amendment or termination shall be made pursuant to a resolution of the
Board and shall be effective as of the date of such resolution.
7.2. Effect of Amendment or Termination. No amendment or termination
----------------------------------
of the Plan shall directly or indirectly reduce the balance of any Supplemental
Account held hereunder as of the effective date of such amendment or
termination. Upon termination of the Plan, distribution of amounts in
Supplemental Account shall be made to the Participant or his beneficiary in the
3
<PAGE>
manner and at the time described in Section 5.1 of the Plan. No additional
Supplemental Matching Contributions shall be made to the Supplemental Account of
a Participant after termination of the Plan, but the Company shall continue to
credit interest pursuant to Section 4.1, until the balance of such Supplemental
Account has been fully distributed to the Participant or his beneficiary.
ARTICLE VIII
GENERAL PROVISIONS
8.1. Participant's Rights Unsecured. Except to the extent the
------------------------------
Company shall in its sole discretion, elect to provide otherwise, the right of a
Participant or his designated beneficiary to receive a distribution hereunder
shall be an unsecured claim against the general assets of the Company, and
neither the Participant nor a designated beneficiary shall have any rights in or
against any specific assets of the Company. Nothing herein shall prohibit the
Company from electing to provide benefits hereunder through any investment it
elects, including life insurance policies or contracts or establish a Rabbi
Trust. A Participant shall have no interest or claims as to such investments,
or trust or policies except as explicitly provided thereunder.
8.2. General Conditions. Except as otherwise expressly provided
------------------
herein, all terms and conditions of the Qualified Plan applicable to a Qualified
Plan Company Matching Contribution will also be applicable to a Supplemental
Matching Contribution, or any other contributions to be made under the Qualified
Plan, shall be made solely in accordance with the terms and conditions of the
Qualified Plan and nothing in this Plan shall operate or be construed in any way
to modify, amend or affect the terms and provisions of the Qualified Plan.
8.3. No Guarantee of Benefits. Nothing contained in the Plan shall
------------------------
constitute a guaranty by the Company or any other person or entity that the
assets of the Company will be sufficient to pay any benefit hereunder.
8.4. No Enlargement of Employee Rights. No Participant shall have
---------------------------------
any right to receive a distribution of contributions made under the Plan except
in accordance with the terms of the Plan. Establishment of the Plan shall not
be construed to give any Participant the right to be retained in the service of
the Company.
8.5. Spendthrift Provision. No interest of any person or entity in,
---------------------
or right to receive a distribution under, the Plan shall be subject in any
manner to sale, transfer, assignment, pledge, attachment, garnishment, or other
alienation or encumbrance of any kind; nor may such interest or right to receive
a distribution be taken, either voluntarily or involuntarily for the
satisfaction of the debts of, or other obligations or claims against, such
person or entity, including claims for alimony, support, separate maintenance
and claims in bankruptcy proceedings.
8.6. Applicable Law. The Plan shall be construed and administered
--------------
under the laws of the State of California.
8.7. Incapacity of Recipient. If any person entitled to a
-----------------------
distribution under the Plan is deemed by the Company to be incapable of
personally receiving and giving a valid receipt for such payment, then, unless
and until claim therefore shall have been made by a duly appointed guardian or
other legal representative of such person, the Company may provide for such
payment or any part thereof to be made to any other person or institution then
contributing toward or providing for the care and maintenance of such person.
Any such payment shall be a payment for the account of such person and a
complete discharge of any liability of the Company and the Plan therefore.
8.8. Corporate Successors. The Plan shall not be automatically
--------------------
terminated by a transfer or sale of assets of the Company or by the merger or
consolidation of the Company into or with
4
<PAGE>
any other corporation or other entity, but the Plan shall be continued after
such sale, merger or consolidation only if and to the extent that the
transferee, purchaser or successor entity agrees to continue the Plan. In the
event that the Plan is not continued by the transferee, purchaser or successor
entity, then the Plan shall terminate subject to the provisions of Section 7.2.
8.9 Unclaimed Benefit. Each Participant shall keep the Company informed
-----------------
of his current address and the current address of his designated beneficiary.
The Company shall not be obligated to search for the whereabouts of any person.
If the location of a Participant is not made known to the Company within three
(3) years after the date on which payment of the Participant's Supplemental
Account may first be made, payment may be made as though the Participant had
died at the end of the three-year period. If, within one additional year after
such three-year period has elapsed, or, within three years after the actual
death of a Participant, the Company is unable to locate any designated
beneficiary of the Participant, then the Company shall have no further
obligation to pay any benefit hereunder to such Participant or designated
beneficiary and such benefit shall be irrevocably forfeited.
8.10 Effective Date. The Plan shall be first effective as of January
--------------
1, 1997 but only with respect to a Participant who as of July 28, 1997 was on a
regular payroll of the Company or a Subsidiary. However, Participant who was on
such a payroll as of July 28, 1997 because of participation in the Unocal
Employee Redeployment Program or similar arrangement shall not be eligible for
participation hereunder.
8.11. Limitations on Liability. Notwithstanding any of the preceding
------------------------
provisions of the Plan, neither the Company nor any individual acting as
employee or agent of the Company shall be liable to any Participant, former
Participant or other person for any claim, loss, liability or expense incurred
in connection with the Plan.
5
<PAGE>
EXHIBIT 10.10
UNOCAL EMPLOYMENT AGREEMENT
This employment agreement (the "Agreement") is made effective as of December
8, 1997 by and between Unocal Corporation, a Delaware corporation (the
"Company") and Roger C. Beach ("Employee").
In consideration of the mutual promises and agreements set forth herein, the
Company and Employee agree as follows:
1. TERM.
----
1.1 The term of this Agreement (the "Term") shall commence on December 8,
1997 and shall be for three years, subject to earlier termination in accordance
with the provisions of Section 4 hereinbelow. If the Agreement has not been
subject to early termination in accordance with the provisions of Section 4
hereinbelow, beginning on December 9, 1997 and on each day thereafter, the Term
shall automatically be extended for an additional day unless the Company
notifies Employee in writing that it does not wish to further extend the Term.
Notwithstanding the foregoing, this Agreement shall end automatically and
without additional notice on the date of the Company's Annual Meeting of
Shareholders that next follows the date of Employee's sixty-fifth (65th)
birthday.
2. POSITION AND TITLE.
------------------
2.1 The Company on behalf of itself and its affiliates and subsidiaries
hereby employs Employee as Chief Executive Officer and Chairman of the Board of
Directors, and Employee hereby accepts such employment.
2.2 Employee shall devote substantially all of his efforts on a full time
basis to the business and affairs of the Company and shall not engage in any
business or perform any services in any capacity whatsoever adverse to the
interests of the Company.
2.3 Employee shall at all times faithfully, industriously, and to the best of
his ability, experience, and talents, perform all of the duties of his position.
3. COMPENSATION.
------------
3.1 As of the date of this Agreement, Employee's annual base salary is
$825,000 Employee's base salary and performance shall be reviewed periodically
at intervals approved by the Management Development and Compensation Committee
of the Board of Directors of the Company (the "Committee"), and Employee's base
salary may be increased from time to time based on merit or such other
consideration as the Committee may deem appropriate.
3.2 During the Term, Employee shall participate in all of the Company's
incentive plans, benefit plans and perquisites, and in any new or successor
incentive plans, benefit plans and
<PAGE>
perquisites, that are generally provided to executives of the Company with a
level of responsibility and stature comparable to Employee. Performance goals,
award opportunity, benefit levels, and administrative guidelines for such plans
shall be subject to review and approval by the Committee.
4. TERMINATION OF EMPLOYMENT.
-------------------------
4.1 During the Term, the Company may terminate Employee's employment herein
at any time for Cause or as a result of a material breach by Employee of his
obligations under this Agreement, provided however that, except in the case of
conviction of a felony, the Company shall provide Employee with not less than
sixty (60) days prior written notice describing the behavior or conduct which is
alleged by the Company to constitute Cause, and Employee shall be provided with
reasonable opportunity to correct such behavior or conduct within the notice
period. For purposes of this Agreement, Cause shall be defined as any or all of
the following:
(1) Conduct or action by Employee which, in the opinion of a majority of
the Board of Directors, is materially harmful to the Company;
(2) Willful failure by Employee to follow an order of the Board, except in
such case where the Employee believes in good faith that following such order
would be materially detrimental to the interests of the Company;
(3) Employee's conviction of a felony.
4.2 In the event that Employee's employment is terminated by the Company for
any reason other than those set forth in Paragraph 4.1 hereinabove, or, (a)
Employee's annual base salary is reduced below the amount stated in Paragraph
3.1 hereinabove (unless such reduction is part of an across the board reduction
affecting all Company executives with a comparable level of responsibility,
title or stature), or (b) Employee is removed from or denied participation in
incentive plans, benefit plans, or perquisites generally provided by the Company
to other executives with a comparable level of responsibility, title or stature,
or (c) Employee's target incentive opportunity, benefits or perquisites are
reduced relative to other executives with comparable responsibility, title or
stature, or (d) Employee is assigned duties or obligations inconsistent with his
position with the Company or (e) Employee is required to relocate to an area
outside the Metropolitan Los Angeles area or (f) There is a significant change
in the nature and scope of Employee's authority or his overall working
environment, such event shall be considered a Termination Without Cause.
4.3 In the event of Employee's Termination Without Cause at any time during
the Term of this Agreement, then:
(1) The Company shall pay Employee a lump-sum severance amount within
thirty (30) days following Termination Without Cause equal to three (3) times
the sum of (a) the higher of the Employee's annual base salary at the time of
Termination Without Cause or the annual base salary stated in Paragraph 3.1
hereinabove, and (b) the average annual Bonus earned by Employee (whether paid
in cash or deferred) for the two completed fiscal years
2
<PAGE>
immediately prior to Termination Without Cause, reduced by the amount of any
Unocal Employee Redeployment Program and/or Unocal Termination Allowance
benefits payable to Employee.
(2) The Company shall provide for Employee to receive medical, dental,
life, and disability insurance coverage for three (3) years following
Termination Without Cause at levels and a net cost to Employee comparable to
that provided to Employee immediately prior to Employee's Termination Without
Cause.
(3) The Company shall pay Employee an additional lump-sum severance amount
within thirty (30) days following Employee's Termination Without Cause equal to
three (3) times the base salary used to determine the lump-sum severance benefit
in paragraph 4.3(1) hereinabove, multiplied by 6% (.06).
4.4 In the event that during the Term of this Agreement Employee should
voluntarily resign from the Company, should terminate employment with the
Company due to death, permanent disability or incapacitation, or is terminated
by the Company for Cause or for a material breach by Employee of his obligations
under this Agreement, then Employee shall not be entitled to any of the
termination benefits provided for in Paragraph 4.3 hereinabove, and the Term of
the Agreement shall immediately end.
4.5 Employee shall not be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to Employee under any
provisions of this Agreement.
5. CHANGE OF CONTROL.
-----------------
5.1 In the event of a Change of Control of the Company at any time during the
Term of this Agreement, then:
(1) In the event of Employee's Termination Without Cause within a period of
twenty-four (24) months following the date of a Change of Control, Employee
shall be entitled to the termination benefits described in Paragraph 4.3
hereinabove; provided that the lump-sum severance amount paid to Employee under
this Paragraph 5.1(1), which is calculated based on Paragraphs 4.3(1) and 4.3(3)
hereinabove, shall be (a) reduced to equal the present value, determined in
accordance with Section 280G(d)(4) of the Internal Revenue Code (the "IRC"), of
the lump-sum severance amount which would otherwise be payable under Paragraphs
4.3(1) and 4.3(3), and (b) reduced to offset compensation and other earned
income by Employee in the manner provided for in Paragraphs 5.1(2) and 5.1(3)
below.
(2) The lump-sum severance amounts payable to Employee under Paragraphs
4.3(1) and 4.3(3) shall be reduced by one hundred percent (100%) of any
compensation and other earned income (within the meaning of Section 911(d)(2)(A)
of the IRC) which is earned by Employee for services rendered to persons or
entities other than the Company or its affiliates during the three
3
<PAGE>
years immediately following Employee's Termination Without Cause.
(3) Not less frequently than annually beginning on the first anniversary
following Employee's Termination Without Cause, Employee shall account to the
Company with respect to all compensation and other earned income earned by
Employee which is required hereunder to be offset against the lump-sum severance
amount received by Employee from the Company under Paragraphs 4.3(1) and 4.3(3).
If the Company has paid a lump-sum severance amount in excess of the amount to
which Employee is entitled (after giving effect to the offsets provided for
above), Employee shall reimburse the Company for such excess within thirty (30)
days of the determination of such excess. The requirements imposed under this
Paragraph 5.1(3) shall terminate thirty (30) days immediately following the
second anniversary of Employee's Termination Without Cause.
5.2 Notwithstanding any other provisions in this Agreement or any other
agreement, plan or arrangement, if any payment or benefit received or to be
received by Employee, whether under the terms of this Agreement or any other
agreement, plan or arrangement with the Company or an affiliate of the Company
(all such payments and benefits being hereinafter referred to a "Total
Payments") would be subject, in whole or in part, to taxes imposed by IRC
Section 4999, then the Total Payments shall be reduced to the extent necessary
so that no portion of the Total Payments shall be subject to the parachute
excise tax (the "Excise Tax") imposed by IRC Section 4999 (after taking into
account any reduction in the Total Payments provided by reason of IRC Section
280G in any other plan, arrangement or agreement). Total payments shall not
include any amounts which are not considered a "parachute payments" under IRC
Section 280G in the opinion of suitable experts selected by the Company's Board
of Directors. The Company shall provide Employee with the calculation of the
foregoing amounts and any supporting materials reasonably necessary for Employee
to evaluate the calculations.
5.3 Any reduction in the Total Payments in accordance with Paragraph 5.2
hereinafter shall be made in the following order:
(1) The payments under Paragraph 4.3(3) of this Agreement shall first be
reduced (if necessary, to zero);
(2) The payments under Paragraph 4.3(1) of this Agreement shall next be
reduced (if necessary, to zero);
(3) The payments (or calculated value) of the benefits under Paragraph
4.3(2) of this Agreement shall next be reduced (if necessary, to zero);
(4) Any additional termination payments or benefits provided outside of
this Agreement shall then be reduced as necessary.
5.4 As used herein, the term "Change of Control" means either (a) the
dissolution or liquidation of the Company, (b) a reorganization, merger or
consolidation of the Company with one or more entities as a result of which the
Company is not the surviving entity, (c) approval by the stockholders of the
Company of any sale, lease, exchange or other transfer (in one or a series of
transactions) of all or substantially all of the assets of the Company, (d)
approval by
4
<PAGE>
the stockholders of the Company of any merger or consolidation of the Company in
which the holders of voting stock of the Company immediately before the merger
or consolidation will not own fifty percent (50%) or more of the outstanding
voting shares of the continuing or surviving entity immediately after such
merger or consolidation, or (e) a change of 25% or more (rounded to the next
whole person) in the membership of the Board of Directors of the Company within
a 12-month period, unless the election or nomination for election by
stockholders of each new director within such period was approved by the vote of
at least 85% (rounded to the next whole person) of the directors then still in
office who were in office at the beginning of the 12-month period, or (f) the
occurrence of a "Distribution Date" under the Unocal Rights Agreement.
6. COVENANTS.
----------
6.1 Employee agrees that any and all confidential knowledge or information,
including but not limited to customer lists, books, records, data, formulae,
specifications, inventions, processes and methods, and developments and
improvements, which have been or may be obtained or learned by Employee in the
course of his employment with the Company, will be held confidential by
Employee, and that Employee shall not disclose the same to any person outside of
the Company either during his employment with the Company or after his
employment by the Company has terminated.
6.2 Employee agrees that upon termination of his employment with the Company
he will immediately surrender and turn over to the Company all books, records,
forms, specifications, formulae, data, and all papers and writings relating to
the business of the Company and all other property belonging to the Company, it
being understood and agreed that the same are the sole property of the Company
and that Employee shall not make or retain any copies thereof.
6.3 Employee agrees that all inventions, developments or improvements which
he has made or may make, conceive, invent, discover or otherwise acquire during
his employment with the Company in the scope of his responsibilities or
otherwise shall become the sole property of the Company.
6.4 Employee agrees to provide a release of any claims with respect to
termination of his or her employment on such form as requested by the Company
upon payment of the sums provided in Section 4.3 above.
7. MISCELLANEOUS PROVISIONS.
------------------------
7.1 All terms and conditions of this Agreement are set forth herein, and
there are no warranties, agreements or understandings, express or implied,
except those expressly set forth herein.
7.2 Any modification to this Agreement shall be binding only if evidenced in
writing signed by all parties hereto.
7.3 Any notice or other communication required or permitted to be given
hereunder shall be deemed properly given if personally delivered or deposited in
the United States mail, registered or certified and postage prepaid, addressed
to the Company at 2141 Rosecrans Ave., Suite 4000, El Segundo, CA, or to
Employee at his or her most recent home address on file with
5
<PAGE>
Company, or at other such addresses as may from time to time be designated in
writing by the respective parties.
7.4 The laws of the State of California shall govern the validity of this
Agreement, the construction of its terms, and the interpretation of the rights
and duties of the parties involved.
7.5 In the event that any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable,
the same shall not affect any other provision of this Agreement, but this
Agreement shall be construed as if such invalid, illegal or unenforceable
provisions had never been contained herein.
7.6 This Agreement shall be binding upon, and inure to the benefit of, the
successors and assigns of the Company and the personal representatives, heirs
and legatees of Employee.
7.7 "Bonus" refers to the Unocal Incentive Compensation Plan and any
replacement or successor plan thereof.
7.8 Company shall pay 90% (ninety percent) of Employee's out-of-pocket
litigation expenses, including reasonable attorney's fees, in connection with
any judicial proceeding to enforce this Agreement or construe or determine the
validity of this Agreement, whether or not the Employee is successful in such
proceeding.
7.9 The term "Company" shall include with respect to employment hereunder,
any subsidiary or affiliate of the Company as well as any successor employer
following a Change in Control.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date first above written.
BY: /s/ DONALD P. JACOBS
------------------------------------------
Chairman of the Management Development and
Compensation Committee of the Unocal Board
of Directors
BY: /s/ R. C. BEACH
-----------------
EMPLOYEE
6
<PAGE>
EXHIBIT 10.12
CHANGE IN CONTROL AGREEMENT
This change in control agreement (the "Agreement") is made effective as of
December 8, 1997 by and between Unocal Corporation, a Delaware corporation (the
"Company") and _____________________________________. ("Employee").
WITNESSETH
WHEREAS, if certain corporate transactions were proposed or pending, such
potential transactions could result in distractions to Employee's performance at
a critical period; and
WHEREAS, Employee and Company wish to enter into this agreement in order to
provide security to Employee as a means of maintaining performance under such
circumstances.
THEREFORE, in consideration of the mutual promises and agreements set forth
herein, the Company and Employee agree as follows:
1. TERM.
----
1.1 The term of this Agreement (the "Term") shall commence on December 8,
1997 and shall be for two years, subject to earlier termination in accordance
with the provisions of Section 4 hereinbelow. Beginning on December 9, 1997 and
on each day thereafter, the Term shall automatically be extended for an
additional day unless the Company notifies Employee in writing that it does not
wish to further extend the Term.
2. POSITION AND TITLE.
------------------
2.1 The Company on behalf of itself and its affiliates and subsidiaries
currently employs Employee as ___________________.
2.2 Employee shall devote substantially all of his efforts on a full time
basis to the business and affairs of the Company and shall not engage in any
business or perform any services in any capacity whatsoever adverse to the
interests of the Company.
2.3 Employee shall at all times faithfully, industriously, and to the best
of his ability, experience, and talents, perform all of the duties of his
position.
3. COMPENSATION.
------------
3.1 As of the date of this Agreement, Employee's annual base salary is
___________. Employee's base salary and performance shall be reviewed
periodically at intervals approved by the Management Development and
Compensation Committee of the Board of Directors of the Company (the
"Committee"), and Employee's base salary may be increased from time to time
based on merit or such other consideration as the Committee may deem
appropriate.
<PAGE>
4. TERMINATION OF EMPLOYMENT.
-------------------------
Employee is an at-will employee of the Company. However, for purpose of
this Agreement only, a Termination Without Cause shall exist if Employee is
terminated by Company for any reason except:
(1) Intentional conduct or action by Employee which, in the opinion of
a majority of the Board of Directors, is materially harmful to the Company.
(2) Willful failure by Employee to follow an order of the Board or a
direct supervisor except in such case where the Employee believes in good
faith that following such order would be materially detrimental to the
interests of the Company; or
(3) Employee's conviction of a felony.
Additionally, if (a) Employee's annual base salary is reduced below the
amount stated in Paragraph 3.1 hereinabove (unless such reduction is part of an
across the board reduction affecting all Company executives with a comparable
level of responsibility, title or stature), or (b) Employee is removed from or
denied participation in incentive plans, benefit plans, or perquisites generally
provided by the Company to other executives with a comparable level of
responsibility, title or stature, or (c) Employee's target incentive
opportunity, benefits or perquisites are reduced relative to other executives
with comparable responsibility, title or stature, or (d) Employee is assigned
duties or obligations inconsistent with his position with the Company or (e)
Employee is required to relocate to an area outside the Metropolitan Los Angeles
area or (f) There is a significant change in the nature and scope of Employee's
authority or his overall working environment, such event shall be considered a
Termination Without Cause.
5. CHANGE OF CONTROL.
-----------------
5.1 In the event of a Change of Control of the Company at any time during
the Term of this Agreement, and Employee's Termination Without Cause within a
period of twenty-four (24) months following the date of a Change of Control,
Employee shall be entitled to the following benefits:
(1) The Company shall pay Employee a lump-sum severance amount within thirty
(30) days following Termination Without Cause equal to two (2) times the sum of
(a) the higher of the Employee's annual base salary at the time of Termination
Without Cause or the annual base salary stated in Paragraph 3.1 hereinabove,
and (b) the average annual Bonus earned by Employee (whether paid in cash or
deferred) for the two completed fiscal years immediately prior to Termination
Without Cause, reduced by the amount of any Unocal Employee Redeployment
Program and/or Unocal Termination Allowance benefits payable to Employee.
(2) The Company shall provide for Employee to receive medical, dental, life,
and disability insurance coverage for two (2) years following Termination
Without Cause at levels and a net cost to Employee comparable to that
2
<PAGE>
provided to Employee immediately prior to Employee's Termination Without Cause.
(3) The Company shall pay Employee an additional lump-sum severance amount
within thirty (30) days following Employee's Termination Without Cause equal to
two (2) times the base salary used to determine the lump-sum severance benefit
in paragraph 4.3(1) hereinabove, multiplied by 6% (.06).
5.2 Notwithstanding any other provisions in this Agreement or any other
agreement, plan or arrangement, if any payment or benefit received or to be
received by Employee, whether under the terms of this Agreement or any other
agreement, plan or arrangement with the Company or an affiliate of the Company
(all such payments and benefits being hereinafter referred to a "Total
Payments") would be subject, in whole or in part, to taxes imposed by IRC
Section 4999, then the Total Payments shall be reduced to the extent necessary
so that no portion of the Total Payments shall be subject to the parachute
excise tax (the "Excise Tax") imposed by IRC Section 4999 (after taking into
account any reduction in the Total Payments provided by reason of IRC Section
280G in any other plan, arrangement or agreement). Total payments shall not
include any amounts which are not considered a "parachute payments" under IRC
Section 280G in the opinion of suitable experts selected by the Company's Board
of Directors. The Company shall provide Employee with the calculation of the
foregoing amounts and any supporting materials reasonably necessary for Employee
to evaluate the calculations.
5.3 Any reduction in the Total Payments in accordance with Paragraph 5.2
hereinafter shall be made in the following order:
(1) The payments under Paragraph 4.3(3) of this Agreement shall first be
reduced (if necessary, to zero);
(2) The payments under Paragraph 4.3(1) of this Agreement shall next be reduced
(if necessary, to zero);
(3) The payments (or calculated value) of the benefits under Paragraph 4.3(2)
of this Agreement shall next be reduced (if necessary, to zero);
(4) Any additional termination payments or benefits provided outside of this
Agreement shall then be reduced as necessary.
5.4 As used herein, the term "Change of Control" means either (a) the
dissolution or liquidation of the Company, (b) a reorganization, merger or
consolidation of the Company with one or more entities as a result of which the
Company is not the surviving entity, (c) approval by the stockholders of the
Company of any sale, lease, exchange or other transfer (in one or a series of
transactions) of all or substantially all of the assets of the Company, (d)
approval by the stockholders of the Company of any merger or consolidation of
the Company in which the holders of voting stock of the Company immediately
before the merger or consolidation will not own fifty percent (50%) or more of
the outstanding voting shares of the continuing or surviving entity immediately
after such merger or consolidation, (e) a change of 25% or more (rounded to the
next whole person) in the membership of the Board of Directors of the Company
within a
3
<PAGE>
12-month period, unless the election or nomination for election by stockholders
of each new director within such period was approved by the vote of at least 85%
(rounded to the next whole person) of the directors then still in office who
were in office at the beginning of the 12-month period, or (f) the occurrence of
a "Distribution Date" under the Unocal Rights Agreement.
5.5 Employee shall not be obligated to seek other employment or take any
other action by way of mitigation of the amounts payable to Employee under any
provisions of this Agreement.
6. COVENANTS.
----------
6.1 Employee agrees that any and all confidential knowledge or information,
including but not limited to customer lists, books, records, data, formulae,
specifications, inventions, processes and methods, and developments and
improvements, which have been or may be obtained or learned by Employee in the
course of his employment with the Company, will be held confidential by
Employee, and that Employee shall not disclose the same to any person outside of
the Company either during his employment with the Company or after his
employment by the Company has terminated.
6.2 Employee agrees that upon termination of his employment with the
Company he will immediately surrender and turn over to the Company all books,
records, forms, specifications, formulae, data, and all papers and writings
relating to the business of the Company and all other property belonging to the
Company, it being understood and agreed that the same are the sole property of
the Company and that Employee shall not make or retain any copies thereof.
6.3 Employee agrees that all inventions, developments or improvements which
he has made or may make, conceive, invent, discover or otherwise acquire during
his employment with the Company in the scope of his responsibilities or
otherwise shall become the sole property of the Company.
6.4 Employee agrees to provide a release of any claims with respect to
termination of his or her employment on such form as requested by the Company
upon payment of the sums provided in Section 4.3 above.
7. MISCELLANEOUS PROVISIONS.
------------------------
7.1 All terms and conditions of this Agreement are set forth herein, and
there are no warranties, agreements or understandings, express or implied,
except those expressly set forth herein.
7.2 Any modification to this Agreement shall be binding only if evidenced
in writing signed by all parties hereto.
7.3 Any notice or other communication required or permitted to be given
hereunder shall be deemed properly given if personally delivered or deposited in
the United States mail, registered or certified and postage prepaid, addressed
to the Company at 2141 Rosecrans Ave., Suite 4000, El Segundo, CA or to Employee
at his or her most recent home address on file with the Company, or at other
such addresses as may from time to time be designated in writing by the
respective parties.
4
<PAGE>
7.4 The laws of the State of California shall govern the validity of this
Agreement, the construction of its terms, and the interpretation of the rights
and duties of the parties involved.
7.5 In the event that any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable,
the same shall not affect any other provision of this Agreement, but this
Agreement shall be construed as if such invalid, illegal or unenforceable
provisions had never been contained herein.
7.6 This Agreement shall be binding upon, and inure to the benefit of, the
successors and assigns of the Company and the personal representatives, heirs
and legatees of Employee.
7.7 "Bonus" refers to the Unocal Incentive Compensation Plan and any
replacement or successor plan thereof.
7.8 Company shall pay 90% (ninety percent) of Employee's out-of-pocket
litigation expenses, including reasonable attorney's fees, in connection with
any judicial proceeding to enforce this Agreement or construe or determine the
validity of this Agreement, whether or not the Employee is successful in such
proceeding.
7.9 The term "Company" shall include with respect to employment hereunder,
any subsidiary or affiliate of the Company, as well as any successor employer
following a Change In Control.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date first above written.
BY: /s/
_______________________________________________
Chairman of the Management Development and
Compensation Committee of the Board of Directors
BY: /s/
_______________________________________________
EMPLOYEE
5
<PAGE>
EXHIBIT 10.13
CHANGE IN CONTROL AGREEMENT
This change in control agreement (the "Agreement") is made effective as of
December 8, 1997 by and between Unocal Corporation, a Delaware corporation (the
"Company") and _____________________________________. ("Employee").
WITNESSETH
WHEREAS, if certain corporate transactions were proposed or pending, such
potential transactions could result in distractions to Employee's performance at
a critical period; and
WHEREAS, Employee and Company wish to enter into this agreement in order to
provide security to Employee as a means of maintaining performance under such
circumstances.
THEREFORE, in consideration of the mutual promises and agreements set forth
herein, the Company and Employee agree as follows:
1. TERM.
----
1.1 The term of this Agreement (the "Term") shall commence on December 8,
1997 and shall be for two years, subject to earlier termination in accordance
with the provisions of Section 4 hereinbelow. Beginning on December 9, 1997 and
on each day thereafter, the Term shall automatically be extended for an
additional day unless the Company notifies Employee in writing that it does not
wish to further extend the Term.
2. POSITION AND TITLE.
------------------
2.1 The Company on behalf of itself and its affiliates and subsidiaries
currently employs Employee as ___________________.
2.2 Employee shall devote substantially all of his efforts on a full time
basis to the business and affairs of the Company and shall not engage in any
business or perform any services in any capacity whatsoever adverse to the
interests of the Company.
2.3 Employee shall at all times faithfully, industriously, and to the best
of his ability, experience, and talents, perform all of the duties of his
position.
3. COMPENSATION.
------------
3.1 As of the date of this Agreement, Employee's annual base salary is
___________. Employee's base salary and performance shall be reviewed
periodically at intervals approved by the Management Development and
Compensation Committee of the Board of Directors of the Company (the
"Committee"), and Employee's base salary may be increased from time to time
based on merit or such other consideration as the Committee may deem
appropriate.
<PAGE>
4. TERMINATION OF EMPLOYMENT.
-------------------------
Employee is an at-will employee of the Company. However, for purpose of
this Agreement only, a Termination Without Cause shall exist if Employee is
terminated by Company for any reason except:
(1) Intentional conduct or action by Employee which, in the opinion of a
majority of the Board of Directors, is materially harmful to the Company.
(2) Willful failure by Employee to follow an order of the Board or a direct
supervisor except in such case where the Employee believes in good faith
that following such order would be materially detrimental to the interests
of the Company; or
(3) Employee's conviction of a felony.
Additionally, if (a) Employee's annual base salary is reduced below the
amount stated in Paragraph 3.1 hereinabove (unless such reduction is part of an
across the board reduction affecting all Company executives with a comparable
level of responsibility, title or stature), or (b) Employee is removed from or
denied participation in incentive plans, benefit plans, or perquisites generally
provided by the Company to other executives with a comparable level of
responsibility, title or stature, or (c) Employee's target incentive
opportunity, benefits or perquisites are reduced relative to other executives
with comparable responsibility, title or stature, or (d) Employee is assigned
duties or obligations inconsistent with his position with the Company or (e)
Employee is required to relocate to an area outside the Metropolitan Los Angeles
area or (f) There is a significant change in the nature and scope of Employee's
authority or his overall working environment, such event shall be considered a
Termination Without Cause.
5. CHANGE OF CONTROL.
-----------------
5.1 In the event of a Change of Control of the Company at any time during the
Term of this Agreement, and Employee's Termination Without Cause within a period
of twenty-four (24) months following the date of a Change of Control, Employee
shall be entitled to the following benefits:
(1) The Company shall pay Employee a lump-sum severance amount within thirty
(30) days following Termination Without Cause equal to two (2) times the sum
of (a) the higher of the Employee's annual base salary at the time of
Termination Without Cause or the annual base salary stated in Paragraph 3.1
hereinabove, and (b) the average annual Bonus earned by Employee (whether paid
in cash or deferred) for the two completed fiscal years immediately prior to
Termination Without Cause, reduced by the amount of any Unocal Employee
Redeployment Program and/or Unocal Termination Allowance benefits payable to
Employee.
(2) The Company shall provide for Employee to receive medical, dental, life,
and disability insurance coverage for two (2) years following Termination
Without Cause at levels and a net cost to Employee comparable to that provided
to Employee immediately prior to Employee's Termination Without Cause.
2
<PAGE>
(3) The Company shall pay Employee an additional lump-sum severance amount
within thirty (30) days following Employee's Termination Without Cause equal
to two (2) times the base salary used to determine the lump-sum severance
benefit in paragraph 4.3(1) hereinabove, multiplied by 6% (.06).
5.2 Notwithstanding any other provisions in this Agreement or any other
agreement, plan or arrangement, if any payment or benefit received or to be
received by Employee, whether under the terms of this Agreement or any other
agreement, plan or arrangement with the Company or an affiliate of the Company
(all such payments and benefits being hereinafter referred to a "Total
Payments") would be subject, in whole or in part, to taxes imposed by IRC
Section 4999, then the Total Payments shall be reduced to the extent necessary
so that no portion of the Total Payments shall be subject to the parachute
excise tax (the "Excise Tax") imposed by IRC Section 4999 (after taking into
account any reduction in the Total Payments provided by reason of IRC Section
280G in any other plan, arrangement or agreement). Total payments shall not
include any amounts which are not considered a "parachute payments" under IRC
Section 280G in the opinion of suitable experts selected by the Company's Board
of Directors. The Company shall provide Employee with the calculation of the
foregoing amounts and any supporting materials reasonably necessary for Employee
to evaluate the calculations.
5.3 Any reduction in the Total Payments in accordance with Paragraph 5.2
hereinafter shall be made in the following order:
(1) The payments under Paragraph 4.3(3) of this Agreement shall first be
reduced (if necessary, to zero);
(2) The payments under Paragraph 4.3(1) of this Agreement shall next be reduced
(if necessary, to zero);
(3) The payments (or calculated value) of the benefits under Paragraph 4.3(2)
of this Agreement shall next be reduced (if necessary, to zero);
(4) Any additional termination payments or benefits provided outside of this
Agreement shall then be reduced as necessary.
5.4 As used herein, the term "Change of Control" means either (a) the
dissolution or liquidation of the Company, (b) a reorganization, merger or
consolidation of the Company with one or more entities as a result of which the
Company is not the surviving entity, (c) approval by the stockholders of the
Company of any sale, lease, exchange or other transfer (in one or a series of
transactions) of all or substantially all of the assets of the Company, (d)
approval by the stockholders of the Company of any merger or consolidation of
the Company in which the holders of voting stock of the Company immediately
before the merger or consolidation will not own fifty percent (50%) or more of
the outstanding voting shares of the continuing or surviving entity immediately
after such merger or consolidation, (e) a change of 25% or more (rounded to the
next whole person)
3
<PAGE>
in the membership of the Board of Directors of the Company within a 12-month
period, unless the election or nomination for election by stockholders of each
new director within such period was approved by the vote of at least 85%
(rounded to the next whole person) of the directors then still in office who
were in office at the beginning of the 12-month period, or (f) the occurrence of
a "Distribution Date" under the Unocal Rights Agreement.
5.5 Employee shall not be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to Employee under any
provisions of this Agreement.
6. COVENANTS.
----------
6.1 Employee agrees that any and all confidential knowledge or information,
including but not limited to customer lists, books, records, data, formulae,
specifications, inventions, processes and methods, and developments and
improvements, which have been or may be obtained or learned by Employee in the
course of his employment with the Company, will be held confidential by
Employee, and that Employee shall not disclose the same to any person outside of
the Company either during his employment with the Company or after his
employment by the Company has terminated.
6.2 Employee agrees that upon termination of his employment with the Company he
will immediately surrender and turn over to the Company all books, records,
forms, specifications, formulae, data, and all papers and writings relating to
the business of the Company and all other property belonging to the Company, it
being understood and agreed that the same are the sole property of the Company
and that Employee shall not make or retain any copies thereof.
6.3 Employee agrees that all inventions, developments or improvements which he
has made or may make, conceive, invent, discover or otherwise acquire during his
employment with the Company in the scope of his responsibilities or otherwise
shall become the sole property of the Company.
6.4 Employee agrees to provide a release of any claims with respect to
termination of his or her employment on such form as requested by the Company
upon payment of the sums provided in Section 4.3 above.
7. MISCELLANEOUS PROVISIONS.
------------------------
7.1 All terms and conditions of this Agreement are set forth herein, and there
are no warranties, agreements or understandings, express or implied, except
those expressly set forth herein.
7.2 Any modification to this Agreement shall be binding only if evidenced in
writing signed by all parties hereto.
7.3 Any notice or other communication required or permitted to be given
hereunder shall be deemed properly given if personally delivered or deposited in
the United States mail, registered or certified and postage prepaid, addressed
to the Company at 2141 Rosecrans Ave., Suite 4000, El Segundo, CA or to Employee
at his or her most recent home address on file with the Company, or at other
such addresses as may from time to time be designated in writing by the
respective parties.
7.4 The laws of the State of California shall govern the validity of this
Agreement, the construction of its terms, and the interpretation of the rights
and duties of the parties involved.
7.5 In the event that any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable,
the same shall not affect any other provision of this
4
<PAGE>
Agreement, but this Agreement shall be construed as if such invalid, illegal or
unenforceable provisions had never been contained herein.
7.6 This Agreement shall be binding upon, and inure to the benefit of, the
successors and assigns of the Company and the personal representatives, heirs
and legatees of Employee.
7.7 "Bonus" refers to the Unocal Incentive Compensation Plan and any
replacement or successor plan thereof.
7.8 Company shall pay 90% (ninety percent) of Employee's out-of-pocket
litigation expenses, including reasonable attorney's fees, in connection with
any judicial proceeding to enforce this Agreement or construe or determine the
validity of this Agreement, whether or not the Employee is successful in such
proceeding.
7.9 The term "Company" shall include with respect to employment hereunder, any
subsidiary or affiliate of the Company, as well as any successor employer
following a Change In Control.
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date first above written.
BY:_______________________________________________
Chairman of the Management Development and
Compensation Committee of the Board of Directors
BY:_______________________________________________
EMPLOYEE
5
<PAGE>
EXHIBIT 12.1
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year ended December 31
--------------------------------------------------
Millions of dollars 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings from continuing operations $ 669 $ 456 $ 249 $ 110 $ 272
Provision for income taxes 102 302 226 161 213
- ----------------------------------------------------------------------------------------------------------------------
Earnings subtotal (a) 771 758 475 271 485
Fixed charges included in earnings:
Interest expense 183 279 291 275 304
Distribution on convertible preferred securities 33 10 - - -
Interest portion of rentals (b) 23 40 41 50 55
- ----------------------------------------------------------------------------------------------------------------------
Fixed charges subtotal 239 329 332 325 359
Earnings from continuing operations
available before fixed charges $ 1,010 $ 1,087 $ 807 $ 596 $ 844
- ----------------------------------------------------------------------------------------------------------------------
Fixed charges:
Fixed charges included in earnings 239 329 332 325 359
Capitalized interest 35 15 35 30 30
- ----------------------------------------------------------------------------------------------------------------------
Total fixed charges $ 274 $ 344 $ 367 $ 355 $ 389
- ----------------------------------------------------------------------------------------------------------------------
Ratio of earnings from continuing operations
to fixed charges 3.7 3.2 2.2 1.7 2.2
- ----------------------------------------------------------------------------------------------------------------------
(a) Includes pre-tax impairment of: 69 75 105 71 19
The ratio of earnings, excluding impairment, to fixed charges would
be: 3.9 3.4 2.5 1.9 2.2
(b) Calculated as one-third of operating rental expense.
</TABLE>
<PAGE>
EXHIBIT 12.2
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------------------------
Millions of dollars 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings from continuing operations $ 669 $ 456 $ 249 $ 110 $ 272
Provision for income taxes 102 302 226 161 213
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings subtotal (a) 771 758 475 271 485
Fixed charges included in earnings:
Interest expense 183 279 291 275 304
Distribution on convertible preferred securities 33 10 - - -
Interest portion of rentals (b) 23 40 41 50 55
- ----------------------------------------------------------------------------------------------------------------------------------
Fixed charges subtotal 239 329 332 325 359
Earnings from continuing operations
available before fixed charges $ 1,010 $1,087 $ 807 $ 596 $ 844
- ----------------------------------------------------------------------------------------------------------------------------------
Fixed charges:
Fixed charges included in earnings 239 329 332 325 359
Capitalized interest 35 15 35 30 30
Preferred stock dividends, pre-tax basis - 29 58 58 58
- ----------------------------------------------------------------------------------------------------------------------------------
Total fixed charges $ 274 $ 373 $ 425 $ 413 $ 447
- ----------------------------------------------------------------------------------------------------------------------------------
Ratio of earnings from continuing operations
to fixed charges 3.7 2.9 1.9 1.4 1.9
- ----------------------------------------------------------------------------------------------------------------------------------
(a) Includes pre-tax impairment of: 69 75 105 71 19
The ratio of earnings, excluding impairment, to fixed charges would be: 3.9 3.1 2.1 1.6 1.9
(b) Calculated as one-third of operating rental expense.
</TABLE>
<PAGE>
EXHIBIT 12.3
UNION OIL COMPANY OF CALIFORNIA AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------------------
Millions of dollars 1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings from continuing operations $ 687 $ 468 $ 251 $ 111 $ 273
Provision for income taxes 119 302 226 161 213
- -------------------------------------------------------------------------------------------------------------------------------
Earnings subtotal 806 770 477 272 486
Fixed charges included in earnings:
Interest expense 183 279 291 275 304
Interest portion of rentals 23 40 41 50 55
- -------------------------------------------------------------------------------------------------------------------------------
Fixed charges subtotal 206 319 332 325 359
Earnings from continuing operations
available before fixed charges $1,012 $1,089 $ 809 $ 597 $ 845
- -------------------------------------------------------------------------------------------------------------------------------
Fixed charges:
Fixed charges included in earnings 206 319 332 325 359
Capitalized interest 35 15 35 30 30
- -------------------------------------------------------------------------------------------------------------------------------
Total fixed charges $ 241 $ 334 $ 367 $ 355 $ 389
- -------------------------------------------------------------------------------------------------------------------------------
Ratio of earnings from continuing operations
to fixed charges 4.2 3.3 2.2 1.7 2.2
- -------------------------------------------------------------------------------------------------------------------------------
(a) Includes pre-tax impairment of: 69 75 105 71 19
The ratio of earnings, excluding impairment, to fixed charges would be: 4.5 3.5 2.5 1.9 2.2
(b) Calculated as one-third of operating rental expense.
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF UNOCAL CORPORATION
NAME OF COMPANY (a) ORGANIZED UNDER LAW OF
- --------------------------------------------------------------------------------
Union Oil Company of California, dba "UNOCAL" California
Philippine Geothermal, Inc. California
Unocal Geothermal of Indonesia, Ltd. Bermuda
Unocal International Corporation Nevada
Unocal Canada Limited Alberta
Unocal Canada Resources (b) Alberta
Unocal Canada Exploration Limited Alberta
Unocal Canada International Company Nova Scotia
Unocal Canada Management Limited Alberta
Unocal Indonesia, Ltd. Bermuda
Unocal Indonesia Company (c) Bermuda
Unocal Myanmar Offshore Co., Ltd. Bermuda
Unocal Netherlands B.V. Netherlands
Unocal Thailand, Ltd. Bermuda
Unocal Capital Trust Delaware
- --------------------------------------------------------------------------------
(a) The indented companies are subsidiaries of Union Oil Company of California.
The names of approximately 230 subsidiaries are omitted inasmuch as such
subsidiaries, considered in the aggregate as a single subsidiary, would not
constitute a significant subsidiary.
(b) Owned 94.8 percent by Unocal Canada Limited and 5.2 percent by Unocal
Canada Management Limited.
(c) Owned 53.1 percent by Unocal Indonesia, Ltd. and 46.9 percent by Unocal
Canada International Company.
<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, 333-09685, 333-25039 and 333-36987) 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, which appears on page 53 of this Annual Report
on Form 10-K.
COOPERS & LYBRAND L. L. P.
Los Angeles, California
March 30, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 338
<SECURITIES> 0
<RECEIVABLES> 932
<ALLOWANCES> (35)
<INVENTORY> 172
<CURRENT-ASSETS> 1,501
<PP&E> 14,712
<DEPRECIATION> (9,896)
<TOTAL-ASSETS> 7,530
<CURRENT-LIABILITIES> 1,160
<BONDS> 2,169
0
0
<COMMON> 252
<OTHER-SE> 2,473
<TOTAL-LIABILITY-AND-EQUITY> 7,530
<SALES> 5,781
<TOTAL-REVENUES> 6,064
<CGS> 3,635
<TOTAL-COSTS> 5,293
<OTHER-EXPENSES> 303
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 183
<INCOME-PRETAX> 771
<INCOME-TAX> 102
<INCOME-CONTINUING> 669
<DISCONTINUED> (50)
<EXTRAORDINARY> (38)
<CHANGES> 0
<NET-INCOME> 581
<EPS-PRIMARY> 2.34
<EPS-DILUTED> 2.31
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 217
<SECURITIES> 0
<RECEIVABLES> 1,027
<ALLOWANCES> 0
<INVENTORY> 125
<CURRENT-ASSETS> 3,228
<PP&E> 14,092
<DEPRECIATION> (9,502)
<TOTAL-ASSETS> 9,123
<CURRENT-LIABILITIES> 1,622
<BONDS> 2,940
0
0
<COMMON> 251
<OTHER-SE> 2,024
<TOTAL-LIABILITY-AND-EQUITY> 9,123
<SALES> 5,101
<TOTAL-REVENUES> 5,328
<CGS> 2,888
<TOTAL-COSTS> 4,570
<OTHER-EXPENSES> 256
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 279
<INCOME-PRETAX> 758
<INCOME-TAX> 302
<INCOME-CONTINUING> 456
<DISCONTINUED> (420)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 36
<EPS-PRIMARY> (0.15)<F1>
<EPS-DILUTED> (0.07)<F1>
<FN>
<F1>RESTATED AS REQUIRED BY STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 128,
"EARNINGS PER SHARE." BASIC AND DILUTED EARNINGS PER SHARE ARE REPORTED ABOVE
AS EPS-PRIMARY AND EPS-DILUTED, RESPECTIVELY.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 94
<SECURITIES> 0
<RECEIVABLES> 920
<ALLOWANCES> 0
<INVENTORY> 360
<CURRENT-ASSETS> 1,576
<PP&E> 18,540
<DEPRECIATION> (10,179)
<TOTAL-ASSETS> 9,891
<CURRENT-LIABILITIES> 1,316
<BONDS> 3,698
0
513
<COMMON> 247
<OTHER-SE> 2,683
<TOTAL-LIABILITY-AND-EQUITY> 9,891
<SALES> 4,111<F1>
<TOTAL-REVENUES> 4,389<F1>
<CGS> 2,281<F1>
<TOTAL-COSTS> 3,914<F1>
<OTHER-EXPENSES> 200
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 291
<INCOME-PRETAX> 475<F1>
<INCOME-TAX> 226<F1>
<INCOME-CONTINUING> 249<F1>
<DISCONTINUED> 11<F1>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 260<F1>
<EPS-PRIMARY> 0.91<F2>
<EPS-DILUTED> 0.90<F2>
<FN>
<F1>RESTATED TO REFLECT THE COMPANY'S REFINING, MARKETING AND TRANSPORTATION
OPERATIONS AS DISCONTINUED OPERATIONS.
<F2>RESTATED AS REQUIRED BY STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128,
"EARNINGS PER SHARE." BASIC AND DILUTED EARNINGS PER SHARE ARE REPORTED ABOVE
AS EPS-PRIMARY AND EPS-DILUTED, RESPECTIVELY.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,749
<SECURITIES> 0
<RECEIVABLES> 1,146
<ALLOWANCES> (35)
<INVENTORY> 145
<CURRENT-ASSETS> 3,496
<PP&E> 14,249
<DEPRECIATION> (9,672)
<TOTAL-ASSETS> 9,430
<CURRENT-LIABILITIES> 2,013
<BONDS> 2,814
0
0
<COMMON> 251
<OTHER-SE> 2,156
<TOTAL-LIABILITY-AND-EQUITY> 9,430
<SALES> 1,408
<TOTAL-REVENUES> 1,456
<CGS> 747
<TOTAL-COSTS> 1,119
<OTHER-EXPENSES> 44
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61
<INCOME-PRETAX> 337
<INCOME-TAX> 149
<INCOME-CONTINUING> 188
<DISCONTINUED> (44)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 144
<EPS-PRIMARY> 0.57<F1>
<EPS-DILUTED> 0.56<F1>
<FN>
<F1>RESTATED AS REQUIRED BY STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128,
"EARNINGS PER SHARE." BASIC AND DILUTED EARNINGS PER SHARE ARE REPORTED ABOVE
AS EPS-PRIMARY AND EPS-DILUTED, RESPECTIVELY.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 884
<SECURITIES> 0
<RECEIVABLES> 865
<ALLOWANCES> (34)
<INVENTORY> 138
<CURRENT-ASSETS> 1,938
<PP&E> 14,354
<DEPRECIATION> (9,642)
<TOTAL-ASSETS> 7,821
<CURRENT-LIABILITIES> 980
<BONDS> 2,320
0
0
<COMMON> 251
<OTHER-SE> 2,238
<TOTAL-LIABILITY-AND-EQUITY> 7,821
<SALES> 2,902
<TOTAL-REVENUES> 3,110
<CGS> 1,745
<TOTAL-COSTS> 2,524
<OTHER-EXPENSES> 107
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 110
<INCOME-PRETAX> 586
<INCOME-TAX> 242
<INCOME-CONTINUING> 344
<DISCONTINUED> (44)
<EXTRAORDINARY> (38)
<CHANGES> 0
<NET-INCOME> 262
<EPS-PRIMARY> 1.05<F1>
<EPS-DILUTED> 1.04<F1>
<FN>
<F1>RESTATED AS REQUIRED BY STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 128,
"EARNINGS PER SHARE." BASIC AND DILUTED EARNINGS PER SHARE ARE REPORTED ABOVE AS
EPS-PRIMARY AND EPS-DILUTED, RESPECTIVELY.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 516
<SECURITIES> 0
<RECEIVABLES> 846
<ALLOWANCES> (33)
<INVENTORY> 154
<CURRENT-ASSETS> 1,561
<PP&E> 14,551
<DEPRECIATION> (9,863)
<TOTAL-ASSETS> 7,457
<CURRENT-LIABILITIES> 975
<BONDS> 2,078
0
0
<COMMON> 252
<OTHER-SE> 2,373
<TOTAL-LIABILITY-AND-EQUITY> 7,457
<SALES> 4,272
<TOTAL-REVENUES> 4,507
<CGS> 2,692
<TOTAL-COSTS> 3,918
<OTHER-EXPENSES> 165
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147
<INCOME-PRETAX> 589
<INCOME-TAX> 68
<INCOME-CONTINUING> 521
<DISCONTINUED> (44)
<EXTRAORDINARY> (38)
<CHANGES> 0
<NET-INCOME> 439
<EPS-PRIMARY> 1.76<F1>
<EPS-DILUTED> 1.74<F1>
<FN>
<F1>RESTATED AS REQUIRED BY STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 128,
"EARNINGS PER SHARE." BASIC AND DILUTED EARNINGS PER SHARE ARE REPORTED ABOVE
AS EPS-PRIMARY AND EPS-DILUTED, RESPECTIVELY.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 286
<SECURITIES> 0
<RECEIVABLES> 914
<ALLOWANCES> 0
<INVENTORY> 373
<CURRENT-ASSETS> 1,815
<PP&E> 18,738
<DEPRECIATION> (11,656)
<TOTAL-ASSETS> 10,091
<CURRENT-LIABILITIES> 1,615
<BONDS> 3,503
0
513
<COMMON> 248
<OTHER-SE> 2,279
<TOTAL-LIABILITY-AND-EQUITY> 10,091
<SALES> 1,143<F1>
<TOTAL-REVENUES> 1,201<F1>
<CGS> 587<F1>
<TOTAL-COSTS> 976<F1>
<OTHER-EXPENSES> 36
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78
<INCOME-PRETAX> 225<F1>
<INCOME-TAX> 94<F1>
<INCOME-CONTINUING> 131<F1>
<DISCONTINUED> (7)<F1>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 124<F1>
<EPS-PRIMARY> 0.46<F2>
<EPS-DILUTED> 0.46<F2>
<FN>
<F1>RESTATED TO REFLECT THE COMPANY'S REFINING, MARKETING AND TRANSPORTATION
OPERATIONS AS DISCONTINUED OPERATIONS.
<F2>RESTATED AS REQUIRED BY STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 128,
"EARNINGS PER SHARE." BASIC AND DILUTED EARNINGS PER SHARE ARE REPORTED ABOVE
AS EPS-PRIMARY AND EPS-DILUTED, RESPECTIVELY.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 209
<SECURITIES> 0
<RECEIVABLES> 1,007
<ALLOWANCES> (36)
<INVENTORY> 343
<CURRENT-ASSETS> 1,637
<PP&E> 17,679
<DEPRECIATION> (10,768)
<TOTAL-ASSETS> 9,779
<CURRENT-LIABILITIES> 1,466
<BONDS> 3,117
0
513
<COMMON> 248
<OTHER-SE> 2,463
<TOTAL-LIABILITY-AND-EQUITY> 9,779
<SALES> 2,403<F1>
<TOTAL-REVENUES> 2,606<F1>
<CGS> 1,311<F1>
<TOTAL-COSTS> 2,061<F1>
<OTHER-EXPENSES> 69
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 147
<INCOME-PRETAX> 545<F1>
<INCOME-TAX> 226<F1>
<INCOME-CONTINUING> 319<F1>
<DISCONTINUED> 43<F1>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 362<F1>
<EPS-PRIMARY> 1.38<F2>
<EPS-DILUTED> 1.36<F2>
<FN>
<F1>RESTATED TO REFLECT THE COMPANY'S REFINING, MARKETING AND TRANSPORTATION
OPERATIONS AS DISCONTINUED OPERATIONS.
<F2>RESTATED AS REQUIRED BY STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 128,
"EARNINGS PER SHARE." BASIC AND DILUTED EARNINGS PER SHARE ARE REPORTED ABOVE
AS EPS-PRIMARY AND EPS-DILUTED, RESPECTIVELY.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 225
<SECURITIES> 0
<RECEIVABLES> 921
<ALLOWANCES> 0
<INVENTORY> 356
<CURRENT-ASSETS> 1,612
<PP&E> 17,859
<DEPRECIATION> (10,910)
<TOTAL-ASSETS> 9,809
<CURRENT-LIABILITIES> 1,457
<BONDS> 2,951
0
13
<COMMON> 250
<OTHER-SE> 2,575
<TOTAL-LIABILITY-AND-EQUITY> 9,809
<SALES> 3,668<F1>
<TOTAL-REVENUES> 3,943<F1>
<CGS> 2,056<F1>
<TOTAL-COSTS> 3,206<F1>
<OTHER-EXPENSES> 155
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 215
<INCOME-PRETAX> 737<F1>
<INCOME-TAX> 284<F1>
<INCOME-CONTINUING> 453<F1>
<DISCONTINUED> 80<F1>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 533<F1>
<EPS-PRIMARY> 1.85<F2>
<EPS-DILUTED> 1.77<F2>
<FN>
<F1>RESTATED TO REFLECT THE COMPANY'S REFINING, MARKETING AND TRANSPORTATION
OPERATIONS AS DISCONTINUED OPERATIONS.
<F2>RESTATED AS REQUIRED BY STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 128,
"EARNINGS PER SHARE." BASIC AND DILUTED EARNINGS PER SHARE ARE REPORTED ABOVE
AS EPS-PRIMARY AND EPS-DILUTED, RESPECTIVELY.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99.1
RESTATED AND AMENDED
ARTICLES OF INCORPORATION
OF
UNION OIL COMPANY OF CALIFORNIA
A CALIFORNIA CORPORATION
(Endorsed filed October 24, 1996, in the office of the Secretary of State of the
State of California)
Dennis P.R. Codon and Brigitte M. Dewez hereby certify that:
1. They are a duly elected and acting Vice President and the duly elected
and acting Secretary of Union Oil Company of California, a California
corporation (the "Corporation").
-----------
2. The Articles of Incorporation of the Corporation are amended and
restated to read in full as follows:
"ARTICLES OF INCORPORATION"
OF
UNION OIL COMPANY OF CALIFORNIA
A CALIFORNIA CORPORATION
ONE: The name of the Corporation is: UNION OIL COMPANY OF CALIFORNIA.
TWO: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust
company business, or the practice of a profession permitted to be incorporated
by the California Corporations Code.
THREE: The Corporation shall have the power to offer, issue and to sell
pro rata to the holders of its Common Shares, shares of its capital stock
other than shares of stock issued and sold under and pursuant to the
provisions of (1) and (2) of the second paragraph of this Article Three, and
to sell to others any shares of stock so offered to the holders of the Common
Shares and not taken by them for such price or consideration as the Board of
Directors may determine.
<PAGE>
Notwithstanding the foregoing provisions of this Article Three, (1) the
Corporation may issue shares of its capital stock, and of any future increase
thereof, in such amounts as may be determined by the affirmative vote of two-
thirds of the entire Board of Directors, in exchange for or in payment for
property to be acquired by the Corporation for carrying out any of the
foregoing purposes, without first offering such stock to its stockholders;
also, upon affirmative vote of two-thirds of the entire Board of Directors of
this Corporation, and without any prior offering to stockholders of this
Corporation, the Corporation may grant to the purchasers or the holders of any
bonds or debentures or evidences of indebtedness of this Corporation, optional
rights to convert any of such securities, in whole or in part, into shares of
the capital stock of this Corporation, and of any future increase thereof, and
also of any subsequent offering thereof, or the optional rights to purchase
any of such shares, all on such terms and conditions and at such price or
prices, and in such manner, at such times and in such amounts as may be
determined by such vote of directors, and on any such optional rights being
exercised by the holder thereof, may issue the capital stock called for by the
exercise of such rights; and (2) the Corporation may offer, issue and sell,
and grant options to purchase Common Shares to such employees of the
Corporation and its subsidiaries, in such amounts, upon such terms and
conditions and for such consideration as the Board of Directors may from time
to time determine, but not to exceed in the aggregate 500,000 Common Shares;
provided however, that such maximum amount shall be subject to adjustment (in
the same manner as the Corporation's outstanding Common Shares) in the event a
dividend is declared upon the Common Shares of the Corporation payable in
Common Shares or in the event the outstanding Common Shares of the Corporation
shall be changed into or exchanged for a different number or class of shares
of stock or other securities of the Corporation or of another corporation,
whether through reorganization, recapitalization, stock split-up, combination
of shares, merger or consolidation, and that the provisions of this section
shall be applicable to the number or class of shares of stock or other
securities, which in accordance herewith, may be substituted for such 500,000
Common Shares; and provided further that in the case of any sale of such
shares the price shall not be less than the fair market value thereof at the
time of sale as determined by the Board of Directors, and that in the case of
any option to purchase such shares, the price shall not be less than the fair
market value thereof at the time of granting such option, as so determined.
For the purposes and within the aggregate limit above mentioned, such Common
Shares (subject to adjustment as above provided) may be issued without any
prior offering to stockholders of this Corporation.
FOUR: The number of directors of this Corporation shall be not less than
eight nor more than fifteen. The exact number of directors shall be fixed,
within the limits specified herein, by a bylaw or amendment thereof duly
adopted by the shareholders or by the Board of Directors of this Corporation.
FIVE: The Corporation is authorized to issue one class of shares of
capital stock to be designated Common Shares. The aggregate par value of all
shares that are to have a par value is $541,666,666.66-2/3. The number of
shares that are to have a par value is 260,000,000, all of which shall be
Common Shares, and the par value of each of such shares is $2-1/12.
SIX: The Corporation elects to be governed by all of the provisions of
the General Corporation Law of California (as enacted by Chapter 682 of the
1975 California Statutes and as subsequently amended) not otherwise applicable
to it under Chapter 23 thereof.
SEVEN: The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissible under California
law. If the California General Corporation Law is amended after approval by
the shareholders of this article to authorize corporate action further
eliminating or limiting the personal
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liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the
California General Corporation Law, as so amended.
Any repeal or modification by the shareholders of the foregoing paragraph
shall not adversely affect any right or protection of a director of the
Corporation existing at the time of such repeal or modification.
EIGHT: The Corporation is authorized to provide indemnification of its
agents (as such term is defined in Section 317 of the California Corporations
Code), whether by bylaw, agreement, vote of shareholders or disinterested
directors, or otherwise, to the fullest extent permissible under California
law.
Any repeal or modification by the shareholders of the foregoing paragraph
shall not adversely affect any right or protection of any such agent of the
Corporation existing at the time of such repeal or modification."
3. The foregoing amendment and restatement of the Articles of Incorporation
has been approved by the Board of Directors of the Corporation.
4. The foregoing amendment has been approved by the required vote of the
shareholders of the Corporation in accordance with Section 902 of the California
Corporations Code; the total number of outstanding shares of common stock, the
only class outstanding, entitled to vote with respect to the foregoing amendment
was 1,000. The number of shares voting in favor of the foregoing amendment
equaled or exceeded the vote required. The percentage vote required was more
than 50%.
The undersigned, Dennis P.R. Codon and Brigitte M. Dewez, further declare
under penalty of perjury under the laws of the State of California that the
matters set out in this Certificate are true and correct of our knowledge.
Dated: October 4 , 1996.
----
/s/ Dennis Codon /s/ B. Dewez
- --------------------------------- ----------------------------
Dennis P.R. Codon, Vice President Brigitte M. Dewez, Secretary
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EXHIBIT 99.2
BYLAWS
OF
UNION OIL COMPANY OF CALIFORNIA
(As amended through March 30, 1998)
ARTICLE I
FISCAL YEAR
Section 1. The fiscal year of Union Oil Company of California (hereinafter
called the "Company") shall end on the thirty-first day of December of each
year.
ARTICLE II
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office for the transaction of
business of the Company is hereby fixed and located at 2141 Rosecrans Avenue,
Suite 4000, in the City of El Segundo, County of Los Angeles, State of
California. The Board of Directors (hereinafter sometimes called the "Board")
is hereby granted full power and authority to change said principal office from
one location to another in said county.
ARTICLE III
SHAREHOLDERS
Section 1. ANNUAL MEETINGS. The annual meetings of the shareholders shall be
held at 10:00 o'clock A.M. on the fourth Monday in May of each year if not a
legal holiday, for the purpose of electing directors, consideration of reports
of the affairs of the Company, and for the transaction of any other business
which is within the powers of the shareholders and properly brought before the
meeting. If the fourth Monday in May is a legal holiday, the annual meeting of
the shareholders shall be held at 10:00 o'clock A.M. on the preceding or
subsequent Monday as fixed by resolution of the Board.
Section 2. SPECIAL MEETINGS. Special meetings of the shareholders for any
purpose whatsoever may be called at any time by the Chairman of the Board, the
Chief Executive Officer, the Board, or by one or more shareholders holding not
less than ten percent of the voting power of the Company upon request in writing
to the Chairman of the Board, the Chief Executive Officer, the President, a Vice
President or the Secretary. The business transacted at special meetings shall
be confined to the purpose or purposes stated in the notice of such meetings.
Section 3. NOTICE OF MEETINGS. Written notice of each annual or special
meeting of shareholders shall be given to each shareholder entitled to vote
thereat not less than ten nor more than sixty days before the meeting.
Section 4. PLACE OF MEETINGS. All meetings of shareholders, whether annual
or special, shall be held at the principal office of the Company or at such
other place, within or without the State of California, as the Board may from
time to time designate pursuant to authority hereinafter granted it. In the
absence of any such designation, shareholders' meetings shall be held at the
principal office of the Company.
<PAGE>
Section 5. VOTING RIGHTS. Shareholders entitled to vote at shareholder
meetings shall be entitled to one vote for each full share. A fraction of a
share or a fractional interest in a share shall not be entitled to any voting
rights whatsoever.
Section 6. CONDUCT OF MEETINGS. The decisions of the Chairman of the Board
or officer presiding at all shareholders' meetings shall govern in all matters
relating to the conduct of the meeting.
Section 7. VOTING. Directors shall be elected in accordance with the
provisions of the California Corporations Code by holders of shares entitled to
vote in the election; provided, however, a nomination shall be accepted, and
votes cast for a nominee shall be counted by the inspectors of election, only if
the Secretary of the Company has received at least twenty-four hours prior to
the meeting a statement over the signature of the nominee that such person
consents to being a nominee and, if elected, intends to serve as a director.
Section 8. ACTION WITHOUT A MEETING. Any action which may be taken at any
annual or special meeting may be taken without a meeting and without prior
notice, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of the outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Directors may not be elected by written consent except by unanimous written
consent of all shares entitled to vote for the election of directors.
ARTICLE IV
BOARD OF DIRECTORS
Section 1. POWERS. Subject to the limitations of the Restated Articles of
Incorporation of the Company and of the California General Corporation Law as to
action required or authorized to be approved by the shareholders, all corporate
powers shall be exercised by or under the authority of, and the business and
affairs of the Company shall be managed by, the Board of Directors.
Section 2. NUMBER. The exact number of directors of the Company, within the
limits specified in Article Fourth of the Company's Restated Articles of
Incorporation, shall be ten (10) until changed in the manner provided by law.
Section 3. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The Board shall appoint a
Chairman, who shall preside at all meetings of the Board of Directors and shall
have such other powers and duties as may from time to time be assigned by the
Board of Directors or prescribed by the Bylaws. The Board may also appoint a
Vice Chairman, who shall preside at all meetings of the Board of Directors in
the absence of the Chairman and shall have such other powers and duties as may
from time to time be assigned by the Board of Directors or prescribed by the
Bylaws.
Section 4. ANNUAL MEETINGS. Immediately following each annual meeting of
shareholders, the Board shall hold its annual meeting for the purpose of
organization, election of officers and the transaction of any other business.
Section 5. REGULAR MEETINGS. Regular meetings of the Board shall be held at
the times and on the dates fixed by resolution of the Board.
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Section 6. SPECIAL MEETINGS. Special meetings of the Board for any purpose
or purposes whatsoever may be called by the Chairman of the Board or the Chief
Executive Officer or, in the absence or inability of either of them, by the
President, the Chief Financial Officer, or by at least two of the directors at
the time in office.
Section 7. NOTICE OF MEETINGS. Notice of annual meetings and of regular
meetings of the Board is hereby dispensed with. Notice of special meetings must
be given at least two days in advance if given by mail, or at least twenty-four
hours in advance if delivered personally or given by telephone or telegram.
Section 8. PLACE OF MEETINGS. All meetings of the Board, whether annual,
regular or special meetings, shall be held at any place within or without the
State of California which has been designated from time to time by resolution of
the Board or in the notice of the meeting. In the absence of such designation
all directors' meetings shall be held at the principal office of the Company.
Section 9. QUORUM. A majority of the exact number of directors specified in
Section 2 of ARTICLE IV of the Bylaws shall constitute a quorum of the Board of
Directors for the transaction of business; provided, however, that vacancies on
the Board may be filled by a majority of the remaining directors, though less
than a quorum, or by a sole remaining director, each such director to hold
office until a successor is elected at an annual or special meeting of the
shareholders.
Section 10. COMPENSATION OF DIRECTORS. Directors and members of committees
appointed by the Board shall receive such compensation, if any, for their
services, and such reimbursement for their expenses as may be fixed or
determined by resolution of the Board. The Board may, however, in any such
resolution provide that directors who are also employees of the Company or any
of its subsidiaries shall not receive additional compensation for services as a
director or member of a committee appointed by the Board.
Section 11. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS.
(a) The Company shall, to the maximum extent permitted by the General
Corporation Law of California, indemnify each of its directors and officers
against all expense, liability, and loss, including without limitation,
attorneys' fees, judgments, fines, ERISA excise taxes, penalties, amounts paid
or to be paid in settlement, and any other amounts actually incurred in
connection with any proceeding arising by reason of the fact any such person is
or was a director or officer of the Company and shall advance to such director
or officer expenses incurred in defending any such proceeding to the maximum
extent permitted by such law. For purposes of this section, a "director" or
"officer" of the Company includes any person who is or was a director or officer
of the Company, or is or was serving at the request of the Company as a
director, officer, trustee, or fiduciary, or in a similar capacity, of another
foreign or domestic corporation, limited liability company, partnership, joint
venture, trust, or any other enterprise or entity whatsoever, including without
limitation service with respect to employee benefit plans.
(b) The Board of Directors may in its discretion provide by resolution, either
on a general basis or as to specific employees or agents, for similar
indemnification of, or advance of expenses to, other employees or agents of the
Company, and likewise may refuse to provide for such indemnification or advance
of expenses except to the extent such indemnification is mandatory under the
California General Corporation Law.
(c) The Company shall maintain in full force and effect, at its own expense,
director and officer liability insurance ("Insurance") coverage for each
---------
director and officer in amounts and scope at least as favorable as that
maintained by the Corporation on September 30, 1996, or, to the extent more
favorable, any Insurance
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policy entered into or renewed by the Company following such date.
Notwithstanding the foregoing, if the Company, after using its best efforts,
cannot obtain and purchase such coverage for an amount no more than what it paid
for the most recent expiring Insurance policy plus a reasonable additional
amount, the Company shall only be required to purchase such Insurance coverage
for any act or omission occurring at or prior to the time of such date.
(d) The rights provided to any person by this bylaw shall be enforceable
against the Company by such person, who shall be presumed to have relied upon it
in serving or continuing to serve as a director or officer, as provided above.
No amendment of this bylaw shall impair the rights of any person arising at any
time with respect to events occurring prior to such amendment, including,
without limitation, any right of a director or officer to Insurance for any act
or omission occurring at or prior to the time of such amendment.
Section 12. AUTHORITY TO DESIGNATE PLACE OF SHAREHOLDERS' MEETINGS. The
Board is hereby granted full power and authority to designate from time to time
any place within or without the State of California for the holding of any
shareholders' meeting, whether annual or special.
Section 13. COMMITTEES. The Board may, by resolution, appoint one or more
committees, in addition to an Executive Committee and a Board Management
Committee, to consist of two or more of the directors of the Company, and
prescribe their duties and powers. A majority of the members of any such
committee may determine its action and fix the time and place of its meetings
unless the Board shall otherwise provide. The Board shall have the power at any
time to fill vacancies in, to change the membership of, or to dissolve any such
committee.
Section 14. ACTION BY WRITTEN CONSENT. Any action required or permitted to
be taken by the Board or any committee thereof may be taken without a meeting,
if all members of the Board or such committee, as the case may be, shall
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board.
Section 15. CONFERENCE CALLS. Members of the Board or any committee thereof
may participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another.
ARTICLE V
EXECUTIVE COMMITTEE
Section 1. NUMBER AND COMPOSITION. The Board of Directors shall appoint from
its membership, annually, an Executive Committee of three or more directors.
Included on the Executive Committee shall be the Chief Executive Officer of the
Company. Each member of the Executive Committee shall hold membership at the
pleasure of the Board, which shall have the exclusive power to fill vacancies
thereon as they may occur. The Chairman of the Executive Committee shall be the
Chief Executive Officer of the Company.
Section 2. POWERS. The Executive Committee, during the intervals between
meetings of the Board, shall have and there is hereby granted to it all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Company, except that the Executive Committee shall not be
permitted to fill vacancies on the Board or on any committee, approve any action
for which approval of the shareholders is also required by the California
General Corporation Law, amend or repeal any resolution of
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the Board which by its express terms is not so amendable or repealable, or
appoint other committees of the Board or the members thereof or take any other
action which may not be delegated to a committee of the Board under the
California General Corporation Law.
Section 3. PROCEDURE. Two members of the Executive Committee shall
constitute a quorum of the Executive Committee for the transaction of business.
The Executive Committee, by vote of a majority of its members, shall fix its own
times and places of meetings and shall prescribe its own rules of procedure; no
change in which shall be made save by a majority vote of its members.
Section 4. RECORDS AND REPORTS. The Executive Committee shall keep regular
minutes of all business transacted at its meetings, and all action of the
Executive Committee shall be reported to the Board at its next ensuing meeting.
Section 5. COMPENSATION. Members of the Executive Committee may receive such
compensation, if any, for their services, and such reimbursement for their
expenses, as may be fixed or determined by the Board.
ARTICLE VI
BOARD MANAGEMENT COMMITTEE
Section 1. NUMBER AND COMPOSITION. The Board of Directors shall appoint from
its membership, annually, a Board Management Committee composed of the directors
who are employee officers of the Company. The Chairman of the Board Management
Committee shall be the Chief Executive Officer of the Company.
Section 2. POWERS. The Board Management Committee, during the intervals
between meetings of the Board, shall have and there is hereby granted to it all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Company, subject to approval limits established by
resolution of the Board of Directors as deemed appropriate from time to time,
but the Board Management Committee shall not be permitted to fill vacancies on
the Board or on any committee, appoint officers, approve any action for which
approval is also required by the California General Corporation Law, to amend or
repeal any resolution of the Board or of the Executive Committee which by its
express terms is not so amendable or repealable, or to appoint other committees
of the Board or the members thereof or take any other action which may not be
delegated to a committee of the Board under the California General Corporation
Law.
Section 3. PROCEDURE. Two members of the Board Management Committee shall
constitute a quorum of the Board Management Committee for the transaction of
business. The Board Management Committee, by vote of a majority of its members,
shall fix its own times and places of meetings and shall prescribe its own rules
of procedure; no change in which shall be made save by a majority vote of its
members.
Section 4. RECORDS. The Board Management Committee shall keep regular
minutes of all business transacted at its meetings.
ARTICLE VII
OFFICERS
Section 1. OFFICERS. The officers of the Company shall be a Chief Executive
Officer, a President, a Chief Financial Officer, a Vice President, a Secretary,
a Comptroller, a Treasurer, and a Chief Legal Officer. The
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Company may also have, at the discretion of the Board, one or more additional
Vice Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and one or more Assistant Comptrollers, and the Board may appoint
such other officers as it may deem necessary or advisable, who shall have such
authority and perform such duties as from time to time may be prescribed by the
Board, the Chairman of the Board, or the Chief Executive Officer. Any two or
more offices may be held by the same person.
Section 2. ELECTION AND REMOVAL. The officers of the Company shall be chosen
annually by the Board at its annual meeting and each shall hold office until the
corresponding annual meeting of the Board in the next year and until a successor
shall be elected and qualified unless such officer shall theretofore resign or
shall be removed or otherwise disqualified to serve. The Board may remove any
officer either with or without cause or under such other terms or conditions as
it may prescribe. Vacancies may be filled by the Board as they may occur.
Section 3. POWERS AND DUTIES.
(a) CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be the officer,
reporting directly to the Board, responsible for overall management of the
Company and shall have general supervision, direction and control over the
business and affairs of the Company and its officers. The Chief Executive
Officer shall be a member of the Executive Committee and of the Board Management
Committee and in general shall perform all duties incident to the office of
Chief Executive Officer and shall have such powers and duties as may from time
to time be assigned by the Board of Directors or prescribed by the Bylaws.
(b) PRESIDENT. The President in general shall perform all duties incident to
the office of President, and shall have such powers and duties as may from time
to time be assigned by the Board of Directors, the Chief Executive Officer or
prescribed by the Bylaws.
(c) CHIEF FINANCIAL OFFICER AND VICE PRESIDENTS. The Chief Financial Officer
and each Vice President shall have such authority and shall perform such duties
as shall from time to time be assigned by the Board, the Chief Executive Officer
or prescribed by the Bylaws.
(d) SECRETARY. The Secretary shall keep, or cause to be kept, a book of
minutes, at the principal office and/or such other place or places as the Board
may order, of all meetings of directors and shareholders, with the time and
place of holding, whether regular or special, and if special how authorized, the
notice thereof given, the names of those present at directors' meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings thereof.
The Secretary shall keep or cause to be kept at the principal office, or at
the office of the Company's transfer agent, a share register, which may be an
electronic database, showing the names of the shareholders of record and their
addresses, the number and classes of shares held by each, the numbers and dates
of the certificates issued for those shares, and the numbers and dates of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give or cause to be given notice of all meetings of the
shareholders and the Board required to be given by the Bylaws or by law. The
Secretary shall have charge of and be custodian of the seal of the Company and
the minute books and documents relating to the existence and governance of the
Company.
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The Secretary shall have such other powers and perform such other duties as
may from time to time be prescribed by the Board, the Chairman of the Board, the
Chief Executive Officer or the Bylaws, and shall in general, subject to control
of the Board, the Chairman of the Board and the Chief Executive Officer, perform
all the duties usually incident to the office of secretary of a corporation.
(e) ASSISTANT SECRETARIES. Each Assistant Secretary shall assist the
Secretary and, in the absence or disability of the Secretary, may perform the
duties of the Secretary unless and until the contrary is expressed by the Board,
and shall perform such other duties as may be prescribed by the Board or the
Secretary.
(f) TREASURER. The Treasurer shall have custody of and be responsible for all
the monies and funds of the Company. The Treasurer shall deposit or cause to be
deposited all Company monies, funds and other valuables in the name and to the
credit of the Company in such bank or banks as shall be proper or as shall be
directed by the Board, the Chief Executive Officer, or the Chief Financial
Officer, and shall disburse the funds of the Company which have been duly
approved for disbursement. The Treasurer shall enter or cause to be entered
regularly in the books of the Company full and accurate accounts of all monies
received and paid out on account of the Company.
The Treasurer shall have such other powers and perform such other duties as
may from time to time be prescribed by the Board, the Chief Executive Officer,
the Chief Financial Officer or the Bylaws, and shall in general, subject to
control of the Board, the Chief Executive Officer, and the Chief Financial
Officer, perform all the duties usually incident to the office of treasurer of a
corporation.
(g) ASSISTANT TREASURERS. Each Assistant Treasurer shall assist the Treasurer
and, in the absence or disability of the Treasurer, may perform the duties of
Treasurer unless and until the contrary is expressed by the Board, and shall
perform such other duties as may be prescribed by the Board or the Treasurer.
(h) COMPTROLLER. The Comptroller shall be the principal officer in charge of
the general accounting books, accounting records and forms of the Company and
shall see that all monies and obligations due the Company and all properties and
assets are properly accounted for. The Comptroller shall prepare the Company's
balance sheets, income accounts and other financial statements and reports, and
render to the Board, the Chief Executive Officer, and the Chief Financial
Officer, such periodic reports covering the results of operations of the Company
as may be required by them or any of them.
The Comptroller shall have such other powers and perform such other duties as
may from time to time be prescribed by the Board, the Chief Executive Officer,
the Chief Financial Officer or the Bylaws, and shall in general, subject to
control of the Board, the Chief Executive Officer, and the Chief Financial
Officer, perform all the duties usually incident to the office of comptroller of
a corporation.
(i) ASSISTANT COMPTROLLERS. Each Assistant Comptroller shall assist the
Comptroller and, in the absence or disability of the Comptroller, may perform
the duties of the Comptroller unless and until the contrary is expressed by the
Board, and shall perform such other duties as may be prescribed by the Board or
the Comptroller.
(j) CHIEF LEGAL OFFICER. The Chief Legal Officer shall be in charge of the
Company's legal affairs. The Chief Legal Officer shall advise the Board, the
Chairman of the Board and/or the officers of the Company on such legal matters
and prepare such reports as may be required by them or any of them.
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ARTICLE VIII
MISCELLANEOUS
Section 1. EXECUTION OF DOCUMENTS. Unless otherwise authorized or prescribed
by the Board of Directors, all contracts, leases, deeds, deeds of trust,
mortgages, bonds, indentures, endorsements, assignments, powers of attorney to
transfer stock or for other purposes, and other documents and instruments of
whatsoever kind shall be executed for and on behalf of the Company by the Chief
Executive Officer, the President, the Chief Financial Officer, a Vice President,
the Treasurer, the Comptroller, or by any such officer and shall be attested by
the Secretary or an Assistant Secretary, who shall have authority to affix the
corporate seal to the same.
The Board also may authorize, and delegate to any one or more of the Chief
Executive Officer, the President and the Chief Financial Officer the power to so
authorize, any other officer or officers, employee or employees, or agent or
agents, to execute any contract, document or instrument of whatever kind for and
on behalf of the Company and such authority may be general or be confined to
specific instances.
Section 2. UNDERTAKINGS AND COMMITMENTS. No undertaking, commitment,
contract, instrument or document shall be binding upon the Company unless
previously authorized or subsequently ratified by the Board or executed by an
officer or officers, an employee or employees or an agent or agents of the
Company acting under powers conferred by the Board or by these Bylaws.
Section 3. CHECKS, DRAFTS, ETC. All checks, notes and other obligations for
collection, deposit or transfer, and all checks and drafts for disbursement from
Company funds, and all bills of exchange and promissory notes, and all
acceptances, obligations and other instruments for the payment of money, shall
be endorsed or signed by such officer or officers, employee or employees or
agent or agents as shall be thereunto authorized from time to time by the Board
of Directors, which may delegate the power to so authorize to any one or more of
the Chief Executive Officer, the President and the Chief Financial Officer.
Section 4. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. Shares standing
in the name of the Company may be voted or represented and all rights incident
thereto may be exercised on behalf of the Company by the Chief Executive
Officer, President, the Chief Financial Officer, a Vice President, the
Secretary, the Treasurer or the Comptroller, or by such other officers upon to
whom the Board of Directors may from time to time confer like powers.
ARTICLE IX
REPEAL OF BYLAWS
Section 1. All existing Bylaws of the Company and all amendments thereto are
hereby repealed.
ARTICLE X
AMENDMENTS
Section 1. POWER OF SHAREHOLDERS. New Bylaws may be adopted or these Bylaws
may be amended or repealed by the vote or written assent of shareholders
entitled to exercise a majority of the voting power of the Company.
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Section 2. POWER OF DIRECTORS. Subject to the right of shareholders as
provided in Section 1 of this ARTICLE X to adopt, amend or repeal Bylaws, Bylaws
may be adopted, amended or repealed by the Board of Directors as provided or
permitted by law.
ARTICLE XI
EMERGENCY
Section 1. "Emergency" as used in this Article means disorder, disturbance or
damage caused by war, enemy attack, other warlike acts or by catastrophe,
disaster or other similar emergency condition, which prevents the conduct and
management of the affairs and business of the Company by the Board of Directors
and officers in the manner provided for in other Articles of these Bylaws. The
powers and duties conferred and imposed by this Article, and any resolutions
adopted pursuant hereto, shall be effective only during an emergency. This
Article may be implemented from time to time by resolutions adopted by the Board
of Directors before or during an emergency, or during an emergency by the
emergency Board of Directors constituted and then acting pursuant hereto. An
emergency, once commenced, shall be deemed to continue until terminated by
resolutions adopted for that purpose by the Board of Directors.
Section 2. If, during an emergency, a majority of the Board of Directors
cannot be found or is unable to act, one-third of the exact number of the Board
of Directors shall constitute a quorum thereof.
Section 3. During any emergency, the officers and employees of the Company
shall continue, so far as possible, to conduct the Company's affairs and
business under the guidance of the Board of Directors acting pursuant to this
Article and in accordance with known orders of governmental authorities.
Section 4. If, during any emergency, a quorum of the Board of Directors, as
provided in Section 3 of this Article, cannot be found or is unable to act, any
three available members of the Executive Committee, including the Chief
Executive Officer, shall be and constitute the Board of Directors, with two
thereof constituting a quorum, and as such shall have and exercise the fullest
power of the Board of Directors for the conduct and management of the affairs
and business of the Company, permitted by law, without the limitations set forth
in Section 2 of ARTICLE V of these Bylaws, provided that such emergency Board of
Directors as so constituted shall comply to the extent practicable under the
circumstances with the provisions of ARTICLE III of these Bylaws relating to
annual and special meetings of shareholders. If three members of the Executive
Committee, including the Chief Executive Officer, are not able to serve, any
three available directors shall be and constitute such emergency Board of
Directors, with two thereof constituting a quorum, for the exercise of the
powers conferred and performance of the duties imposed by this Section 4.
Section 5. If, during any emergency, neither a quorum of the Board of
Directors, as provided in Section 3 of this Article, nor a quorum of the
emergency Board of Directors, as provided for in Section 4 of this Article is
available to serve, then the powers conferred and duties imposed by Section 4
shall vest in and devolve upon any three of (in the following order of priority)
available directors, including any one or more of the Chief Executive Officer,
the President and the Chief Financial Officer, and as many Vice Presidents (or,
in case of their inability, any other officers), in order of seniority, as may
be necessary from time to time to constitute a total of three emergency
directors. The Chief Executive Officer and any other one emergency director
shall constitute a quorum of such emergency Board of Directors for exercise of
the powers conferred and performance of the duties imposed hereunder, but if the
Chief Executive Officer is not available, any two of such emergency directors
shall constitute a quorum.
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EXHIBIT 99.3
BYLAWS
OF
UNION OIL COMPANY OF CALIFORNIA
(AS AMENDED TO BE EFFECTIVE JUNE 1, 1998)
ARTICLE I
FISCAL YEAR
Section 1. The fiscal year of Union Oil Company of California (hereinafter
called the "Company") shall end on the thirty-first day of December of each
year.
ARTICLE II
OFFICES
Section 1. PRINCIPAL OFFICE. The principal office for the transaction of
business of the Company is hereby fixed and located at 2141 Rosecrans Avenue,
Suite 4000, in the City of El Segundo, County of Los Angeles, State of
California. The Board of Directors (hereinafter sometimes called the "Board")
is hereby granted full power and authority to change said principal office from
one location to another in said county.
ARTICLE III
SHAREHOLDERS
Section 1. ANNUAL MEETINGS. The annual meetings of the shareholders shall be
held at 10:00 o'clock A.M. on the fourth Monday in May of each year if not a
legal holiday, for the purpose of electing directors, consideration of reports
of the affairs of the Company, and for the transaction of any other business
which is within the powers of the shareholders and properly brought before the
meeting. If the fourth Monday in May is a legal holiday, the annual meeting of
the shareholders shall be held at 10:00 o'clock A.M. on the preceding or
subsequent Monday as fixed by resolution of the Board.
Section 2. SPECIAL MEETINGS. Special meetings of the shareholders for any
purpose whatsoever may be called at any time by the Chairman of the Board, the
Chief Executive Officer, the Board, or by one or more shareholders holding not
less than ten percent of the voting power of the Company upon request in writing
to the Chairman of the Board, the Chief Executive Officer, the President, a Vice
President or the Secretary. The business transacted at special meetings shall
be confined to the purpose or purposes stated in the notice of such meetings.
Section 3. NOTICE OF MEETINGS. Written notice of each annual or special
meeting of shareholders shall be given to each shareholder entitled to vote
thereat not less than ten nor more than sixty days before the meeting.
Section 4. PLACE OF MEETINGS. All meetings of shareholders, whether annual
or special, shall be held at the principal office of the Company or at such
other place, within or without the State of California, as the Board may from
time to time designate pursuant to authority hereinafter granted it. In the
absence of any such designation, shareholders' meetings shall be held at the
principal office of the Company.
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Section 5. VOTING RIGHTS. Shareholders entitled to vote at shareholder
meetings shall be entitled to one vote for each full share. A fraction of a
share or a fractional interest in a share shall not be entitled to any voting
rights whatsoever.
Section 6. CONDUCT OF MEETINGS. The decisions of the Chairman of the Board
or officer presiding at all shareholders' meetings shall govern in all matters
relating to the conduct of the meeting.
Section 7. VOTING. Directors shall be elected in accordance with the
provisions of the California Corporations Code by holders of shares entitled to
vote in the election; provided, however, a nomination shall be accepted, and
votes cast for a nominee shall be counted by the inspectors of election, only if
the Secretary of the Company has received at least twenty-four hours prior to
the meeting a statement over the signature of the nominee that such person
consents to being a nominee and, if elected, intends to serve as a director.
Section 8. ACTION WITHOUT A MEETING. Any action which may be taken at any
annual or special meeting may be taken without a meeting and without prior
notice, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of the outstanding shares having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Directors may not be elected by written consent except by unanimous written
consent of all shares entitled to vote for the election of directors.
ARTICLE IV
BOARD OF DIRECTORS
Section 1. POWERS. Subject to the limitations of the Restated Articles of
Incorporation of the Company and of the California General Corporation Law as to
action required or authorized to be approved by the shareholders, all corporate
powers shall be exercised by or under the authority of, and the business and
affairs of the Company shall be managed by, the Board of Directors.
Section 2. NUMBER. The exact number of directors of the Company, within the
limits specified in Article Fourth of the Company's Restated Articles of
Incorporation, shall be nine (9) until changed in the manner provided by law.
Section 3. CHAIRMAN AND VICE CHAIRMAN OF THE BOARD. The Board shall appoint a
Chairman, who shall preside at all meetings of the Board of Directors and shall
have such other powers and duties as may from time to time be assigned by the
Board of Directors or prescribed by the Bylaws. The Board may also appoint a
Vice Chairman, who shall preside at all meetings of the Board of Directors in
the absence of the Chairman and shall have such other powers and duties as may
from time to time be assigned by the Board of Directors or prescribed by the
Bylaws.
Section 4. ANNUAL MEETINGS. Immediately following each annual meeting of
shareholders, the Board shall hold its annual meeting for the purpose of
organization, election of officers and the transaction of any other business.
Section 5. REGULAR MEETINGS. Regular meetings of the Board shall be held at
the times and on the dates fixed by resolution of the Board.
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Section 6. SPECIAL MEETINGS. Special meetings of the Board for any purpose
or purposes whatsoever may be called by the Chairman of the Board or the Chief
Executive Officer or, in the absence or inability of either of them, by the
President, the Chief Financial Officer, or by at least two of the directors at
the time in office.
Section 7. NOTICE OF MEETINGS. Notice of annual meetings and of regular
meetings of the Board is hereby dispensed with. Notice of special meetings must
be given at least two days in advance if given by mail, or at least twenty-four
hours in advance if delivered personally or given by telephone or telegram.
Section 8. PLACE OF MEETINGS. All meetings of the Board, whether annual,
regular or special meetings, shall be held at any place within or without the
State of California which has been designated from time to time by resolution of
the Board or in the notice of the meeting. In the absence of such designation
all directors' meetings shall be held at the principal office of the Company.
Section 9. QUORUM. A majority of the exact number of directors specified in
Section 2 of ARTICLE IV of the Bylaws shall constitute a quorum of the Board of
Directors for the transaction of business; provided, however, that vacancies on
the Board may be filled by a majority of the remaining directors, though less
than a quorum, or by a sole remaining director, each such director to hold
office until a successor is elected at an annual or special meeting of the
shareholders.
Section 10. COMPENSATION OF DIRECTORS. Directors and members of committees
appointed by the Board shall receive such compensation, if any, for their
services, and such reimbursement for their expenses as may be fixed or
determined by resolution of the Board. The Board may, however, in any such
resolution provide that directors who are also employees of the Company or any
of its subsidiaries shall not receive additional compensation for services as a
director or member of a committee appointed by the Board.
Section 11. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER
AGENTS.
(a) The Company shall, to the maximum extent permitted by the General
Corporation Law of California, indemnify each of its directors and officers
against all expense, liability, and loss, including without limitation,
attorneys' fees, judgments, fines, ERISA excise taxes, penalties, amounts paid
or to be paid in settlement, and any other amounts actually incurred in
connection with any proceeding arising by reason of the fact any such person is
or was a director or officer of the Company and shall advance to such director
or officer expenses incurred in defending any such proceeding to the maximum
extent permitted by such law. For purposes of this section, a "director" or
"officer" of the Company includes any person who is or was a director or officer
of the Company, or is or was serving at the request of the Company as a
director, officer, trustee, or fiduciary, or in a similar capacity, of another
foreign or domestic corporation, limited liability company, partnership, joint
venture, trust, or any other enterprise or entity whatsoever, including without
limitation service with respect to employee benefit plans.
(b) The Board of Directors may in its discretion provide by resolution,
either on a general basis or as to specific employees or agents, for similar
indemnification of, or advance of expenses to, other employees or agents of the
Company, and likewise may refuse to provide for such indemnification or advance
of expenses except to the extent such indemnification is mandatory under the
California General Corporation Law.
(c) The Company shall maintain in full force and effect, at its own expense,
director and officer liability insurance ("Insurance") coverage for each
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director and officer in amounts and scope at least as favorable as that
maintained by the Corporation on September 30, 1996, or, to the extent more
favorable, any Insurance
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policy entered into or renewed by the Company following such date.
Notwithstanding the foregoing, if the Company, after using its best efforts,
cannot obtain and purchase such coverage for an amount no more than what it paid
for the most recent expiring Insurance policy plus a reasonable additional
amount, the Company shall only be required to purchase such Insurance coverage
for any act or omission occurring at or prior to the time of such date.
(d) The rights provided to any person by this bylaw shall be enforceable
against the Company by such person, who shall be presumed to have relied upon it
in serving or continuing to serve as a director or officer, as provided above.
No amendment of this bylaw shall impair the rights of any person arising at any
time with respect to events occurring prior to such amendment, including,
without limitation, any right of a director or officer to Insurance for any act
or omission occurring at or prior to the time of such amendment.
Section 12. AUTHORITY TO DESIGNATE PLACE OF SHAREHOLDERS' MEETINGS. The
Board is hereby granted full power and authority to designate from time to time
any place within or without the State of California for the holding of any
shareholders' meeting, whether annual or special.
Section 13. COMMITTEES. The Board may, by resolution, appoint one or more
committees, in addition to an Executive Committee and a Board Management
Committee, to consist of two or more of the directors of the Company, and
prescribe their duties and powers. A majority of the members of any such
committee may determine its action and fix the time and place of its meetings
unless the Board shall otherwise provide. The Board shall have the power at any
time to fill vacancies in, to change the membership of, or to dissolve any such
committee.
Section 14. ACTION BY WRITTEN CONSENT. Any action required or permitted to
be taken by the Board or any committee thereof may be taken without a meeting,
if all members of the Board or such committee, as the case may be, shall
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board.
Section 15. CONFERENCE CALLS. Members of the Board or any committee thereof
may participate in a meeting through use of conference telephone or similar
communications equipment, so long as all members participating in such meeting
can hear one another.
ARTICLE V
EXECUTIVE COMMITTEE
Section 1. NUMBER AND COMPOSITION. The Board of Directors shall appoint from
its membership, annually, an Executive Committee of three or more directors.
Included on the Executive Committee shall be the Chief Executive Officer of the
Company. Each member of the Executive Committee shall hold membership at the
pleasure of the Board, which shall have the exclusive power to fill vacancies
thereon as they may occur. The Chairman of the Executive Committee shall be the
Chief Executive Officer of the Company.
Section 2. POWERS. The Executive Committee, during the intervals between
meetings of the Board, shall have and there is hereby granted to it all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Company, except that the Executive Committee shall not be
permitted to fill vacancies on the Board or on any committee, approve any action
for which approval of the shareholders is also required by the California
General Corporation Law, amend or repeal any resolution of
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the Board which by its express terms is not so amendable or repealable, or
appoint other committees of the Board or the members thereof or take any other
action which may not be delegated to a committee of the Board under the
California General Corporation Law.
Section 3. PROCEDURE. Two members of the Executive Committee shall
constitute a quorum of the Executive Committee for the transaction of business.
The Executive Committee, by vote of a majority of its members, shall fix its own
times and places of meetings and shall prescribe its own rules of procedure; no
change in which shall be made save by a majority vote of its members.
Section 4. RECORDS AND REPORTS. The Executive Committee shall keep regular
minutes of all business transacted at its meetings, and all action of the
Executive Committee shall be reported to the Board at its next ensuing meeting.
Section 5. COMPENSATION. Members of the Executive Committee may receive such
compensation, if any, for their services, and such reimbursement for their
expenses, as may be fixed or determined by the Board.
ARTICLE VI
BOARD MANAGEMENT COMMITTEE
Section 1. NUMBER AND COMPOSITION. The Board of Directors shall appoint from
its membership, annually, a Board Management Committee composed of the directors
who are employee officers of the Company. The Chairman of the Board Management
Committee shall be the Chief Executive Officer of the Company.
Section 2. POWERS. The Board Management Committee, during the intervals
between meetings of the Board, shall have and there is hereby granted to it all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Company, subject to approval limits established by
resolution of the Board of Directors as deemed appropriate from time to time,
but the Board Management Committee shall not be permitted to fill vacancies on
the Board or on any committee, appoint officers, approve any action for which
approval is also required by the California General Corporation Law, to amend or
repeal any resolution of the Board or of the Executive Committee which by its
express terms is not so amendable or repealable, or to appoint other committees
of the Board or the members thereof or take any other action which may not be
delegated to a committee of the Board under the California General Corporation
Law.
Section 3. PROCEDURE. Two members of the Board Management Committee shall
constitute a quorum of the Board Management Committee for the transaction of
business. The Board Management Committee, by vote of a majority of its members,
shall fix its own times and places of meetings and shall prescribe its own rules
of procedure; no change in which shall be made save by a majority vote of its
members.
Section 4. RECORDS. The Board Management Committee shall keep regular
minutes of all business transacted at its meetings.
ARTICLE VII
OFFICERS
Section 1. OFFICERS. The officers of the Company shall be a Chief Executive
Officer, a President, a Chief Financial Officer, a Vice President, a Secretary,
a Comptroller, a Treasurer, and a Chief Legal Officer. The
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Company may also have, at the discretion of the Board, one or more additional
Vice Presidents, one or more Assistant Secretaries, one or more Assistant
Treasurers, and one or more Assistant Comptrollers, and the Board may appoint
such other officers as it may deem necessary or advisable, who shall have such
authority and perform such duties as from time to time may be prescribed by the
Board, the Chairman of the Board, or the Chief Executive Officer. Any two or
more offices may be held by the same person.
Section 2. ELECTION AND REMOVAL. The officers of the Company shall be chosen
annually by the Board at its annual meeting and each shall hold office until the
corresponding annual meeting of the Board in the next year and until a successor
shall be elected and qualified unless such officer shall theretofore resign or
shall be removed or otherwise disqualified to serve. The Board may remove any
officer either with or without cause or under such other terms or conditions as
it may prescribe. Vacancies may be filled by the Board as they may occur.
Section 3. POWERS AND DUTIES.
(a) CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be the
officer, reporting directly to the Board, responsible for overall management of
the Company and shall have general supervision, direction and control over the
business and affairs of the Company and its officers. The Chief Executive
Officer shall be a member of the Executive Committee and of the Board Management
Committee and in general shall perform all duties incident to the office of
Chief Executive Officer and shall have such powers and duties as may from time
to time be assigned by the Board of Directors or prescribed by the Bylaws.
(b) PRESIDENT. The President in general shall perform all duties incident
to the office of President, and shall have such powers and duties as may from
time to time be assigned by the Board of Directors, the Chief Executive Officer
or prescribed by the Bylaws.
(c) CHIEF FINANCIAL OFFICER AND VICE PRESIDENTS. The Chief Financial Officer
and each Vice President shall have such authority and shall perform such duties
as shall from time to time be assigned by the Board, the Chief Executive Officer
or prescribed by the Bylaws.
(d) SECRETARY. The Secretary shall keep, or cause to be kept, a book of
minutes, at the principal office and/or such other place or places as the Board
may order, of all meetings of directors and shareholders, with the time and
place of holding, whether regular or special, and if special how authorized, the
notice thereof given, the names of those present at directors' meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings thereof.
The Secretary shall keep or cause to be kept at the principal office, or at
the office of the Company's transfer agent, a share register, which may be an
electronic database, showing the names of the shareholders of record and their
addresses, the number and classes of shares held by each, the numbers and dates
of the certificates issued for those shares, and the numbers and dates of
cancellation of every certificate surrendered for cancellation.
The Secretary shall give or cause to be given notice of all meetings of the
shareholders and the Board required to be given by the Bylaws or by law. The
Secretary shall have charge of and be custodian of the seal of the Company and
the minute books and documents relating to the existence and governance of the
Company.
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The Secretary shall have such other powers and perform such other duties as
may from time to time be prescribed by the Board, the Chairman of the Board, the
Chief Executive Officer or the Bylaws, and shall in general, subject to control
of the Board, the Chairman of the Board and the Chief Executive Officer, perform
all the duties usually incident to the office of secretary of a corporation.
(e) ASSISTANT SECRETARIES. Each Assistant Secretary shall assist the
Secretary and, in the absence or disability of the Secretary, may perform the
duties of the Secretary unless and until the contrary is expressed by the Board,
and shall perform such other duties as may be prescribed by the Board or the
Secretary.
(f) TREASURER. The Treasurer shall have custody of and be responsible for all
the monies and funds of the Company. The Treasurer shall deposit or cause to be
deposited all Company monies, funds and other valuables in the name and to the
credit of the Company in such bank or banks as shall be proper or as shall be
directed by the Board, the Chief Executive Officer, or the Chief Financial
Officer, and shall disburse the funds of the Company which have been duly
approved for disbursement. The Treasurer shall enter or cause to be entered
regularly in the books of the Company full and accurate accounts of all monies
received and paid out on account of the Company.
The Treasurer shall have such other powers and perform such other duties as
may from time to time be prescribed by the Board, the Chief Executive Officer,
the Chief Financial Officer or the Bylaws, and shall in general, subject to
control of the Board, the Chief Executive Officer, and the Chief Financial
Officer, perform all the duties usually incident to the office of treasurer of a
corporation.
(g) ASSISTANT TREASURERS. Each Assistant Treasurer shall assist the
Treasurer and, in the absence or disability of the Treasurer, may perform the
duties of Treasurer unless and until the contrary is expressed by the Board, and
shall perform such other duties as may be prescribed by the Board or the
Treasurer.
(h) COMPTROLLER. The Comptroller shall be the principal officer in charge of
the general accounting books, accounting records and forms of the Company and
shall see that all monies and obligations due the Company and all properties and
assets are properly accounted for. The Comptroller shall prepare the Company's
balance sheets, income accounts and other financial statements and reports, and
render to the Board, the Chief Executive Officer, and the Chief Financial
Officer, such periodic reports covering the results of operations of the Company
as may be required by them or any of them.
The Comptroller shall have such other powers and perform such other duties as
may from time to time be prescribed by the Board, the Chief Executive Officer,
the Chief Financial Officer or the Bylaws, and shall in general, subject to
control of the Board, the Chief Executive Officer, and the Chief Financial
Officer, perform all the duties usually incident to the office of comptroller of
a corporation.
(I) ASSISTANT COMPTROLLERS. Each Assistant Comptroller shall assist the
Comptroller and, in the absence or disability of the Comptroller, may perform
the duties of the Comptroller unless and until the contrary is expressed by the
Board, and shall perform such other duties as may be prescribed by the Board or
the Comptroller.
(j) CHIEF LEGAL OFFICER. The Chief Legal Officer shall be in charge of the
Company's legal affairs. The Chief Legal Officer shall advise the Board, the
Chairman of the Board and/or the officers of the Company on such legal matters
and prepare such reports as may be required by them or any of them.
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ARTICLE VIII
MISCELLANEOUS
Section 1. EXECUTION OF DOCUMENTS. Unless otherwise authorized or prescribed
by the Board of Directors, all contracts, leases, deeds, deeds of trust,
mortgages, bonds, indentures, endorsements, assignments, powers of attorney to
transfer stock or for other purposes, and other documents and instruments of
whatsoever kind shall be executed for and on behalf of the Company by the Chief
Executive Officer, the President, the Chief Financial Officer, a Vice President,
the Treasurer, the Comptroller, or by any such officer and shall be attested by
the Secretary or an Assistant Secretary, who shall have authority to affix the
corporate seal to the same.
The Board also may authorize, and delegate to any one or more of the Chief
Executive Officer, the President and the Chief Financial Officer the power to so
authorize, any other officer or officers, employee or employees, or agent or
agents, to execute any contract, document or instrument of whatever kind for and
on behalf of the Company and such authority may be general or be confined to
specific instances.
Section 2. UNDERTAKINGS AND COMMITMENTS. No undertaking, commitment,
contract, instrument or document shall be binding upon the Company unless
previously authorized or subsequently ratified by the Board or executed by an
officer or officers, an employee or employees or an agent or agents of the
Company acting under powers conferred by the Board or by these Bylaws.
Section 3. CHECKS, DRAFTS, ETC. All checks, notes and other obligations for
collection, deposit or transfer, and all checks and drafts for disbursement from
Company funds, and all bills of exchange and promissory notes, and all
acceptances, obligations and other instruments for the payment of money, shall
be endorsed or signed by such officer or officers, employee or employees or
agent or agents as shall be thereunto authorized from time to time by the Board
of Directors, which may delegate the power to so authorize to any one or more of
the Chief Executive Officer, the President and the Chief Financial Officer.
Section 4. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. Shares standing
in the name of the Company may be voted or represented and all rights incident
thereto may be exercised on behalf of the Company by the Chief Executive
Officer, President, the Chief Financial Officer, a Vice President, the
Secretary, the Treasurer or the Comptroller, or by such other officers upon to
whom the Board of Directors may from time to time confer like powers.
ARTICLE IX
REPEAL OF BYLAWS
Section 1. All existing Bylaws of the Company and all amendments thereto are
hereby repealed.
ARTICLE X
AMENDMENTS
Section 1. POWER OF SHAREHOLDERS. New Bylaws may be adopted or these Bylaws
may be amended or repealed by the vote or written assent of shareholders
entitled to exercise a majority of the voting power of the Company.
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Section 2. POWER OF DIRECTORS. Subject to the right of shareholders as
provided in Section 1 of this ARTICLE X to adopt, amend or repeal Bylaws, Bylaws
may be adopted, amended or repealed by the Board of Directors as provided or
permitted by law.
ARTICLE XI
EMERGENCY
Section 1. "Emergency" as used in this Article means disorder, disturbance or
damage caused by war, enemy attack, other warlike acts or by catastrophe,
disaster or other similar emergency condition, which prevents the conduct and
management of the affairs and business of the Company by the Board of Directors
and officers in the manner provided for in other Articles of these Bylaws. The
powers and duties conferred and imposed by this Article, and any resolutions
adopted pursuant hereto, shall be effective only during an emergency. This
Article may be implemented from time to time by resolutions adopted by the Board
of Directors before or during an emergency, or during an emergency by the
emergency Board of Directors constituted and then acting pursuant hereto. An
emergency, once commenced, shall be deemed to continue until terminated by
resolutions adopted for that purpose by the Board of Directors.
Section 2. If, during an emergency, a majority of the Board of Directors
cannot be found or is unable to act, one-third of the exact number of the Board
of Directors shall constitute a quorum thereof.
Section 3. During any emergency, the officers and employees of the Company
shall continue, so far as possible, to conduct the Company's affairs and
business under the guidance of the Board of Directors acting pursuant to this
Article and in accordance with known orders of governmental authorities.
Section 4. If, during any emergency, a quorum of the Board of Directors, as
provided in Section 3 of this Article, cannot be found or is unable to act, any
three available members of the Executive Committee, including the Chief
Executive Officer, shall be and constitute the Board of Directors, with two
thereof constituting a quorum, and as such shall have and exercise the fullest
power of the Board of Directors for the conduct and management of the affairs
and business of the Company, permitted by law, without the limitations set forth
in Section 2 of ARTICLE V of these Bylaws, provided that such emergency Board of
Directors as so constituted shall comply to the extent practicable under the
circumstances with the provisions of ARTICLE III of these Bylaws relating to
annual and special meetings of shareholders. If three members of the Executive
Committee, including the Chief Executive Officer, are not able to serve, any
three available directors shall be and constitute such emergency Board of
Directors, with two thereof constituting a quorum, for the exercise of the
powers conferred and performance of the duties imposed by this Section 4.
Section 5. If, during any emergency, neither a quorum of the Board of
Directors, as provided in Section 3 of this Article, nor a quorum of the
emergency Board of Directors, as provided for in Section 4 of this Article is
available to serve, then the powers conferred and duties imposed by Section 4
shall vest in and devolve upon any three of (in the following order of priority)
available directors, including any one or more of the Chief Executive Officer,
the President and the Chief Financial Officer, and as many Vice Presidents (or,
in case of their inability, any other officers), in order of seniority, as may
be necessary from time to time to constitute a total of three emergency
directors. The Chief Executive Officer and any other one emergency director
shall constitute a quorum of such emergency Board of Directors for exercise of
the powers conferred and performance of the duties imposed hereunder, but if the
Chief Executive Officer is not available, any two of such emergency directors
shall constitute a quorum.
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