UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999
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)
(310) 726-7600
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Number of shares of Common Stock, $1 par value, outstanding as of April 30,
1999: 242,168,308
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED EARNINGS UNOCAL CORPORATION
(UNAUDITED)
For the Three Months
Ended March 31
------------------------
Millions of dollars except per share amounts 1999 1998
- --------------------------------------------------------------------------------------------
Revenues
<S> ................................................................ <C> <C>
Sales and operating revenues ....................................... $ 1,189 $ 1,171
Interest, dividends and miscellaneous income ....................... 28 11
Equity in earnings of affiliated companies ......................... 27 25
Gain/(loss) on sales of assets ..................................... (13) --
- --------------------------------------------------------------------------------------------
Total revenues ............................................... 1,231 1,207
Costs and other deductions
Crude oil, natural gas and product purchases ....................... 616 416
Operating expense .................................................. 235 324
Selling, administrative and general expense ........................ 32 24
Depreciation, depletion and amortization ........................... 200 181
Dry hole costs ..................................................... 27 50
Exploration expense ................................................ 38 47
Interest expense ................................................... 45 41
Property and other operating taxes ................................. 13 16
Distributions on convertible preferred
securities of subsidiary trust .................................. 8 8
Minority interest .................................................. -- 3
- --------------------------------------------------------------------------------------------
Total costs and other deductions ............................. 1,214 1,110
- --------------------------------------------------------------------------------------------
Earnings (loss) from operations before income taxes ................ 17 97
Income taxes ....................................................... 10 79
- -------------------------------------------------------------------------------------------
Net earnings (loss) applicable to common stock ............... $ 7 $ 18
- --------------------------------------------------------------------------------------------
Basic earnings (loss) per share of common stock (a)................. $ 0.03 $ 0.07
Diluted earnings (loss) per share of common stock (b) .............. $ 0.03 $ 0.07
Cash dividends declared per share of common stock .................. $ 0.20 $ 0.20
- --------------------------------------------------------------------------------------------
(a) Basic weighted average shares outstanding (in thousands) ..... 241,426 241,430
(b) Diluted weighted average shares outstanding (in thousands) .... 242,153 242,861
See notes to the consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET UNOCAL CORPORATION
March 31 December 31
------------------------
Millions of dollars 1999(a) 1998
- --------------------------------------------------------------------------------------------
Assets
Current assets
<S> <C> <C>
Cash and cash equivalents ....................................... $ 182 $ 238
Accounts and notes receivable ................................... 739 807
Inventories ..................................................... 195 179
Deferred income taxes ........................................... 119 142
Other current assets ............................................ 24 22
- --------------------------------------------------------------------------------------------
Total current assets........................................... 1,259 1,388
Investments and long-term receivables .............................. 1,177 1,143
Properties (b) ..................................................... 5,172 5,276
Deferred income taxes .............................................. 68 23
Other assets ....................................................... 133 122
- --------------------------------------------------------------------------------------------
Total assets .................................................. $ 7,809 $ 7,952
- --------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable ................................................ $ 586 $ 709
Taxes payable ................................................... 217 260
Interest payable ................................................ 39 52
Current portion of environmental liabilities .................... 155 142
Other current liabilities ....................................... 178 213
- --------------------------------------------------------------------------------------------
Total current liabilities ..................................... 1,175 1,376
Long-term debt ..................................................... 2,568 2,558
Deferred income taxes .............................................. 122 132
Accrued abandonment, restoration and environmental liabilities ..... 597 622
Other deferred credits and liabilities ............................. 630 514
Minority interest .................................................. 26 26
Company-obligated mandatorily redeemable convertible preferred
securities of a subsidiary trust holding solely parent debentures .. 522 522
Common stock ($1 par value) ........................................ 252 252
Capital in excess of par value ..................................... 469 460
Unearned portion of restricted stock issued ........................ (25) (24)
Retained earnings .................................................. 1,918 1,959
Accumulated other comprehensive income (loss) ...................... (34) (34)
Treasury stock - at cost (c) ...................................... (411) (411)
- --------------------------------------------------------------------------------------------
Total stockholders' equity ................................... 2,169 2,202
- --------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity ................ $ 7,809 $ 7,952
- --------------------------------------------------------------------------------------------
(a) Unaudited
(b) Net of accumulated depreciation ............................... $ 10,161 $ 10,193
(c) Number of shares (in thousands) ............................... 10,623 10,623
See notes to the consolidated financial statements
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CASH FLOWS UNOCAL CORPORATION
(UNAUDITED)
For the Three Months
Ended March 31
------------------------
Millions of dollars 1999 1998
- --------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
<S> <C> <C>
Net earnings (loss) ................................................ $ 7 $ 18
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation, depletion and amortization ..................... 200 181
Dry hole costs ............................................... 27 50
Deferred income taxes ........................................ (32) 13
(Gain) loss on sales of assets (before-tax) .................. 13 --
Other ........................................................ (13) 20
Working capital and other changes related to operations
Accounts and notes receivable ............................. 56 69
Inventories ............................................... (17) 7
Accounts payable .......................................... (115) (131)
Taxes payable ............................................. (43) (14)
Other ..................................................... 16 (119)
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities .... 99 94
Cash Flows from Investing Activities
Capital expenditures (includes dry hole costs) .................. (225) (326)
Proceeds from sales of assets ................................... 106 4
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities .... (119) (322)
Cash Flows from Financing Activities
Long-term borrowings ............................................ 435 395
Reduction of long-term debt ..................................... (425) (133)
Dividends paid on common stock .................................. (48) (48)
Repurchases of common stock ..................................... -- (48)
Other ........................................................... 2 (1)
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities ....... (36) 165
Increase (Decrease) in cash and cash equivalents ................... (56) (63)
Cash and cash equivalents at beginning of year ..................... 238 338
- --------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period ......................... $ 182 $ 275
- --------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) ......................... $ 65 $ 60
Income taxes (net of refunds) ................................ $ 87 $ 92
See notes to the consolidated financial statements
</TABLE>
3
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) The consolidated financial statements included herein are unaudited and, in
the opinion of management, include all adjustments necessary for a fair
presentation of financial position and results of operations. All
adjustments are of a normal recurring nature. Such financial statements are
presented in accordance with the Securities and Exchange Commission's
(Commission) disclosure requirements for Form 10-Q.
These interim consolidated financial statements should be read in
conjunction with the Consolidated financial statements and the Notes
thereto filed with the Commission in Unocal Corporation's 1998 Form 10-K.
Results for the three months ended March 31, 1999, are not necessarily
indicative of future financial results.
Certain items in the prior year financial statements have been reclassified
to conform to the 1999 presentation.
(2) For the purpose of this report, Unocal Corporation (Unocal) and its
consolidated subsidiaries, including Union Oil Company of California (Union
Oil), are referred to as the company.
(3) Other Financial Information
Sales and operating revenues are derived principally from the sale of crude
oil, natural gas, natural gas liquids, geothermal steam, nitrogen-based
agricultural products and specialty minerals produced by the company.
During the first quarter of 1999 and 1998, approximately 45 percent and 31
percent, respectively, of total sales and operating revenues were
attributed to the resale of purchased crude oil, natural gas and natural
gas liquids produced by others, that the company purchased in connection
with its trading and marketing activities. Related purchase costs are
classified as expense in the crude oil, natural gas and product purchases
category on the consolidated earnings statement.
Capitalized interest totaled $5 million and $8 million for the first
quarters of 1999 and 1998, respectively.
(4) Income Taxes
Income taxes on earnings from operations for the first quarter of 1999 were
$10 million compared with $79 million for the comparable period in 1998.
The effective income tax rate for the first quarter of 1999 decreased to 59
percent from 81 percent in the first quarter of 1998. The tax rate for the
first quarter of 1999 is higher than normal due to a loss from domestic
operations. The tax rate for the comparable period in 1998 was adversely
impacted by tax adjustments related to the appreciation of the Thai baht
totaling $21 million for deferred taxes and $11 million for current taxes.
(5) Comprehensive Income
The company's comprehensive earnings were as follows:
<TABLE>
<CAPTION>
For the Three Months
Ended March 31
------------------------
Millions of dollars 1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Net earnings (loss) ................................................ $ 7 $ 18
Change in foreign currency translation adjustments (net of tax) .... -- 1
- --------------------------------------------------------------------------------------------
Comprehensive earnings (loss) ................................ $ 7 $ 19
- --------------------------------------------------------------------------------------------
4
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(6) Earnings Per Share
The following are reconciliations of the numerators and denominators of the
basic and diluted earnings per share (EPS) computations for earnings from
operations for the first quarters ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Earnings Shares Per Share
Millions except per share amounts (Numerator) (Denominator) Amount
- ---------------------------------------------------------------------------------------------------------------
Three Months ended March 31, 1999
<S> <C> <C> <C>
Earnings from operations .............................................. $ 7 241
Basic EPS .......................................................... $ 0.03
=========
Effect of Dilutive Securities
Options/common stock equivalents ................................... 1
------------------
Diluted EPS ........................................................ 7 242 $ 0.03
=========
Distributions on subsidiary trust preferred securities (after-tax).. 6 12
------------------
Antidilutive ....................................................... $13 254 $ 0.05
Three Months ended March 31, 1998
Earnings from operations .............................................. $18 241
Basic EPS .......................................................... $ 0.07
=========
Effect of Dilutive Securities
Options/common stock equivalents ................................... 1
------------------
Diluted EPS ........................................................ 18 242 $ 0.07
=========
Distributions on subsidiary trust preferred securities (after-tax).. 6 12
------------------
Antidilutive ....................................................... $24 254 $ 0.09
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Not included in the computation of diluted EPS were options outstanding at
March 31, 1999 to purchase approximately 8.5 million shares of common
stock. These options were not included in the computation as the exercise
prices were greater than the year-to-date average market price of $31.11
for the common shares. The exercise prices of these options range from
$32.16 to $51.01 per share and they expire in 2006 through 2009.
(7) Long Term Debt and Credit Agreements
On February 18, 1999, the company issued $350 million of 30 year, 7 1/2
percent debentures under its $1.439 billion universal shelf registration
statement. After issuance of the debentures, the total amount available for
future issuance of medium term notes, other debt and/or equity securities
under the company's universal shelf registration statement was
approximately $1.089 billion.
The company also increased its commercial paper borrowings by $93 million
from year-end 1998 to an outstanding balance of $153 million at March 31,
1999. Proceeds from the debt issuance referred to above and commercial
paper borrowings were used to retire $74 million of maturing medium-term
notes and to reduce the amount outstanding under the company's $1 billion
bank credit agreement from $550 million to $200 million. The company also
terminated its $250 million revolving credit agreement in February 1999.
There were no amounts outstanding under the revolving credit agreement
during 1999.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(8) Financial Instruments
The fair values of the company's financial instruments at March 31, 1999
are described below:
In February 1999, the company paid $53 million to its counterparty to close
out its three remaining Canadian foreign exchange contracts. Proceeds of
$82 million Canadian were received from the counterparty and used by the
company's Canadian subsidiary to make a scheduled income tax payment to
Canada's taxing authority. No gain or loss was recognized as changes in the
exchange contracts offset changes in the company's consolidated Canadian
dollar denominated tax obligation.
At March 31, 1999, the company had forward exchange contracts outstanding
designed to hedge the company's exposure for estimated income tax payments
and other foreign currency denominated obligations and receivables expected
to be settled in 1999. Ten of the contracts require the company to purchase
3,946 million Thai baht in exchange for $101 million. Eight of the
contracts require the company to sell 3,010 million Thai baht in exchange
for $80 million. The fair value of the purchase contracts at March 31, 1999
was approximately $105 million. The fair value of the sale contracts at
March 31, 1999 approximated the notional amount. Fair values were
determined by comparing the contract rates to the forward rates in effect
at March 31, 1999.
At March 31, 1999, the company had $84 million of futures contracts
outstanding to purchase 6,025 thousand barrels of crude oil. Approximately
70 percent of the crude oil futures contracts were associated with the
company's non-trading activities. The contracts primarily offset the fixed
price risk associated with the company's delivery obligations under a
pre-paid forward crude oil sale entered into in December 1998. The fair
value of the company's crude oil futures contracts based on quoted market
prices at March 31, 1999 was approximately $100 million. The company's
natural gas futures contracts outstanding at March 31, 1999 were
immaterial.
At March 31, 1999, the company had various hydrocarbon commodity option
contracts (options) outstanding with several counterparties designed to
hedge the prices to be received for the sale of its future crude oil and
natural gas production, principally in 1999. These options are generally
accounted for as hedges with gains and losses deferred and recognized as
additional oil and gas revenues upon the sale of the underlying production.
At March 31, 1999, the company had approximately $9 million of options
outstanding. The fair value of the options was approximately $(18) million.
Fair value was determined based on dealer quotes where available, or on
financial modeling using underlying commodity prices. Options associated
with the company's trading activities at March 31, 1999 were immaterial.
The company recorded approximately $4 million in pre-tax trading gains
during the first three months of 1999. At March 31, 1999, the company had
pre-tax deferred losses of approximately $20 million related to its
non-trading hydrocarbon derivative instrument activities. This amount
principally consists of options, as noted above.
The estimated fair value of the company's long-term debt was $2,612
million. 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 the mandatorily redeemable convertible
preferred securities of the company's subsidiary trust was $565 million.
The fair value of the preferred securities was based on the trading prices
of the preferred securities on March 31, 1999.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(9) Accrued Abandonment, Restoration and Environmental Liabilities
At March 31, 1999, the company had accrued $459 million for the estimated
future costs to abandon and remove wells and production facilities. The
total costs for abandonments are predominantly accrued for on a
unit-of-production basis and are estimated to be approximately $655
million. This estimate was derived in large part from abandonment cost
studies performed by outside firms and is used to calculate the amount to
be amortized. The company's reserve for environmental remediation
obligations at March 31, 1999 totaled $293 million, of which $155 million
was included in current liabilities.
(10) 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, even if liability is determined to be
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, the fact that the company
is usually just one of a number of companies identified as a PRP, or other
reasons.
As disclosed in note 9, at March 31, 1999, the company had accrued $293
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 possible additional remediation
costs aggregating approximately $195 million.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Tax matters - The company believes it has adequately provided in its
accounts for tax 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 alleged that the defendants interfered
with Bridas' exclusive right to lay a gas pipeline in Afghanistan. Bridas
sought actual damages, as well as punitive damages, plus interest. Bridas'
expert witnesses stated in pre-trial discovery that Bridas' total actual
damages for loss of future profits were approximately $1.7 billion. In the
alternative, Bridas was expected to seek an award of approximately $430
million with respect to its total expenditures in Turkmenistan. In October
1998, the court granted the defendants' motion for summary judgement and
dismissed the action. In March 1999, Bridas filed a notice of appeal of the
dismissal.
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.
(11) Unocal guarantees certain indebtedness of Union Oil. Summarized below is
financial information for Union Oil and its consolidated subsidiaries:
<TABLE>
<CAPTION>
Summarized Financial Data of Union Oil
For the Three Months
Ended March 31
-------------------
Millions of dollars 1999 1998
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenues ..................................................... $1,231 $1,207
Total costs and other deductions
(including income taxes) ........................................ 1,218 1,184
- ---------------------------------------------------------------------------------------
Earnings from operations ........................................... 13 23
- ---------------------------------------------------------------------------------------
Net earnings ....................................................... $ 13 $ 23
- ---------------------------------------------------------------------------------------
At March 31 At December 31 (a)
------------------ -------------------
Millions of dollars 1999 1998
------------------ -------------------
Current assets ................................ $1,259 $1,388
Noncurrent assets ............................... 6,570 6,583
Current liabilities ............................. 1,209 1,406
Noncurrent liabilities ...........................3,943 3,852
Shareholder's equity .............................2,677 2,713
- ---------------------------------------------------------------------------------------
(a) Audited
</TABLE>
(12) Disposition of Assets
On January 26, 1999, Unocal entered into an agreement with Calpine
Corporation for the sale of the company`s interests in a geothermal steam
production operation, The Geysers, in Northern California. On March 23,
1999, the sale closed and the company received proceeds of $101 million.
The company recorded an after-tax loss of approximately $10 million on the
sale. The proceeds will be used to partially fund the company's exploration
and production capital projects.
8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(13) Restructuring Costs
The company adopted a restructuring plan during the fourth quarter of 1998
that resulted in the accrual of a $27 million pre-tax restructuring charge.
This amount included the costs of terminating approximately 475 employees.
The charge was included in selling, administrative and general expense on
the consolidated earnings statement. The plan involves the suspension of
mining and manufacturing operations at the Mountain Pass, California
lanthanide facility, a change in mining operations at the Questa, New
Mexico molybdenum facility, the withdrawal from non-strategic activities in
Central Asia and a reduction in activities of various business units.
Approximately 240 of the affected employees are from the company's mining
operations, 95 are from various exploration and production business units
and 140 are support personnel at various locations. The restructuring
charge included approximately $23 million for termination costs to be paid
to the employees over time, about $2 million in benefit plan curtailment
costs and about $2 million related to outplacement and other costs.
At April 14, 1999, 358 employees had been terminated or had received
termination notices as the result of the plan with additional terminations
scheduled during the remainder of 1999. The amount of unpaid benefits
remaining on the consolidated balance sheet at March 31, 1999 was $21
million. No adjustments to the restructuring accrual have been made to
date.
(14) Segment Information
The company's reportable segments are as follows:
Exploration and Production, Global Trade, Geothermal & Power Operations and
Diversified Businesses. Unallocated corporate and administrative general
expenses and other miscellaneous operations are included under the
Corporate and Unallocated heading. Effective January 1, 1999, the Pipelines
business unit was transferred from the Diversified Business segment to the
Global Trade segment. For an expanded description on the activities
conducted by the company's business segments, see pages 74 and 75 of the
company's 1998 Form 10-K.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Segment Information Exploration & Production Geothermal
For the Three Months United States International Global Trade & Power
ended March 31, 1999 Spirit Far Operations
Millions of dollars Energy 76 Alaska East Other Global Trade Pipelines
--------------------------------------------------------------------------------
<S> ......................................... <C> <C> <C> <C> <C> <C> <C>
External sales & operating revenues ......... $ 35 $ 23 $ 155 $ 44 $ 768 $ 10 $ 45
Other revenue (loss) ........................ 2 -- 1 5 -- 15 (12)
Inter-segment revenues ...................... 184 17 42 -- 1 2 --
- -----------------------------------------------------------------------------------------------------------------------------
Total Revenues ............................. 221 40 198 49 769 27 33
Net earnings (loss) ......................... 2 1 48 (15) 2 17 1
- -----------------------------------------------------------------------------------------------------------------------------
Assets (at March 31, 1999) .................. 2,024 315 1,929 683 322 253 495
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Diversified Corporate & Unallocated Totals
Business
Ag Carbon & Admn & Net Int Env & New
Products Minerals General Exp Litigation Ventures Other (a)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
External sales & operating revenues.......... $ 63 $ 43 $ -- $ -- $ -- $ -- $ 3 $ 1,189
Other revenue (loss) ........................ -- 9 -- 6 -- -- 16 42
Inter-segment revenues ...................... -- -- -- -- -- -- (246) --
- -----------------------------------------------------------------------------------------------------------------------------
Total Revenues ............................. 63 52 -- 6 -- -- (227) 1,231
Net earnings (loss) ......................... 3 9 (21) (31) (5) (1) (3) 7
- -----------------------------------------------------------------------------------------------------------------------------
Assets (at March 31, 1999) .................. 334 378 -- -- -- -- 1,076 7,809
- -----------------------------------------------------------------------------------------------------------------------------
(a) Includes eliminations and consolidation adjustments
</TABLE>
9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Segment Information Exploration & Production Geothermal
For the Three Months United States International Global Trade & Power
ended March 31, 1998 Spirit Far Operations
Millions of dollars Energy 76 Alaska East Other Global Trade Pipelines
--------------------------------------------------------------------------------
<S> ......................................... <C> <C> <C> <C> <C> <C> <C>
External sales & operating revenues ......... $ 24 $ 32 $ 162 $ 46 $ 685 $ 10 $ 41
Other revenue (loss) ........................ - -- (11) 5 -- 14 1
Inter-segment revenues ...................... 232 19 70 5 -- 2 --
- -----------------------------------------------------------------------------------------------------------------------------
Total Revenues ............................. 256 51 221 56 685 26 42
Net earnings (loss) ......................... 9 12 21 ( 8) 6 15 14
- -----------------------------------------------------------------------------------------------------------------------------
Assets (at March 31, 1998) .................. 1,896 370 1,613 726 261 263 556
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Diversified Corporate & Unallocated Totals
Business
Ag Carbon & Admn & Net Int Env & New
Products Minerals General Exp Litigation Ventures Other (a)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
External sales & operating revenues.......... $ 95 $ 62 $ -- $ -- $ -- $ -- $ 14 $ 1,171
Other revenue (loss) ........................ -- 9 -- 8 -- -- 10 36
Inter-segment revenues ...................... -- -- -- -- -- -- (328) --
- -----------------------------------------------------------------------------------------------------------------------------
Total Revenues ............................. 95 71 -- 8 -- -- (304) 1,207
Net earnings (loss) ......................... 9 13 (18) (26) (33) (7) 11 18
- -----------------------------------------------------------------------------------------------------------------------------
Assets (at March 31, 1998) .................. 346 385 -- -- -- -- 1,162 7,578
- -----------------------------------------------------------------------------------------------------------------------------
(a) Includes eliminations and consolidation adjustments
</TABLE>
(15) Subsequent Events
In April 1999, the company contributed fixed-price overriding royalty
interests from its working interest shares in certain oil and gas producing
properties in the Gulf of Mexico to Spirit Energy 76 Development, L.P.
(Spirit LP), a limited partnership formed under the laws of Delaware. The
fixed-price overrides are subject to economic limitations of production
from the affected fields. In exchange for its overriding royalty
contributions, valued at $304 million, the company received an initial
general partnership interest of approximately 55 percent in Spirit LP.
Concord Investors LLC (Concord) contributed $250 million in cash to the
partnership in exchange for an initial partnership interest of
approximately 45 percent. Concord is entitled to receive a priority
allocation of profits and cash distributions in an amount equal to a spread
above a floating rate of return on its capital contribution, cumulative and
compounded quarterly to the extent not distributed. The partnership has a
maximum term of twenty years, but may terminate after six years subject to
certain conditions.
On April 15, 1999, the company's Unocal Canada Resources subsidiary (UCR)
signed a definitive agreement to invest up to C$265 million (US$175
million) to acquire up to 46 percent of Calgary-based Northrock Resources
Ltd. (Northrock). Under the agreement, UCR proposes to make a partial
tender offer to Northrock's shareholders which, if successful would result
in UCR acquiring approximately 10 million shares of Northrock common stock
at C$14 per share, representing approximately 32 percent of all outstanding
shares. UCR would then acquire approximately 7.6 million additional shares
of Northrock common stock for C$16 per share under a private placement,
increasing UCR's interest in Northrock to as much as 46 percent. UCR's
obligations under the agreement are subject to regulatory approvals and
certain other conditions. If the tender offer for the acquisition of
Northrock's common shares is successful, the company expects the
transaction to be completed by mid-year.
10
<PAGE>
<TABLE>
<CAPTION>
OPERATING HIGHLIGHTS UNOCAL CORPORATION
(UNAUDITED)
For the Three Months
Ended March 31
---------------------
1999 1998
- -----------------------------------------------------------------------------------------
NET DAILY PRODUCTION
Crude oil and condensate (thousand barrels daily)
United States
<S> ........................................................... <C> <C>
Spirit Energy 76 ..................................... 39 44
Alaska ............................................... 27 30
---------------------
Total United States ................................ 66 74
International (a)
Far East ............................................. 70 89
Other ................................................ 31 31
---------------------
Total International ................................ 101 120
Worldwide ............................................... 167 194
---------------------
Natural gas (million cubic feet daily)
United States
Spirit Energy 76 ..................................... 775 788
Alaska ............................................... 153 138
---------------------
Total United States ................................ 928 926
International (a)
Far East ............................................. 848 861
Other ................................................ 39 52
---------------------
Total International ................................ 887 913
Worldwide ............................................... 1,815 1,839
---------------------
Natural gas liquids (thousand barrels daily) ............... 18 18
Geothermal (million kilowatt-hours daily) .................. 22 21
- -----------------------------------------------------------------------------------------
(a) Includes host countries' shares of:
Crude oil and condensate ................................ 12 19
Natural gas ............................................. 73 50
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
OPERATING HIGHLIGHTS (CONTINUED) UNOCAL CORPORATION
(UNAUDITED)
For the Three Months
Ended March 31
---------------------
1999 1998
- -----------------------------------------------------------------------------------------
AVERAGE SALES PRICES (a)
Crude oil and condensate (per barrel)
United States
<S> .......................................................... <C> <C>
Spirit Energy 76 .................................... $ 11.85 $ 13.94
Alaska .............................................. 7.86 10.84
Total United States ............................... 10.12 12.66
International
Far East ............................................ $ 10.65 $ 13.97
Other ............................................... 10.22 12.30
Total International ............................... 10.51 13.50
Worldwide .............................................. $ 10.34 $ 13.15
- -----------------------------------------------------------------------------------------
Natural gas (per thousand cubic feet)
United States
Spirit Energy 76 .................................... $ 1.92 $ 2.14
Alaska .............................................. 1.20 1.47
Total United States ............................... 1.80 2.03
International
Far East ............................................ $ 1.88 $ 2.03
Other ............................................... 1.76 2.09
Total International ............................... 1.87 2.04
Worldwide .............................................. $ 1.83 $ 2.04
- -----------------------------------------------------------------------------------------
AGRICULTURAL PRODUCTS PRODUCTION VOLUMES
(thousand tons)
Ammonia ................................................... 381 374
Urea ...................................................... 244 260
AGRICULTURAL PRODUCTS SALES VOLUMES (thousand tons)
Ammonia ................................................... 137 220
Urea ...................................................... 264 326
(a) Excludes Global Trade margins
</TABLE>
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of the consolidated financial condition
and results of operations of Unocal should be read in conjunction with
Management's Discussion and Analysis in Item 7 of the company's 1998 Annual
Report on Form 10-K. Unless otherwise specified, the following discussion
pertains to the company's continuing operations.
CONSOLIDATED RESULTS
<TABLE>
<CAPTION>
For the Three Months
Ended March 31
--------------------
Millions of dollars 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
After-tax earnings (loss) from operations ....................................................... $ 7 $ 18
Less: special items (net of tax)
Environmental and litigation provisions ..................................................... (3) (33)
Asset sales (a) ............................................................................. (10) --
Deferred tax adjustments .................................................................... -- (21)
- -----------------------------------------------------------------------------------------------------------------
Total special items ......................................................................... (13) (54)
- -----------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings (loss) from operations ............................................. $ 20 $ 72
- -----------------------------------------------------------------------------------------------------------------
(a) Represents the sale of The Geysers, a geothermal production operation in
Northern California
</TABLE>
Adjusted after-tax earnings from operations decreased $52 million from the same
period last year. Lower worldwide commodity prices for crude oil, natural gas
and agricultural products were the primary contributors to the depressed
earnings. Compared to 1998, average worldwide sales prices for crude oil and
natural gas declined 21 percent and 10 percent, respectively. These negative
factors were partially offset by lower dry hole and exploration expense
resulting primarily from lower domestic exploration activity.
EXPLORATION AND PRODUCTION
The company's primary activities are oil and gas exploration, development, and
production.
United States - Included in the United States category are Spirit Energy 76 and
Alaska oil and gas operations. The Spirit Energy 76 business unit is responsible
for oil and gas operations in the Lower 48 United States with emphasis on the
shelf and deepwater areas in the Gulf of Mexico and the Permian Basin in West
Texas. A substantial portion of crude oil and natural gas produced in the United
States is sold to the company's Global Trade segment. The remainder is sold to
third parties, or in the case of Alaska natural gas production used in the
company's agricultural products operations.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31
--------------------
Millions of dollars 1999 1998
- -----------------------------------------------------------------------------------------------------------------
After-tax earnings (loss)
<S> <C> <C>
Spirit Energy 76 ............................................................................. $ 2 $ 9
Alaska ....................................................................................... 1 12
- -----------------------------------------------------------------------------------------------------------------
Total ........................................................................................ 3 21
Less: special items (net of tax) ................................................................ -- --
- -----------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings (loss) .............................................................. $ 3 $21
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Adjusted after-tax earnings decreased $18 million compared to the same period in
the prior year primarily due to lower average United States crude oil and
natural gas sales prices. Crude oil prices fell 20 percent, or $2.54 per barrel,
while natural gas prices fell 11 percent, or $0.23 per thousand cubic feet.
Depreciation, depletion and amortization expense increased in the first quarter
of 1999 primarily due to production from higher rate fields and increased
exploratory land amortization. These negative factors were partially offset by
lower dry hole costs.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
International - Includes the company's international exploration and production
activities and the business development activities performed by the company's
New Ventures group. The company is currently engaged in oil and gas
production activities in nine foreign countries: Thailand, Indonesia,
Canada, The Netherlands, Azerbaijan, Yemen, Myanmar, the Democratic Republic
of Congo and Bangladesh.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31
--------------------
Millions of dollars 1999 1998
- -----------------------------------------------------------------------------------------------------------------
After-tax earnings (loss)
<S> <C> <C>
Far East ................................................................................... $ 48 $ 21
Other ...................................................................................... (15) (8)
- -----------------------------------------------------------------------------------------------------------------
Total ...................................................................................... 33 13
Less: special items (net of tax)
Deferred tax adjustment (Far East) ......................................................... -- (21)
- -----------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings (loss) .............................................................. $ 33 $ 34
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
During the first quarter of 1999, international adjusted after-tax earnings
decreased slightly compared with the same period in the prior year. Crude oil
prices fell 22 percent, or $2.99 per barrel, while natural gas prices fell 8
percent, or $0.17 per thousand cubic feet. Crude oil production volumes
decreased by 16 percent primarily in Indonesia and Canada. The decrease in
Canadian crude oil production reflects the disposition of the company's Alberta,
Canada, exploration and production assets in the Tarragon transaction in the
third quarter of 1998. These negative factors were largely offset by lower
exploration expense, decreased foreign exchange losses and decreased foreign
taxes.
GLOBAL TRADE
The Global Trade segment conducts most of the company's worldwide crude oil,
condensate and natural gas trading and marketing activities and is responsible
for the company's commodity-specific risk management activities. Global Trade
also purchases crude oil, condensate and natural gas from certain of the
company's royalty owners, joint venture partners and other unaffiliated oil and
gas producers for resale. Global Trade also manages the company's Pipelines
business unit which holds the company's equity interests in affiliated pipeline
companies.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31
--------------------
Millions of dollars 1999 1998
- -----------------------------------------------------------------------------------------------------------------
After-tax earnings (loss)
<S> <C> <C>
Global Trade ................................................................................. $ 2 $ 6
Pipelines .................................................................................... 17 15
- -----------------------------------------------------------------------------------------------------------------
Total ......................................................................................... 19 21
Less: special items (net of tax) ................................................................ -- --
- -----------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings (loss) .............................................................. $19 $21
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Global Trade's combined adjusted after-tax earnings during the first quarter of
1999 decreased $2 million from the same period last year. The decrease was
primarily due to lower margins on domestic crude oil trading. This earnings
decrease was partially offset by higher Pipeline affiliate earnings due to
increased volumes.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
GEOTHERMAL AND POWER OPERATIONS
The Geothermal and Power Operations segment supplies geothermal steam for power
generation, with operations in the Philippines and Indonesia. The segment's
current activities also include operating power plants in Indonesia and an
interest in the construction of a gas-fired power plant in Thailand.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31
--------------------
Millions of dollars 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
After-tax earnings (loss) ....................................................................... $ 1 $ 14
Less: special items (net of tax)
Asset sales (a) ............................................................................. (10) --
- -----------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings ..................................................................... $ 11 $ 14
- -----------------------------------------------------------------------------------------------------------------
(a) Represents the sale of The Geysers, a geothermal production operation in
Northern California
</TABLE>
Adjusted after-tax earnings for the first quarter of 1999 decreased by $3
million compared to the same period a year ago due to accounts receivable
provisions in Indonesia which were partially offset by lower dry hole expense
and decreased foreign exchange losses.
DIVERSIFIED BUSINESS GROUP
The Agricultural Products business unit manufactures, transports and markets
nitrogen-based products for agricultural and industrial uses. The Carbon and
Minerals business unit manufactures and markets petroleum coke, graphites and
specialty minerals.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31
--------------------
Millions of dollars 1999 1998
- -----------------------------------------------------------------------------------------------------------------
After-tax earnings (loss)
<S> <C> <C>
Agricultural Products ........................................................................ $ 3 $ 9
Carbon and Minerals .......................................................................... 9 13
- -----------------------------------------------------------------------------------------------------------------
Total ........................................................................................ 12 22
Less: special items (net of tax)
Environmental and litigation provisions (Carbon and Minerals) ................................ -- (1)
- -----------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings (loss) .............................................................. $ 12 $ 23
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
During the first quarter 1999, adjusted after-tax earnings decreased by $11
million from the same period last year. Agricultural Products commodity prices
were 21 percent lower than the same period last year and sales volumes were
lower due to severe icing conditions in Alaska's Cook Inlet, preventing ships
from loading product. Carbon and Minerals lower earnings were primarily due to
decreased sales prices and lower volumes of the Needle Coker Company.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
CORPORATE AND UNALLOCATED
Corporate and Unallocated includes all unallocated corporate administrative and
general items, miscellaneous operations including real estate, and
non-exploration and production activities of the New Ventures group, such as the
new project development of common carrier pipelines, liquefied petroleum gas
plants and electrical power generating plants. Net interest expense represents
interest expense, net of interest income and capitalized interest.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31
--------------------
Millions of dollars 1999 1998
- -----------------------------------------------------------------------------------------------------------------
After-tax earnings (loss)
<S> <C> <C>
Administrative and general expense ........................................................... $(21) $(18)
Net interest expense ......................................................................... (31) (26)
Environmental and litigation expense ......................................................... (5) (33)
New Ventures (non-exploration and production) ................................................ (1) (7)
Other ........................................................................................ (3) 11
- -----------------------------------------------------------------------------------------------------------------
Total ........................................................................................ (61) (73)
Less: special items (net of tax)
Environmental and litigation provisions ..................................................... (3) (32)
- -----------------------------------------------------------------------------------------------------------------
Adjusted after-tax earnings (loss) .............................................................. $(58) $ (41)
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
The adjusted after-tax loss increased by $17 million as compared to the same
period last year. The negative earnings factors include higher interest expense
due to lower capitalized interest and increased debt levels, lower pension
income and higher employee benefit related accruals. Those factors were
partially offset by lower New Ventures non-exploration and production
expenditures in the first quarter of 1999.
FINANCIAL CONDITION AND CAPITAL EXPENDITURES
For the first three months of 1999, net cash flow provided by operating
activities was $99 million compared with $94 million for the same period a year
ago. The increase reflects the receipt of $120 million from the Public Energy
Authority of Kentucky Trust (PEAK) for a natural gas forward sale. The PEAK
transaction receipt was substantially offset by the effects of lower worldwide
commodity prices, increased foreign income tax payments and a decrease in
liabilities related to 1999 crude oil and natural gas deliveries that pertain to
the 1998 and 1999 commodity forward sales.
Proceeds from asset sales for the first three months of 1999 were $106 million
consisting primarily of The Geysers sale for $101 million completed in March
1999.
Capital expenditures for the first quarter of 1999 totaled $225 million compared
to $326 million in the same period a year ago. The decrease was primarily due to
lower drilling activities and lease acquisitions in the Gulf of Mexico and
internationally. Total capital expenditures are expected to be approximately $1
billion for 1999. The company will continue to focus on high-potential deepwater
exploration programs in Indonesia and the Gulf of Mexico. The company may adjust
its capital spending estimate later depending on the timing of acquisitions and
changes in commodity prices.
The company's long-term debt was $2,568 million at March 31, 1999, an increase
of $10 million from the year-end 1998 level of $2,558 million. The debt-to-total
capitalization ratio increased to 49 percent from 48 percent at year-end 1998.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
ENVIRONMENTAL MATTERS
At March 31, 1999, the company's reserves for environmental remediation
obligations totaled $293 million, of which $155 million was included in current
liabilities. During the first quarter of 1999, cash payments of $19 million were
applied against the reserve. The company also estimates that it possibly could
incur additional remediation costs aggregating approximately $195 million as
discussed in note 10 to the consolidated financial statements. The company's
total environmental reserve amount is grouped into the following five
categories:
<TABLE>
<CAPTION>
Reseve Summary
March 31,
Millions of dollars 1999
- --------------------------------------------------------------------------------
<S> <C>
Superfund and similar sites ..................................... $ 13
Former company-operated sites ................................... 15
Company facilities sold with retained liabilities ............... 60
Inactive or closed company facilities ........................... 157
Active company facilities ....................................... 48
- --------------------------------------------------------------------------------
Total reserves ................................................ $293
- --------------------------------------------------------------------------------
</TABLE>
OUTLOOK
Certain of the statements in this discussion, as well as other forward-looking
statements within this document, contain estimates and projections of amounts of
or increases in future revenues, earnings, cash flows, capital expenditures,
assets, liabilities and other financial items and of future levels of or
increases in reserves, production, sales including related costs and prices, and
other statistical items; plans and objectives of management regarding the
company's future operations, products and services; and certain assumptions
underlying such estimates, projection plans and objectives. While these
forward-looking statements are made in good faith, future operating, market,
competitive, legal, economic, political, environmental, and other conditions and
events could cause actual results to differ materially from those in the
foward-looking statements. See pages 40 and 41 of Management's Discussion and
Analysis in Item 7 of the company's 1998 Annual Report on Form 10-K for a
discussion of certain of such conditions and events.
Even though energy commodity prices increased late in the first quarter of 1999
as compared to recent prior periods, the company expects prices to remain
volatile for the remainder of 1999.
The economic situation in Asia, where much of the company's international
activity is centered, remained largely unchanged from year-end 1998. The company
believes that the governments in the region are committed to undertaking the
reforms and restructuring necessary to enable their nations to recover from the
current downturn.
Following the discoveries on the Mad Dog prospect on Green Canyon 826 and the
Mirage prospect on Mississippi Canyon 941, in April 1999, the company commenced
drilling the first of four deepwater wells in the Gulf of Mexico expected to be
drilled over the next several months.
Pending transactions for Spirit Energy 76 include the sale of substantially all
of its oil and gas assets in Michigan to Quicksilver Resources, Inc. for $27
million in cash plus approximately $3 million of common stock of Quicksilver and
the trade of most of its Rocky Mountain oil and gas assets for 5.8 million
shares of common stock of Tom Brown, Inc. and $5 million in cash. Both
transactions are expected to close in the second quarter of 1999.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
In Myanmar, the company's subsidiaries and partners are awaiting completion of
the Ratchaburi power plant in Thailand for commercial production from the Yadana
field to begin. The gas sales agreement with the Petroleum Authority of Thailand
(PTT) includes a "Take or Pay" provision, which requires PTT to purchase a
contract quantity of natural gas. Due to the delay in the completion of the
plant, PTT could not meet their contract minimum obligation for 1998. Therefore,
PTT was billed for the 1998 "Take or Pay" obligation with the company's share of
the billing being approximately $13 million. Payment, which was due on March 1,
1999, is currently outstanding. The project participants are in discussions with
PTT to resolve the "Take or Pay" issue.
As of March 31, 1999, the company's geothermal operations in Indonesia had a
gross receivable balance of approximately $123 million, most of which was for
steam sales from the Salak field. Approximately $46 million is due by June 7,
1999, of which $31 million represents a shortfall in payments for March 1998
through December 1998 steam deliveries to the Gunung Salak electric generating
Units 1, 2 and 3. Partial payments have been received on a timely basis.
Agreements allow for payments over the next several years. Provisions covering a
portion of these receivables were recorded in 1998 and 1999. The company is
vigorously pursuing collection of the outstanding receivables.
In Azerbaijan, the company has an approximately 26 percent interest in the North
Absheron Operating Company (NAOC) which was exploring for oil on blocks in the
Caspian Sea. Because of unsuccessful drilling results, the NAOC has decided to
cease operations and has closed its office in Baku.
The company adopted a restructuring plan during the fourth quarter of 1998 that
resulted in the accrual of a $17 million after-tax charge. The amount included
the costs of terminating approximately 475 employees. The company expects
execution of the plan to reduce future annualized salaries and benefits by an
estimated $21 million after-tax and there have been no changes to that
expectation to date. The company is currently evaluating additional initiatives
to improve the efficiency and alignment of support services and reduce costs,
which could result in another restructuring plan in 1999.
YEAR 2000
The company is actively addressing the Year 2000 (Y2K) issue. Many existing
computer programs were designed and developed to use only two digits to identify
a year in the date field. If not addressed, these programs could result in
system failures with possible material adverse effects on the company's
operations at the beginning of the year 2000.
The company's Y2K efforts can be divided into three general categories:
information technology (IT) systems and applications, non-IT embedded systems in
process controls, and its relationships with critical business partners. The
company has appointed a program manager and has assembled various teams of
professionals, principally at the business unit level, which have developed
plans to implement these efforts. The plans establish a methodology and schedule
to identify, assess, correct and test the company's IT systems, applications,
non-IT embedded systems (such as microcontrollers and other devices used for
process control), system interfaces with vendors, suppliers, customers and other
outside parties, as well as to assess the Y2K readiness of such third parties.
The company has contracted with systems consulting firms to assist with the
assessment, correction and testing of the company's internal systems and their
interfaces with third parties. To ensure independent review and validation of
the implementation of the company's Y2K plans, internal auditors, assisted by
contract auditors, are auditing the Y2K projects of key business units within
the company and reporting their findings to senior management.
A company-wide initial awareness campaign was completed in June 1998. The
identification, assessment, and corrections-planning phases of the internal
systems portion of the project have been completed. The company is in the
process of preparing business contingency and recovery plans for its "mission
critical" systems, applications and processes and remediating and renovating its
systems. These systems, applications and processes, if not operable, could
materially adversely impact cash flow, operations, safety or the environment.
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
The company's Y2K project work includes the writing and updating of existing
contingency plans to address material Y2K issues. The company has existing
processes for managing emergency situations and intends to have its Crisis
Management Center operating at the time of the century rollover to assist with
implementing any contingency plans if required.
The company has completed the inventory and assessment of its IT and embedded
systems and detailed planning to correct or work around the anticipated problems
in these systems. The repair and testing of its IT and embedded systems was
approximately 70 percent complete as of March 31, 1999.
The following schedule sets forth the company's estimated timetable for
achieving Y2K readiness of its IT and embedded systems:
Project Target Completion Dates
- -------- -----------------------
Phases
Worldwide inventory of systems Completed
Worldwide assessment Completed
Initial plan for corrections/work arounds Completed
Remediation/renovation Second quarter 1999
Contingency planning Third quarter 1999
Validation/testing Third quarter 1999
Implementation Third quarter 1999
Continuous system review Ongoing-through first quarter 2000
The company has identified approximately 400 "critical business partners" and
contacted 87 percent of these companies regarding their Y2K readiness. As of
March 31, 1999, the company had received responses from about 240 of the
critical business partners. Work in this area will continue and contingency
plans will incorporate the possibility of performance failures by multiple
critical business partners.
The company estimates the total expenditures on its Y2K project will be
approximately $30 million. These expenditures are recorded at the business unit
and corporate levels and are funded from cash provided by operating activities.
Expenditures as of March 31, 1999, were approximately $16 million. Most of the
remaining expenditures are expected to be incurred in the remainder of 1999.
The company is not aware of any IT projects that have been delayed due to the
Y2K project.
The Y2K problem is real and there is a risk of Y2K related failures. These
failures could result in an interruption in, or a failure of, certain business
activities or functions. Such failures could materially and adversely affect the
company's results of operations, liquidity or financial condition. Due to the
uncertainty surrounding the Y2K problem, including the uncertainty of the Y2K
readiness of the company's customers, suppliers, and partners, the company is
unable at this time to determine the true impact of the Y2K problem to Unocal.
The principal areas of risk are thought to be oil and gas production control
systems, other embedded operations control systems and third party Y2K
readiness. The company's Y2K project is expected to reduce this uncertainty. The
company believes that with the completion of the project as planned, the
possibility of significant interruptions of normal operations should be reduced.
There can be no assurance, however, that there will not be a delay in, or
increased costs associated with the implementation of such changes or that such
changes will prove 100 percent effective in resolving all Y2K related issues.
Furthermore, there can be no assurance that critical business partners will not
experience failures, irrespective of the Y2K readiness representations they may
have made. A likely worst case scenario is that despite the company's efforts,
there could be failures of control systems, which might cause some processes to
be shut down. Such failures could have a material adverse impact on the
company's operations. The company is particularly concerned about the status of
key critical business partners' Y2K readiness in Indonesia, Thailand, and the
Gulf of Mexico. Their failure due to a Year 2000 problem could prevent Unocal
from delivering product and cause a material adverse impact to the company's
cash flows.
19
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk generally represents the risk that losses may occur in the values 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 also pursues
outright pricing positions in certain hydrocarbon derivative financial
instruments, such as futures contracts.
Interest Rate Risk - From time to time the company temporarily invests its
excess cash in interest-bearing securities issued by 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. Interest rate sensitive derivative
financial instruments, such as swaps, options, floors, caps, and collars may
also be used depending upon market conditions.
The company evaluated the potential effect that near term changes in interest
rates would have had on the fair value of its interest rate risk sensitive
financial instruments at March 31, 1999. Assuming a ten percent decrease in the
company's weighted average borrowing costs at March 31, 1999, the potential
increase in the fair value of the company's debt obligations and associated
derivative instruments would have been approximately $102 million.
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 rate 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 practicable. 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.
From time to time the company may purchase foreign currency options or enter
into foreign currency exchange contracts to limit the exposure related to its
foreign currency obligations. At March 31, 1999, the company had several foreign
currency forward exchange contracts outstanding to hedge scheduled tax payments,
other commitments and receivables to be settled in Thai baht during 1999. At
March 31, 1999, the company evaluated the effect that near term changes in
foreign exchange rates would have had on the fair value of the company's foreign
currency position related to its outstanding foreign currency forward exchange
contracts. Assuming an adverse change of ten percent in foreign exchange rates
at March 31, 1999, the potential decrease in fair value of the company's foreign
currency forward exchanges contracts would have been approximately $2 million.
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 derivative financial instruments, such as
futures contracts, swaps and options with maturities of 24 months or less, to
mitigate its exposure to fluctuations in hydrocarbon commodity prices. Certain
of these instruments are used to hedge contractual delivery commitments and
future crude oil and natural gas production against price exposure. In certain
cases, the company enters into longer-term derivative instruments, such as swap
contracts, to hedge its exposure to long-term fixed price commitments. The
company also takes pricing positions in hydrocarbon derivative financial
instruments (primarily futures and options contracts).
The company uses a variance-covariance value at risk model to assess the market
risk of its hydrocarbon-price-sensitive derivative instruments. Value at risk
represents the potential loss in fair value the company would experience on its
hydrocarbon price sensitive derivative instruments, using calculated
volatilities and correlations over a specified time period with a given
confidence level. The company's model is based upon historical data and uses a
three-day time interval with a 95 percent confidence level. The model includes
offsetting physical positions for hydrocarbon price sensitive derivative
instruments related to the company's contracted crude oil and natural gas
forward sales. Based upon the company's model, the value at risk related to
hydrocarbon-price-sensitive derivative financial instruments held for purposes
other than trading was approximately $9 million at March 31, 1999. The value at
risk related to hydrocarbon-price-sensitive derivative financial instruments
held for trading purposes was approximately $3 million at March 31, 1999.
20
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There is incorporated by reference the information with respect to certain legal
proceedings previously reported in Item 3 of Unocal's Annual Report on Form 10-K
for the year ended December 31, 1998 (1998 Form 10-K), the information regarding
environmental remediation reserves in note 9 to the consolidated financial
statements in Item 1 of Part I hereof, the discussion of such reserves in the
Environmental Matters section of Management's Discussion and Analysis in Item 2
of Part I, and the information regarding certain legal proceedings and other
contingent liabilities in note 10 to the consolidated financial statements.
Information with respect to certain recent developments and additional legal
proceedings is set forth below:
General
1. In the lawsuit captioned Talbert Fuel Systems Patents Company v. Unocal
Corp., et al., described in Paragraph 1 of Item 3 of the 1998 Form
10-K, in April 1999, the court granted the company's motion for summary
judgment as to the remaining infringement claim.
2. In the lawsuit captioned The McMahon Foundation, et al. v. Amerada Hess
Corporation, et al., described in Paragraph 2 of Item 3 of the 1998
Form 10-K, in April 1999, the settlement agreement was given final
approval by the court. Less than 2.5 percent of the class members who
received royalty and working interest payments from the company
exercised opt-out rights.
3. In the lawsuit captioned United States, ex rel. Jack Grynberg v.
Unocal, described in Paragraph 5 of Item 3 of the 1998 Form 10-K, in
April 1999, the U.S. Department of Justice notified the court that it
has elected not to intervene in this action.
4. In connection with the notices of Preliminary Determination of
Underpaid Royalties received from the U.S. Department of the Interior
Minerals Management Service (MMS), described in Paragraph 6 of Item 3
of the 1998 Form 10-K, the company has entered into negotiations with
the MMS to settle the claims.
5. In the lawsuit captioned People of the State of California v. Molycorp,
Inc., described in Paragraph 8 of Item 3 of the 1998 Form 10-K, in
January 1999, the District Attorney filed an amended complaint adding
alleged violations of the California Business & Professions Code, Water
Code and Fish & Game Code.
Additional Environmental Matter Involving Possible Civil Penalties
6. In recent years the District Attorney of Yolo County, California, has
expressed concern with releases of chemicals from the company's West
Sacramento agricultural products plant. In March 1999, the District
Attorney sent the company a pre-filing letter allowing for discussion
regarding three past releases of which the company had notified the
appropriate environmental agencies. In the aggregate, civil penalties
concerning these matters could exceed $100,000.
21
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The Exhibit Index on page 24 of this report lists the
exhibits that are filed as part of this report.
(b) Reports on Form 8-K:
Filed during the first quarter of 1999:
1. Current Report on Form 8-K dated January 26, 1999, and filed
January 27, 1999, for the purpose of reporting, under Item
5, the company's sale of its Northern California Geothermal
assets to Calpine Corporation.
2. Current Report on Form 8-K dated January 27, 1999, and filed
January 29, 1999, for the purpose of reporting, under Item
5, the company's fourth quarter and full year 1998 earnings
and related information.
3. Current Report on Form 8-K dated February 8, 1999, and filed
February 10, 1999, for the purpose of reporting, under Item
5, the company's crude oil and natural gas reserve data.
4. Current Report on Form 8-K dated and filed March 3, 1999,
for the purpose of reporting, under Item 5, certain key
executive appointments.
Filed during the second quarter of 1999 to the date hereof:
1. Current Report on Form 8-K dated April 12, 1999, and filed
April 14, 1999, for the purpose of reporting, under Item 5,
the company's deepwater discoveries in the Gulf of Mexico.
2. Current Report on Form 8-K dated April 15, 1999, and filed
April 16, 1999, for the purpose of reporting, under Item 5,
the company's Unocal Canada Resources subsidiary's
definitive agreement to acquire an interest in Calgary-based
Northrock Resources Ltd.
3. Current Report on Form 8-K dated April 28, 1999, and filed
April 30,1999, for the purpose of reporting, under Item 5,
the company's first quarter 1999 earnings and related
information.
22
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UNOCAL CORPORATION
(Registrant)
Dated: May 13, 1999 By:/s/ JOE D. CECIL
-------------------------------
Joe D. Cecil
Vice President and Comptroller
(Duly Authorized Officer
Principal Accounting Officer)
23
<PAGE>
EXHIBIT INDEX
10. Termination Agreement and General Release, dated March 31, 1999, between
John W. Schanck and Union Oil Company of California (Union Oil).
12.1 Statement regarding computation of ratio of earnings to fixed charges of
Unocal for the three months ended March 31,1999 and 1998.
12.2 Statement regarding computation of ratio of earnings to fixed charges of
Union Oil for the three months ended March 31, 1999 and 1998.
27. Financial data schedule for the period ended March 31, 1999 (included
only in the copy of this report filed electronically with the Commission)
99.1 Related and Amended Articles of Incorporation of Union Oil, as amended
through April 1, 1999, and currently in effect.
99.2 Bylaws of Union Oil, as amended through April 1, 1999, and currently in
effect.
24
EXHIBIT 10
TERMINATION AGREEMENT AND GENERAL RELEASE
This Termination Agreement and General Release, executed this 31st day
of March, 1999 by and between John W. Schanck (hereinafter referred to as
"Employee"), and Union Oil Company of California (hereinafter referred to as
"Company").
WHEREAS, Employee has most recently been employed at the Company's
offices located in Sugar Land, Texas;
WHEREAS, the Company has made certain changes which have resulted in
the elimination of Employee's assignment and
WHEREAS, Employee is covered under an Employment Agreement dated as of
July 28, 1998 a copy of which is attached hereto as Exhibit A.
NOW, THEREFORE, in consideration of the mutual promises contained in
this Termination Agreement and General Release, the sufficiency of which are
hereby acknowledged, Company and Employee agree as follows:
1. Employee shall continue on the payroll of the Company through August
31, 1999 as a "Consulting Employee". During such period Employee will be paid
his current base salary and continue to be eligible for the Company's benefit
plans and policies generally applicable to its employees in his employment
category. Employee's participation and coverage shall be subject to the rules
and procedures generally applicable to employees under said plans. During this
period, Employee shall assist the Company with legal or administrative disputes
and with transition issues - all during normal business hours. These above
duties shall be limited in time and scope so as not to interfere with Employee's
search for other employment.
2. Employee shall be eligible for one year of outplacement services
under the Center of Executive Options to be paid by Company, plus up to an
additional year with another outplacement firm, if necessary to secure
employment. Such additional year's outplacement shall not exceed $35,000.
3. The payment of $893,808 (Eight Hundred and Ninety Three Thousand,
Eight-Hundred and Eight Dollars) due under the aforesaid Employment Agreement
shall be made within 30 days of the termination of his employment hereunder.
4. Employee shall be eligible for Unocal's executive financial
consulting program through August 31, 2000 in accordance with the terms of said
program.
5. Company shall continue to provide the continued "coaching" services
of Tom Curen at an approximate cost of $1200 per month through August 31, 1999.
6. Employee acknowledges that he acquired certain confidential
information concerning the operation of the Company during his employment with
the Company and in connection with the Employee's work hereunder. Employee
agrees that he will not at any time, whether during or after his employment
hereunder, (1) knowingly use for improper personal benefit any confidential
information that he may learn or has learned by reason of his employment with
the Company, or (2) disclose any such confidential information to any person
except (a) in the performance of his obligations to the Company hereunder, (b)
as required by applicable law, (c) in connection with the enforcement of his
rights under this Agreement, (d) in connection with any disagreement, dispute or
litigation (pending or threatened) between Employee and the Company, or (e) with
the prior written consent of the Company. "Confidential Information" includes
information with respect to the Company's products, facilities and methods,
research and development and trade secrets and other intellectual properties,
systems, patents and patent applications, procedures, manuals, confidential
reports, business plans, prospects or opportunities; provided, however, that
such terms shall not include any information that (X) is or becomes generally
known or available other than as a result of disclosure by Employee or (Y) is or
becomes known or available to Employee on a non-confidential basis from a source
which to Employee's knowledge is not prohibited from disclosing such information
to Employee by a legal, contractual, fiduciary or other obligation to the
Company. If Employee is unclear as to the requirements of the foregoing, he may
ask for clarification as to a specific situation by contacting the Company's
Chief Legal Officer in writing. Employee's obligations under this paragraph
shall survive termination of this Agreement.
1
<PAGE>
7. Unocal shall pay Employee his accrued vacation "bank balance" within
two weeks of his termination of employment.
8. Employee's termination of employment hereunder shall be treated as
"at the convenience of the Company" pursuant to the Long Term Incentive Plans of
1991 and 1998 and under the Revised Incentive Compensation Plan. Therefore,
Employee shall be entitled to the delivery of shares of Restricted Stock,
payment of Performance Shares and the extended period to exercise vested stock
options applicable under the terms of said Plans upon a termination of
employment at the convenience of the Company.
9. Employee shall not be entitled to any other termination-type
benefits except as specifically noted above. Employee hereby waives any benefits
or payments under the Unocal Termination Allowance Plan and Employee
Redeployment Program. Employee shall not be eligible for any future grants or
awards under the Management Incentive Plan of 1998.
10. All payments hereunder to Employee shall be reduced for any
applicable withholding.
11. General Release
In consideration for this Agreement, Employee hereby releases and
forever discharges Company and Unocal Corporation and their respective
predecessors, successors, partners, assigns, employees, shareholders, owners,
officers, directors, agents, attorneys, subsidiaries, divisions, and affiliates,
(jointly referred to as "Released Parties") from any and all claims, demands,
causes of action, obligations, damages, attorneys' fees, costs and liabilities
of any nature whatsoever, whether or not now known, suspected or asserted, which
Employee may have or claim to have against the Released Parties relating in any
manner to Employee's employment with the Company and/or the termination of such
employment, and hereby covenants not to assert such claims through a lawsuit, an
administrative proceeding or otherwise. This General Release includes, but is
not limited to, claims arising under federal, state or local laws prohibiting
employment discrimination or claims arising out of any legal restrictions on the
Company's rights to terminate its employees, including without limitation of the
Age Discrimination in Employment Act of 1967, Title VII of the Civil Rights Act
of 1964, and the Civil Rights Act of 1991.
This Agreement shall not apply to Employee's rights to any
indemnification insurance, defense or hold harmless protection that would
otherwise apply in the absence of this Release. Except as specifically provided
herein, nothing in this Agreement shall affect in any way, apply to, increase,
or diminish, any rights which Employee has with respect to retirement benefits
or with respect to any previously established policy or plans of the Company
outside of this Agreement.
12. Waiver
Employee waives all rights under Section 1542 of the Civil Code of
California. That section reads as follows:
"A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor."
Notwithstanding the provisions of Section 1542 or any similar law of any other
state, and to provide a full and complete release of Released Parties, Employee
expressly acknowledges that this Termination Agreement and General Release is
intended to include, without limitation, all claims which Employee does not know
or suspect to exist in his favor at the time of execution of this document, and
that the settlement agreed upon completely extinguishes all such claims.
13. Employee shall not disclose the existence or terms of this
Agreement to current or former employees of the Company. However, Employee may
disclose this Agreement to his spouse, tax advisor, financial advisor or
potential employer, or when required by legal or administrative proceedings. In
the event of a disclosure other than that authorized in the preceding sentence,
Company may immediately terminate Agreement and its remaining obligations
thereunder. At the time of execution of this Agreement, Company agrees that it
has no knowledge of any disclosure by Employee as such disclosure is referred to
in this paragraph.
2
<PAGE>
14. This Termination Agreement and General Release is a full and complete
expression of the intent of the parties with respect to the subject matter of
this Agreement. No other agreement or representation, express or implied, has
been made by either party with respect to the subject matter of this Agreement.
15. This Termination Agreement and General Release may not be modified
except by a written agreement signed by both Employee and by a Vice President of
Union Oil Company of California.
16. This Termination Agreement and General Release shall be interpreted
to be valid to the full extent possible under the laws of the State of Texas.
17. Employee warrants and represents that he has not assigned or in any
way transferred any claim related to the subject matter of this Termination
Agreement and General Release and that he will not allow or assist in such
transfer or assignment in the future.
18. This Termination Agreement and General Release shall not constitute
an admission by any Released Party of any wrongful action or inaction
whatsoever.
19. Employee agrees that this Termination Agreement and General Release
is understood by Employee and is voluntarily entered into by the Employee.
20. Employee may file a written beneficiary designation for any
payments in the event of his death prior to receipt of the amounts due under
paragraphs 2, 3, 4 and 9 in the form of Attachment A. The last such designation
received by Company prior to his death shall control any such payments.
21. Employee's Right to Review Agreement.
Employee has twenty-two (22) days from the date of Employee's receipt
of this Termination Agreement and General Release to consider whether or not to
sign this Termination Agreement and General Release.
22. This Termination Agreement and General Release shall not be
effective until eight (8) days from the date of execution of this Termination
Agreement and General Release by Employee. During such period, Employee may
notify Company in writing of his revocation of this Termination Agreement and
General Release.
23. Employee's Right to Consult Counsel.
Employee is advised to consult with Employee's attorney before deciding
whether or not to sign this Termination Agreement and General Release.
IN WITNESS WHEREOF, this Termination Agreement and General Release has been
executed in duplicate originals.
UNION OIL COMPANY OF CALIFORNIA EMPLOYEE
By: _____________________________ __________________________
Signature
Carl D. McAulay John W. Schanck
- ----------------- -----------------
Print Name Print Name
4/26/99 4/2/99
Date Date
3
<PAGE>
ATTACHMENT A TO TERMINATION AGREEMENT AND GENERAL RELEASE
BENEFICIARY DESIGNATION
I, Jack Schanck, (Employee) hereby designate the following person(s) as
Beneficiary for any payments due at the time of my death under my Termination
Agreement and General Release with Union Oil Company of California, dba Unocal.
Name: Judi A. Schanck
---------------------
Address: 3802 Hogan Ct.
---------------------
Sugar Land, TX 77479
---------------------
Relationship: Wife
---------------------
Interest (%): 100%
---------------------
Name: ______________________________
Address: ______________________________
Relationship: ______________________________
Interest (%): ______________________________
4
<TABLE>
<CAPTION>
EXHIBIT 12.1
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
For the Three Months
Ended March 31
--------------------
Millions of dollars 1999 1998
- --------------------------------------------------------------------------------
<S> ........................................................ <C> <C>
Earnings (loss) from operations ............................ $ 7 $ 18
Provision for income taxes ................................. 10 79
- --------------------------------------------------------------------------------
Earnings (loss) subtotal .......................... 17 97
Fixed charges included in earnings:
Interest expense ........................................ $ 45 $ 41
Distribution on convertible preferred securities ........ 8 8
Interest portion of rentals ............................. 5 6
- --------------------------------------------------------------------------------
Fixed charges subtotal ............................ 58 55
Earnings from operations
available before fixed charges .......................... $ 75 $152
- --------------------------------------------------------------------------------
Fixed charges:
Fixed charges included in earnings ...................... $ 58 $ 55
Capitalized interest .................................... 5 8
- --------------------------------------------------------------------------------
Total fixed charges ............................... $ 63 $ 63
- --------------------------------------------------------------------------------
Ratio of earnings from operations
to fixed charges ........................................ 1.2 2.4
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 12.2
UNION OIL COMPANY OF CALIFORNIA AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
For the Three Months
Ended March 31
--------------------
Millions of dollars 1999 1998
- --------------------------------------------------------------------------------
<S> .................................................. <C> <C>
Earnings (loss) from operations ...................... $ 13 $ 23
Provision for income taxes ........................... 12 83
- --------------------------------------------------------------------------------
Earnings subtotal .............................. 25 106
Fixed charges included in earnings:
Interest expense .................................. 45 41
Interest portion of rentals ....................... 5 6
- --------------------------------------------------------------------------------
Fixed charges subtotal ......................... 50 47
Earnings (loss) from operations
available before fixed charges .................... 75 153
- --------------------------------------------------------------------------------
Fixed charges:
Fixed charges included in earnings ................ 50 47
Capitalized interest .............................. 5 8
- --------------------------------------------------------------------------------
Total fixed charges ............................ $ 55 $ 55
- --------------------------------------------------------------------------------
Ratio of earnings from operations
to fixed charges ................................. 1.4 2.8
- --------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Unocal Corporation FDS
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 182
<SECURITIES> 0
<RECEIVABLES> 795
<ALLOWANCES> (56)
<INVENTORY> 195
<CURRENT-ASSETS> 1,259
<PP&E> 15,333
<DEPRECIATION> (10,161)
<TOTAL-ASSETS> 7,809
<CURRENT-LIABILITIES> 1,175
<BONDS> 2,568
0
0
<COMMON> 252
<OTHER-SE> 2,387
<TOTAL-LIABILITY-AND-EQUITY> 7,809
<SALES> 1,189
<TOTAL-REVENUES> 1,231
<CGS> 851
<TOTAL-COSTS> 1,214
<OTHER-EXPENSES> 65
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45
<INCOME-PRETAX> 17
<INCOME-TAX> 10
<INCOME-CONTINUING> 7
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
EXHIBIT 99.1
RESTATED AND AMENDED
ARTICLES OF INCORPORATION
OF
UNION OIL COMPANY OF CALIFORNIA
a California Corporation
(Endorsed filed April 1, 1999,
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, respectively, 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.
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 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.
1
<PAGE>
Four: 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.
Five: 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.
Six: The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permissable under California
law. If the California General Corporation Law is amended after approval by the
stockholders of this article to authorize corporate action further eliminating
or limiting the personal 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 stockholders 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.
Seven: 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 stockholders or disinterested
directors, or otherwise, to the fullest extent permissible under California law.
Any repeal or modification by the stockholders 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
stockholders 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: March 31, 1999
/s/ Dennis Codon /s/ B. Dewez
- --------------------------------- ----------------------------
Dennis P.R. Codon, Vice President Brigitte M. Dewez, Secretary
2
EXIHIBIT 99.2
BYLAWS
OF
UNION OIL COMPANY OF CALIFORNIA
a California Corporation
(Effective April 1, 1999)
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 a time to be fixed by resolution of the Board on the fourth
Monday in May of each year if not a legal holiday, for the purpose of electing
directors and for the transaction of any other business which is within the
powers of the shareholders. If the fourth Monday in May is a legal holiday, the
annual meeting of the shareholders shall be held on the preceding or subsequent
Monday as fixed by resolution of the Board. The mailing of an annual report to
the shareholders not later than 120 days after the close of the fiscal year is
waived.
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 Vice
Chairman, 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.
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.
1
<PAGE>
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 number of directors of the Company shall not be
less than four (4) nor more than seven (7). The exact number of directors of the
Company shall be fixed by resolution of the Board of Directors.
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.
Section 6. Special Meetings. Special meetings of the Board for any
purpose or purposes whatsoever may be called by the Chairman of the Board and
Chief Executive Officer or, in his absence or inability by the Vice Chairman,
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 days in advance if given by mail, or at least one hour in
advance if delivered personally or given by telephone or other electronic means.
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. The higher of two (2) or one-third (1/3) of the
number of directors fixed by resolution adopted pursuant to Section 2 of this
Article 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 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.
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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 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. A majority of the Board may, by resolution,
appoint one or more committees to consist of two or more of the directors of the
Company, and prescribe their duties and powers. Two 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 as permitted by the California General
Corporation Law.
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ARTICLE V
OFFICERS
Section 1. Officers. The officers of the Company shall be a Chairman, a
Chief Executive Officer, a Chief Financial Officer, a Vice President, a
Secretary, a Comptroller, a Treasurer, and a Chief Legal Officer. The Company
may also have, at the discretion of the Board, one (1) Vice Chairman, one (1) or
more Vice Presidents, who may be designated as Executive Vice Presidents, Group
Vice Presidents, Senior Vice Presidents or Vice Presidents, one (1) or more
Assistant Chief Financial Officers, one (1) or more Assistant Secretaries, one
(1) or more 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 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 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) Executive Vice Presidents. The Executive Vice Presidents in general
shall perform all duties incident to the office of Executive Vice 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) Other Vice Presidents. Other Vice Presidents, who may be designated
as Group Vice Presidents, Senior Vice Presidents or Vice Presidents, shall have
such authority and shall perform such duties as shall from time to time be
assigned by the Board of Directors, the Chief Executive Officer, the Executive
Vice Presidents or prescribed by the Bylaws.
(d) Chief Financial Officer. The Chief Financial Officer 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.
(e) Assistant Chief Financial Officer. Each Assistant Chief Financial
Officer shall assist the Chief Financial Officer and shall perform such duties
as shall from time to time be assigned by the Board, the Chief Executive Officer
or the Chief Financial Officer.
(f) Secretary. The Secretary shall keep, or cause to be kept, at the
Company's offices, a book of minutes of all meetings of directors and
shareholders.
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.
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.
(g) 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.
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(h) 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.
(i) 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.
(j) 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.
(k) 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.
(l) Chief Legal Officer. The Chief Legal Officer shall be in charge of
the Company's legal affairs. The Chief Legal Officer shall advise the Board, the
Chairman of the Board and/or the officers of the Company on such legal matters
and prepare such reports as may be required by them or any of them.
ARTICLE VI
MISCELLANEOUS
Section 1. Execution of Documents. Unless otherwise authorized by or
pursuant to a resolution of 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 Chairman and Chief Executive Officer, the Vice Chairman, 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.
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 authorized from time to time to do so by or pursuant
to a resolution of the Board of Directors.
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 Chairman and
Chief Executive Officer, the Vice Chairman, 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.
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ARTICLE IX
AMENDMENTS
Section 1. Power of Shareholders. New Bylaws may be adopted or these
Bylaws may be amended or repealed by the vote or written assent of shareholders
entitled to exercise a majority of the voting power of the Company.
Section 2. Power of Directors. Subject to the right of shareholders as
provided in Section 1 of this Article 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 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 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 any emergency, a quorum of the Board of Directors
is not available to serve, then, in the following order of priority, any
available director and as many other 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 two emergency directors, shall be and
constitute the Board of Directors, 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, 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. Any two of such
emergency directors shall constitute a quorum.
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.
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