Unocal Corporation's 1st Quarter 2000 10-Q
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, 2000
----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-8483
UNOCAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 95-3825062
(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
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Number of shares of Common Stock, $1 par value, outstanding as of April 30,
2000: 242,859,084
<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 2000 1999
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Revenues
<S> ...................................................................................... <C> <C>
Sales and operating revenues ............................................................. $ 1,827 $ 1,126
Interest, dividends and miscellaneous income ............................................. 31 28
Equity in earnings of affiliated companies ............................................... 25 27
Loss on sales of assets .................................................................. (2) (13)
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Total revenues ..................................................................... 1,881 1,168
Costs and other deductions
Crude oil, natural gas and product purchases ............................................. 1,051 578
Operating expense ........................................................................ 236 218
Selling, administrative and general expense .............................................. 48 31
Depreciation, depletion and amortization ................................................. 206 196
Dry hole costs ........................................................................... 14 27
Exploration expense ...................................................................... 49 38
Interest expense ......................................................................... 53 45
Property and other operating taxes ....................................................... 13 12
Distributions on convertible preferred
securities of subsidiary trust ........................................................ 8 8
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Total costs and other deductions ................................................... 1,678 1,153
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Earnings from continuing operations
before income taxes and minority interests ............................................. 203 15
Income taxes ............................................................................. 83 11
Minority interests ....................................................................... (4) --
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Earnings from continuing operations before discontinued operations....................... $ 124 $ 4
Discontinued operations
Agricultural Products
Earnings from operations (net of tax) ................................................. -- 3
Gain on disposal (net of tax) ......................................................... 9 --
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Earnings from discontinued operations .............................................. 9 3
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Net earnings........................................................................ $ 133 $ 7
====================================================================================================================================
Basic earnings per share of common stock (a)
Continuing operations ................................................................. $ 0.51 $ 0.02
Discontinued operations ............................................................... 0.04 0.01
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Net Earnings ....................................................................... $ 0.55 $ 0.03
Diluted earnings per share of common stock (b)
Continuing operations ................................................................. $ 0.51 $ 0.02
Discontinued operations ............................................................... 0.04 0.01
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Net Earnings ....................................................................... $ 0.55 $ 0.03
Cash dividends declared per share of common stock ........................................ $ 0.20 $ 0.20
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<FN>
(a) Weighted average shares outstanding - basic (in thousands) .......................... 242,703 241,426
(b) Weighted average shares outstanding - diluted (in thousands) ........................ 242,963 242,154
</FN>
</TABLE>
See notes to the consolidated financial statements.
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<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET UNOCAL CORPORATION
March 31, December 31,
-------------------------------
Millions of dollars 2000 (a) 1999
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Assets
Current assets
<S> ...................................................................................... <C> <C>
Cash and cash equivalents ............................................................. $ 234 $ 332
Accounts and notes receivable ......................................................... 895 994
Inventories ........................................................................... 168 179
Deferred income taxes ................................................................. 102 100
Other current assets .................................................................. 27 26
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Total current assets ............................................................... 1,426 1,631
Investments and long-term receivables .................................................... 1,315 1,264
Properties - net (b) ..................................................................... 5,960 5,980
Deferred income taxes .................................................................... 259 16
Other assets ............................................................................. 121 76
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Total assets ....................................................................... $ 9,081 $ 8,967
====================================================================================================================================
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable ...................................................................... $ 891 $ 979
Taxes payable ......................................................................... 252 192
Interest payable ...................................................................... 43 62
Current portion of environmental liabilities .......................................... 102 100
Other current liabilities ............................................................. 218 226
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Total current liabilities .......................................................... 1,506 1,559
Long-term debt and capital leases ........................................................ 2,688 2,853
Deferred income taxes .................................................................... 485 230
Accrued abandonment, restoration and environmental liabilities ........................... 556 567
Other deferred credits and liabilities ................................................... 670 620
Minority interests ....................................................................... 407 432
Company-obligated mandatorily redeemable convertible preferred securities
of a subsidiary trust holding solely parent debentures ................................ 522 522
Common stock ($1 par value) .............................................................. 253 253
Shares authorized: 750,000,000 (c)
Capital in excess of par value ........................................................... 509 493
Unearned portion of restricted stock issued .............................................. (27) (20)
Retained earnings ........................................................................ 1,987 1,902
Accumulated other comprehensive loss...................................................... (32) (33)
Notes receivable - key employees ......................................................... (32) --
Treasury stock - at cost (d) ............................................................ (411) (411)
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Total stockholders' equity ......................................................... 2,247 2,184
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Total liabilities and stockholders' equity ...................................... $ 9,081 $ 8,967
====================================================================================================================================
<FN>
(a) Unaudited
(b) Net of accumulated depreciation and other of ........................................ $ 10,717 $ 10,535
(c) Number of shares outstanding (in thousands) ......................................... 242,887 242,441
(d) Number of shares (in thousands) ..................................................... 10,623 10,623
</FN>
</TABLE>
See notes to the consolidated financial statements.
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<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED CASH FLOWS UNOCAL CORPORATION
(UNAUDITED)
For the Three Months
Ended March 31,
-------------------------------
Millions of dollars 2000 1999
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Cash Flows from Operating Activities
<S> ...................................................................................... <C> <C>
Net earnings ............................................................................. $ 133 $ 7
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation, depletion and amortization ........................................... 206 200
Dry hole costs ..................................................................... 14 27
Deferred income taxes .............................................................. 2 (32)
Loss on sales of assets (pre-tax) .................................................. 2 13
Other .............................................................................. 4 (13)
Working capital and other changes related to operations
Accounts and notes receivable ................................................... 62 56
Inventories ..................................................................... 11 (17)
Accounts payable ................................................................ (82) (115)
Taxes payable ................................................................... 60 (43)
Other ........................................................................... (37) 16
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Net cash provided by operating activities .................................... 375 99
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Cash Flows from Investing Activities
Capital expenditures (includes dry hole costs) ........................................ (295) (225)
Proceeds from sales of assets ......................................................... 52 106
Proceeds from sale of discontinued operations ......................................... 25 --
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Net cash used in investing activities ........................................ (218) (119)
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Cash Flows from Financing Activities
Long-term borrowings .................................................................. 8 435
Reduction of long-term debt ........................................................... (173) (425)
Minority interests .................................................................... (10) (1)
Proceeds from issuance of common stock ................................................ 1 3
Dividends paid on common stock ........................................................ (49) (48)
Loans to key employees ................................................................ (32) --
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Net cash used in financing activities ........................................... (255) (36)
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Decrease in cash and cash equivalents .................................................... (98) (56)
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Cash and cash equivalents at beginning of year ........................................... 332 238
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Cash and cash equivalents at end of period ............................................... $ 234 $ 182
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Supplemental disclosure of cash flow information: Cash paid during the period
for:
Interest (net of amount capitalized) ............................................... $ 72 $ 65
Income taxes (net of refunds) ...................................................... $ 30 $ 87
</TABLE>
See notes to the consolidated financial statements.
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) General
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 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 1999 Annual Report on Form 10-K.
Results for the three months ended March 31, 2000, are not necessarily
indicative of future financial results.
Segment data and certain other items in the prior year financial statements have
been reclassified to conform to the 2000 presentation.
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".
The consolidated financial statements of the company include the accounts of
subsidiaries in which a controlling interest is held. Investments in affiliates
without a controlling interest are accounted for by the equity method. Under the
equity method, the investments are stated at cost plus the company's equity in
undistributed earnings and losses after acquisition. Income taxes estimated to
be payable when earnings are distributed are included in deferred taxes.
(2) Other Financial Information
During the first quarters of 2000 and 1999, approximately 50 percent and 45
percent, respectively, of total sales and operating revenues were attributable
to the resale of crude oil, natural gas and natural gas liquids purchased from
others in connection with the company's 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 $2 million and $5 million for the first quarters of
2000 and 1999, respectively.
(3) Income Taxes
Income taxes on earnings from continuing operations for the first quarter of
2000 were $83 million compared with $11 million for the comparable period of
1999. The effective income tax rate for the first quarter of 2000 was 40 percent
compared with 73 percent for the first quarter of 1999. The tax rate for the
first quarter of 1999 was unusually higher than normal due to the mix effect of
domestic losses versus foreign earnings.
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<PAGE>
(4) 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
continuing operations for the first quarters ended March 31, 2000 and 1999:
<TABLE>
<CAPTION>
Earnings Shares Per Share
Millions except per share amounts (Numerator) (Denominator) Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Three months ended March 31, 2000
<S> ............................................................................ <C> <C> <C>
Earnings from continuing operations ....................................... $ 124 242.7
Basic EPS ............................................................. $0.51
=====
Effect of dilutive securities
Options and common stock equivalents .................................. 0.3
---------------------------
Diluted EPS ........................................................... 124 243.0 $0.51
=====
Distributions on subsidiary trust preferred securities (after-tax) .... 6 12.3
---------------------------
Antidilutive .......................................................... $ 130 255.3 $0.51
Three months ended March 31, 1999
Earnings from continuing operations ....................................... $ 4 241.4
Basic EPS ............................................................. $0.02
=====
Effect of dilutive securities
Options and common stock equivalents .................................. 0.7
---------------------------
Diluted EPS ........................................................... 4 242.1 $0.02
=====
Distributions on subsidiary trust preferred securities (after-tax) .... 6 12.3
---------------------------
Antidilutive .......................................................... $ 10 254.4 $0.04
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</TABLE>
Not included in the computation of diluted EPS were options outstanding at March
31, 2000 to purchase approximately 8.2 million shares of common stock. These
options were not included in the computation because their exercise prices were
greater than the year-to-date average market price of $29.01 for the common
shares. The exercise prices of these options range from $29.69 to $51.01 per
share and they expire in the years 2003 through 2010.
(5) Sale of Accounts Receivable
In 1999, the company, through a non-consolidated subsidiary Unocal Receivables
Corp. ("URC"), entered into a sales agreement with an outside party under which
it will sell up to a $204 million undivided interest in domestic crude oil and
natural gas trade receivables. The company continues to manage the collection
and administrative responsibilities for accounts receivable including the sold
interest. The company had sold $100 million of its domestic trade receivables
under this agreement as of December 31, 1999. This amount had increased to $145
million as of March 31, 2000. The $45 million increase since the beginning of
the year 2000 is reflected as a reduction of accounts and notes receivable in
the consolidated balance sheet and a corresponding increase in net cash provided
by operating activities in the consolidated statement of cash flows. At March
31, 2000, the company's balance sheet included a note receivable of
approximately $287 million due from URC representing the unsold balance of trade
receivables transferred to URC.
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<PAGE>
(6) Long Term Debt and Credit Agreements
During the first quarter of 2000, the company decreased its commercial paper
borrowings by $123 million to a total outstanding balance of $2 million at March
31, 2000. The company also reduced its borrowings under the $1 billion bank
credit agreement by $50 million to an outstanding balance of $10 million at
March 31, 2000.
(7) Stockholder Rights Plan
On January 5, 2000, the Board of Directors adopted a new stockholder rights plan
(2000 Rights Plan) to replace the 1990 Rights Plan. The Board declared a
dividend of one preferred share purchase right (new Right) for each share of
common stock outstanding, which was paid to stockholders of record on January
29, 2000, when the rights outstanding under the 1990 Rights Plan expired. The
Board also authorized the issuance of one new Right for each common share issued
after January 29, 2000, and prior to the earlier of the date on which the new
Rights become exercisable, the redemption date or the expiration date. Until the
new Rights become exercisable, as described below, the outstanding new Rights
trade with, and will be inseparable from, the common stock and will be evidenced
only by certificates or book-entry credits that represent shares of common
stock.
The Board of Directors has designated 5,000,000 shares of preferred stock as
Series B Junior Participating Preferred Stock (Series B preferred stock) in
connection with the 2000 Rights Plan. The Series B preferred stock replaces the
Series A preferred stock that was designated under the 1990 Rights Plan. The
2000 Rights Plan provides that in the event any person or group of affiliated
persons becomes, or commences a tender offer or exchange offer pursuant to which
such person or group would become, the beneficial owner of 15 percent or more of
the outstanding common shares, each new Right (other than new Rights held by the
15 percent stockholder) will be exercisable on and after the close of business
on the tenth business day following such event, unless the new Rights are
redeemed by the Board of Directors, to purchase one one-hundredth of a share of
Series B preferred stock for $180. If such a person or group becomes such a 15
percent beneficial owner of common stock, each new Right (other than new Rights
held by the 15 percent stockholder) will be exercisable to purchase, for $180,
shares of common stock with a market value of $360, based on the market price of
the common stock prior to such 15 percent acquisition. If the company is
acquired in a merger or similar transaction following the date the new Rights
become exercisable, each new Right (other than new Rights held by the 15 percent
stockholder) will become exercisable to purchase, for $180, shares of the
acquiring corporation with a market value of $360, based on the market price of
the acquiring corporation's stock prior to such merger. The Board of Directors
may reduce the 15 percent beneficial ownership threshold to not less than 10
percent.
The new Rights will expire on January 29, 2010, unless previously redeemed by
the Board of Directors. The new Rights do not have voting or dividend rights
and, until they become exercisable, have no diluting effect on the earnings per
share of the company.
-6-
<PAGE>
(8) Financial Instruments and Commodity Hedging
The company's financial instruments at March 31, 2000 are described below:
Foreign currency contracts - Fair values for foreign currency contracts were
determined by comparing the contract rates to the forward rates in effect at
March 31, 2000 and represent the estimated costs the company would incur, or
proceeds the company would receive, if the contracts were terminated at March
31, 2000.
During the first quarter, the company's wholly owned Canadian subsidiary repaid
$50 million of its outstanding U.S. dollar debt and retired $50 million of
related Canadian dollar currency swap contracts. Gains received by the
subsidiary on the retirement of the currency swap contracts offset losses
received for the debt retirement. The company also retired $50 million of
corresponding U.S. dollar currency swap contracts that were designed to mitigate
exchange rate fluctuations to the consolidated company related to the
subsidiary's swapped Canadian dollar loan. Losses related to the U.S. dollar
currency swap contracts were immaterial.
In the first quarter, the company entered into additional foreign currency
forward contracts for Dutch guilders and Thai baht. At March 31, the company had
foreign currency forward contracts outstanding to purchase and sell
approximately $68 million and $34 million of Thai baht, respectively, and
contracts to purchase approximately $27 million of Dutch guilders. The contracts
are designed to hedge the company's exposure for estimated local foreign
currency denominated obligations and receivables expected to be settled in 2000
and 2001. The fair values of the baht and guilder purchase contracts at March
31, 2000 were approximately $1 million and $(1) million respectively. The fair
values of the baht sales contracts were immaterial.
Commodity hedging activities - The company determines its unrealized gains and
losses using dealer quotes where available, or by financial modeling using
underlying commodity prices. At March 31, 2000, the company had futures
contracts outstanding for the purchase of approximately 3.6 million barrels of
crude oil. The crude oil futures contracts primarily offset the fixed price risk
associated with prepaid forward crude oil sales that are scheduled for delivery
for the period April 2000 to September 2000. Pre-tax unrealized gains of $27
million on the crude oil futures contracts approximated pre-tax unrealized
losses on the corresponding prepaid forward crude oil sales at March 31, 2000.
Natural gas futures contracts and related pre-tax unrealized losses were
immaterial at March 31, 2000.
At March 31, 2000 the company's Northrock Resources Ltd. subsidiary (Northrock)
had various hydrocarbon option contracts (options) outstanding with several
counterparties designed to hedge the prices to be received for the sale of its
crude oil and natural gas production for the period April 2000 to October 2004.
These options are generally accounted for as hedges with gains and losses
deferred and recognized as adjustments to commodity revenues upon the sale of
the underlying production. At Match 31, 2000, pre-tax unrealized losses
approximated $3 million for crude oil options and $29 million for natural gas
options. After minority interests, the company's share of pre-tax unrealized
losses were approximately $2 and $14 million, respectively. One hundred percent
of the pre-tax unrealized crude oil losses and approximately half of the
unrealized natural gas losses at March 31, 2000 related to the year 2000.
The company had a gas price swap agreement with nine years remaining at March
31, 2000 related to a prepaid fixed price forward sale. The pre-tax unrealized
gain related to the swap agreement at March 31, 2000 was approximately $27
million. The gain is offset by a corresponding unrealized loss on the prepaid
fixed price forward sale.
At March 31, 2000, Northrock had various long-term natural gas sales contracts
outstanding that contained fixed-price pricing structure. The contract periods
range from April 2000 through October 2004. Pre-tax unrealized losses related to
these contracts were estimated to be approximately $45 million at
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<PAGE>
March 31, 2000. After minority interests, the company's share of pre-tax
unrealized losses would approximate $21 million. Approximately one third of the
unrealized natural gas losses at March 31, 2000 related to the year 2000.
Commodity trading activities - To better manage its risk profile, the company
trades hydrocarbon commodities and related derivatives, including futures,
forwards, options and swaps, based upon expectations of future market
conditions. The company determines the market value of its non-hedging
hydrocarbon commodity derivative instruments using dealer quotes, where
available, or by financial modeling using underlying commodity prices. During
the first quarter, the company recorded pre-tax losses of approximately $20
million related to the marking to market of its non-hedging hydrocarbon
commodity derivative instruments. After minority interests, the company's share
of the pre-tax unrealized loss would approximate $9 million. These losses
related to one of the company's Canadian subsidiaries. The company recorded
approximately $4 million in pre-tax gains related to the marking to market of
its non-hedging hydrocarbon commodity derivative instruments during the first
three months of 1999 (there was no minority interest impact in 1999).
Fair values of debt and other long-term instruments - The estimated fair value
of the company's long-term debt at March 31, 2000 was approximately $2,729
million. Fair values were based on the discounted amounts of future cash
outflows using the rates offered to the company for debt with similar remaining
maturities.
The estimated fair value of the company's mandatorily redeemable convertible
preferred securities of the company's subsidiary trust was $464 million at March
31, 2000. The fair value was based on the trading prices of the preferred
securities on March 31, 2000.
(9) Accrued Abandonment, Restoration and Environmental Liabilities
At March 31, 2000, the company had accrued $469 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 $628 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, 2000 totaled $189 million, of which $102
million was included in current liabilities.
(10) Commitments and Contingencies
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
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<PAGE>
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, 2000, the company had accrued $189 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
$200 million.
Tax matters - The company believes it has adequately provided in its accounts
for tax items and issues not yet resolved. Several prior material tax issues are
unresolved. Resolution of these tax issues impact not only the year in which the
items arose, but also the company's tax situation in other tax years. With
respect to 1979-1984 taxable years, all issues raised for these years have now
been settled, with the exception of the effect of the carryback of a 1993 net
operating loss (NOL) to tax year 1984 and resultant credit adjustments. The
1985-1990 taxable years are before the Appeals division of the Internal Revenue
Service. All issues raised with respect to those years have now been settled,
with the exception of the effect of the 1993 NOL carryback and resultant
adjustments. The settlements were subject to review by the Joint Committee on
Taxation of the U.S. Congress. The Joint Committee has reviewed the settled
issues with respect to 1979-1990 taxable years and no additional issues have
been raised. While all tax issues for the 1979-1990 taxable years have been
agreed and reviewed by the Joint Committee, these taxable years will remain open
due to the 1993 NOL carryback. The 1993 NOL results from certain specified
liability losses which occurred during 1993 and which resulted in a tax refund
of $73 million. Consequently, these tax years will remain open until the
specified liability loss, which gave rise to the 1993 NOL, is finally determined
by the Internal Revenue Service and is either agreed to with the IRS or
otherwise concluded in the Tax Court proceeding. In 1999, the United States Tax
Court granted Unocal's motion to amend the pleadings in its Tax Court cases to
place the 1993 NOL carryback in issue.
Other matters - In 1999, a Canadian subsidiary of the company acquired an
approximate 48 percent controlling interest in Northrock. Northrock has the
right, until December 31, 2000, to require that the company purchase additional
common shares from Northrock treasury stock at a price of $15 Canadian dollars
per share, up to the lesser of 1,721,000 common shares or a maximum ownership
level of 49.9 percent. This put option would cease to exist if the company is
successful in purchasing the remaining outstanding shares of Northrock (see note
16 for further detail).
In December 1999, the company signed an agreement to merge its Permian and San
Juan Basin oil and gas exploration and production assets with Titan Exploration,
Inc. (Titan) to create a new publicly traded company, Pure Resources, Inc. (Pure
Resources). In exchange for its assets, the company will receive approximately
65 percent or 32.7 million shares (valued at approximately $290 million) of the
50 million common shares outstanding at the completion of the transaction. Titan
stockholders will receive approximately 0.4302 shares of Pure Resources stock
for every share of Titan they currently hold. The company will fully consolidate
the financial results of Pure Resources in its financial statements as of the
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<PAGE>
acquisition date. The transaction is now awaiting approval by the Titan
stockholders at a meeting to be held on May 24, 2000. The transaction is
expected to be completed soon thereafter.
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) Summarized Financial Data of Union Oil
Unocal guarantees certain indebtedness of Union Oil. Summarized below is
financial information for Union Oil and its consolidated subsidiaries:
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
---------------------------------
Millions of dollars 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> .......................................................................................... <C> <C>
Total revenues ............................................................................... $1,872 $1,168
Total costs and other deductions, including income taxes ..................................... 1,747 1,158
---------------------------------
Earnings from continuing operations before discontinued operations .......................... $ 125 $ 10
Discontinued operations
Agricultural products
Earnings from operations (net of taxes) ................................................. -- 3
Gain on disposal (net of taxes) ......................................................... 9 --
---------------------------------
Net earnings ................................................................................. $ 134 $ 13
=================================
</TABLE>
<TABLE>
<CAPTION>
At March 31 At December 31 (a)
-------------- -------------------
Millions of dollars 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> ...................................................................... <C> <C>
Current assets ........................................................... $1,414 $1,631
Noncurrent assets ........................................................ 7,679 7,352
Current liabilities ...................................................... 1,481 1,562
Noncurrent liabilities ................................................... 4,807 4,702
Shareholder's equity ..................................................... 2,805 2,719
</TABLE>
(12) Asset Acquisitions
On February 3, 2000, the company's Spirit Energy Partners, L.P. (partnership),
acquired interests from Tana Corporation in 12 proven properties and nine
offshore platforms located in the shelf area of the Gulf of Mexico. The
partnership is an entity formed by Unocal to acquire producing properties in
existing areas of operations. The company's non-controlling 50 percent interest
is accounted for using the equity method. The purchase had an effective date of
October 1, 1999. The company and its partner each contributed $27 million to the
partnership for the purchase of the properties. The partnership also secured
outside financing for the purchase.
-10-
<PAGE>
(13) Restructuring Costs
In the first quarter of 2000 the company adopted a restructuring plan that
resulted in the accrual of a $17 million pre-tax restructuring charge. This
amount included the estimated costs of terminating approximately 195 employees.
The plan involves the simplifying of the organizational structures to align them
with the company's portfolio requirements and business needs, along with the
creation of a new organizational structure for part of the company's Lower 48
exploration and production segment.
Approximately 125 of the affected employees are from various exploration and
production business units and 70 are from other organizations, including
corporate staff. The restructuring charge included approximately $17 million for
termination costs to be paid to the employees over time, approximately $2
million for outplacement and other costs and a net reduction in pension and post
retirement expenses of $2 million. The charge is included in selling,
administrative and general expense on the consolidated earnings statement. At
March 31, 2000, 113 employees had been terminated or had received termination
notices as a result of the plan, with additional terminations scheduled
primarily in the second and third quarters of 2000.
The company adopted a restructuring plan during the second quarter of 1999 that
resulted in the accrual of an $18 million pre-tax restructuring charge. This
amount included the estimated costs of terminating approximately 250 employees.
The charge was included in selling, administrative and general expense on the
consolidated earnings statement. The plan involved the blending of several
International and Geothermal organizations, a manpower optimization program in
Thailand, cost cutting and efficiency initiatives and a company-wide shared
resources initiative.
Approximately 100 of the affected employees were from the company's
International operations, 31 were from the Carbon and Minerals segment, 25 were
from the Alaska oil and gas operations and 94 were from other organizations,
including corporate staff. The restructuring charge included approximately $16
million for termination costs to be paid to the employees over time and about $2
million related to outplacement and other costs. At March 31, 2000, 237
employees had been terminated or had received termination notices as the result
of the plan with additional terminations scheduled during 2000.
In the fourth quarter of 1998, the company adopted a restructuring plan that
resulted in the accrual of a $27 million pre-tax restructuring charge. This
amount included the estimated costs of terminating approximately 475 employees.
The charge was included in selling, administrative and general expense on the
consolidated earnings statement. The plan involved 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 were from the company's mining
operations, 95 were from various exploration and production business units and
140 were 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 March 31, 2000, 441
employees had been terminated or had received termination notices as a result of
the plan, with additional terminations scheduled during 2000.
The amount of unpaid benefits remaining on the consolidated balance sheet at
March 31, 2000 was $26 million for the three plans combined. The company expects
to fall short of the expected number of terminations for the 1998 and 1999 plans
combined by approximately 25 employees. However, no material changes are
expected to the costs accrued for the plans and no adjustments to the liability
have been made to date.
-11-
<PAGE>
(14) Loans to Certain Officers of the Company
On March 16, 2000, the company entered into loan agreements with ten of its
officers pursuant to the company's 2000 Executive Stock Purchase Program (the
Program). The Program was approved by the Board of Directors of the company and
is being submitted for approval of the company's stockholders at the 2000 Annual
Meeting of Stockholders. Under the Program, loans totaling $32 million were
granted to the officers to enable them to purchase shares of company stock in
the open market. The loans, which are full recourse to the officers, mature on
March 16, 2008 and bear interest at the rate of 6.8 percent per annum. The
amount of the loans and the balance of the loans are reflected in cash flows
from financing activities on the consolidated cash flows statement and as a
reduction to stockholders' equity on the consolidated balance sheet,
respectively.
The company and the officers have agreed that if the Program is not approved by
the stockholders, the shares purchased by the officers will be sold to the
company for the lesser of the purchase price or their fair market value at the
time of the resale, and the loans will become immediately due and payable.
(15) Segment Data
As a result of recent changes in the organization, the company has made
corresponding changes in the reporting of its segments from the reporting
utilized in the 1999 Annual Report on Form 10-K. The company's reportable
segments are now: Exploration and Production, Global Trade, Pipelines,
Geothermal and Power Operations, and Carbon and Minerals Businesses. General
corporate overhead, unallocated costs and other miscellaneous operations,
including real estate and those businesses that were sold or being phased-out,
are included under the Corporate and Unallocated heading. See also Management`s
Discussion and Analysis in Item 2 for further description of the new segments.
-12-
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Segment Information Exploration & Production Global Pipelines
For the Three Months North America International Trade
ended March 31, 2000 ------------- -------------
Millions of dollars Far
Lower 48 Alaska Canada East Other
--------------------------------------------------------------------------------
<S> ................................................ <C> <C> <C> <C> <C> <C> <C>
External sales & operating revenues ................ $ 24 $ 61 $ 44 $ 216 $ 29 $ 1,368 $ 8
Other revenues (loss) .............................. -- -- 5 (2) 1 6 14
Inter-segment revenues ............................. 301 17 -- 68 14 1 3
--------------------------------------------------------------------------------
Total .............................................. 325 78 49 282 44 1,375 25
--------------------------------------------------------------------------------
Earnings from continuing operations ................ 63 23 4 82 (2) (2) 15
Earnings from discontinued operations .............. -- -- -- -- -- -- --
--------------------------------------------------------------------------------
Net earnings (loss) ................................ 63 23 4 82 (2) (2) 15
--------------------------------------------------------------------------------
Assets (at March 31, 2000) ......................... 2,144 307 984 1,937 660 333 254
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Geothermal Carbon & Corporate & Unallocated Totals
& Power Minerals
Operations Admin Net Int Environmental
& General Exp & Litigation Other (a)
--------------------------------------------------------------------------------
<S> .......................................... <C> <C> <C> <C> <C> <C> <C>
External sales & operating revenues .......... $ 36 $ 41 $ -- $ -- $ -- $ -- $1,827
Other revenues (loss) ........................ 6 7 -- 6 -- 11 54
Inter-segment revenues ....................... -- -- -- -- -- (404) --
--------------------------------------------------------------------------------
Total ........................................ 42 48 -- 6 -- (393) 1,881
--------------------------------------------------------------------------------
Earnings from continuing operations .......... 9 7 (22) (36) (5) (12) 124
Earnings from discontinued operations ........ -- -- -- -- -- 9 9
--------------------------------------------------------------------------------
Net earnings (loss) .......................... 9 7 (22) (36) (5) (3) 133
--------------------------------------------------------------------------------
Assets (at March 31,2000) (b) ................ 541 293 -- -- -- 1,628(b) 9,081(b)
--------------------------------------------------------------------------------
<FN>
(a) Includes eliminations and consolidation adjustments
(b) Includes assets for discontinued operations(Agricultural Products) of $314 million
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Segment Information Exploration & Production Global Pipelines
For the Three Months North America International Trade
ended March 31, 1999 ------------- -------------
Millions of dollars Far
Lower 48 Alaska Canada East Other
--------------------------------------------------------------------------------
<S> ................................................ <C> <C> <C> <C> <C> <C> <C>
External sales & operating revenues ................ $ 35 $ 23 $ 19 $ 155 $ 25 $ 768 $ 10
Other revenues (loss) .............................. 2 -- 3 1 2 -- 15
Inter-segment revenues ............................. 184 17 -- 42 -- 1 2
--------------------------------------------------------------------------------
Total .............................................. 221 40 22 198 27 769 27
--------------------------------------------------------------------------------
Earnings from continuing operations ................ 1 2 4 48 (19) 2 17
Earnings from discontinued operations .............. -- -- -- -- -- -- --
--------------------------------------------------------------------------------
Net earnings (loss) ................................ 1 2 4 48 (19) 2 17
--------------------------------------------------------------------------------
Assets (at December 31, 1999) ...................... 2,178 326 1,356 1,856 176 439 299
--------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Geothermal Carbon & Corporate & Unallocated Totals
& Power Minerals
Operations Admin Net Int Environmental
& General Exp & Litigation Other (a)
--------------------------------------------------------------------------------
<S> .......................................... <C> <C> <C> <C> <C> <C> <C>
External sales & operating revenues .......... $ 45 $ 43 $ -- $ -- $ -- $ 3 $1,126
Other revenues (loss) ........................ (12) 9 -- 6 -- 16 42
Inter-segment revenues ....................... -- -- -- -- -- (246) --
--------------------------------------------------------------------------------
Total ........................................ 33 52 -- 6 -- (227) 1,168
--------------------------------------------------------------------------------
Earnings from continuing operations .......... -- 9 (21) (31) (5) ( 3) 4
Earnings from discontinued operations ........ -- -- -- -- -- 3 3
--------------------------------------------------------------------------------
Net earnings (loss) .......................... -- 9 (21) (31) (5) -- 7
--------------------------------------------------------------------------------
Assets (at December 31, 1999)(b).............. 532 277 -- -- -- 1,528(b) 8,967(b)
--------------------------------------------------------------------------------
<FN>
(a) Includes eliminations and consolidation adjustments.
(b) Includes assets for discontinued operations(Agricultural Products) of $289 million.
</FN>
</TABLE>
-13-
<PAGE>
(16) Subsequent Event
On April 10, 2000, a Canadian subsidiary of the company indicated it would be
willing to make a conditional offer of $10.10 Canadian dollars per share for the
approximately 21.9 million shares, or approximately 52 percent, of Calgary-based
Northrock that it does not already own. The company does not expect that the
board of Northrock will decide whether to recommend acceptance of the offer
until it has received and considered a valuation from an independent appraiser.
Accordingly, the company does not expect to mail the offer documents to
Northrock shareholders until the independent appraisal is completed.
-14-
<PAGE>
<TABLE>
<CAPTION>
OPERATING HIGHLIGHTS UNOCAL CORPORATION
(UNAUDITED)
For the Three Months
Ended March 31,
-------------------------------
2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
North America Net Daily Production
Crude oil (thousand barrels)
<S> ...................................................................................... <C> <C>
Lower 48 (a) ........................................................................ 45 39
Alaska .............................................................................. 27 27
Canada (b) .......................................................................... 16 8
- ------------------------------------------------------------------------------------------------------------------------------------
Total North America crude oil .................................................. 88 74
Natural gas - wet basis (million cubic feet)
Lower 48 (a) ........................................................................ 737 775
Alaska .............................................................................. 154 153
Canada (b) .......................................................................... 101 3
- ------------------------------------------------------------------------------------------------------------------------------------
Total North America natural gas ................................................ 992 931
North America Average Prices (c)
Crude oil (per barrel)
Lower 48 ............................................................................ $ 27.52 $ 11.26
Alaska .............................................................................. $ 23.15 $ 8.05
Canada .............................................................................. $ 19.24 $ 9.65
Average North America crude oil prices ......................................... $ 24.60 $ 9.85
Natural gas (per mcf)
Lower 48 ............................................................................ $ 2.50 $ 1.92
Alaska .............................................................................. $ 1.20 $ 1.20
Canada .............................................................................. $ 1.50 $ 1.84
Average North America natural gas prices ....................................... $ 2.18 $ 1.80
- ------------------------------------------------------------------------------------------------------------------------------------
International Net Daily Production (d)
Crude oil (thousand barrels)
Far East ............................................................................ 71 70
Other ............................................................................... 19 23
- ------------------------------------------------------------------------------------------------------------------------------------
Total International crude oil .................................................. 90 93
Natural gas - wet basis (million cubic feet)
Far East ............................................................................ 911 842
Other ............................................................................... 62 36
- ------------------------------------------------------------------------------------------------------------------------------------
Total International natural gas ................................................ 973 878
International Average Prices (c)
Crude oil (per barrel)
Far East ............................................................................ $ 23.63 $ 10.85
Other ............................................................................... $ 25.53 $ 11.17
Average International crude oil prices ......................................... $ 24.05 $ 10.93
Natural gas (per mcf)
Far East ............................................................................ $ 2.29 $ 1.88
Other ............................................................................... $ 2.73 $ 1.75
Average International natural gas prices ....................................... $ 2.33 $ 1.87
- ------------------------------------------------------------------------------------------------------------------------------------
Worldwide Net Daily Production (a) (b) (d)
Crude oil (thousand barrels) ........................................................... 178 167
Natural gas (million cubic feet) ....................................................... 1,965 1,809
Barrels oil equivalent (thousands) ..................................................... 506 469
Worldwide Average Prices (c)
Crude oil (per barrel) ................................................................. $ 24.39 $ 10.40
Natural gas (per mcf) .................................................................. $ 2.25 $ 1.83
<FN>
(a) production includes proportionate shares of equity affiliates .......................
(b) production includes 100% of Northrock Resources Ltd: Crude oil .................... 9 --
Natural gas .................. 99 --
(c) average prices include hedging gains and losses, but exclude other
Global Trade margins
(d) production includes certain host countries' shares of: Crude:oil .................... 29 12
Natural gas .................. 110 84
</FN>
</TABLE>
-15-
<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 1999 Annual
Report on Form 10-K. See also note 15 to the consolidated financial statements
in Item 1 for revisions in the company reportable segments.
CONSOLIDATED RESULTS
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------
Millions of dollars 2000 1999
- --------------------------------------------------------------------------------
<S> .................................................. <C> <C>
Earnings from continuing operations .................. $124 $ 4
Earnings from discontinued operations ................ 9 3
- --------------------------------------------------------------------------------
Net earnings ......................................... $133 $ 7
- --------------------------------------------------------------------------------
</TABLE>
Earnings from continuing operations increased by $120 million in the first
quarter of 2000 compared to the same period a year ago. The increase was
primarily due to higher crude oil and natural gas prices. The company's
worldwide average crude oil price, increased by $13.99 per barrel, or 135
percent, to $24.39 per barrel from the same period a year ago. The company's
worldwide average natural gas price, increased by $0.42 per thousand cubic feet
(mcf), or 23 percent, to $2.25 per mcf from the same period a year ago.
The first quarter of 2000 included an after-tax restructuring charge of $11
million while the first quarter of 1999 included an after-tax loss of $10
million from the sale of the company's interest in a geothermal steam production
operation at The Geysers in Northern California.
The company's Agricultural Products business, whose sale is pending and is now
reported in discontinued operations, had higher earnings of $6 million from the
same period a year ago. The sale of the business unit is dependent on clearance
by the U.S. Federal Trade Commission.
-16-
<PAGE>
EXPLORATION AND PRODUCTION
The company engages in oil and gas exploration, development, and production
worldwide.
North America - Included in this category are the U.S. Lower 48, Alaska, and
Canada oil and gas operations. The category was changed from U. S. to North
America which now includes Canada. The emphasis of the U.S. Lower 48 is on the
onshore, continental shelf and deepwater areas of the Gulf of Mexico region and
on the Permian Basin in West Texas. A substantial portion of the crude oil and
natural gas produced in the U.S. Lower 48 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 2000 1999
- --------------------------------------------------------------------------------
Adjusted after-tax earnings (before special items)
<S> ........................................................... <C> <C>
Lower 48 (a) ............................................. $ 63 $ 1
Alaska ................................................... 24 2
Canada (b) ............................................... 4 4
- --------------------------------------------------------------------------------
Adjusted after-tax earnings (before special items) (a) (b) .... 91 7
Special items:
Litigation provisions (Alaska) ........................... (1) --
- --------------------------------------------------------------------------------
After-tax earnings (a) (b) .................................... $ 90 $ 7
- --------------------------------------------------------------------------------
<FN>
(a) Includes minority interests of: .......................... $ (5) $ 1
(b) Includes minority interests of: .......................... $ 8 $ --
</FN>
</TABLE>
After-tax earnings in the first quarter of 2000 increased by $83 million from
the same period a year ago. This increase was principally due to higher North
America average crude oil prices and Lower 48 natural gas prices. The average
North America crude oil prices increased $14.75 per barrel, or 150 percent from
the same period a year ago. The average natural gas price in the U.S. Lower 48
increased by $0.58 per thousand cubic feet, or 30 percent. These positive
results were slightly offset by lower results from one of the company's Canadian
subsidiaries, primarily from losses related to derivative activities. See
information on commodity derivative activities included in note 8 to the
consolidated financial statements in Item 1.
-17-
<PAGE>
International - Includes the company's oil and gas exploration and production
activities outside of North America. The company operates or participates in
production operations in Thailand, Indonesia, The Netherlands, Azerbaijan,
Myanmar, Bangladesh and the Democratic Republic of Congo. International
operations also include the company's exploration activities and the development
of energy projects primarily in Asia, Latin America and West Africa.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------
Millions of dollars 2000 1999
- --------------------------------------------------------------------------------
Adjusted after-tax earnings (loss) (before special items)
<S> ........................................................ <C> <C>
Far East .............................................. $ 82 $ 48
Other ................................................. (2) (19)
- --------------------------------------------------------------------------------
Adjusted after-tax earnings (before special items) ......... 80 29
Special items: ............................................. -- --
- --------------------------------------------------------------------------------
After-tax earnings ......................................... $ 80 $ 29
- --------------------------------------------------------------------------------
</TABLE>
After-tax earnings in the first quarter of 2000 increased by $51 million from
the same period a year ago. The increase was primarily due to higher
international crude oil and natural gas prices. International average crude oil
prices increased by $13.12 per barrel, or 120 percent, to $24.05 per barrel from
the same period a year ago. International's average natural gas price increased
by $0.46 per mcf, or 25 percent, to $2.33 per mcf from the same period a year
ago. These positive results were slightly offset by timing delays of crude oil
liftings in Azerbaijan and the Democratic Republic of Congo.
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 commodity-specific risk management activities on behalf of most of the
company's exploration and production segment. 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.
In addition, Global Trade takes pricing positions in hydrocarbon derivative
instruments. The Pipelines business unit has been segregated from the Global
Trade segment.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------
Millions of dollars 2000 1999
- --------------------------------------------------------------------------------
<S> ........................................................... <C> <C>
Adjusted after-tax earnings (loss) (before special items) ..... $(2) $ 2
Special items: ................................................ -- --
- --------------------------------------------------------------------------------
After-tax earnings (loss) ..................................... $(2) $ 2
- --------------------------------------------------------------------------------
</TABLE>
After-tax results in the first quarter of 2000 decreased by $4 million from the
same period a year ago. The decrease was primarily due to negative margins on
domestic crude oil trading and lower margins for natural gas trading.
-18-
<PAGE>
PIPELINES
The Pipelines business segment principally includes the company's equity
interests in affiliated petroleum pipeline companies and wholly-owned pipeline
systems throughout the U.S.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------
Millions of dollars 2000 1999
- --------------------------------------------------------------------------------
<S> ........................................................ <C> <C>
Adjusted after-tax earnings (before special items) ......... $15 $17
Special items: ............................................. -- --
- --------------------------------------------------------------------------------
After-tax earnings ......................................... $15 $17
- --------------------------------------------------------------------------------
</TABLE>
After-tax earnings in the first quarter of 2000 decreased by $2 million from the
same period a year ago. This decrease was primarily due to lower volumes from
the Cushing-Chicago pipeline system, in which the company owns an equity
interest.
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 the operation of power plants in Indonesia and
an equity interest in a gas-fired power plant in Thailand, scheduled to come on
line in the second half of 2000. The company's non-exploration and production
business development activities, primarily power-related, are now also included
in the Geothermal and Power Operations segment.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------
Millions of dollars 2000 1999
- --------------------------------------------------------------------------------
<S> ....................................................... <C> <C>
Adjusted after-tax earnings (before special items) ........ $ 9 $ 10
Special items:
Asset sales (a) ...................................... -- (10)
- --------------------------------------------------------------------------------
After-tax earnings ........................................ $ 9 $ --
- --------------------------------------------------------------------------------
<FN>
(a) Represents loss on the sale of a geothermal production operation at The
Geysers in Northern California.
</FN>
</TABLE>
After-tax earnings in the first quarter of 2000 increased by $9 million from the
same period a year ago. This increase is primarily due to an after-tax loss of
$10 million from the sale of the company's interest in a geothermal steam
production operation at The Geysers in Northern California, which was part of
the first quarter of 1999 results.
-19-
<PAGE>
CARBON AND MINERALS
The Carbon and Minerals business segment produces and markets petroleum coke,
graphites and specialty minerals, including lanthanides, molybdenum and niobium.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
--------------------
Millions of dollars 2000 1999
- --------------------------------------------------------------------------------
<S> .......................................................... <C> <C>
Adjusted after-tax earnings (before special items) (a) ....... $ 8 $ 9
Special items:
Environmental, litigation and other provisions .......... (1) --
- --------------------------------------------------------------------------------
After-tax earnings (a) ....................................... $ 7 $ 9
- --------------------------------------------------------------------------------
<FN>
(a) Includes minority interests of: ......................... $-- $(1)
</FN>
</TABLE>
After-tax earnings in the first quarter of 2000 decreased by $2 million from the
same period a year ago. The decrease was primarily due to lower affiliate
earnings in Brazil, lower petroleum coke and graphite results, partially offset
by higher specialty minerals results.
CORPORATE AND UNALLOCATED
Corporate and Unallocated expense include general corporate overhead,
miscellaneous operations, including real estate activities and other unallocated
costs. 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 2000 1999
- --------------------------------------------------------------------------------
Adjusted after-tax earnings effect (before special items)
<S> ............................................................ <C> <C>
Administrative and general expense ........................ $(22) $(21)
Net interest expense ...................................... (36) (31)
Environmental and litigation expense ...................... (3) (2)
Other (a) ................................................. (1) (3)
- -------------------------------------------------------------------------------- -
Adjusted after-tax earnings effect (before special items) (a) .. (62) (57)
Special items:
Environmental and litigation provisions ................... (2) (3)
Restructuring costs (Other) ............................... (11) --
- --------------------------------------------------------------------------------
After-tax earnings effect (a) .................................. $(75) $(60)
- --------------------------------------------------------------------------------
<FN>
(a) Includes minority interests of: ........................... $ 1 $ --
</FN>
</TABLE>
Net interest expense was higher in the first quarter of 2000 compared to the
same period a year ago due to higher long term debt, primarily due to the
consolidation of debt of Northrock Resources Ltd. (Northrock) and lower
capitalized interest. The first quarter of 2000 included an after-tax
restructuring charge of $11 million and $5 million lower earnings and dividends
from a petroleum industry mutual insurance company, both in the Other category.
-20-
<PAGE>
FINANCIAL CONDITION AND CAPITAL EXPENDITURES
For the first three months of 2000, net cash flow provided by operating
activities was $375 million compared with $99 million in the same period a year
ago. This increase primarily reflects the effects of higher worldwide crude oil
and natural gas prices. Working capital and other changes in the first quarter
of 2000 included benefits from the effects of a decrease in net foreign income
tax payments, the advance sale of certain domestic trade receivables and a
decrease in environmental, litigation and abandonment related payments. Working
capital and other changes also included the negative effect of increases in
accounts receivable from geothermal related sales in Indonesia.
Pre-tax proceeds from asset sales, including discontinued operations, were $77
million for the first three months of 2000. The proceeds consisted of $47
million from the sale of certain oil and gas properties. Pre-tax proceeds also
included $25 million received from Tosco Corporation associated with a
participation agreement involving certain gasoline margins related to the sale
of the company's former West Coast refining, marketing and transportation
assets.
Capital spending for the first three months of 2000 was $295 million compared
with $225 million in the same period a year ago. This increase is primarily due
to the company's higher level of activity in Canada. Capital spending also
included $20 million for the acquisition of an interest in a Canadian natural
gas storage facility in Alberta, Canada.
The company's long-term debt was $2.69 billion at March 31, 2000, compared with
$2.85 billion at year-end 1999. This decrease primarily reflects the reduction
in commercial paper borrowings.
ENVIRONMENTAL MATTERS
At March 31, 2000, the company's reserves for environmental remediation
obligations totaled $189 million, of which $102 million was included in current
liabilities. During the first quarter of 2000, cash payments of $16 million were
applied against the reserve. The company also estimates that it possibly could
incur additional remediation costs aggregating approximately $200 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>
Reserve Summary
March 31,
Millions of dollars 2000
- --------------------------------------------------------------------------------
<S> <C>
Superfund and similar sites $ 8
Former company-operated sites 8
Company facilities sold with retained liabilities 43
Inactive or closed company facilities 85
Active company facilities 45
- --------------------------------------------------------------------------------
Total reserves $189
================================================================================
</TABLE>
The U.S. Environmental Protection Agency proposed to add the Molycorp, Inc.
Questa, New Mexico, facility to the Superfund National Priorities List in the
May 11, 2000 Federal Register.
-21-
<PAGE>
RESTRUCTURING
In February 2000, the company adopted a restructuring plan that resulted in the
accrual of a $11 million after-tax restructuring charge as reflected in the
company's first quarter of 2000 results. This amount included the estimated
costs of terminating approximately 195 employees. The plan involved the
simplifying of the organizational structure to align it with our portfolio
requirements and business needs. The charge was recorded in aggregate in
Corporate and Unallocated. Approximately $7 million of the after-tax
restructuring charge was related to the Exploration and Production segment. Cash
expenditures before taxes related to this restructuring plan are estimated to be
$14 million and $5 million in the years 2000 and 2001, respectively, including
$2 million expended in the first quarter of 2000.
Approximately 125 of the affected employees were from various exploration and
production business units and 70 are from other organizations, including
corporate staff. At March 31, 2000, 113 employees had been terminated or had
received termination notices as a result of the plan with the remaining
terminations scheduled primarily for the second and third quarters of 2000.
The company adopted a restructuring plan during the second quarter of 1999 that
resulted in the accrual of a $11 million after-tax restructuring charge. This
amount included the estimated costs of terminating approximately 250 employees.
The plan involved the blending of several International and Geothermal
organizations, a manpower optimization program in Thailand, cost cutting and
efficiency initiatives and a company-wide shared resources initiative. The
charge was recorded in aggregate in Corporate and Unallocated. Approximately $8
million and $1 million of the after-tax charge related to the Exploration and
Production and Carbon and Minerals segments, respectively.
Approximately 100 of the affected employees were from the company's
International operations, 31 were from the Carbon and Minerals segment, 25 were
from the Alaska oil and gas operation and 94 were from other organizations,
including corporate staff. At March 31, 2000, 237 employees had been terminated
or had received termination notices as the result of the plan with additional
terminations scheduled during early 2000.
The company adopted a restructuring plan during the fourth quarter of 1998 that
resulted in the accrual of a $17 million after-tax restructuring charge. This
amount included the estimated costs of terminating approximately 475 employees.
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. The restructuring charge was recorded in aggregate in Corporate and
Unallocated. Approximately $5 million, $3 million and $1 million of the
after-tax charge related to the Exploration and Production, Carbon and Minerals
and Pipelines segments, respectively.
Approximately 240 of the affected employees were from the company's mining
operations, 95 were from various exploration and production business units and
140 are support personnel at various locations. At March 31, 2000, 441 employees
were terminated or had received termination notices as a result of the plan.
Cash expenditures before taxes related to the three restructuring plans are
estimated to be $25 million and $7 million in years 2000 and 2001, respectively,
including $6 million expended in the first quarter of 2000. The company expects
the plans to reduce annualized salaries and benefits by an estimated $75 million
pre-tax. The company expects to fall short of the expected number of
terminations from the 1998 and 1999 plans, in total, by approximately 25
employees, however, no material adjustments to the amounts accrued are expected.
For more information on the restructuring charges, see note 12 to the
consolidated financial statements.
-22-
<PAGE>
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 / decreases in future revenues, earnings, cash flows, capital
expenditures, assets, liabilities and other financial items and of future levels
of or increases / decreases 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 45 through 47 of Management's
Discussion and Analysis in Item 7 of the company's 1999 Annual Report on Form
10-K for a discussion of certain of such conditions and events.
The company expects adjusted (excluding special items) after-tax earnings per
share to exceed $0.50 for the second quarter of 2000, assuming an average West
Texas Intermediate (WTI) crude oil price of $25.60 per barrel and a Henry Hub
natural gas price of $2.95 per MMBtu. The company also expects adjusted
after-tax earnings per share of $2.20 to $2.50 for the full year 2000, assuming
an average WTI crude oil price of $25.70 per barrel and a Henry Hub natural gas
price of $2.90 per MMBtu. The second quarter and full year forecasts are also
dependent on the company's deepwater drilling success.
On April 19, 2000, the company and Titan Exploration, Inc. (Titan) received
clearance from the Securities and Exchange Commission for the proxy
statement-prospectus to be sent to Titan stockholders regarding the merger of
the company's oil and gas exploration and production assets in the Permian and
San Juan basins, located in West Texas and New Mexico, with Titan to form a new
publicly traded company named Pure Resources, Inc., which will be focused on the
Permian and San Juan basins. Unocal will hold 65 percent of the new company. The
transaction is now awaiting approval by the Titan stockholders at a meeting to
be held on May 24, 2000. The transaction is expected to be completed soon
thereafter.
The company is currently participating in delineation activity on the Timon
prospect on Green Canyon Block 563. The results of this well will determine
whether approximately $25 million in current and suspended drilling costs will
be charged to earnings in the second quarter of 2000. The suspended drilling
costs relate to the company's share of the K-2 well on Green Canyon Block 562.
In the second half of 2000, the company plans to drill two to three deepwater
wildcat wells in the Gulf of Mexico, with the arrival of the Discoverer Spirit
drillship which is now scheduled for delivery in the third quarter of 2000. The
Dana Point prospect is expected to be the first prospect drilled using the new
drillship.
In April 2000, a Canadian subsidiary of the company indicated it would be
willing to make a conditional offer of $10.10 Canadian dollars per share for the
approximately 21.9 million shares, or approximately 52 percent, of Calgary-based
Northrock that it does not already own. The company does not expect that the
board of Northrock will decide whether to recommend acceptance of the offer
until it has received and considered a valuation from an independent appraiser.
Accordingly, the company does not expect to mail the offer documents to
Northrock shareholders until the independent appraisal is completed.
In Myanmar, the 1999 "take-or-pay" obligation, of which the company's share is
approximately $65 million, was billed to the Petroleum Authority of Thailand
(PTT) in late January of 2000. Under the terms of the contract, PTT was
obligated to pay this amount by the end of February 2000. The obligation remains
outstanding, but the company expects to receive payment in the second half of
2000.
-23-
<PAGE>
As of March 31, 2000, the company had a gross receivable balance of
approximately $206 million related to its geothermal operations in Indonesia.
Approximately $83 million was related to Gunung Salak electric generating Units
1, 2, and 3, of which $80 million represents past due amounts and accrued
interest resulting from partial payments for March 1998 through March 2000.
Although invoices generally have not been paid in full, amounts that have been
paid have been received in a timely manner in accordance with the steam sales
contract. The remaining $123 million primarily relates to Salak electric
generating Units 4, 5 and 6. Provisions covering a portion of these receivables
were recorded in 1998, 1999 and 2000. The company is vigorously pursuing
collection of the outstanding receivables.
In January 2000, the company reached agreement to sell its Agricultural Products
business to Agrium Inc., a Canadian-based company, for approximately $325
million and possible future consideration. Under the agreement, Unocal would
receive $250 million in cash plus $50 million in newly-issued Agrium convertible
preferred securities and $25 million in Agrium common stock at a four percent
discount to market. In addition, the agreement provides for participation
payments to Unocal if ammonia and urea prices rise above projected levels over
the next six years. The sale of the business unit is dependent on clearance by
the U.S. Federal Trade Commission.
In April 2000, the company engaged a financial advisor to assist in the possible
sale of Poco Graphite, Inc., a Texas-based subsidiary which produces specialty
graphite products, and certain other assets located in Illinois that manufacture
petroleum coke products. This proposed sale is part of the company's continuing
transformation into a global energy resource and project development company.
On March 29, 2000, the United States Court of Appeals for the Federal Circuit
affirmed a judgement of the U.S. District Court for the Central District of
California that upheld the validity of one of the company's reformulated motor
gasolines patents. Following a 1997 trial in the District Court, a jury had
found the patent was valid and that six defendant companies had infringed the
patent with respect to 1.19 billion gallons, or 29.1 percent of the total
California reformulated gasoline manufactured by the six defendant companies
between March 1, 1996, and July 31, 1996. The jury also awarded the company
5-3/4 cents per gallon in damages for this infringement. The jury's award for
the five-month period totaled over $95 million at March 31, 2000, including
interest and attorney's fees. The company believes that its patents may offer a
significant potential revenue stream. With the Court of Appeals decision, the
company will now ask the District Court, for an accounting by the defendants of
nationwide infringing gallons manufactured by them for the period since Aug. 1,
1996, to the present, multiplied by 5-3/4-cents per gallon.
-24-
<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 risk sensitive
derivative financial instruments, such as swaps or options 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, 2000. Assuming a ten percent decrease in the
company's weighted average borrowing costs at March 31, 2000, the potential
increase in the fair value of the company's debt obligations and associated
interest rate derivative instruments, including the company's net interests in
the debt obligations and associated interest rate derivative instruments of its
subsidiaries, would have been approximately $114 million at March 31, 2000.
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 currency 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 subsidiaries are paid in Canadian dollars for their crude oil and
natural gas sales.
From time to time the company may purchase foreign currency options or enter
into foreign currency swap or foreign currency forward contracts to limit the
exposure related to its foreign currency debt or other obligations. At March 31,
2000, the company had various foreign currency swaps and foreign currency
forward contracts outstanding to hedge its Canadian dollar denominated debt and
other local currency obligations in Canada, Thailand and The Netherlands. The
company evaluated the effect that near term changes in foreign exchange rates
would have had on the fair value of the company's combined foreign currency
position related to its outstanding foreign currency swaps and forward
contracts. Assuming an adverse change of ten percent in foreign exchange rates
at March 31, 2000, the potential decrease in fair value of the company's foreign
currency forward contracts, including the company's net interests in the
foreign-currency denominated debt, foreign currency swaps and foreign currency
forward contracts of its subsidiaries, would have been approximately $14 million
at March 31, 2000.
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 uses hydrocarbon derivative financial instruments (derivatives), such as
futures contracts, swaps and options to mitigate its overall exposure to
fluctuations in hydrocarbon commodity prices. The company may also enter into
derivatives to hedge contractual delivery commitments and future crude oil and
natural gas production against price exposure.
-25-
<PAGE>
The company also actively trades derivatives, primarily exchange regulated
futures and options contracts, subject to internal policy limitations.
The company uses a variance-covariance value at risk model to assess the market
risk of its hydrocarbon price sensitive (price sensitive) derivatives. Value at
risk represents the potential loss in fair value the company would experience on
its price sensitive derivatives , using calculated volatilities and correlations
over a specified time period with a given confidence level. The company's risk
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 price sensitive derivatives related to the company's pre-paid crude oil and
pre-paid natural gas sales, as well as the company's net interests in its
subsidiaries' crude oil and natural gas derivative instruments and forward sales
contracts. Based upon the company's risk model, the value at risk related to
price sensitive derivative financial instruments held for purposes other than
trading was approximately $1 million at March 31, 2000. The value at risk
related to price sensitive derivative financial instruments held for trading
purposes was approximately $4 million at March 31, 2000.
-26-
<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, 1999 (1999 Form 10-K), the information regarding
environmental remediation reserves in note 9 to the consolidated financial
statements in Item 1 of Part I of this report, 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 is set forth
below:
1. In the lawsuit captioned Bridas Corporation v. Unocal Corporation,
described in Paragraph 1 of Item 3 of the 1999 Form 10-K, in April
2000, the Texas Court of Appeals affirmed the judgment of the trial
court dismissing the action.
2. The trial of the action captioned Union Oil Company of California v.
Bruce Babbitt, et al., described in Paragraph 2 of Item 3 of the 1999
Form 10-K, has been rescheduled to July 17, 2000.
3. In the action captioned United States, ex rel. Johnson v. Shell Oil
Company et al., described in Paragraph 3 of Item 3 of the 1999 Form
10-K, the plaintiffs seek recovery from the company of $52 million in
damages and prejudgment interest, to be trebled as provided by the
False Claims Act, plus attorneys' fees and civil penalties authorized
by the act.
4. In the action captioned United States, ex rel. Harrold E.(Gene) Wright
v. Amerada Hess Corporation, et al., described in Paragraph 4 of Item 3
of the 1999 Form 10-K, in March 2000, the U.S. Department of Justice
intervened in the lawsuit against four other defendants. The remaining
defendants, including the company, have not been intervened against by
the Justice Department and have not, as yet, been served with process
by the private plaintiffs.
In the action captioned United States, ex rel. Jack Grynberg v. Unocal,
also described in Paragraph 4 of Item 3 of the 1999 Form 10-K, in March
2000, the U.S. District Court of Wyoming heard oral argument on all
defendants' motions to dismiss the consolidated actions, which motions
remain under consideration by the court.
-27-
<PAGE>
ITEM 6.EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits: The Exhibit Index on page 30 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 2000
1. Current Report on Form 8-K dated January 5, 2000, and
filed January 6, 2000, for the purpose of reporting, under
Item 5, the adoption by the company's board of directors
of a Rights Agreement, filed as an exhibit under Item 7,
and the declaration of preferred share purchase rights as
a dividend to the common stockholders.
2. Current Report on Form 8-K dated and filed January 12,
2000, for the purpose of reporting, under Item 5, the
company's receipt of certain payments from Tosco
Corporation.
3. Current Report on Form 8-K dated January 19, 2000, and
filed January 20, 2000, for the purpose of reporting,
under Item 5, the planned sale of the company's
agricultural products business to Agrium Inc.
4. Current Report on Form 8-K dated January 26, 2000, and
filed February 15, 2000, for the purpose of reporting,
under Item 5, the company's fourth quarter and full-year
1999 earnings and related information.
5. Current Report on Form 8-K dated February 7, 2000, and
filed February 10, 2000, for the purpose of reporting,
under Item 5, the company's 1999 crude oil and natural gas
reserve data and related costs.
6. Current Report on Form 8-K dated February 9, 2000, and
filed February 15, 2000, for the purpose of reporting,
under Item 5, the company's 2000 financial outlook.
7. Current Report on Form 8-K dated March 16, 2000, and filed
April 12, 2000, for the purpose of reporting, under Item
5, loans to and purchases of Common Stock by Certain
Officers of the Company, agreements relating to which were
filed as exhibits under Item 7, and a new employment
agreement with Charles R. Williamson, also filed as an
exhibit under Item 7.
8. Current Report on Form 8-K dated March 29, 2000, and filed
March 31, 2000, for the purpose of reporting, under Item
5, the company's reformulated gasoline patent case update.
Filed during the second quarter of 2000 to the date hereof:
1. Current Report on Form 8-K dated April 10, 2000, and filed
April 12, 2000, for the purpose of reporting, under Item
5, the company's intent to make a conditional offer to
purchase the remaining shares of Northrock Resources Ltd.
2. Current Report on Form 8-K dated April 25, 2000, and filed
May 1, 2000, for the purpose of reporting, under Item 5,
the company's first quarter 2000 earnings and related
information; and other matters relating to forecast
earnings for the year 2000 and possible future asset
sales.
-28-
<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 12, 2000 By: /s/ JOE D. CECIL
------------------------------
Joe D. Cecil
Vice President and Comptroller
(Duly Authorized Officer
Principal Accounting Officer)
-29-
<PAGE>
EXHIBIT INDEX
12.1 Statement regarding computation of ratio of earnings to fixed charges of
Unocal Corporation for the three months ended March 31, 2000 and 1999.
12.2 Statement regarding computation of ratio of earnings to fixed charges of
Union Oil Company of California for the three months ended March 31, 2000
and 1999.
27. Financial data schedule for the period ended March 31, 2000 (included only
in the copy of this report filed electronically with the Commission).
Copies of exhibits will be furnished upon request. Requests should be addressed
to the Corporate Secretary.
-30-
<TABLE>
<CAPTION>
UNOCAL CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
For the Three Months
Ended March 31,
-----------------------------
Millions of dollars 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> ............................................................................................. <C> <C>
Earnings from continuing operations ............................................................. $ 124 $ 4
Provision for income taxes ...................................................................... 83 11
Minority Interests .............................................................................. $ (4) $--
Distributions (Less Than) Greater Than equity in earnings of affiliates ......................... (6) 8
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings subtotal (a) ................................................................. 197 23
Fixed charges included in earnings:
Interest expense ............................................................................. $ 53 $ 45
Distribution on convertible preferred securities ............................................. 8 8
Interest portion of rentals (b) ............................................................. 6 5
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed charges subtotal ................................................................. 67 58
Earnings from operations
available before fixed charges ............................................................... $ 264 $ 81
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed charges:
Fixed charges included in earnings ........................................................... $ 67 $ 58
Capitalized interest ......................................................................... 2 5
- ------------------------------------------------------------------------------------------------------------------------------------
Total fixed charges .................................................................... $ 69 $ 63
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of earnings from operations
to fixed charges ............................................................................. 3.8 1.3
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
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 2000 1999
- ------------------------------------------------------------------------------------------------------------------------------------
<S> ............................................................................................. <C> <C>
Earnings from continuing operations ............................................................. $ 125 $ 10
Provision for income taxes ...................................................................... 82 13
Minority Interests .............................................................................. $ (4) $--
Distributions (Less Than) Greater Than equity in earnings of affiliates ......................... (6) 8
- ------------------------------------------------------------------------------------------------------------------------------------
Earnings subtotal (a) ................................................................. 197 31
Fixed charges included in earnings:
Interest expense ............................................................................. $ 53 $ 45
Interest portion of rentals (b) ............................................................. 6 5
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed charges subtotal ................................................................. 59 50
Earnings from operations
available before fixed charges ............................................................... $ 256 $ 81
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed charges:
Fixed charges included in earnings ........................................................... $ 59 $ 50
Capitalized interest ......................................................................... 2 5
- ------------------------------------------------------------------------------------------------------------------------------------
Total fixed charges .................................................................... $ 61 $ 55
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio of earnings from operations
to fixed charges ............................................................................. 4.2 1.5
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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Unocal Corporation FDS
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