<PAGE>
<PAGE> 1
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, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- ----------------
Commission file number 1-6841
SUN COMPANY, INC.
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1743282
- - --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
TEN PENN CENTER, 1801 MARKET STREET, PHILADELPHIA, PA 19103-1699
----------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(215) 977-3000
----------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- - --------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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
------ ------
At March 31, 1994, 106,851,665 shares of common stock were outstanding.
<PAGE>
<PAGE> 2
SUN COMPANY, INC.
-----------------
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income
for the Three Months Ended March 31, 1994
and 1993 3
Condensed Consolidated Balance Sheets at
March 31, 1994 and December 31, 1993 4
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended March 31,
1994 and 1993 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURE 20
<PAGE>
<PAGE> 3
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Sun Company, Inc. and Subsidiaries
(Millions of Dollars Except Per Share Amounts)
- - --------------------------------------------------------------------------
For the Three Months
Ended March 31
--------------------
1994 1993
------ ------
(UNAUDITED)
REVENUES
Sales and other operating revenue (including consumer
excise taxes of $471 in 1994 and $422 in 1993) $2,056 $2,285
Interest income 3 5
Income (loss) from investments in operations
held for sale (Note 2) (4) --
Other income 12 14
------ ------
2,067 2,304
------ ------
COSTS AND EXPENSES
Cost of products sold and operating expenses 1,227 1,514
Selling, general and administrative expenses 166 148
Taxes, other than income taxes 505 469
Depreciation, depletion and amortization 90 85
Exploratory costs and leasehold impairment 6 7
Minority interest 6 3
Interest cost and debt expense 20 22
Interest capitalized (2) (3)
------ ------
2,018 2,245
------ ------
Income before provision for income taxes
and cumulative effect of change in
accounting principle 49 59
Provision for income taxes 15 24
------ ------
Income before cumulative effect of change
in accounting principle 34 35
Cumulative effect of change in accounting
principle (Note 3) (7) 5
------ ------
NET INCOME $ 27 $ 40
====== ======
Earnings per share of common stock:*
Income before cumulative effect of change in
accounting principle $ .32 $.32
Cumulative effect of change in accounting principle (.07) .05
----- ----
Net income $ .25 $.37
===== ====
Cash dividends paid per share of common stock $.45 $.45
==== ====
- - ----------------
*Based on the weighted average number of shares outstanding (in thousands)
of 107,091 in 1994 and 106,443 in 1993.
(See Accompanying Notes)
<PAGE>
<PAGE> 4
CONDENSED CONSOLIDATED BALANCE SHEETS
Sun Company, Inc. and Subsidiaries
At At
March 31 December 31
1994 1993
(Millions of Dollars) (UNAUDITED)
- - --------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents, at cost which
approximates market $ 189 $ 118
Accounts and notes receivable, net of allowances 556 572
Inventories:
Crude oil 132 140
Refined products 217 244
Materials, supplies and other 76 80
Deferred income taxes 119 123
------ ------
Total Current Assets 1,289 1,277
Investment in Coal Operations Held for Sale (Note 2) 110 113
Investment in Real Estate Operations Held
for Sale (Note 2) 153 134
Long-Term Receivables and Investments 215 217
Properties, Plants and Equipment 7,717 7,753
Less Accumulated Depreciation, Depletion
and Amortization 3,938 3,922
------ ------
Properties, Plants and Equipment, net 3,779 3,831
Deferred Charges and Other Assets 313 328
------ ------
Total Assets $5,859 $5,900
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 554 $ 641
Accrued liabilities 458 487
Short-term borrowings 191 110
Current portion of long-term debt 26 26
Taxes payable 205 241
------ ------
Total Current Liabilities 1,434 1,505
Long-Term Debt 822 726
Retirement Benefit Liabilities 522 523
Deferred Income Taxes 378 369
Other Deferred Credits and Liabilities 396 421
Commitments and Contingent Liabilities (Note 4)
Minority Interest 359 372
Stockholders' Equity (Note 5) 1,948 1,984
------ ------
Total Liabilities and Stockholders' Equity $5,859 $5,900
====== ======
- - ----------------
Sun follows the successful efforts method of accounting for oil and gas
exploration and production operations.
(See Accompanying Notes)
<PAGE>
<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Sun Company, Inc. and Subsidiaries
(Millions of Dollars)
- - -------------------------------------------------------------------------
For the Three Months
Ended March 31
-------------------
1994 1993
----- -----
(UNAUDITED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 27 $ 40
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Cumulative effect of change in accounting
principle 7 (5)
Depreciation, depletion and amortization 90 85
Dry hole costs and leasehold impairment 3 3
Deferred income taxes 25 1
Changes in working capital pertaining to
operating activities:
Accounts and notes receivable 16 72
Inventories 39 (16)
Accounts payable and accrued liabilities (136) (146)
Taxes payable (36) (44)
Other 5 1
----- -----
Net cash provided by (used in) operating activities 40 (9)
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (95) (83)
Cash used by coal operations held for sale (3) (7)
Cash used by real estate operations held for sale (17) (17)
Proceeds from divestments 8 45
Other (2) 12
----- -----
Net cash used in investing activities (109) (50)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from short-term borrowings 81 35
Proceeds from issuance of long-term debt 193 21
Repayments of long-term debt (91) (24)
Cash dividend payments (48) (48)
Other 5 1
----- -----
Net cash provided by (used in) financing activities 140 (15)
----- -----
Net increase (decrease) in cash and cash equivalents 71 (74)
Cash and cash equivalents at beginning of period 118 179
----- -----
Cash and cash equivalents at end of period $ 189 $ 105
===== =====
(See Accompanying Notes)
<PAGE>
<PAGE> 6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1. General.
The accompanying condensed consolidated financial statements are
presented in accordance with the requirements of Form 10-Q and do not
include all disclosures normally required by generally accepted
accounting principles or those normally made in Form 10-K. In
management's opinion all adjustments necessary for a fair presentation
of the results of operations, financial position and cash flows for
the periods shown have been made. All such adjustments are of a
normal recurring nature except for the cumulative effect of change in
accounting principle (Note 3). Results for the three months ended
March 31, 1994 are not necessarily indicative of results for the full
year 1994.
2. Investments in Operations Held for Sale.
In January 1993, Sun decided to sell the assets of the Company's coal
and cokemaking operations comprised of Sun Coal Company and Elk River
Resources, Inc. and its subsidiaries (collectively, "Sun Coal"). In
connection with this decision, Sun sold its western U.S. coal
operations during 1993 and continues to actively pursue the sale of
its remaining eastern U.S. coal and cokemaking operations.
In October 1991, the Company's Board of Directors approved a plan to
dispose of the Company's investment in Radnor Corporation ("Radnor"),
its wholly owned real estate development subsidiary. In connection
with this plan, the Company is actively pursuing a program of
controlled disposition.
Prior to the fourth quarter of 1993, coal and real estate operations
had been classified as discontinued operations in the consolidated
financial statements. In accordance therewith, results of operations
of Sun's coal and real estate businesses subsequent to their
measurement dates of December 31, 1992 and September 30, 1991,
respectively, had been excluded from the consolidated statements of
income. In November 1993, the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 93 which requires discontinued
operations that have not been divested within one year of their
measurement dates to be accounted for prospectively as investments
held for sale. As a result, pretax income (loss) from Sun's coal and
real estate operations, which totalled $(6) and $2 million,
respectively, during the first quarter of 1994, has been included as a
single amount in income from continuing operations. On an after-tax
basis, income from Sun's coal and real estate operations were
breakeven and $2 million, respectively, during the first quarter of
1994.
<PAGE>
<PAGE> 7
The net assets and liabilities relating to the coal and real estate
operations held for sale have been segregated on the condensed
consolidated balance sheets from their historic classifications to
separately identify them as investments in operations held for sale.
Such amounts are summarized as follows:
March 31 December 31
1994 1993
-------- -----------
(Millions of Dollars)
Coal Operations
Accounts receivable $ 19 $ 18
Inventories 25 27
Properties, plants and equipment 170 175
Other assets 31 32
Accounts payable and accrued liabilities (35) (40)
Retirement benefit liabilities (45) (44)
Other liabilities (55) (55)
----- -----
Investment in coal operations held for sale $ 110 $ 113
===== =====
Real Estate Operations
Inventories $ 159 $ 158
Properties, plants and equipment 382 374
Other assets 38 49
Nonrecourse financing (90) (90)
Recourse debt (307) (324)
Other liabilities (29) (33)
----- -----
Investment in real estate operations
held for sale $ 153 $ 134
===== =====
As part of a restructuring of Radnor's recourse debt obligations
during 1992, the Company, through its wholly owned subsidiary, The
Claymont Investment Company, has provided Radnor with a $100 million
credit facility. As of March 31, 1994, there was $40 million borrowed
against this facility. Amounts borrowed by Radnor under this facility
are not collateralized by any of its assets.
Radnor's recourse debt obligations require that its stockholder's
equity, which totalled $102 at March 31, 1994, equal at least $100
million. In the event that Radnor's stockholder's equity declines
below this amount, the Company would have the option to make a capital
contribution to Radnor to avoid default by Radnor on these obligations
or to advance the remaining amount available under the $100 million
credit facility.
<PAGE>
<PAGE> 8
3. Changes in Accounting Principles.
Postemployment Benefits
Effective January 1, 1994, Sun adopted the provisions of Statement of
Financial Accounting Standards No. 112 "Employers' Accounting for
Postemployment Benefits" ("SFAS No. 112"). It requires companies to
recognize the obligation to provide benefits to their former or
inactive employees after employment but before retirement. The
cumulative effect of this accounting change for years prior to 1994,
which is shown separately in the condensed consolidated statement of
income, decreased net income for the three months ended March 31, 1994
by $7 million (after related income tax benefit of $4 million), or
$.07 per share of common stock. Excluding the cumulative effect, this
change did not have a significant impact on Sun's net income for the
three months ended March 31, 1994.
Income Taxes
Effective January 1, 1993, Sun adopted the provisions of Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes"
("SFAS No. 109") which changed the method of computing deferred income
taxes from a deferred to a liability approach. Under the liability
method, deferred income taxes are determined based on temporary
differences between the financial statement and tax bases of assets
and liabilities, using enacted tax rates in effect during the years in
which the differences are expected to reverse, and on available tax
credits and carryforwards. The cumulative effect of this accounting
change for years prior to 1993, which is shown separately in the
condensed consolidated statement of income, increased net income for
the three months ended March 31, 1993 by $5 million, or $.05 per share
of common stock. Excluding the cumulative effect, this change
increased net income for the first quarter of 1993 by $9 million, or
$.09 per share of common stock, primarily due to lower U.S. income tax
expense on foreign earnings. Since the deferred income tax assets and
liabilities will have to be adjusted for any enacted change in tax
rate, Sun's net income may be subject to increased volatility.
4. Commitments and Contingent Liabilities.
In 1992, a wholly owned subsidiary of the Company became a one-third
partner in Belvieu Environmental Fuels ("BEF"), a joint venture formed
for the purpose of constructing, owning and operating a $220 million
methyl tertiary butyl ether ("MTBE") production facility in Mont
Belvieu, Texas. As of March 31, 1994, BEF had borrowed $170 million
against a construction loan facility of which the Company guarantees
one-third or $57 million. The plant, which had an original designed
capacity of 12,600 barrels daily of MTBE, should be able to run in
excess of this capacity when it becomes fully operational. After
completion of start-up tests in the second half of 1994, the
construction loan will be converted into a five-year, nonrecourse term
loan with a first priority lien on all project assets.
In order to obtain a secure supply of oxygenates for the manufacture
of reformulated fuels, Sun has entered into a 10-year off-take
agreement with BEF which commences when the plant becomes fully
operational. Pursuant to this agreement, Sun will purchase all of the
<PAGE>
<PAGE> 9
MTBE production from the plant. The minimum per unit price to be paid
for the first 12,600 barrels daily of MTBE production while the
nonrecourse term loan is outstanding will be equal to BEF's annual raw
material and operating costs and debt service payments divided by the
plant's annual designed capacity. Notwithstanding this minimum price,
Sun has agreed to pay BEF a price during the first three years of the
off-take agreement which approximates prices included in current MTBE
long-term sales agreements in the marketplace. This price is expected
to exceed the minimum price required by the loan agreement. Sun will
negotiate a new pricing arrangement with BEF for the remaining years
the off-take agreement is in effect which will be based upon the
expected market conditions existing at such time.
Sun is subject to federal, state, local and foreign laws regulating
the discharge of materials into, or otherwise relating to the
protection of, the environment. These laws result in loss
contingencies for Sun's remediation at the Company's refineries,
service stations, terminals, pipelines and truck transportation
facilities as well as third-party or formerly owned sites at which
contaminants generated by Sun may be located.
The Comprehensive Environmental Response Compensation and Liability
Act ("CERCLA") and the Solid Waste Disposal Act as amended by the
Resource Conservation and Recovery Act ("RCRA"), and related state
laws subject the Company to the potential obligation to remove or
mitigate the environmental effects of the disposal or release of
certain pollutants at various sites. Under CERCLA, Sun is subject to
potential joint and several liability for the costs of remediation at
sites at which it has been identified as a "potentially responsible
party" ("PRP"). As of March 31, 1994, Sun had been named as a PRP at
45 sites identified or potentially identifiable as "Superfund" sites
under CERCLA. Sun has reviewed the nature and extent of its
involvement at each site and other relevant circumstances and, based
upon the other parties involved or Sun's negligible participation
therein, believes that its potential liability associated with such
sites will not be significant. Under RCRA and related state laws,
corrective remedial action has been initiated at some of its
facilities and will be required to be undertaken by the Company at
various of its other facilities. The cost of such remedial actions
could be significant but is expected to be incurred over an extended
period of time.
Sun's policy is to accrue environmental remediation costs for work at
identified sites where an assessment has indicated that cleanup costs
are probable and reasonably estimable. Such accruals are based on
currently available facts, estimated timing of remedial actions and
related inflation assumptions, existing technology and presently
enacted laws and regulations. Sun's international production and
Canadian operations are subject to less demanding environmental
regulatory requirements than its U.S. operations and these less
stringent requirements are considered in determining the accruals for
those locations. Sun's accruals reflect the Company's philosophy of
aggressively managing remediation costs to ensure the most
cost-effective method of protecting the health, safety and environment
of affected communities. The accrued liability for environmental
remediation totalled $245 million at March 31, 1994 and $259 million
<PAGE>
<PAGE> 10
at December 31, 1993. Sun also accrues estimated dismantlement,
restoration, reclamation and abandonment costs at its oil and gas
exploration and production and oil sands mining operations through a
charge against income primarily on a units of production basis. The
accrued liability for these activities, which are conducted primarily
by Suncor, Sun's 55 percent owned subsidiary, totalled $117 million at
March 31, 1994 and $119 million at December 31, 1993. The accruals
for environmental remediation and reclamation activities are included
primarily in other deferred credits and liabilities in the condensed
consolidated balance sheets. Pretax charges against income for
environmental remediation and reclamation totalled $4 and $5 million
for the three months ended March 31, 1994 and 1993, respectively.
Claims for recovery of environmental liabilities that are probable of
realization totalled $12 million at March 31, 1994 and are included in
deferred charges and other assets in the condensed consolidated
balance sheet.
Total future cost for environmental remediation activities will depend
upon, among other things, the identification of additional sites, the
determination of the extent of contamination of each site, the timing
and nature of required remedial actions, the technology available and
needed to meet the various existing requirements, the nature and
extent of future environmental laws, inflation rates and the
determination of Sun's liability at multi-party sites, if any, in
light of the number, participation levels and financial viability of
other parties.
Many other legal and administrative proceedings are pending against
Sun. The ultimate outcome of these proceedings and the environmental
matters discussed above cannot be ascertained at this time; however,
it is reasonably possible that some of them could be resolved
unfavorably to Sun.
Management believes that any costs attributable to the matters
discussed above are expected to be incurred over an extended period of
time and to be funded from Sun's net cash flow from operating
activities. Although the ultimate impact of these matters could have
a significant impact on results of operations, cash flow or liquidity
for any one quarter or year, management of Sun believes that any
liabilities which may arise pertaining to such matters would not be
material in relation to the consolidated financial position of Sun at
March 31, 1994. Furthermore, management of Sun believes that the
overall costs for environmental activities will not have a material
impact, over an extended period of time, on Sun's cash flow or
liquidity.
<PAGE>
<PAGE> 11
5. Stockholders' Equity.
At At
March 31 December 31
1994 1993
-------- -----------
(Millions of Dollars)
Common stock, par value $1 per share $ 129 $ 129
Capital in excess of par value 1,307 1,303
Cumulative foreign currency translation
adjustment (82) (62)
Earnings employed in the business 1,615 1,636
------ ------
2,969 3,006
Less common stock held in treasury,
at cost 1,021 1,022
------ ------
Total $1,948 $1,984
====== ======
6. Supplemental Cash Flow Information.
Cash payments for income taxes and interest were as follows:
For the Three Months
Ended March 31
--------------------
1994 1993
---- ----
(Millions of Dollars)
Income taxes $8 $62
Interest (net of amounts capitalized) $4 $ 6
<PAGE>
<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Earnings Profile of Sun Businesses (after tax)
- - ----------------------------------------------
Three Months Ended
March 31
------------------
1994 1993 Variance
---- ---- --------
(Millions of Dollars)
Fuels:
Wholesale fuels $(11) $(31) $ 20
Branded marketing 8 19 (11)
Lubricants:
Lubes 14 19 (5)
Related fuels 4 (13) 17
Chemicals (3) 7 (10)
Logistics 11 10 1
International production 14 25 (11)
Canada (Suncor):*
Exploration and production 1 1 --
Oil sands 2 6 (4)
Refining and marketing 5 3 2
Corporate expenses** (1) (3) 2
Net financing expenses (1) (1) --
---- ---- ----
Total Canada (Suncor) 6 6 --
Corporate:
Corporate expenses (5) (4) (1)
Net financing expenses (6) (3) (3)
Income from operations held
for sale:***
Coal -- -- --
Real estate 2 -- 2
---- ---- ----
34 35 (1)
Cumulative effect of change in
accounting principle+ (7) 5 (12)
---- ---- ----
Consolidated net income $ 27 $ 40 $(13)
==== ==== ====
- - ----------------
*Sun reduced its ownership interest in Suncor from approximately
68 percent to 55 percent in May 1993.
**Includes consolidation adjustments.
***Effective in the fourth quarter of 1993, coal and real estate operations
are accounted for as investments held for sale. During the first nine
months of 1993, as discontinued operations, earnings from these
businesses were excluded from Sun's consolidated results of operations.
+Consists of the impact of the cumulative effect of a change in the
method of accounting for postemployment benefits in 1994 and a change
in the method of accounting for income taxes in 1993.<PAGE>
<PAGE> 13
Analysis of Earnings Profile of Sun Businesses
- - ----------------------------------------------
In the three-month period ended March 31, 1994, Sun earned $27 million, or
$.25 per share of common stock, compared with earnings of $40 million, or
$.37 per share for the first quarter of 1993. Excluding the cumulative
effect of a change in accounting principle reflected in each of the
respective reporting periods, Sun earned $34 million during the first three
months of 1994 compared to $35 million during the first three months of
1993.
Fuels -- Losses from Sun's domestic Fuels business declined from $12
million in the first quarter of 1993 to $3 million in the first quarter of
1994. The improvement was in Wholesale Fuels operations at Sun's Marcus
Hook, PA, Philadelphia, PA and Toledo, OH refineries, where losses
decreased from $31 million in the 1993 first quarter to $11 million in the
current quarter. Income from Branded Marketing operations decreased from
$19 million in the year-ago quarter to $8 million in the first quarter of
1994.
The $20 million improvement in Wholesale Fuels results was due largely to
improved margins ($34 million) across most products, particularly middle
distillates, residual fuels and wholesale gasoline. Partially offsetting
this increase were higher refinery operating expenses at the Company's
three Fuels refineries ($10 million) and lower sales volumes ($3 million)
caused largely by severe winter weather conditions in the northeastern
United States.
In Branded Marketing, the $11 million decline was caused largely by higher
operating and distribution expenses ($5 million), due in part to weather
conditions, and by increased expenses related to the ongoing conversion of
the Atlantic brand to Sunoco and the upgrading of the Sunoco image ($3
million). A four percent decline in branded gasoline sales volumes ($2
million) also contributed to the decrease in Branded Marketing earnings.
The volume decline was caused primarily by Sun's 1993 withdrawal from areas
supplied by the Tulsa Refinery and by severe wintertime driving conditions
which reduced gasoline sales.
In April 1994, Sun was awarded a five-year contract to supply 16 service
stations along the Ohio Turnpike. These additional service station outlets
are expected to add approximately three thousand barrels daily to Sun's
refined product sales volumes by the end of the 1994 second quarter.
Lubricants -- Results from Sun's Lubricants business, comprised of the
manufacturing, packaging and marketing of lubricants and specialty oil
products as well as the related manufacturing and wholesale marketing of
fuels produced at Sun's Tulsa and Puerto Rico refineries, increased $12
million over the 1993 first quarter. Income from sales of lubricant
products was $14 million in the current quarter, down from $19 million in
the year-ago quarter due to lower margins ($5 million), particularly for
base oils. Higher expenses ($2 million) resulting largely from increased
refinery production levels were offset by the favorable impact of 12
percent higher lubricants sales volumes. Income from Related Fuels
operations was $4 million during the first quarter of 1994, representing a
$17 million improvement from the 1993 first quarter loss of $13 million.
The improvement was due to higher margins on wholesale fuels products ($15
million) and higher sales volumes ($3 million).
<PAGE>
<PAGE> 14
Chemicals -- Sun's domestic Chemicals business had a loss of $3 million in
the 1994 first quarter, versus income of $7 million in the prior year
period. Production curtailments at the Company's three Fuels refineries
primarily due to the extreme weather conditions contributed to lower sales
volumes ($2 million) and higher operating expenses ($4 million) during the
quarter. Margins were down ($4 million) versus year-ago levels due largely
to higher feedstock costs and declining aromatics prices.
Logistics -- Logistics (pipeline transportation and petroleum terminalling
operations) income was $11 million, an increase of $1 million versus the
year-ago quarter.
International Production -- International Production earnings were $14
million in the 1994 first quarter versus $25 million in the first quarter
of 1993. The $11 million decline was due largely to 17-percent-lower crude
oil prices ($5 million) and the absence of after-tax foreign exchange gains
($4 million) recorded in the 1993 first quarter. The favorable impact of
higher North Sea crude oil production volumes ($6 million) was essentially
offset by higher depreciation and cost and operating expenses.
The average price received for Sun's international crude oil production was
$13.85 per barrel in the first three months of 1994 compared to $16.71 per
barrel for the first quarter of 1993. Sun's average net production of
crude oil was 26.4 thousand barrels daily during the first three months of
1994 compared to average net production of 36.4 thousand barrels daily for
the first quarter of 1993. The production decline is the result of the
absence of volumes from properties located in Dubai which were sold in
April 1993. Excluding the Dubai volumes, crude production increased 42
percent from the prior year quarter due to improved operations and Sun's
increased ownership interests in the Balmoral and Stirling fields in the
U.K. North Sea.
The average price received for Sun's international natural gas production
was $2.84 per thousand cubic feet for the current quarter compared to $2.61
per thousand cubic feet in the 1993 first quarter. Sun's average net
production of natural gas was 63 million cubic feet daily in the first
quarter of 1994 compared to 76 million cubic feet daily in the first
quarter of 1993.
Canada (Suncor) -- Canadian exploration and production results of $1
million were unchanged from the year-ago quarter as lower operating and
administrative expenses and higher natural gas prices were offset by lower
crude oil prices and natural gas volumes. Oil sands results declined $4
million due to a 26-percent decline in synthetic crude oil prices to $13.25
per barrel ($7 million), partially offset by higher production volumes ($4
million). Synthetic crude oil production volumes increased 17 percent from
57.0 thousand barrels daily during the 1993 first quarter to 66.5 thousand
barrels daily during the first three months of 1994. The increase in
production was due, in part, to modifications made to the oil sands plant's
upgrader in 1993. Canadian refining and marketing income increased $2
million due to improved margins, particularly for distillates. The impact
of slightly higher sales volumes was offset by lower retail gasoline
margins.
Corporate -- Net financing expenses were up $3 million versus the year-ago
quarter due to the absence of a $3 million after-tax gain on the sale of an
equity investment recognized in the first quarter of 1993.
<PAGE>
<PAGE> 15
Income from Operations Held for Sale -- For a discussion of Sun's coal and
real estate operations held for sale, see Note 2 to the condensed
consolidated financial statements.
Cumulative Effect of Change in Accounting Principle -- For information
concerning changes in accounting principles, see Note 3 to the condensed
consolidated financial statements.
Analysis of Consolidated Statements of Income
- - ---------------------------------------------
Sales and other operating revenue decreased $229 million, or 10 percent,
principally due to lower refined product sales prices ($186 million) and
lower revenues from resales of purchased oil and refined products ($86
million), partially offset by an increase in consumer excise taxes ($49
million). Other income decreased $2 million primarily as a result of lower
foreign exchange gains ($6 million), partially offset by higher gains on
asset divestments ($3 million). Cost of products sold and operating
expenses decreased $287 million, or 19 percent, primarily due to lower
resales of purchased oil and refined products ($86 million) and lower
domestic crude oil and refined product acquisition costs ($213 million)
resulting primarily from the decline in crude oil prices. Selling, general
and administrative expenses increased $18 million, or 12 percent, primarily
due to higher expenses ($14 million) in Sun's domestic refining and
marketing operations. This increase was due in part to higher distribution
and other expenses caused by the severe winter weather in the northeastern
United States and to increased expenses associated with the conversion of
the Atlantic brand to Sunoco and the upgrading of the Sunoco image. Taxes,
other than income taxes increased $36 million, or 8 percent, as higher
consumer excise taxes ($49 million) were partially offset by lower crude
oil and natural gas production taxes ($9 million). Depreciation, depletion
and amortization increased $5 million, or 6 percent, primarily as a result
of increased crude oil production in the U.K. North Sea. The $3 million
increase in minority interest is primarily due to a reduction in the
Company's ownership interest in Suncor, its Canadian subsidiary. Interest
cost and debt expense decreased $2 million, or 9 percent, due to lower
average corporate borrowings and lower borrowings at Helios Capital
Corporation, Sun's leasing subsidiary. For a discussion of the cumulative
effect of change in accounting principle, see Note 3 to the condensed
consolidated financial statements.
<PAGE>
<PAGE> 16
FINANCIAL CONDITION
Cash Generation and Divestment Activities
- - -----------------------------------------
In the first quarter of 1994, Sun's net cash provided by (used in)
operating activities ("cash generation") was $40 million compared to
$(9) million in the first quarter of 1993. The $49 million improvement in
cash generation is largely due to higher refined product margins.
Divestment activities also have enhanced Sun's cash flow and liquidity.
During the first quarters of 1994 and 1993, proceeds from divestments
totalled $8 and $45 million, respectively.
Net cash provided by operating and divestment activities has enabled, and
is expected to continue to enable, Sun to sustain the current cash
dividend, pursue its capital program and fulfill its financing obligations.
Cash, Working Capital and Financial Capacity
- - --------------------------------------------
At March 31, 1994, cash and cash equivalents were $189 million compared to
$118 million at December 31, 1993, an increase of 60 percent. At March 31,
1994, Sun had a working capital deficit of $145 million compared to a
working capital deficit of $228 million at December 31, 1993. This $83
million reduction in the working capital deficit reflects the $102 million
cash provided by long-term borrowings net of debt repayments during the
first three months of 1994. Sun's working capital position is considerably
stronger than indicated because of the relatively low historical costs
assigned under the LIFO method of accounting to a significant portion of
the inventories reflected in the condensed consolidated balance sheet. The
current replacement cost of all such inventories exceeds the carrying value
at March 31, 1994, by approximately $395 million. Inventories valued at
LIFO, which consist of crude oil and refined products, are readily
marketable at their current replacement values. Management believes that
the current levels of Sun's cash and working capital provide adequate
support for its ongoing operations.
Cash generation will continue to be subject to volatility primarily due to
fluctuations in refined product margins and crude oil prices. In the event
that cash generation is insufficient to satisfy near-term cash
requirements, the Company has access to $500 million of short-term
financing for operations in the form of commercial paper and revolving
credit agreements from commercial banks. There were no borrowings against
these revolving credit agreements at March 31, 1994. These facilities
support Sun's commercial paper borrowings, which amounted to $131 million
at March 31, 1994. The Company also has access to short-term financing
under non-committed money market facilities. At March 31, 1994, $60
million was borrowed through these facilities. Suncor also has a revolving
term credit facility available for its own use aggregating $289 million.
At March 31, 1994, Suncor had borrowed $11 million against this facility.
In addition, Sun's capital spending levels from time to time are adjusted
in response to changes in cash generation as a portion of capital spending
is discretionary in nature.
<PAGE>
<PAGE> 17
As of March 31, 1994, Sun's long-term debt to long-term capitalization
ratio was 29.6 percent. As indicated by this ratio, management believes
that Sun has substantial long-term borrowing capacity which is available to
pursue strategic and other operational investment opportunities as they
arise.
During the first quarter of 1994, Sun signed a letter of intent with
Chevron U.S.A. Products Co. to purchase Chevron's 177,000 barrel-a-day
Philadelphia refinery and Chevron's one-third interest in a petroleum
pipeline connecting the refinery to the New York Harbor, for approximately
$170 million, including inventory. In the first quarter of 1994, Sun also
signed an agreement to acquire from LASMO plc a 45 percent interest in
Block 3/8A located in the North Sea for $59 million plus Sun's 20 percent
interest in Block 16/12a also located in the North Sea. Production from
Block 3/8A is expected to approximate 11,000 net barrels of crude oil per
day. The Company is hopeful that these planned acquisitions will be
concluded in the third quarter, which should enhance Sun's earnings and
cash flow in 1994.
<PAGE>
<PAGE> 18
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On March 11, 1994, Sun was advised by the Department of Justice,
Environmental Enforcement Division ("DOJ") and the United States
Environmental Protection Agency ("EPA") that they contemplated the
filing of two lawsuits against Sun Company, Inc. (R&M) ("Sun(R&M)"),
and a single suit against Atlantic Refining & Marketing Corp.
("Atlantic"), both wholly owned subsidiaries of the Company. The
first threatened suit seeks civil penalties and injunctive relief
against both Sun(R&M) and Atlantic regarding certain alleged
violations of a National Pollution Discharge Elimination System
("NPDES") Permit at Sun's Philadelphia Refinery. The second
threatened suit, against Sun(R&M) only, seeks civil penalties and
injunctive relief regarding certain alleged violations of federal pre-
treatment regulations under the Clean Water Act. Both Sun(R&M) and
Atlantic have commenced negotiations with the DOJ and the EPA, in an
effort to review and settle these allegations. These negotiations
remain ongoing and it is anticipated that any negotiated settlement
will likely involve the payment of civil fines in excess of $100,000
in each case.
Many other legal and administrative proceedings are pending against
Sun. Although the ultimate outcome of these proceedings cannot be
ascertained at this time, it is reasonably possible that some of them
could be resolved unfavorably to Sun. Management of Sun believes that
any liabilities which may arise from such proceedings, including those
discussed above, would not be material in relation to the consolidated
financial position of Sun at March 31, 1994.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
11 - Statements re Sun Company, Inc. and Subsidiaries Computation of
Per Share Earnings for the Three-Month Periods Ended March 31,
1994 and 1993.
12 - Statement re Sun Company, Inc. and Subsidiaries Computation of
Ratio of Earnings to Fixed Charges for the Three-Month Period
Ended March 31, 1994.
Reports on Form 8-K:
The Company filed a report on Form 8-K on February 24, 1994 to
disclose under Item 5, "Other Events," that Sun signed a letter of
intent to acquire Chevron's Philadelphia refinery and its interest in
a related pipeline. For additional information concerning this
planned acquisition, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Part I above.
<PAGE>
<PAGE> 19
We are pleased to furnish this report to shareholders who request it by
writing to:
Sun Company, Inc.
Shareholder Relations
Ten Penn Center
1801 Market Street
Philadelphia, PA 19103-1699
<PAGE>
<PAGE> 20
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.
SUN COMPANY, INC.
BY s/ RICHARD L. CARTLIDGE
-----------------------
Richard L. Cartlidge
Comptroller
(Principal Accounting Officer)
DATE May 12, 1994
<PAGE>
<PAGE> 1
EXHIBIT INDEX
Exhibit
Number Exhibit
- - ------- -----------------------------------------
11 Statements re Sun Company, Inc. and Subsidiaries Computation
of Per Share Earnings for the Three-Month Periods Ended
March 31, 1994 and 1993.
12 Statement re Sun Company, Inc. and Subsidiaries Computation
of Ratio of Earnings to Fixed Charges for the Three-Month
Period Ended March 31, 1994.
<PAGE>
<PAGE> 1
EXHIBIT 11
STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
Sun Company, Inc. and Subsidiaries
(Dollars in Millions Except Per Share Amounts, Shares in Thousands)
- - -------------------------------------------------------------------------
For the Three Months
Ended March 31
--------------------
1994 1993
------- -------
(UNAUDITED)
Income before cumulative effect of change
in accounting principle (1) $33.9 $34.7
Cumulative effect of change in
accounting principle (2) (6.8)(a) 5.0(a)
----- -----
Net income (3) $27.1 $39.7
===== =====
Weighted average number of shares
of common stock and common stock
equivalents outstanding (4) 107,091 106,443
======= =======
Income per share of common stock:
Income before cumulative effect of change
in accounting principle (1)/(4) $ .32 $.32
Cumulative effect of change in
accounting principle (2)/(4) (.07) .05
----- ----
Net income (3)/(4) $ .25 $.37
===== ====
Weighted average number of shares of
common stock and common stock
equivalents outstanding on a
fully diluted basis (5) 107,094 106,444
======= =======
Income per share of common stock
on a fully diluted basis:
Income before cumulative effect of change
in accounting principle (1)/(5) $ .32 $.32
Cumulative effect of change in
accounting principle (2)/(5) (.07) .05
----- ----
Net income (3)/(5) $ .25 $.37
===== ====
- - ----------------
(a) Includes impact of the cumulative effect of a change in the method of
accounting for postemployment benefits in 1994 and a change in the
method of accounting for income taxes in 1993. (See Note 3 to the
condensed consolidated financial statements.)
<PAGE>
<PAGE>
<PAGE> 1
EXHIBIT 12
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(a)
Sun Company, Inc. and Subsidiaries
(Millions of Dollars Except Ratio)
- - --------------------------------------------------------------------------
For the Three Months
Ended March 31, 1994
--------------------
(UNAUDITED)
Fixed Charges:
Consolidated interest cost and debt expense $20
Interest cost and debt expense of operations
held for sale 7
Interest allocable to rental expense(b) 6
---
Total $33
===
Earnings:
Consolidated income before provision for
income taxes and cumulative effect of
change in accounting principle $49
Minority interest in net income
of subsidiaries having fixed charges 6
Proportionate share of provision for income
taxes of 50 percent owned but not controlled
affiliated companies 1
Equity in income of less than 50 percent owned
but not controlled affiliated companies (2)
Dividends received from less than 50 percent
owned but not controlled affiliated companies 1
Fixed charges 33
Interest capitalized (3)
Amortization of previously capitalized interest 5
---
Total $90
===
Ratio of Earnings to Fixed Charges 2.73
====
- - ----------------
(a) The consolidated financial statements of Sun Company, Inc. and
subsidiaries contain the accounts of all subsidiaries that are
controlled (generally more than 50 percent owned) except those engaged
in coal and real estate operations which are subject to a plan of
disposition. Coal and real estate operations are accounted for as
investments in operations held for sale. (See Note 2 to the condensed
consolidated financial statements.) Affiliated companies (20 to 50
percent owned but not controlled) are accounted for by the equity
method.
(b) Represents one-third of total operating lease rental expense which is
that portion deemed to be interest.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<PAGE> 1
DATA STATED IN MILLIONS
VOLUNTARY SCHEDULE - CERTAIN FINANCIAL INFORMATION
<CAPTION>
FIRST QTR FIRST QTR -- YEAR TO DATE --
REGULATION STATEMENT 1994 1993 1994 1993
<S> <C> <C> <C> <C> <C>
5-02(1) Cash and cash items 189 105
5-02(2) Marketable securities -- --
5-02(6)(a)(1) Finished goods 217 268
5-02(9) Total current assets 1,289 1,315
5-02(18) Total assets 5,859 6,040
5-02(21) Total current liabilities 1,434 1,778
5-02(22) Bonds, mortgages & other long term debt 822 799
5-02(23) Indebtedness to related parties -- --
5-02(29) Preferred stock-no mandatory redemption -- --
5-02(30) Common stock 129 129
5-02(31)(a)(1) Additional paid in capital 1,307 1,302
5-02(31)(a)(3)(ii) Retained earnings - unappropriated 1,615 1,532
5-03(b)(1)(a) Net sales tangible products 2,056 2,285 2,056 2,285
5-03(b)(8) Interest & amortization of debt discount 18 19 18 19
5-03(b)(10) Income before taxes and other items 49 59 49 59
5-03(b)(11) Income tax expense 15 24 15 24
5-03(b)(18) Cumulative effect - change in acctg. prin. (7) 5 (7) 5
5-03(b)(19) Net income 27 40 27 40
