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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 September 30, 1995
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 1-6841
SUN COMPANY, INC.
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(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
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(Address of principal executive offices)
(Zip Code)
(215) 977-3000
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(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 September 30, 1995, 12,500,000 shares of preference stock and 75,038,428
shares of common stock were outstanding.
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SUN COMPANY, INC.
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INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income
for the Nine Months Ended September 30, 1995
and 1994 3
Condensed Consolidated Statements of Income
for the Three Months Ended September 30, 1995
and 1994 4
Condensed Consolidated Balance Sheets at
September 30, 1995 and December 31, 1994 5
Condensed Consolidated Statements of Cash
Flows for the Nine Months Ended September 30,
1995 and 1994 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Changes in Securities 26
Item 6. Exhibits and Reports on Form 8-K 26
SIGNATURE 28
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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 Nine Months
Ended September 30
-------------------
1995 1994
------ ------
(UNAUDITED)
REVENUES
Sales and other operating revenue (including consumer
excise taxes of $1,360 in 1995 and $1,570 in 1994) $7,632 $6,973
Gain on divestments (Note 2) 246 49
Interest income 10 11
Other income 30 13
------ ------
7,918 7,046
------ ------
COSTS AND EXPENSES
Cost of products sold and operating expenses 5,191 4,334
Selling, general and administrative expenses 486 512
Taxes, other than income taxes 1,460 1,673
Depreciation, depletion and amortization 260 267
Provision for write-down of assets and other
matters (Note 4) 138 39
Exploratory costs and leasehold impairment 15 16
Minority interest 19 24
Interest cost and debt expense 87 66
Interest capitalized (4) (8)
------ ------
7,652 6,923
------ ------
Income before provision for income taxes
and cumulative effect of change in
accounting principle 266 123
Provision for income taxes 86 29
------ ------
Income before cumulative effect of change
in accounting principle 180 94
Cumulative effect of change in accounting
principle (Note 5) -- (7)
------ ------
NET INCOME $ 180 $ 87
====== ======
Net income per share of common stock (Note 6):
Primary $1.74 $.81
Fully diluted $1.71 $.81
Cash dividends paid per share:
Preference stock $.90 $--
Common stock $1.15 $1.35
(See Accompanying Notes)
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Sun Company, Inc. and Subsidiaries
(Millions of Dollars Except Per Share Amounts)
- --------------------------------------------------------------------------
For the Three Months
Ended September 30
--------------------
1995 1994
------ ------
(UNAUDITED)
REVENUES
Sales and other operating revenue (including consumer
excise taxes of $399 in 1995 and $554 in 1994) $2,398 $2,699
Gain on divestments (Note 2) 2 20
Interest income 5 4
Other income 10 3
------ ------
2,415 2,726
------ ------
COSTS AND EXPENSES
Cost of products sold and operating expenses 1,629 1,727
Selling, general and administrative expenses 142 181
Taxes, other than income taxes 432 592
Depreciation, depletion and amortization 77 89
Provision for write-down of assets and other
matters (Note 4) -- 39
Exploratory costs and leasehold impairment -- 5
Minority interest -- 11
Interest cost and debt expense 25 25
Interest capitalized -- (3)
------ ------
2,305 2,666
------ ------
Income before provision for income taxes 110 60
Provision for income taxes 32 12
------ ------
NET INCOME $ 78 $ 48
====== ======
Net income per share of common stock (Note 6):
Primary $.87 $.45
Fully diluted $.76 $.45
Cash dividends paid per share:
Preference stock $.90 $ --
Common stock $.25 $.45
(See Accompanying Notes)
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CONDENSED CONSOLIDATED BALANCE SHEETS
Sun Company, Inc. and Subsidiaries
At At
September 30 December 31
1995 1994
(Millions of Dollars) (UNAUDITED)
- --------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents, at cost which
approximates market $ 18 $ 117
Accounts and notes receivable, net of allowances 624 655
Inventories:
Crude oil 165 193
Refined products 329 335
Materials, supplies and other 68 85
Deferred income taxes 112 123
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Total Current Assets 1,316 1,508
Investment in real estate operations held
for sale (Note 3) 124 123
Receivable from sale of Suncor stock (Note 2) 127 --
Other long-term receivables and investments 103 143
Properties, plants and equipment 6,721 8,430
Less accumulated depreciation, depletion
and amortization 3,476 4,082
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Properties, plants and equipment, net 3,245 4,348
Deferred charges and other assets 276 343
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Total Assets $5,191 $6,465
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 683 $ 776
Accrued liabilities 543 540
Short-term borrowings 28 221
Current portion of long-term debt 18 99
Taxes payable 210 279
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Total Current Liabilities 1,482 1,915
Long-term debt 888 1,073
Retirement benefit liabilities 506 515
Deferred income taxes 117 301
Other deferred credits and liabilities 400 429
Commitments and contingent liabilities (Note 7)
Minority interest (Note 2) -- 369
Stockholders' equity (Note 8) 1,798 1,863
------ ------
Total Liabilities and Stockholders' Equity $5,191 $6,465
====== ======
(See Accompanying Notes)
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Sun Company, Inc. and Subsidiaries
(Millions of Dollars)
- -------------------------------------------------------------------------
For the Nine Months
Ended September 30
------------------
1995 1994
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(UNAUDITED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 180 $ 87
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of change in accounting
principle -- 7
Provision for write-down of assets and other
matters 138 39
Gain on divestments (246) (49)
Depreciation, depletion and amortization 260 267
Dry hole costs and leasehold impairment 7 10
Deferred income taxes 37 (14)
Changes in working capital pertaining to
operating activities:
Accounts and notes receivable (105) (150)
Inventories (66) (206)
Accounts payable and accrued liabilities (18) 52
Taxes payable (15) 16
Other 3 26
----- -----
Net cash provided by operating activities 175 85
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (404) (518)
Acquisition of Girard Point refinery and
related assets (Note 9) -- (151)
Cash provided by (used in) real estate
operations held for sale (1) 7
Proceeds from sale of Suncor stock (Note 9) 635 --
Proceeds from other divestments 50 65
Other (9) 22
----- -----
Net cash provided by (used in) investing activities 271 (575)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) short-term
borrowings (193) 320
Proceeds from issuance of long-term debt 15 444
Repayments of long-term debt (127) (112)
Cash dividend payments on preference stock (11) --
Cash dividend payments on common stock (115) (144)
Purchases of common stock for treasury (Note 8) (210) --
Other 96 6
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Net cash provided by (used in) financing activities (545) 514
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Net increase (decrease) in cash and cash equivalents (99) 24
Cash and cash equivalents at beginning of period 117 118
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Cash and cash equivalents at end of period $ 18 $ 142
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(See Accompanying Notes)
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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 gains on divestments (Note 2),
the provisions for write-down of assets and other matters (Note 4) and
the cumulative effect of change in accounting principle (Note 5).
Results for the three and nine months ended September 30, 1995 are not
necessarily indicative of results for the full year 1995.
2. Gain on Divestments
Sale of Suncor Common Stock
On June 8, 1995, Sun completed the sale of its remaining 55 percent
interest in Suncor Inc., the Company's Canadian integrated oil
company, to a group of Canadian underwriters who subsequently sold the
shares publicly in Canada and, by way of private placement, in the
United States. Under terms of the underwriting agreement, Sun was to
receive gross proceeds of approximately C$1,167 million (US$855
million), payable in three equal installments. In a separate
transaction, Sun subsequently sold all but one-half of the third
installment receivable. As a result, Sun will ultimately receive cash
proceeds of US$770 million, after commissions and discount, of which
US$635 million were received in June 1995. The remainder, which is
due in December 1996, is expected to be monetized in June 1996.
In connection with this sale, Sun recognized a $242 million gain,
which increased net income by $157 million during the second quarter
of 1995. Results of operations attributable to Sun's 55-percent
interest in Suncor totalled $23 million during 1995 prior to the sale.
Sale of Block 16/12a
During the third quarter of 1994, Sun completed the disposition of its
remaining interest in Block 16/12a located in the U.K. North Sea,
which increased net income by $15 million.
Sale of Colombian Oil Field
In June 1994, Sun sold its remaining interest in an oil field located
in Colombia. In connection with this sale, Sun recognized a $20
million gain, which increased net income by $13 million during the
second quarter of 1994.
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3. Investments in Operations Held for Sale
Real Estate Operations
Sun has been pursuing the disposition of its real estate business
since October 1991. This business has been accounted for as an
investment held for sale. As a result, pretax income (loss) from real
estate operations, which amounted to $(1) million and $2 million
during the nine months ended September 30, 1995 and 1994,
respectively, has been included as a single amount in other income in
the condensed consolidated statements of income. Likewise, the assets
and liabilities relating to real estate operations have been
segregated in the condensed consolidated balance sheets to separately
identify them as operations held for sale. Such amounts are detailed
as follows (in millions of dollars):
September 30 December 31
1995 1994
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Inventories $ 127 $ 144
Properties, plants and equipment 192 198
Other assets 24 21
Debt (189) (204)
Other liabilities (30) (36)
----- -----
Investment in real estate operations
held for sale $ 124 $ 123
===== =====
The Company, through a wholly owned subsidiary, has provided Radnor
with a $100 million credit facility. As of September 30, 1995, $8
million was borrowed against this facility. Amounts borrowed by
Radnor under this facility are not collateralized by any of its
assets.
Radnor's debt obligations require that its stockholder's equity, which
totalled $108 million at September 30, 1995, equal at least $100
million. If Radnor's stockholder's equity declines below this amount,
the Company has the option to make a capital contribution to Radnor to
avoid a default by Radnor or to advance the remaining amount available
under the $100 million credit facility.
Coal Operations
Prior to June 30, 1995, the coal business was also accounted for as an
investment held for sale. However, as part of a series of recently
implemented operational changes, effective June 30, 1995, the coal
business is now one of the Company's eight ongoing business units and
is no longer held for sale. Accordingly, the condensed consolidated
balance sheet of Sun as of September 30, 1995 contains the accounts of
its coal operations on a fully consolidated basis. The condensed
consolidated statements of income and cash flows for 1995 reflect coal
operations on a fully consolidated basis for the three months ended
September 30, 1995 and as an operation held for sale for the first
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half of 1995. Prior period consolidated financial statements of Sun
have not been restated to give effect to this change in presentation
because the impact of such a restatement would not be material.
4. Write-down of Assets and Other Matters
During the second quarter of 1995, Sun recorded a write-down to net
realizable value of certain assets in the refining and marketing and
coal businesses and established accruals for employee terminations and
related costs. The following is a summary of these provisions, which
are included in the condensed consolidated statement of income for the
nine months ended September 30, 1995 (in millions of dollars):
Provision for Write-Down
of Assets and Other Matters
---------------------------
Pretax After Tax
------ ---------
Refining and marketing
assets $ 43 $28
Coal assets 45 29
Employee terminations
and related costs 50 33
---- ---
$138 $90
==== ===
The $50 million accrual for employee terminations and related costs
includes $38 million attributable to termination benefits and $12
million related to future rental payments for vacated office space.
The termination benefits are for 600 employees to be involuntarily
terminated, of which approximately 350 were terminated during the
first nine months of 1995. The Company expects that, overall,
approximately 800 positions, primarily staff and support personnel,
will be eliminated. The 800 position reduction is comprised of the
600 employees identified above and approximately 200 other positions,
including employees who have voluntarily terminated employment without
benefits and independent contractors. As of September 30, 1995, the
amount of actual termination benefits paid and charged against the
accrual totalled approximately $7 million. Termination benefits are
generally paid as wage continuation over a period of time.
During the third quarter of 1994, Sun recorded a $39 million pretax
provision ($22 million after tax) primarily attributable to a write-
down to estimated net realizable value of certain of its coal
operations.
5. Change in Accounting Principle
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 required 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
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decreased net income for the nine months ended September 30, 1994 by
$7 million (after related income tax benefit of $4 million), or $.07
per share of common stock. Other than the cumulative effect, this
change did not have a significant impact on Sun's net income for the
nine months ended September 30, 1994.
6. Earnings Per Share
The following table sets forth the computation of earnings per share
for the three-month and nine-month periods ending September 30, 1995
and 1994 (dollars in millions except per share amounts, shares in
thousands):
Nine Months Three Months
Ended Ended
September 30 September 30
-------------- --------------
1995 1994 1995 1994
---- ---- ---- ----
Net income attributable
to common stockholders:
Primary (after deduction
of dividends on preference
stock (Note 8)) $169 $87 $67 $48
==== === === ===
Fully diluted $180 $87 $78 $48
==== === === ===
Weighted average number of
shares outstanding:
Primary 96,999 107,066 77,121 106,958
Fully diluted (assumes
redemption of preference
shares for common stock) 105,424 107,080 102,121 106,993
Earnings per common share:
Primary:
Income before cumulative
effect of change in
accounting principle $1.74 $ .88 $.87 $.45
Cumulative effect of
change in accounting
principle -- (.07) -- --
----- ----- ---- ----
Net Income $1.74 $ .81 $.87 $.45
===== ===== ==== ====
Fully diluted:
Income before cumulative
effect of change in
accounting principle $1.71 $ .88 $.76 $.45
Cumulative effect of
change in accounting
principle -- (.07) -- --
----- ----- ---- ----
Net Income $1.71 $ .81 $.76 $.45
===== ===== ==== ====
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7. 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 $225 million
methyl tertiary butyl ether ("MTBE") production facility in Mont
Belvieu, Texas. The construction of the facility, which has a
designed capacity of 12,600 barrels daily of MTBE, has been completed.
As part of the financing of this project, BEF had borrowed $176
million, the total amount available under a construction loan
facility, of which the Company guarantees one-third or $59 million.
During the third quarter of 1995, the construction loan was
restructured into a five-year term loan. As part of the
restructuring, the Company guarantee will be eliminated and the term
loan will become nonrecourse with a first priority lien on all project
assets if certain operating conditions are met by the plant. The
Company expects that the plant will be able to meet these conditions
during the fourth quarter of 1995 and that the term loan will become
nonrecourse at that time.
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 commenced in 1994. Pursuant to this
agreement, Sun will purchase all of the 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 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, in connection with the
restructuring, Sun has agreed to pay BEF prices through May 2000 which
approximate those included in existing MTBE long-term sales agreements
in the marketplace. These prices are expected to exceed the minimum
price required by the loan agreement. Sun will negotiate a new
pricing arrangement with BEF for the remaining four years the off-take
agreement is in effect which will be based upon the market conditions
existing at that 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 remediation at Sun's facilities, including
refineries, service stations, terminals, pipelines and truck
transportation facilities as well as at 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 Sun 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 September 30, 1995, Sun had been named as a PRP at 47 sites
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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
material. Under RCRA and related state laws, corrective remedial
action has been initiated at some of Sun's facilities and will be
required to be undertaken by Sun 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 establishes accruals related to environmental remediation
activities 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 accruals
reflect the Company's philosophy of aggressively managing remediation
costs to ensure the most cost-effective method of compliance with laws
protecting the health, safety and environment of affected communities.
Sun's accrued liability for environmental remediation at its domestic
refining and marketing operations, which totalled $208 million at
September 30, 1995 and $236 million at December 31, 1994, was
classified in the condensed consolidated balance sheets as follows (in
millions of dollars):
At At
September 30 December 31
1995 1994
------------ -----------
Accrued liabilities $ 72 $ 55
Other deferred credits and
liabilities 136 181
---- ----
$208 $236
==== ====
Sun also accrues estimated dismantlement, restoration, reclamation and
abandonment costs at its international oil and gas production
operations through a charge against income primarily on a units of
production basis. The accrued liability for these activities, which
totalled $55 million at September 30, 1995 and $45 million at December
31, 1994, is included in accumulated depreciation, depletion and
amortization in the condensed consolidated balance sheets. Sun
estimates that the total cost for reclamation at these operations will
be approximately $145 million.
Pretax charges against income for environmental remediation and
reclamation totalled $19 and $15 million for the nine months ended
September 30, 1995 and 1994, respectively. Claims for recovery of
environmental liabilities that are probable of realization totalled $9
million at September 30, 1995 and are included in deferred charges and
other assets in the condensed consolidated balance sheets.
Total future cost for environmental remediation activities will depend
upon, among other things, the identification of additional sites, the
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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 legal requirements, the nature and
extent of future environmental laws, inflation rates and the
proportion of Sun's liability at multi-party sites, if any, in light
of the number, participation levels and financial viability of other
parties.
Sun is currently involved in litigation with a private party to
determine responsibility for remediation at a formerly owned refinery
in Oklahoma. Management believes that Sun is fully indemnified for
this potential liability.
Many other legal and administrative proceedings are pending against
Sun. The ultimate outcome of these proceedings and the 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 expenditures attributable to these
matters will be incurred over an extended period of time and 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 or cash flow for any one quarter or year,
management 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 September 30, 1995. Furthermore,
management 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.
8. Stockholders' Equity
At At
September 30 December 31
1995 1994
------------ -----------
(Millions of Dollars)
Series A cumulative preference
stock, no par value $ 750 $ --
Common stock, par value $1 per share 130 130
Capital in excess of par value 1,311 1,309
Cumulative foreign currency translation
adjustment -- (89)
Earnings employed in the business 1,588 1,534
------ ------
3,779 2,884
Less common stock held in treasury,
at cost 1,981 1,021
------ ------
Total $1,798 $1,863
====== ======
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On June 13, 1995, the Company announced the details of an extensive
operational and financial restructuring. As part of this
restructuring, the Company reduced the quarterly dividend paid on
common stock from $.45 per share ($1.80 per year) to $.25 per share
($1.00 per year). The Company also repurchased 6.4 million shares of
Sun common stock on August 9, 1995 through a "Dutch Auction" tender
offer for $192 million and approximately 700,000 shares during the
third quarter of 1995 on the open market for approximately $18
million. The latter purchases were made under a program authorized by
the Company's Board of Directors to purchase up to $100 million of
common stock in the open market from time to time depending on
prevailing market conditions and opportunities. In addition, on
August 3, 1995, the Company exchanged 25 million "depositary shares"
in a tax free transaction for an equal number of shares of Sun common
stock. Each depositary share represents ownership of one-half share
of the Company's newly issued Series A cumulative preference stock.
Each owner of a depositary share is entitled, proportionately, to all
the rights, preferences and privileges of the preference stock
represented thereby. Dividends on the preference stock are cumulative
and accrue at a rate of $3.60 per annum. The preference stock ranks
prior to Sun common stock with respect to dividend rights and rights
upon liquidation, dissolution and winding up of the Company. Each
share of preference stock has a liquidation preference equal to
$60.00, which is twice the fair market value of a depositary share at
its date of issuance, plus accrued and unpaid dividends. The holders
of preference stock vote together with the holders of common stock as
a single class, and are entitled to one full vote for each share of
preference stock owned.
At the option of the Company, the outstanding shares of preference
stock are redeemable at any time, in whole or in part, for Sun common
stock at a value initially equal to approximately $84.80 per share at
June 12, 1995, decreasing ratably to $80.00 per share at June 11,
1998. After June 11, 1998, the Company may elect to redeem each
outstanding share of preference stock for two shares of Sun common
stock, subject to adjustment in certain events. The redemption value
also includes a cash amount equal to all proportionate accrued but
unpaid dividends. Sun currently intends to redeem all of the
outstanding preference stock (and thereby the depositary shares) on
June 12, 1998 if not previously redeemed.
9. Supplemental Cash Flow Information
On June 8, 1995, Sun completed the sale of its remaining 55 percent
interest in Suncor (Note 2) and in the third quarter of 1994, Sun
acquired the Girard Point refinery and related inventory. The
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following is a summary of the effects of these transactions on Sun's
consolidated financial position (in millions of dollars):
Acquisition of
Girard Point
Refinery
Sale of and Related
Suncor Stock Assets
------------ --------------
(Increase) decrease in:
Accounts and notes receivable $ 165 $ --
Inventories 123 (108)
Receivable from sale of Suncor stock (125) --
Properties, plants and equipment, net 1,328 (136)
Other noncurrent assets 41 --
Increase (decrease) in:
Accounts payable and accrued liabilities (230) 10
Current portion of long-term debt (4) --
Taxes payable (47) --
Long-term debt (160) --
Retirement benefit liabilities (45) 22
Deferred income taxes (146) --
Other deferred credits and liabilities (109) 61
Minority interest (392) --
Cumulative foreign currency translation
adjustment 79 --
Earnings employed in the business 157 --
------ -----
Net increase (decrease) in cash and
cash equivalents $ 635 $(151)
====== =====
10. Transfer of Interest in Cokemaking Operations
On July 14, 1995, Sun transferred to a third party an interest in its
cokemaking operations in exchange for $95 million in cash. The third
party's interest entitles it to a preferential return from the cash
flows of the cokemaking operation until certain cumulative return
targets have been met. No gain or loss was recognized by Sun as a
result of this transaction, which is not expected to have a
significant impact on Sun's future results of operations or cash
flows.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
FINANCIAL AND OPERATIONAL RESTRUCTURING
On June 13, 1995, the Company announced the details of an extensive
operational and financial restructuring which include the following major
elements:
- cost reductions of $110 million a year;
- the restructuring of Sun Company into eight business units plus a
holding company and a service organization;
- the sale of Suncor for net cash proceeds of $770 million, of
which $635 million was received in June 1995, with the remainder
to be received in 1996;
- the reduction of Sun's debt by more than $500 million through the
use of a significant portion of the Suncor proceeds to repay debt
and the elimination of approximately $165 million of debt as part
of the Suncor sale;
- the reduction of Sun's quarterly common stock dividend from $.45
per share ($1.80 per year) to $.25 per share ($1.00 per year);
- the repurchase of 6.4 million shares of Sun common stock through
a "Dutch Auction" tender offer for $192 million;
- the exchange of 25 million "depositary shares" in a tax free
transaction for an equal number of shares of Sun common stock;
- the establishment of a program to purchase up to $100 million of
Sun common stock in the open market from time to time depending
on prevailing market conditions and opportunities. Pursuant to
this program, approximately 700,000 common shares were
repurchased during the third quarter of 1995 for approximately
$18 million.
For a further discussion of the elements of the financial and operational
restructuring, see Notes 2 and 8 to the condensed consolidated financial
statements.
<PAGE>
<PAGE> 17
RESULTS OF OPERATIONS - NINE MONTHS
Earnings Profile of Sun Businesses (after tax)
- ----------------------------------------------
Nine Months Ended
September 30
-----------------
1995 1994 Variance
---- ---- --------
(Millions of Dollars)
Fuels:
Wholesale fuels $(52) $(56) 4
Branded marketing 39 38 1
Lubricants:
Lubes 45 50 (5)
Related fuels (51) (25) (26)
Chemicals 69 9 60
Logistics 41 35 6
International production 40 38 2
Coal 19 8 11
Canada (Suncor)* 23 27 (4)
Corporate:
Corporate expenses (15) (16) 1
Net financing expenses (45) (22) (23)
Real estate operations held for sale -- 2 (2)
---- ---- ----
113 88 25
Gain on sale of Suncor stock 157 -- 157
Gain on divestment of exploration
and production properties -- 28 (28)
Provision for write-down of
assets and other matters (90) (22) (68)
Cumulative effect of change in
accounting principle** -- (7) 7
---- ---- ----
Consolidated net income $180 $ 87 $ 93
==== ==== ====
- ----------------
*Reflects income from Suncor Inc. prior to the sale of Sun's remaining
55-percent interest in this Canadian petroleum company on June 8, 1995.
**Consists of the impact of the cumulative effect of a change in the
method of accounting for postemployment benefits.
<PAGE>
<PAGE> 18
Analysis of Earnings Profile of Sun Businesses
- ----------------------------------------------
In the nine-month period ended September 30, 1995, Sun earned $180 million
compared with earnings of $87 million for the first nine months of 1994.
Primary earnings per share were $1.74 in the current nine-month period
versus $.81 per share in the first nine months of 1994. On a fully diluted
basis, which assumes the redemption for common stock of the Sun preference
shares issued during the third quarter of 1995, Sun earned $1.71 per share.
Excluding the special items shown separately in the Earnings Profile of Sun
Businesses, Sun earned $113 million during the first nine months of 1995
compared to $88 million during the first nine months of 1994.
Fuels -- Sun's Fuels businesses, comprised primarily of the manufacturing
of fuels at Sun's Marcus Hook, PA, Philadelphia, PA and Toledo, OH
refineries and the sale of fuels from these refineries, had losses of $13
million in the first nine months of 1995 compared to losses of $18 million
in the first nine months of 1994. The improvement in results was primarily
in Sun's Wholesale Fuels operations where losses decreased to $52 million
in the first nine months of 1995 from $56 million in the first nine months
of 1994. Income from Branded Marketing operations increased to $39 million
in the first nine of 1995 from $38 million in the year-ago period.
Wholesale Fuels results for the first nine months of 1995 and 1994 included
$11 and $1 million, respectively, of after-tax income from operations at
Sun's Girard Point facility acquired on August 4, 1994. (See also
"Chemicals" below). Excluding activity from this facility, Wholesale Fuels
results declined $6 million due primarily to lower average wholesale fuels
product margins ($7 million) and lower sales volumes ($11 million),
partially offset by lower refinery operating expenses ($11 million).
In Branded Marketing, the $1 million increase in earnings compared to the
year ago period was due to higher average margins, partially offset by
lower sales volumes and higher depreciation expense.
Lubricants -- Results from Sun's Lubricants business, comprised of the
manufacturing, packaging and marketing of lubricant products produced at
Sun's Tulsa and Puerto Rico refineries, as well as the related
manufacturing and wholesale marketing of fuels produced at these
facilities, decreased $31 million compared with the first nine months of
1994. Income from sales of lubricant products was $45 million in the first
nine months of 1995 versus $50 million in the prior year period. The
decline in income was principally due to lower lubricant sales volumes
($13 million) and the impact of this year's hurricane season on Sun's
Puerto Rico refining operations ($3 million). These negative factors were
partially offset by higher average margins both for base oil and specialty
lubricant products ($9 million). Losses from Related Fuels operations
totalled $51 million during the first nine months of 1995, representing a
$26 million decline in results from 1994 first nine months losses of $25
million. The increase in losses was primarily due to lower margins on
wholesale fuels products ($21 million), principally distillates.
Chemicals -- Income from Sun's Chemicals business was $69 million in the
first nine months of 1995, compared with income of $9 million in the prior
year period. This improvement was due to higher margins ($39 million) and
<PAGE>
<PAGE> 19
sales volumes ($5 million) resulting from stronger petrochemicals demand
and prices and the addition of cyclohexane production from a new plant at
the Marcus Hook refinery. Higher aromatics production from the Girard
Point facility ($15 million) also contributed to the improvement in
earnings.
Logistics -- Logistics (pipeline transportation and petroleum terminalling
operations) income was $41 million, an increase of $6 million versus the
year-ago period. Higher throughput on Sun's eastern products system,
resulting primarily from Sun's acquisition of the Girard Point facility,
and income from Sun's new inter-refinery pipeline connecting the
Philadelphia and Marcus Hook refineries were largely responsible for the
increase in earnings. The inter-refinery pipeline commenced operations in
April 1995.
International Production -- International Production earnings were $40
million in the 1995 first nine months versus $38 million in the first nine
months of 1994. The $2 million increase was due largely to higher crude
oil prices ($7 million) and volumes ($1 million), a gain from the
settlement of litigation surrounding previously expropriated assets ($4
million) and a decrease in foreign exchange translation losses ($4
million). Partially offsetting these positive factors were lower natural
gas volumes ($6 million), higher operating and administrative expenses ($5
million) and the absence of a $2 million after-tax gain recognized in the
third quarter of 1994 on the redetermination of the Pickerill field in the
U.K. North Sea. The increase in crude production volumes and operating
expenses was attributable to operating activities at the Ninian/Columba
fields in the U.K. North Sea, which were acquired in the third quarter of
1994. The decrease in natural gas volumes was due to low nominations by
British Gas Corporation during the period.
Coal -- Coal operations earned $19 million during the first nine months of
1995, an increase of $11 million from the year-ago period. The improved
results were primarily due to higher margins for coke and improved mining
operations.
Canada (Suncor) -- Suncor's results for the first nine months of 1995
exclude a $157 million after-tax gain on the June 8 sale of Sun's remaining
55-percent interest in Suncor, which is reported separately in the Earnings
Profile of Sun Businesses. Operating income from Suncor decreased $4
million primarily due to the absence of earnings since June 8.
Corporate -- Net financing expenses (excluding Suncor) were up $23 million
versus the year-ago period due principally to higher long-term debt expense
($15 million) associated with the high level of 1994 growth capital
expenditures and to lower capitalized interest ($4 million).
Real Estate Operations Held for Sale -- Real estate operations held for
sale broke even in the first nine months of 1995 versus income of $2
million in the first nine months of 1994. The decline was primarily due to
the absence of income associated with three office projects located in
Pennsylvania that were divested in June 1994. For a further discussion of
Sun's real estate operations held for sale, see Note 3 to the condensed
consolidated financial statements.
<PAGE>
<PAGE> 20
Special Items -- For a discussion of the special items shown separately in
the Earnings Profile of Sun Businesses, see Notes 2, 4 and 5 to the
condensed consolidated financial statements.
Analysis of Consolidated Statements of Income
- ---------------------------------------------
Sales and other operating revenue increased $659 million, or 9 percent,
principally due to higher domestic refined product sales volumes ($693
million) and prices ($401 million), partially offset by lower sales and
other operating revenue attributable to Suncor ($396 million, including
consumer excise taxes of $173 million) reflecting its divestment on June 8,
1995. The $197 million increase in gain on divestments is primarily due to
the $242 million gain resulting from the divestment of Suncor, partially
offset by the absence of $40 million of gains recognized during 1994 on the
divestment of oil and gas properties located in Colombia and the U.K. North
Sea. Other income increased $17 million principally due to higher income
from operations held for sale and lower foreign exchange losses. Cost of
products sold and operating expenses increased $857 million, or 20 percent,
primarily due to higher domestic crude oil and refined product acquisition
costs ($907 million) and higher domestic refinery expenses ($64 million),
partially offset by lower cost and operating expenses attributable to
Suncor ($151 million). The higher domestic sales volumes, product
acquisition costs and refinery expenses are largely attributable to the
Girard Point facility acquired on August 4, 1994. Selling, general and
administrative expenses decreased $26 million, or 5 percent, primarily due
to lower expenses as a result of the Suncor divestment. Taxes, other than
income taxes decreased $213 million, or 13 percent, due to a decline in
consumer excise taxes ($210 million) largely attributable to the Suncor
divestment. Depreciation, depletion and amortization decreased $7 million,
or 3 percent, primarily as a result of the Suncor divestment ($30 million),
partially offset by an increased depreciable asset base in Sun's domestic
refining and marketing operations resulting from the high level of 1994
capital spending. For a discussion of the provisions for write-down of
assets and other matters recorded in 1995 and 1994, see Note 4 to the
condensed consolidated financial statements. The $5 million decrease in
minority interest is due to the Suncor divestment. Interest cost and debt
expense increased $21 million, or 32 percent, due principally to higher
long-term debt expense associated with the high level of 1994 growth
capital expenditures. For a discussion of the cumulative effect of change
in accounting principle, see Note 5 to the condensed consolidated financial
statements.
<PAGE>
<PAGE> 21
RESULTS OF OPERATIONS - THREE MONTHS
Earnings Profile of Sun Businesses (after tax)
- ----------------------------------------------
Three Months Ended
September 30
------------------
1995 1994 Variance
---- ---- --------
(Millions of Dollars)
Fuels:
Wholesale fuels $ 12 $(23) $ 35
Branded marketing 31 25 6
Lubricants:
Lubes 14 19 (5)
Related fuels (11) (10) (1)
Chemicals 20 10 10
Logistics 15 12 3
International production 8 16 (8)
Coal 7 6 1
Canada (Suncor) -- 15* (15)
Corporate:
Corporate expenses (5) (7) 2
Net financing expenses (13) (8) (5)
Real estate operations held for sale -- -- --
---- ---- ----
78 55 23
Gain on divestment of exploration
and production properties -- 15 (15)
Provision for write-down of
assets and other matters -- (22) 22
---- ---- ----
Consolidated net income $ 78 $ 48 $ 30
==== ==== ====
- ----------------
*Reflects income from Suncor Inc. prior to the sale of Sun's remaining
55-percent interest in this Canadian petroleum company on June 8, 1995.
Analysis of Earnings Profile of Sun Businesses
- ----------------------------------------------
In the three-month period ended September 30, 1995, Sun earned $78 million
compared with earnings of $48 million for the third quarter of 1994.
Primary earnings per share were $.87 in the current quarter versus $.45 per
share in the year-ago quarter. On a fully diluted basis, Sun earned $.76
per share in the third quarter of 1995 versus $.45 per share in the year-
ago period. Excluding the special items shown separately in the Earnings
Profile of Sun Businesses, Sun earned $78 million during the third quarter
of 1995 compared to $55 million during the third quarter of 1994.
<PAGE>
<PAGE> 22
Fuels -- Sun's Fuels businesses earned $43 million in the third quarter of
1995 compared to $2 million in the third quarter of 1994. The improvement
was primarily in Sun's Wholesale Fuels operations where earnings increased
to $12 million in the third quarter of 1995 from a loss of $23 million in
the third quarter of 1994. Income from Branded Marketing operations
increased to $31 million in the third quarter of 1995 from $25 million in
the year-ago quarter.
Wholesale Fuels results for the third quarter of 1995 and 1994 included $7
and $1 million, respectively, of after-tax income from operations at Sun's
Girard Point facility. (See also "Chemicals" below). Excluding activity
from this facility, Wholesale Fuels results improved $29 million primarily
due to higher average margins for wholesale gasoline and asphalt and to
higher wholesale fuels volumes resulting from an increase in refinery
utilization. In the third quarter of 1995, the utilization rate for Sun's
Fuels refineries averaged 98 percent, up from 93 percent, during the third
quarter of 1994.
In Branded Marketing, the $6 million improvement in earnings was primarily
due to higher average retail gasoline margins, partially offset by a
decline in retail gasoline sales volumes.
Lubricants -- Results from Sun's Lubricants business decreased $6 million
compared with the 1994 third quarter. Income from sales of lubricant
products was $14 million in the third quarter of 1995 versus $19 million in
the prior year third quarter. The decline in income was principally due to
lower lubricant sales volumes and the impact of this year's hurricane
season on Sun's Puerto Rico refining operations. Losses from Related Fuels
operations totalled $11 million during the third quarter of 1995,
representing a $1 million decline in results from the 1994 third quarter
loss of $10 million. Lower production volumes, primarily due to the third
quarter 1995 hurricanes more than offset slightly higher distillate and
residual margins.
Chemicals -- Income from Sun's Chemicals business was $20 million in the
1995 third quarter, compared with income of $10 million in the prior year
period. This improvement resulted from higher margins ($7 million) and
sales volumes ($4 million), in part due to an increase in aromatics
production from the Girard Point facility and the addition of cyclohexane
production from a new plant at the Marcus Hook refinery.
Logistics -- Logistics income was $15 million, an increase of $3 million
versus the year-ago quarter. Income from Sun's new inter-refinery pipeline
and a new pipeline delivering jet fuel to the Philadelphia airport were
largely responsible for the increase in earnings. Higher income from Sun's
Nederland, Texas terminal also contributed to the improvement.
International Production -- International Production earnings were $8
million in the 1995 third quarter versus $16 million in the third quarter
of 1994. The $8 million decrease was largely due to lower crude oil ($4
million) and natural gas ($2 million) volumes, lower crude oil prices ($1
million) and the absence of the $2 million after-tax gain on the
redetermination of the Pickerill field recognized in the third quarter of
1994. Partially offsetting these negative factors were higher after-tax
foreign exchange translation gains ($3 million).
<PAGE>
<PAGE> 23
Coal -- Sun's coal operations earned $7 million during the third quarter of
1995, an increase of $1 million from the year-ago period. The impact of
higher margins for coke and improved mining operations was largely offset
by lower coal margins and sales volumes.
Canada (Suncor) -- Income from Sun's Canadian operations decreased $15
million due to the absence of earnings during the third quarter of 1995 as
a result of the Suncor sale on June 8, 1995.
Corporate -- Net financing expenses (excluding Suncor) increased $5 million
versus the year-ago quarter primarily due to higher long-term interest
expense associated with the high level of 1994 growth capital spending and
to lower capitalized interest. The favorable impact of lower average total
borrowings was more than offset by a higher weighted average interest rate.
In the fourth quarter of 1994, Sun issued $350 million of higher coupon
long-term debt to pay down lower-rate short-term borrowings.
Special Items -- For a discussion of the special items shown separately in
the Earnings Profile of Sun Businesses, see Notes 2 and 4 to the condensed
consolidated financial statements.
Analysis of Consolidated Statements of Income
- ---------------------------------------------
Sales and other operating revenue decreased $301 million, or 11 percent,
principally due to the absence in the 1995 third quarter of amounts
attributable to Suncor ($352 million, including consumer excise taxes of
$137 million) and lower revenues from resales of purchased oil and refined
products ($93 million), partially offset by higher domestic refined product
sales volumes ($118 million) and prices ($44 million). The $18 million
decrease in gain on divestments is primarily due to the absence of a $15
million gain on the sale of oil and gas properties in the U.K. North Sea
recognized in the third quarter of 1994. Cost of products sold and
operating expenses decreased $98 million, or 6 percent, primarily due to
the absence in the 1995 third quarter of amounts attributable to Suncor
($127 million) and lower resales of purchased oil and refined products ($92
million), partially offset by higher domestic crude oil and refined product
acquisition costs ($50 million), higher domestic refinery expenses ($15
million) and the inclusion in the third quarter of 1995 of costs ($33
million) attributable to Sun's coal business (see Note 3 to the condensed
consolidated financial statements). Selling, general and administrative
expenses decreased $39 million, or 22 percent, primarily due to the absence
in the 1995 third quarter of amounts attributable to Suncor ($30 million)
and lower expenses associated with Sun's core domestic businesses ($11
million). Taxes, other than income taxes decreased $160 million, or 27
percent, as a result of lower consumer excise taxes ($155 million) largely
due to the absence in the 1995 third quarter of amounts attributable to
Suncor. Depreciation, depletion and amortization decreased $12 million, or
13 percent, primarily as a result of the absence in the 1995 third quarter
of amounts attributable to Suncor ($23 million), partially offset by the
impact of an increased depreciable asset base in the Company's refining and
marketing businesses. For a discussion of the provision for write-down of
<PAGE>
<PAGE> 24
assets and other matters recorded in the third quarter of 1994, see Note 4
to the condensed consolidated financial statements. The absence of
exploratory costs and leasehold impairment and minority interest in the
third quarter of 1995 is due to the Suncor divestment. Interest cost and
debt expense was unchanged versus the third quarter of 1994 as slightly
higher long-term debt expense was offset by lower expense on short-term
borrowings and the absence in the third quarter of 1995 of amounts
attributable to Suncor.
FINANCIAL CONDITION
Cash and Working Capital
- ------------------------
At September 30, 1995, Sun had cash and cash equivalents of $18 million
compared to $117 million at December 31, 1994, and had a working capital
deficit of $166 million compared to a working capital deficit of $407
million at December 31, 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 September 30, 1995 by $458
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 and Financial Capacity
- --------------------------------------
In the first nine months of 1995, Sun's net cash provided by operating
activities ("cash generation") was $175 million compared to $85 million in
the first nine months of 1994. The $90 million increase in cash generation
is largely due to a decrease in working capital uses pertaining to
operating activities ($84 million).
Management believes that future cash generation will be sufficient to
satisfy Sun's capital requirements and to sustain the current cash
dividend. However, from time to time, the Company's short-term cash
requirements may exceed its cash generation due to various factors
including volatility in crude and refined product markets and increases in
capital spending and working capital levels. During those periods, the
Company may supplement its cash generation with proceeds from divestment
and financing activities.
In the event that cash generation is insufficient to satisfy near-term cash
requirements, the Company has access to $600 million of short-term
financing for operations in the form of commercial paper and revolving
credit agreements with commercial banks. The revolving credit agreements
are available through October 3, 2000. The Company also has access to
short-term financing under non-committed money market facilities and a $50
million confirmed line of credit which expires November 30, 1995.
<PAGE>
<PAGE> 25
The following table sets forth Sun's total borrowings at:
September 30 December 31
1995 1994
------------ -----------
(Millions of Dollars)
Short-term borrowings
Commercial paper $ -- $ 216
Non-committed money market
facilities 28 5
---- ------
28 221
Current portion of long-term debt 18 99
Long-term debt 888 1,073
---- ------
Total borrowings $934 $1,393
==== ======
The Company has been able to substantially reduce its debt level as a
result of the Suncor sale and the financial restructuring completed in
recent months. The Company also repurchased approximately 7.1 million
shares of Sun common stock during the third quarter of 1995 through a
"Dutch Auction" tender offer and open market purchases. As a result, Sun's
debt-to-capital ratio declined from 42.8 percent to 34.2 percent during the
first nine months of 1995. Management believes there is sufficient
borrowing capacity available to provide for cash requirements.
Impairment of Long-Lived Assets
- -------------------------------
In March 1995, Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("SFAS No. 121") was issued. It establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangible assets and goodwill. The Company cannot reasonably
estimate the potential impact on net income of adopting SFAS No. 121 at
this time. Implementation of the new accounting standard, which must occur
by 1996, is expected to take place in the fourth quarter of 1995. Any
impact on net income would be recognized in the year of adoption.
Implementation of SFAS No. 121 will not affect Sun's cash flow or
liquidity.
<PAGE>
<PAGE> 26
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Pennsylvania Department of Environmental Protection ("PaDEP"),
together with the Pennsylvania Fish and Boat Commission, are seeking a
combined civil penalty in excess of $100,000, for alleged violations
due to oil sheening incidents that occurred at various times between
January 1, 1994 and February 28, 1995 at the Point Breeze processing
area of Sun's Philadelphia refinery.
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 September 30, 1995.
Item 2. Changes in Securities
On August 3, 1995, the Company exchanged 25 million "depositary
shares" in a tax free transaction for an equal number of shares of Sun
common stock. Each depositary share represents ownership of one-half
share of the Company's newly issued Series A cumulative preference
stock. The preference stock ranks prior to the Sun common stock with
respect to dividend rights and rights upon liquidation, dissolution
and winding up of the Company. For a further discussion of the
preference stock, see Note 8 to the condensed consolidated financial
statements.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
12 - Statement re Sun Company, Inc. and Subsidiaries Computation
of Ratio of Earnings to Fixed Charges for the Nine-Month
Period Ended September 30, 1995.
27 - Article 5 of Regulation S-X, Financial Data Schedule.
Reports on Form 8-K:
A report on Form 8-K dated September 11, 1995, as amended on September
26, 1995, was filed to disclose under Item 4 -- "Changes in
Registrant's Certifying Accountant" that the Company has chosen not to
extend the engagement of Coopers & Lybrand L.L.P. ("Coopers &
Lybrand") as the Company's independent accountants to audit its 1996
financial statements. To effect an orderly transition, Coopers &
Lybrand will audit the Company's financial statements for the period
ending December 31, 1995. The Company has engaged Ernst & Young LLP
as its new independent accountants for periods after December 31,
1995. The change is a result of a competitive bidding process
initiated by the Company.
<PAGE>
<PAGE> 27
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> 28
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/ THOMAS W. HOFMANN
--------------------
Thomas W. Hofmann
Comptroller
(Principal Accounting Officer)
DATE November 6, 1995
<PAGE>
<PAGE> 1
EXHIBIT INDEX
Exhibit
Number Exhibit
- ------- -----------------------------------------
12 Statement re Sun Company, Inc. and Subsidiaries Computation
of Ratio of Earnings to Fixed Charges for the Nine-Month
Period Ended September 30, 1995.
27 Article 5 of Regulation S-X, Financial Data Schedule.
<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 Nine Months
Ended September 30, 1995
------------------------
(UNAUDITED)
Fixed Charges:
Consolidated interest cost and debt expense $ 87
Interest cost and debt expense of operations
held for sale 13
Interest allocable to rental expense(b) 27
----
Total $127
====
Earnings:
Consolidated income before provision for
income taxes and cumulative effect of
change in accounting principle $266
Minority interest in net income
of subsidiaries having fixed charges 19
Proportionate share of provision for income
taxes of 50 percent owned but not controlled
affiliated companies 3
Equity in income of less than 50 percent owned
but not controlled affiliated companies (7)
Dividends received from less than 50 percent
owned but not controlled affiliated companies 4
Fixed charges 127
Interest capitalized (5)
Amortization of previously capitalized interest 13
----
Total $420
====
Ratio of Earnings to Fixed Charges 3.31
====
- ----------------
(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
accounted for as investments held for sale. (See Note 3 to the
condensed consolidated financial statements.) Affiliated companies
over which the Company has the ability to exercise significant
influence but that are not controlled (generally 20 to 50 percent
owned) 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.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 18
<SECURITIES> 0
<RECEIVABLES> 641
<ALLOWANCES> 17
<INVENTORY> 562
<CURRENT-ASSETS> 1,316
<PP&E> 6,721
<DEPRECIATION> 3,476
<TOTAL-ASSETS> 5,191
<CURRENT-LIABILITIES> 1,482
<BONDS> 888
<COMMON> 130
0
750
<OTHER-SE> 918
<TOTAL-LIABILITY-AND-EQUITY> 5,191
<SALES> 7,632
<TOTAL-REVENUES> 7,918
<CGS> 5,191
<TOTAL-COSTS> 5,677
<OTHER-EXPENSES> 1,888
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<INTEREST-EXPENSE> 87
<INCOME-PRETAX> 266
<INCOME-TAX> 86
<INCOME-CONTINUING> 180
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<NET-INCOME> 180
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