<PAGE>
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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 March 31, 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
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(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
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At March 31, 1995, 106,943,158 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 Three Months Ended March 31, 1995
and 1994 3
Condensed Consolidated Balance Sheets at
March 31, 1995 and December 31, 1994 4
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended March 31,
1995 and 1994 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 19
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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 Three Months
Ended March 31
--------------------
1995 1994
------ ------
(UNAUDITED)
REVENUES
Sales and other operating revenue (including consumer
excise taxes of $485 in 1995 and $471 in 1994) $2,578 $2,056
Interest income 2 3
Income (loss) from investments in operations
held for sale (Note 2) 1 (4)
Other income 7 12
------ ------
2,588 2,067
------ ------
COSTS AND EXPENSES
Cost of products sold and operating expenses 1,752 1,227
Selling, general and administrative expenses 178 166
Taxes, other than income taxes 520 505
Depreciation, depletion and amortization 97 90
Exploratory costs and leasehold impairment 10 6
Minority interest 10 6
Interest cost and debt expense 31 20
Interest capitalized (2) (2)
------ ------
2,596 2,018
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Income (loss) before provision (credit)
for income taxes and cumulative effect
of change in accounting principle (8) 49
Provision (credit) for income taxes (1) 15
------ ------
Income (loss) before cumulative effect of change
in accounting principle (7) 34
Cumulative effect of change in accounting
principle (Note 3) -- (7)
------ ------
NET INCOME (LOSS) $ (7) $ 27
====== ======
Earnings (loss) per share of common stock:*
Income (loss) before cumulative effect of change in
accounting principle $(.07) $ .32
Cumulative effect of change in accounting principle -- (.07)
----- -----
Net income (loss) $(.07) $ .25
===== =====
Cash dividends paid per share of common stock $.45 $.45
==== ====
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*Based on the weighted average number of shares outstanding (in thousands)
of 107,053 in 1995 and 107,091 in 1994.
(See Accompanying Notes)
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CONDENSED CONSOLIDATED BALANCE SHEETS
Sun Company, Inc. and Subsidiaries
At At
March 31 December 31
1995 1994
(Millions of Dollars) (UNAUDITED)
- --------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents, at cost which
approximates market $ 26 $ 117
Accounts and notes receivable, net of allowances 655 655
Inventories:
Crude oil 238 193
Refined products 356 335
Materials, supplies and other 88 85
Deferred income taxes 119 123
------ ------
Total Current Assets 1,482 1,508
Investment in Coal Operations Held for Sale (Note 2) 54 51
Investment in Real Estate Operations Held
for Sale (Note 2) 130 123
Long-Term Receivables and Investments 85 143
Properties, Plants and Equipment 8,600 8,430
Less Accumulated Depreciation, Depletion
and Amortization 4,184 4,082
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Properties, Plants and Equipment, net 4,416 4,348
Deferred Charges and Other Assets 308 292
------ ------
Total Assets $6,475 $6,465
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 774 $ 776
Accrued liabilities 559 540
Short-term borrowings 324 221
Current portion of long-term debt 100 99
Taxes payable 226 279
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Total Current Liabilities 1,983 1,915
Long-Term Debt 1,099 1,073
Retirement Benefit Liabilities 512 515
Deferred Income Taxes 301 301
Other Deferred Credits and Liabilities 394 429
Commitments and Contingent Liabilities (Note 4)
Minority Interest 376 369
Stockholders' Equity (Note 5) 1,810 1,863
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Total Liabilities and Stockholders' Equity $6,475 $6,465
====== ======
(See Accompanying Notes)
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Sun Company, Inc. and Subsidiaries
(Millions of Dollars)
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For the Three Months
Ended March 31
--------------------
1995 1994
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(UNAUDITED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (7) $ 27
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Cumulative effect of change in accounting
principle -- 7
Depreciation, depletion and amortization 97 90
Dry hole costs and leasehold impairment 4 3
Deferred income taxes 2 25
Changes in working capital pertaining to
operating activities:
Accounts and notes receivable 13 16
Inventories (63) 39
Accounts payable and accrued liabilities (36) (136)
Taxes payable (55) (36)
Other 5 5
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Net cash provided by (used in) operating activities (40) 40
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (151) (95)
Cash used by coal operations held for sale (2) (3)
Cash used by real estate operations held for sale (6) (17)
Proceeds from divestments 30 8
Other 3 (2)
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Net cash used in investing activities (126) (109)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from short-term borrowings 103 81
Proceeds from issuance of long-term debt 32 193
Repayments of long-term debt (12) (91)
Cash dividend payments (48) (48)
Other -- 5
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Net cash provided by financing activities 75 140
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Net increase (decrease) in cash and cash equivalents (91) 71
Cash and cash equivalents at beginning of period 117 118
----- -----
Cash and cash equivalents at end of period $ 26 $ 189
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(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, 1995 are not necessarily indicative of results for the full
year 1995.
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 certain of its eastern U.S. coal operations
during 1994. Sun continues to 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.
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.
Accordingly, pretax income (loss) from Sun's coal and real estate
operations, which totalled $1 million and breakeven, respectively,
during the first quarter of 1995, and $(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 totalled $4
million and breakeven, respectively, during the first quarter of 1995
and 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 to separately identify them as investments
in operations held for sale. Such amounts are detailed as follows:
March 31 December 31
1995 1994
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(Millions of Dollars)
Coal Operations
Accounts receivable $ 17 $ 18
Inventories 18 12
Properties, plants and equipment 138 142
Other assets 16 13
Accounts payable and accrued liabilities (45) (45)
Retirement benefit liabilities (41) (41)
Other liabilities (49) (48)
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Investment in coal operations held for sale $ 54 $ 51
===== =====
Real Estate Operations
Inventories $ 144 $ 144
Properties, plants and equipment 183 198
Other assets 26 21
Recourse debt (192) (204)
Other liabilities (31) (36)
----- -----
Investment in real estate operations
held for sale $ 130 $ 123
===== =====
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, 1995, there was $14 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 $107 million at March 31, 1995, 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>
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3. 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
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.
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 $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, is essentially
completed and the plant is currently in a sustained start-up test
phase. 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.
The construction loan is convertible into a five-year nonrecourse term
loan with a first priority lien on all project assets if the plant is
able to produce at its designed capacity for a continuous 45-day
period prior to May 31, 1995 and if certain other conditions are met.
The plant will be unable to meet all of these conversion conditions by
May 31, 1995 and, accordingly, Sun's $59 million guaranteed share of
the construction loan may become payable on this date. This matter is
currently under discussion with the lenders and it is premature for
the Company to predict the outcome of these discussions.
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. 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 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 seven years the off-take agreement is in effect which
will be based upon the 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 remediation at Sun's refineries, service stations,
terminals, pipelines and truck transportation facilities as well as
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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 March 31, 1995, Sun had been named as a PRP at 47 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 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
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. Sun's accrued liability for
environmental remediation, which totalled $236 million at March 31,
1995 and $246 million at December 31, 1994, was classified in the
condensed consolidated balance sheets as follows (in millions of
dollars):
At At
March 31 December 31
1995 1994
-------- -----------
Accrued liabilities $ 66 $ 55
Other deferred credits and
liabilities 170 191
---- ----
$236 $246
==== ====
Sun also accrues estimated dismantlement, restoration, reclamation and
abandonment costs at its oil sands mining and oil and gas exploration
and production operations through a charge against income primarily on
a units of production basis. The accrued liability for these
activities, which totalled $132 million at March 31, 1995 and $126
million at December 31, 1994, is classified primarily in other<PAGE>
<PAGE 10>
deferred credits and liabilities in the condensed consolidated balance
sheets. Of the $132 million accrued liability at March 31, 1995, $80
million relates to Sun's oil sands mining operations and $52 million
is attributable to oil and gas exploration and production operations.
Sun estimates that the total cost for reclamation at these operations
will be approximately $120 and $157 million, respectively.
Pretax charges against income for environmental remediation and
reclamation totalled $7 and $4 million for the three months ended
March 31, 1995 and 1994, respectively. Claims for recovery of
environmental liabilities that are probable of realization totalled
$10 million at March 31, 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
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.
Sun is currently involved in a dispute 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 March 31, 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.
<PAGE>
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5. Stockholders' Equity.
At At
March 31 December 31
1995 1994
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(Millions of Dollars)
Common stock, par value $1 per share $ 130 $ 130
Capital in excess of par value 1,309 1,309
Cumulative foreign currency translation
adjustment (87) (89)
Earnings employed in the business 1,479 1,534
------ ------
2,831 2,884
Less common stock held in treasury,
at cost 1,021 1,021
------ ------
Total $1,810 $1,863
====== ======
<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
------------------
1995 1994 Variance
---- ---- --------
(Millions of Dollars)
Fuels:
Wholesale fuels $(58) $(11) $(47)
Branded marketing 7 8 (1)
Lubricants:
Lubes 14 14 --
Related fuels (22) 4 (26)
Chemicals 25 (3) 28
Logistics 13 11 2
International production 19 14 5
Canada (Suncor):
Exploration and production -- 1 (1)
Oil sands 14 2 12
Refining and marketing 1 5 (4)
Corporate expenses (3) (1) (2)
Net financing expenses (1) (1) --
---- ---- ----
Total Canada (Suncor) 11 6 5
Corporate:
Corporate expenses (5) (5) --
Net financing expenses (15) (6) (9)
Operations held for sale:
Coal 4 -- 4
Real estate -- 2 (2)
---- ---- ----
(7) 34 (41)
Cumulative effect of change in
accounting principle* -- (7) 7
---- ---- ----
Consolidated net income (loss) $ (7) $ 27 $(34)
==== ==== ====
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*Consists of the impact of the cumulative effect of a change in the
method of accounting for postemployment benefits.<PAGE>
<PAGE> 13
Analysis of Earnings Profile of Sun Businesses
- ----------------------------------------------
In the three-month period ended March 31, 1995, Sun had a net loss of $7
million, or $.07 per share of common stock, compared with earnings of $27
million, or $.25 per share of common stock, for the first quarter of 1994.
Excluding the cumulative effect of a change in accounting principle, Sun
earned $34 million during the first three months of 1994.
Fuels -- Sun's domestic 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 $51 million in the first quarter of 1995 compared to losses of $3
million in the first quarter of 1994. The decline in results was primarily
in Sun's Wholesale Fuels operations where losses increased to $58 million
in the first quarter of 1995 from $11 million in the first quarter of 1994.
Income from Branded Marketing operations decreased to $7 million in the
first quarter of 1995 from $8 million in the year-ago quarter.
Wholesale Fuels results for the current quarter included $3 million of
after-tax income from operations at Sun's Girard Point facility acquired
from Chevron on August 4, 1994. (See also "Chemicals" below). Excluding
activity from the Girard Point facility, Wholesale Fuels results declined
$50 million due primarily to lower average wholesale fuels product margins
($57 million), particularly for distillates and wholesale gasoline, and
lower sales volumes ($4 million), partially offset by lower refinery
operating expenses ($11 million). The decline in distillate margins was
largely attributable to the unusually mild winter.
In Branded Marketing, the $1 million decline in earnings was caused
primarily by lower retail distillate sales volumes and margins. A decline
in retail gasoline sales volumes was essentially offset by slightly higher
gasoline margins. The decrease in volumes was due largely to the
elimination of some marginal distributor and retail accounts as Sun
continues to consolidate into a single Sunoco brand service station
network.
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 $26 million compared with the 1994 first quarter.
Income from sales of lubricant products was $14 million in both first
quarter periods, as higher average margins, particularly for base oils,
were offset by 6 percent lower sales volumes. The decline in sales volumes
was due largely to the buildup of base oil inventories in anticipation of a
scheduled second quarter maintenance turnaround at the Tulsa refinery.
Losses from Related Fuels operations totalled $22 million during the first
quarter of 1995, representing a $26 million decline from 1994 first quarter
income of $4 million. The decline was primarily due to lower margins on
wholesale fuels products ($20 million).
Chemicals -- Income from Sun's domestic Chemicals business was $25 million
in the 1995 first quarter, compared with a loss of $3 million in the prior
year period. This improvement was due to higher margins ($14 million) and
sales volumes ($6 million) resulting from stronger petrochemicals demand
and prices. The addition of aromatics production from the Girard Point
facility also contributed $8 million to the improved earnings. <PAGE>
<PAGE> 14
Logistics -- Logistics (pipeline transportation and petroleum terminalling
operations) income was $13 million, an increase of $2 million versus the
year-ago quarter. Higher throughput on Sun's eastern products system,
resulting primarily from Sun's acquisition of the Girard Point facility,
was largely responsible for the increase in earnings.
International Production -- International Production earnings were $19
million in the 1995 first quarter versus $14 million in the first quarter
of 1994. The $5 million increase was due largely to 19 percent higher
crude oil prices ($4 million), a $4 million after-tax gain from the
settlement of litigation surrounding previously expropriated assets and $3
million of after-tax income attributable to crude oil production from the
Ninian/Columba fields in the U.K. North Sea, which were acquired in the
third quarter of 1994. Partially offsetting these positive factors was a
$3 million increase in after-tax foreign exchange translation losses.
The average price received for Sun's international crude oil production was
$16.46 per barrel in the first three months of 1995 compared to $13.78 per
barrel for the first quarter of 1994. Sun's average net production of
crude oil was 29.7 thousand barrels daily during the first three months of
1995 compared to average net production of 27.2 thousand barrels daily for
the first quarter of 1994.
The average price received for Sun's international natural gas production
was $2.79 per thousand cubic feet for the current quarter compared to $2.84
per thousand cubic feet in the 1994 first quarter. Sun's average net
production of natural gas was 61 million cubic feet daily in the first
quarter of 1995 compared to 63 million cubic feet daily in the first
quarter of 1994.
Canada (Suncor) -- Oil sands results increased $12 million due to a 34
percent increase in synthetic crude oil prices to $17.69 per barrel ($8
million) and an 18 percent increase in synthetic crude oil production
volumes to 76.4 thousand barrels daily ($6 million), partially offset by
lower gains from hedging activities ($2 million). Canadian refining and
marketing income decreased due to lower refined product margins ($4
million). Canadian corporate expenses increased $2 million due to the
recognition of costs associated with Suncor's decision to relocate its
corporate office from Toronto to Calgary later this year.
Corporate -- Net financing expenses were up $9 million versus the year-ago
quarter due to higher average borrowings resulting in part from the high
level of 1994 growth capital expenditures.
Operations Held for Sale -- Sun's coal operations held for sale earned $4
million in the 1995 first quarter versus breakeven in the year-ago quarter.
The increase was due to higher prices and margins for coal and coke and the
absence of a $1 million operating loss from a mine sold in the second
quarter of 1994. Real estate operations held for sale broke even in the
current quarter versus net income of $2 million in the year-ago period.
The decline was due primarily 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 coal and real estate operations
held for sale, see Note 2 to the condensed consolidated financial
statements.<PAGE>
<PAGE> 15
Cumulative Effect of Change in Accounting Principle -- For information
concerning the change in method of accounting for postemployment benefits,
see Note 3 to the condensed consolidated financial statements.
Analysis of Consolidated Statements of Income
- ---------------------------------------------
Sales and other operating revenue increased $522 million, or 25 percent,
principally due to higher refined product sales volumes ($308 million) and
prices ($149 million), higher revenues from resales of purchased oil and
refined products ($28 million) and an increase in consumer excise taxes
($14 million). Other income decreased $5 million due to lower gains on
asset divestments ($6 million) and an increase in foreign exchange
translation losses ($2 million), partially offset by a $4 million gain from
the settlement of litigation surrounding previously expropriated assets.
Cost of products sold and operating expenses increased $525 million, or 43
percent, primarily due to higher domestic crude oil and refined product
acquisition costs ($479 million), higher resales of purchased oil and
refined products ($26 million) and an increase in refinery expenses ($14
million). The higher 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 increased $12
million, or 7 percent, primarily due to higher expenses at Suncor ($8
million), which included the recognition of costs associated with the
decision to relocate Suncor's corporate office from Toronto to Calgary
later this year. Taxes, other than income taxes increased $15 million, or
3 percent, principally due to higher consumer excise taxes ($14 million).
Depreciation, depletion and amortization increased $7 million, or 8
percent, primarily as a result of an increased depreciable asset base
resulting from the high level of 1994 capital spending. The $4 million
increase in minority interest is due to increased earnings at Suncor, the
Company's 55-percent owned Canadian subsidiary. Interest cost and debt
expense increased $11 million, or 55 percent, due to higher average
corporate borrowings. For a discussion of the income from operations held
for sale and the cumulative effect of change in accounting principle, see
Notes 2 and 3, respectively, to the condensed consolidated financial
statements.
<PAGE>
<PAGE> 16
FINANCIAL CONDITION
Cash and Working Capital
- ------------------------
At March 31, 1995, Sun had cash and cash equivalents of $26 million
compared to $117 million at December 31, 1994, and had a working capital
deficit of $501 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 March 31, 1995 by approximately
$500 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 quarter of 1995, Sun's net cash provided by (used in)
operating activities ("cash generation") was $(40) million compared to
$40 million in the first quarter of 1994. The $80 decline in cash
generation is largely due to a decrease in income before special items ($41
million), lower deferred income taxes ($23 million) and an increase in
working capital uses pertaining to operating activities ($24 million).
Management believes that future cash generation will be sufficient to
satisfy Sun's base infrastructure and legally required 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. Growth
capital outlays will be funded with excess cash generation and proceeds
from the ongoing divestment of non-strategic/non-core assets.
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. The Company also has access to
short-term financing under non-committed money market facilities and $150
million of confirmed lines of credit. In addition, Suncor has a revolving
term credit facility available for its own use aggregating $286 million.
<PAGE>
<PAGE> 17
The following table sets forth Sun's total borrowings at:
March 31 December 31
1995 1994
-------- -----------
(Millions of Dollars)
Short-term borrowings
Commercial paper $ 224 $ 216
Non-committed money market
facilities 100 5
------ ------
324 221
Current portion of long-term debt 100 99
Long-term debt 1,099 1,073
------ ------
Total borrowings $1,523 $1,393
====== ======
As of March 31, 1995, Sun's long-term debt to long-term capitalization
ratio was 37.8 percent. 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, may take place in 1995. Any impact on net income would be
recognized in the period of adoption. Implementation of SFAS No. 121 will
not affect Sun's cash flow or liquidity.
<PAGE>
<PAGE> 18
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On April 4, 1995, the United States District Court for the Northern
District of California dismissed an action previously filed against
the Company by Tosco Corporation ("Tosco"). Tosco had asked the Court
for a declaration of Tosco's rights and obligations under its
November 1, 1980 agreement with Sun Company, Inc. (R&M) ("Sun R&M")
for the sale to Tosco of Sun R&M's formerly-owned Duncan, OK refinery.
The Court, however, dismissed this action on the grounds that the
venue was improper in the Northern District of California.
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,
1995 and 1994.
12 - Statement re Sun Company, Inc. and Subsidiaries Computation of
Ratio of Earnings to Fixed Charges for the Three-Month Period
Ended March 31, 1995.
27 - Article 5 of Regulation S-X, Financial Data Schedule.
Reports on Form 8-K:
The Company has not filed any reports on Form 8-K during the quarter
ended March 31, 1995.
*****************************
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> 19
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 4, 1995
<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, 1995 and 1994.
12 Statement re Sun Company, Inc. and Subsidiaries Computation
of Ratio of Earnings to Fixed Charges for the Three-Month
Period Ended March 31, 1995.
27 Article 5 of Regulation S-X, Financial Data Schedule.
<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
--------------------
1995 1994
------- -------
(UNAUDITED)
Income (loss) before cumulative effect of
change in accounting principle (1) $(7.0) $33.9
Cumulative effect of change in
accounting principle (2) -- (6.8)(a)
----- -----
Net income (loss) (3) $(7.0) $27.1
===== =====
Weighted average number of shares
of common stock and common stock
equivalents outstanding (4) 107,053 107,091
======= =======
Income (loss) per share of common stock:
Income (loss) before cumulative effect of
change in accounting principle (1)/(4) $(.07) $ .32
Cumulative effect of change in
accounting principle (2)/(4) -- (.07)
----- -----
Net income (loss) (3)/(4) $(.07) $ .25
===== =====
Weighted average number of shares of
common stock and common stock
equivalents outstanding on a
fully diluted basis (5) 107,053 107,094
======= =======
Income (loss) per share of common stock
on a fully diluted basis:
Income (loss) before cumulative effect of
change in accounting principle (1)/(5) $(.07) $ .32
Cumulative effect of change in
accounting principle (2)/(5) -- (.07)
----- -----
Net income (loss) (3)/(5) $(.07) $ .25
===== =====
- ----------------
(a) Includes impact of the cumulative effect of a change in the method of
accounting for postemployment benefits. (See Note 3 to the condensed
consolidated financial statements.)
<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, 1995
---------------------
(UNAUDITED)
Fixed Charges:
Consolidated interest cost and debt expense $31
Interest cost and debt expense of operations
held for sale 4
Interest allocable to rental expense(b) 10
---
Total $45
===
Earnings:
Consolidated income (loss) before provision for
income taxes and cumulative effect of
change in accounting principle $(7)
Minority interest in net income
of subsidiaries having fixed charges 10
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 (1)
Dividends received from less than 50 percent
owned but not controlled affiliated companies 1
Fixed charges 45
Interest capitalized (3)
Amortization of previously capitalized interest 5
---
Total $51
===
Ratio of Earnings to Fixed Charges 1.13
====
- ----------------
(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 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.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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