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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, 1996
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, 1996, there were 73,809,007 shares of Common Stock, $1 par
value and 12,500,000 shares of Cumulative Preference Stock--Series A, no
par value, 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 Operations
for the Three Months Ended March 31, 1996
and 1995 3
Condensed Consolidated Balance Sheets at
March 31, 1996 and December 31, 1995 4
Condensed Consolidated Statements of Cash
Flows for the Three Months Ended March 31,
1996 and 1995 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURE 19
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Sun Company, Inc. and Subsidiaries
(Millions of Dollars Except Per Share Amounts)
- --------------------------------------------------------------------------
For the Three Months
Ended March 31
--------------------
1996 1995*
------ ------
(UNAUDITED)
REVENUES
Sales and other operating revenue (including consumer
excise taxes of $368 in 1996 and $485 in 1995) $2,531 $2,578
Interest income 4 2
Other income (Note 2) 10 8
------ ------
2,545 2,588
------ ------
COSTS AND EXPENSES
Cost of products sold and operating expenses 1,923 1,752
Selling, general and administrative expenses 134 178
Taxes, other than income taxes 400 520
Depreciation, depletion and amortization 80 97
Exploratory costs and leasehold impairment -- 10
Minority interest -- 10
Interest cost and debt expense 20 31
Interest capitalized -- (2)
------ ------
2,557 2,596
------ ------
Loss before credit for income taxes and cumulative
effect of change in accounting principle (12) (8)
Credit for income taxes (7) (1)
------ ------
Loss before cumulative effect of change
in accounting principle (5) (7)
Cumulative effect of change in accounting
principle (Note 3) -- (87)
------ ------
NET LOSS (5) (94)
Dividends on preference stock (11) --
------ ------
Net loss attributable to common stock $ (16) $ (94)
====== ======
Loss per share of common stock:**
Loss before cumulative effect of change in
accounting principle $(.22) $(.07)
Cumulative effect of change in accounting principle -- (.81)
----- -----
Net loss $(.22) $(.88)
===== =====
Cash dividends paid per share:
Preference stock*** $.90 $ --
Common stock $.25 $.45
- -------------
*Restated to reflect the change in method of accounting for the
impairment of long-lived assets, effective January 1, 1995 (Note 3).
**Represents both primary and fully diluted loss per share (Note 4).
Based on the weighted average number of common shares outstanding (in
millions) of 73.9 in 1996 and 107.1 in 1995.
***Each share of preference stock is represented by two depositary shares.
Each depositary share accrues dividends quarterly at a rate of $.45 per
share, or one-half the rate paid on the preference stock.
(See Accompanying Notes)
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CONDENSED CONSOLIDATED BALANCE SHEETS
Sun Company, Inc. and Subsidiaries
At At
March 31 December 31
1996 1995
(Millions of Dollars) (UNAUDITED)
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ASSETS
Current Assets
Cash and cash equivalents $ 12 $ 14
Note receivable from divestment of Suncor
common stock 133 130
Accounts and other notes receivable, net 739 662
Inventories:
Crude oil 181 184
Refined products 240 272
Materials, supplies and other 69 66
Deferred income taxes 135 132
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Total Current Assets 1,509 1,460
Investment in Real Estate Operations Held
for Sale (Note 2) 87 87
Long-Term Receivables and Investments 104 104
Properties, Plants and Equipment 6,590 6,731
Less Accumulated Depreciation, Depletion
and Amortization 3,368 3,469
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Properties, Plants and Equipment, net 3,222 3,262
Deferred Charges and Other Assets 270 271
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Total Assets $5,192 $5,184
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 875 $ 811
Accrued liabilities 483 521
Short-term borrowings 95 54
Current portion of long-term debt 4 3
Taxes payable 139 141
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Total Current Liabilities 1,596 1,530
Long-Term Debt 886 888
Retirement Benefit Liabilities 509 507
Deferred Income Taxes 123 122
Other Deferred Credits and Liabilities 419 438
Commitments and Contingent Liabilities (Note 5)
Stockholders' Equity (Note 6) 1,659 1,699
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Total Liabilities and Stockholders' Equity $5,192 $5,184
====== ======
(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
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1996 1995
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(UNAUDITED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5) $ (94)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Cumulative effect of change in accounting
principle -- 87
Depreciation, depletion and amortization 80 97
Dry hole costs and leasehold impairment -- 4
Deferred income taxes (1) 2
Changes in working capital pertaining to
operating activities:
Accounts and notes receivable (80) 13
Inventories 32 (63)
Accounts payable and accrued liabilities 39 (36)
Taxes payable (2) (55)
Other (10) 5
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Net cash provided by (used in) operating activities 53 (40)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (41) (151)
Cash provided by (used in) operations held
for sale 2 (8)
Proceeds from divestments 1 30
Other (3) 3
---- -----
Net cash used in investing activities (41) (126)
---- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from short-term borrowings 41 103
Proceeds from issuance of long-term debt -- 32
Repayments of long-term debt (1) (12)
Cash dividend payments on preference stock (11) --
Cash dividend payments on common stock (19) (48)
Purchases of common stock for treasury (6) --
Other (18) --
---- -----
Net cash provided by (used in) financing activities (14) 75
---- -----
Net decrease in cash and cash equivalents (2) (91)
Cash and cash equivalents at beginning of period 14 117
---- -----
Cash and cash equivalents at end of period $ 12 $ 26
==== =====
(See Accompanying Notes)<PAGE>
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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
generally accepted accounting principles for interim financial
reporting. They do not include all disclosures normally made in
financial statements contained 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, 1996 are not
necessarily indicative of results for the full year 1996.
2. Investments in Operations Held for Sale.
Real Estate Operations
Sun has been pursuing the disposition of the Company's investment in
Radnor Corporation, its wholly owned real estate development
subsidiary, since October 1991. This business is accounted for as an
investment held for sale. As a result, pretax income from real estate
operations, which totalled $1 million and breakeven for the three
months ended March 31, 1996 and 1995, respectively, has been included
as a single amount in other income in the condensed consolidated
statements of operations.
The assets and liabilities relating to real estate operations have
been segregated in the condensed consolidated balance sheets and
separately reflected as an investment in operations held for sale.
Such amounts are detailed as follows:
March 31 December 31
1996 1995
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(Millions of Dollars)
Inventories $ 80 $ 83
Properties, plants and equipment 146 144
Other assets 21 20
Debt (Note 5) (133) (132)
Other liabilities (27) (28)
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Investment in real estate operations
held for sale $ 87 $ 87
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Coal and Cokemaking Operations
In January 1993, Sun decided to sell its coal and cokemaking
operations. 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. Prior to June 30, 1995, Sun's coal and
cokemaking operations had been accounted for as an investment held for
sale. However, effective June 30, 1995, the remaining coal and
cokemaking business became one of the Company's eight ongoing business
units and is no longer held for sale. Accordingly, the condensed
consolidated balance sheets of Sun as of March 31, 1996 and December
31, 1995 contain the accounts of its coal and cokemaking operations on
a fully consolidated basis. The condensed consolidated statements of
operations and cash flows reflect coal and cokemaking operations on a
fully consolidated basis for the three months ended March 31, 1996 and
as an operation held for sale for the three months ended March 31,
1995. The prior period condensed consolidated statements of
operations and cash flows were not restated to give effect to this
change in presentation because the impact of such a restatement would
not have been material.
3. Change in Accounting Principle.
Effective January 1, 1995, Sun adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
This statement requires companies to write down to estimated fair
value long-lived assets that are impaired. The write-downs recognized
in the first quarter of 1995 are reflected as a cumulative effect of
change in accounting principle in the condensed consolidated statement
of operations and relate to properties to be disposed of in the
Company's real estate, coal and refining and marketing operations.
The following table sets forth summary information concerning these
write-downs (in millions of dollars):
Cumulative Effect
of Accounting Change
---------------------
Pretax After-tax
------ ---------
Real estate $ 33 $15
Coal 45 29
Refining and marketing* 67 43
---- ---
$145 $87
==== ===
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*Primarily service stations and terminals.
Other than the cumulative effect, this change did not have a
significant impact on Sun's results of operations during the first
quarter of 1995. The results of operations during the first quarters
of 1995 and 1996 for all properties to be disposed of were not
significant.
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4. Earnings Per Share.
The primary loss per share for the first quarter of 1996 was computed
by dividing losses, after deducting dividends on the preference stock
issued in August 1995, by the weighted average number of common shares
outstanding. Fully diluted earnings per share generally are
determined by dividing earnings by the weighted average number of
shares outstanding, assuming redemption of the preference shares for
common stock. However, since the assumed redemption of preference
shares in the first quarter of 1996 would have resulted in a smaller
loss per share, fully diluted per share amounts are the same as those
reported on a primary basis.
5. 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 had an
initial designed capacity of 12,600 barrels daily of MTBE, was
completed during 1995. 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 had guaranteed one-
third or $59 million. The construction loan was restructured into a
five-year nonrecourse term loan with a first priority lien on all
project assets.
In order to obtain a secure supply of oxygenates for the manufacture
of reformulated fuels, Sun has entered into a 10-year off-take
agreement with BEF. Pursuant to this agreement, Sun will purchase all
of the MTBE production from the plant. The minimum price to be paid
for the first 12,600 barrels daily of MTBE production while the
nonrecourse term loan is outstanding is equal to BEF's annual raw
material and operating costs associated with this production and debt
service payments. Notwithstanding this minimum price, 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 have exceeded the minimum price required by the loan agreement.
For the last four years the off-take agreement is in place, Sun will
negotiate a new price with BEF based upon the market conditions
existing at that time.
The Company guarantees the outstanding debt of Radnor Corporation, its
real estate operation held for sale. Such debt, which is due in
January 2001, totalled $133 million at March 31, 1996 (Note 2).
Sun is subject to numerous federal, state, local and foreign laws
regulating the discharge of materials into, or otherwise relating to
the protection of, the environment. 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
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disposal or release of certain pollutants 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. 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, 1996, Sun
had been named as a PRP at 48 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. In addition, 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.
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.
The accrued liability for environmental remediation was classified in
the condensed consolidated balance sheets as follows (in millions of
dollars):
At At
March 31 December 31
1996 1995
-------- -----------
Accrued liabilities $ 37 $ 55
Other deferred credits and
liabilities 157 144
---- ----
$194 $199
==== ====
Sun also accrues estimated dismantlement, restoration and abandonment
costs at its international oil and gas production operations. This
accrual, which totalled $57 million at March 31, 1996 and $56 million
at December 31, 1995, is included in accumulated depreciation,
depletion and amortization in the condensed consolidated balance
sheets. Sun estimates that the total cost for such activities at
these operations will be approximately $118 million.
Pretax charges against income for environmental remediation and for
dismantlement, restoration and abandonment totalled $3 and $7 million
for the three months ended March 31, 1996 and 1995, respectively.
Claims for recovery of environmental liabilities that are probable of
realization totalled $8 million at March 31, 1996 and are included
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in deferred charges and other assets in the condensed consolidated
balance sheets.
Total future costs for environmental remediation and dismantlement,
restoration and abandonment 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 legal requirements, the nature and extent of
future environmental laws, inflation rates and the determination of
Sun's liability at multi-party sites, if any, in light of the number,
participation levels and financial viability of other parties.
Many other legal and administrative proceedings are pending against
Sun. The ultimate outcome of these proceedings and the 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 will 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 future 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, 1996. 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.
6. Stockholders' Equity.
At At
March 31 December 31
1996 1995
-------- -----------
(Millions of Dollars)
Cumulative preference stock - Series A,
no par value $ 750 $ 750
Common stock, par value $1 per share 130 130
Capital in excess of par value 1,311 1,310
Earnings employed in the business 1,483 1,518
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3,674 3,708
Less common stock held in treasury,
at cost 2,015 2,009
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Total $1,659 $1,699
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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
------------------
1996 1995 Variance
---- ---- --------
(Millions of Dollars)
Sun Northeast Refining $(28) $(37) $ 9
Sunoco Northeast Marketing (1) 7 (8)
Sunoco Chemicals 7 20 (13)
Sunoco Lubricants 2 (9) 11
Sunoco MidAmerica Marketing &
Refining (4) (13) 9
Sunoco Logistics 11 12 (1)
Sun Coal and Coke 7 4 3
Sun International Production 19 19 --
Corporate expenses (5) (6) 1
Net financing expenses (13) (15) 2
Real estate operations held
for sale -- -- --
Canada (Suncor)* -- 11 (11)
---- ---- ----
(5) (7) 2
Cumulative effect of change in
accounting principle** -- (87) 87
---- ---- ----
Consolidated net loss $ (5) $(94) $ 89
==== ==== ====
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*Sun sold its remaining 55 percent interest in Suncor Inc., the
Company's former Canadian petroleum subsidiary, on June 8, 1995.
**Consists of the impact of the cumulative effect of a change in the
method of accounting for impairment of long-lived assets.
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Analysis of Earnings Profile of Sun Businesses
- ----------------------------------------------
In the three-month period ended March 31, 1996, Sun had a net loss of $5
million, or $.22 per share of common stock, compared with a net loss of $94
million, or $.88 per share of common stock, for the first quarter of 1995.
Excluding the cumulative effect of a change in accounting principle, Sun
had a loss of $7 million, or $.07 per share of common stock, during the
first three months of 1995.
Sun Northeast Refining -- The Sun Northeast Refining business, which
consists of the manufacturing and wholesale marketing of fuels produced at
Sun's Marcus Hook, PA and Philadelphia, PA refineries, had a loss of $28
million in the first quarter of 1996 compared to a loss of $37 million in
the first quarter of 1995. The decline in the operating loss was due
primarily to higher average wholesale fuels product margins ($19 million),
partially offset by higher refinery operating expenses ($7 million) caused
by an increase in refinery fuel costs. The improvement in wholesale fuels
margins reflects the favorable impact of stronger market conditions for
distillate and residual fuel products, partially offset by lower wholesale
gasoline margins as gasoline prices did not keep pace with the rapid run-up
in crude oil prices that occurred in the first quarter of 1996. Increased
refinery maintenance activity also adversely impacted operating results
during the current quarter.
Sunoco Northeast Marketing -- The Sunoco Northeast Marketing business,
which consists of the retail sale of gasoline and middle distillates in New
England and the Mid-Atlantic states and convenience-store operations in
these regions, lost $1 million in the current quarter versus income of $7
million in the first quarter of 1995. The decrease in operating results
was due to lower average retail gasoline margins ($8 million) caused by the
run-up in crude oil prices during the first quarter of 1996. The favorable
impact of lower operating and administrative expenses was offset by a three
percent decline in retail gasoline sales volumes attributable to the
January 1996 record-breaking blizzard, which severely curtailed driving
throughout the Northeast.
Sunoco Chemicals -- The Sunoco Chemicals business consists of the
manufacturing and marketing of commodity and intermediate petrochemicals
produced at the Marcus Hook and Philadelphia refineries, at an ethylene
oxide plant in Brandenburg, KY and at a joint venture MTBE facility in Mont
Belvieu, TX. Sunoco Chemicals earned $7 million in the first quarter of
1996 versus $20 million in the first quarter of 1995. The decline in
earnings was primarily due to significantly lower margins for most
petrochemicals products compared to the strong margins experienced in the
first quarter of 1995. Production shortfalls due to maintenance activities
at Sun's Northeast refineries also negatively impacted Sunoco Chemicals
earnings during the period.
Sunoco Lubricants -- The Sunoco Lubricants business, which is comprised of
the manufacturing, packaging and marketing of lubricating and specialty
oils produced at Sun's Tulsa, OK and Puerto Rico refineries as well as the
related manufacturing and wholesale marketing of fuels produced at these
facilities, earned $2 million in the 1996 first quarter, compared to a loss
of $9 million in the 1995 first quarter. The earnings improvement was
primarily due to higher sales volumes of both lubricants and related fuels
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($4 million) reflecting an increase in refinery production levels and to
higher margins on wholesale fuels products ($13 million) primarily
resulting from a stronger market for distillate products. These positive
factors more than offset the impact of lower margins on lubricant products
($4 million) and higher operating expenses ($3 million) caused by an
increase in refinery fuel costs.
Sunoco MidAmerica Marketing & Refining -- The Sunoco MidAmerica Marketing &
Refining business consists of the retail sale of gasoline and middle
distillates and convenience-store operations in the midwestern U.S.
(primarily Ohio and Michigan) as well as the manufacturing and wholesale
marketing of fuels and petrochemicals produced at Sun's Toledo, OH
refinery. Sunoco MidAmerica Marketing & Refining lost $4 million during
the quarter, compared to a loss of $13 million in the 1995 first quarter.
Improved fuels margins ($14 million), particularly in the wholesale market,
more than offset the decline in margins on petrochemicals produced at the
Toledo refinery ($6 million). Higher refinery production levels also
contributed to the improvement in operating results during the quarter ($2
million).
Sunoco Logistics -- The Sunoco Logistics business, which consists of
pipeline transportation of crude oil and refined petroleum products,
domestic crude oil acquisition from third-party leases, crude oil trucking
and the Nederland, TX crude oil terminalling operation, earned $11 million
in the first quarter of 1996 versus $12 million in the year-ago period.
Lower throughput at the Nederland, Texas, crude oil terminal caused by
industry reaction to backwardated crude oil markets contributed to the
slightly lower earnings.
Sun Coal and Coke -- The Sun Coal and Coke business consists of coal
production from mines in Virginia and Kentucky and coke manufacturing at
the Company's facility in Vansant, VA. Sun Coal and Coke earned $7 million
in the first quarter of 1996 versus $4 million in the first quarter of
1995. The increase in earnings was due to improved operations ($2 million)
and higher coke margins ($1 million).
Sun International Production -- The Sun International Production business
consists of the development, production and marketing of crude oil,
condensate, natural gas liquids and natural gas located in the U.K. sector
of the North Sea. Sun International Production earnings were $19 million
in the 1996 first quarter, unchanged from the 1995 first quarter results.
Higher crude oil prices ($3 million) and higher foreign exchange gains ($4
million) were offset by slightly lower natural gas volumes ($1 million) and
prices ($1 million) and the absence of a $4 million after-tax gain from the
settlement of litigation surrounding previously expropriated assets outside
the U.K. North Sea included in the 1995 first quarter results.
Corporate -- Net financing expenses were down $2 million versus the
year-ago quarter due to lower average total borrowings as the Company
substantially reduced its debt level in the second half of 1995.
Real Estate Operations Held for Sale -- Real estate operations held for
sale broke even for both the current quarter and the year-ago period. For
a further discussion of Sun's real estate operations held for sale, see
Note 2 to the condensed consolidated financial statements.
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Cumulative Effect of Change in Accounting Principle -- For information
concerning the change in method of accounting for the impairment of long-
lived assets, see Note 3 to the condensed consolidated financial
statements.
Analysis of Consolidated Statements of Operations
- -------------------------------------------------
Sales and other operating revenue decreased $47 million, or 2 percent,
principally due to lower sales and other operating revenue attributable to
Suncor ($340 million, including Canadian consumer excise taxes of $121
million) as a result of its divestment on June 8, 1995. This decline was
partially offset by higher domestic refined product sales volumes ($59
million) and prices ($104 million), higher revenues from resales of
purchased crude oil and refined products ($87 million) and the inclusion in
the first quarter of 1996 of sales and other operating revenue attributable
to Sun's coal and cokemaking business ($41 million) (see Note 2 to the
condensed consolidated financial statements). Other income increased $2
million due to higher equity in earnings of affiliated companies ($3
million) and an increase in foreign exchange translation gains ($4
million), partially offset by the absence of a $4 million gain from the
settlement of litigation surrounding previously expropriated assets
recognized in the first quarter of 1995.
Cost of products sold and operating expenses increased $171 million, or 10
percent, primarily due to higher domestic crude oil and refined product
acquisition costs ($126 million), higher resales of purchased crude oil and
refined products ($89 million), higher domestic refinery operating expenses
($22 million) and the inclusion in the first quarter of 1996 of costs
attributable to Sun's coal and cokemaking business ($27 million). The
increase in cost of products sold and operating expenses was partially
offset by lower costs and operating expenses attributable to Suncor ($129
million). Selling, general and administrative expenses decreased $44
million, or 25 percent, primarily due to lower expenses as a result of the
Suncor divestment and cost containment efforts implemented during 1995.
Taxes, other than income taxes decreased $120 million, or 23 percent,
principally due to lower consumer excise taxes ($117 million) largely
attributable to the Suncor divestment. Depreciation, depletion and
amortization decreased $17 million, or 18 percent, primarily as a result of
the Suncor divestment ($23 million). The $10 million decreases in
exploratory costs and leasehold impairment and minority interest are due to
the Suncor divestment. Interest cost and debt expense decreased $11
million, or 35 percent, due to lower average borrowings. For a discussion
of the cumulative effect of change in accounting principle, see Note 3 to
the condensed consolidated financial statements.
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FINANCIAL CONDITION
Cash and Working Capital
- ------------------------
At March 31, 1996, Sun had cash and cash equivalents of $12 million
compared to $14 million at December 31, 1995, and had a working capital
deficit of $87 million compared to a working capital deficit of $70 million
at December 31, 1995. Sun's working capital position is considerably
stronger than indicated because of the relatively low historical costs
assigned under the LIFO method of accounting for most 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, 1996 and December 31, 1995 by $667 million and $528 million,
respectively. 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 Flows and Financial Capacity
- ---------------------------------
In the first quarter of 1996, Sun's net cash provided by operating
activities ("cash generation") was $53 million compared to $40 million of
cash used in operating activities in the first quarter of 1995. This $93
million improvement was largely due to a decrease in working capital uses
pertaining to operating activities.
Management believes that future cash generation will be sufficient to
satisfy Sun's capital requirements and to pay the current cash dividends on
common and preference stock. 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 oil 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 and
divestment proceeds are insufficient to satisfy near-term cash
requirements, the Company has access to $600 million of short-term
financing 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.
<PAGE>
<PAGE> 16
The following table sets forth amounts outstanding related to the above
short-term borrowing arrangements as well as to Sun's other borrowings at:
March 31 December 31
1996 1995
-------- -----------
(Millions of Dollars)
Short-term borrowings
Commercial paper $ 20 $ 4
Non-committed money market
facilities 75 50
---- ----
95 54
Current portion of long-term debt 4 3
Long-term debt 886 888
---- ----
Total borrowings $985 $945
==== ====
As of March 31, 1996, Sun's debt-to-capital ratio was 37.3 percent.
Management believes there is sufficient borrowing capacity available to
provide for Sun's future cash requirements.
Acquisition of Transok, Inc.
- ----------------------------
On May , 1996, Sun and National Fuel Gas Company ("National") entered
into an agreement to purchase all of the outstanding stock of Transok, Inc.
("Transok") through a joint venture company one-half owned by both Sun and
National. Transok, a wholly-owned subsidiary of Central and South West
Corporation, is a natural gas transmission, storage, marketing, gathering
and processing company based in Tulsa, OK. The aggregate purchase price is
expected to approximate $ million plus the assumption of an estimated
$200 million of long-term debt by the joint venture. The transaction is
expected to be financed through cash payments of $ million by both Sun
and National and the issuance of $ million of nonrecourse long-term debt
by the joint venture. The purchase should be completed by mid-year,
following required regulatory approval.
<PAGE>
<PAGE> 17
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
On March 29, 1996, The United States Environmental Protection Agency,
acting through the U.S. Department of Justice filed an action against
Sun Pipe Line Company and Atlantic Pipeline Corporation in the United
States District Court for the Western District of Pennsylvania,
seeking civil penalties in excess of $100,000 to resolve certain
alleged violations of the Oil Pollution Act of 1990 that arose in
connection with a crude oil leak in 1994 near Robinson, PA.
The United States Environmental Protection Agency, Region II, and the
U.S. Department of Justice are seeking civil penalties in excess of
$100,000 to resolve several alleged Clean Air Act violations that have
been the subject of two Notices of Violation and two Compliance Orders
over the past four years at the Sun Company, Inc. (R&M) Yabucoa,
Puerto Rico 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 March 31, 1996.
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,
1996 and 1995.
12 - Statement re Sun Company, Inc. and Subsidiaries Computation of
Ratio of Earnings to Fixed Charges for the Three-Month Period
Ended March 31, 1996.
27 - Article 5 of Regulation S-X, Financial Data Schedule.
<PAGE>
<PAGE> 18
Reports on Form 8-K:
During the first quarter of 1996, the Company filed the following
reports on Form 8-K:
. A report dated February 2, 1996 was filed to disclose the
adoption of a Shareholder Rights Plan.
. A report dated March 7, 1996 was filed to disclose the intention
of The Glenmede Trust Company in its capacity as trustee or co-
trustee of the Pew Charitable Trusts to sell a portion of its
capital stock holdings in Sun Company, Inc. through an
underwritten secondary offering.
. A report dated March 20, 1996 was filed to disclose the Company's
net income for the first two months of 1996.
*****************************
We are pleased to furnish this report to shareholders who request it by
writing to:
Sun Company, Inc.
Investor 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/ THOMAS W. HOFMANN
-----------------------
Thomas W. Hofmann
Comptroller
(Principal Accounting Officer)
DATE May 7, 1996
<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, 1996 and 1995.
12 Statement re Sun Company, Inc. and Subsidiaries Computation
of Ratio of Earnings to Fixed Charges for the Three-Month
Period Ended March 31, 1996.
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
(In Millions Except Per Share Amounts)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Three Months
Ended March 31
--------------------
1996 1995
------- -------
(UNAUDITED)
<S> <C> <C>
Loss before cumulative effect of
change in accounting principle (1) $ (5.0) $ (7.0)
Less: Dividends on preference stock (11.3) --
------ ------
Loss before cumulative effect of change
in accounting principle attributable
to common stock (2) (16.3) (7.0)
Cumulative effect of change in
accounting principle (3)(a) -- (87.2)
------ ------
Net loss attributable to common stock (4) $(16.3) $(94.2)
====== ======
Weighted average number of shares
of common stock and common stock
equivalents outstanding (5) 73.9 107.1
==== =====
Loss per share of common stock:
Loss before cumulative effect of change
in accounting principle (2)/(5) $(.22) $(.07)
Cumulative effect of change in
accounting principle (3)/(5) -- (.81)
----- -----
Net loss (4)/(5) $(.22) $(.88)
===== =====
Weighted average number of shares of common
stock and common stock equivalents out-
standing on a fully diluted basis (6) 74.0 107.1
==== =====
Loss per share of common stock
on a fully diluted basis (b):
Loss before cumulative effect of change
in accounting principle (2)/(6) $(.22) $(.07)
Cumulative effect of change in
accounting principle (3)/(6) -- (.81)
----- -----
Net loss (4)/(6) $(.22) $(.88)
===== =====
</TABLE>
- ----------------
(a) Includes impact of the cumulative effect of a change in the method of
accounting for impairment of long-lived assets. (See Note 3 to the
condensed consolidated financial statements.)
(b) Fully diluted earnings per share generally are determined by dividing
earnings by the weighted average number of shares outstanding, assuming
redemption of the preference shares for common stock. However,
redemption was not assumed in 1996 since it would have resulted in a
smaller loss per share.
<PAGE>
<PAGE> 1
EXHIBIT 12
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(a)
Sun Company, Inc. and Subsidiaries
(Millions of Dollars)
- --------------------------------------------------------------------------
For the Three Months
Ended March 31, 1996
--------------------
(UNAUDITED)
Fixed Charges:
Consolidated interest cost and debt expense $20
Interest cost and debt expense of real estate
operations held for sale 3
Interest allocable to rental expense(b) 7
---
Total $30
===
Earnings:
Consolidated loss before credit for income
taxes and cumulative effect of change in
accounting principle $(12)
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
affiliated companies (3)
Dividends received from less than 50 percent
owned affiliated companies 1
Fixed charges 30
Interest capitalized --
Amortization of previously capitalized interest 1
---
Total $18
===
Ratio of Earnings to Fixed Charges N/A(c)
===
- ----------------
(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 for Radnor
Corporation, the Company's wholly owned real estate development
subsidiary, which is accounted for as an investment 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.
(c) Earnings are inadequate to cover fixed charges by $12 million.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 757
<ALLOWANCES> 18
<INVENTORY> 490
<CURRENT-ASSETS> 1,509
<PP&E> 6,590
<DEPRECIATION> 3,368
<TOTAL-ASSETS> 5,192
<CURRENT-LIABILITIES> 1,596
<BONDS> 886
<COMMON> 130
0
750
<OTHER-SE> 779
<TOTAL-LIABILITY-AND-EQUITY> 5,192
<SALES> 2,531
<TOTAL-REVENUES> 2,545
<CGS> 1,923
<TOTAL-COSTS> 1,923
<OTHER-EXPENSES> 612
<LOSS-PROVISION> 2
<INTEREST-EXPENSE> 20
<INCOME-PRETAX> (12)
<INCOME-TAX> (7)
<INCOME-CONTINUING> (5)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
