<PAGE>
1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 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 _______
COMMISSION FILE NUMBER 1-6841
SUN COMPANY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
PENNSYLVANIA 23-1743282
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
TEN PENN CENTER1801 MARKET STREET,
PHILADELPHIA, PA 19103-1699
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (215) 977-3000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH
EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
------------------- -----------------
<S> <C>
Depositary Shares, each share representing One- New York Stock Exchange
Half of a Share of Series A Cumulative
Preference Stock, no par value
Common Stock, $1 par value New York Stock Exchange
Philadelphia Stock Exchange
Convertible Subordinated Debentures 6 3/4%, New York Stock Exchange
Due June 15, 2012
Sinking Fund Debentures 9 3/8%, Due June 1, New York Stock Exchange
2016
Notes 7.95%, Due December 15, 2001 New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments of this Form 10-K. [X]
At January 31, 1997, the aggregate market value of voting stock held by
nonaffiliates was $2,407 million.
At January 31, 1997, there were 72,991,478 shares of Common Stock, $1 par
value and 12,460,550 shares of Cumulative Preference Stock--Series A, no par
value, outstanding.
Selected portions of the Sun Company, Inc. Annual Report to Shareholders for
the Fiscal Year Ended December 31, 1996 are incorporated by reference in Parts
I, II and IV of this Form 10-K.
Selected portions of the Sun Company, Inc. definitive Proxy Statement, which
will be filed with the Securities and Exchange Commission within 120 days
after December 31, 1996, are incorporated by reference in Part III of this
Form 10-K.
<PAGE>
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
Those statements in the Business and Properties discussion that are not
historical in nature should be deemed forward-looking statements that are
inherently uncertain. See "Forward-Looking Statements" below for a discussion
of the factors which could cause actual results to differ materially from
those projected in such statements.
GENERAL
Sun Company, Inc.* was incorporated in Pennsylvania in 1971. It or its
predecessors have been active in the petroleum industry since 1886. Its
principal executive offices are located at 1801 Market Street, Philadelphia,
PA 19103-1699, and its telephone number is (215) 977-3000.
The Company, through its subsidiaries, is principally a petroleum refiner
and marketer with interests in coal mining and cokemaking. Sun's petroleum
refining and marketing operations include the manufacturing and marketing of a
full range of petroleum products, including fuels, lubricants and
petrochemicals, and the transportation of crude oil and refined products.
These operations are conducted principally in the eastern half of the United
States. Sun's coal mining and cokemaking operations are conducted in Virginia
and Kentucky. Sun also has an investment in real estate operations in the
United States which is subject to a plan of disposition.
On September 30, 1996, Sun sold its international production business, and
on June 8, 1995, divested its remaining interest in Suncor Inc., a Canadian
integrated oil company. Prior to these divestments, Sun had interests in oil
and gas production in the United Kingdom sector of the North Sea and in
petroleum refining and marketing, oil and gas exploration and production and
oil sands mining in Canada.
The Company's operations are organized into seven business units plus a
holding company and a shared services organization. The accompanying
discussion of the Company's business and properties reflects this
organizational structure. For additional information regarding these business
units, see Management's Discussion and Analysis of Financial Condition and
Results of Operations in the Company's 1996 Annual Report to Shareholders.
Additional business segment information is presented in Note 17 to the
Consolidated Financial Statements in the Company's 1996 Annual Report to
Shareholders.
REFINING AND MARKETING
The Company's refining and marketing operations consist of the manufacturing
and marketing of fuels, lubricants and petrochemicals and the transportation
of crude oil and refined products. These operations are conducted principally
through Sun Company, Inc. (R&M), a wholly owned subsidiary of the Company, and
are classified into the following six business units: Sun Northeast Refining;
Sunoco Northeast Marketing; Sunoco Chemicals; Sun Lubricants; Sunoco
MidAmerica Marketing & Refining; and Sunoco Logistics.
- --------
*In this report, the terms "Company" and "Sun" are used interchangeably to mean
Sun Company, Inc. or collectively, Sun Company, Inc. and its subsidiaries. The
use of these terms is for convenience of discussion and is not intended to be a
precise description of corporate relationships. References in this Annual
Report on Form 10-K to material in the Company's 1996 Annual Report to
Shareholders and in the Company's definitive Proxy Statement, which will be
filed with the Securities and Exchange Commission within 120 days after
December 31, 1996, mean that such material is incorporated herein by reference;
other material in those documents is not deemed to be filed as part of this
Annual Report on Form 10-K.
1
<PAGE>
Sun owns and operates five domestic refineries which are located in Marcus
Hook, PA, Philadelphia, PA, Toledo, OH, Tulsa, OK and Yabucoa, Puerto Rico.
The refineries in Marcus Hook, Philadelphia and Toledo produce principally
fuels and petrochemicals while the refineries in Tulsa and Puerto Rico
emphasize lubricants production with related fuels being sold in the wholesale
market.
The following tables set forth certain consolidated information concerning
Sun's domestic refining and marketing operations. Additional information is
set forth on pages 52-53 in the Company's 1996 Annual Report to Shareholders.
Products Manufactured
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Crude Unit Capacity (MB/D)...................................... 777.0* 777.0
===== =====
Input to Crude Units (MB/D)..................................... 721.0 700.4
===== =====
Products Manufactured (Percent):
Gasoline....................................................... 42 43
Middle Distillates............................................. 26 25
Residual Fuel.................................................. 9 9
Petrochemicals................................................. 3 4
Lubricants..................................................... 3 2
Asphalt**...................................................... 2 3
Other.......................................................... 15 14
--- ---
100 100
=== ===
</TABLE>
- --------
*Sun's crude unit capacity will decrease 85 thousand barrels per day in
connection with a project to be completed in the first quarter of 1997 to
reconfigure the Puerto Rico refinery to process intermediate feedstocks
instead of crude oil (see below).
**Sun ceased producing asphalt in December 1996.
Supply and Distribution
Sun's crude oil requirements during 1996 were met largely by purchases from
various foreign national oil companies and independent exploration and
production companies as well as from various integrated oil companies. There
is an ample supply of crude oil available to meet worldwide refining needs,
and Sun has been able to supply its refineries with the proper mix and quality
of crude oils without disruption. Sun's refineries processed approximately 90
percent light sweet crude oil during 1996. The Company believes that ample
supplies of light sweet crude oil will continue to be available. The following
table sets forth the net sources of crude oil for Sun's domestic refineries
(in percentages):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
United States...................................................... 20 15
Canada............................................................. 7 9
Africa............................................................. 41 36
North Sea.......................................................... 21 20
Arabian Gulf....................................................... 4 11
South and Central America.......................................... 7 9
--- ---
100 100
=== ===
</TABLE>
2
<PAGE>
The following table sets forth summary information concerning the supply and
distribution of crude oil and refined products at Sun's domestic refineries
(in thousands of barrels daily):
<TABLE>
<CAPTION>
1996 1995
----- -----
Supply:
<S> <C> <C>
Crude oil purchases........................................... 686.1 682.2
Crude oil inventory change.................................... 5.3 (8.3)
Refined product purchases (including feedstocks).............. 120.8 122.4
----- -----
812.2 796.3
===== =====
Distribution:
Refined product sales......................................... 794.8 777.8
Refined product inventory change.............................. (2.8) .2
Internal consumption and other................................ 20.2 18.3
----- -----
812.2 796.3
===== =====
</TABLE>
Refined Product Sales
Sun sells fuels through retail and wholesale channels principally in the
Northeast and upper Midwest and sells petrochemicals and lubricants on a
worldwide basis. The following table sets forth Sun's consolidated domestic
refined product sales (in thousands of barrels daily):
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Gasoline:
Wholesale....................................................... 167.0 154.0
Retail.......................................................... 205.7 204.6
Middle distillates............................................... 219.9 210.9
Residual fuel.................................................... 82.4 73.9
Petrochemicals................................................... 31.5 31.1
Lubricants....................................................... 23.9 20.0
Asphalt.......................................................... 18.3 26.7
Other............................................................ 46.1 56.6
----- -----
794.8 777.8
===== =====
</TABLE>
As of December 31, 1996 and 1995, branded fuels sales were made through
3,806 and 3,861 retail gasoline outlets, respectively. All but 424 of these
outlets were independently operated at December 31, 1996.
Strategic Actions
During the fourth quarter of 1996, Sun reconfigured its Philadelphia
refinery to process only light sweet crude oil and to cease asphalt
production. This reconfiguration continues the integration of the Point Breeze
and Girard Point facilities within the refinery and should result in a simpler
and more reliable and cost-efficient operation. Sun also announced that it
intends to reconfigure its Puerto Rico refinery in the first quarter of 1997.
This reconfiguration should result in a significant reduction in unprofitable
fuels production while maintaining the refinery's current volume and quality
of lubricants production. The Philadelphia and Puerto Rico refinery
reconfigurations will result in the shutdown or mothballing of redundant
and/or unprofitable processing units and the elimination of approximately 225
positions (both employees and independent contractors). See "Sun Northeast
Refining" and "Sun Lubricants" below, for a more detailed discussion of these
actions.
3
<PAGE>
In the fourth quarter of 1996, Sun also initiated a comprehensive
competitive improvement plan that will be implemented during 1997 at its
Marcus Hook refinery. This plan is focused on improving reliability and
reducing cash operating costs through a reduction of approximately 200
positions (both employees and independent contractors), improved operating and
maintenance procedures and energy conservation measures.
The following is a discussion of the six business units which comprise Sun's
domestic refining and marketing operations.
SUN NORTHEAST REFINING
The Sun Northeast Refining business consists of the manufacture of petroleum
products, including gasoline, middle distillates (including jet fuel, heating
oil and diesel fuel), residual fuel oil and petrochemical feedstocks at Sun's
Marcus Hook and Philadelphia refineries and the sale of these products to
other Sun business units and to wholesale and industrial customers. (See
"Sunoco MidAmerica Marketing & Refining" and "Sun Lubricants" below, for a
discussion of operations at Sun's Toledo, Tulsa and Puerto Rico refineries.)
The following table sets forth information concerning operations at Sun's
Marcus Hook and Philadelphia refineries:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------- ---------------------------------------
PHILADELPHIA, PA PHILADELPHIA, PA
---------------- TOTAL ---------------- TOTAL
MARCUS GIRARD POINT NORTHEAST MARCUS GIRARD POINT NORTHEAST
HOOK, PA POINT BREEZE REFINERIES HOOK, PA POINT BREEZE REFINERIES
-------- -------- -------- ---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Crude Unit Capacity
(MB/D)................. 175.0 177.0 130.0 482.0 175.0 177.0 130.0 482.0
===== ======== ======== ===== ===== ======== ======== =====
Input to Crude Units
(MB/D)................. 151.5 179.2 116.7 447.4 144.7 195.4 110.5 450.6
===== ======== ======== ===== ===== ======== ======== =====
Conversion Capacity*
(MB/D)................. 86.0 68.0 37.0** 191.0 86.0 68.0 65.0 219.0
===== ======== ======== ===== ===== ======== ======== =====
Conversion Capacity
Utilized (MB/D)........ 65.3 54.7 31.9** 151.9 81.1 54.6 51.9 187.6
===== ======== ======== ===== ===== ======== ======== =====
Products Manufactured
(Percent):
Gasoline............... 43 40 49 43 50 38 45 44
Middle Distillates..... 32 28 21 27 27 29 21 26
Residual Fuel.......... 7 19 3 11 7 19 2 11
Petrochemical
Feedstocks***......... 6 2 3 3 7 1 3 3
Asphalt+............... -- -- 10 3 -- -- 18 5
Other.................. 12 11 14 13 9 13 11 11
--- --- --- --- --- --- --- ---
100 100 100 100 100 100 100 100
=== === === === === === === ===
</TABLE>
- --------
*Represents Sun's capacity to upgrade low-value petroleum products into
higher-value products through catalytic cracking and hydrocracking
processes.
**In December 1996, Sun mothballed a 28 thousand barrels-per-day hydrocracker
unit as part of the Philadelphia refinery reconfiguration. This unit, which
was utilized at approximately 23 thousand barrels per day during 1996, has
been excluded from the conversion capacity and utilization amounts for 1996
in the above table.
***Petrochemical feedstocks are utilized by the Sunoco Chemicals business to
produce petrochemicals at these facilities. (See "Sunoco Chemicals" below.)
+Sun ceased producing asphalt in December 1996.
During 1996, production at Sun Northeast Refining was adversely impacted by
a planned four-week refinery maintenance turnaround at the Girard Point 68,000
barrels-per-day fluid catalytic
4
<PAGE>
cracking unit and 177,000 barrels-per-day crude unit, as well as by a six-week
scheduled turnaround and modernization of the 86,000 barrels-per-day fluid
catalytic cracking unit at the Marcus Hook refinery. Production was also
affected at Marcus Hook by the shutdown of an 85,000 barrels-per-day crude
unit during most of the six-week turnaround of the catalytic cracking unit at
this facility. The catalytic cracking and crude units at the Marcus Hook
refinery are currently operating at close to rated capacity.
During the fourth quarter of 1996, Sun reconfigured the Philadelphia
refinery to process only light sweet crude oil and to cease asphalt
production. With this change, Sun's Philadelphia and Marcus Hook refineries
now process only light sweet crude oils, which were supplied primarily from
foreign sources during 1996. Previously, the Point Breeze facility processed a
substantial quantity of heavy sour crude oil and purchased gas oils. The
reconfiguration continues the integration of the Point Breeze and Girard Point
facilities at the Philadelphia refinery and resulted in the elimination of
approximately 125 positions (both employees and independent contractors) and
the shutdown or mothballing of several redundant and/or unprofitable
processing units. These units included a reformer, a sulfur plant, a
hydrocracker, a hydrogen plant and asphalt and alkylation units. The
streamlined Philadelphia refining operation should significantly improve
overall efficiency and flexibility, lower fixed costs and reduce ongoing
capital spending and working capital requirements. Sun will continue to
implement other infrastructure consolidation opportunities in 1997 at this
facility. However, if sufficient improvements in operating results at this
facility are not realized, the Company will consider shutting down additional
units.
The reconfiguration and extensive refinery maintenance turnarounds completed
during the year should result in higher overall production at Sun Northeast
Refining in 1997. Increases in gasoline, middle distillates and petrochemical
feedstock production are expected to more than offset the elimination of
asphalt production.
Sun's Philadelphia and Marcus Hook refineries are connected by pipeline,
barge, truck and rail. The inter-refinery pipeline allows transfer of
unfinished stocks, including butanes, naphtha, distillate blendstocks and
gasoline blendstocks. Finished products are delivered to customers via Sun's
pipeline and terminal network, third-party pipelines and barges.
Total fuels products sold to third parties at wholesale by Sun Northeast
Refining in 1996 were 322.2 thousand barrels daily compared to 346.4 thousand
barrels daily in 1995. Sales to other Sun business units by Sun Northeast
Refining (primarily gasoline, middle distillates and chemical feedstocks)
totalled 188.3 thousand barrels daily in 1996 versus 184.3 thousand barrels
daily in 1995.
Environmental laws require Sun to make significant expenditures at its
refineries, of both a capital and expense nature. During the 1994-96 period,
approximately $185 million was spent for environmental capital projects at
Sun's Northeast refineries, including $58 million in 1994 to complete a $110
million project to upgrade the wastewater treatment facilities at the Marcus
Hook refinery.
Significant alterations in the composition of gasoline sold in Sun's
northeastern U.S. marketing area are required by the Clean Air Act of 1990, as
amended (the "Clean Air Act"). The Company has implemented the first phase of
the reformulated gasoline regulations which requires an increase in the
minimum quantity of oxygen for certain non-attainment areas, a reduction in
benzene content, and a reduction in summertime Reid Vapor Pressure ("rvp").
Sun expects to implement the next more stringent phase of these regulations in
1998 with minimal capital investment. Management believes the Company will be
able to continue to meet these regulations even though they will become even
more stringent in 2000 when the phase-in of the Clean Air Act is completed.
However, the Company cannot ascertain at this time the extent of the capital
outlays that will be required to comply with this final phase of the
regulations.
5
<PAGE>
SUNOCO NORTHEAST MARKETING
The Sunoco Northeast Marketing business consists of the retail sale of
gasoline and middle distillates and the operation of convenience stores in the
New England and Mid-Atlantic states. These activities are conducted in a 12-
state region from Maine through northern Virginia, with the highest
concentration of outlets in Connecticut, Massachusetts, New Jersey, New York,
Pennsylvania and Rhode Island. (See "MidAmerica Marketing & Refining" below
for a discussion of similar operations conducted in the midwestern U.S.)
The following table sets forth Sun's retail gasoline outlets in the New
England and Mid-Atlantic states at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Direct outlets:
Company owned or leased:
Traditional:
Company operated.............................................. 139 131
Dealer operated............................................... 349 369
----- -----
488 500
aplus(R) convenience stores:
Company operated.............................................. 175 145
Dealer operated............................................... 240 267
----- -----
415 412
ultra service centersSM --dealer operated...................... 249 259
----- -----
Total Company owned or leased................................... 1,152 1,171
Dealer owned*................................................... 424 454
----- -----
Total direct outlets............................................. 1,576 1,625
Distributor outlets.............................................. 1,304 1,319
----- -----
2,880 2,944
===== =====
</TABLE>
- --------
*Primarily traditional outlets.
Sunoco Northeast Marketing's portfolio of outlets is designed to provide
optimal profit potential in each of its marketing areas. These sites differ in
various ways including: product distribution to the outlets; site ownership
and operation; and types of products and services provided.
Direct outlets are sites where fuel products are delivered directly to the
site. Investment in the property, through ownership or lease, may be held by
either the Company or an independent dealer. These sites may be traditional
locations that sell almost exclusively fuel products or may include aplus(R)
convenience stores that supplement sales of fuel products with a broad range
of high-margin merchandise or ultra service centersSM that provide state-of-
the-art automotive diagnosis and repair. Included among Sunoco Northeast
Marketing's outlets at December 31, 1996 were 55 outlets on limited access
highways in Pennsylvania, New Jersey, New York and Maryland. Of these outlets,
36 were company-operated sites providing gasoline, diesel fuel and convenience
store merchandise.
Distributor outlets are sites in which the distributor takes delivery at a
terminal where sunoco(R) products are available. Although these sites fly the
sunoco(R) flag, Sun does not own or operate these retail locations.
During 1996, Sunoco Northeast Marketing changed its retail gasoline product
slate from a five-grade offering to a choice of four grades. The current
product slate consists of the highest octane
6
<PAGE>
premium gasoline commercially available in the United States (ultra(R) 94) and
93, 89 and 87 octane grades of gasoline. Branded fuels sales by Sunoco
Northeast Marketing averaged 175.2 thousand barrels daily in 1996 compared to
172.7 thousand barrels daily in 1995.
In 1996, excluding environmental outlays, capital expenditures for branded
marketing activities in the Northeast totalled $67 million. Most of these
outlays were to upgrade and modernize the retail service station network and
to complete the conversion of atlantic(R) branded gasoline outlets to the
sunoco(R) brand. Sunoco Northeast Marketing also continued the expansion of
its pay-at-the-pump program in 1996 with the installation of CardMaticSM, its
credit card activated gasoline dispensing system, at 293 additional high-
volume service stations. This brings the total number of outlets offering this
convenience to 1,095, or 38 percent of total retail marketing outlets in the
Northeast. Environmental capital spending totalled $14 million during 1996,
primarily for the ongoing underground storage tank replacement program and for
tank top upgrades.
SUNOCO CHEMICALS
The Sunoco Chemicals business consists of the manufacturing, distribution
and marketing of base commodity and intermediate petrochemicals. These
chemicals are comprised principally of olefins and their derivatives
(ethylene, ethylene oxide and propylene) and aromatics (benzene, cumene,
cyclohexane, toluene and xylenes). As a partner in a joint venture, Sunoco
Chemicals also produces mtbe which is utilized by Sun Northeast Refining in
manufacturing reformulated gasolines. Petrochemicals are manufactured by
Sunoco Chemicals at Sun's Marcus Hook and Philadelphia refineries, at an
ethylene/ethylene oxide facility in Brandenburg, Kentucky and at the joint
venture mtbe facility in Mont Belvieu, Texas. (See "Sunoco MidAmerica
Marketing & Refining" for a discussion of the petrochemicals produced at the
Toledo refinery.)
The following table sets forth information concerning petrochemicals
production by Sunoco Chemicals (in thousands of barrels daily):
<TABLE>
<CAPTION>
PRODUCTION
CAPACITY AT -----------
DECEMBER 31, 1996* 1996 1995
----------------- ----- -----
<S> <C> <C> <C>
Benzene....................................... 1.5 .6 1.5
Toluene....................................... 2.0 1.0 1.0
Xylene........................................ .5 .5 .5
Cumene........................................ 4.5 4.3 3.9
Cyclohexane................................... 2.5 1.4 1.3
---- ----- -----
Total Aromatics............................. 11.0 7.8 8.2
Ethylene...................................... 1.7 1.1 1.3
Ethylene oxide................................ 1.8 1.4 1.5
Propylene:
Polymer-grade................................ 9.5** 5.3 6.3
Refinery-grade............................... .5 1.8 1.7
---- ----- -----
Total Olefins............................... 13.5 9.6 10.8
Other***...................................... -- 1.5 1.7
---- ----- -----
Total Petrochemicals........................ 24.5 18.9 20.7
==== ===== =====
</TABLE>
- --------
*Reflected on a calendar-day basis.
**Reflects an increase of 3,500 barrels daily in the fourth quarter of 1996
as a result of the expansion of the propylene unit at the Marcus Hook
refinery (see below).
***Consists of refining by-products, principally carbon dioxide and sulfur. In
December 1996, Sun ceased producing these by-products in connection with the
reconfiguration of the Philadelphia refinery.
7
<PAGE>
Sun's petrochemical products are distributed and sold on a worldwide basis.
Sales of petrochemicals to third parties by Sunoco Chemicals totalled 20.2
thousand barrels daily in 1996 versus 20.9 thousand barrels daily in 1995, a 3
percent decrease. The decline in both sales and production volumes was due to
increased planned refinery maintenance activity.
Sales volumes during 1996 were distributed through the following channels:
. Benzene and Benzene Derivatives (including Cyclohexane and Cumene)--
Customers for these products are large manufacturers of fibers and
polymers who buy a significant percentage of their requirements from
Sunoco Chemicals under long-term contracts;
. Bulk Toluene and Xylenes--Buyers generally procure large volumes for
fibers and urethane products. These sales are made in both the contract
and spot markets and tend to be international in scope;
. Solvents--Customers and distributors take individually small volumes for
paints, coatings, solvents and a variety of specialty applications;
. Propylene--Sales are primarily made pursuant to long-term contracts to
large customers who manufacture polypropylene fibers and resins; and
. Specialty Ethylene and Ethylene Oxide--Sales are primarily to small and
intermediate size specialty chemical companies that make diverse products
such as surfactants, co-polymer resins and emulsions, and additives.
During the fourth quarter of 1996, Sunoco Chemicals completed a project to
expand its polymer-grade propylene production capacity and delivery systems at
the Marcus Hook refinery from 400 to 650 million pounds per year (6,000 to
9,500 barrels per day). Most of Sunoco Chemicals' polymer-grade propylene
production is sold pursuant to a long-term supply agreement with Epsilon
Products Co., a polypropylene manufacturer.
At the end of 1994, Sunoco Chemicals completed a project (the "Northeast
Aromatics and Cyclohexane Project"), which included the expansion of benzene
extraction capacity by 60 million gallons per year and construction of a 34-
million-gallon-per-year cyclohexane plant at the Marcus Hook refinery. During
the fourth quarter of 1996, Sunoco Chemicals installed a new hydrogen
purification unit at the cyclohexane plant to provide a consistent source of
high-quality hydrogen. This enhancement has enabled the plant to increase
cyclohexane production levels.
Benzene, extracted at Sun's Marcus Hook and Girard Point facilities, is
combined with refinery-grade propylene to produce cumene at Girard Point. The
cumene is then sold primarily to AlliedSignal Inc. pursuant to a long-term
contract. In 1996, Sunoco Chemicals began a project to expand its cumene
production capacity at Girard Point from 500 to 850 million pounds per year
(4,500 to 7,700 barrels per day). The expanded facility, which will utilize
new catalyst technology, is expected to be operational in mid-1998. A
significant portion of the incremental production from this facility will also
be sold to AlliedSignal Inc. under a long-term contract.
The construction of a 14,000 barrels-per-day mtbe production facility owned
and operated by Belvieu Environmental Fuels ("bef"), a joint venture in which
Sun is a one-third partner, was completed in 1995. Sun is purchasing all of
the mtbe production from this facility pursuant to an off-take agreement which
expires in 2004. During 1996, Sun established a $130 million accrual ($85
million after tax) for estimated losses expected to be realized with respect
to this off-take agreement. For additional information concerning Sun's
participation in this joint venture and the off-take agreement, see Note 12 to
the Consolidated Financial Statements in the Company's 1996 Annual Report to
Shareholders.
8
<PAGE>
SUN LUBRICANTS
The Sun Lubricants business is comprised of the manufacturing, blending,
packaging and marketing of a broad line of paraffinic and aromatic lubricating
and specialty oils produced at the Tulsa and Puerto Rico refineries as well as
the related manufacturing and wholesale marketing of the fuels produced at
these facilities. Blending and packaging operations are conducted at lube
service centers located at the Marcus Hook and Tulsa refineries as well as at
facilities located in Los Angeles and Richmond, CA and Toronto, ONT.
Sun Lubricants manufactures base oils which are sold to domestic and
international customers who manufacture their own finished transportation and
industrial lubricants. Sun Lubricants also upgrades a significant portion of
its base oil production into specialty oils at its blending and packaging
facilities. These specialty oils are comprised principally of transportation
and industrial lubricants. In addition, Sun Lubricants produces other
specialty lube products such as horticultural and agricultural oils, aromatic
and paraffinic rubber oils, paper defoamer oils, asphalt recycling extracts,
textile oils and finished waxes. These products are marketed under the
Sunoco(R), Kendall(R), Amalie(R) and Archer(R) brand labels directly by Sun or
through distributors to a wide variety of domestic and foreign customers.
The following table sets forth information concerning operations at Sun's
Tulsa and Puerto Rico refineries:
<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
TULSA PUERTO TULSA PUERTO
OK RICO TOTAL OK RICO TOTAL
----- ------ ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Crude Unit Capacity (MB/D)...... 85.0 85.0* 170.0 85.0 85.0 170.0
==== ==== ===== ==== ==== =====
Input to Crude Units (MB/D)..... 85.0 63.1 148.1 78.4 60.7 139.1
==== ==== ===== ==== ==== =====
Paraffinic and Aromatic Lubes
Capacity (MB/D)................ 8.1 9.3 17.4** 7.8 9.0 16.8
==== ==== ===== ==== ==== =====
Paraffinic and Aromatic Lubes
Production (MB/D).............. 7.9 8.1 16.0 6.6 8.2 14.8
==== ==== ===== ==== ==== =====
Products Manufactured (Percent):
Lubricants..................... 12 17 15 11 18 14
Gasoline....................... 19 17 18 18 17 18
Middle Distillates............. 34 31 32 32 32 32
Residual Fuel.................. -- 23 10 -- 22 10
Other.......................... 35*** 12 25 39*** 11 26
---- ---- ----- ---- ---- -----
100 100 100 100 100 100
==== ==== ===== ==== ==== =====
</TABLE>
- --------
* After completion of the reconfiguration project in the first quarter of
1997, there will be no crude oil processing capacity at the Puerto Rico
refinery as Sun will process intermediate feedstocks instead of crude oil
at this facility (see below).
** In 1996, Sun Lubricants increased the paraffinic and aromatic lubes
capacity at Sun's Tulsa and Puerto Rico refineries through minimal capital
investment.
*** Includes approximately 23 and 25 thousand barrels daily (28 and 33 percent
of products manufactured) in 1996 and 1995, respectively, of "lubes-
extracted" feedstocks which are transported to the Toledo refinery for
further processing or are sold to third parties.
During 1996, Sun Lubricants initiated two major strategic actions designed
to improve its competitive position. These actions consist of the
reconfiguration of Sun's Puerto Rico refinery to significantly reduce fuels
production and the acquisition of the Kendall/Amalie lubricants business.
9
<PAGE>
In the first quarter of 1997, Sun Lubricants will reconfigure the Puerto
Rico refinery to eliminate the processing of crude oil and to process,
instead, between 20,000 and 30,000 barrels per day of purchased intermediate
feedstocks, such as vacuum gas oil and reduced crude oil. This change will
significantly reduce the amount of unprofitable fuels produced at this
refinery while maintaining the current volume and quality of lubricants
production. As a result, the atmospheric crude tower, the gas oil desulfurizer
and the gasoline reformer will be shut down and approximately 100 positions
will be eliminated. The streamlining of the Puerto Rico refining operation is
expected to improve operating efficiency, lower fixed costs and reduce ongoing
capital spending and working capital requirements.
In November 1996, Sun Lubricants acquired the Kendall/Amalie lubricants
blending, packaging and marketing business. This acquisition has increased the
amount of existing base oil production upgraded into transportation lubricants
at Sun facilities and has enabled Sun Lubricants to increase its specialty oil
lubricants sales. These sales are made primarily through supply contracts with
more than 300 distributors in the United States.
Sales of specialty oil lubricant products totalled 9.3 thousand barrels
daily in 1996 versus 8.6 thousand barrels daily in 1995 while sales of base
oils, waxes and other lubricants totalled 14.6 thousand barrels daily in 1996
versus 11.4 thousand barrels daily in 1995. The 8 percent increase in
specialty oil sales reflects the Kendall/Amalie acquisition and an expansion
in Sun Lubricants' contract customer base and volumes, while the 28 percent
increase in base oil, waxes and other lubricant sales reflects higher contract
and spot market sales. Fuels sold to third parties from the Tulsa and Puerto
Rico refineries totalled 124.3 thousand barrels per day in 1996 compared to
101.4 thousand barrels per day in 1995.
Sun's Tulsa refinery runs a light, low-sulfur crude oil slate which is
supplied from domestic sources. Prior to the reconfiguration, the Puerto Rico
refinery was able to process heavier, higher sulfur crude oils which were
supplied from foreign sources. In 1997, purchased intermediate feedstocks will
be processed at the Puerto Rico refinery instead of crude oil.
The lubricants manufacturing facilities at the Tulsa and Puerto Rico
refineries, as well as Sun's lube blending and packaging facilities, are iso
certified indicating they have passed the International Standards
Organization's standards for quality management and oversight.
SUNOCO MIDAMERICA MARKETING & REFINING
The Sunoco MidAmerica Marketing & Refining ("Sunoco MidAmerica") business
consists of the retail sale of gasoline and middle distillates and the
operation of convenience stores in the Midwest as well as the manufacturing,
distribution and wholesale marketing of fuels and petrochemicals produced at
Sun's Toledo refinery.
Retail Marketing
Sunoco MidAmerica markets, through direct and distributor channels, a five-
grade slate of retail gasoline products under the sunoco(R) brand ranging from
ultra(R) 94 to an 86 octane grade of gasoline. These outlets are located in
Indiana, Kentucky, Michigan, Ohio and West Virginia with the strongest market
presence in Michigan and Ohio. Sunoco MidAmerica is also the sole supplier to
all 16 gasoline stations on the Ohio turnpike.
10
<PAGE>
The following table sets forth Sun's retail gasoline outlets in the Midwest
at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Direct outlets:
Company owned or leased:
Traditional:
Company operated................................................ 22 21
Dealer operated................................................. 57 74
--- ---
79 95
sunoco food market(R) convenience stores:
Company operated................................................ 88 89
Dealer operated................................................. 22 26
--- ---
110 115
ultra service centers SM--dealer operated........................ 48 65
--- ---
Total Company owned or leased..................................... 237 275
Dealer owned*..................................................... 138 157
--- ---
Total direct outlets............................................... 375 432
Distributor outlets................................................ 551 485
--- ---
926 917
=== ===
</TABLE>
- --------
*Primarily traditional outlets.
In this region, branded fuels sales averaged 51.0 thousand barrels daily in
1996 compared to 50.8 thousand barrels daily in 1995. As part of the strategy
to increase the overall level of branded gasoline sales, primarily through the
distributor channel, in 1996, Sunoco MidAmerica entered into numerous supply
agreements. These supply agreements are expected to significantly increase the
retail gasoline volumes sold by Sunoco MidAmerica in 1997. Sales under these
agreements are expected to increase further in 1998, in part due to an
expected increase in the number of outlets rebranding to sunoco(R) pursuant to
these agreements. Sunoco MidAmerica also expects to increase the volumes sold
through its current outlets.
Refining and Wholesale Marketing
The following table sets forth information concerning operations at Sun's
Toledo refinery:
<TABLE>
<CAPTION>
1996 1995
----- -----
<S> <C> <C>
Crude Unit Capacity (MB/D)....................................... 125.0 125.0
===== =====
Input to Crude Units (MB/D)...................................... 125.5 110.7
===== =====
Conversion Capacity (MB/D)....................................... 86.0 86.0
===== =====
Conversion Capacity Utilized (MB/D).............................. 77.4 70.0
===== =====
Products Manufactured (Percent):
Gasoline........................................................ 63 64
Middle Distillates.............................................. 15 11
Residual Fuel................................................... 3 3
Petrochemicals.................................................. 6 8
Other........................................................... 13 14
----- -----
100 100
===== =====
</TABLE>
11
<PAGE>
Fuels products sold at wholesale to third parties from Sun's Toledo refinery
in 1996 averaged 66.7 thousand barrels daily compared to 55.4 thousand barrels
daily in 1995. Sales of petrochemicals to third parties by Sunoco MidAmerica
totalled 11.3 thousand barrels daily in 1996 versus 10.2 thousand barrels
daily in 1995.
Sun's Toledo refinery is a relatively complex, high conversion refinery that
refines predominantly light, low-sulfur crude oil. Feedstocks for 1996
consisted primarily of: West Texas Intermediate crude oil (38 percent);
Canadian sweet, sour and synthetic crude oils (44 percent); and a "lubes-
extracted" gasoil/naphtha intermediate feedstock from Sun's Tulsa refinery (18
percent). In March 1995, a 41-day turnaround of the catalytic cracking and
crude units at the Toledo refinery was completed as was the expansion of the
refinery's sulfur plant, which enabled the processing of a larger volume of
higher-sulfur crude oil. In April 1996, a 25-day turnaround of certain
components of the hydrocracker unit was also completed. Subsequent to the
turnarounds, Sunoco MidAmerica has increased its input to crude units to over
100 percent of rated capacity compared to 90 percent in 1994. In addition,
ethanol blending is currently being utilized by Sunoco MidAmerica at its
terminals to reduce octane costs, simplify the product slate and enhance the
storage and transportation of gasoline products.
Chemicals
Sunoco MidAmerica chemical operations consist of the manufacturing,
marketing and distribution of base commodity and intermediate petrochemicals.
These chemicals are comprised of aromatics (including benzene, toluene and
xylene), spirits, nonene and tetramer. All of these products are sold under a
marketing agreement with Suncor Inc., through a joint venture partnership with
this former Canadian petroleum subsidiary of Sun. A significant portion of the
aromatics production is sold in bulk. Additionally, toluene, xylenes and
spirits are sold through a solvent channel.
SUNOCO LOGISTICS
The Sunoco Logistics business consists of: crude oil and refined product
pipeline operations; domestic lease crude oil acquisition and related trucking
operations; crude oil terminalling; marine shipping and tug/barge operations;
and product terminalling and transport operations. These operations are
conducted primarily in the Northeast, Midwest and South Central regions of the
United States.
Pipeline operations are conducted through wholly-owned subsidiaries and
through other pipelines in which Sun has an ownership interest. The pipelines
are principally common carriers and, as such, are regulated by the Federal
Energy Regulatory Commission for interstate movements and by local regulatory
agencies for intrastate movements. The tariff rates charged, while regulated
by the governing agencies, are based upon competition from other pipelines or
alternate modes of transportation.
Sunoco Logistics crude oil pipeline operations, located primarily in the
South Central United States, transport crude oil produced in Oklahoma, Texas,
New Mexico and Louisiana to refiners (including Sun's Tulsa refinery) or to
local trade points. The refined product pipeline operations, located primarily
in the Northeast and Midwest, transport gasoline, jet fuel, diesel fuel, home
heating oil and other products for Sun's other businesses and for third-party
integrated petroleum companies, independent marketers and distributors.
In 1996, a third party signed a five-year contract to transport a minimum of
3 thousand barrels daily of refined products from Philadelphia to Rochester,
NY on a Sun pipeline. Also in 1996, Sunoco Logistics assumed operating control
of the Harbor Pipeline, an 80-mile refined petroleum products pipeline from
Woodbury, NJ, to Linden, NJ. Sunoco Logistics has a one-third undivided
interest in this pipeline, which provides Philadelphia-area refineries,
including Sun's, access to the New York harbor markets.
12
<PAGE>
At December 31, 1996, Sunoco Logistics had an equity interest in 5,119 miles
of crude oil pipelines and 4,548 miles of refined product pipelines. In 1996,
crude oil and refined product shipments, including Sun's share of shipments in
which it had an ownership interest, totalled 56.3 and 28.8 billion barrel
miles, respectively, as compared to 50.1 and 28.7 billion barrel miles in
1995.
Sunoco Logistics' crude oil pipeline operations in the South Central United
States are complemented by lease crude oil acquisition and related trucking
operations in this region. Approximately 158 thousand barrels daily of crude
oil were purchased from third-party leases during 1996. This crude oil is
delivered to various pipelines either directly from the wellhead or utilizing
Sunoco Logistics' fleet of 80 trucks.
Marine shipping and tug/barge operations include 2 ocean-going tankers and a
fleet of 15 coastal distribution tankers, tugs and barges. Sun supplements its
own marine fleet with charters that account for the vast majority of its
marine transportation requirements. Sun maintains an extensive vessel
inspection review and evaluation program to assure the vessels chartered into
Sun service are of appropriate quality.
Product terminalling and transport operations include 43 terminals in the
Northeast and Midwest that support Sun's branded and wholesale marketing
operations in these regions, 135 trucks that transport gasoline and
distillates and a railroad fleet of 220 owned and 1,900 leased tank cars that
primarily support the Sunoco Chemicals and Sun Lubricants businesses.
Sun's Nederland, TX terminal provides approximately ten million barrels of
storage and provides terminalling capacity exceeding one million barrels per
day of throughput. Its Gulf Coast location provides local and midwestern
refiners access to increasing volumes of foreign and offshore domestic crude
oil. The facility is also a key link in the distribution system for United
States Government purchases for and sales from the Strategic Petroleum Reserve
storage facilities. During 1996, a five-year agreement signed with a third
party will increase the amount of crude oil throughput at this terminal by 30-
50 thousand barrels per day.
SUN COAL & COKE
Sun Coal & Coke Company's business consists of coal production from mines in
Virginia and Kentucky and coke manufacturing at the Company's facility in
Vansant, VA. Such operations are conducted by Sun Coal Company and its
affiliates.
At December 31, 1996, Sun Coal & Coke had 132 million tons of estimated coal
reserves classified as proven and probable compared to 139 million tons at
December 31, 1995. Of the reserves at December 31, 1996, 87 percent were
metallurgical coal located in Virginia and 13 percent were bituminous steam
coal located in Kentucky. Sun Coal & Coke's total coal production in 1996 was
4.4 million tons, compared to 5.1 million tons in 1995.
Sun Coal & Coke's principal market for both metallurgical coal and coke is
the domestic steel industry. In 1996, 62 percent of Sun Coal & Coke's
metallurgical coal production was converted into coke at its cokemaking
facilities and 38 percent was sold in spot market transactions. During 1996,
82 percent of Sun Coal & Coke's coke sales was made under a nine-year contract
with a domestic steel producer which became effective in January 1996.
Subsequent to March 1996, this contract provides for delivery of Sun Coal &
Coke's entire coke production from its Vansant, VA cokemaking facility. Coke
production totalled 648 thousand tons in 1996, compared to 638 thousand tons
in 1995.
In 1996, approximately 59 percent of Sun Coal & Coke's bituminous steam coal
was sold under long-term contracts, with the remainder sold in spot market
transactions. Sun Coal & Coke's coal and coke sales contracts generally
provide for the periodic adjustment of prices to reflect the changing costs of
labor, equipment and services.
13
<PAGE>
Sun Coal & Coke produces high-quality coke at its 650 thousand ton-per-year
cokemaking facility using its non-recovery cokemaking technology and related
patents. This technology, which is environmentally superior to the by-product
technology currently used by most coke producers, is currently being marketed
outside North America through an exclusive license with Raytheon Engineers and
Constructors, Inc. ("Raytheon"). In January 1997, Raytheon signed a contract
to construct a 700 thousand ton-per-year coke plant in Madras, India for a
third party utilizing the non-recovery cokemaking technology. In connection
with this agreement, Sun Coal & Coke will receive a license fee from Raytheon
for the use of its proprietary technology.
In 1988, Sun Coal & Coke began a program to replace all existing coke ovens
at its cokemaking plant in Vansant, VA, with 142 new ovens in order to improve
overall cost efficiencies and enhance coke quality at this facility. In July
1996, 27 of the new ovens were placed into service. Construction of the final
battery of 35 replacement ovens commenced in late 1996. Seventeen of these
ovens are expected to be operational in 1997 with the remainder placed into
service in early 1998. In 1995, Sun Coal & Coke transferred an interest in its
cokemaking operations to a third party in exchange for $95 million in cash.
The transferee is entitled to a preferential return from the cash flows of the
cokemaking operations until certain cumulative return targets have been met.
In November 1996, Sun Coal & Coke entered into an agreement to construct,
own and operate a $187 million cokemaking facility in East Chicago, IN, which
will produce coke for Inland Steel Company ("Inland") for use at its Indiana
Harbor Works steel plant located adjacent to the new cokemaking facility. The
agreement requires Inland to buy 1.2 million tons annually on a take-or-pay
basis for a period of 15 years commencing after the scheduled mid-1998 start-
up date. Additional production of up to 100,000 tons per year will be sold
either to Inland or to other steel producers. The plant will utilize Sun Coal
& Coke's proprietary non-recovery cokemaking technology.
Additional information concerning Sun Coal & Coke operations is set forth on
page 53 in the Company's 1996 Annual Report to Shareholders.
REAL ESTATE
Sun's real estate business is conducted through Radnor Corporation and its
subsidiaries (collectively, "Radnor"). As of December 31, 1996, Radnor's
remaining portfolio of real estate was located in 9 states and consisted
principally of three office buildings, three shopping centers, a resort hotel,
and single-family home, condominium, residential land and business park
developments.
As a result of Sun's decision to sell its real estate business through a
program of controlled disposition, such operations have been classified as
operations held for sale in Sun's consolidated financial statements. Since
adoption of the disposition plan in October 1991, Radnor has divested 61
commercial properties, completed 26 housing and land developments and reduced
its total assets and debt by $842 and $743 million, respectively. At December
31, 1996, Radnor's total assets and debt were $215 and $109 million,
respectively. Divestment activities in 1996 included Radnor's sale of two
office building projects located in Florida and Virginia and three commercial
land parcels located in Virginia, Georgia and Arizona. The disposition of
Sun's real estate business is expected to be substantially completed by the
end of 1998.
For additional information regarding Sun's real estate operations held for
sale, see Note 2 in the Consolidated Financial Statements in the Company's
1996 Annual Report to Shareholders.
SUN INTERNATIONAL PRODUCTION
During 1996, Sun sold its international oil and gas production business.
Information concerning this sale is presented in Note 2 to the Consolidated
Financial Statements in the Company's 1996 Annual Report to Shareholders.
14
<PAGE>
CANADA (SUNCOR)
During 1995, Sun completed the divestment of its remaining 55-percent
interest in Suncor Inc., a Canadian integrated oil company. Information
concerning this divestment is presented in Note 2 to the Consolidated
Financial Statements in the Company's 1996 Annual Report to Shareholders.
COMPETITION
The refining and marketing business is intensely competitive. Sun competes
with other domestic refiners and marketers in the northeastern United States
and U.S. Gulf coast, with foreign refiners who import products into the United
States and with producers and marketers in other industries supplying other
forms of energy and fuels to consumers. Several of Sun's principal competitors
are integrated multi-national oil companies that are larger and have
substantially greater resources than Sun. Because of their integrated
operations and larger capitalization, such major oil companies may have
greater flexibility than Sun in responding to volatile industry or market
conditions, such as shortages of feedstocks or intense price fluctuations.
Unlike certain of its competitors that have access to proprietary sources of
controlled crude oil production, Sun must obtain all of its crude oil
feedstocks from unaffiliated sources.
With the reconfiguration of the Philadelphia and Puerto Rico refineries,
virtually all of the crude oils processed in Sun's refining system are light
sweet crude oils, which historically have been priced higher than the
alternative heavy sour crude oils. However, management believes that any
potential competitive impact of Sun's inability to process significant
quantities of less expensive heavy sour crude oils will likely be mitigated
by: the higher-value product slate obtained from light sweet crude oils; the
higher cost to process heavy sour crude oils; and the continued availability
of ample quantities of light sweet crude oils for its processing needs. Sun
believes that it is in a position to compete effectively as a marketer of
refined products because of its strong marketing presence in its principal
markets and its considerable distribution flexibility resulting from the
location of its two Northeast refineries and retail network, which are well
integrated with its distribution system.
Coal mining and cokemaking operations are also highly competitive. Demand
for coke has fallen as domestic steelmaking capacity has declined and
steelmakers have switched to electric arc furnaces and coal injection
production methods. However, Sun anticipates that the supply of coke will
decrease quicker than demand as the inability to meet increasingly stringent
environmental regulations will lead steelmakers and other coke producers to
close their plants. Sun believes it is well-positioned to compete with other
merchant coke producers, since Sun's proprietary technology allows Sun to
construct coke ovens that, compared to conventional coke ovens, are more
environmentally benign, are generally less costly to build, and can be
operated with fewer workers.
Sun does not consider one or a small group of competitors to be dominant in
the refining and marketing and coal and cokemaking industries. The
availability of a ready market for Sun's refined products, as well as its coal
and coke production, depends on numerous external factors, including: the
level of consumer demand; the extent of industry production of refined
products and coal and coke; the import levels of refined products and coal and
coke; the cost and availability of alternative fuels; the cost and proximity
of refineries, pipelines and other transportation facilities that support the
retail gasoline marketing infrastructure; and regulations by federal, state,
local and foreign authorities including those imposed by or resulting from
compliance with applicable environmental laws.
RESEARCH AND DEVELOPMENT
In recent years, Sun's research and development activities have focused on
applied research, process and product development, and engineering and
technical services related to fuels, lubricants and chemicals. Sun spent $6,
$5 and $8 million on research and development activities in 1996, 1995 and
1994, respectively. As of December 31, 1996, approximately 120 scientists,
engineers, technicians
15
<PAGE>
and support personnel participated in these activities. Sun owns or has made
application for numerous patents in the U.S.
EMPLOYEES
As of December 31, 1996, Sun had approximately 12,150 employees compared to
approximately 12,000 employees as of December 31, 1995. The increase in 1996
is primarily attributable to the Kendall/Amalie acquisition. Approximately 40
percent of Sun's employees are employed in company-operated convenience stores
and service stations. The above amounts exclude employees of real estate
operations held for sale totalling 337 in 1996 and 332 in 1995. Approximately
27 percent of Sun's employees were covered by 49 collective bargaining
agreements as of December 31, 1996. The collective bargaining agreements have
various terms and dates of expiration. In management's opinion, Sun's
relationship with its employees is generally satisfactory.
ENVIRONMENTAL MATTERS
Sun is subject to numerous federal, state and local laws which regulate the
discharge of materials into, or otherwise relate to the protection of, the
environment. These laws have required, and are expected to continue to
require, Sun to make significant expenditures of both a capital and expense
nature. Several of the more significant federal laws applicable to the
Company's operations include the Clean Air Act, the Clean Water Act, 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").
The following table summarizes Sun's expenditures for environmental projects
and compliance activities (in millions of dollars):
<TABLE>
<CAPTION>
1996 1995* 1994*
---- ---- ----
<S> <C> <C> <C>
Pollution Abatement Capital**............................... $ 29 $ 60 $203
Remediation................................................. 37 48 57
Operations, Maintenance and Administration.................. 185 238 214
---- ---- ----
$251 $346 $474
==== ==== ====
</TABLE>
- --------
*Restated to exclude expenditures attributable to discontinued International
Production and Canadian Upstream Petroleum operations. (See Note 2 to the
Consolidated Financial Statements in the Company's 1996 Annual Report to
Shareholders.)
**Capital expenditures for pollution abatement are expected to approximate $25
and $55 million in 1997 and 1998, respectively.
The high level of pollution abatement capital expenditures during 1994 was
due primarily to outlays for projects to upgrade wastewater treatment
facilities and expand benzene extraction capacity at the Marcus Hook refinery.
The Clean Air Act establishes stringent criteria for regulating air toxics
at operating facilities by mandating major reductions in allowable emissions
and establishing a more comprehensive list of substances deemed to be air
toxics. The Clean Air Act also requires refiners to market cleaner-burning
gasoline that reduces emissions of certain toxics and conventional pollutants.
The Company has implemented the first phase of the reformulated gasoline
regulations which requires an increase in the minimum quantity of oxygen for
certain non-attainment areas, a reduction in benzene content, and a reduction
in summertime Reid Vapor Pressure ("rvp"). Sun expects to implement the next
more stringent phase of these regulations in 1998 with minimal capital
investment. Management believes the Company will be able to continue to meet
these regulations even though they will become even more stringent in 2000
when the phase-in of the Clean Air Act is completed. However, the Company
16
<PAGE>
cannot ascertain at this time the extent of the capital outlays that will be
required to comply with this final phase of the regulations.
cercla and 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 Sun's facilities and at third-party or
formerly owned 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 December 31,
1996, Sun had been named as a prp at 46 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. For a discussion of the accrued
liabilities and charges against income related to these activities, see Note
12 to the Consolidated Financial Statements in the Company's 1996 Annual
Report to Shareholders.
Total future costs for environmental remediation activities will depend
upon, among other things, the identification of additional sites, the
determination of the extent of the 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 level and
financial viability of other parties.
Management believes that the overall expenditures for environmental
activities are likely to be significant but are expected to be incurred over
an extended period of time and to be funded from Sun's net cash provided by
operating activities. Although potentially significant with respect to results
of operations or cash flows for any one year, management believes that such
costs will not have a material impact on Sun's consolidated financial position
or, over an extended period of time, on Sun's cash flows or liquidity.
FORWARD-LOOKING STATEMENTS
Those statements in the business and properties discussion that are not
historical in nature should be deemed forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934. Although Sun
believes these forward-looking statements are reasonable, they are based upon
a number of assumptions concerning future conditions, any or all of which may
ultimately prove to be inaccurate. Such forward-looking statements involve
risks and are inherently uncertain. Important factors that could cause actual
results to differ materially from those projected in such statements are
discussed below.
Sun is affected by changes in industry-wide refining margins, changes in
crude oil and other raw material costs, and world and regional events that
could significantly increase volatility in the marketplace. Sun's crude oil
supply could be affected by factors beyond its control, such as embargoes, the
continued discovery and production of light sweet crude oil, or military
conflicts between (or internal instability in) one or more oil-producing
countries. Other factors that could affect Sun's business include: the
continued availability of debt and equity financing, changes in labor
relations, general economic conditions (including recessionary trends,
inflation and interest and currency exchange rates), market supply and demand
for Sun's products, the reliability and efficiency of Sun's
17
<PAGE>
operating facilities, the level of operating expenses and hazards common to
operating facilities (including explosions, fires, oil spills and the effects
of severe weather conditions), actions taken by competitors (including both
pricing and expansion and retirement of refinery capacity in response to
market conditions), and civil, criminal, regulatory or administrative actions,
claims or proceedings.
Sun's operations could also be affected by domestic and international
political, legislative, regulatory and legal actions, such as restrictions on
production, restrictions on imports and exports, price controls, tax increases
and retroactive tax claims, expropriation of property and cancellation of
contract rights. In addition, Sun is impacted by laws pertaining to workers'
health and safety, and current or amended state and federal environmental and
other similar regulations (including, particularly, regulations dealing with
gasoline composition and characteristics) or the judicial interpretation of
such regulations.
The factors identified above are believed to be important factors (but not
necessarily all of the important factors) that could cause actual results to
differ materially from those expressed in any forward-looking statement made
by Sun. Unpredictable or unknown factors not discussed herein could also have
material adverse effects on forward-looking statements.
ITEM 3. LEGAL PROCEEDINGS
The United States Department of Justice on behalf of the United States
Environmental Protection Agency filed on February 3, 1997 an action in the
United States District Court for the Northern District of Oklahoma seeking
civil penalties in excess of $100,000 for alleged violations of the Clean Air
Act and the Oklahoma State Implementation Program. Settlement discussions are
being held.
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 would not be material in relation to the
consolidated financial position of Sun at December 31, 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF SUN COMPANY, INC.
<TABLE>
<CAPTION>
NAME, AGE AND PRESENT
POSITION WITH
SUN COMPANY, INC. BUSINESS EXPERIENCE DURING PAST FIVE YEARS
- --------------------- ------------------------------------------
<S> <C>
Robert M. Aiken, Jr., 54 Mr. Aiken was elected to his present position in November
Executive Vice 1996. From May 1992 until November 1996, he was Senior Vice
President and Chief President and Chief Financial Officer and from September
Financial Officer 1990 until May 1992, he was Senior Vice President, Finance.
Robert H. Campbell, 59 Mr. Campbell was elected Chairman of the Board in May 1992
Chairman of the Board and Chief Executive Officer in September 1991. He also held
and Chief Executive the additional positions of President and Chief Operating
Officer Officer from February 1991 until November 1996. He has been
a Director since November 1988.
John G. Drosdick, 53 Mr. Drosdick was elected a Director and President and Chief
President and Chief Operating Officer in December 1996. He was President and
Operating Officer Chief Operating Officer of Ultramar Corporation (which re-
cently merged with Diamond Shamrock, Inc. to become Ultramar
Diamond Shamrock Corporation) from June 1992 to August 1996
and from 1990 to June 1992, he was President of its U.S. re-
fining and marketing business.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NAME, AGE AND PRESENT
POSITION WITH
SUN COMPANY, INC. BUSINESS EXPERIENCE DURING PAST FIVE YEARS
- --------------------- ------------------------------------------
<S> <C>
Jack L. Foltz, 61 Mr. Foltz was elected to his present position in October
Vice President and 1992, and from December 1991 to October 1992 he was Assis-
General Counsel tant General Counsel, Refining and Marketing.
Deborah M. Fretz, 48 Ms. Fretz was elected Senior Vice President, Logistics in
Senior Vice President, August 1994. She assumed the additional position of Senior
Lubricants and Vice President, Lubricants in January 1997. In addition, she
Logistics has been President of Sun Pipe Line Company, a subsidiary,
since October 1991.
Thomas W. Hofmann, 45 Mr. Hofmann was elected to his present position in July
Comptroller 1995. From September 1994 to July 1995, he served as Direc-
tor, Performance Analysis, and from October 1991 to Septem-
ber 1994, Director, Tax Administration.
David E. Knoll, 53 Mr. Knoll was elected to his present position in August
Senior Vice President, 1994. From October 1992 to August 1994, he was Senior Vice
Northeast Refining President, Marketing and Logistics and from October 1991 to
and Chemicals October 1992, Group Vice President, Refining and Marketing.
Robert W. Owens, 43 Mr. Owens was elected to his present position in February
Vice President and 1997. He was Vice President, Marketing and Services of
General Manager, Ultramar Diamond Shamrock Corporation from 1996 to 1997 and
Sunoco Northeast of Ultramar Corporation from 1994 to 1996. From 1989 to
Marketing 1994, he was Manager, East Coast Branded Marketing of
Amerada Hess Corporation.
Malcolm I. Ruddock, 54 Mr. Ruddock was elected to his present position in 1989.
Treasurer
David C. Shanks, 57 Mr. Shanks was elected to his present position in February
Vice President, Human 1997. He also has additional responsibilities for Strategic
Resources Planning and Public Affairs. Previously, he was a Corporate
Vice President and Director of Arthur D. Little, Inc.
Sheldon L. Thompson, 58 Mr. Thompson was elected to his present position in October
Senior Vice President 1992. From 1991 to October 1992, he was Vice President,
and Chief Chemicals, Lubricants and Technology.
Administrative Officer
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated herein by reference to
the Quarterly Financial and Stock Market Information on page 54 of the
Company's 1996 Annual Report to Shareholders. The market exchanges on which
the Company's stock is traded are listed on the cover page of this Annual
Report on Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is incorporated herein by reference to
the Selected Financial Data on page 22 of the Company's 1996 Annual Report to
Shareholders.
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this Item is incorporated herein by reference to
pages 23-32 in the Company's 1996 Annual Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following information in the Company's 1996 Annual Report to
Shareholders is incorporated herein by reference: the Consolidated Financial
Statements on pages 33-36; the Notes to Consolidated Financial Statements on
pages 37-50; the Report of Independent Auditors on page 51; the Supplemental
Financial and Operating Information on page 53 (excluding the sections on
Throughput per Direct Outlet and Pipeline Mileage); and the Quarterly
Financial and Stock Market Information on page 54.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information on directors required by Items 401 and 405 of Regulation S-K
is incorporated herein by reference to the Company's definitive Proxy
Statement ("Proxy Statement") which will be filed with the Securities and
Exchange Commission ("sec") within 120 days after December 31, 1996.
Information concerning the Company's executive officers appears in Part I of
this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K is incorporated
herein by reference to the Company's Proxy Statement which will be filed with
the sec within 120 days after December 31, 1996, except that the Report of the
Compensation Committee and the Stock Performance Graphs contained in the Proxy
Statement are specifically excluded from incorporation by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 403 of Regulation S-K is incorporated
herein by reference to the Company's Proxy Statement which will be filed with
the sec within 120 days after December 31, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 404 of Regulation S-K is incorporated
herein by reference to the Company's Proxy Statement which will be filed with
the sec within 120 days after December 31, 1996.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1.Consolidated Financial Statements:
The information appearing in the Company's 1996 Annual Report to
Shareholders as described in Item 8 is incorporated herein by
reference.
2.Financial Statement Schedules:
Schedule II--Valuation Accounts is included on page 25 of this Form
10-K. Other schedules are omitted because the required information is
shown elsewhere in this report, is not required or is not applicable.
3.Exhibits:
<TABLE>
<C> <S>
3.(i) --Articles of Incorporation of Sun Company, Inc., as amended and
restated effective as of February 1, 1996 (incorporated by
reference to Exhibit 3.(i) of the Company's 1995 Form 10-K
filed March 7, 1996, File No. 1-6841).
3.(ii) --Sun Company, Inc. Bylaws, as amended and restated effective as
of February 1, 1996 (incorporated by reference to Exhibit
3.(ii) of the Company's 1995 Form 10-K filed March 7, 1996,
File No. 1-6841).
4.1 --Instruments defining the rights of security holders of long-
term debt of the Company and its subsidiaries are not being
filed since the total amount of securities authorized under
each such instrument does not exceed 10 percent of the total
assets of the Company and its subsidiaries on a consolidated
basis. The Company will provide the sec a copy of any
instruments defining the rights of holders of long-term debt of
the Company and its subsidiaries upon request.
4.2 --Rights Agreement between Sun Company, Inc. and First Chicago
Trust Company of New York dated as of February 1, 1996
(incorporated by reference to Exhibit 99(b) of the Company's
Current Report on Form 8-K dated February 2, 1996, File No. 1-
6841).
10.1* --Sun Company, Inc. Long-Term Incentive Plan (incorporated by
reference to Exhibit 10.1 of the Company's 1995 Form 10-K filed
March 7, 1996, File No. 1-6841).
10.2* --Sun Company, Inc. Executive Retirement Plan (incorporated by
reference to Exhibit 10(d) of the Company's Form SE filed March
13, 1992, File No. 1-6841).
10.3* --Sun Company, Inc. Directors' Deferred Compensation Plan
(incorporated by reference to Exhibit 10.3 of the Company's
1995 Form 10-K filed March 7, 1996, File No. 1-6841).
10.4* --Sun Company, Inc. Deferred Compensation Plan (incorporated by
reference to Exhibit 10.4 of the Company's 1995 Form 10-K filed
March 7, 1996, File No. 1-6841).
10.5* --Sun Company, Inc. Pension Restoration Plan (incorporated by
reference to Exhibit 10.5 of the Company's 1995 Form 10-K filed
March 7, 1996, File No. 1-6841).
</TABLE>
21
<PAGE>
<TABLE>
<C> <S>
10.6* --Sun Company, Inc. Executive Incentive Plan (incorporated by
reference to Exhibit 10.9 of the Company's Form SE filed March
11, 1993, File No. 1-6841).
10.7* --Amendment No. 1996-1 to the Sun Company, Inc. Savings
Restoration Plan, effective April 1, 1996. The Sun Company Inc.
Savings Restoration Plan (prior to Amendment No. 1996-1) is
incorporated by reference to Exhibit 10.7 of the Company's 1995
Form 10-K filed March 7, 1996, File No. 1-6841.
10.8* --Sun Company, Inc. Retainer Stock Plan for Outside Directors
(incorporated by reference to Exhibit 10.9 of the Company's 1995
Form 10-K filed March 7, 1996, File No. 1-6841).
10.9* --Sun Company, Inc. Executive Long-Term Stock Investment Plan, as
amended effective as of December 4, 1996.
10.10 --Deposit Agreement for Series A Cumulative Preference Stock
(incorporated by reference to Exhibit 99(g)(4) of the Sun
Company, Inc. Schedule 13E-4 filed June 13, 1995, File No. 1-
6841).
10.11* --Form of Indemnification Agreement as of February 1, 1996,
individually entered into between Sun Company, Inc. and various
directors and officers as set forth more fully in the schedule
attached therein (incorporated by reference to Exhibit 10.15 of
the Company's 1995 Form 10-K filed March 7, 1996, File No. 1-
6841).
10.12* --Trust Under Sun Company, Inc. Directors' Deferred Compensation
Plan, dated as of February 1, 1996.
10.13* --Sun Company, Inc. Deferred Compensation and Benefits Trust,
dated as of February 1, 1996.
10.14* --Agreement of employment entered November 15, 1996 by and
between the Company and John G. Drosdick.
11 --Statements re Sun Company, Inc. and Subsidiaries Computation of
Per Share Earnings for the Years Ended December 31, 1996, 1995
and 1994.
12 --Statements re Sun Company, Inc. and Subsidiaries Computation of
Ratio of Earnings to Fixed Charges for the Years Ended December
31, 1996, 1995, 1994, 1993 and 1992.
13 --Sun Company, Inc. 1996 Annual Report to Shareholders Financial
Section.
21 --Subsidiaries of Sun Company, Inc.
23.1 --Consent of Ernst & Young LLP.
23.2 --Consent of Coopers & Lybrand L.L.P.
23.3 --Report of Coopers & Lybrand L.L.P.
24.1 --Power of Attorney executed by certain officers and directors of
Sun Company, Inc.
24.2 --Certified copy of the resolution authorizing certain officers
to sign on behalf of Sun Company, Inc.
27 --Article 5 of Regulation S-X, Financial Data Schedule.
</TABLE>
- --------
*These exhibits constitute the Executive Compensation Plans and Arrangements of
the Company.
(b) Reports on Form 8-K:
The Company has not filed any reports on Form 8-K during the quarter ended
December 31, 1996.
Note: Copies of each Exhibit to this Form 10-K are available upon request, at
$2 per copy.
22
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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/Robert M. Aiken, Jr.
Robert M. Aiken, Jr.
Executive Vice President and Chief Financial Officer
Date March 7, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY OR ON BEHALF OF THE FOLLOWING PERSONS ON
BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED ON MARCH 7, 1997:
SIGNATURES TITLES
Robert M. Aiken, Jr.* Executive Vice President and Chief Financial
--------------------- Officer (Principal Financial Officer)
Robert M. Aiken, Jr.
Robert H. Campbell* Chairman of the Board, Chief Executive
------------------- Officer and Director (Principal Executive
Robert H. Campbell Officer)
Raymond E. Cartledge* Director
---------------------
Raymond E. Cartledge
Robert E. Cawthorn* Director
-------------------
Robert E. Cawthorn
John G. Drosdick* President, Chief Operating Officer and
----------------- Director
John G. Drosdick
Mary J. Evans* Director
--------------
Mary J. Evans
Thomas P. Gerrity* Director
------------------
Thomas P. Gerrity
Thomas W. Hofmann* Comptroller (Principal Accounting Officer)
------------------
Thomas W. Hofmann
James G. Kaiser* Director
----------------
James G. Kaiser
23
<PAGE>
SIGNATURES TITLES
Robert D. Kennedy* Director
------------------
Robert D. Kennedy
Thomas W. Langfitt* Director
-------------------
Thomas W. Langfitt
R. Anderson Pew* Director
----------------
R. Anderson Pew
William F. Pounds* Director
------------------
William F. Pounds
Alexander B. Trowbridge* Director
------------------------
Alexander B. Trowbridge
*By /s/Robert M. Aiken, Jr. Individually and as Attorney-in-Fact
-----------------------
Robert M. Aiken, Jr.
24
<PAGE>
SUN COMPANY, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
ADDITIONS
-------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
---------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1996:
Deducted from asset in
balance sheet--allowance
for doubtful accounts
and notes receivable.... $18 $ 8 $-- $18 $ 8
=== === === === ===
For the year ended
December 31, 1995(A):
Deducted from asset in
balance sheet--allowance
for doubtful accounts
and notes receivable.... $10 $ 8 $11(B) $11(C) $18
=== === === === ===
For the year ended
December 31, 1994(A):
Deducted from asset in
balance sheet--allowance
for doubtful accounts
and notes receivable.... $11 $-- $-- $ 1 $10
=== === === === ===
</TABLE>
- --------
Notes:
(A) Restated to exclude amounts related to international production and
Canadian upstream petroleum operations as these operations are now
presented as discontinued operations. (See Note 2 to the Consolidated
Financial Statements in the Company's 1996 Annual Report to Shareholders.)
(B) Represents the account balance, at June 30, 1995, of Sun's coal and
cokemaking operations which previously had been accounted for as an
investment held for sale. Effective June 30, 1995, this business became
one of Sun's ongoing business units and is no longer held for sale. (See
Note 2 to the Consolidated Financial Statements in the Company's 1996
Annual Report to Shareholders.)
(C) Includes a $4 million deduction attributable to the refining and marketing
operations of Suncor Inc., a Canadian integrated oil company, reflecting
the divestment of Suncor on June 8, 1995. (See Note 2 to the Consolidated
Financial Statements in the Company's 1996 Annual Report to Shareholders.)
25
<PAGE>
[LOGO OF PRINTED ON RECYCLED PAPER APEARS HERE]
<PAGE>
1
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------- -------
3.(i) - Articles of Incorporation of Sun Company, Inc., as
amended and restated effective as of February 1,
1996 (incorporated by reference to Exhibit 3.(i)
of the Company's 1995 Form 10-K filed March 7, 1996,
File No. 1-6841).
3.(ii) - Sun Company, Inc. Bylaws, as amended and restated
effective as of February 1, 1996 (incorporated by
reference to Exhibit 3.(ii) of the Company's 1995
Form 10-K filed March 7, 1996, File No. 1-6841).
4.1 - Instruments defining the rights of security holders
of long-term debt of the Company and its subsidiaries
are not being filed since the total amount of
securities authorized under each such instrument
does not exceed 10 percent of the total assets of
the Company and its subsidiaries on a consolidated
basis. The Company will provide the SEC a copy of
any instruments defining the rights of holders of
long-term debt of the Company and its subsidiaries
upon request.
4.2 - Rights Agreement between Sun Company, Inc. and First
Chicago Trust Company of New York dated as of
February 1, 1996 (incorporated by reference to
Exhibit 99(b) of the Company's Current Report on
Form 8-K dated February 2, 1996, File No. 1-6841).
10.1* - Sun Company, Inc. Long-Term Incentive Plan
(incorporated by reference to Exhibit 10.1 of the
Company's 1995 Form 10-K filed March 7, 1996, File
No. 1-6841).
10.2* - Sun Company, Inc. Executive Retirement Plan
(incorporated by reference to Exhibit 10(d) of the
Company's Form SE filed March 13, 1992, File No.
1-6841).
10.3* - Sun Company, Inc. Directors' Deferred Compensation
Plan (incorporated by reference to Exhibit 10.3 of
the Company's 1995 Form 10-K filed March 7, 1996,
File No. 1-6841).
10.4* - Sun Company, Inc. Deferred Compensation Plan
(incorporated by reference to Exhibit 10.4 of the
Company's 1995 Form 10-K filed March 7, 1996, File
No. 1-6841).
10.5* - Sun Company, Inc. Pension Restoration Plan
(incorporated by reference to Exhibit 10.5 of the
Company's 1995 Form 10-K filed March 7, 1996, File
No. 1-6841).
<PAGE>
2
10.6* - Sun Company, Inc. Executive Incentive Plan
(incorporated by reference to Exhibit 10.9 of the
Company's Form SE filed March 11, 1993, File No. 1-
6841).
10.7* - Amendment No. 1996-1 to the Sun Company, Inc.
Savings Restoration Plan, effective April 1, 1996.
The Sun Company, Inc. Savings Restoration Plan
(prior to Amendment No. 1996-1) is incorporated by
reference to Exhibit 10.7 of the Company's 1995 Form
10-K filed March 7, 1996, File No. 1-6841.
10.8* - Sun Company, Inc. Retainer Stock Plan for Outside
Directors (incorporated by reference to Exhibit 10.9
of the Company's 1995 Form 10-K filed March 7, 1996,
File No. 1-6841).
10.9* - Sun Company, Inc. Executive Long-Term Stock
Investment Plan, as amended effective as of December
4, 1996.
10.10 - Deposit Agreement for Series A Cumulative Preference
Stock (incorporated by reference to Exhibit 99(g)(4)
of the Sun Company, Inc. Schedule 13E-4 filed June
13, 1995, File No. 1-6841).
10.11* - Form of Indemnification Agreement as of February 1,
1996, individually entered into between Sun Company,
Inc. and various directors and officers as set forth
more fully in the schedule attached therein
(incorporated by reference to Exhibit 10.15 of the
Company's 1995 Form 10-K filed March 7, 1996, File
No. 1-6841).
10.12* - Trust Under Sun Company, Inc. Directors' Deferred
Compensation Plan, dated as of February 1, 1996.
10.13* - Sun Company, Inc. Deferred Compensation and Benefits
Trust, dated as of February 1, 1996.
10.14* - Agreement of employment entered November 15, 1996 by
and between the Company and John G. Drosdick.
11 - Statements re Sun Company, Inc. and Subsidiaries
Computation of Per Share Earnings for the Years
Ended December 31, 1996, 1995 and 1994.
12 - Statements re Sun Company, Inc. and Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
for the Years Ended December 31, 1996, 1995, 1994,
1993 and 1992.
<PAGE>
3
13 - Sun Company, Inc. 1996 Annual Report to Shareholders
Financial Section.
21 - Subsidiaries of Sun Company, Inc.
23.1 - Consent of Ernst & Young LLP.
23.2 - Consent of Coopers & Lybrand L.L.P.
23.3 - Report of Coopers & Lybrand L.L.P.
24.1 - Power of Attorney executed by certain officers and
directors of Sun Company, Inc.
24.2 - Certified copy of the resolution authorizing certain
officers to sign on behalf of Sun Company, Inc.
27 - Article 5 of Regulation S-X, Financial Data Schedule.
____________
*These exhibits constitute the Executive Compensation Plans and
Arrangements of the Company.
<PAGE>
1
EXHIBIT 10.7
SUN COMPANY, INC.
SAVINGS RESTORATION PLAN
Amendment No. 1996-1
--------------------
1. Section 2 of Article V of the Plan is hereby restated as follows:
"Ten Year Certain Option
-----------------------
Each participant may irrevocably elect, at least twelve months
prior to the time a lump-sum distribution is required to be made pursuant
to Section 1 of this Article V, with respect to the value of the
participant's book account(s) attributable to all participant contributions
and employer contributions (and investment earnings on such contributions)
for all years of the Plan, to waive the right to receive a lump-sum
distribution of such contributions (and investment earnings on such
contributions) (the "Ten-Year Certain Amounts") at termination of
employment as provided in Section 1 of this Article V, and to receive a
distribution of all Ten-Year Certain Amounts as determined under this
Section 2. The Ten-Year Certain Amounts shall be distributed commencing no
later than two months after the time lump-sum amounts are distributable
pursuant to Section 1 of this Article V, in ten annual distributions, with
the amount of each annual distribution equal to the value of the account
balance on the distribution date divided by the number of annual
distributions remaining as of the date the participant's account is valued
for the annual distribution. The tenth annual distribution shall include
100% of the value of the participant's book account(s). Undistributed Ten-
Year Certain Amounts shall remain credited to the participant's book
account(s) and shall be deemed to be invested in accordance with the
provisions of Section 3 of Article IV. In the event of the death of the
participant prior to distribution of all Ten-Year Certain Amounts, any
undistributed Ten-Year Certain Amounts shall be paid to the participant's
beneficiary under SunCAP as soon as is administratively feasible. Failure
to make a timely election under this section will result in a lump-sum
distribution pursuant to Section 1 of this Article V."
<PAGE>
1
EXHIBIT 10.9
SUN COMPANY, INC.
EXECUTIVE LONG-TERM STOCK INVESTMENT PLAN
ARTICLE I
General
1.1 Purpose. The purposes of this Sun Company, Inc. Executive Long-
Term Stock Investment Plan (the "Plan") are to: (1) better align the
interests of shareholders and management of Sun Company, Inc. and its
subsidiaries and affiliates (collectively referred to as the "Company") by
creating a direct linkage between participants' rewards and shareholders'
gains; (2) provide management with an equity ownership in Sun Company, Inc.
commensurate with Company performance, as reflected in increased
shareholder value; (3) maintain competitive compensation levels; and (4)
provide an incentive to management for continuous employment with the
Company.
1.2 Administration. (a) The Plan shall be administered by a
Committee appointed by the Board of Directors of Sun Company, Inc. (the
"Committee"), as constituted from time to time. The Committee shall
consist of at least two members of the Board of Directors, each of whom
shall meet applicable requirements set forth in pertinent regulations under
Section 16 of the Securities Exchange Act of 1934, as amended, and Section
162(m) of the Code.
(b) The Committee shall have the authority, in its sole discretion and
from time to time to: (i) designate the employees or classes of employees
eligible to participate in the Plan; (ii) grant awards provided in the Plan
in such form and amount as the Committee shall determine; (iii) impose such
limitations, restrictions and conditions upon any such award as the
Committee shall deem appropriate; and (iv) interpret the Plan, adopt, amend
and rescind rules and regulations relating to the Plan, and make all other
determinations and take all other action necessary or advisable for the
implementation and administration of the Plan.
(c) Decisions and determinations of the Committee on all matters
relating to the Plan shall be in its sole discretion and shall be
conclusive. No member of the Committee shall be liable for any action
taken or decision made in good faith relating to the Plan or any award
thereunder.
<PAGE>
2
1.3 Eligibility for Participation. Participants in the Plan shall be
selected by the Committee from the executive officers and other key
employees of the Company who occupy responsible managerial or professional
positions and who have the capability of making a substantial contribution
to the success of the Company. In making this selection and in determining
the form and amount of awards, the Committee shall consider any factors
deemed relevant, including the individual's functions, responsibilities,
value of services to the Company and past and potential contributions to
the Company's profitability and sound growth.
1.4 Types of Awards Under Plan. Awards under the Plan may be in the
form of any one or more of the following:
(i) Stock Options, as described in Article II;
(ii) Incentive Stock Options, as described in Article III;
(iii) Reload Options (referred to and generally described as "Equity
Options"), as described in Article IV;
(iv) Alternate Appreciation Rights, as described in Article V;
(v) Limited Rights, as described in Article VI; and/or
(vi) Common Stock Units, as described in Article VII.
1.5 Aggregate Limitation on Awards. (a) Shares of stock which may be
issued under the Plan shall be authorized and unissued or treasury shares
of Common Stock of Sun Company, Inc. ("Common Stock"). The maximum number
of shares of Common Stock which may be issued under the Plan shall be 5.8
million.
(b) For purposes of calculating the maximum number of shares of
Common Stock which may be issued under the Plan: (i) all the shares issued
(including the shares, if any, withheld for tax withholding requirements)
shall be counted when cash is used as full payment for shares issued upon
exercise of a Stock Option, Incentive Stock Option or Reload Option; (ii)
only the shares issued (including the shares, if any, withheld for tax
withholding requirements) as a result of an exercise of Alternate
<PAGE>
3
Appreciation Rights shall be counted; and (iii) only the net shares issued
(including the shares, if any, withheld for tax withholding requirements)
shall be counted when shares of Common Stock are used as full or partial
payment for shares issued upon exercise of a Stock Option, Incentive Stock
Option or Reload Option.
(c) In addition to shares of Common Stock actually issued pursuant to
the exercise of Stock Options, Incentive Stock Options, Reload Options or
Alternate Appreciation Rights, there shall be deemed to have been issued a
number of shares equal to the sum of (i) the number of shares of Common
Stock in respect of which Limited Rights (as described in Article VI) shall
have been exercised, and (ii) the number of Common Stock Units (as
described in Article VII), the value of which the Company shall have paid
under the Plan.
(d) Shares tendered by a participant as payment for shares issued upon
exercise of a Stock Option, Incentive Stock Option or Reload Option shall
be available for issuance under the Plan. Any shares of Common Stock
subject to a Stock Option, Incentive Stock Option or Reload Option which
for any reason is terminated unexercised or expires shall again be
available for issuance under the Plan, but shares subject to a Stock
Option, Incentive Stock Option or Reload Option which are not issued as a
result of the exercise of Limited Rights shall not again be available for
issuance under the Plan.
1.6 Effective Date and Term of Plan. (a) The Plan shall become
effective on the date approved by the holders of a majority of the shares
of Common Stock voting at the 1991 Annual Meeting of Shareholders of Sun
Company, Inc.
(b) No awards shall be made under the Plan after the last day of the
Company's 1996 fiscal year provided, however, that the Plan and all awards
made under the Plan prior to such date shall remain in effect until such
awards have been satisfied or terminated in accordance with the Plan and
the terms of such awards.
1.7 Prior Plan. Effective on December 31, 1991, no further awards
shall be made under the Sun Company, Inc. Long-Term Incentive Plan adopted
in May, 1986 provided, however, that any rights theretofore granted under
that plan shall not be affected.
<PAGE>
4
ARTICLE II
Stock Options
2.1 Award of Stock Options. The Committee may from time to time, and
subject to the provisions of the Plan and such other terms and conditions
as the Committee may prescribe, grant to any participant in the Plan one or
more options to purchase for cash or shares the number of shares of Common
Stock ("Stock Options") allotted by the Committee. The date a Stock Option
is granted shall mean the date selected by the Committee as of which the
Committee allots a specific number of options to a participant pursuant to
the Plan.
2.2 Stock Option Agreements. The grant of a Stock Option shall be
evidenced by a written Stock Option Agreement, executed by the Company and
the holder of a Stock Option (the "optionee"), stating the number of shares
of Common Stock subject to the Stock Option evidenced thereby, and in such
form as the Committee may from time to time determine.
2.3 Stock Option Price. The option price per share of Common Stock
deliverable upon the exercise of a Stock Option shall be 100% of the fair
market value of a share of Common Stock on the date the Stock Option is
granted.
2.4 Term and Exercise. Each Stock Option shall be fully exercisable
six months from the date of its grant or such longer period as the
Committee shall determine in its discretion and, unless a shorter period is
provided by the Committee or by another Section of this Plan, may be
exercised during a period of ten years from the date of grant thereof (the
"option term"). No Stock Option shall be exercisable after the expiration
of its option term.
2.5 Manner of Payment. Each Stock Option Agreement shall set forth
the procedure governing the exercise of the Stock Option granted
thereunder, and shall provide that, upon such exercise in respect of any
shares of Common Stock subject thereto, the optionee shall pay to the
Company, in full, the option price for such shares with cash or with Common
Stock. All shares of Common Stock issued under the Sun Company, Inc.
Executive Long-Term Incentive Plan, the Sun Company, Inc. Long-Term
Incentive Plan or this Plan must be held at least six months before they
may be used as payment of the option price.
<PAGE>
5
2.6 Issuance and Delivery of Shares. As soon as practicable after
receipt of payment, the Company shall deliver to the optionee a certificate
or certificates for such shares of Common Stock. The optionee shall become
a shareholder of the Company with respect to Common Stock represented by
share certificates so issued and, as such, shall be entitled to receive
dividends, to vote and to exercise all other rights of a shareholder.
2.7 Death of Optionee. Any rights in respect of Stock Options to the
extent exercisable on the date of the Optionee's death may be exercised by
the Optionee's estate or by any person that acquires the legal right to
exercise such Stock Option by bequest, inheritance, or otherwise by reason
of the death of the Optionee. Any such exercise to be valid must occur
within the remaining option term of the Stock Option. The foregoing
provisions of this Section 2.7 shall apply to an Optionee who dies while
employed by the Company and to an Optionee whose employment may have
terminated prior to death; provided, however, that
(a) an Optionee who dies while employed by the Company will be treated
as if the Optionee had retired on the date of death. Accordingly, the
Optionee's estate or a person who acquires the right to exercise such Stock
Option by bequest or inheritance will have the right to exercise the Stock
Option in accordance with Section 2.8 hereof; or
(b) the estate or a person who acquires the right to exercise a Stock
Option by bequest or inheritance from an Optionee who dies after
terminating employment with the Company will have the remainder of any
exercise period provided under Sections 2.8 and 2.9
2.8 Retirement or Disability. Upon termination of the Optionee's
employment by reason of retirement or permanent disability (as each is
determined by the Committee), the Optionee may, within sixty months from
the date of such termination, exercise any Stock Options to the extent such
Stock Options are exercisable during such sixty-month period.
2.9 Termination for Other Reasons. Except as provided in Sections 2.7
and 2.8, or except as otherwise determined by the Committee, all Stock
Options shall terminate upon the termination of the optionee's employment.
Provided, however, that the Limited Rights (described herein at Article VI)
awarded in tandem with such Stock Options shall not terminate and such
Limited Rights shall remain exercisable during the Exercise Period for any
optionee who:
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6
(a) was employed by the Company at the time of the Change
in Control and is subsequently terminated by the Company
other than for Just Cause; or
(b) voluntarily terminates if such termination was the
result of a good faith determination by the optionee that,
as a result of the Change in Control, he is unable to
effectively discharge his present duties or the duties of
the position which he occupied just prior to the Change in
Control.
As used herein, "Just Cause" shall mean willful misconduct or
dishonesty or conviction of or failure to contest prosecution for a felony
or excessive absenteeism unrelated to illness.
2.10 Effect of Exercise. The exercise of any Stock Option shall
cancel that number of related Alternate Appreciation Rights and/or Limited
Rights, if any, which is equal to the number of shares of Common Stock
purchased pursuant to said options.
ARTICLE III
Incentive Stock Options
3.1 Award of Incentive Stock Options. The Committee may, from time to
time and subject to the provisions of the Plan and such other terms and
conditions as the Committee may prescribe, grant to any participant in the
Plan one or more "incentive stock options" (intended to qualify as such
under the provisions of Section 422 of the Internal Revenue Code of 1986,
as amended ("Incentive Stock Options")) to purchase for cash or shares the
number of shares of Common Stock allotted by the Committee. The date an
Incentive Stock Option is granted shall mean the date selected by the
Committee as of which the Committee allots a specific number of options to
a participant pursuant to the Plan. Notwithstanding the foregoing,
Incentive Stock Options shall not be granted to any owner of 10% or more of
the total combined voting power of the Company and its subsidiaries.
<PAGE>
7
3.2 Incentive Stock Option Agreements. The grant of an Incentive
Stock Option shall be evidenced by a written Incentive Stock Option
Agreement, executed by the Company and the holder of an Incentive Stock
Option (the "optionee"), stating the number of shares of Common Stock
subject to the Incentive Stock Option evidenced thereby, and in such form
as the Committee may from time to time determine.
3.3 Incentive Stock Option Price. The option price per share of
Common Stock deliverable upon the exercise of an Incentive Stock Option
shall be 100% of the fair market value of a share of Common Stock on the
date the Incentive Stock Option is granted.
3.4 Term and Exercise. Each Incentive Stock Option shall be fully
exercisable six months from the date of its grant and unless a shorter
period is provided by the Committee or another Section of this Plan, may be
exercised during a period of ten years from the date of grant thereof (the
"option term"). No Incentive Stock Option shall be exercisable after the
expiration of its option term.
3.5 Maximum Amount of Incentive Stock Option Grant. The aggregate
fair market value (determined on the date the option is granted) of Common
Stock subject to an Incentive Stock Option granted to an Optionee by the
Committee in any calendar year shall not exceed $100,000.
3.6 Death of Optionee. Any rights in respect of Incentive Stock
Options to the extent exercisable on the date of the optionee's death may
be exercised by the optionee's estate or by any person who acquires the
legal right to exercise such Incentive Stock Option by bequest,
inheritance, or otherwise by reason of the death of the optionee. Any such
exercise to be valid must occur within the remaining option term of the
Incentive Stock Option. The foregoing provisions of this Section 3.6 shall
apply to an optionee who dies while employed by the Company and to an
optionee whose employment may have terminated prior to death; provided,
however, that
(a) an optionee who dies while employed by the Company will be treated
as if the optionee had retired on the date of death. Accordingly, the
optionee's estate or a person who acquires the right to exercise such
Incentive Stock Option by bequest or inheritance will have the right to
exercise the Incentive Stock Option in accordance with Section 3.7 hereof;
or
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8
(b) the estate or a person who acquires the right to exercise a Stock
Option by bequest or inheritance from an optionee who dies after
terminating employment with the Company will have the remainder of any
exercise period provided under Sections 3.7 and 3.8.
3.7 Retirement or Disability. Upon the termination of the optionee's
employment by reason of retirement or permanent disability (as each is
determined by the Committee), the optionee may, within 60 months from the
date of such termination, exercise any Stock Options to the extent such
Incentive Stock Options are exercisable during such 60-month period.
Notwithstanding the foregoing, the tax treatment available pursuant to
Section 422 of the Internal Revenue Code of 1986 upon the exercise of an
Incentive Stock Option will not be available to an optionee who exercises
any Incentive Stock Options more than (i) 12 months after the date of
termination of employment due to permanent disability or (ii) three months
after the date of termination of employment due to retirement.
3.8 Termination for Other Reasons. Except as provided in Sections 3.6
and 3.7 or except as otherwise determined by the Committee, all Incentive
Stock Options shall terminate upon the termination of the optionee's
employment. Provided, however, that the Limited Rights (described herein
at Article VI) awarded in tandem with such Incentive Stock Options shall
not terminate and such Limited Rights shall remain exercisable during the
Exercise Period for any optionee who:
(a) was employed by the Company at the time of the Change
in Control and is subsequently terminated by the Company
other than for Just Cause; or
(b) voluntarily terminates if such termination was the
result of a good faith determination by the optionee that,
as a result of the Change in Control, he is unable to
effectively discharge his present duties or the duties of
the position which he occupied just prior to the Change in
Control.
As used herein, "Just Cause" shall mean willful misconduct or
dishonesty or conviction of or failure to contest prosecution for a felony
or excessive absenteeism unrelated to illness.
<PAGE>
9
3.9 Applicability of Stock Options Sections. Sections 2.5, Manner of
Payment; 2.6, Issuance and Delivery of Shares and 2.10, Effect of Exercise,
applicable to Stock Options, shall apply equally to Incentive Stock
Options. Said Sections are incorporated by reference in this Article III
as though fully set forth herein.
ARTICLE IV
Reload Options
4.1 Authorization of Reload Options. Concurrently with the award of
Stock Options and/or the award of Incentive Stock Options to any
participant in the Plan, the Committee may authorize reload options
("Reload Options") to purchase for cash or shares a number of shares of
Common Stock. The number of Reload Options (which are referred to and
generally described as "Equity Options") shall equal (i) the number of
shares of Common Stock used to exercise the underlying Stock Options or
Incentive Stock Options and (ii) to the extent authorized by the Committee,
the number of shares of Common Stock used to satisfy any tax withholding
requirement incident to the exercise of the underlying Stock Options or
Incentive Stock Options. The grant of a Reload Option will be effected
upon the exercise of underlying Stock Options, Incentive Stock Options or
Reload Options through the use of shares of Common Stock held by the
optionee for at least 12 months. Notwithstanding the fact that the
underlying option may be an Incentive Stock Option, a Reload Option is not
intended to qualify as an "incentive stock option" under Section 422 of the
Internal Revenue Code of 1986.
4.2 Reload Option Amendment. Each Stock Option Agreement and
Incentive Stock Option Agreement shall state whether the Committee has
authorized Reload Options with respect to the underlying Stock Options
and/or Incentive Stock Options. Upon the exercise of an underlying Stock
Option, Incentive Stock Option or other Reload Option, the Reload Option
will be evidenced by an amendment to the underlying Stock Option Agreement
or Incentive Stock Option Agreement.
4.3 Reload Option Price. The option price per share of Common Stock
deliverable upon the exercise of a Reload Option shall be the fair market
value of a share of Common Stock on the date of grant of the Reload Option.
<PAGE>
10
4.4 Term and Exercise. Each Reload Option is fully exercisable six
months from the effective date of grant. The term of each Reload shall be
equal to the remaining option term of the underlying Stock Option and/or
Incentive Stock Option. No additional Reload Options may be authorized in
connection with the award of Stock Options or Incentive Stock Options on or
after October 1, 1996.
4.5 Termination of Employment. No additional Reload Options shall be
granted to optionees when Stock Options, Incentive Stock Options and/or
Reload Options are exercised pursuant to the terms of this Plan following
termination of the optionee's employment.
4.6 Applicability of Stock Options Sections. Sections 2.5, Manner of
Payment; 2.6, Issuance and Delivery of Shares; 2.7, Death of Optionee; 2.8,
Retirement or Disability; 2.9, Termination for Other Reasons; and 2.10,
Effect of Exercise, applicable to Stock Options, shall apply equally to
Reload Options. Said Sections are incorporated by reference in this
Article IV as though fully set forth herein.
ARTICLE V
Alternate Appreciation Rights
5.1 Award of Alternate Appreciation Rights. Concurrently with or
subsequent to the award of any Stock Option, Incentive Stock Option or
Reload Option to purchase one or more shares of Common Stock, the Committee
may, subject to the provisions of the Plan and such other terms and
conditions as the Committee may prescribe, award to the optionee with
respect to each share of Common Stock, a related alternate appreciation
right ("Alternate Appreciation Right"), permitting the optionee to be paid
the appreciation on the option in lieu of exercising the option.
5.2 Alternate Appreciation Rights Agreement. Alternate Appreciation
Rights shall be evidenced by written agreements in such form as the
Committee may from time to time determine.
5.3 Exercise. An optionee who has been granted Alternate Appreciation
Rights may, from time to time, in lieu of the exercise of an equal number
of options, elect to exercise one or more Alternate Appreciation Rights and
thereby become entitled to
<PAGE>
11
receive from the Company payment in Common Stock the number of shares
determined pursuant to Sections 5.4 and 5.5. Alternate Appreciation Rights
shall be exercisable only to the same extent and subject to the same
conditions as the options related thereto are exercisable, as provided in
this Plan. The Committee may, in its discretion, prescribe additional
conditions to the exercise of any Alternate Appreciation Rights.
5.4 Amount of Payment. The amount of payment to which an optionee
shall be entitled upon the exercise of each Alternate Appreciation Right
shall be equal to 100% of the amount, if any, by which the fair market
value of a share of Common Stock on the exercise date exceeds the fair
market value of a share of Common Stock on the date the option related to
said Alternate Appreciation Right was granted.
5.5 Form of Payment. The number of shares to be paid shall be
determined by dividing the amount of payment determined pursuant to Section
5.4 by the fair market value of a share of Common Stock on the exercise
date of such Alternate Appreciation Rights. As soon as practicable after
exercise, the Company shall deliver to the optionee a certificate or
certificates for such shares of Common Stock. All such shares shall be
issued with the rights and restrictions specified in Section 2.6.
5.6 Effect of Exercise. The exercise of any Alternate Appreciation
Rights shall cancel an equal number of Stock Options, Incentive Stock
Options, Reload Options and Limited Rights, if any, related to said
Alternate Appreciation Rights.
5.7 Retirement or Disability. Upon termination of the optionee's
employment (including employment as a director of the Company after an
optionee terminates employment as an officer or key employee of the
Company) by reason of permanent disability or retirement (as each is
determined by the Committee), the optionee may, within six months from the
date of such termination, exercise any Alternate Appreciation Rights to the
extent such Alternate Appreciation Rights are exercisable during such six-
month period.
5.8 Death of Optionee or Termination for Other Reasons. Except as
provided in Section 5.7, or except as otherwise determined by the
Committee, all Alternate Appreciation Rights shall terminate upon the
termination of the optionee's employment or upon the death of the optionee.
Provided, however, that the Limited Rights (described herein at Article VI)
awarded in tandem with such Alternate Appreciation Rights shall not
terminate and such Limited Rights shall remain exercisable during the
Exercise Period for any optionee who:
<PAGE>
12
(a) was employed by the Company at the time of the Change
in Control and is subsequently terminated by the Company
other than for Just Cause; or
(b) voluntarily terminates if such termination was the
result of a good faith determination by the optionee that,
as a result of the Change in Control, he is unable to
effectively discharge his present duties or the duties of
the position which he occupied just prior to the Change in
Control.
As used herein, "Just Cause" shall mean willful misconduct or
dishonesty or conviction of or failure to contest prosecution for a felony
or excessive absenteeism unrelated to illness.
ARTICLE VI
Limited Rights
6.1 Award of Limited Rights. Concurrently with or subsequent to the
award of any Stock Option, Incentive Stock Option, Reload Option or
Alternate Appreciation Right, the Committee may, subject to the provisions
of the Plan and such other terms and conditions as the Committee may
prescribe, award to the optionee with respect to each share of Common
Stock, a related limited right permitting the optionee, during a specified
limited time period, to be paid the appreciation on the option in lieu of
exercising the option ("Limited Right").
6.2 Limited Rights Agreement. Limited Rights granted under the Plan
shall be evidenced by written agreements in such form as the Committee may
from time to time determine.
6.3 Exercise Period. Limited Rights are immediately exercisable in
full upon grant for a period of seven months following the date of a Change
in Control of Sun Company, Inc. (the "Exercise Period").
As used in the Plan, a "Change in Control" shall be deemed to have
occurred if: (a) Continuing Directors cease, within one year of a Control
Transaction, to constitute a majority of the Board of Directors of Sun
Company, Inc. (or of the Board of Directors of any successor to Sun
Company, Inc. or to all or substantially all of its assets), or
<PAGE>
13
(b) any entity, person or Group acquires shares of Sun Company, Inc.
in a transaction or series of transactions that result in such entity,
person or Group directly or indirectly owning beneficially more than 50% of
the outstanding voting shares.
As used herein, "Control Transaction" shall mean any of the following
transactions or any combination thereof: (i) any tender offer for or
acquisition of capital stock of Sun Company, Inc., (ii) any merger,
consolidation, or sale of all or substantially all of the assets of Sun
Company, Inc. or (iii) the submission of a nominee or nominees for the
position of director of Sun Company, Inc. by a shareholder or a Group of
shareholders in a proxy solicitation or otherwise. As used herein, "Group"
shall mean persons who act in concert as described in Sections 13(d)(3)
and/or 14(d)(2) of the Securities Exchange Act of 1934, as amended.
6.4 Amount of Payment. The amount of payment to which an optionee
shall be entitled upon the exercise of each Limited Right shall be equal to
100% of the amount, if any, which is equal to the difference between the
price per share of Common Stock covered by the related option on the date
the option was granted and the market price of a share of such Common
Stock. Market price is defined to be the greater of (i) the highest price
per share of Common Stock paid in connection with any Change in Control and
(ii) the highest price per share of Common Stock reflected in the
consolidated trading tables of the Wall Street Journal (presently the New
York Stock Exchange Composite Transactions quotations) during the 60-day
period prior to the Change in Control.
6.5 Form of Payment. Payment of the amount to which an optionee is
entitled upon the exercise of Limited Rights, as determined pursuant to
Section 6.4, shall be made solely in cash.
6.6 Effect of Exercise. If Limited Rights are exercised, the Stock
Options, Incentive Stock Options, Reload Options and Alternate Appreciation
Rights, if any, related to such Limited Rights cease to be exercisable to
the extent of the number of shares with respect to which the Limited Rights
were exercised. Upon the exercise or termination of the options, and
Alternate Appreciation Rights, if any, related to such Limited Rights, the
Limited Rights granted with respect thereto terminate to the extent of the
number of shares as to which the related options and Alternate Appreciation
Rights were exercised or terminated.
<PAGE>
14
Provided, however, that with respect to Stock Options, Incentive Stock
Options and/or Alternate Appreciation Rights that are terminated as a
result of the termination of the optionee's employment status, the Limited
Rights awarded in tandem therewith shall not terminate and such Limited
Rights shall remain exercisable during the Exercise Period for any optionee
who:
(a) was employed by the Company at the time of the Change
in Control and is subsequently terminated by the Company
other than for Just Cause; or
(b) voluntarily terminates if such termination was the
result of a good faith determination by the optionee that,
as a result of the Change in Control, he is unable to
effectively discharge his present duties or the duties of
the position which he occupied just prior to the Change in
Control.
As used herein, "Just Cause" shall mean willful misconduct or
dishonesty or conviction of or failure to contest prosecution for a felony
or excessive absenteeism unrelated to illness.
6.7 Retirement or Disability. Upon termination of the optionee's
employment (including employment as a director of this Company after an
optionee terminates employment as an officer or key employee of this
Company) by reason of permanent disability or retirement (as each is
determined by the Committee), the optionee may, within six months from the
date of termination, exercise any Limited Right to the extent such Limited
Right is exercisable during such six-month period.
6.8 Death of Optionee or Termination for Other Reasons. Except as
provided in Sections 6.7 and 6.9, or except as otherwise determined by the
Committee, all Limited Rights granted under the Plan shall terminate upon
the termination of the optionee's employment or upon the death of the
optionee.
6.9 Termination Related to a Change in Control. The requirement that
an optionee be terminated by reason of retirement or permanent disability
or be employed by the Company at the time of exercise pursuant to Sections
6.7 and 6.8 respectively, is waived during the Exercise Period as to any
optionee who (i) was employed by the Company at the time of the Change in
Control and (ii) is subsequently terminated by the
<PAGE>
15
Company other than for just cause or who voluntarily terminates if such
termination was the result of a good faith determination by the optionee
that as a result of the Change in Control he is unable to effectively
discharge his present duties or the duties of the position which he
occupied just prior to the Change in Control. As used herein "just cause"
shall mean willful misconduct or dishonesty or conviction of or failure to
contest prosecution for a felony, or excessive absenteeism unrelated to
illness.
ARTICLE VII
Common Stock Units
7.1 Award of Common Stock Units. The Committee, from time to time,
and subject to the provisions of the Plan, may grant to any participant in
the Plan rights to receive shares of Common Stock which are subject to a
risk of forfeiture by the participant ("Common Stock Units"). At the time
it grants any Common Stock Units, the Committee shall determine whether the
payment of such Common Stock Units shall be conditioned upon either (i) the
participant's continued employment with the Company throughout a stated
period (Section 7.4); or (ii) the attainment of certain predetermined
Performance Goals during a stated period (Section 7.5). The date Common
Stock Units are granted shall mean the date selected by the Committee as of
which the Committee allots a specific number of Common Stock Units to a
participant pursuant to the Plan.
7.2 Common Stock Unit Agreements. Common Stock Units granted under
the Plan shall be evidenced by written agreements stating the number of
Common Stock Units evidenced thereby or in such form and as the Committee
may from time to time determine.
7.3 Dividend Equivalents. A holder of Common Stock Units will be
entitled to receive payment from the Company in an amount equal to each
cash dividend ("Dividend Equivalent") the Company would have paid to such
holder had he, on the record date for payment of such dividend, been the
holder of record of shares of Common Stock equal to the number of Common
Stock Units which had been awarded to such holder as of the close of
business on such record date. The Company shall establish a bookkeeping
account on behalf of each participant in which the Dividend Equivalents
that would have been paid to the holder of Common Stock Units ("Dividend
Equivalent Account") shall be credited. The Dividend Equivalent Account
will not bear interest.
<PAGE>
16
7.4 Performance Period. Upon making an award, the Committee shall
determine (and the Common Stock Unit Agreement shall state) the length of
the applicable period during which employment must be maintained or certain
performance goals must be attained (the "Performance Period"). Performance
Periods will normally be from three to five years; however, the Committee
at its sole discretion may establish other time periods.
7.5 Performance Goals. Common Stock Units and the related Dividend
Equivalents earned may be based upon the attainment of performance goals
established by the Committee in accordance with Section 162(m)
("Performance Goals"). Such Performance Goals may vary by participant and
by grant and shall be based upon the attainment of specific targeted
amounts of, or changes in financial or operating goals including: revenues;
expenses; net income; operating income; equity; return on equity, assets or
capital employed; working capital; shareholder return; operating capacity
utilized, production or sales volumes, or throughput. Other financial or
operating goals may also be used as determined by the Committee. The
foregoing goals may be applicable to the Company as a whole or one or more
of its business units and may be applied in total or on a per share, per
barrel or percentage basis and on an absolute basis or relative to other
companies, industries or indices or any combination thereof, as determined
by the Committee.
Within the first 90 days of the Performance Period, the Committee
shall establish, in writing, the weighted Performance Goals and related
performance factors for various goal achievement levels for the Company
("Performance Factors"). Performance Factors shall mean the various payout
percentages related to the attainment of one or more Performance Goals, as
determined by the Committee. In establishing the weighted Performance
Goals, the Committee shall take the necessary steps to insure that the
Company's ability to achieve the pre-established goals is uncertain at the
time the goals are set. The established written performance goals,
assigned weights and performance factors shall be written, in terms of an
objective formula, whereby any third party having knowledge of the relevant
Company performance results could calculate the amount to be paid. The
number of Common Stock Units and Dividend Equivalents earned will be equal
to the amounts awarded multiplied by the Performance Factor. However, the
Committee shall have the discretion, by participant and by grant, to reduce
(but not to increase) some or all of the amount that would otherwise be
payable by reason of the satisfaction of the Performance Goals.
<PAGE>
17
In making any such determination, the Committee is authorized to take into
account any such factor or factors it determines are appropriate, including
but not limited to Company, business unit and individual performance.
7.6 Payment of Common Stock Units and Dividend Equivalent Account.
Payment in respect of Common Stock Units earned (as determined under
Sections 7.4 and 7.5) shall be made to the holder thereof within 90 days
after the Performance Period for such units has ended, but only to the
extent the Committee determines that the continuing employment and/or any
applicable Performance Goals have been met. Payment for Common Stock Units
earned shall be made in shares of Common Stock, except as provided in
Section 7.9. The number of shares paid shall be equal to the number of
Common Stock Units earned. The holder may elect to reduce this amount by
the number of shares of Common Stock which have, on the date of the Common
Stock Units are paid, a fair market value equal to the applicable federal,
state and local withholding tax due on the receipt of Common Stock, in lieu
of making a cash payment equal to the amount of such withholding tax due.
A holder of Common Stock Units will be entitled to receive payment from the
Company at the end of the Performance Period an amount in cash equal to the
Dividend Equivalent Account earned (as determined under Sections 7.4 and
7.5) by the holder minus applicable federal, state and local withholding
tax due.
7.7 Death, Disability or Retirement. A portion of the Common Stock
and the Dividend Equivalent Account shall be forfeited upon the death of a
participant or the termination of a participant's employment by reason of
retirement or permanent disability (as each is determined by the Committee)
prior to the end of the Performance Period. The number of Common Stock
Units forfeited will be equal to the remaining number of months in the
Performance Period divided by the total number of months in the Performance
Period times the number of Common Stock Units outstanding and will be
rounded down to the next lowest whole amount. The Dividend Equivalent
account will be reduced in a similar fashion. The Common Stock Units and
the Dividend Equivalent Account retained will remain subject to any
adjustment for any Performance Factors in accordance with Section 6.5.
<PAGE>
18
7.8 Termination of Employment. Except as provided in Section 6.7 and
6.9, or as determined by the Committee, 100% of all Common Stock Units of a
participant under the Plan shall be forfeited and the Dividend Equivalent
Account shall be forfeited upon termination of the participant's employment
with the Company prior to the end of the Performance Period, and in such
event the participant shall not be entitled to receive any Common Stock or
any payment of the Dividend Equivalent Account regardless of the level of
Performance Goals achieved for the respective Performance Periods.
7.9 Change in Control. Common Stock Units and the Dividend Equivalent
Account shall not be forfeited in the case of a participant (i) who was
employed by the Company at the time of a Change in Control and (ii) who is
subsequently terminated by the Company other than for just cause or who
voluntarily terminates if such termination was the result of a good faith
determination by the holder of the Common Stock Units that as a result of
the Change in Control the holder is unable to effectively discharge the
holder's present duties or the duties of the position occupied just prior
to the Change in Control. In that event, all outstanding Common Stock Units
and the related Dividend Equivalent Account shall be payable to the
Employee in cash within nintey (90) days following the date of occurrence
of such Change in Control, regardless of whether the applicable Performance
Period has expired. However, the Committee may establish, at the time of
the grant of Common Stock Units, other conditions which must be met for
payout to occur. These conditions shall be set forth in the Committee's
resolution granting the Common Stock Units and in the Agreement with the
holder. The participant shall receive in cash an amount equal to the
percentage of awards earned multiplied by the sum of: (i) the number of
Common Stock Units outstanding multiplied by the Market Price as defined in
Section 6.4 and (ii) the Dividend Equivalent Account. There will be no
adjustment for the Performance Factors described in Section 7.5. Such
amounts will be reduced by the applicable federal, state and local
withholding tax due.
<PAGE>
19
ARTICLE VIII
Miscellaneous
8.1 General Restriction. Each award under the Plan shall be subject
to the requirement that, if at any time the Committee shall determine that
(i) the listing, registration or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any
state or Federal law, or (ii) the consent or approval of any government
regulatory body, or (iii) an agreement by the recipient of an award with
respect to the disposition of shares of Common Stock, is necessary or
desirable as a condition of, or in connection with, the granting of such
award or the issue or purchase of shares of Common Stock thereunder, such
award may not be consummated in whole or in part unless such listing,
registration, qualification, consent, approval or agreement shall have been
effected or obtained free of any conditions not acceptable to the
Committee.
8.2 Non-Assignability. No award under the Plan shall be assignable or
transferable by the recipient thereof, except by will or by the laws of
descent and distribution. During the life of the recipient, such award
shall be exercisable only by such person or by such person's guardian or
legal representative.
8.3 Withholding Taxes. Whenever the Company proposes or is required
to issue or transfer shares of Common Stock under the Plan, the Company
shall have the right to require the participant to remit to the Company an
amount sufficient to satisfy any Federal, state and/or local withholding
tax requirements prior to the delivery of any certificate or certificates
for such shares. Alternatively, the Company may issue or transfer such
shares of Common Stock net of the number of shares sufficient to satisfy
the withholding tax requirements. For withholding tax purposes, the shares
of Common Stock shall be valued on the date the withholding obligation is
incurred.
8.4 Right to Terminate Employment. Nothing in the Plan or in any
agreement entered into pursuant to the Plan shall confer upon any partici-
pant the right to continue in the employment of the Company or effect any
right which the Company may have to terminate the employment of such
participant.
<PAGE>
20
8.5 Non-Uniform Determinations. The Committee's determinations under
the Plan (including without limitation determinations of the persons to
receive awards, the form, amount and timing of such awards, the terms and
provisions of such awards and the agreements evidencing same) need not be
uniform and may be made by it selectively among persons who receive, or are
eligible to receive, awards under the Plan, whether or not such persons are
similarly situated.
8.6 Rights as a Shareholder. The recipient of any award under the
Plan shall have no rights as a shareholder with respect thereto unless and
until certificates for shares of Common Stock are issued to such recipient.
8.7 Definitions. In this Plan the following definitions shall apply:
(a) "Subsidiary" means any corporation of which, at the time more
than 50% of the shares entitled to vote generally in an election of
directors are owned directly or indirectly by Sun Company, Inc. or any
subsidiary thereof.
(b) "Affiliate" means any person or entity which directly, or
indirectly through one or more intermediaries, controls, is controlled by,
or is under common control with Sun Company, Inc.
(c) "Fair market value" as of any date and in respect of any share of
Common Stock shall be the opening price on such date of a share of Common
Stock (which price shall be the closing price on the previous trading day
of a share of Common Stock as reported on the New York Stock Exchange
Composite Transactions Tape, and as reflected in the consolidated trading
tables of The Wall Street Journal or any other publication selected by the
Committee). If there is no sale of shares of Common Stock on the New York
Stock Exchange for more than ten days immediately preceding such date, or
if deemed appropriate by the Committee for any other reason, the fair
market value of the shares of Common Stock shall be as determined by the
Committee in such other manner as it may deem appropriate. In no event
shall the fair market value of any share of Common Stock be less than its
par value.
(d) "Option" means Stock Option, Incentive Stock Option or Reload
Option.
(e) "Option price" means the purchase price per share of Common Stock
deliverable upon the exercise of a Stock Option, Incentive Stock Option or
Reload Option.
<PAGE>
21
8.8 Leaves of Absence. The Committee shall be entitled to make such
rules, regulations and determinations as it deems appropriate under the
Plan in respect of any leave of absence taken by the recipient of any
award. Without limiting the generality of the foregoing, the Committee
shall be entitled to determine (i) whether or not any such leave of absence
shall constitute a termination of employment within the meaning of the Plan
and (ii) the impact, if any, of any such leave of absence on awards under
the Plan theretofore made to any recipient who takes such leave of absence.
8.9 Newly Eligible Employees. The Committee shall be entitled to make
such rules, regulations, determinations and awards as it deems appropriate
in respect of any employee who becomes eligible to participate in the Plan
or any portion thereof after the commencement of an award or incentive
period.
8.10 Adjustments. In any event of any change in the outstanding
Common Stock by reason of a stock dividend or distribution, recapital-
ization, merger, consolidation, split-up, combination, exchange of shares
or the like, the Committee may appropriately adjust the number of shares of
Common Stock which may be issued under the Plan, the number of shares of
Common Stock subject to options theretofore granted under the Plan, the
option price of options theretofore granted under the Plan, the amount of
Restricted Stock Units theretofore awarded under the Plan, the performance
targets referred to in Section 7.8 and any and all other matters deemed
appropriate by the Committee.
8.11 Amendment of the Plan.
(a) The Committee may, without further action by the shareholders and
without receiving further consideration from the participants, amend this
Plan or condition or modify awards under this Plan in response to changes
in securities or other laws or rules, regulations or regulatory
interpretations thereof applicable to this Plan or to comply with stock
exchange rules or requirements.
(b) The Committee may at any time and from time to time terminate or
modify or amend the Plan in any respect, except that without shareholder
approval the Committee may not (i) increase the maximum number of shares of
Common Stock which may be issued
<PAGE>
22
under the Plan (other than increases pursuant to Section 8.10), (ii) extend
the period during which any award may be granted or exercised, or
(iii) extend the term of the Plan. The termination or any modification or
amendment of the Plan, except as provided in subsection (a), shall not
without the consent of a participant, affect the participant's rights under
an award previously granted.
<PAGE>
1 Exhibit 10.12
TRUST UNDER
SUN COMPANY, INC.
DIRECTORS' DEFERRED COMPENSATION PLAN
This TRUST AGREEMENT (the "Trust"), is made this 1st day of February,
1996 by and between Sun Company, Inc., a Pennsylvania corporation (the
"Company"), Mellon Bank, N.A. (the "Trustee") and Towers Perrin (the
"Recordkeeper").
WHEREAS, Company has adopted a nonqualified deferred compensation Plan
known as Sun Company, Inc. Directors' Deferred Compensation Plan, ("the
Plan").
WHEREAS, Company has incurred or expects to incur liability under the
terms of such Plan with respect to the Directors participating in such Plan
("Plan Participants").
WHEREAS, the Company desires to assure that the future payment of such
amounts will not be improperly withheld in the event that a Change in
Control of the Company should occur; and
WHEREAS, for purposes of assuring that such payments will not be improperly
withheld, the Company desires to deposit with the Trustee, subject only to the
claims of the Company's creditors as provided herein, amounts sufficient to make
such payments as they may become due and payable; and
WHEREAS, Company wishes to establish a trust (hereinafter called "Trust")
and to contribute to the Trust assets that shall be held therein, subject to the
claims of Company's creditors in the event of Company's Insolvency (as herein
defined in section 5 (a)) until paid to Plan Participants and their
beneficiaries in such manner and at such times as specified in the Plans;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a group of Directors for purposes of Title I of the Employee
Retirement Income Security Act of 1974;
WHEREAS, it is the intention of Company to make contributions to the Trust
to provide itself with a source of funds to assist it in the meeting of its
liabilities under the Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
<PAGE>
2
Section 1. The Plan
(a) Prior to a Change in Control of the Company, the Compensation Committee of
the Board of Directors of the Company (the "Compensation Committee") may
from time to time designate additional plans and/or agreements that are
subject to this Trust (collectively referred to as the "Plans") or delete
any Plan from this Trust. Any additional plans which are subject to this
Trust will be listed on Appendix A hereto.
(b) The Company (or certain of its subsidiaries) shall continue to be liable to
the Plan Participants to make all payments required under the terms of the
Plans to the extent such payments have not been made pursuant to this
Trust. Distributions made from the Trust to or for Plan Participants in
respect of the Plan pursuant to Section 4 hereof, shall, to the extent of
such distributions, satisfy the Company's (or certain of its subsidiaries')
obligation to pay benefits to such Plan Participants under the Plans.
Section 2. Establishment of Trust
(a) Company hereby deposits with Trustee in trust the sum of $100 in cash which
shall become the principal of the Trust to be held, administered and
disposed of by Trustee as provided in this Trust Agreement.
(b) The Trust hereby established is revocable by Company; it shall become
irrevocable upon a Change of Control, as defined herein.
(c) The Trust is intended to be a grantor trust, of which Company is the
grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be held separate
and apart from other funds of Company and shall be used exclusively for the
uses and purposes of Plan Participants and general creditors as herein set
forth. Plan Participants and their beneficiaries shall have no preferred
claim on, or any beneficial ownership interest in, any assets of the Trust.
Any rights created under the Plans and this Trust Agreement shall be mere
unsecured contractual rights of Plan Participants and their beneficiaries
against Company. Any assets held by the Trust will be subject to the claims
of Company's general creditors under federal and state law in the event of
Insolvency, as defined in Section 5(a) herein.
<PAGE>
3
(e) In the event of a Potential Change in Control of the Company, an additional
amount of cash (or property acceptable to the Trustee having a fair market
value equal to such amount, or some combination thereof), representing the
sum of the amounts, determined as provided below, plus an amount equal to
5% of that amount to provide for expenses and other costs of maintaining
the Trust (collectively, the "Required Funding Amount"), shall be delivered
not later than 30 days after the occurrence of a Potential Change in
Control of the Company (as defined in Section 13(e) hereof).
(f) In the event the Compensation Committee designates additional Plans that
are subject to this Trust and/or Plans subject to this Trust are amended
after a Potential Change in Control of the Company, the Treasurer shall,
unless the Trust Corpus shall theretofore have been released pursuant to
Section 6(a) hereof, recalculate the Required Funding Amount. If the amount
so calculated exceeds the fair market value of the assets then held in
trust, the Company shall promptly (and in no event later than 30 days from
the date of such recalculation) pay to the Trustee an amount of cash (or
property acceptable to the Trustee have a fair market value equal to such
amount or some combination thereof) equal to such excess. If the Required
Funding Amount so calculated is less than the fair market value of the
assets held in trust, the Trustee shall retain such difference.
(g) If, subsequent to a Control Transaction which has not been expressly
approved by at least a majority vote of the Continuing Directors, there is
a Change in Control, Company shall, as soon as possible, but in no event
longer than one (1) day following the Change in Control, as defined herein,
make an irrevocable contribution to the Trust in an amount that is
sufficient to pay each Plan Participant or beneficiary the benefits to
which Plan Participants or their beneficiaries would be entitled pursuant
to the terms of the Plan as of the date on which the Change in Control
occurred. This Required Funding Amount shall be determined in a way that
will provide the Trust with sufficient assets, taking into consideration
Section 3(e), to pay all benefits accrued by the Plan Participants through
the date of the Change in Control of the Company under the terms of the
Plans in effect on such date. The Company agrees not to challenge the
Treasurer's calculation of the required Funding Amount upon and after a
Change in Control of the Company.
<PAGE>
4
(h) The Company agrees to pay interest on any delinquent payment of the
Required Funding Amount from the date of a Change in Control of the
Company, based upon the daily average of the prime rate charged by the
Trustee.
(i) In determining the Required Funding Amount with respect to any payment or
series of payments expected to be due more than one year after the date as
of which the required Funding Amount is to be determined, the present value
of such payment or series of payments shall be calculated by using a
discount rate equal to one percentage point less than the then lowest
annual yield to maturity on United States Treasury obligations having then
remaining maturities approximately equal to the maturity of the payment or
payments being valued.
(j) Payment by the Company pursuant to Section 2(a) and 2(e) hereof shall be
accompanied by a schedule delivered to the Recordkeeper (as described in
Section 4(d) of the individual Plan for whose account such payment is being
made, which schedule sets forth the amounts delivered in respect of the
Plan. The Recordkeeper shall maintain separate account for the Plan (the
"Account"). Each Account shall consist of contributions to and payments
from the Trust Corpus which are allocable to the Plan, and earnings
thereon, less disbursements therefrom attributable to the interest of the
Plan in the Trust Corpus.
Section 3. Investment Authority
(a) As used herein, the term "Trust Corpus" shall mean the amounts delivered to
the Trustee pursuant to the terms hereof, less amounts distributed from the
Trust pursuant to the terms hereof, plus all income earned by the Trust, in
whatever form held or invested as provided herein.
(b) Trustee may invest in securities (including stock or rights to acquire
stock) or obligations issued by Company. All rights associated with assets
of the Trust shall be exercised by Trustee or the person designated by
Trustee, and shall in no event be exercisable by or rest with Plan
Participants. Subject to investments guidelines agreed to in writing from
time to time by the Trustee and the Benefit Plans Investment Committee
until a Change in Control occurs, the Trustee shall have the following
powers and discretion in addition to those conferred by law:
<PAGE>
5
(1) To invest and reinvest the Trust Corpus in such stocks (of any
classification, including common and preferred stocks), bonds, or
other property (real, personal or mixed) and interests in
investment companies and investment trusts;
(2) To sell, exchange, convey, transfer or dispose of, and also to grant
options with respect to, any property, whether real or personal, at
any time held by it by private contract or by public auction, for cash
or upon credit, or partly for cash and partly upon credit, as the
Trustee may deem best, and no person dealing with the Trustee shall be
bound to see to the application of the purchase money or to inquire
into the validity, expediency or propriety of any such sale or other
disposition;
(3) To acquire, hold and dispose of any real estate, at such time, in such
manner and upon such terms as the Trustee may deem advisable; to
retain, manage, operate, repair, improve, partition, mortgage or lease
for any term or terms of years any such real estate, or to exchange
all or any part thereof for other real estate, upon such terms and
conditions as the Trustee deems proper, using other trust assets for
any of such purposes if deemed advisable;
(4) To compromise, compound and settle any debt or obligation due to or
from the Trust and to reduce the rate of interest thereon, to extend
or otherwise modify, or to foreclose upon default or otherwise enforce
or act with respect to any such obligation as the Trustee may deem
advisable;
(5) With respect to stocks, bonds or securities excluding stocks, bonds or
securities of the Company, to vote, in person or by general or limited
proxy, any stocks or other securities at any time held in the Trust
Corpus, at any meeting of stockholders or security holders, in respect
to any business which may come before the meeting; to exercise any
options appurtenant to any stocks, bonds or other securities for the
conversion thereof into other stocks, bonds or securities; to exercise
or sell any conversion or subscription rights appurtenant to any
stocks, bonds or other securities at any time held in the Trust
Corpus, and to make any and
<PAGE>
6
all necessary payments therefor; to join in, and to approve, or to
dissent from and to oppose, any corporate act or proceeding, including
any reorganization, recapitalization, consolidation, merger,
dissolution, liquidation, sale of assets or other action by or plan in
respect of corporations or properties, the stocks or securities of
which may at any time be held in the Trust Corpus; to deposit with any
committee or depository, pursuant to any plan or agreement of
protection, reorganization, consolidation, sale, merger, or other
readjustment, any property held in the Trust Corpus; and to make
payment from the Trust Corpus of any charges or assessments imposed by
the terms of any such plan or agreement;
(6) With respect to stocks, bonds or securities of the Company, the
Trustee shall exercise the powers under Section 3(b)(5) at its
discretion.
(7) To accept and hold any securities or other property received by
it under the provisions of any of the subdivisions of this
Article whether or not the Trustee would be authorized hereunder
then to invest therein;
(8) To borrow money upon such terms and conditions at the Trustee
shall deem advisable to carry out the purposes of the Trust and
to pledge securities or other property of the Trust Corpus in
repayment of any such loan;
(9) To enforce any right, obligation or claim and in general to
protect in any way the interest of the Trust Corpus, either
before or after default, and in case the Trustee shall, in its
discretion, consider such action for the best interest of the
Trust Corpus, to abstain from the enforcement of any right,
obligation or claim and to abandon any property, whether real or
personal which at any time may be held by the Trustee;
(10) To make, execute, acknowledge and deliver any and all deeds,
leases, assignments transfers, conveyances and any and all other
instruments necessary or appropriate to carry out any powers
herein granted;
<PAGE>
7
(11) To cause any investments from time to time held by it hereunder
to be registered in, or transferred into, its name as Trustee or
the name of its nominee or nominees, and with or without
designation of fiduciary capacity, or to retain any investments
unregistered or in form permitting transfer by delivery, but the
books and records of the Trustee shall at all times show that all
such investments are part of the Trust Corpus;
(12) To hold any part or all of the Trust Corpus uninvested; and
(13) To do all acts which may be necessary or proper and to exercise any
and all of the powers of the Trustee under this Agreement upon such
terms and conditions as to the Trustee may seem in the best interests
of the Trust Corpus.
(c) Upon and after a Change in Control, the Trustee shall use its good
faith efforts to invest or reinvest all or such part of the Trust
Corpus as it believes prudent under the circumstances (taking into
account, among other things, anticipated cash requirements for the
payment of benefits under the Plans communicated to the Trustee by the
Recordkeeper) solely in direct obligations of the United States of
America or agencies thereof or obligations unconditionally and fully
guaranteed as to principal and interest by the United States of
America, and with respect to such investments the Trustee shall have
the powers and discretion set forth in Section 3(b) in addition to
those conferred by law; provided, however, that the Trustee shall not
be liable for any failure to maximize the income earned on that
portion of the Trust Corpus as is from time to time invested or
reinvested as set forth under Section 3(c), nor for any loss of income
due to liquidation of any investment which liquidation is necessary to
make payments or to reimburse expenses under the terms of this Trust.
(d) All losses of income or principal in respect of, and expenses
(including taxes and, as provided in Section 9 hereof, any expenses
of the Trustee) charged against, the Trust Corpus shall be for the
account of the Company and the Company shall be obligated to reimburse
the Trust Corpus for any loss in principal amount of, or expense
charged against, the Trust Corpus except to the extent that such
amounts have been applied to reduce amounts payable by the Company (or
certain of its subsidiaries) pursuant to Section 4 hereof.
<PAGE>
8
The Trustee shall promptly notify the Company in writing of the amount
of such reimbursement. The Company agrees that, upon receipt of such
notice, it will deliver to the Trustee to be held in the Trust an
amount in cash equal to any reimbursement amount specified by the
Trustee, together with interest from the date of receipt of such
notice based upon the daily average of the prime rate charged by the
Trustee.
(e) Company shall have the right at any time, and from time to time in its
sole discretion, to substitute assets of equal fair market value for
any asset held by the Trust. This right is exercisable by Company in
a nonfiduciary capacity without the approval or consent of any person
in a fiduciary capacity.
Section 4. Payments to Plan Participants and Their Beneficiaries
(a) By its acceptance of this Trust the Trustee hereby agrees to the
designation by the Company of Towers Perrin as its recordkeeper
("Recordkeeper") under this Trust. It is recognized that the Trustee
shall have no responsibility hereunder for the continued retention of
the Recordkeeper and/or any responsibility assigned to said
Recordkeeper or its performance thereof. Upon and after a Change in
Control of the Company, the Trustee shall have the sole authority to
retain, dismiss or appoint the Recordkeeper for the Trust on such
terms and conditions as the Trustee deems appropriate. The Company
shall pay or reimburse the Trustee for all fees and expenses of the
Recordkeeper.
(b) Except for the records dealing solely with the Trust Corpus and its
investment, which shall be maintained by the Trustee, the Recordkeeper
shall maintain all the records contemplated by this Agreement,
including the maintenance of the separate Accounts of each Plan under
this Trust and the maintenance of Plan Participant's interests. The
Recordkeeper shall also be responsible for information with respect to
payments to Plan Participants and shall perform such other duties and
responsibilities as the Trustee determines are necessary or advisable
to achieve the objectives of this Trust.
<PAGE>
9
(c) Upon the establishment of this Trust or as soon thereafter as practicable,
the Company shall furnish to the Recordkeeper all the information necessary
to determine the benefits payable to or with respect to each Plan
Participant in each Plan, including any benefits payable after the Plan
Participant's death and the recipient of same. The Company shall regularly,
at least annually, furnish revised up-dated information to the
Recordkeeper. In the event the Company refuses or neglects to provide
updated Plan Participant information, as contemplated herein, the
Recordkeeper shall be entitled to rely upon the most recent information
furnished to it by the Company.
(d) The Recordkeeper, on behalf of the Company, shall deliver to Trustee a
schedule (the "Payment Schedule") that indicates the amounts payable
in respect of each Plan participant (and his or her beneficiaries),
that provides a formula or other instructions acceptable to Trustee
for determining the amounts so payable, the form in which such amount
is to be paid (as provided for or available under the Plans), and the
time of commencement for payment of such amounts. Except as otherwise
provided herein, Trustee shall make payments to the Plan Participants
and their beneficiaries in accordance with such Payment Schedule. The
Trustee shall make provision for the reporting and withholding of any
federal, state or local taxes that may be required to be withheld with
respect to the payment of benefits pursuant to the terms of the Plans
and shall pay amounts withheld to the appropriate taxing authorities
or determine that such amounts have been reported, withheld and paid
by Company.
(e) The entitlement of a Plan Participant or his or her beneficiaries to
benefits under the Plan shall be determined by the Recordkeeper, on
behalf of the Company, and any claim for such benefits shall be
considered and reviewed under the procedures set out in the Plan and
this Trust Agreement.
(f) Company may make payment of benefits directly to Plan Participants or
their beneficiaries as they become due under the terms of the Plans.
Company shall notify Trustee and Recordkeeper of its decision to make
payment of benefits directly prior to the time amounts are payable to
Plan Participants or their beneficiaries. In addition if the
principal of the Trust, and any earnings thereon, are not sufficient
to make payments of benefits in accordance with the terms of the
Plans, Company shall make the balance of each such payment as it falls
due. Trustee shall notify Company where principal and earnings are
not sufficient.
<PAGE>
10
(g) The Recordkeeper shall notify the Plan Participant or the beneficiary
of a deceased Plan Participant that Plan Participant's benefits under
a Plan have become payable. Such notice shall include the amount of
such benefits, the manner of payment and the name, address and social
security number of the Plan Participant.
(h) All benefits payable from the Trust Corpus to a Plan Participant or
his beneficiary under a Plan shall be paid solely from the Account of
such Plan. Upon the satisfaction of all liabilities under a Plan in
respect of Plan Participant under a Plan, the Recordkeeper shall
prepare a certification to the Trustee showing the balance, if any,
remaining in the Account for such Plan. Upon the satisfaction of all
liabilities of the Company under the Plan, the Recordkeeper shall
prepare a certification to the Trustee and the Trustee shall thereupon
distribute the Trust Corpus to the Company. The Trustee and the
Recordkeeper shall have no responsibility for determining whether any
Plan Participant or beneficiary has died and shall be entitled to rely
upon information furnished by the Company.
(i) Except as otherwise provided herein, in the event of any final
determination by the Internal Revenue Service or a court of competent
jurisdiction, which determination is not appealable or with respect to
which the time for appeal has expired, or the receipt by the Trustee
of a substantially unqualified opinion of tax counsel selected by the
Trustee, which determination determines, or which opinion opines, that
the Plan Participants or any particular Plan Participant, is subject
to federal income taxation on amounts held in Trust hereunder prior to
the distribution to the Plan Participants of such amounts, the
Trustee, on receipt by the Trustee, of such opinion or notice of such
determination, shall pay to each Plan Participant the portion of the
Trust Corpus includable in such Plan Participant's federal gross
income.
(j) The Company agrees to indemnify and hold harmless the Recordkeeper
from and against any and all damages, losses, claims, fees or expenses
as incurred (including expenses of investigation and fees or expenses
as incurred (including expenses of investigation and fees and
disbursements of counsel to the Recordkeeper) arising out of or in
connection with the performance by the Recordkeeper of its duties
hereunder. Any amount payable to the Recordkeeper under paragraph (a)
of this Section 4 or this paragraph (j) and not previously paid by the
Company shall be paid by the
<PAGE>
11
Company promptly upon demand therefore by the Trustee or, if not paid
by the Company within 30 days of the Trustee's demand, from the Trust
Corpus. In the event that payment is made hereunder to the
Recordkeeper from the Trust Corpus, the Trustee shall promptly notify
the Company in writing of the amount of such payment. The Company
agrees that, upon receipt of such notice, it will deliver to the
Trustee to be held in the Trust an amount in cash equal to any
payments made from the Trust Corpus to the Trustee pursuant to
paragraph (a) of this Section 4 or this paragraph (j), together with
interest from the date of receipt of such notice based upon the daily
average of the prime rate charged by the Trustee. The failure of the
Company to transfer any such amount shall not in any way impair the
Recordkeeper's right to indemnification, reimbursement and payment
pursuant to paragraph (a) of this Section 4 or this paragraph (j).
(k) The Recordkeeper may resign and be discharged from its duties
hereunder at any time by giving notice in writing of such resignation
to the Company, or if a Change in Control shall previously have
occurred, the Trustee, specifying a date (not less than 30 days after
the giving of such notice) when such resignation shall take effect.
Promptly after such notice, the Company, or if a Change in Control
shall previously have occurred, the Trustee, shall appoint a successor
recordkeeper, such recordkeeper to become Recordkeeper hereunder upon
the resignation date specified in such notice. If the Company or the
Trustee is unable to appoint a successor recordkeeper within 60 days
after such notice, the Recordkeeper shall be entitled, at the expense
of the Company, to petition a United States District Court or any
court of competent jurisdiction in the state in which the Recordkeeper
maintains its principal place of business to appoint its successor.
The Recordkeeper shall continue to serve until its successor accepts
the responsibility of recordkeeper. The Company, or if a Change in
Control shall previously have occurred, the Trustee, may at any time
substitute a new recordkeeper by giving 15 days notice thereof of the
Recordkeeper then acting. In the event of such removal or
resignation, the Recordkeeper shall provide its successor with the
records and information in its possession relating to the performance
of its duties under this Trust.
<PAGE>
12
Section 5. Trustee Responsibility Regarding Payments to Trust Beneficiary
When Company Is Insolvent.
(a) Trustee shall cease payment of benefits to Plan Participants and their
beneficiaries if the Company is Insolvent. Company shall be
considered "Insolvent" for purposes of this Trust Agreement if (i)
Company is unable to pay its debts as they become due, or (ii) Company
is subject to a pending proceeding as a debtor under the United States
Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided in
Section 1(D) hereof, the principal and income of the Trust shall be
subject to claims of general creditors of Company under federal and
state law as set forth below.
(1) The Board of Directors and the Chief Executive Officer of Company
shall have the duty to inform Trustee in writing of Company's
insolvency. If a person claiming to be a creditor of Company
alleges in writing to Trustee that Company has become Insolvent,
Trustee shall determine whether Company is Insolvent and, pending
such determination, Trustee shall discontinue payment of benefits
to Plan participants or their beneficiaries.
(2) Unless Trustee has actual knowledge of Company's insolvency, or has
received notice from Company or a person claiming to be a creditor
alleging that Company is Insolvent, Trustee shall have no duty to
inquire whether Company is Insolvent. Trustee may in all events rely
on such evidence concerning Company's solvency as may be furnished to
Trustee and that provides Trustee with a reasonable basis for making a
determination concerning Company's solvency.
(3) If at any time Trustee has determined that Company is Insolvent,
Trustee shall discontinue payments to Plan Participants or their
beneficiaries and shall hold the assets of the Trust for the benefit
of Company's general creditors. Nothing in this Trust Agreement shall
in any way diminish any rights of Plan Participants or their
beneficiaries to pursue their rights as general creditors of Company
with respect to benefits due under the Plans or otherwise.
(4) Trustee shall resume the payments of benefits to Plan Participants or
their beneficiaries in accordance with Section 4 of this Trust
Agreement only after Trustee has determined that Company is not
insolvent (or is no longer Insolvent).
<PAGE>
13
(c) Provided that there are sufficient assets, if Trustee discontinues the
payment of benefits from the Trust pursuant to Section 5(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due
to Plan Participants or their beneficiaries under the terms of the
Plans for the period of such discontinuance, less the aggregate amount
of any payments made to Plan Participants or their beneficiaries by
Company in lieu of the payments provided for hereunder during any such
period of discontinuance.
Section 6. Payments to Company
(a) In the event the Company delivers the Required Funding Amount to the
Trustee because of a Potential Change in Control, the Trust Corpus
shall be returned to the Company one year after delivery of the
Required Funding Amount to the Trustee unless a Change in Control
shall have occurred during such one-year period. Such one-year period
shall recommence in the event of and upon the date of any subsequent
Potential Change in Control. If another Potential Change in Control
should occur after the Trust Corpus has been returned to the Company
as provided in this Section 6(a), the Company shall deliver a new
Required Funding Amount to the Trustee pursuant to Section 2. The
Company shall notify the Trustee of the occurrence of a Potential
Change in Control and Change in Control and the Trustee may rely on
such notice.
(b) Except as provided in Section 5 hereof, after the trust has become
irrevocable, Company shall have no right or power to direct Trustee to
return to Company or to divert to others any of the Trust assets
before all payment of benefits have been made to Plan Participants and
their beneficiaries pursuant to the terms of the Plans.
Section 7. Disposition of Income.
During the term of this trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
Section 8. Claims Procedures
(a) The Company agrees that by establishment of this Trust it hereby
forgoes any review (judicial or otherwise) of certifications by the
Recordkeeper as to the benefit payable to any persons hereunder.
<PAGE>
14
(b) If a dispute arises as to the amounts or timing of any benefits or the
persons entitled thereto under this Trust, such dispute shall be
resolved under a claims review procedure established and maintained by
the Recordkeeper that includes the following:
(1) The manner in which a claim is made.
(2) Provisions to the effect that, in the event of a denial of a
claim as to the amount of any distribution and/or the method of
payment under any Plan by the Recordkeeper, a claimant will be
given notice in writing of such detail within 90 days, which
notice will set forth the reason for the denial, the pertinent
Plan provision on which the denial is based, a description of the
information necessary to perfect the claim and an explanation of
why such information is necessary, and appropriate steps to be
taken by the claimant to submit the claim for review.
(3) Provisions to the effect that the claimant may request a review
of such denial by filing notice in writing with the Recordkeeper,
within 60 days after receipt of such denial, may review pertinent
documents and may submit issues and comments in writing.
(4) Provisions for the Recordkeeper, in its discretion, to request a
meeting to clarify an immediate matters it deems appropriate.
(5) Provisions to the effect that all interpretations,
determinations, and decisions of the Recordkeeper in respect to
any matter will be final, conclusive, and binding upon the
claimant.
(c) By making a Plan subject to the Trust, the claims review procedures of
paragraph (b) of this Section 8 supersede any claims review procedures
in the Plan to the extent of any benefits payable from the Trust.
Section 9. Trustee
(a) The duties and responsibilities of the Trustee shall be limited to
those expressly set forth in this Trust, and no implied covenants or
obligations shall be read into this trust against the Trustee.
<PAGE>
15
(b) The Trustee shall maintain such books, records and accounts as may be
necessary for the proper administration of the Trust Corpus and shall
render to the Company (and the Plan Participants after a Change in
Control of the Company has occurred), on or prior to each April 1
following the date this Trust was created until the termination of
this Trust (and on the date of such termination), an accounting with
respect to the Trust Corpus as of the end of the then most recent
calendar year (and as of the date of such termination). Unless the
Company (or any Plan Participant after a Change in Control of the
Company has occurred) shall have filed with the Trustee written
exceptions or objections to any such statement and account within 180
days after receipt thereof, the Company or any Plan Participant, as
the case may be, shall be deemed to have approved such statement and
account, and in such case the Trustee shall be forever released and
discharged with respect to all matters and things reported in such
statement and account as though it had been settled by a decree of a
court of competent jurisdiction in an action or proceeding to which
the Company and any Plan Participate were parties.
(c) The Trustee shall not be liable for any act taken or omitted to be
taken hereunder if taken or omitted to be taken by it in good faith.
The Trustee shall also be fully protected in relying upon any notice
given hereunder which it in good faith believes to be genuine and
executed and delivered in accordance with this Trust.
(d) The Trustee may consult with legal counsel to be selected by it, and
the Trustee shall not be liable for any action taken or suffered by it
in good faith in accordance with the advice of such counsel.
(e) The Trustee shall be reimbursed by the Company for its reasonable
expenses, including without limitation any expenses incurred under
paragraph (g) of this Section 9,
incurred in connection with the performance of its duties hereunder
and shall be paid such fees for the performance of such duties as may
be agreed upon in writing from time to time between the Company and
the Trustee. After a Change in Control of the Company has occurred,
the fees of the Trustee shall be determined by the application of the
current rates then charged by the Trustee for the provision of the
types of investment and trustee services contemplated in this Trust to
trusts of a similar character. The Trustee's reasonable expenses and
fees shall be paid in the manner provided by paragraph (f) of this
Section 9.
<PAGE>
16
(f) The Company agrees to indemnify and hold harmless the Trustee from and
against any and all damages, losses, claims or expenses as incurred
(including expenses of investigation and fees and disbursements of
counsel to the Trustee and any taxes imposed on the Trust Corpus or
income of the Trust) arising out of or in connection with the
performance by the Trustee of its duties hereunder. Any amount
payable to the Trustee under paragraph (e) of this Section 9 or this
paragraph (f) and not previously paid by the Company shall be paid by
the Company promptly upon demand therefore by the trustee or, if the
Trustee so chooses in its sole discretion, from the Trust Corpus. In
the event that payment is made hereunder to the Trustee from the Trust
Corpus, the Trustee shall promptly notify the Company in writing of
the amount of such payment. The Company agrees that, upon receipt of
such notice, it will deliver to the Trustee to be held in the Trust an
amount in cash equal to any payments made from the Trust Corpus to the
Trustee pursuant to paragraph (e) of this Section 9 or this paragraph
(f), together with interest from the date of receipt of such notice
based upon the daily average of the prime rate charged by the Trustee.
The failure of the Company to transfer any such amount shall not in
any way impair the Trustee's right to indemnification, reimbursement
and payment pursuant to paragraph (e) of this Section 5.01 or this
paragraph (f).
(g) The Trustee is specifically authorized and required to take such
action as may be necessary or appropriate, including the institution
of litigation or other legal process, to enforce the Company's
obligations hereunder, and any expenses thus incurred by the Trustee
shall be paid or reimbursed by the Company pursuant to paragraphs (e)
and (f) of this Section 9.
(h) Trustee shall have, without exclusion, all powers conferred on
Trustees by applicable law, unless expressly provided otherwise
herein, provided, however, that if an insurance policy is held as an
asset of the Trust, Trustee shall have no power to name a beneficiary
of the policy other than the Trust, to assign the policy (as distinct
from conversion of the policy to a different form) other than to a
successor Trustee, or to loan to any person the proceeds of any
borrowing against such policy.
<PAGE>
17
(i) Notwithstanding any powers granted to Trustee pursuant to this Trust
Agreement or to applicable law, Trustee shall not have any power that
could give this Trust the objective of carrying on a business and
dividing the gains therefrom, within the meaning of Section 301.7701-2
of the Procedure and Administrative Regulations promulgated pursuant
to the Internal Revenue Code.
Section 10. Resignation and Removal of Trustee.
(a) The Trustee may resign at any time by written notice to the Company,
which shall be effective 30 days after receipt of such notice unless
Company and Trustee agree otherwise. If a Change of Control shall
previously have occurred, the Trustee shall give such resignation
notice, in writing, to the Company and the Plan Participants,
specifying a date (not less than 30 days after the giving of such
notice) when such resignation shall take effect. Promptly after such
notice, the Company, or if a Change in Control shall previously have
occurred, the Company and at least 80% of the Plan Participants then
entitled to receive payments hereunder, shall appoint a successor
trustee, such trustee to become Trustee hereunder upon the resignation
date specified in such notice. If the Company and such Plan
Participants are unable to appoint a successor trustee within 60 days
after such notice, the Trustee shall be entitled, at the expense of
the Company, to petition a United States District Court or any court
of competent jurisdiction in the state in which the Trustee maintains
its principal place of business to appoint its successor, in
accordance with section 10(c). The Trustee shall continue to serve
until its successor accepts the Trust and receives delivery of the
Trust Corpus. The Company, or if a Change in Control shall previously
have occurred, the Company and at least 80% of the Plan Participants
then entitled to receive payments hereunder, may at any time
substitute a new trustee by giving 15 days notice thereof to the
Trustee then acting. In the event of such removal or resignation, the
Trustee shall duly file with the Company and, on and after a Change in
Control, the Plan Participants, a written statement or statements of
accounts and proceedings as provided in Section 9(b) hereof for the
period since the last previous annual accounting of the Trust, and if
written objections to such account are not filed as provided in
Section 9(b) hereof, the Trustee shall to the maximum extent permitted
by applicable law be forever released and discharged from all
liability and accountability with
<PAGE>
18
respect to the propriety of its acts and transactions shown in such
account. The Trustee and any successor thereto appointed hereunder
shall be a corporate professional trustee which is not an affiliate of
the Company but which has equity in excess of $100,000,000.00.
(b) Upon resignation or removal of Trustee and appointment of a successor
Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within 30 days after receipt
of notice of resignation, removal or transfer, unless Company extends
the time limit.
(c) If Trustee resigns or is removed, a successor shall be appointed, in
accordance with Section 10 hereof, by the effective date of
resignation or removal under paragraph (a) of this section. If no
such appointment has been made, Trustee may apply to a court of
competent jurisdiction for appointment of a successor or for
instructions. All expenses of Trustee in connection with the
proceeding shall be allowed as administrative expenses of the Trust.
Section 11. Termination
Except as provided herein, this Trust shall be irrevocable. At any time
prior to a Change in Control of the Company, this Trust may be terminated
by the Compensation Committee. Upon or after a Change in Control of the
Company, this trust shall not terminate until the date on which Plan
Participants and their beneficiaries are no longer entitled to benefits
pursuant to the terms of the Plans unless sooner revoked in accordance with
Section 2(b) hereof. Upon termination of the Trust any assets remaining in
the Trust shall be returned to Company.
Section 12. Amendment or Waiver
(a) This Trust may be amended by a written instrument executed by Trustee
and Company. Notwithstanding the foregoing, no such amendment shall
conflict with the terms of the Plans or shall make the Trust revocable
after it has become irrevocable in accordance with Section 2(b)
hereof.
(b) Upon and after a Change in Control of the Company, the following rules
will govern amendments and waivers: (1) this Trust may not be amended
except by an instrument in writing signed on behalf of the parties
hereto together with the written consent of at least 80% of the Plan
Participants then entitled to receive payments hereunder; (2) the
parties hereto, together with the consent of not less than 80% of
<PAGE>
19
the Plan Participants then entitled to receive payments hereunder, may
at any time waive compliance with any of the agreements or conditions
contained herein; (3) any agreement on the part of a party hereto or
an Plan Participant to any such waiver shall be valid if set forth in
an instrument in writing signed on behalf of such party or Plan
Participant; and (4) no such amendment or waiver relating to this
Trust may be made with respect to a particular Plan Participant unless
such Plan Participant has agreed in writing to such amendment or
waiver.
Section 13. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such without invalidating the
remaining provisions hereof.
(b) Benefits payable to Plan Participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law
or in equity), alienated pledge, encumbered or subjected to
attachment, garnishment, levy, execution or other legal or equitable
process.
(c) For purposes of this Trust, the phrase "subsequent to a Control
Transaction which has not been expressly approved by at least a
majority vote of the Continuing Directors, there is a change in
Control" shall be determined by applying the following definitions:
(1) "Control Transaction" shall mean any of the following
transactions or any combination thereof: (A) any tender offer
for or acquisition of capital stock of the Company, (B) any
merger, consolidation, or sale of all or substantially all of the
assets of the Company, or (C) the submission of a nominee or
nominees for the position of director of the Company by
shareholder or a Group of shareholders in a proxy solicitation or
otherwise.
(2) "Continuing Director" shall mean a Director who was a member of
the Board of Directors immediately prior to a Control Transaction
which results in a Change in Control.
<PAGE>
20
(3) "Change in Control" shall be deemed to have occurred for purposes
of this Plan, if (A) Continuing Directors cease, within one year
of a Control Transaction, to constitute a majority of the Board
(or of the Board of Directors of any successor to the Company or
to all or substantially all of its assets) or (B) any entity,
person or Group acquires shares of the Company in a transaction
or series of transactions that result in such entity, person or
Group directly or indirectly owning beneficially more than fifty
percent (50%) of the outstanding voting shares.
(4) "Group" shall mean persons who act in concert as described in
Sections 13(d)(3) and/or 14(d)(2) of the Securities Exchange Act
of 1934, as amended.
(d) For purposes of this Trust, a "potential Change in Control" of the
Company shall be deemed to have occurred if subsequent to the
effective date of the Trust any of the following events or
transactions has occurred: (1) any Person (other than the Company)
makes a tender offer for capital stock of the Company; (2) and Person
becomes the beneficial owner, directly or indirectly, of capital stock
of the Company in an amount which requires the filing of Schedule 13D
or its equivalent form pursuant to the Rules and Regulations under the
Securities Exchange Act of 1934 as may from time to time be amended;
(3) the submission of a nominee or nominees for the position of
director of the Company by a shareholder or shareholders in a proxy
solicitation or otherwise which, in its judgment the Board of
Directors determines by adoption of a resolution within 30 days of
such submission, might result in a Change in Control of the Company;
(4) any Person files a pre-merger notification for the acquisition of
capital stock of the Company pursuant to the Hart-Scott-Rodino Act; or
(5) the Board of Directors of the Company in its judgment determines
by adoption of a resolution that a Potential Change in Control of the
Company for purposes of this trust has occurred.
Section 14. Further Assurances
The Company shall, at any time and from time to time, upon the reasonable
request of the Trustee and/or Recordkeeper, execute and deliver such
further instruments and do such further acts as may be necessary or proper
to effectuate the purposes of this Trust.
<PAGE>
21
Section 15. Certain Provisions Relating to This Trust
(a) This Trust sets forth the entire understanding of the parties with
respect to the subject matter hereof and supersedes any an all prior
agreements, arrangements and understandings relating thereto. This
Trust shall be binding upon and inure to the benefit of the parties
and their respective successors and legal representatives.
(b) This Trust shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania, other than and without
reference to any provisions of such laws regarding choice of laws of
conflict of laws. The situs of this Trust shall be Philadelphia
County, Pennsylvania.
(c) The interests of the Plan Participants hereunder are not subject to
assignment or alienation.
(d) Nothing in this Trust shall in any way diminish any rights of a Plan
Participant to pursue his rights as a general creditor of the company
(or certain of its subsidiaries) under the Plans.
(e) The Trustee by joining in the execution of this Trust hereby signifies
its acceptance of the trust hereby created.
(f) In the event that any provision of this Trust or the application
thereof to any person or circumstances shall be determined by a court
of proper jurisdiction to be invalid or unenforceable to any extent,
the remainder of this Trust, or the application of such provision to
persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby, and each
provision of this Trust shall be valid and enforced to the fullest
extent permitted by law.
Section 16. Authorization
(a) Any action of the Board of Directors or by the Compensation Committee
pursuant to this Trust shall be evidenced by a resolution adopted by
the Board of Directors (or a duly authorized committee thereof) or the
Compensation Committee that is certified to the Trustee and
Recordkeeper by the Secretary or an Assistant Secretary of the Company
under its corporate seal, and the Trustee and Recordkeeper shall be
fully protected in acting in accordance with such resolution.
<PAGE>
22
(b) Any action of the Benefit Plans Investment Committee pursuant to this
Trust shall be evidence by a written notice or direction to such
effect over the signature of any member (or duly authorized
representative) of the Benefit Plans Investment Committee, and the
Trustee and the Recordkeeper shall be fully protected in acting in
accordance with such resolution. The Company shall provide to the
Trustee and the Recordkeeper in writing from time to time the names
and specimen signatures of all persons designated as members of the
Benefit Plans Investment Committee. The Benefit Plans Investment
Committee shall provide to the Trustee and the Recordkeeper in writing
from time to time the names and specimen signatures of the person or
persons authorized to act on its behalf. The Trustee and the
Recordkeeper shall be fully protected in acting in accordance with
such notices or directions.
(c) Any action of the Chief Executive Officer or Treasurer pursuant to
this Trust shall be evidence by a written notice or direction to such
effect over the signature of such officer, and the Trustee and the
Recordkeeper shall be fully protected in acting in accordance with
such notices or directions.
(d) Any action of the Company pursuant to this Trust shall be evidenced by
a written notice or direction to such effect over the signature of any
officer or other representative of the Company who shall have been
certified to the Trustee and the Recordkeeper by the President,
Treasurer or Secretary of the Company as having such authority. The
President, Treasurer or Secretary of the Company shall provide to the
Trustee and the Recordkeeper in writing from time to time the names
and specimen signatures of the officers and other representatives
authorized to act on behalf of the Company. The Trustee and the
Recordkeeper shall be fully protected in acting in accordance with
such notices or directions.
Section 17. Notices
Any notice, report, demand or waiver required or permitted hereunder shall
be in writing and shall be given personally or by prepaid registered or
certified mail, return receipt requested, addressed as follows:
If to the Board of Directors: Sun Company, Inc.
Philadelphia, PA 19103
Attention: Corporate Secretary
<PAGE>
23
If to the Compensation
Committee: Sun Company, Inc.
Philadelphia, PA 19103
Attention: Secretary
Compensation Committee
If to the Benefit
Plans Investment Committee: Sun Company, Inc.
Philadelphia, PA 19103
Attention: Secretary,
Benefit Plans Investment
Committee
If to the Chief Executive
Officer: Sun Company, Inc.
Philadelphia, PA 19103
Attention: Chief Executive
Officer
If to the Treasurer: Sun Company, Inc.
Philadelphia, PA 19103
Attention: Treasurer
If to the Company: Sun Company, Inc.
Philadelphia, PA 19103
Attention: General Counsel
If to the Trustee: Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
Attention: Anne Ayoob
If to the Recordkeeper: Towers Perrin
Centre Square West
1500 Market Street
Philadelphia, PA 19102
Attention:
Vice President and Director
If to an Plan Participant, to the address of such Plan Participant provided
by the Recordkeeper.
A Notice shall be deemed received upon the date of delivery if given
personally or, if given by mail, upon the receipt thereof.
<PAGE>
24
Section 18. Trust Beneficiaries
Upon and after a Change in Control of the Company, each Plan Participant is
an intended beneficiary under this Trust, and shall be entitled to enforce
all terms and provisions hereof with the same force and effect as if such
person had been a party hereto.
Section 19. Counterparts
This Trust may be executed in any number of counterparts, each of which
shall be deemed an original, and said counterparts shall constitute but one
and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Trust as of the
date first written above.
SUN COMPANY, INC.
(the "Company")
By: /s/ MALCOLM I. RUDDOCK, JR.
----------------------------
Malcolm I. Ruddock, Jr.
Treasurer
TOWERS PERRIN
(the "Recordkeeper")
By: /s/ CLYDE BEERS
---------------------------
Vice President and Director
MELLON BANK, N.A.
(the "Trustee")
By: /s/ ROBERT T. BORZA
---------------------------
Vice President
<PAGE>
25
APPENDIX A
----------
Additional plans (other than Directors' Deferred Compensation Plan)
and/or agreements, subject to Trust:
(1) Indemnification Agreements with each member of the Sun Company, Inc.
Board of Directors
<PAGE>
1 Exhibit 10.13
SUN COMPANY, INC.
DEFERRED COMPENSATION AND BENEFITS TRUST
TRUST AGREEMENT (the "Trust"), dated February 1, 1996, by and between
Sun Company, Inc., a Pennsylvania corporation (the "Company"), Mellon Bank,
N.A. (the "Trustee") and Towers Perrin (the "Recordkeeper").
WHEREAS, the Company (or certain of its subsidiaries) is or may become
obligated under certain employee benefit plans or agreements to make
payments to certain persons who at any time prior to the occurrence of a
"Change in Control" of the Company (as defined herein) were employees of
the Company (or certain of its subsidiaries) (the "Executives") and their
beneficiaries; and
WHEREAS, in order to assure that future payment of such amounts would
not be improperly withheld in the event of a Change in Control of the
Company, the Company has previously established a trust (hereinafter called
"Trust") the assets of which are subject to the claims of Company's
creditors in the event of Company's Insolvency (as herein defined in
section 5 (a)) until paid to Plan participants and their beneficiaries in
such manner and at such times as specified in the Plans; and
WHEREAS, the Company has determined to amend and restate such Trust in
its entirety, effective as of February 1, 1996, in order to meet the
requirements established in Revenue Procedure 92-64 of the United States
Internal Revenue Service; and
WHEREAS, it is the intention of the parties that this Trust, as so
amended and restated, shall constitute an unfunded arrangement and shall
not affect the status of the Plans as unfunded plans maintained to provide
deferred compensation for a select group of management or highly
compensated employees for purposes of Title I of the Employee Retirement
Income Security Act of 1974;
WHEREAS, it is the intention of Company to make contributions to such
amended and restated Trust to provide itself with a source of funds to
assist it in the meeting of its liabilities under the Plans;
NOW, THEREFORE, the parties do hereby amend and restate the Trust in
its entirety, and agree that such amended and restated Trust shall be
comprised, held and disposed of as follows:
<PAGE>
2
Section 1. The Plans
(a) The plans and/or agreements that are subject to this Trust
(collectively referred to as the "Plans") are listed on Appendix A
hereto. Prior to a Change in Control of the Company, the Compensation
Committee of the Board of Directors of the Company (the "Compensation
Committee") may from time to time designate additional plans and/or
agreements that are subject to this Trust (collectively referred to as
the "Plans") or delete any Plan from this Trust.
(b) The Company (or certain of its subsidiaries) shall continue to be
liable to the Executives to make all payments required under the terms
of the Plans to the extent such payments have not been made pursuant
to this Trust. Distributions made from the Trust to or for Executives
in respect of the Plans pursuant to Section 4 hereof, shall, to the
extent of such distributions, satisfy the Company's (or certain of its
subsidiaries') obligation to pay benefits to such Executives under the
Plans.
Section 2. Establishment of Trust
(a) Company hereby deposits with Trustee in trust the sum of $100 in cash
which shall become the principal of the Trust to be held, administered
and disposed of by Trustee as provided in this Trust Agreement.
(b) The Trust hereby established is revocable by Company; it shall become
irrevocable upon a Change of Control, as defined herein.
(c) The Trust is intended to be a grantor trust, of which Company is the
grantor, within the meaning of subpart E, part I, subchapter J,
chapter 1, subtitle A of the Internal Revenue Code of 1986, as
amended, and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon shall be held
separate and apart from other funds of Company and shall be used
exclusively for the uses and purposes of Plan participants and general
creditors as herein set forth. Plan participants and their
beneficiaries shall have no preferred claim on, or any beneficial
ownership interest in, any assets of the Trust. Any rights created
under the Plans and this Trust Agreement shall be mere unsecured
contractual
<PAGE>
3
rights of Plan participants and their beneficiaries against Company. Any
assets held by the Trust will be subject to the claims of Company's general
creditors under federal and state law in the event of Insolvency, as
defined in Section 5(a) herein.
(e) In the event of a Potential Change in Control of the Company, an additional
amount of cash (or property acceptable to the Trustee having a fair market
value equal to such amount, or some combination thereof), representing the
sum of the amounts, determined as provided below, plus an amount equal to
5% of that amount to provide for expenses and other costs of maintaining
the Trust (collectively, the "Required Funding Amount"), shall be delivered
not later than 30 days after the occurrence of a Potential Change in
Control of the Company (as defined in Section 13(e) hereof).
(f) In the event the Compensation Committee designates additional Plans that
are subject to this Trust and/or Plans subject to this Trust are amended
after a Potential Change in Control of the Company, the Treasurer shall,
unless the Trust Corpus shall theretofore have been released pursuant to
Section 6(a) hereof, recalculate the Required Funding Amount. If the amount
so calculated exceeds the fair market value of the assets then held in
trust, the Company shall promptly (and in no event later than 30 days from
the date of such recalculation) pay to the Trustee an amount of cash (or
property acceptable to the Trustee having a fair market value equal to such
amount, or some combination thereof) equal to such excess. If the Required
Funding Amount so calculated is less than the fair market value of the
assets held in trust, the Trustee shall retain such difference.
(g) If, subsequent to a Control Transaction which has not been expressly
approved by at least a majority vote of the Continuing Directors, there is
a Change in Control, Company shall, as soon as possible, but in no event
longer than one (1) day following the Change in Control, as defined herein,
make an irrevocable contribution to the Trust in an amount that is
sufficient to pay each Plan participant or beneficiary the benefits to
which Plan participants or their beneficiaries would be entitled pursuant
to the terms of the Plans as of the date on which the Change of Control
occurred. This Required Funding Amount shall be determined in a way that
will provide the Trust with sufficient assets, taking into consideration
Section 3(e), to pay all benefits accrued by the Executives through the
date of the Change in Control of the Company under the terms of the Plans
in effect on such date. The Company agrees not to challenge the Treasurer's
calculation of the required Funding Amount upon and after a Change in
Control of the Company.
<PAGE>
4
(h) The Company agrees to pay interest on any delinquent payment of the
Required Funding Amount from the date of a Change in Control of the
Company, based upon the daily average of the prime rate charged by the
Trustee.
(i) In determining the Required Funding Amount with respect to any payment
or series of payments expected to be due more than one year after the
date as of which the required Funding Amount is to be determined, the
present value of such payment or series of payments shall be
calculated by using a discount rate equal to one percentage point less
than the then lowest annual yield to maturity on United States
Treasury obligations having then remaining maturities approximately
equal to the maturity of the payment or payments being valued.
(j) Payment by the Company pursuant to Section 2(a) and 2(e) hereof shall
be accompanied by a schedule delivered to the Recordkeeper (as
described in Section 4(d) of the individual Plans for whose accounts
such payment is being made, which schedule sets forth the amounts
delivered in respect of each of the Plans. The Recordkeeper shall
maintain in an equitable manner an account for each Plan (the
"Account"). Each Account shall consist of contributions to and
payments from the Trust Corpus which are allocable to the Plan, and
earnings thereon, less disbursements therefrom attributable to the
interest of the Plan in the entire Trust Corpus.
Section 3. Investment Authority
(a) As used herein, the term "Trust Corpus" shall mean the amounts
delivered to the Trustee pursuant to the terms hereof, less amounts
distributed from the Trust pursuant to the terms hereof, plus all
income earned by the Trust, in whatever form held or invested as
provided herein.
(b) Trustee may invest in securities (including stock or rights to acquire
stock) or obligations issued by Company. All rights associated with
assets of the Trust shall be exercised by Trustee or the person
designated by Trustee, and shall in no event be exercisable by or rest
with Plan participants. Subject to investments guidelines agreed to
in writing from time to time by the Trustee and the Benefit Plans
Investment Committee until a Change in Control occurs, the Trustee
shall have the following powers and discretion in addition to those
conferred by law:
<PAGE>
5
(1) To invest and reinvest the Trust Corpus in such stocks (of any
classification, including common and preferred stocks), bonds, or
other property (real, personal or mixed) and interests in
investment companies and investment trusts;
(2) To sell, exchange, convey, transfer or dispose of, and also to
grant options with respect to, any property, whether real or
personal, at any time held by it by private contract or by public
auction, for cash or upon credit, or partly for cash and partly
upon credit, as the Trustee may deem best, and no person dealing
with the Trustee shall be bound to see to the application of the
purchase money or to inquire into the validity, expediency or
propriety of any such sale or other disposition;
(3) To acquire, hold and dispose of any real estate, at such time, in
such manner and upon such terms as the Trustee may deem
advisable; to retain, manage, operate, repair, improve,
partition, mortgage or lease for any term or terms of years any
such real estate, or to exchange all or any part thereof for
other real estate, upon such terms and conditions as the Trustee
deems proper, using other trust assets for any of such purposes
if deemed advisable;
(4) To compromise, compound and settle any debt or obligation due to
or from the Trust and to reduce the rate of interest thereon, to
extend or otherwise modify, or to foreclose upon default or
otherwise enforce or act with respect to any such obligation as
the Trustee may deem advisable;
(5) With respect to stocks, bonds or securities excluding stocks,
bonds or securities of the Company, to vote, in person or by
general or limited proxy, any stocks or other securities at any
time held in the Trust Corpus, at any meeting of stockholders or
security holders, in respect to any business which may come
before the meeting; to exercise any options appurtenant to any
stocks, bonds or other securities for the conversion thereof into
other stocks, bonds or securities; to exercise or sell any
conversion or subscription rights appurtenant to any stocks,
bonds or other securities at any time held in the Trust Corpus,
and to make any and all necessary payments therefor; to join in,
and to approve, or to dissent from and to oppose, any
<PAGE>
6
corporate act or proceeding, including any reorganization,
recapitalization, consolidation, merger, dissolution,
liquidation, sale of assets or other action by or plan in respect
of corporations or properties, the stocks or securities of which
may at any time be held in the Trust Corpus; to deposit with any
committee or depository, pursuant to any plan or agreement of
protection, reorganization, consolidation, sale, merger, or other
readjustment, any property held in the Trust Corpus; and to make
payment from the Trust Corpus of any charges or assessments
imposed by the terms of any such plan or agreement;
(6) With respect to stocks, bonds or securities of the Company, the
Trustee shall exercise the powers under Section 3(b)(5) at its
discretion.
(7) To accept and hold any securities or other property received by
it under the provisions of any of the subdivisions of this
Article whether or not the Trustee would be authorized hereunder
then to invest therein;
(8) To borrow money upon such terms and conditions at the Trustee
shall deem advisable to carry out the purposes of the Trust and
to pledge securities or other property of the Trust Corpus in
repayment of any such loan;
(9) To enforce any right, obligation or claim and in general to
protect in any way the interest of the Trust Corpus, either
before or after default, and in case the Trustee shall, in its
discretion, consider such action for the best interest of the
Trust Corpus, to abstain from the enforcement of any right,
obligation or claim and to abandon any property, whether real or
personal which at any time may be held by the Trustee;
(10) To make, execute, acknowledge and deliver any and all deeds,
leases, assignments transfers, conveyances and any and all other
instruments necessary or appropriate to carry out any powers
herein granted;
(11) To cause any investments from time to time held by it hereunder
to be registered in, or transferred into, its name as Trustee or
the name of its nominee or nominees, and with or without
designation of fiduciary capacity, or to retain any investments
unregistered or in form permitting transfer by delivery, but the
books and records of the Trustee shall at all times show that all
such investments are part of the Trust Corpus;
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7
(12) To hold any part or all of the Trust Corpus uninvested; and
(13) To do all acts which may be necessary or proper and to exercise
any and all of the powers of the Trustee under this Agreement
upon such terms and conditions as to the Trustee may seem in the
best interests of the Trust Corpus.
(c) Upon and after a Change in Control, the Trustee shall use its good
faith efforts to invest or reinvest all or such part of the Trust
Corpus as it believes prudent under the circumstances (taking into
account, among other things, anticipated cash requirements for the
payment of benefits under the Plans communicated to the Trustee by the
Recordkeeper) solely in direct obligations of the United States of
America or agencies thereof or obligations unconditionally and fully
guaranteed as to principal and interest by the United States of
America, and with respect to such investments the Trustee shall have
the powers and discretion set forth in Section 3(b) in addition to
those conferred by law; provided, however, that the Trustee shall not
be liable for any failure to maximize the income earned on that
portion of the Trust Corpus as is from time to time invested or
reinvested as set forth under Section 3(c), nor for any loss of income
due to liquidation of any investment which liquidation is necessary to
make payments or to reimburse expenses under the terms of this Trust.
(d) All losses of income or principal in respect of, and expenses
(including taxes and, as provided in Section 9 hereof, any expenses
of the Trustee) charged against, the Trust Corpus shall be for the
account of the Company and the Company shall be obligated to reimburse
the Trust Corpus for any loss in principal amount of, or expense
charged against, the Trust Corpus except to the extent that such
amounts have been applied to reduce amounts payable by the Company (or
certain of its subsidiaries) pursuant to Section 4 hereof. The
Trustee shall promptly notify the Company in writing of the amount of
such reimbursement. The Company agrees that, upon receipt of such
notice, it will deliver to the Trustee to be held in the Trust an
amount in cash equal to any reimbursement amount specified by the
Trustee, together with interest from the date of receipt of such
notice based upon the daily average of the prime rate charged by the
Trustee.
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8
(e) Company shall have the right at any time, and from time to time in its
sole discretion, to substitute assets of equal fair market value for
any asset held by the Trust. This right is exercisable by Company in
a nonfiduciary capacity without the approval or consent of any person
in a fiduciary capacity.
Section 4. Payments to Plan Participants and Their Beneficiaries
(a) By its acceptance of this Trust the Trustee hereby agrees to the
designation by the Company of Towers Perrin as its recordkeeper
("Recordkeeper") under this Trust. It is recognized that the Trustee
shall have no responsibility hereunder for the continued retention of
the Recordkeeper and/or any responsibility assigned to said
Recordkeeper or its performance thereof. Upon and after a Change in
Control of the Company, the Trustee shall have the sole authority to
retain, dismiss or appoint the Recordkeeper for the Trust on such
terms and conditions as the Trustee deems appropriate. The Company
shall pay or reimburse the Trustee for all fees and expenses of the
Recordkeeper.
(b) Except for the records dealing solely with the Trust Corpus and its
investment, which shall be maintained by the Trustee, the Recordkeeper
shall maintain all the records contemplated by this Agreement,
including the maintenance of the separate Accounts of each Plan under
this Trust and the maintenance of Executives' Plan interests. The
Recordkeeper shall also be responsible for information with respect to
payments to Executives and shall perform such other duties and
responsibilities as the Trustee determines are necessary or advisable
to achieve the objectives of this Trust.
(c) Upon the establishment of this Trust or as soon thereafter as practicable,
the Company shall furnish to the Recordkeeper all the information necessary
to determine the benefits payable to or with respect to each Executive in
each Plan, including any benefits payable after the Executive's death and
the recipient of same. The Company shall regularly, at least annually,
furnish revised up-dated information to the Recordkeeper. In the event the
Company refuses or neglects to provide updated Executive information, as
contemplated herein, the Recordkeeper shall be entitled to rely upon the
most recent information furnished to it by the Company.
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9
(d) The Recordkeeper, on behalf of the Company, shall deliver to Trustee a
schedule (the "Payment Schedule") that indicates the amounts payable in
respect of each Plan participant (and his or her beneficiaries), that
provides a formula or other instructions acceptable to Trustee for
determining the amounts so payable, the form in which such amount is to be
paid (as provided for or available under the Plans), and the time of
commencement for payment of such amounts. Except as otherwise provided
herein, Trustee shall make payments to the Plan participants and their
beneficiaries in accordance with such Payment Schedule. The Trustee shall
make provision for the reporting and withholding of any federal, state or
local taxes that may be required to be withheld with respect to the payment
of benefits pursuant to the terms of the Plans and shall pay amounts
withheld to the appropriate taxing authorities or determine that such
amounts have been reported, withheld and paid by Company.
(e) The entitlement of a Plan participant or his or her beneficiaries to
benefits under the Plans shall be determined by the Recordkeeper, on
behalf of the Company, and any claim for such benefits shall be
considered and reviewed under the procedures set out in the Plans and
this Trust Agreement.
(f) The Company may make payment of benefits directly to Plan participants or
their beneficiaries as they become due under the terms of the Plans.
Company shall notify Trustee and Recordkeeper of its decision to make
payment of benefits directly prior to the time amounts are payable to
participants or their beneficiaries. In addition if the principal of the
Trust, and any earnings thereon, are not sufficient to make payments of
benefits in accordance with the terms of the Plans, Company shall make the
balance of each such payment as it falls due. Trustee shall notify Company
where principal and earnings are not sufficient.
(g) The Recordkeeper shall notify the Executive or the beneficiary of a
deceased Executive that Executive's benefits under a Plan have become
payable. Such notice shall include the amount of such benefits, the
manner of payment and the name, address and social security number of
the Executive.
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10
(h) All benefits payable from the Trust Corpus to an Executive or his
beneficiary under a Plan shall be paid solely from the Account of such
Plan. Upon the satisfaction of all liabilities under a Plan in respect of
Executives under a Plan, the Recordkeeper shall prepare a certification to
the Trustee showing the balance, if any, remaining in the Account for such
Plan. Such balance shall thereupon be reallocated ratably by the
Recordkeeper to the Accounts of other Plans covered by this Agreement
(including Accounts which may have previously been reduced to a zero
balance) in the ratio that liabilities in respect of each such Plan bear to
the total liabilities of all such Plans. Upon the satisfaction of all
liabilities of the Company under all Plans, the Recordkeeper shall prepare
a certification to the Trustee and the Trustee shall thereupon distribute
the Trust Corpus to the Company. The Trustee and the Recordkeeper shall
have no responsibility for determining whether any Executive or beneficiary
has died and shall be entitled to rely upon information furnished by the
Company.
(i) Except as otherwise provided herein, in the event of any final
determination by the Internal Revenue Service or a court of competent
jurisdiction, which determination is not appealable or with respect to
which the time for appeal has expired, or the receipt by the Trustee
of a substantially unqualified opinion of tax counsel selected by the
Trustee, which determination determines, or which opinion opines, that
the Executives or any particular Executive, is subject to federal
income taxation on amounts held in Trust hereunder prior to the
distribution to the Executives or Executive of such amounts, the
Trustee, on receipt by the Trustee, of such opinion or notice of such
determination, shall pay to each Executive the portion of the Trust
Corpus includible in such Executive's federal gross income.
(j) The Company agrees to indemnify and hold harmless the Recordkeeper
from and against any and all damages, losses, claims, fees or expenses
as incurred (including expenses of investigation and fees or expenses
as incurred (including expenses of investigation and fees and
disbursements of counsel to the Recordkeeper) arising out of or in
connection with the performance by the Recordkeeper of its duties
hereunder. Any amount payable to the Recordkeeper under paragraph (a)
of this Section 4 or this paragraph (j) and not previously paid by the
Company shall be paid by the Company promptly upon demand therefore by
the Trustee or, if not paid by the Company within 30 days of the
Trustee's demand, from the Trust Corpus. In the event that payment is
made hereunder to the Recordkeeper from the Trust Corpus,
<PAGE>
11
the Trustee shall promptly notify the Company in writing of the amount of
such payment. The Company agrees that, upon receipt of such notice, it will
deliver to the Trustee to be held in the Trust an amount in cash equal to
any payments made from the Trust Corpus to the Trustee pursuant to
paragraph (a) of this Section 4 or this paragraph (j), together with
interest from the date of receipt of such notice based upon the daily
average of the prime rate charged by the Trustee. The failure of the
Company to transfer any such amount shall not in any way impair the
Recordkeeper's right to indemnification, reimbursement and payment pursuant
to paragraph (a) of this Section 4 or this paragraph (j).
(k) The Recordkeeper may resign and be discharged from its duties hereunder at
any time by giving notice in writing of such resignation to the Company, or
if a Change in Control shall previously have occurred, the Trustee,
specifying a date (not less than 30 days after the giving of such notice)
when such resignation shall take effect. Promptly after such notice, the
Company, or if a Change in Control shall previously have occurred, the
Trustee, shall appoint a successor recordkeeper, such recordkeeper to
become Recordkeeper hereunder upon the resignation date specified in such
notice. If the Company or the Trustee is unable to appoint a successor
recordkeeper within 60 days after such notice, the Recordkeeper shall be
entitled, at the expense of the Company, to petition a United States
District Court or any court of competent jurisdiction in the state in which
the Recordkeeper maintains its principal place of business to appoint its
successor. The Recordkeeper shall continue to serve until its successor
accepts the responsibility of recordkeeper. The Company, or if a Change in
Control shall previously have occurred, the Trustee, may at any time
substitute a new recordkeeper by giving 15 days notice thereof of the
Recordkeeper then acting. In the event of such removal or resignation, the
Recordkeeper shall provide its successor with the records and information
in its possession relating to the performance of its duties under this
Trust.
Section 5. Trustee Responsibility Regarding Payments to Trust Beneficiary
When Company Is Insolvent.
(a) Trustee shall cease payment of benefits to Plan participants and their
beneficiaries if the Company is Insolvent. Company shall be
considered "Insolvent" for purposes of this Trust Agreement if (i)
Company is unable to pay its debts as they become due, or (ii) Company
is subject to a pending proceeding as a debtor under the United States
Bankruptcy Code.
<PAGE>
12
(b) At all times during the continuance of this Trust, as provided in
Section 1(D) hereof, the principal and income of the Trust shall be
subject to claims of general creditors of Company under federal and
state law as set forth below.
(1) The Board of Directors and the Chief Executive Officer of Company
shall have the duty to inform Trustee in writing of Company's
insolvency. If a person claiming to be a creditor of Company
alleges in writing to Trustee that Company has become Insolvent,
Trustee shall determine whether Company is Insolvent and, pending
such determination, Trustee shall discontinue payment of benefits
to Plan participants or their beneficiaries.
(2) Unless Trustee has actual knowledge of Company's insolvency, or
has received notice from Company or a person claiming to be a
creditor alleging that Company is Insolvent, Trustee shall have
no duty to inquire whether Company is Insolvent. Trustee may in
all events rely on such evidence concerning Company's solvency as
may be furnished to Trustee and that provides Trustee with a
reasonable basis for making a determination concerning Company's
solvency.
(3) If at any time Trustee has determined that Company is Insolvent,
Trustee shall discontinue payments to Plan participants or their
beneficiaries and shall hold the assets of the Trust for the
benefit of Company's general creditors. Nothing in this Trust
Agreement shall in any way diminish any rights of Plan
participants or their beneficiaries to pursue their rights as
general creditors of Company with respect to benefits due under
the Plans or otherwise.
(4) Trustee shall resume the payments of benefits to Plan
participants or their beneficiaries in accordance with Section 4
of this Trust Agreement only after Trustee has determined that
Company is not Insolvent (or is no longer Insolvent).
<PAGE>
13
(c) Provided that there are sufficient assets, if Trustee discontinues the
payment of benefits from the Trust pursuant to Section 5(b) hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to
Plan participants or their beneficiaries under the terms of the Plans for
the period of such discontinuance, less the aggregate amount of any
payments made to Plan participants or their beneficiaries by Company in
lieu of the payments provided for hereunder during any such period of
discontinuance.
Section 6. Payments to Company
(a) In the event the Company delivers the Required Funding Amount to the
Trustee because of a Potential Change in Control, the Trust Corpus shall be
returned to the Company one year after delivery of the Required Funding
Amount to the Trustee unless a Change in Control shall have occurred during
such one-year period. Such one-year period shall recommence in the event of
and upon the date of any subsequent Potential Change in Control. If another
Potential Change in Control should occur after the Trust Corpus has been
returned to the Company as provided in this Section 6(a), the Company shall
deliver a new Required Funding Amount to the Trustee pursuant to Section 2.
The Company shall notify the Trustee of the occurrence of a Potential
Change in Control and Change in Control and the Trustee may rely on such
notice.
(b) Except as provided in Section 5 hereof, after the trust has become
irrevocable, Company shall have no right or power to direct Trustee to
return to Company or to divert to others any of the Trust assets before all
payment of benefits have been made to Plan participants and their
beneficiaries pursuant to the terms of the Plans.
Section 7. Disposition of Income.
During the term of this trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
Section 8. Claims Procedures
(a) The Company agrees that by establishment of this Trust it hereby forgoes
any review (judicial or otherwise) of certifications by the Recordkeeper as
to the benefit payable to any persons hereunder.
<PAGE>
14
(b) If a dispute arises as to the amounts or timing of any benefits or the
persons entitled thereto under this Trust, such dispute shall be resolved
under a claims review procedure established and maintained by the
Recordkeeper that includes the following:
(1) The manner in which a claim is made.
(2) Provisions to the effect that, in the event of a denial of a claim as
to the amount of any distribution and/or the method of payment under
any Plan by the Recordkeeper, a claimant will be given notice in
writing of such detail within 90 days, which notice will set forth the
reason for the denial, the pertinent Plan provision on which the
denial is based, a description of the information necessary to perfect
the claim and an explanation of why such information is necessary, and
appropriate steps to be taken by the claimant to submit the claim for
review.
(3) Provisions to the effect that the claimant may request a review of
such denial by filing notice in writing with the Recordkeeper, within
60 days after receipt of such denial, may review pertinent documents
and may submit issues and comments in writing.
(4) Provisions for the Recordkeeper, in its discretion, to request a
meeting to clarify an immediate matters it deems appropriate.
(5) Provisions to the effect that all interpretations, determinations, and
decisions of the Recordkeeper in respect to any matter will be final,
conclusive, and binding upon the claimant.
(c) By making a Plan subject to the Trust, the claims review procedures of
paragraph (b) of this Section 8 supersede any claims review procedures in
the Plan to the extent of any benefits payable from the Trust.
Section 9. Trustee
(a) The duties and responsibilities of the Trustee shall be limited to those
expressly set forth in this Trust, and no implied covenants or obligations
shall be read into this trust against the Trustee.
<PAGE>
15
(b) The Trustee shall maintain such books, records and accounts as may be
necessary for the proper administration of the Trust Corpus and shall
render to the Company (and the Executives after a Change in Control of the
Company has occurred), on or prior to each April 1 following the date this
Trust was created until the termination of this Trust (and on the date of
such termination), an accounting with respect to the Trust Corpus as of the
end of the then most recent calendar year (and as of the date of such
termination). Unless the Company (or any Executive after a Change in
Control of the Company has occurred) shall have filed with the Trustee
written exceptions or objections to any such statement and account within
180 days after receipt thereof, the Company or any Executive, as the case
may be, shall be deemed to have approved such statement and account, and in
such case the Trustee shall be forever released and discharged with respect
to all matters and things reported in such statement and account as though
it had been settled by a decree of a court of competent jurisdiction in an
action or proceeding to which the Company and any Executive were parties.
(c) The Trustee shall not be liable for any act taken or omitted to be taken
hereunder if taken or omitted to be taken by it in good faith. The Trustee
shall also be fully protected in relying upon any notice given hereunder
which it in good faith believes to be genuine and executed and delivered in
accordance with this Trust.
(d) The Trustee may consult with legal counsel to be selected by it, and the
Trustee shall not be liable for any action taken or suffered by it in good
faith in accordance with the advice of such counsel.
(e) The Trustee shall be reimbursed by the Company for its reasonable expenses,
including without limitation any expenses incurred under paragraph (g) of
this Section 9, incurred in connection with the performance of its duties
hereunder and shall be paid such fees for the performance of such duties as
may be agreed upon in writing from time to time between the Company and the
Trustee. After a Change in Control of the Company has occurred, the fees of
the Trustee shall be determined by the application of the current rates
then charged by the Trustee for the provision of the types of investment
and trustee services contemplated in this Trust to trusts of a similar
character. The Trustee's reasonable expenses and fees shall be paid in the
manner provided by paragraph (f) of this Section 9.
<PAGE>
16
(f) The Company agrees to indemnify and hold harmless the Trustee from and
against any and all damages, losses, claims or expenses as incurred
(including expenses of investigation and fees and disbursements of counsel
to the Trustee and any taxes imposed on the Trust Corpus or income of the
Trust) arising out of or in connection with the performance by the Trustee
of its duties hereunder. Any amount payable to the Trustee under paragraph
(e) of this Section 9 or this paragraph (f) and not previously paid by the
Company shall be paid by the Company promptly upon demand therefore by the
trustee or, if the Trustee so chooses in its sole discretion, from the
Trust Corpus. In the event that payment is made hereunder to the Trustee
from the Trust Corpus, the Trustee shall promptly notify the Company in
writing of the amount of such payment. The Company agrees that, upon
receipt of such notice, it will deliver to the Trustee to be held in the
Trust an amount in cash equal to any payments made from the Trust Corpus to
the Trustee pursuant to paragraph (e) of this Section 9 or this paragraph
(f), together with interest from the date of receipt of such notice based
upon the daily average of the prime rate charged by the Trustee. The
failure of the Company to transfer any such amount shall not in any way
impair the Trustee's right to indemnification, reimbursement and payment
pursuant to paragraph (e) of this Section 5.01 or this paragraph (f).
(g) The Trustee is specifically authorized and required to take such action as
may be necessary or appropriate, including the institution of litigation or
other legal process, to enforce the Company's obligations hereunder or
under the Plans on behalf of either itself or the Executives, and any
expenses thus incurred by the Trustee shall be paid or reimbursed by the
Company pursuant to paragraphs (e) and (f) of this Section 9.
(h) Trustee shall have, without exclusion, all powers conferred on Trustees by
applicable law, unless expressly provided otherwise herein, provided,
however, that if an insurance policy is held as an asset of the Trust,
Trustee shall have no power to name a beneficiary of the policy other than
the Trust, to assign the policy (as distinct from conversion of the policy
to a different form) other than to a successor Trustee, or to loan to any
person the proceeds of any borrowing against such policy.
<PAGE>
17
(i) Notwithstanding any powers granted to Trustee pursuant to this Trust
Agreement or to applicable law, Trustee shall not have any power that could
give this Trust the objective of carrying on a business and dividing the
gains therefrom, within the meaning of Section 301.7701-2 of the Procedure
and Administrative Regulations promulgated pursuant to the Internal Revenue
Code.
Section 10. Resignation and Removal of Trustee.
(a) The Trustee may resign at any time by written notice to the Company, which
shall be effective 30 days after receipt of such notice unless Company and
Trustee agree otherwise. If a Change of Control shall previously have
occurred, the Trustee shall give such resignation notice, in writing, to
the Company and the Executives, specifying a date (not less than 30 days
after the giving of such notice) when such resignation shall take effect.
Promptly after such notice, the Company, or if a Change in Control shall
previously have occurred, the Company and at least 80% of the Executives
then entitled to receive payments hereunder, shall appoint a successor
trustee, such trustee to become Trustee hereunder upon the resignation date
specified in such notice. If the Company and such Executives are unable to
appoint a successor trustee within 60 days after such notice, the Trustee
shall be entitled, at the expense of the Company, to petition a United
States District Court or any court of competent jurisdiction in the state
in which the Trustee maintains its principal place of business to appoint
its successor, in accordance with section 10(c). The Trustee shall continue
to serve until its successor accepts the Trust and receives delivery of the
Trust Corpus. The Company, or if a Change in Control shall previously have
occurred, the Company and at least 80% of the Executives then entitled to
receive payments hereunder, may at any time substitute a new trustee by
giving 15 days notice thereof to the Trustee then acting. In the event of
such removal or resignation, the Trustee shall duly file with the Company
and, on and after a Change in Control, the Executives, a written statement
or statements of accounts and proceedings as provided in Section 9(b)
hereof for the period since the last previous annual accounting of the
Trust, and if written objections to such account are not filed as provided
in Section 9(b) hereof, the Trustee shall to the maximum extent permitted
by applicable law be forever released and discharged from all liability and
accountability with respect to the propriety of its acts and transactions
shown in such account. The Trustee and any successor thereto appointed
hereunder shall be a corporate professional trustee which is not an
affiliate of the Company but which has equity in excess of $100,000,000.00.
<PAGE>
18
(b) Upon resignation or removal of Trustee and appointment of a successor
Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within 30 days after receipt of
notice of resignation, removal or transfer, unless Company extends the time
limit.
(c) If Trustee resigns or is removed, a successor shall be appointed, in
accordance with Section 10 hereof, by the effective date of resignation or
removal under paragraph (a) of this section. If no such appointment has
been made, Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of Trustee in
connection with the proceeding shall be allowed as administrative expenses
of the Trust.
Section 11. Termination
Except as provided herein, this Trust shall be irrevocable. At any time prior to
a Change in Control of the Company, this Trust may be terminated by the
Compensation Committee. Upon or after a Change in Control of the Company, this
trust shall not terminate until the date on which Plan participants and their
beneficiaries are no longer entitled to benefits pursuant to the terms of the
Plans unless sooner revoked in accordance with Section 2(b) hereof. Upon
termination of the Trust any assets remaining in the Trust shall be returned to
Company.
Section 12. Amendment or Waiver
(a) This Trust may be amended by a written instrument executed by Trustee and
Company. Notwithstanding the foregoing, no such amendment shall conflict
with the terms of the Plans or shall make the Trust revocable after it has
become irrevocable in accordance with Section 2(b) hereof.
(b) Upon and after a Change in Control of the Company, the following rules will
govern amendments and waivers: (1) this Trust may not be amended except by
an instrument in writing signed on behalf of the parties hereto together
with the written consent of at least 80% of the Executives then entitled to
receive payments hereunder; (2) the parties hereto, together with the
consent of not less than 80% of the Executives then entitled to receive
payments hereunder, may at any time waive compliance with any of the
agreements or conditions contained herein; (3) any agreement on the part of
a party hereto or an Executive to any such waiver shall be valid if set
forth in an instrument in writing signed on behalf of such party or
Executive; and (4) no such
<PAGE>
19
amendment or waiver relating to this Trust may be made with respect to a
particular Executive unless such Executive has agreed in writing to such
amendment or waiver.
Section 13. Miscellaneous.
(a) Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such without invalidating the remaining
provisions hereof.
(b) Benefits payable to plan participants and their beneficiaries under this
Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated pledge, encumbered or subjected to attachment,
garnishment, levy, execution or other legal or equitable process.
(c) For purposes of this Trust, the phrase "subsequent to a Control Transaction
which has not been expressly approved by at least a majority vote of the
Continuing Directors, there is a change in Control" shall be determined by
applying the following definitions:
(1) "Control Transaction" shall mean any of the following transactions or
any combination thereof: (A) any tender offer for or acquisition of
capital stock of the Company, (B) any merger, consolidation, or sale
of all or substantially all of the assets of the Company, or (C) the
submission of a nominee or nominees for the position of director of
the Company by shareholder or a Group of shareholders in a proxy
solicitation or otherwise.
(2) "Continuing Director" shall mean a Director who was a member of the
Board of Directors immediately prior to a Control Transaction which
results in a Change in Control.
(3) "Change in Control" shall be deemed to have occurred for purposes of
this Plan, if (A) Continuing Directors cease, within one year of a
Control Transaction, to constitute a majority of the Board (or of the
Board of Directors of any successor to the Company or to all or
substantially all of its assets) or (B) any entity, person or Group
acquires shares of the Company in a transaction or series of
transactions that result in such entity, person or Group directly or
indirectly owning beneficially more than fifty percent (50%) of the
outstanding voting shares.
<PAGE>
20
(4) "Group" shall mean persons who act in concert as described in Sections
13(d)(3) and/or 14(d)(2) of the Securities Exchange Act of 1934, as
amended.
(d) For purposes of this Trust, a "potential Change in Control" of the Company
shall be deemed to have occurred if subsequent to the effective date of the
Trust any of the following events or transactions has occurred: (1) any
Person (other than the Company) makes a tender offer for capital stock of
the Company; (2) and Person becomes the beneficial owner, directly or
indirectly, of capital stock of the Company in an amount which requires the
filing of Schedule 13D or its equivalent form pursuant to the Rules and
Regulations under the Securities Exchange Act of 1934 as may from time to
time be amended; (3) the submission of a nominee or nominees for the
position of director of the Company by a shareholder or shareholders in a
proxy solicitation or otherwise which, in its judgment the Board of
Directors determines by adoption of a resolution within 30 days of such
submission, might result in a Change in Control of the Company; (4) any
Person files a pre-merger notification for the acquisition of capital stock
of the Company pursuant to the Hart-Scott-Rodino Act; or (5) the Board of
Directors of the Company in its judgment determines by adoption of a
resolution that a Potential Change in Control of the Company for purposes
of this trust has occurred.
Section 14. Further Assurances
The Company shall, at any time and from time to time, upon the reasonable
request of the Trustee and/or Recordkeeper, execute and deliver such further
instruments and do such further acts as may be necessary or proper to effectuate
the purposes of this Trust.
Section 15. Certain Provisions Relating to This Trust
(a) This Trust sets forth the entire understanding of the parties with respect
to the subject matter hereof and supersedes any an all prior agreements,
arrangements and understandings relating thereto. This Trust shall be
binding upon and inure to the benefit of the parties and their respective
successors and legal representatives.
(b) This Trust shall be governed by and construed in accordance with the laws
of the Commonwealth of Pennsylvania, other than and without reference to
any provisions of such laws regarding choice of laws of conflict of laws.
The situs of this Trust shall be Philadelphia County, Pennsylvania.
<PAGE>
21
(c) The interests of the Executives hereunder are not subject to assignment or
alienation.
(d) Nothing in this Trust shall in any way diminish any rights of a Executive
to pursue his rights as a general creditor of the company (or certain of
its subsidiaries) under the Plans.
(e) The Trustee by joining in the execution of this Trust hereby signifies its
acceptance of the Trust hereby created.
(f) In the event that any provision of this Trust or the application thereof to
any person or circumstances shall be determined by a court of proper
jurisdiction to be invalid or unenforceable to any extent, the remainder of
this Trust, or the application of such provision to persons or
circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby, and each provision of this
Trust shall be valid and enforced to the fullest extent permitted by law.
Section 16. Authorization
(a) Any action of the Board of Directors or by the Compensation Committee
pursuant to this Trust shall be evidenced by a resolution adopted by the
Board of Directors (or a duly authorized committee thereof) or the
Compensation Committee that is certified to the Trustee and Recordkeeper by
the Secretary or an Assistant Secretary of the Company under its corporate
seal, and the Trustee and Recordkeeper shall be fully protected in acting
in accordance with such resolution.
(b) Any action of the Benefit Plans Investment Committee pursuant to this Trust
shall be evidence by a written notice or direction to such effect over the
signature of any member (or duly authorized representative) of the Benefit
Plans Investment Committee, and the Trustee and the Recordkeeper shall be
fully protected in acting in accordance with such resolution. The Company
shall provide to the Trustee and the Recordkeeper in writing from time to
time the names and specimen signatures of all persons designated as members
of the Benefit Plans Investment Committee. The Benefit Plans Investment
Committee shall provide to the Trustee and the Recordkeeper in writing from
time to time the names and specimen signatures of the person or persons
authorized to act on its behalf. The Trustee and the Recordkeeper shall be
fully protected in acting in accordance with such notices or directions.
<PAGE>
22
(c) Any action of the Chief Executive Officer or Treasurer pursuant to this
Trust shall be evidence by a written notice or direction to such effect
over the signature of such officer, and the Trustee and the Recordkeeper
shall be fully protected in acting in accordance with such notices or
directions.
(d) Any action of the Company pursuant to this Trust shall be evidenced by a
written notice or direction to such effect over the signature of any
officer or other representative of the Company who shall have been
certified to the Trustee and the Recordkeeper by the President, Treasurer
or Secretary of the Company as having such authority. The President,
Treasurer or Secretary of the Company shall provide to the Trustee and the
Recordkeeper in writing from time to time the names and specimen signatures
of the officers and other representatives authorized to act on behalf of
the Company. The Trustee and the Recordkeeper shall be fully protected in
acting in accordance with such notices or directions.
Section 17. Notices
Any notice, report, demand or waiver required or permitted hereunder shall be in
writing and shall be given personally or by prepaid registered or certified
mail, return receipt requested, addressed as follows:
If to the Board of Directors: Sun Company, Inc.
Philadelphia, PA 19103
Attention: Corporate Secretary
If to the Compensation
Committee: Sun Company, Inc.
Philadelphia, PA 19103
Attention: Secretary
Compensation Committee
If to the Benefit
Plans Investment Committee: Sun Company, Inc.
Philadelphia, PA 19103
Attention: Secretary, Benefit
Plans Investment Committee
If to the Chief Executive
Officer: Sun Company, Inc.
Philadelphia, PA 19103
Attention: Chief Executive
Officer
<PAGE>
23
If to the Treasurer: Sun Company, Inc.
Philadelphia, PA 19103
Attention: Treasurer
If to the Company: Sun Company, Inc.
Philadelphia, PA 19103
Attention: General Counsel
If to the Trustee: Mellon Bank, N.A.
One Mellon Bank Center
Pittsburgh, PA 15258
Attention: Anne Ayoob
If to the Recordkeeper: Towers Perrin
Centre Square West
1500 Market Street
Philadelphia, PA 19102
Attention:
Vice President and Director
If to an Executive, to the address of such Executive provided by the
Recordkeeper.
A Notice shall be deemed received upon the date of delivery if given personally
or, if given by mail, upon the receipt thereof.
<PAGE>
24
Section 18. Trust Beneficiaries
Upon and after a Change in Control of the Company, each Executive is an intended
beneficiary under this Trust, and shall be entitled to enforce all terms and
provisions hereof with the same force and effect as if such person had been a
party hereto.
Section 19. Counterparts
This Trust may be executed in any number of counterparts, each of which shall be
deemed an original, and said counterparts shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties have executed this Trust as of the date
first written above.
SUN COMPANY, INC.
(the "Company")
By: /s/MALCOLM I. RUDDOCK, JR.
---------------------------
Malcolm I. Ruddock, Jr.
Treasurer
TOWERS PERRIN
(the "Recordkeeper")
By: /s/CLYDE BEERS
---------------------------
Vice President and Director
MELLON BANK, N.A.
(the "Trustee")
By: /s/ROBERT T. BORZA
---------------------------
Vice President
<PAGE>
25
APPENDIX A
----------
(1) Sun Company, Inc. Executive Retirement Plan ("SERP");
(2) Sun Company, Inc. Deferred Compensation Plan;
(3) Sun Company, Inc. Pension Restoration Plan;
(4) Sun Company, Inc. Savings Restoration Plan.
(5) Sun Company, Inc. Special Employee Severance Plan
(6) Indemnification Agreements with the following senior executives:
(a) Robert M. Aiken, Jr.
(b) Robert H. Campbell
(c) John G. Driscoll
(d) John G. Drosdick
(e) Jack L. Foltz
(f) Deborah M. Fretz
(g) Thomas W. Hofmann
(h) David E. Knoll
(i) Ann C. Mule
(j) Malcolm I. Ruddock, Jr.
(j) Sheldon L. Thompson
<PAGE>
1
Exhibit 10.14
AGREEMENT
This Agreement is made and entered into this 15th day of November,
1996, between SUN COMPANY, INC., ("Sun") and John G. Drosdick (hereinafter
"you" or "your"). The parties hereby agree as follows:
1. Employment. As of the date of this Agreement, subject to the
successful completion of the physical examination, you will become an
employee of Sun and, upon approval of Sun's Board of Directors, you will be
elected President and Chief Operating Officer and a Director of Sun
effective with the date of this Agreement. As an employee you will be
entitled to participate in Sun's benefit programs, except as modified or
supplemented by this Agreement.
2. Base Salary. You will receive a base salary of $560,000 per
annum. You will be entitled to such merit increases as the Compensation
Committee and the Board of Directors may approve from time to time.
3. Bonus. Starting with the 1997 plan year, you will be entitled to
participate in Sun's Executive Incentive Plan. Under that Plan, your
Guideline Award would be fifty (50%) percent of the Base Salary or
$280,000. The actual bonus earned may vary between zero (0%) percent and
ninety (90%) percent of Base Salary depending on an assessment of Sun's and
your performance against pre-established goals.
4. Annual Long-Term Awards. Annually you will receive subject to
approval of the Compensation Committee, awards of Stock Options and
performance based Common Stock Units (CSUs) under the terms of the
applicable plan then in effect. The total present value of these two
awards will approximate your Base Salary. The number of Stock Options and
CSUs awarded will be determined by the Compensation Committee. Under Sun's
Executive-Long Term Stock Investment Plan (ELSIP), which is currently in
effect, you will receive a December 1996 award of 40,000 Stock Options and
an award of 12,000 CSUs.
5. One-Time Award of Options and Common Stock Units. Subject to
award by the Compensation Committee, you will receive, effective as of the
date of this Agreement, a one-time award of 100,000 Stock Options awarded
under ELSIP at an exercise price at the fair market value of Sun Common
Stock as of the date of this Agreement. These Stock Options will have a
10-year term and will vest after two years based upon continued employment.
Limited Rights will apply to these options in the event of a Change of
Control as provided in ELSIP.
<PAGE>
2
In addition subject to award by the Compensation Committee, you will
receive, effective as of the date of this Agreement a one-time award of
25,000 CSUs. These CSUs will vest after 3 years based upon continued
employment Dividend Equivalents will be earned. Payout of the CSUs and
Dividend Equivalents earned will occur at the end of the three-year vesting
period. If you are terminated as a result of a Change of Control, the value
of the CSU's and Dividend Equivalents earned will be paid out in full upon
termination.
6. Special Severance Arrangement. In the event that you are
Involuntarily Terminated, prior to the end of three years from the date of
this Agreement, you will receive a cash payment equal to one and one-half
times your annual base salary (Special Severance) upon termination.
Involuntarily Terminated includes termination of employment (other than for
cause as described in Paragraph 12 below), reduction of duties or title or
a reduction of Base Salary. In the event of a Change of Control, prior to
the end of three years from the date of this Agreement, you are
Involuntarily Terminated or voluntarily terminate because you cannot
effectively discharge your present duties as President and Chief Operating
Officer, as a result of a Change of Control, you will be entitled to
receive the Special Severance upon termination.
7. Pension. You will be eligible to participate in Sun's Executive
Retirement Plan (SERP) subject to the terms of the plan. In accordance
with this Plan, the SERP benefit will be offset by any accrued benefits
from pension plans from prior employers.
8. Vacation. You will be entitled to five (5) weeks' vacation
annually, notwithstanding Sun's vacation policy.
9. Executive Benefits. In addition, you will be entitled during the
term of this Agreement:
a. A company car will be provided.
b. You will be reimbursed for a Country Club Membership.
c. You will be provided relocation assistance in accordance
with Sun's Relocation Plan.
d. Financial Counseling will be provided in the amount of
$5,000 during the first year of the Agreement and $2,500 for
each year thereafter.
<PAGE>
3
10. Retiree Medical. In the event you are Involuntarily Terminated,
other than for cause as described in Paragraph 12 below, or if you are
terminated as a result of a Change of Control or if you voluntarily
terminate because you cannot effectively discharge the duties of President
and Chief Operating Officer as a result of a Change of Control, you will be
eligible for Retiree Medical, subject to the terms and conditions
applicable to all other retirees of the Company.
11. Executive Stock Ownership Guidelines. You will be subject to
Sun's Executive Stock Ownership Guidelines effective with the execution of
this Agreement. For the position of President and Chief Operating Officer,
the Guideline is two times your Base Salary. You will have five (5) years
to achieve this Guideline amount.
12. Termination for Cause. This Agreement and your employment may
be terminated at any time for cause which shall mean fraud, self dealing,
willful or intentional violation of law or Sun's policies.
13. Modification or Amendment. Any modification or amendment to this
Agreement must be made in writing, signed by the parties hereto.
14. Governing Law. This Agreement will be governed and construed in
accordance with the laws of the Commonwealth of Pennsylvania without regard
to its laws on choice of law.
IN WITNESS WHEREOF, the parties hereto intending to be legally bound
hereby, have executed this Agreement effective as of the date first above
written.
SUN COMPANY, INC.
By: s/ROBERT H. CAMPBELL
---------------------------
Robert H. Campbell
Chairman and Chief Executive
Officer
s/JOHN G. DROSDICK
---------------------------
John G. Drosdick
<PAGE>
EXHIBIT 11
STATEMENTS RE COMPUTATION OF PER SHARE EARNINGS
Sun Company, Inc. and Subsidiaries
(In Millions Except Per Share Amounts)
- ----------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended
December 31
----------------------
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
Loss from continuing operations
before cumulative effect
of change in accounting
principle(1) $(281.0) $ (7.6) $(19.3)
Less: Dividends on preference
stock (45.0) (22.5) --
------- ------ ------
Loss from continuing operations
before cumulative effect
of change in accounting
principle attributable to
common stock (2) (326.0) (30.1) (19.3)
Income from discontinued
operations (3) (a) 166.0 235.0 116.0
Cumulative effect of change in
accounting principle (4) (b) -- (87.2) (6.8)
------- ------ ------
Net income (loss) attributable
to common stock (5) $(160.0) $117.7 $ 89.9
======= ====== ======
Weighted average number of
shares of common stock and
common stock equivalents
outstanding (6) 73.6 91.3 107.0
==== ==== =====
Earnings per share of common
stock:
Loss from continuing operations
before cumulative effect of
change in accounting
principle (2)/(6) $(4.43) $(.33) $(.18)
Income from discontinued
operations (3)/(6) 2.26 2.57 1.09
Cumulative effect of change in
accounting principle (4)/(6) -- (.95) (.07)
------ ----- -----
Net income (loss) (5)/(6) $(2.17) $1.29 $ .84
====== ===== =====
Weighted average number of shares
of common stock and common stock
equivalents outstanding on a fully
diluted basis (7) 73.6 91.3 107.1
==== ===== =====
Earnings per share of common stock
on a fully diluted basis (c):
Loss from continuing operations
before cumulative effect
of change in accounting
principle (2)/(7) $(4.43) $(.33) $(.18)
Income from discontinued
operations (3)/(7) 2.26 2.57 1.09
Cumulative effect of change in
accounting principle (4)/(7) -- (.95) (.07)
------ ----- -----
Net income (loss) (5)/(7) $(2.17) $1.29 $ .84
====== ===== =====
</TABLE>
- ---------------
(a) Reflects income from discontinued international oil and gas production
operations and Canadian conventional and synthetic oil and gas
exploration and production operations. (See Note 2 to the Consolidated
Financial Statements in the Company's 1996 Annual Report to
Shareholders.)
(b) Reflects the impact of the cumulative effect of a change in the method
of accounting for impairment of long-lived assets in 1995 and
postemployment benefits in 1994. (See Note 3 to the Consolidated
Financial Statements in the Company's 1996 Annual Report to
Shareholders.)
(c) Fully diluted earnings per share generally is determined by dividing
earnings (losses) by the weighted average number of shares outstanding
assuming redemption of the preference shares for common stock utilizing
a ratio of two shares of common stock for each outstanding preference
share. However, redemption was not assumed since it would have
resulted in either an increase in earnings per share or a reduction in
the loss per share.
<PAGE>
EXHIBIT 12
1
STATEMENTS RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES--
UNAUDITED(a)
Sun Company, Inc. and Subsidiaries
(Millions of Dollars Except Ratios)
- ---------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31
---------------------------------------
1996 1995(b) 1994(b) 1993(b) 1992(b)
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Fixed Charges:
Consolidated interest cost and
debt expense $ 79 $ 98 $ 83 $ 68 $ 79
Interest cost and debt expense
of operations held for sale 8 16 22 8 --
Interest allocable to rental
expense(c) 32 34 34 29 31
----- ---- ---- ---- -----
Total $ 119 $148 $139 $105 $ 110
===== ==== ==== ==== =====
Earnings:
Consolidated income (loss) from
continuing operations before
income tax expense (benefit)
and cumulative effect of change
in accounting principle $(408) $(47) $(69) $123 $(133)
Minority interest in net income
of subsidiaries having fixed
charges -- 2 9 2 2
Proportionate share of income
tax expense of 50 percent
owned but not controlled
affiliated companies 5 4 3 3 2
Equity in income of less than
50 percent owned affiliated
companies (16) (10) (7) (6) (5)
Dividends received from less
than 50 percent owned affiliated
companies 6 5 5 5 4
Fixed charges 119 148 139 105 110
Interest capitalized (3) (4) (12) (7) (2)
Amortization of previously
capitalized interest 9 14 23 5 1
----- ---- ---- ---- -----
Total $(288) $112 $ 91 $230 $ (21)
===== ==== ==== ==== =====
Ratio of Earnings to Fixed Charges N/A(d) .76(d) .65(d) 2.19 N/A(d)
=== === === ==== ===
</TABLE>
- ----------------
(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 or discontinued operations. Prior to the fourth quarter of 1993, coal
and real estate operations were accounted for as discontinued operations
and, accordingly, were
<PAGE>
2
excluded from the computation of the ratio of earnings to fixed charges.
Effective in the fourth quarter of 1993, coal and real estate operations and
their results of operations are included in continuing operations.
Accordingly, beginning October 1, 1993, coal and real estate operations are
included in the computation of the ratio of earnings to fixed charges. (See
Note 2 to the Consolidated Financial Statements in the Company's 1996 Annual
Report to Shareholders.) 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) Restated to exclude amounts related to international production and Canadian
upstream petroleum operations as these operations are now presented as
discontinued operations. (See Note 2 to the Consolidated Financial
Statements in the Company's 1996 Annual Report to Shareholders.)
(c) Represents one-third of total operating lease rental expense which is that
portion deemed to be interest.
(d) Earnings are inadequate to cover fixed charges by $407, $36, $48 and $131
million in 1996, 1995, 1994 and 1992, respectively, due largely to $356,
$93, $54 and $163 million pretax provisions for write-down of assets and
other matters. (See Note 2 to the Consolidated Financial Statements in the
Company's 1996 Annual Report to Shareholders.)
<PAGE>
FINANCIAL SECTION CONTENTS
<TABLE>
<S> <C>
Selected Financial Data 22
Management's Discussion and Analysis 23
Consolidated Statements of Operations 33
Consolidated Balance Sheets 34
Consolidated Statements of Cash Flows 35
Consolidated Statements of Changes in Shareholders' Equity 36
Notes to Consolidated Financial Statements 37
Reports of Management and of Independent Auditors 51
Supplemental Financial and Operating Information 52
Quarterly Financial and Stock Market Information 54
</TABLE>
21
<PAGE>
SELECTED FINANCIAL DATA*
(Millions of Dollars Except Per Share Amounts)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales and other operating revenue
(including
consumer excise taxes) $11,233 $9,834 $9,513 $8,889 $10,049
Income (loss) from continuing
operations before cumulative effect
of change in accounting principle** $(281) $(8) $(19) $87 $(99)
Income (loss) from discontinued
operations*** $166 $235 $116 $196 $(199)+
Cumulative effect of change in
accounting principle++ $-- $(87) $(7) $5 $(261)
Net income (loss) $(115) $140 $90 $288 $(559)
- -------------------------------------------------------------------------------
PER SHARE DATA:
Income (loss) from continuing
operations before cumulative effect
of change in accounting
principle+++ $(4.43) $(.33) $(.18) $.82 $(.93)
Net income (loss)+++ $(2.17) $1.29 $.84 $2.70 $(5.26)
Cash dividends on preference stock# $3.60 $1.80 $-- $-- $--
Cash dividends on common stock# $1.00 $1.40 $1.80 $1.80 $1.80
Shareholders' equity## $14.69 $17.16 $17.42 $18.60 $17.82
- -------------------------------------------------------------------------------
BALANCE SHEET DATA:
Total assets $5,025 $5,085 $5,646 $5,145 $5,263
Long-term debt $835 $888 $936 $582 $661
Shareholders' equity $1,438 $1,699 $1,863 $1,984 $1,896
- -------------------------------------------------------------------------------
</TABLE>
* Prior period amounts have been restated to present international production
and Canadian upstream petroleum operations as discontinued operations. (See
Note 2 to the consolidated financial statements.)
** Includes after-tax provision for write-down of assets and other matters to-
talling $254, $61, $32, $12 and $108 million for 1996, 1995, 1994, 1993 and
1992, respectively. (See Notes 2 and 12 to the consolidated financial
statements.)
*** Includes after-tax gain (loss) on divestment of discontinued operations and
disposal of exploration and production properties totalling $125, $157,
$28, $99 and $(8) million for 1996, 1995, 1994, 1993 and 1992, respective-
ly. (See Note 2 to the consolidated financial statements.)
+ Includes a $348 million after-tax provision for write-down of assets and
other matters and a $117 million after-tax gain on Iranian litigation
settlement.
++ Consists of impact of the cumulative effect of a change in the method of
accounting for impairment of long-lived assets in 1995, postemployment
benefits in 1994, income taxes in 1993 and postretirement health care and
life insurance benefits in 1992. (See Note 3 to the consolidated financial
statements.)
+++ Represents both primary and fully diluted earnings per share. (See Note 1
to the consolidated financial statements.)
# Effective in the third quarter of 1995, Sun began paying quarterly
dividends on preference stock at a rate of $.90 per share and reduced its
quarterly common stock dividend from $.45 to $.25 per share. (See Note 13
to the consolidated financial statements.)
## Assumes redemption of preference shares for common stock. (See Note 13 to
the consolidated financial statements.)
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Those statements in the Management's Discussion and Analysis that are not his-
torical in nature should be deemed forward-looking statements that are inher-
ently uncertain. See "Forward-Looking Statements" on page 32 for a discussion
of the factors which could cause actual results to differ materially from
those projected in such statements.
OUTLOOK
The refining and marketing industry is a highly competitive global business
subject to significant volatility. Sun's planning assumptions, including an-
ticipated near-term market trends, are enumerated below:
. Sun's operating results will continue to be highly leveraged to historically
unpredictable refining and marketing margins. Significantly higher crude oil
prices during 1996 had a particularly adverse affect on average margins and
refinery fuel costs as Sun must purchase all of its crude oil feedstocks.
Because margins will continue to be driven by competitive pressures, Sun's
business plan is focused on improving operating results by increasing the
production of high-value products, improving reliability and efficiency of
production facilities and reducing operating and administrative costs
through complement reductions and other cost-saving initiatives. With the
completion in 1996 of extensive planned refinery maintenance turnaround ac-
tivity, Sun expects to operate its refining units near full capacity in
1997.
. Ample supplies of light sweet crude oil will continue to be available. With
the reconfigurations of the Philadelphia and Puerto Rico refineries, virtu-
ally all of the crude oil processed in Sun's refining system is light sweet
crude oil. Therefore, the availability of this type of crude oil and its
price relative to alternative heavy sour crude oil will continue to have a
significant impact on Sun's profitability and competitive position.
. Sun's retail gasoline marketing margins in the northeastern U.S. will ap-
proach the higher levels experienced in the 1994-95 period. The Company's
strategy is to generate attractive investment returns and improve profit-
ability by increasing throughput per outlet and reducing marketing and ad-
ministrative costs. As a result of its logistically advantaged refining and
distribution assets and its strong branded marketing presence in this re-
gion, Sun believes that it is well positioned to compete effectively.
. Margins for base oil lubricant products declined in 1996 and will continue
to be adversely affected in the near term as new lubricants supply comes
onstream. In order to reduce the impact of unfavorable base oil market con-
ditions, Sun acquired the Kendall/Amalie lubricants business in November
1996 which will enable Sun to significantly increase the amount of base oil
it upgrades into higher-value transportation lubricants.
. Overall margins for petrochemicals will improve slightly in 1997 but will
not return to the very strong margins experienced during 1995. Petrochemi-
cals production will increase significantly as a result of capital invest-
ments made in 1996, including outlays at the Marcus Hook refinery to com-
plete the expansion of the propylene unit and to turnaround and modernize
the refinery's fluid catalytic cracking unit.
. Operating income in Sun's logistics and coal and cokemaking businesses in
1997 will approximate the amounts earned during 1996.
FINANCIAL AND OPERATIONAL RESTRUCTURING
During the 1995-96 period, the Company implemented a series of financial and
operational restructuring initiatives designed to improve its competitive po-
sition.
The major initiatives in 1996:
. Reconfigured the Philadelphia refinery to process only light sweet crude oil
and to cease asphalt production. This reconfiguration continues the integra-
tion of the two adjacent but separate facilities (Point Breeze and Girard
Point) within the refinery. Announced that the Puerto Rico refinery will be
reconfigured in the first quarter of 1997 to significantly reduce unprofit-
able fuels production while maintaining the current volume and quality of
lubricants production. These combined actions will result in the shutdown or
mothballing of redundant and/or unprofitable processing units and the elimi-
nation of approximately 225 positions (both employees and independent con-
tractors). The reconfigurations are expected to improve operating efficien-
cies, lower fixed costs and reduce ongoing capital spending and working cap-
ital requirements. If sufficient improvements in operating results are not
realized at these facilities, the Company will consider shutting down addi-
tional units during 1997.
. Announced a comprehensive competitive improvement plan at the Marcus Hook
refinery that will be implemented during 1997. This plan is focused on im-
proving reliability and reducing cash operating costs through a reduction of
approximately 200 positions (both employees and independent contractors),
improved operating and maintenance procedures and energy conservation mea-
sures.
. Strengthened the Company's position in the transportation lubricants market
with the acquisition of the Kendall/Amalie lubricants business.
. Commenced construction of a $187 million cokemaking facility in East Chica-
go, IN, which will significantly increase the Company's cokemaking capacity.
An agreement with Inland Steel Company will require Inland to buy 1.2 mil-
lion tons of coke annually on a take-or-pay basis for a period of 15 years
commencing after the scheduled mid-1998 start-up date. Additional production
of up to 100,000 tons per year will be sold either to Inland or to other
steel producers.
. Completed the withdrawal from oil and gas exploration and production activi-
ties with the divestment of the Company's international production business.
23
<PAGE>
The major actions taken in 1995:
. Restructured the Company into eight business units (including the now di-
vested international production business) plus a holding company and a
shared services organization.
. Divested the Company's remaining 55-percent interest in Suncor Inc., a Cana-
dian integrated oil company. The proceeds from the sale were used to signif-
icantly reduce the Company's indebtedness and to repurchase over 8 million
shares of common stock.
. Reduced the quarterly dividend on common stock from $.45 per share to $.25
per share.
. Issued 25 million "depositary shares", each accruing dividends quarterly at
a rate of $.45 per share, in exchange for an equal number of shares of com-
mon stock.
For additional information regarding the financial and operational restructur-
ing initiatives implemented in the 1995-96 period, see Notes 2 and 13 to the
consolidated financial statements.
RESULTS OF OPERATIONS
EARNINGS PROFILE OF SUN BUSINESSES (after tax)
(Millions of Dollars)
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Sun Northeast Refining $ (60) $(37) $(77)
Sunoco Northeast Marketing 1 45 59
Sunoco Chemicals 40 68 25
Sun Lubricants (14) (15) (2)
Sunoco MidAmerica Marketing & Refining (3) (8) (8)
Sunoco Logistics 48 53 45
Sun Coal & Coke 31 25 15
Corporate expenses (23) (24) (23)
Net financing expenses (47) (55) (32)
Real estate operations held for sale -- (1) 2
Sun International Production* 41 57 60
Canada (Suncor)* -- 23 37
- ----------------------------------------------------------------------------
14 131 101
Special items:**
Gain on divestment of International Production business* 125 -- --
Gain on divestment of Suncor common stock* -- 157 --
Gain on divestment of exploration and production
properties* -- -- 28
Provision for write-down of assets and other matters (254) (61) (32)
Cumulative effect of change in accounting principle -- (87) (7)
- ----------------------------------------------------------------------------
Consolidated net income (loss) $(115) $140 $ 90
- ----------------------------------------------------------------------------
</TABLE>
*Sun completed the sale of its International Production business on September
30, 1996 and divested its remaining 55-percent interest in Suncor on June 8,
1995. Sun's international oil and gas production business and Canadian up-
stream petroleum operations have been classified as discontinued operations
in the consolidated financial statements.
** For a discussion of special items, see Notes 2, 3 and 12 to the consoli-
dated financial statements.
ANALYSIS OF EARNINGS PROFILE OF SUN BUSINESSES
In 1996, Sun Company, Inc. and its subsidiaries had a net loss of $115 mil-
lion, or $2.17 per share of common stock compared to net income of $140 mil-
lion, or $1.29 per share in 1995 and net income of $90 million, or $.84 per
share in 1994. Excluding the special items shown separately in the Earnings
Profile of Sun Businesses, Sun had income of $14 million in 1996, compared to
$131 million in 1995 and $101 million in 1994.
The $117 million decrease in earnings before special items in 1996 was primar-
ily due to the impact of significantly higher crude oil costs on gasoline, as-
phalt, petrochemical and base oil lubricant margins and on refinery fuel
costs. Also contributing to the decline were higher marketing expenses, in-
creased planned refinery maintenance activity and the absence of earnings from
Suncor and International Production after their divestments in June 1995 and
September 1996, respectively. Partially offsetting these negative factors were
significantly improved middle distillate margins, higher lubricant sales vol-
umes and lower net financing expenses.
In 1995, the $30 million increase in earnings before special items was primar-
ily due to higher petrochemical, wholesale gasoline and asphalt margins, im-
proved refinery operations and reduced expenses resulting from cost contain-
ment efforts. Partially offsetting these positive factors were record low mid-
dle distillate margins experienced in the first half of 1995, lower retail
gasoline and lubricant sales volumes, higher net financing expenses and the
absence of earnings from Suncor following its divestment.
For a more detailed discussion of the key factors that affected Sun's income
during the 1994-96 period, see the individual business unit discussions below.
SUN NORTHEAST REFINING--The Sun Northeast Refining business consists of the
manufacturing and wholesale marketing of fuels produced at Sun's Marcus Hook,
PA and Philadelphia, PA refineries.
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Loss (millions of dollars) $(60) $(37) $(77)
Wholesale margin* (per barrel) $2.76 $2.73 $2.38
Wholesale sales** (thousands of barrels daily):
To unaffiliated customers:
Gasoline 93.8 98.2 41.3
Middle distillates 133.6 133.8 104.3
Residual fuel 47.7 50.6 34.1
Asphalt 15.8 24.1 26.5
Other 31.3 39.7 38.6
- -----------------------------------------------------------------------------
322.2 346.4 244.8
To affiliates (primarily gasoline) 188.3 184.3 197.4
- -----------------------------------------------------------------------------
510.5 530.7 442.2
- -----------------------------------------------------------------------------
Crude unit capacity (thousands of barrels daily) at De-
cember 31 482.0 482.0 482.0
Crude unit capacity utilized 93% 93% 86%
- -----------------------------------------------------------------------------
</TABLE>
*Wholesale sales price less cost of crude oil, other feedstocks and purchased
refined products.
**The increase in sales volume in 1995 reflects the acquisition of the
Philadelphia refinery's Girard Point facilities on August 4, 1994.
24
<PAGE>
Sun Northeast Refining's operating results for 1996 exclude a $53 million af-
ter-tax provision primarily to write-off redundant and/or unprofitable process-
ing units in connection with the Philadelphia refinery reconfiguration project.
This provision is reported as part of the Provision for Write-Down of Assets
and Other Matters shown separately in the Earnings Profile of Sun Businesses.
See "Financial and Operational Restructuring" above and Note 2 to the consoli-
dated financial statements for a further discussion of this provision.
Sun Northeast Refining operating results decreased $23 million in 1996 primar-
ily due to higher refinery operating expenses ($12 million) and lower sales
volumes ($12 million), partially offset by higher average wholesale fuels prod-
uct margins ($4 million). The higher operating expenses were due largely to
higher refinery fuel costs resulting from higher crude oil and natural gas
prices. The lower sales volumes were due largely to increased planned refinery
maintenance activity. The increase in wholesale fuels margins reflects signifi-
cantly higher margins for middle distillates, largely offset by the adverse im-
pact of higher crude oil prices on wholesale gasoline and asphalt margins.
Wholesale gasoline margins were adversely impacted in both 1996 and 1995 by the
inability to fully recover the higher cost of making reformulated gasoline. Sun
Northeast Refining withdrew from its unprofitable asphalt business in December
1996 as part of the Philadelphia refinery reconfiguration project.
Sun Northeast Refining results increased $40 million during 1995 primarily due
to higher average wholesale fuels product margins ($36 million) and higher
earnings from wholesale fuels operations at the Philadelphia refinery's Girard
Point facilities acquired on August 4, 1994 ($16 million), partially offset by
lower sales volumes, excluding activity from the Girard Point facilities ($15
million). The improvement in wholesale fuels margins reflected the favorable
impact of stronger market conditions for wholesale gasoline and asphalt, par-
tially offset by the record low margins for middle distillates experienced in
the first half of 1995.
SUNOCO NORTHEAST MARKETING--The Sunoco Northeast Marketing business 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.
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------
<S> <C> <C> <C>
Income (millions of dollars) $1 $45 $59
Gasoline margin* (per barrel) $4.02 $4.88 $4.86
Sales (thousands of barrels daily):
Gasoline 159.5 158.0 168.5
Middle distillates 15.7 14.7 16.2
- ------------------------------------------------------
175.2 172.7 184.7
- ------------------------------------------------------
Retail gasoline outlets 2,880 2,944 3,186
- ------------------------------------------------------
</TABLE>
*Retail sales price less wholesale sales price. The retail sales price is the
weighted average price received through the various branded marketing
distribution channels.
The $44 million decrease in Sunoco Northeast Marketing operating results in
1996 was primarily due to lower retail gasoline margins ($30 million) and an
increase in marketing and administrative expenses ($12 million). The increase
in expenses was due largely to the impact of a major advertising campaign and
higher expenses associated with volume increases in company-operated outlets.
Partially offsetting these negative factors was a 2 percent increase in sales
volumes ($3 million). Retail gasoline margins were adversely impacted in both
1996 and 1995 by the inability to fully recover the higher cost of reformulated
gasoline.
Sunoco Northeast Marketing income declined $14 million in 1995 primarily due to
a 6 percent decline in sales volumes ($14 million) and higher depreciation ex-
pense ($6 million), partially offset by lower marketing and administrative ex-
penses ($10 million). The volume decline was due largely to the elimination of
marginal accounts and the further rationalization of Sun's service station
portfolio in connection with a program to modernize its retail gasoline outlets
and convert them to a single brand.
SUNOCO CHEMICALS--The Sunoco Chemicals business consists of the manufacturing
and marketing of commodity and intermediate petrochemicals produced at the Mar-
cus Hook and Philadelphia refineries, at an ethylene oxide plant in Branden-
burg, KY and at a joint venture mtbe facility in Mont Belvieu, TX.
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------
<S> <C> <C> <C>
Income (millions of dollars) $40 $68 $25
Petrochemicals margin* (per barrel) $21.46 $25.58 $17.63
Petrochemical sales (thousands
of barrels daily):
Aromatics 9.6 8.5 5.2
Propylene 6.4 8.1 8.4
Ethylene/ethylene oxide 2.4 2.3 2.3
Other 1.8 2.0 2.6
- ---------------------------------------------------------
20.2 20.9 18.5
- ---------------------------------------------------------
</TABLE>
*Wholesale sales price less the cost of feedstocks and product purchases.
Income from Sunoco Chemicals decreased $28 million in 1996 primarily due to
significantly lower margins ($21 million) for most petrochemicals products com-
pared to the strong margins experienced during 1995. Production shortfalls due
to maintenance activities at the Company's operating facilities also negatively
impacted Sunoco Chemicals results.
Sunoco Chemicals income increased $43 million in 1995 due to significantly
higher margins ($32 million), higher sales volumes ($2 million) and higher
aromatics production from the Girard Point facilities acquired from Chevron in
August 1994 ($11 million). The addition of cyclohexane production from a plant
completed at the Marcus Hook refinery in the first quarter of 1995 contributed
to the higher margins and volumes.
SUN LUBRICANTS--The Sun Lubricants business is comprised of the manufacturing,
blending, packaging and marketing of a broad line of lubricants 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.
25
<PAGE>
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Loss (millions of dollars) $(14) $(15) $(2)
Wholesale margin* (per barrel):
Lubricants $20.90 $25.03 $24.77
Fuels $1.52 $.87 $1.23
Wholesale sales (thousands of barrels daily):
To unaffiliated customers:
Specialty oils** 9.3 8.6 9.8
Base oils 8.7 6.9 8.9
Waxes and other lubricants 5.9 4.5 3.6
- ----------------------------------------------------------------------
23.9 20.0 22.3
Gasoline 36.4 25.9 31.2
Middle distillates 49.8 44.9 47.4
Residual fuel 30.8 19.5 13.3
Other 7.3 11.1 6.1
- ----------------------------------------------------------------------
148.2 121.4 120.3
To affiliates*** 21.1 27.0 33.9
- ----------------------------------------------------------------------
169.3 148.4 154.2
- ----------------------------------------------------------------------
</TABLE>
*Wholesale sales price of lubricants and fuels less cost of crude oil, other
feedstocks and purchased refined products.
** Comprised principally of transportation and industrial lubricants.
*** Primarily "lubes-extracted" feedstocks which are transported to the Toledo
refinery for further processing.
Sun Lubricants operating results for 1996 exclude an $80 million after-tax pro-
vision to reconfigure the Puerto Rico refinery to significantly reduce fuels
production. This provision is reported as part of the Provision for Write-down
of Assets and Other Matters shown separately in the Earnings Profile of Sun
Businesses. See "Financial and Operational Restructuring" above and Note 2 to
the consolidated financial statements for a further discussion of this
reconfiguration.
The $1 million improvement in Sun Lubricants operating results in 1996 was pri-
marily due to higher lubricants sales volumes ($20 million), higher wholesale
fuels sales volumes ($6 million), and higher margins on wholesale fuels prod-
ucts ($20 million), primarily as a result of a stronger market for middle dis-
tillate products. These positive factors were essentially offset by the impact
of lower lubricant margins ($20 million), principally base oils, and higher op-
erating and administrative expenses ($29 million). The increase in expenses was
largely attributable to an increase in refinery fuel costs and production lev-
els as well as expenses related to volume increases associated with the re-
cently acquired Kendall/Amalie lubricants business. The increase in specialty
oil lubricants sales volumes reflects an expansion in Sun Lubricants' contract
customer base and the acquisition of the Kendall/Amalie lubricants business.
This acquisition increased the amount of existing base oil production upgraded
into transportation lubricants at Sun facilities and has enabled Sun Lubricants
to increase its specialty oil lubricants sales. The purchase was completed on
November 1, 1996 for $74 million, including $46 million for working capital.
Sun Lubricants results declined $13 million in 1995 due primarily to lower mar-
gins on wholesale fuels products ($13 million), principally middle distillates,
and lower lubricants sales volumes ($15 million), partially offset by higher
average lubricants margins ($2 million) and lower operating and administrative
expenses ($9 million). The lower level of sales volumes and operating expenses
in 1995 was in part due to a major planned maintenance turnaround at the Tulsa
refinery during that year.
SUNOCO MIDAMERICA MARKETING & REFINING--The Sunoco MidAmerica Marketing & Re-
fining 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.
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Loss (millions of dollars) $(3) $(8) $(8)
- ---------------------------------------------------------------------------
Retail Marketing:
Gasoline margin* (per barrel) $3.86 $3.86 $3.83
Sales (thousands of barrels daily):
Gasoline 46.2 46.6 46.4
Middle distillates 4.8 4.2 4.3
- ---------------------------------------------------------------------------
51.0 50.8 50.7
- ---------------------------------------------------------------------------
Retail gasoline outlets 926 917 929
- ---------------------------------------------------------------------------
Refining and Wholesale Marketing:
Wholesale margin** (per barrel):
Fuels $3.55 $2.98 $3.75
Petrochemicals $3.76 $9.06 $9.88
Wholesale sales (thousands of
barrels daily):
To unaffiliated customers:
Gasoline 36.8 29.9 22.6
Middle distillates 16.0 13.3 14.4
Residual fuel 3.9 3.8 4.1
Petrochemicals 11.3 10.2 9.0
Other 10.0 8.4 8.4
- ---------------------------------------------------------------------------
78.0 65.6 58.5
To affiliates and Sunoco MidAmerica Retail Marketing 52.6 54.8 53.8
- ---------------------------------------------------------------------------
130.6 120.4 112.3
- ---------------------------------------------------------------------------
Crude unit capacity (thousands of
barrels daily) at December 31 125.0 125.0 125.0
Crude unit capacity utilized 100% 89% 90%
- ---------------------------------------------------------------------------
</TABLE>
*Retail sales price less wholesale sales price. The retail sales price is the
weighted average price received through the various branded marketing
distribution channels.
** Wholesale sales price of fuels or petrochemicals less cost of crude oil,
other feedstocks and purchased refined products.
Sunoco MidAmerica Marketing & Refining results improved $5 million in 1996 due
to higher wholesale fuel margins ($16 million) and sales volumes ($8 million)
and lower retail marketing expenses ($6 million). Partially offsetting these
positive factors were a decline in margins on petrochemicals, largely xylene
($13 million) and an increase in refinery expenses ($14 million) resulting from
higher refinery fuel costs and production volumes.
26
<PAGE>
Sunoco MidAmerica Marketing & Refining results were unchanged in 1995 as lower
average wholesale fuels product margins ($21 million) were essentially offset
by higher wholesale fuels ($6 million) and petrochemicals ($3 million) sales
volumes and lower refinery operating expenses ($10 million). The lower level
of operating expenses in 1995 was largely attributable to lower volumes re-
sulting from a major planned maintenance turnaround at the Toledo refinery.
SUNOCO LOGISTICS--The Sunoco Logistics business 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.
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------
<S> <C> <C> <C>
Income (millions of dollars) $48 $53 $45
Pipeline throughput (thousands of barrels daily):
Unaffiliated customers 627 557 565
Affiliated customers 819 776 715
- --------------------------------------------------------------------
1,446 1,333 1,280
- --------------------------------------------------------------------
</TABLE>
Sunoco Logistics results decreased $5 million in 1996 primarily due to lower
throughput in the eastern product pipeline system and a loss associated with a
pipeline leak, partially offset by higher earnings from joint venture pipeline
operations. During 1995, Sunoco Logistics income increased $8 million in part
due to higher earnings from joint venture pipeline operations, the Marysville,
MI crude oil pipeline system and expanded crude oil pipeline operations in
Texas. Income from Sun's inter-refinery pipeline connecting the Philadelphia
and Marcus Hook refineries and a pipeline delivering jet fuel to the Philadel-
phia airport, which were both completed in 1995, also contributed to the im-
provement in earnings.
SUN COAL & COKE--The Sun Coal & Coke business consists of coal production from
mines in Virginia and Kentucky and coke manufacturing at the Company's facil-
ity in Vansant, VA.
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Income (millions of dollars) $31 $25 $15
Average sales price of coal and coke (per ton) $40.03 $37.65 $34.00
Proven and probable coal reserves (millions of tons) 132 139 187
Production (thousands of tons):
Coal 4,416 5,121 6,595
Coke 648 638 678
- --------------------------------------------------------------------------
</TABLE>
Income from Sun Coal & Coke increased $6 million during 1996 after increasing
$10 million in 1995. The increases in earnings during the 1994-96 period were
primarily due to higher margins for coke and improved mining operations. In-
come during 1996 also benefitted from a gain recognized on the sale of a coal
mining operation in Kentucky, which had been inactive since March 1995.
In November 1996, Sun Coal & Coke entered into an agreement to construct, own
and operate a $187 million cokemaking facility in East Chicago, IN, which will
produce coke for Inland Steel Company's Indiana Harbor Works steel plant lo-
cated adjacent to the new facility. The agreement requires Inland to buy 1.2
million tons annually on a take-or-pay basis for a period of 15 years commenc-
ing after the scheduled mid-1998 start-up date. Additional production of up to
100,000 tons per year will be sold either to Inland or other steel producers.
The plant's coke ovens will utilize Sun Coal & Coke's proprietary cokemaking
technology. This technology is environmentally superior to the by-product
technology currently used by most coke producers.
NET FINANCING EXPENSES--Net financing expenses decreased $8 million in 1996
primarily due to lower average total borrowings as the Company substantially
reduced its debt level in the second half of 1995 in connection with its fi-
nancial restructuring. Net financing expenses increased $23 million in 1995
primarily due to higher interest expense on long-term debt ($13 million) and
lower capitalized interest ($6 million). The increase in interest expense was
due largely to an increase in debt related to the high level of growth capital
expenditures in 1994 which was partially offset by the substantial reduction
in Company debt that occurred in the second half of 1995.
REAL ESTATE OPERATIONS HELD FOR SALE--For a discussion of Sun's real estate
operations held for sale, see Note 2 to the consolidated financial statements.
SUN INTERNATIONAL PRODUCTION--On September 30, 1996, Sun completed the sale of
its International Production business for $278 million in cash resulting in a
$125 million after-tax gain. This gain is shown separately in the Earnings
Profile of Sun Businesses. Sun International Production operating earnings de-
creased $16 million in 1996 primarily due to the absence of operating earnings
subsequent to July 24, 1996, the date the agreement of sale was signed. Earn-
ings after this date and prior to completion of the sale were included in the
gain on divestment. In 1995, operating income decreased $3 million primarily
due to lower crude oil and natural gas production volumes and higher operating
and administrative expenses, partially offset by higher crude oil prices and a
decrease in foreign exchange translation losses.
CANADA (SUNCOR)--On June 8, 1995, Sun divested its remaining 55-percent inter-
est in Suncor Inc., a Canadian integrated oil company, for $770 million in
cash, of which $635 million was received in June 1995 and $135 million was re-
ceived in June 1996. This divestment resulted in a $157 million after-tax
gain, which is shown separately in the Earnings Profile of Sun Businesses. The
decline in Suncor's operating income in both 1996 and 1995 is primarily a re-
sult of the absence of earnings subsequent to the June 8, 1995 divestment.
27
<PAGE>
ANALYSIS OF CONSOLIDATED STATEMENTS OF OPERATIONS
Sun's consolidated statements of operations for all prior periods have been
restated to present International Production and Canadian Upstream Petroleum
operations as discontinued operations. The following analysis of consolidated
statements of operations reflects this presentation.
1996 VS. 1995--Sales and other operating revenue increased $1,399 million, or
14 percent, principally due to higher domestic refined product sales prices
($908 million) and volumes ($260 million), higher revenues from resales of
purchased crude oil ($635 million), higher domestic consumer excise taxes ($68
million) and higher sales and other operating revenue attributable to Sun's
coal and cokemaking business ($78 million) due to the presentation of this
business as an operation held for sale during the first half of 1995 (see Note
2 to the consolidated financial statements). Partially offsetting these posi-
tive factors were lower sales and other operating revenue attributable to Ca-
nadian refining and marketing operations ($558 million, including Canadian
consumer excise taxes of $207 million) as a result of the divestment of Suncor
on June 8, 1995. Other income increased $22 million primarily due to higher
gains on divestments ($13 million) and higher equity in earnings of affiliated
companies ($7 million).
Cost of products sold and operating expenses increased $1,707 million, or 24
percent, primarily due to higher crude oil and refined product costs ($1,168
million) largely as a result of an increase in crude oil prices, higher re-
sales of purchased crude oil ($635 million), higher domestic refinery operat-
ing expenses attributable principally to higher refinery fuel costs ($67 mil-
lion) and higher costs attributable to Sun's coal and cokemaking business ($58
million). These increases were partially offset by lower costs and operating
expenses attributable to the divestment of Canadian refining and marketing op-
erations ($281 million). Selling, general and administrative expenses de-
creased $27 million, or 4 percent, as a result of the Suncor divestment ($51
million), partially offset by higher domestic marketing expenses. Consumer ex-
cise taxes decreased $139 million, or 8 percent, largely attributable to the
divestment of Canadian refining and marketing operations ($207 million), par-
tially offset by increases in the domestic marketing business ($68 million)
resulting from higher retail and wholesale gasoline volumes. Payroll, property
and other taxes decreased $5 million, or 5 percent, primarily due to the di-
vestment of Canadian refining and marketing operations and to a decline in
taxes in domestic refining and marketing operations. Depreciation, depletion
and amortization increased $4 million, or 2 percent, primarily as a result of
higher depreciation at the Company's domestic refining and marketing and coal
and cokemaking operations, partially offset by a decline in Canadian refining
and marketing operations resulting from the Suncor divestment. For a discus-
sion of the $356 and $93 million pretax provisions for write-down of assets
and other matters recorded in 1996 and 1995, respectively, see Note 2 to the
consolidated financial statements. Interest cost and debt expense decreased
$19 million, or 19 percent, due to lower average borrowings. For a discussion
of the income from discontinued operations and the cumulative effect of change
in accounting principle, see Notes 2 and 3 to the consolidated financial
statements.
1995 VS. 1994--Sales and other operating revenue increased $321 million, or 3
percent, principally due to higher domestic refined product sales prices ($442
million) and volumes ($677 million), partially offset by lower domestic con-
sumer excise taxes ($57 million) and lower sales and other operating revenue
attributable to Canadian refining and marketing operations ($775 million, in-
cluding Canadian consumer excise taxes of $308 million) as a result of the
Suncor divestment. The higher domestic refined product sales volumes were
largely attributable to the Girard Point refining facilities acquired on Au-
gust 4, 1994. Other income decreased $5 million principally due to lower gains
on asset divestments ($8 million).
Cost of products sold and operating expenses increased $669 million, or 11
percent, primarily due to higher crude oil and refined product costs ($907
million) and higher domestic refinery operating expenses ($72 million), par-
tially offset by lower cost and operating expenses attributable to the divest-
ment of Canadian refining and marketing operations ($365 million). The in-
crease in crude oil and refined product costs and refinery operating expenses
was largely attributable to the Girard Point refining facilities acquisition.
Selling, general and administrative expenses decreased $80 million, or 11 per-
cent, primarily as a result of the Suncor divestment and to cost containment
efforts implemented during 1995. Consumer excise taxes decreased $365 million,
or 17 percent, due to the divestment of Canadian refining and marketing opera-
tions ($308 million) and a decline in the domestic marketing business ($57
million) resulting from lower retail gasoline volumes. Payroll, property and
other taxes decreased $10 million, or 10 percent, primarily due to the divest-
ment of Canadian refining and marketing operations and to a decline in taxes
in domestic refining and marketing operations. Depreciation, depletion and am-
ortization increased $17 million, or 7 percent, primarily due to an increased
depreciable asset base in Sun's domestic refining and marketing operations re-
sulting from the high level of 1994 capital spending, partially offset by
lower Canadian refining and marketing depreciation and amortization due to the
Suncor divestment. For a discussion of the $93 and $54 million pretax provi-
sions for write-down of assets and other matters recorded in 1995 and 1994,
respectively, see Note 2 to the consolidated financial statements. Interest
cost and debt expense increased $15 million, or 18 percent, due principally to
an increase in long-term debt associated with the high level of 1994 growth
capital expenditures, partially offset by the substantial reduction in Company
debt that occurred in the second half of 1995 in connection with its financial
restructuring. For a discussion of the income from discontinued operations and
the cumulative effect of the changes in accounting principles, see Notes 2 and
3 to the consolidated financial statements.
28
<PAGE>
FINANCIAL CONDITION
CAPITAL RESOURCES AND LIQUIDITY
CASH AND WORKING CAPITAL--At December 31, 1996, Sun had cash and cash equiva-
lents of $67 million compared to $11 million at December 31, 1995 and had a
working capital deficit of $282 million compared to working capital of $109
million at December 31, 1995. Sun's working capital position is considerably
stronger than indicated because of the relatively low historical costs as-
signed under the lifo method of accounting for most of the inventories re-
flected in the consolidated balance sheet. The current replacement cost of all
such inventories exceeds the carrying value at December 31, 1996 by $780 mil-
lion. Inventories valued at lifo, which consist of crude oil and refined prod-
ucts, are readily marketable at their current replacement values. Management
believes that the current levels of Sun's cash and working capital provide ad-
equate support for its ongoing operations.
CASH FLOWS AND FINANCIAL CAPACITY--In 1996, Sun's net cash provided by operat-
ing activities ("cash generation") was $332 million compared to $352 million
in 1995 and $481 million in 1994. The $20 million decrease in cash generation
in 1996 was largely due to declines in income before special items and net
cash provided by operating activities of discontinued operations, essentially
offset by a reduction in working capital uses pertaining to operating activi-
ties. The $129 million decrease in cash generation in 1995 was primarily at-
tributable to an increase in working capital uses pertaining to operating ac-
tivities and a reduction in net cash provided by operating activities of dis-
continued operations, partially offset by an increase in income before special
items.
Divestment activities have also been a source of cash and have enhanced li-
quidity. During the 1994-96 period, proceeds from divestments totalled $1,224
million, including $278 million received in 1996 from the sale of the Interna-
tional Production business and $770 million received in the 1995-96 period
from the sale of Suncor common stock.
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 financing activities.
The Company has access to $600 million of short-term financing in the form of
borrowings from commercial banks under a revolving credit agreement or commer-
cial paper issued by Sun supported by this agreement. Under the terms of the
revolving credit agreement, Sun is required, among other things, to maintain
Consolidated Tangible Net Worth (as defined) of at least $1,100 million. At
December 31, 1996, the Consolidated Tangible Net Worth was $1,345 million. The
Company also has access to short-term financing under non-committed money mar-
ket facilities.
The following table sets forth amounts outstanding related to the above short-
term borrowing arrangements as well as to Sun's other borrowings at:
<TABLE>
<CAPTION>
December 31
-----------
(Millions of Dollars) 1996 1995
- --------------------------------------------------
<S> <C> <C>
Short-term borrowings:
Commercial paper $ -- $ 4
Non-committed money market facilities -- 50
- --------------------------------------------------
-- 54
Current portion of long-term debt 54 3
Long-term debt 835 888
- --------------------------------------------------
Total borrowings $ 889 $ 945
- --------------------------------------------------
</TABLE>
Sun's debt-to-capital ratio was 38.2 percent at December 31, 1996 compared to
35.7 percent at December 31, 1995. Management believes there is sufficient
borrowing capacity available to provide for Sun's future cash requirements. In
addition, the Company has the option of issuing additional common or prefer-
ence stock as a means of increasing its equity base; however, there are no
current plans to do so. No commitments have been made with respect to any in-
vestment opportunity which would require the use of a significant portion of
Sun's unused financial capacity.
CAPITAL EXPENDITURES
<TABLE>
<CAPTION>
(Millions of Dollars) 1996 1995* 1994*
- --------------------------------------------------------
<S> <C> <C> <C>
Sun Northeast Refining $148 $103 $163
Sunoco Northeast Marketing 81 102 146
Sunoco Chemicals 57 55 61
Sun Lubricants 30 52 25
Sunoco MidAmerica Marketing & Refining 36 48 52
Sunoco Logistics 22 42 81
Sun Coal & Coke** 34 7 --
Canadian Refining and Marketing -- 8 22
- --------------------------------------------------------
Consolidated capital expenditures*** $408 $417 $550
- --------------------------------------------------------
</TABLE>
* Restated to exclude discontinued International Production and Canadian Up-
stream Petroleum operations.
** Excludes capital expenditures of Sun Coal & Coke prior to June 30, 1995
while such operations were accounted for as an investment held for sale.
*** Excludes $74 million attributable to the purchase of the Kendall/Amalie
lubricants business and related working capital in 1996 and $164 million
attributable to the purchase of the Girard Point refining facilities, and
related inventory and pipeline interests in 1994.
In 1996, in addition to the $74 million spent to acquire the Kendall/Amalie
lubricants business (of which $46 million related to working capital), major
capital outlays included: $81 million for branded marketing activities in the
Northeast largely concentrated on ongoing upgrades of service stations; $76
million for the six-week scheduled turnaround and modernization of the 86,000
barrel-per-day catalytic cracking unit, gas plant and ethylene complex at the
Marcus Hook refinery; $37 million to complete the expansion
29
<PAGE>
of a propylene unit at the Marcus Hook refinery; and $19 million to begin con-
struction of the $187 million cokemaking facility in East Chicago, IN scheduled
to commence operations in mid-1998.
In 1995, major capital expenditures included: $61 million related to service
station conversion and modernization activities; $26 million at the Marcus Hook
refinery to begin the expansion of the propylene unit and to complete expansion
of an ethylene oxide unit; $18 million to complete a cyclohexane plant and ex-
pand benzene extraction capacity at the Marcus Hook refinery ("Northeast
Aromatics and Cyclohexane Project") and $13 million to complete the construc-
tion of a pipeline connecting the Philadelphia and Marcus Hook refineries.
In 1994, in addition to the $164 million spent to acquire the Girard Point re-
fining facilities and related assets, major capital expenditures included: $64
million related to service station conversion and modernization activities; $58
million related to the Northeast Aromatics and Cyclohexane Project; $43 million
related to the inter-refinery pipeline construction; and $58 million to sub-
stantially complete a $110 million project to upgrade the wastewater treatment
processing facilities at the Marcus Hook refinery.
Planned capital expenditures for 1997 are expected to approximate $410 million,
of which $282 million will be spent in refining and marketing operations and
$128 million in the coal and cokemaking business. These planned outlays include
$112 million for the ongoing construction of cokemaking facilities in East Chi-
cago, IN and $35 million for the expansion of the Philadelphia refinery's
cumene production capacity. In addition to these major growth projects, $263
million is designated for base infrastructure and legally required spending, a
significant portion of which relates to projects that will enhance the relia-
bility of the Company's operations or maintain the high quality image of
Sunoco(R) retail outlets.
See "Environmental Matters" below for further discussion of Sun's capital ex-
penditures in connection with pollution abatement activities.
ENVIRONMENTAL MATTERS
Sun is subject to numerous federal, state and local laws which regulate the
discharge of materials into, or otherwise relate to the protection of, the en-
vironment. These laws have required, and are expected to continue to require,
Sun to make significant expenditures of both a capital and expense nature. Sev-
eral of the more significant federal laws applicable to the Company's opera-
tions include the Clean Air Act, the Clean Water Act, the Comprehensive Envi-
ronmental Response, Compensation and Liability Act ("cercla") and the Solid
Waste Disposal Act, as amended by the Resource Conservation and Recovery Act
("rcra").
The following table summarizes Sun's expenditures for environmental projects
and compliance activities:
<TABLE>
<CAPTION>
(Millions of Dollars) 1996 1995* 1994*
- ------------------------------------------------------------
<S> <C> <C> <C>
Pollution abatement capital** $ 29 $ 60 $203
Remediation 37 48 57
Operations, maintenance and administration 185 238 214
- ------------------------------------------------------------
$251 $346 $474
- ------------------------------------------------------------
</TABLE>
* Restated to exclude expenditures attributable to discontinued International
Production and Canadian Upstream Petroleum operations.
** Capital expenditures for pollution abatement are expected to approximate $25
and $55 million in 1997 and 1998, respectively.
The high level of pollution abatement capital expenditures during 1994 was pri-
marily due to outlays relating to the wastewater treatment and Northeast
Aromatics and Cyclohexane projects at the Marcus Hook refinery.
The Clean Air Act establishes stringent criteria for regulating air toxics at
operating facilities by mandating major reductions in allowable emissions and
establishing a more comprehensive list of substances deemed to be air toxics.
The Clean Air Act also requires refiners to market cleaner-burning gasoline
that reduces emissions of certain toxic and conventional pollutants. The Com-
pany has implemented the first phase of the reformulated gasoline regulations
which requires an increase in the minimum quantity of oxygen for certain non-
attainment areas, a reduction in benzene content, and a reduction in summertime
Reid Vapor Pressure ("rvp"). Sun expects to implement the next more stringent
phase of these regulations in 1998 with minimal capital investment. Management
believes the Company will be able to continue to meet these regulations even
though they will become even more stringent in 2000 when the phase-in of the
Clean Air Act is completed. However, the Company cannot ascertain at this time
the extent of the capital outlays that will be required to comply with this fi-
nal phase of the regulations.
In order to obtain a secure supply of oxygenates, Sun entered into an off-take
agreement with Belvieu Environmental Fuels ("bef"), a joint venture in which
Sun is a one-third partner, whereby Sun agreed to purchase all of the mtbe from
bef's 14,000 barrel-per-day facility. At December 31, 1996, Sun established a
$130 million accrual ($85 million after tax) for estimated losses expected to
be realized with respect to the off-take agreement. (See Note 12 to the consol-
idated financial statements.)
cercla and 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 Sun's facilities and 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 respon-
sible party" ("prp"). As of December 31, 1996, Sun had been named as a prp at
46 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
30
<PAGE>
negligible participation therein, believes that its potential liability associ-
ated 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 facili-
ties. 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. For a discussion of the accrued liabili-
ties and charges against income related to these activities, see Note 12 to the
consolidated financial statements.
Total future costs for environmental remediation activities will depend upon,
among other things, the identification of additional sites, the determination
of the extent of the contamination of each site, the timing and nature of re-
quired remedial actions, the technology available and needed to meet the vari-
ous 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 level and financial via-
bility of other parties.
Management believes that the overall expenditures for the matters discussed
above are likely to be significant but are expected to be incurred over an ex-
tended period of time and to be funded from Sun's net cash provided by operat-
ing activities. Although potentially significant with respect to results of op-
erations or cash flows for any one year, management believes that such costs
will not have a material impact on Sun's consolidated financial position or,
over an extended period of time, on Sun's cash flows or liquidity.
DEFERRED INCOME TAXES
Sun has deferred tax assets principally related to the alternative minimum tax,
certain liabilities and loss carryforwards. A valuation allowance was previ-
ously established to reduce certain state net operating loss carryforwards to
the amount that will more likely than not be realized. Management expects that
Sun will generate sufficient future taxable income to realize the benefit of
its net deferred tax asset. Uncertainties that may affect its realization in-
clude tax law changes and the future level of product prices, costs and tax
rates. The Federal net operating loss carryforward of $211 million at December
31, 1996 expires in 2011. It was generated in 1996 in part due to tax losses on
the sales of Sun's international production business and certain coal opera-
tions. The alternative minimum tax credit can be carried forward indefinitely
to reduce the Company's future regular tax liability.
DERIVATIVE INSTRUMENTS
Sun uses swaps, options, futures, forwards and other similar derivative con-
tracts to hedge the impact of fluctuations in crude oil, natural gas and re-
fined product prices. At December 31, 1996, Sun had swaps and options outstand-
ing to hedge against significant increases in crude oil prices on approximately
13 million barrels of its expected 1997 crude oil purchases and had locked in
what it considers to be acceptable margins for approximately 20 million barrels
of its anticipated 1997 wholesale fuel sales.
Sun is at risk for possible changes in the market value for all of its deriva-
tive contracts. However, it is anticipated that such risk would be mitigated by
price changes in the underlying hedged transactions. In addition, Sun is ex-
posed to credit risk in the event of nonperformance by counterparties. Manage-
ment believes this risk is negligible as its counterparties are regulated by
exchanges or they are major international financial institutions with high
credit ratings. Although most of these derivative contracts are intended to
limit the Company's exposure to declining margins and/or rising crude oil pric-
es, they could limit the Company's participation in rising margins and/or fall-
ing crude oil prices.
For a further discussion of Sun's hedging activities, see Note 15 to the con-
solidated financial statements.
CASH DIVIDENDS AND SHARE REPURCHASES
The Company has paid cash dividends on a regular quarterly basis since 1904.
During 1994, annual cash dividends of $1.80 per share ($.45 per share each
quarter) were paid on the Company's common stock. Effective with the third
quarter of 1995, Sun reduced its quarterly common stock dividend to $.25 per
share. As a result, the cash dividends paid on common stock totalled $1.40 per
share in 1995 and $1.00 per share in 1996. The Company expects to continue to
sustain the quarterly common stock cash dividend at its current level.
During the third quarter of 1995, Sun exchanged 25 million "depositary shares"
for an equal number of shares of its common stock in a tax free transaction.
Each depositary share represents ownership of one-half share of the Company's
Series A cumulative preference stock. The depositary shares accrue dividends
quarterly at a rate of $.45 per share, or one-half the rate paid on the prefer-
ence stock. Cash dividends paid on the depositary shares totalled $.90 per
share in 1995 and $1.80 per share in 1996. (See Note 13 to the consolidated fi-
nancial statements.)
The outstanding depositary shares are redeemable at any time by the Company, in
whole or in part, for common stock at a value initially equal to approximately
$42.40 per depositary share at June 12, 1995, decreasing ratably to $40.00 per
depositary share at June 11, 1998. After June 11, 1998, the Company may elect
to redeem each outstanding depositary share for one share of common stock, sub-
ject to adjustment in certain events. The Company currently intends to redeem
all of the outstanding depositary shares no later than June 12, 1998.
The Company repurchased 6,400,000 shares of its common stock in 1995 for $192
million through a tender offer and 2,910,300 shares of common stock and 78,900
depositary shares during the 1995-96 period subsequent to the exchange and ten-
der offers on
31
<PAGE>
the open market for approximately $79 million. The open market purchases were
made under a program authorized by the Company's Board of Directors to pur-
chase up to $100 million of stock in the open market from time to time depend-
ing on prevailing market conditions.
FORWARD-LOOKING STATEMENTS
Those statements in the Management's Discussion and Analysis that are not his-
torical in nature should be deemed forward-looking statements (including, by
way of example only and not of limitation, certain statements contained in
"Outlook", "Financial and Operational Restructuring", "Cash Flows and Finan-
cial Capacity", "Deferred Income Taxes" and "Cash Dividends and Share Repur-
chases" above) within the meaning of Section 21E of the Securities Exchange
Act of 1934. Although Sun believes these forward-looking statements are rea-
sonable, they are based upon a number of assumptions concerning future condi-
tions, any or all of which may ultimately prove to be inaccurate. Such for-
ward-looking statements involve risks and are inherently uncertain. Important
factors that could cause actual results to differ materially from those pro-
jected in such statements are discussed below.
Sun is affected by changes in industry-wide refining margins, changes in crude
oil and other raw material costs, and world and regional events that could
significantly increase volatility in the marketplace. Sun's crude oil supply
could be affected by factors beyond its control, such as embargoes, the con-
tinued discovery and production of light sweet crude oil, or military con-
flicts between (or internal instability in) one or more oil-producing coun-
tries. Other factors that could affect Sun's business include: the continued
availability of debt and equity financing, changes in labor relations, general
economic conditions (including recessionary trends, inflation and interest and
currency exchange rates), market supply and demand for Sun's products, the re-
liability and efficiency of Sun's operating facilities, the level of operating
expenses and hazards common to operating facilities (including explosions,
fires, oil spills and the effects of severe weather conditions), actions taken
by competitors (including both pricing and expansion and retirement of refin-
ery capacity in response to market conditions), and civil, criminal, regula-
tory or administrative actions, claims or proceedings.
Sun's operations could also be affected by domestic and international politi-
cal, legislative, regulatory and legal actions, such as restrictions on pro-
duction, restrictions on imports and exports, price controls, tax increases
and retroactive tax claims, expropriation of property and cancellation of con-
tract rights. In addition, Sun is impacted by laws pertaining to workers'
health and safety, and current or amended state and federal environmental and
other similar regulations (including, particularly, regulations dealing with
gasoline composition and characteristics) or the judicial interpretation of
such regulations.
The factors identified above are believed to be important factors (but not
necessarily all of the important factors) that could cause actual results to
differ materially from those expressed in any forward-looking statement made
by Sun. Unpredictable or unknown factors not discussed herein could also have
material adverse effects on forward-looking statements.
32
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS Sun Company, Inc. and Subsidiaries
(Millions of Dollars Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Years Ended December 31 1996 1995* 1994*
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Sales and other operating revenue (including consumer
excise taxes) $11,233 $9,834 $9,513
Interest income 15 13 14
Other income (Note 4) 52 30 35
- --------------------------------------------------------------------------------
11,300 9,877 9,562
COSTS AND EXPENSES
Cost of products sold and operating expenses 8,718 7,011 6,342
Selling, general and administrative expenses 589 616 696
Consumer excise taxes 1,612 1,751 2,116
Payroll, property and other taxes 89 94 104
Depreciation, depletion and amortization 267 263 246
Provision for write-down of assets and other matters
(Note 2) 356 93 54
Interest cost and debt expense 79 98 83
Interest capitalized (2) (2) (10)
- --------------------------------------------------------------------------------
11,708 9,924 9,631
Loss from continuing operations before income tax ben-
efit and cumulative effect of change
in accounting principle (408) (47) (69)
Income tax benefit (Note 5) (127) (39) (50)
- --------------------------------------------------------------------------------
Loss from continuing operations before cumulative ef-
fect of change in accounting principle (281) (8) (19)
Income from discontinued operations (Note 2) 166 235 116
Cumulative effect of change in accounting principle
(Note 3) -- (87) (7)
- --------------------------------------------------------------------------------
NET INCOME (LOSS) (115) 140 90
Dividends on preference stock (45) (22) --
- --------------------------------------------------------------------------------
Net income (loss) attributable to common shareholders $ (160) $ 118 $ 90
- --------------------------------------------------------------------------------
Earnings per share of common stock:**
Loss from continuing operations before cumulative ef-
fect of change in accounting principle $(4.43) $ (.33) $ (.18)
Income from discontinued operations 2.26 2.57 1.09
Cumulative effect of change in accounting principle -- (.95) (.07)
- --------------------------------------------------------------------------------
NET INCOME (LOSS) $(2.17) $1.29 $ .84
- --------------------------------------------------------------------------------
Cash dividends paid per share (Note 13):
Preference stock*** $3.60 $1.80 $--
Common stock $1.00 $1.40 $1.80
- --------------------------------------------------------------------------------
</TABLE>
* Restated to present International Production and Canadian Upstream Petroleum
operations as discontinued operations (Note 2).
** Represents both primary and fully diluted earnings per share (Note 1). Based
on the weighted average number of common shares outstanding (in millions) of
73.6 in 1996, 91.3 in 1995 and 107.0 in 1994.
*** 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 preference stock.
(See Accompanying Notes)
33
<PAGE>
CONSOLIDATED BALANCE SHEETS Sun Company, Inc. and Subsidiaries
(Millions of Dollars)
<TABLE>
<CAPTION>
At December 31 1996 1995*
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 67 $ 11
Note receivable from divestment of Suncor common stock (Note 2) -- 130
Accounts and other notes receivable, net 864 637
Inventories (Note 6) 476 522
Deferred income taxes (Note 5) 128 132
Investment in discontinued operations (Note 2) -- 143
- -------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,535 1,575
- -------------------------------------------------------------------------------
INVESTMENT IN REAL ESTATE OPERATIONS HELD FOR SALE (Note 2) 79 87
INVESTMENTS AND LONG-TERM RECEIVABLES (Note 7) 91 104
PROPERTIES, PLANTS AND EQUIPMENT, NET (Note 8) 3,044 3,048
DEFERRED CHARGES AND OTHER ASSETS 276 271
- -------------------------------------------------------------------------------
TOTAL ASSETS $5,025 $5,085
- -------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $1,081 $ 776
Accrued liabilities 573 502
Short-term borrowings (Note 9) -- 54
Current portion of long-term debt (Note 10) 54 3
Taxes payable 109 131
- -------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 1,817 1,466
- -------------------------------------------------------------------------------
LONG-TERM DEBT (Note 10) 835 888
RETIREMENT BENEFIT LIABILITIES (Note 11) 489 506
DEFERRED INCOME TAXES (Note 5) -- 94
OTHER DEFERRED CREDITS AND LIABILITIES 446 432
COMMITMENTS AND CONTINGENT LIABILITIES (Note 12)
SHAREHOLDERS' EQUITY (Notes 13 and 14)
Cumulative preference stock - Series A, no par value
Authorized - 12,500,000 shares; Outstanding, 1996 - 12,460,550
shares;
Outstanding, 1995 - 12,500,000 shares 748 750
Common stock, par value $1 per share
Authorized - 200,000,000 shares; Issued, 1996 - 129,871,604
shares;
Issued, 1995 - 129,709,084 shares 130 130
Capital in excess of par value 1,316 1,310
Earnings employed in the business 1,284 1,518
- -------------------------------------------------------------------------------
3,478 3,708
Less common stock held in treasury, at cost
1996 - 56,880,126 shares; 1995 - 55,699,366 shares 2,040 2,009
- -------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 1,438 1,699
- -------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $5,025 $5,085
- -------------------------------------------------------------------------------
</TABLE>
*Restated to conform to the 1996 presentation (Note 2).
(See Accompanying Notes)
34
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS Sun Company, Inc. and Subsidiaries
(Millions of Dollars)
<TABLE>
<CAPTION>
For the Years Ended December 31 1996 1995* 1994*
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(115) $ 140 $ 90
Adjustments to reconcile net income (loss) to net cash pro-
vided by operating activities:
Income from discontinued operations (166) (235) (116)
Cumulative effect of change in accounting principle -- 87 7
Provision for write-down of assets and other matters 356 93 54
Depreciation, depletion and amortization 267 263 246
Deferred income tax expense (benefit) (129) 11 (93)
Changes in working capital pertaining to operating activi-
ties:
Accounts and notes receivable (198) (143) (70)
Inventories 57 (28) (44)
Accounts payable and accrued liabilities 257 66 98
Taxes payable 7 (101) 24
Other (21) (13) 5
- ---------------------------------------------------------------------------------
Net cash flows from continuing operating activities 315 140 201
Net cash flows from discontinued operating activities 17 212 280
- ---------------------------------------------------------------------------------
Net cash provided by operating activities 332 352 481
- ---------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (408) (417) (550)
Acquisition of Kendall/Amalie lubricants business and re-
lated working capital (Notes 2 and 16) (74) -- --
Acquisition of Girard Point refinery and related assets
(Notes 2 and 16) -- -- (164)
Proceeds from divestments:
International Production operations (Note 2) 278 -- --
Suncor common stock (Note 2) 135 635 --
Other 32 64 80
Investing activities of discontinued operations (13) (99) (257)
Other -- (18) 47
- ---------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (50) 165 (844)
- ---------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) short-term borrowings (54) (167) 111
Proceeds from issuance of long-term debt -- -- 450
Repayments of long-term debt (2) (142) (23)
Cash dividend payments (119) (156) (192)
Purchases of preference stock for retirement (2) -- --
Purchases of common stock for treasury (31) (238) --
Financing activities of discontinued operations -- 15 --
Other (18) 96 8
- ---------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (226) (592) 354
- ---------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 56 (75) (9)
Cash and cash equivalents at beginning of year 11 86 95
- ---------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 67 $ 11 $ 86
- ---------------------------------------------------------------------------------
</TABLE>
* Restated to conform to the 1996 presentation (Note 2).
(See Accompanying Notes)
35
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Sun Company, Inc. and
Subsidiaries
(Dollars in Millions, Shares in Thousands)
<TABLE>
<CAPTION>
Cumulative Common Stock
Preference Stock Common Stock Earnings Held in Treasury
---------------------- --------------- Capital in Employed ------------------
Number of Liquidation Number of Par Excess of Translation in the
Shares Value Shares Value Par Value Adjustment Business Shares Cost
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AT DECEMBER 31, 1993 -- $ -- 129,313 $129 $1,303 $(62) $1,636 22,630 $1,022
Net income -- -- -- -- -- -- 90 -- --
Cash dividend payments -- -- -- -- -- -- (192) -- --
Issued under management
incentive plans -- -- 208 1 6 -- -- -- --
Sales to dividend rein-
vestment plan -- -- -- -- -- -- -- (46) (1)
Foreign currency trans-
lation adjustment -- -- -- -- -- (27) -- -- --
- ------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1994 -- $ -- 129,521 $130 $1,309 $(89) $1,534 22,584 $ 1,021
Net income -- -- -- -- -- -- 140 -- --
Cash dividend payments -- -- -- -- -- -- (156) -- --
Exchange of preference
stock for common
stock (Note 13) 12,500 750 -- -- -- -- -- 25,000 750
Purchases for treasury -- -- -- -- -- -- -- 8,125 238
Issued under management
incentive plans -- -- 56 -- 2 -- -- -- --
Issued under employee
option plan -- -- 132 -- 4 -- -- (4) --
Foreign currency trans-
lation adjustment -- -- -- -- -- 89 -- -- --
Other -- -- -- -- (5) -- -- (6) --
- ------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1995 12,500 $750 129,709 $130 $1,310 $ -- $1,518 55,699 $2,009
Net loss -- -- -- -- -- -- (115) -- --
Cash dividend payments -- -- -- -- -- -- (119) -- --
Purchases for retirement (39) (2) -- -- -- -- -- -- --
Purchases for treasury -- -- -- -- -- -- -- 1,185 31
Issued under management
incentive plans -- -- 74 -- 2 -- -- -- --
Issued under employee
option plan -- -- 88 -- 2 -- -- -- --
Other -- -- 1 -- 2 -- -- (4) --
- ------------------------------------------------------------------------------------------------------------------------
AT DECEMBER 31, 1996 12,461 $748 129,872 $130 $1,316 $ -- $1,284 56,880 $ 2,040
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Accompanying Notes)
36
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Sun Company, Inc. and Subsidiaries
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
Sun Company, Inc. and all operations that are controlled (generally more than
50 percent owned) except those accounted for as investments in operations held
for sale and discontinued operations (collectively, "Sun" or the "Company") are
consolidated. 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.
USE OF ESTIMATES
Certain amounts included in the accompanying consolidated financial statements
and related footnotes reflect the use of estimates based on assumptions made by
management. Actual amounts could differ from these estimates.
CASH EQUIVALENTS
Sun considers all highly liquid investments with a remaining maturity of three
months or less at the time of purchase to be cash equivalents. Sun's cash
equivalents consist principally of time deposits and certificates of deposit.
INVENTORIES
Inventories are valued at the lower of cost or market. The cost of crude oil
and refined product inventories is determined principally using the last-in,
first-out method ("lifo"). The cost of materials, supplies and other invento-
ries is determined using principally the average cost method.
DEPRECIATION AND RETIREMENTS
Plants and equipment are generally depreciated on a straight-line basis over
their estimated useful lives. Coal property acquisition costs and capitalized
development costs are depleted by the unit of production method based on proved
reserves. Gains and losses on the disposals of fixed assets are generally re-
flected in income.
ENVIRONMENTAL REMEDIATION
Sun accrues environmental remediation costs for work at identified sites where
an assessment has indicated that cleanup costs are probable and reasonably es-
timable. Such accruals are undiscounted and are based on currently available
facts, estimated timing of remedial actions and related inflation assumptions,
existing technology and presently enacted laws and regulations.
REFINERY MAINTENANCE SHUTDOWNS
Maintenance and repair costs in excess of $500 thousand incurred in connection
with major refinery maintenance shutdowns are capitalized when incurred and
then amortized over the period benefitted by the maintenance activities.
FOREIGN CURRENCY TRANSLATION
Prior to the divestment of Suncor Inc., the functional currency for Canadian
operations was the Canadian dollar. Foreign exchange gains and losses resulting
from translating Suncor's balance sheet from Canadian dollars into U.S. dollars
were included as a separate component of shareholders' equity. The functional
currency for International Production operations was the U.S. dollar.
DERIVATIVE INSTRUMENTS
Sun uses swaps, options, futures, forwards and other similar derivative con-
tracts to hedge the impact of fluctuations in crude oil, natural gas and re-
fined product prices. Gains and losses on these contracts are generally de-
ferred and recognized as a component of the underlying hedged transactions. The
cash flows from hedge contracts are included in operating activities in the
consolidated statements of cash flows.
STOCK-BASED COMPENSATION
The Company follows the method of accounting for employee stock compensation
plans prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" ("apb no. 25") (Note 14).
EARNINGS PER SHARE
Primary earnings per share was computed by dividing earnings (losses), after
deducting dividends on the preference stock issued in August 1995 (Note 13), by
the weighted average number of common shares outstanding. Fully diluted earn-
ings per share generally is determined by dividing earnings (losses) by the
weighted average number of shares outstanding assuming redemption of the pref-
erence shares for common stock utilizing a ratio of two shares of common stock
for each outstanding preference share. However, since the assumed redemption of
preference shares would have resulted in either an increase in earnings per
share or a reduction in the loss per share, fully diluted per share amounts are
equal to those reported on a primary basis.
37
<PAGE>
2. CHANGES IN BUSINESS
The following is a summary of Sun's significant changes in business during the
three-year period ended December 31, 1996:
DISCONTINUED OPERATIONS
On September 30, 1996, Sun completed the sale of its international oil and gas
production business for $278 million in cash. The sale of this business repre-
sents the completion of the Company's withdrawal from oil and gas exploration
and production activities. The Company withdrew from international exploration
activities in 1992 and divested its remaining 55-percent interest in Suncor
Inc., a Canadian integrated oil company, on June 8, 1995. Sun received $770
million in cash from the sale of Suncor, after commissions and discounts, of
which $635 million was received in June 1995 and $135 million was received in
June 1996.
As a result of the sale of the international oil and gas production business,
this business and the previously divested Canadian synthetic oil production and
conventional oil and gas exploration and production operations (collectively,
"Canadian Upstream Petroleum operations") have been classified as discontinued
operations for all periods presented. The following is a summary of income from
discontinued operations:
<TABLE>
<CAPTION>
Canadian
International Upstream
Production Petroleum
(Millions of Dollars) Operations Operations Total
- -------------------------------------------------------------------
<S> <C> <C> <C>
1996
Income before income tax benefit $152 $ -- $152
Income tax benefit 14 -- 14
- -------------------------------------------------------------------
Income from discontinued operations $166 $ -- $166
- -------------------------------------------------------------------
1995
Income before income tax expense $ 80 $286 $366
Income tax expense 23 108 131
- -------------------------------------------------------------------
Income from discontinued operations $ 57 $178 $235
- -------------------------------------------------------------------
1994
Income before income tax expense $126 $ 63 $189
Income tax expense 38 35 73
- -------------------------------------------------------------------
Income from discontinued operations $ 88 $ 28 $116
- -------------------------------------------------------------------
</TABLE>
Income from discontinued International Production operations in 1996 includes a
$125 million gain on divestment of this business (comprised of a pretax gain of
$93 million and an income tax benefit of $32 million). Income from discontinued
Canadian Upstream Petroleum operations in 1995 includes a $157 million gain on
divestment of Suncor (comprised of a pretax gain of $242 million and income tax
expense of $85 million).
Prior to their divestment, sales and other operating revenue from discontinued
International Production operations totalled $187, $236 and $245 million for
1996, 1995 and 1994, respectively, while sales and other operating revenue from
discontinued Canadian Upstream Petroleum operations totalled $271 and $533 mil-
lion for 1995 and 1994, respectively.
INVESTMENTS IN OPERATIONS HELD FOR SALE
REAL ESTATE OPERATIONS--Sun has been disposing of its investment in Radnor Cor-
poration, its wholly owned real estate development subsidiary, since October
1991 and subsequent to that date has divested approximately 80 percent of its
real estate portfolio. This business is accounted for as an investment held for
sale. As a result, pretax income (loss) from real estate operations has been
included as a single amount in other income in the consolidated statements of
operations (Note 4).
The assets and liabilities relating to real estate operations, which have been
segregated in the consolidated balance sheets and separately reflected as an
investment in real estate operations held for sale, are as follows:
<TABLE>
<CAPTION>
December 31
------------
(Millions of Dollars) 1996 1995
- -----------------------------------------------------------------
<S> <C> <C>
Inventories $ 78 $ 83
Properties, plants and equipment 119 144
Other assets 18 20
Debt (Note 12) (109) (132)
Other liabilities (27) (28)
- -----------------------------------------------------------------
Investment in real estate operations held for sale $ 79 $ 87
- -----------------------------------------------------------------
</TABLE>
COAL AND COKEMAKING OPERATIONS--In January 1993, Sun decided to sell its coal
and cokemaking operations. In connection with this decision, Sun sold its west-
ern U.S. coal operations during 1993 and certain of its eastern U.S. coal oper-
ations during 1994. Prior to June 30, 1995, Sun's coal and cokemaking opera-
tions 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 ongoing business units and is no longer held for sale. Accordingly,
the consolidated balance sheets of Sun as of December 31, 1996 and 1995 contain
the accounts of its coal and cokemaking operations on a fully consolidated ba-
sis. The accompanying consolidated statements of operations and cash flows re-
flect coal and cokemaking operations on a fully consolidated basis after June
30, 1995 and as an operation held for sale prior to that date. The prior period
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.
38
<PAGE>
WRITE-DOWNS OF ASSETS AND OTHER MATTERS
The following table sets forth summary information regarding the provisions for
write-down of assets and other matters:
<TABLE>
<CAPTION>
Pretax After-Tax
(Millions of Dollars) Provisions Provisions
- --------------------------------------------------------------
<S> <C> <C>
1996
Reconfiguration projects:
Philadelphia refinery $ 85 $ 53
Puerto Rico refinery 85 80
mtbe purchase commitment 130 85
Other 56 36
- --------------------------------------------------------------
$356 $254
- --------------------------------------------------------------
1995
Refining and marketing assets $ 43 $ 28
Employee terminations and related costs 50 33
- --------------------------------------------------------------
$ 93 $ 61
- --------------------------------------------------------------
1994
Coal investment $ 36 $ 20
Other 18 12
- --------------------------------------------------------------
$ 54 $ 32
- --------------------------------------------------------------
</TABLE>
During the fourth quarter of 1996, Sun reconfigured the Philadelphia refinery
to process only light sweet crude oil and to cease asphalt production. This
reconfiguration continues the integration of the two adjacent but separate fa-
cilities (Point Breeze and Girard Point) at the Philadelphia, PA refinery. In
1996, Sun also announced that it will reconfigure the Puerto Rico refinery in
the first quarter of 1997 to significantly reduce fuels production while main-
taining the current volume and quality of lubricants production. In connection
with these reconfigurations, Sun recorded provisions to write off redundant
and/or unprofitable processing units and established accruals for environmental
remediation activities, employee terminations and related costs. In addition,
at December 31, 1996, Sun established accruals for estimated losses expected to
be realized with respect to an off-take agreement to purchase mtbe (Note 12)
and for other environmental remediation activities and recorded a provision to
write down to fair value certain assets in its refining and marketing business.
During 1995, Sun recorded a provision to write down to fair value certain as-
sets in the refining and marketing business and to establish accruals for em-
ployee terminations and related costs. The $50 million accrual for employee
terminations and related costs included $38 million attributable to termination
benefits and $12 million related to future rental payments for vacated office
space.
During 1994, Sun recorded a provision primarily attributable to a write down to
estimated net realizable value of its investment in coal operations and estab-
lished accruals related to certain litigation and other matters.
ACQUISITIONS
KENDALL/AMALIE LUBRICANTS BUSINESS AND RELATED WORKING CAPITAL--On November 1,
1996, Sun acquired the Kendall/Amalie lubricants blending, packaging and mar-
keting business for $74 million in cash, including $46 million for working cap-
ital. The acquisition has been accounted for as a purchase and, accordingly,
the results of operations of this business have been included in the consoli-
dated statement of operations since the date of acquisition. The purchase price
has been allocated to the assets acquired and liabilities assumed based on
their relative fair market values (Note 16). The results of operations of the
Kendall/Amalie lubricants business in 1996 and 1995 were not material in rela-
tion to Sun's consolidated results of operations.
GIRARD POINT REFINERY AND RELATED ASSETS--Sun acquired for $164 million the
Chevron U.S.A. Inc. 177,000 barrel-per-day Girard Point refining facility and
related inventory located in Philadelphia, PA on August 4, 1994 and its inter-
est in the Woodbury and Harbor Pipelines, which connect the refinery to the New
York Harbor, on October 26, 1994. As part of the acquisition, Sun assumed cer-
tain liabilities. The acquisition has been accounted for as a purchase. The un-
audited pro forma sales and other operating revenue (excluding consumer excise
taxes), net income and net income per share of common stock of Sun for the year
ended December 31, 1994, assuming the acquisitions had occurred on January 1,
1994, were $8,112 million, $102 million and $.95 per share of common stock, re-
spectively. The pro forma information does not purport to be indicative of the
results that would have been obtained if the operations actually had been com-
bined throughout 1994.
3. CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1995, Sun adopted the provisions of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived As-
sets and for Long-Lived Assets to be Disposed Of." This statement requires com-
panies to write down to estimated fair value long-lived assets that are im-
paired. The write-downs recognized in 1995 are reflected as a cumulative effect
of a change in accounting principle in the consolidated statement of operations
and related to properties to be disposed of in the Company's coal, real estate
and refining and marketing operations. The following table sets forth summary
information concerning these write-downs:
<TABLE>
<CAPTION>
Pretax After-tax
(Millions of Dollars) Provisions Provisions
- ----------------------------------------------
<S> <C> <C>
Coal $ 45 $29
Real estate 33 15
Refining and marketing* 67 43
- ----------------------------------------------
$145 $87
- ----------------------------------------------
</TABLE>
* Primarily service stations and terminals.
39
<PAGE>
The impaired coal assets were sold during 1996. The disposal of the Company's
remaining real estate portfolio and refining and marketing assets held for
sale is expected to be substantially completed by the end of 1998. Other than
the cumulative effect, this change did not have a significant impact on Sun's
results of operations during 1995. The results of operations during 1996 and
1995 for the properties to be disposed of were not significant.
Effective January 1, 1994, Sun adopted the provisions of Statement of Finan-
cial Accounting Standards No. 112 "Employers' Accounting for Postemployment
Benefits." It requires companies to recognize the obligation to provide bene-
fits to their former or inactive employees after employment but before retire-
ment. The cumulative effect of this accounting change for years prior to 1994
decreased net income for 1994 by $7 million (after related income tax benefit
of $4 million). Other than the cumulative effect, this change did not have a
significant impact on Sun's net income.
4. OTHER INCOME
<TABLE>
<CAPTION>
(Millions of Dollars) 1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Equity in earnings of affiliated companies $24 $17 $13
Gain on divestments 14 1 9
Pretax income (loss) from investments in operations held for
sale (Note 2) -- 5 (1)
Other 14 7 14
- ----------------------------------------------------------------------------
$52 $30 $35
- ----------------------------------------------------------------------------
</TABLE>
5. INCOME TAXES
The components of the loss from continuing operations before income tax bene-
fit and cumulative effect of the change in accounting principle are as fol-
lows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1996 1995 1994
- -----------------------------------------
<S> <C> <C> <C>
U.S. $(408) $(52) $(94)
Foreign* -- 5 25
- -----------------------------------------
$(408) $(47) $(69)
- -----------------------------------------
</TABLE>
* Attributable to Canadian refining and marketing operations.
The components of the income tax benefit from continuing operations before cu-
mulative effect of the change in accounting principle are as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1996 1995 1994
- ---------------------------------------------------
<S> <C> <C> <C>
Income taxes currently payable:
U.S. federal $ -- $(59) $ 13
Foreign -- 4 19
State and other 2 5 11
- ---------------------------------------------------
2 (50) 43
- ---------------------------------------------------
Deferred taxes:
U.S. federal (118) 22 (84)
Foreign -- (1) (3)
State and other (11) (10) (6)
- ---------------------------------------------------
(129) 11 (93)
- ---------------------------------------------------
$(127) $(39) $(50)
- ---------------------------------------------------
</TABLE>
The reconciliation of the income tax benefit at the U.S. statutory rate to the
income tax benefit from continuing operations before cumulative effect of the
change in accounting principle is as follows:
<TABLE>
<CAPTION>
(Millions of Dollars) 1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Income tax benefit at U.S. statutory rate $(143) $(16) $(24)
(Increase) reduction in income tax benefit resulting from:
Nonconventional fuel credit -- (8) (18)
Puerto Rico tax exemption (expires
in 2007) 25 (5) (6)
State income taxes after Federal income tax effects (2) (4) 2
Dividend exclusion for affiliated companies (4) (3) (3)
Other (3) (3) (1)
- ------------------------------------------------------------------------------
$(127) $(39) $(50)
- ------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences which comprise the net deferred in-
come tax asset are as follows:
<TABLE>
<CAPTION>
December 31
------------
(Millions of Dollars) 1996 1995
- ------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Retirement benefit liabilities $ 157 $ 160
Environmental remediation liabilities 78 67
Other liabilities not yet deductible 211 238
Federal net operating loss carryforward* 74 --
Alternative minimum tax credit carryforward** 68 29
Investment in real estate operations held
for sale 31 37
Other 51 58
Valuation allowance (32) (32)
- ------------------------------------------------------------
638 557
- ------------------------------------------------------------
Deferred tax liabilities:
Properties, plants and equipment (438) (453)
Other (48) (66)
- ------------------------------------------------------------
(486) (519)
- ------------------------------------------------------------
Net deferred income tax asset $ 152 $ 38
- ------------------------------------------------------------
</TABLE>
* The Federal net operating loss carryforward of $211 million at December 31,
1996 expires in 2011. It was generated in 1996 in part due to tax losses on
the sales of Sun's international production business and certain coal opera-
tions.
** Alternative minimum tax credit carryforwards may be carried forward indefi-
nitely.
The valuation allowance was previously established to reduce certain state net
operating loss carryforwards to the amount that will more likely than not be
realized. Management expects that Sun will generate sufficient future taxable
income to realize the benefit of its net deferred income tax asset. Uncertain-
ties that may affect its realization include tax law changes and the future
level of product prices, costs and tax rates.
40
<PAGE>
The following table sets forth the net deferred income tax asset in the consol-
idated balance sheets at:
<TABLE>
<CAPTION>
December 31
------------
(Millions of Dollars) 1996 1995
- -------------------------------------------
<S> <C> <C>
Current asset $128 $132
Noncurrent asset (liability) 24* (94)
- -------------------------------------------
$152 $ 38
- -------------------------------------------
</TABLE>
* Included in deferred charges and other assets in the consolidated balance
sheet.
6. INVENTORIES
<TABLE>
<CAPTION>
December 31
-----------
(Millions of Dollars) 1996 1995
- ------------------------------------------
<S> <C> <C>
Crude oil $ 157 $184
Refined products 252 272
Materials, supplies and other 67 66
- ------------------------------------------
$ 476 $522
- ------------------------------------------
</TABLE>
The current replacement cost of all inventories valued at lifo exceeded their
carrying value by $780 and $528 million at December 31, 1996 and 1995, respec-
tively. During 1996, Sun reduced certain inventory quantities which were valued
at lower lifo costs prevailing in prior years. The effect of this reduction was
to decrease the 1996 net loss by $8 million.
7. INVESTMENTS AND LONG-TERM RECEIVABLES
<TABLE>
<CAPTION>
December 31
-------------
(Millions of Dollars) 1996 1995
- ------------------------------------------------------------------
<S> <C> <C>
Investments in and advances to affiliated companies $ 72 $ 80
Accounts and notes receivable 14 13
Other investments 5 11
- ------------------------------------------------------------------
$ 91 $104
- ------------------------------------------------------------------
</TABLE>
Dividends received from affiliated companies amounted to $15, $11 and $10 mil-
lion in 1996, 1995 and 1994, respectively. Earnings employed in the business at
December 31, 1996 include $30 million of undistributed earnings of affiliated
companies.
8. PROPERTIES, PLANTS AND EQUIPMENT
<TABLE>
<CAPTION>
Accumulated
Gross Depreciation,
(Millions of Dollars) Investment Depletion and Net
December 31 at Cost Amortization Investment
- ---------------------------------------------------------------
<S> <C> <C> <C>
1996
Refining and marketing* $5,537 $2,599 $2,938
Coal mining and cokemaking 291 186 105
Corporate 1 -- 1
- ---------------------------------------------------------------
$5,829 $2,785 $3,044
- ---------------------------------------------------------------
1995
Refining and marketing* $5,418 $2,463 $2,955
Coal mining and cokemaking 375 283 92
Corporate 1 -- 1
- ---------------------------------------------------------------
$5,794 $2,746 $3,048
- ---------------------------------------------------------------
</TABLE>
* Includes gross amounts leased to third parties totalling $588 and $624 mil-
lion at December 31, 1996 and 1995, respectively. Related accumulated depre-
ciation totalled $206 and $203 million at December 31, 1996 and 1995, respec-
tively.
Annual future minimum rentals due Sun, as lessor, on noncancelable operating
leases at December 31, 1996 are as follows (in millions of dollars):
<TABLE>
- -----------------------------
<S> <C>
Year ending December 31:
1997 $46
1998 31
1999 12
2000 2
2001 1
Thereafter --
- -----------------------------
$92
- -----------------------------
</TABLE>
9. SHORT-TERM BORROWINGS AND CREDIT FACILITIES
The Company has a $600 million revolving credit agreement ("Agreement") with
commercial banks that provides access to short-term financing through September
2000. The Company can borrow directly from the participating banks under this
Agreement or use it to support commercial paper issued by Sun. The Agreement is
subject to commitment fees, the amounts of which are not material. Under the
terms of the Agreement, Sun is required, among other things, to maintain Con-
solidated Tangible Net Worth (as defined) of at least $1,100 million. At Decem-
ber 31, 1996, the Consolidated Tangible Net Worth was $1,345 million. The Com-
pany also has access to short-term financing under non-committed money market
facilities. The following table sets forth amounts outstanding related to the
above short-term borrowing arrangements at:
<TABLE>
<CAPTION>
December 31
------------
(Millions of Dollars) 1996 1995
- ----------------------------------------------------
<S> <C> <C>
Commercial paper $ -- $ 4
Non-committed money market facilities -- 50
- ----------------------------------------------------
$ -- $ 54
- ----------------------------------------------------
</TABLE>
41
<PAGE>
10. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31
-----------
(Millions of Dollars) 1996 1995
- ---------------------------------------------------
<S> <C> <C>
SUN COMPANY, INC.
9 3/8% debentures due 2016 $ 200 $200
9% debentures due 2024 100 100
8 1/8% notes due 1999 150 150
7.95% notes due 2001 150 150
7 1/8% notes due 2004 100 100
7.03% - 7.10% notes due 1997 50 50
6 3/4% convertible debentures due 2012
(Note 13) 10 10
- ---------------------------------------------------
760 760
- ---------------------------------------------------
SUBSIDIARIES OF SUN COMPANY, INC.
7.60% environmental industrial revenue
bonds due 2024 100 100
Other 33 35
- ---------------------------------------------------
133 135
- ---------------------------------------------------
893 895
Less: unamortized discount 4 4
current portion 54 3
- ---------------------------------------------------
$ 835 $888
- ---------------------------------------------------
</TABLE>
The aggregate amount of long-term debt maturing and sinking fund requirements
in the years 1997 through 2001 is as follows (in millions of dollars):
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
1997 $ 54
1998 $ 11
1999 $151
</TABLE>
<TABLE>
<S> <C>
2000 $ 2
2001 $151
</TABLE>
- -------------------------------------------------------------------------------
11. RETIREMENT BENEFIT PLANS
DEFINED BENEFIT PENSION PLANS
Sun has noncontributory defined benefit pension plans which provide retirement
benefits for most of its employees. Plan benefits are generally based on years
of service, age at retirement and employees' compensation. For Sun's principal
defined benefit pension plans, the benefit for employees hired prior to Janu-
ary 1, 1987 is determined based on either final or total career average com-
pensation, whichever produces the greater benefit. For employees hired on or
after January 1, 1987, the benefit is determined based on total career average
compensation. It is Sun's policy to fund defined benefit pension contribu-
tions, at a minimum, in accordance with the requirements of the Internal Reve-
nue Code. Pension expense consisted of the following components:
<TABLE>
<CAPTION>
(Millions of Dollars) 1996 1995 1994
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (cost of benefits earned during the year) $ 29 $ 26 $ 27
Interest cost on projected benefit obligation 91 97 89
Actual return on plan assets* (132) (241) (9)
Net amortization and deferral* 26 134 (95)
- ----------------------------------------------------------------------------
$ 14 $ 16** $ 12
- ----------------------------------------------------------------------------
</TABLE>
*Estimated returns on assets are used in determining net periodic pension
cost. Differences between estimated and actual returns are included in net
amortization and deferral. Also included in net amortization and deferral are
amortization of the unrecognized net asset or obligation at January 1, 1986
and amortization of the unrecognized prior service cost and unrecognized net
gain or loss as of the beginning of each year.
**Excludes a $1 million curtailment gain recognized in connection with the em-
ployee termination program implemented during 1995 (Note 2).
The following table sets forth the funded status of the plans and amounts rec-
ognized in the balance sheets at:
<TABLE>
<CAPTION>
DECEMBER 31, 1996 December 31, 1995
------------------------------ ------------------------------
Plans in Which Plans in Which Plans in Which Plans in Which
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
(Millions of Dollars) Benefits Exceed Assets Benefits Exceed Assets
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value
of benefit obligation:
Vested $ 861 $212 $ 867 $253
Nonvested 40 18 36 21
- -----------------------------------------------------------------------------------------
Accumulated benefit ob-
ligation 901 230 903 274
Effect of projected fu-
ture salary increases 89 22 107 25
- -----------------------------------------------------------------------------------------
Projected benefit obli-
gation 990 252 1,010 299
Less plan assets at fair
value* 1,137 105 1,080 132
- -----------------------------------------------------------------------------------------
Projected benefit obli-
gation in excess of
(less than) plan assets (147) 147 (70) 167
Unrecognized net asset
(obligation) at January
1, 1986 43 (14) 56 (17)
Unrecognized prior serv-
ice cost (15) -- (15) --
Unrecognized net gain
(loss) 76 (27) (8) (46)
Additional minimum lia-
bility** -- 40 -- 50
- -----------------------------------------------------------------------------------------
Pension liability (as-
set) $ (43) $146 $ (37) $154
- -----------------------------------------------------------------------------------------
</TABLE>
*Plan assets consist principally of commingled trust funds, marketable equity
securities, corporate and government debt securities and real estate. Less
than 1 percent of plan assets was invested in Company common and preference
stock at both December 31, 1996 and 1995.
**An equivalent intangible asset is included in deferred charges and other as-
sets in the consolidated balance sheets.
42
<PAGE>
As of December 31, 1996 and 1995, the projected benefit obligations were de-
termined using weighted average assumed discount rates of 7.5 and 7.0 percent,
respectively, and a rate of compensation increase of 4.0 percent. The weighted
average expected long-term rate of return on plan assets was 9.0 percent in
1996 and 9.25 percent in 1995. All of these rates are subject to change in the
future as economic conditions change.
DEFINED CONTRIBUTION PENSION PLANS
Sun has defined contribution pension plans which provide retirement benefits
for most of its employees. Sun's contributions, which are principally based on
a percentage of employees' annual compensation and are charged against income
as incurred, amounted to $18, $18 and $14 million in 1996, 1995 and 1994, re-
spectively.
Sun's principal defined contribution plan is the Sun Company, Inc. Capital Ac-
cumulation Plan ("Suncap"). Sun matches 100 percent of employee contributions
to the plan up to 5 percent of an employee's base compensation. Suncap is a
combined profit sharing and employee stock ownership plan which contains a
provision designed to permit Suncap, only upon approval by the Company's Board
of Directors, to borrow in order to purchase shares of Company common stock.
As of December 31, 1996, no such borrowings had been approved.
POSTRETIREMENT HEALTH CARE AND LIFE INSURANCE BENEFITS
Sun has plans which provide health care and life insurance benefits for sub-
stantially all retirees. Such benefits are provided through insurance policies
which have premiums based on benefits paid during the year. The plans are un-
funded and the costs are shared by Sun and its retirees. Postretirement bene-
fits expense consisted of the following components:
<TABLE>
<CAPTION>
(Millions of Dollars) 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost (cost of benefits earned
during the year) $ 5 $ 5 $ 4
Interest cost on accumulated postretirement benefit obliga-
tion 23 23 18
Net amortization* (9) (10) (8)
- -------------------------------------------------------------------------------
$19 $ 18** $14
- -------------------------------------------------------------------------------
</TABLE>
*Consists of amortization of the unrecognized prior service benefit and the
unrecognized net gain or loss.
**Excludes a $4 million curtailment gain recognized in connection with the
employee termination program implemented during 1995 (Note 2).
The following table sets forth the funded status of the plans and amounts rec-
ognized in the balance sheets at:
<TABLE>
<CAPTION>
December 31
------------
(Millions of Dollars) 1996 1995
- --------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit
obligation ("apbo"):
Retirees $ 223 $220
Fully eligible active participants 27 26
Other active participants 82 93
- --------------------------------------------------------
332 339
Unrecognized prior service benefit 63 60
Unrecognized net loss (9) (10)
- --------------------------------------------------------
Accrued postretirement benefit obligation $ 386 $389
- --------------------------------------------------------
</TABLE>
As of December 31, 1996 and 1995, the apbo was determined using weighted aver-
age assumed discount rates of 7.5 and 7.0 percent, respectively. The health
care cost trend assumptions used at December 31, 1996 and 1995 were 7.3 and
9.0 percent, respectively, which are assumed to decline gradually to 5.5 per-
cent in 2001 and to remain at that level thereafter. All of these rates are
subject to change in the future as economic conditions change. An increase in
the assumed health care cost trend rate by one percentage point in each year
would have increased the apbo by $6 million at December 31, 1996 and would
have increased the service and interest components of postretirement benefits
expense in the aggregate by $1 million for each of the three years in the pe-
riod ending December 31, 1996.
12. COMMITMENTS AND CONTINGENT LIABILITIES
Sun, as lessee, has noncancelable operating leases for marine transportation
time charters and for service stations, office space and other property and
equipment. Total rental expense for such leases for the years 1996, 1995 and
1994 amounted to $97, $102 and $103 million, respectively. Approximately 10
percent of total rental expense was recovered through related rental income
from subleases during 1996. Under contracts existing as of December 31, 1996,
future minimum annual rentals applicable to noncancelable operating leases are
as follows (in millions of dollars):
<TABLE>
- ------------------------------
<S> <C>
Year ending December 31:
1997 $ 70
1998 51
1999 41
2000 34
2001 31
Thereafter 233
- ------------------------------
$460
- ------------------------------
</TABLE>
A wholly owned subsidiary of the Company is a one-third partner in Belvieu En-
vironmental Fuels ("bef"), a joint venture formed
43
<PAGE>
for the purpose of constructing, owning and operating a $225 million methyl
tertiary butyl ether ("mtbe") production facility in Mont Belvieu, Texas. The
facility was completed in 1995.
In order to obtain a secure supply of oxygenates for the manufacture of refor-
mulated gasoline, Sun entered into an off-take agreement with bef whereby Sun
agreed to purchase all of the mtbe production from the plant. For the first
14,000 barrels daily of production, Sun has agreed to pay bef prices through
May 1997 based on the market value of mtbe feedstocks (methanol and butane)
plus a fixed amount per gallon (the "formula price"), and thereafter through
May 2000 based on the then-existing mtbe prices per gallon in the contract
market (the "contract market price"). However, the price to be paid by Sun for
the first 12,600 barrels daily of mtbe production through May 2000, at a mini-
mum, will equal the sum of bef's annual raw material and operating costs asso-
ciated with this production plus bef's debt service payments (collectively,
the "minimum price") if the minimum price per gallon exceeds the formula price
or contract market price. After May 2000, Sun and bef will negotiate a new
price for the last four years of the agreement based upon the market condi-
tions existing at that time.
Historically, the formula prices paid by Sun under this agreement are believed
to have approximated those of other mtbe long-term sales agreements in the
marketplace. Management now believes that the contract market has changed as
feedstock-plus-fixed-priced contracts have expired and have been replaced by
spot-market-price-based contracts, which are currently more favorable to the
purchaser. Management also believes that the spot market for mtbe is now de-
veloped.
Sun's total mtbe purchases under this agreement were $214, $150 and $79 mil-
lion during 1996, 1995 and 1994, respectively. Recent spot market prices for
mtbe have been less than the prices paid by Sun under the off-take agreement.
The Company expects this adverse relationship to continue in the future. Ac-
cordingly, a $130 million accrual ($85 million after tax) was established at
December 31, 1996 for the estimated losses expected to be realized with re-
spect to this agreement.
The Company guarantees the $109 million of outstanding debt of Radnor Corpora-
tion, its real estate operation held for sale. Such debt, which is due no
later than February 2001, is expected to be substantially repaid by the end of
1998 with proceeds from the disposal of the Company's remaining real estate
portfolio (Note 2). Sun is also contingently liable under various other ar-
rangements which guarantee debt of affiliated companies and others aggregating
approximately $26 million at December 31, 1996 and maturing at various dates
through 2014.
Sun is subject to numerous federal, state and local laws regulating the dis-
charge of materials into, or otherwise relating to the protection of, the en-
vironment. 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 accrued lia-
bility for environmental remediation is classified in the consolidated balance
sheets as follows:
<TABLE>
<CAPTION>
December 31
-----------
(Millions of Dollars) 1996 1995
- ---------------------------------------------------
<S> <C> <C>
Accrued liabilities $ 77 $ 55
Other deferred credits and liabilities 150 144
- ---------------------------------------------------
$ 227 $199
- ---------------------------------------------------
</TABLE>
Pretax charges against income for environmental remediation totalled $56, $12
and $11 million in 1996, 1995 and 1994, respectively. The $44 million increase
in 1996 was largely attributable to accruals for remediation activities asso-
ciated with the reconfigurations of the Philadelphia and Puerto Rico refin-
eries as well as to increased accruals at service station sites (Note 2). The
1996 service station accruals have been determined utilizing recent regulatory
changes which incorporate a risk-based methodology and clarify previously un-
certain remediation requirements. Claims for recovery of environmental liabil-
ities that are probable of realization, which totalled $4 million at December
31, 1996, are included in deferred charges and other assets in the consoli-
dated balance sheets.
Total future costs for environmental remediation activities will depend upon,
among other things, the identification of additional sites, the determination
of the extent of contamination at each site, the timing and nature of required
remedial actions, the technology available and needed to meet the various ex-
isting 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 expen-
ditures 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 for any one year, management of Sun believes that any
additional liabilities which may arise pertaining to such matters would not be
material in relation to the consolidated financial position of Sun at December
31, 1996.
13. SHAREHOLDERS' EQUITY
Each share of Company common stock is entitled to one full vote. The $10 mil-
lion of outstanding 6 3/4 percent debentures are convertible into shares of
common stock of the Company at any time prior to maturity at a conversion
price of $40.81 per share and are redeemable at the option of the Company. At
December 31, 1996, there were 246,166 shares of common stock reserved for this
potential conversion (Note 10).
44
<PAGE>
In June 1995, the Company announced the details of an extensive operational
and financial restructuring. As part of this restructuring, on August 3, 1995,
the Company issued 25,000,000 "depositary shares" in exchange for an equal
number of shares of Company common stock in a tax free transaction. Each de-
positary share represents ownership of one-half share of the Company's Series
A cumulative preference stock. The Company also reduced the quarterly dividend
paid on common stock from $.45 per share ($1.80 per year) to $.25 per share
($1.00 per year). In addition, the Company repurchased 6,400,000 shares of its
common stock on August 9, 1995 for $192 million through a tender offer and
2,910,300 shares of common stock and 78,900 depositary shares during the 1995-
96 period subsequent to the exchange and tender offers on the open market for
approximately $79 million. The open market purchases were made under a program
authorized by the Company's Board of Directors ("Board") to purchase up to
$100 million of stock in the open market from time to time depending on pre-
vailing market conditions.
Each owner of a depositary share is entitled, proportionately, to all the
rights, preferences and privileges of the preference stock represented there-
by. Dividends on the preference stock are cumulative and accrue at a rate of
$3.60 per year. The preference stock ranks prior to 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.
The outstanding shares of preference stock are redeemable at any time by the
Company, in whole or in part, for common stock at a value initially equal to
approximately $84.80 per share of preference stock at June 12, 1995, decreas-
ing ratably to $80.00 per share of preference stock at June 11, 1998. After
June 11, 1998, the Company may elect to redeem each outstanding share of pref-
erence stock for two shares of common stock, subject to adjustment in certain
events. The redemption value also includes a cash amount equal to all propor-
tionate accrued but unpaid dividends. The Company currently intends to redeem
all of the outstanding preference stock (and thereby the depositary shares) no
later than June 12, 1998.
The Company's Articles of Incorporation authorize the issuance of up to
2,500,000 shares of additional classes of preference stock without par value,
subject to approval by the Board. The Board also has authority to fix the num-
ber, designation, rights, preferences and limitations of these shares, subject
to applicable laws and the provisions of the Articles of Incorporation.
On February 1, 1996, the Company adopted a shareholder rights plan and desig-
nated 1,743,019 shares of its remaining 2,500,000 authorized cumulative pref-
erence stock as Series B participating cumulative preference stock. Pursuant
to the plan, the Company declared a dividend of one stock purchase right
("Right") for each share of common stock and two Rights for each share of Se-
ries A cumulative preference stock outstanding on February 12, 1996. A Right
will be granted for each share of common stock issued after such date and
prior to the expiration date of the rights plan. Generally, the Rights become
exercisable a specified period after a party acquires 15 percent or more of
the aggregate outstanding common stock and Series A cumulative preference
stock (collectively, "Voting Stock") or announces a tender offer for 15 per-
cent or more of the Voting Stock. Each Right initially entitles a holder to
purchase one one-hundredth of a share of the Series B participating cumulative
preference stock for $100. After a party has acquired 15 percent or more of
the Voting Stock, each Right will entitle a holder to pay $100 for the number
of shares of Company common stock (or in certain situations, common stock of
the acquiring party) having a then current market value of $200. Alternative-
ly, the Company has the option to exchange one share of Company common stock
for each Right at any time after a party has acquired at least 15 percent but
less than 50 percent of the Voting Stock. The Company may redeem each Right
for $.01 per Right at any time until the end of a specified period after a
party has acquired 15 percent or more of the Voting Stock. In general, none of
the benefits of the Rights will be available to a holder of 15 percent or more
of the Voting Stock. The Rights will expire on February 12, 2006, unless ear-
lier exchanged or redeemed.
In December 1992, the Board approved the adoption of the Employee Option Plan
("eop") which provides for the award of stock options to all employees (other
than executives) of the Company and certain subsidiaries. The awards have a
ten-year term, are not exercisable until two years after the date of grant and
permit optionees to purchase Company common stock at the fair market value on
the date of grant. Two million shares of Company common stock are authorized
for issuance under the eop. In 1994 and 1993, stock option awards totalling
241,895 and 1,721,385, respectively, were made to eligible employees.
14. MANAGEMENT INCENTIVE PLANS
Sun's principal management incentive plans are the Executive Incentive Plan
("eip") and the Executive Long-Term Stock Investment Plan ("elsip"). The eip
provides for the payment of annual incentive awards in cash or Company common
stock and the elsip provides for the award of stock options and related rights
to officers and other key employees of Sun. The option awards under elsip and
its predecessor plan have a ten-year term and permit optionees to purchase
Company common stock at the fair market value on the date of grant. No awards
may be granted under elsip after December 31, 1996. Aggregate charges against
income for annual incentive awards for 1995 and 1994 were $4 and $2 million,
respectively. There were no charges against income for annual incentive awards
in 1996.
On November 7, 1996, the Board recommended the adoption of the Long-Term Per-
formance Enhancement Plan ("ltpep") as a successor to elsip. ltpep, which au-
thorizes the use of 4,000,000 shares of common stock for awards with terms and
conditions
45
<PAGE>
similar to awards under elsip, is subject to shareholder approval at the
Company's Annual Meeting of Shareholders in May 1997. The following table sum-
marizes information with respect to common stock option awards under the eop
(Note 13) and Sun's management incentive plans:
<TABLE>
<CAPTION>
Employee Option Plan Management Incentive Plans
------------------------ ---------------------------------
Weighted
Shares Option Shares Average
Under Price Under Option Price
Option Per Share Option Per Share
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
OUTSTANDING, DECEMBER
31, 1993 1,663,675 $28.00 3,281,460 $30.65
Granted 241,895 $28.00 626,210 $30.19
Exercised -- (219,318)* $29.08
Canceled (30,590) $28.00 (303,465) $32.34
- -------------------------------------------------------------------------------------
OUTSTANDING, DECEMBER
31, 1994 1,874,980 $28.00 3,384,887 $30.52
Granted -- 687,990 $27.25
Exercised (135,920) $28.00 (53,770) $28.43
Canceled (88,230) $28.00 (394,740) $31.31
- -------------------------------------------------------------------------------------
OUTSTANDING, DECEMBER
31, 1995 1,650,830 $28.00 3,624,367 $29.84
Granted -- 646,140 $24.48
Exercised (88,485) $28.00 (72,435) $28.15
Canceled (74,870) $28.00 (208,272) $30.59
- -------------------------------------------------------------------------------------
OUTSTANDING, DECEMBER
31, 1996** 1,487,475 $28.00 3,989,800 $28.96
- -------------------------------------------------------------------------------------
EXERCISABLE, DECEMBER 31
- -------------------------------------------------------------------------------------
1994 -- 2,687,316 $30.66
1995 1,408,935 $28.00 2,941,577 $30.44
1996 1,487,475 $28.00 3,354,340 $29.83
- -------------------------------------------------------------------------------------
AVAILABLE FOR GRANT, DE-
CEMBER 31
- -------------------------------------------------------------------------------------
1994 125,020 3,493,920
1995 213,250 2,891,220
1996 288,120 --
- -------------------------------------------------------------------------------------
</TABLE>
*Includes 23,023 options canceled due to the exercise of related alternate
appreciation rights which resulted in the issuance of 1,939 shares. Alternate
appreciation rights permit the optionee to receive in cash or common stock
the appreciation of Company common stock from the date of grant. In addition,
1,600 1,970 and 10,480 shares were issued for matured restricted stock units
during 1996, 1995 and 1994, respectively. Restricted stock units are awards
which entitle the holder to receive cash or Company common stock upon comple-
tion of a restriction period or upon attainment of predetermined performance
targets.
**Exercise prices for options outstanding as of December 31, 1996 ranged from
$23.25 to $41.13 per share. The weighted average remaining contractual life of
these options is approximately 7 years.
The Company follows the method of accounting for employee stock compensation
plans prescribed by apb no. 25, which is permitted by Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("sfas
no. 123"). In accordance with apb no. 25, the Company has not recognized com-
pensation expense for stock options because the exercise price of the options
equals the market price of the underlying stock on the date of grant, which is
the measurement date. If the alternative method of accounting for employee
stock compensation plans prescribed by sfas no. 123 had been followed, the im-
pact on Sun's net income (loss) and net income (loss) per share of common
stock for 1996 and 1995 would not have been material.
15. FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined based on
the Company's assessment of available market information and appropriate valu-
ation methodologies. However, these estimates may not necessarily be indica-
tive of the amounts that the Company could realize in a current market ex-
change.
Sun's current assets (other than inventories, deferred income taxes and in-
vestment in discontinued operations) and current liabilities are financial in-
struments. The estimated fair value of these financial instruments approxi-
mates their carrying amounts. At December 31, 1996 and 1995, the estimated
fair value of Sun's long-term debt amounted to $903 and $1,008 million, re-
spectively, compared to carrying amounts totalling $835 and $888 million, re-
spectively. Long-term debt which is publicly traded was valued based on quoted
market prices while the fair value of other debt issues
46
<PAGE>
was estimated by management based upon current interest rates available to Sun
at the respective balance sheet dates for similar issues.
The Company guarantees the debt of affiliated companies and others (Note 12).
Due to the complexity of these guarantees and the absence of any market for
these financial instruments, the Company does not believe it is practicable to
estimate their fair value.
Sun uses a variety of off-balance sheet commodity-based derivative financial
and nonfinancial instruments to hedge the impact of fluctuations in crude oil,
natural gas and refined product prices. Derivative financial instruments re-
quire settlement in cash and include such instruments as over-the-counter
("otc") commodity swap agreements, otc commodity options and certain exchange-
traded futures. Certain other futures contracts and all of Sun's forward con-
tracts are not financial instruments as they require or permit settlement by
delivery of commodities. Sun is at risk for possible changes in the market
value for all of its derivative instruments. However, it is anticipated that
such risk would be mitigated by price changes in the underlying hedged transac-
tions. In addition, Sun is exposed to credit risk in the event of nonperform-
ance by counterparties. Management believes this risk is negligible as its
counterparties are regulated by exchanges or they are major international fi-
nancial institutions with high credit ratings. Market and credit risks associ-
ated with all of Sun's derivative contracts are reviewed regularly by manage-
ment.
Swaps, price collars and other option contracts are used to hedge the unfavor-
able impact on feedstock costs of significant increases in crude oil prices. At
December 31, 1996, approximately 13 million barrels of Sun's expected 1997
crude oil purchases had been hedged utilizing these financial instruments.
Swaps are also used to lock in what Sun considers to be acceptable wholesale
margins for various refined products. At December 31, 1996, Sun locked in mar-
gins for approximately 20 million barrels of its expected 1997 wholesale fuel
sales. The swap and option contracts vary in duration but do not extend beyond
1997. Although these contracts are intended to limit the Company's exposure to
declining margins and/or rising crude oil prices, they could limit the
Company's participation in rising margins and/or falling crude oil prices. In
addition, Sun uses futures and forward contracts to achieve ratable pricing of
its crude oil purchases and refined product sales. The fair value of the deriv-
ative contracts outstanding at December 31, 1996 under the ratable pricing pro-
gram was not significant.
The following table sets forth summary information concerning Sun's derivative
financial instruments at December 31, 1996:
<TABLE>
<CAPTION>
Deferred Fair
(Millions of Dollars) Gain Value*
- -------------------------------------------
<S> <C> <C>
Swaps $ 6 $ 6
Options 8 8
Futures -- --
- -------------------------------------------
$14 $14
- -------------------------------------------
</TABLE>
*Based on various indices or dealer quotes.
16. SUPPLEMENTAL CASH FLOW INFORMATION
During 1996, Sun acquired the Kendall/Amalie lubricants business and related
working capital and in 1994, Sun acquired the Girard Point refinery, related
inventory and certain pipeline interests (Note 2). The following is a summary
of the effects of these transactions on Sun's consolidated financial position:
<TABLE>
<CAPTION>
Kendall/
Amalie Girard Point
(Millions of Dollars) Acquisition Acquisition
- ---------------------------------------------------------------------
<S> <C> <C>
Increase in:
Accounts and notes receivable $(30) $ --
Inventories (16) (108)
Properties, plants and equipment (16) (149)
Deferred charges and other assets (12) --
Accounts payable and accrued liabilities -- 10
Retirement benefit liabilities -- 22
Other deferred credits and liabilities -- 61
- ---------------------------------------------------------------------
Net decrease in cash and cash equivalents $(74) $(164)
- ---------------------------------------------------------------------
</TABLE>
In 1995, Sun transferred an interest in its cokemaking operations in exchange
for $95 million in cash. The transferee is entitled to a preferential return
from the cash flows of the cokemaking operation until certain cumulative return
targets have been met. Sun did not recognize a gain or loss on this transac-
tion. The transaction has not had a significant impact on Sun's results of op-
erations.
Cash payments for income taxes were $7, $41 and $40 million in 1996, 1995 and
1994, respectively. Cash payments for interest, net of amounts capitalized,
were $74, $95 and $64 million in 1996, 1995 and 1994, respectively.
17. BUSINESS SEGMENT INFORMATION
Sun is principally a petroleum refiner and marketer with interests in coal min-
ing and cokemaking. Sun also has an investment in real estate operations held
for sale.
Sun's petroleum refining and marketing operations include the refining of crude
oil and its derivatives; the marketing of crude oil and a full range of petro-
leum products, including fuels, lubricants and petrochemicals; and the trans-
portation of crude oil and refined products. Such operations are currently con-
ducted
47
<PAGE>
principally in the eastern half of the United States. Sun's coal mining and
cokemaking operations are conducted in Virginia and Kentucky. Corporate in-
cludes Sun's domestic real estate operations held for sale, and prior to 1995,
coal operations and equipment leasing and secured lending activities. In 1995
and 1996, Sun's coal mining and cokemaking business is reflected as a separate
business segment as it is now considered one of Sun's ongoing business units
and is no longer being held for sale (Note 2). At December 31, 1994, Sun had
substantially liquidated its remaining portfolio of leases and secured loans.
On September 30, 1996, Sun completed the sale of its International Production
business and on June 8, 1995, divested its remaining interest in Suncor, a Ca-
nadian integrated oil company. As a result, Sun's international oil and gas
production and Canadian upstream petroleum operations, which previously were
included in segments entitled Exploration and Production and Oil Sands Mining
and also disclosed in geographic areas outside the United States, are presented
as discontinued operations for all periods, as these divestments resulted in
the Company's complete withdrawal from upstream petroleum activities.
SEGMENT INFORMATION
(Millions of Dollars)
<TABLE>
<CAPTION>
Refining and Coal Mining and
Marketing Cokemaking Corporate Consolidated
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Sales to unaffiliated
customers and other
operating
revenue (including
consumer excise taxes) $11,068 $165 $ -- $11,233
- -------------------------------------------------------------------------------------
Operating profit (loss) $ (364) $ 39 $ -- $ (325)
Equity income 24 -- -- 24
Related income tax (ex-
pense) benefit 98 (8) -- 90
- -------------------------------------------------------------------------------------
Profit contribution
(loss) before net fi-
nancing
expenses and after tax $ (242)* $ 31 $ -- (211)
- -----------------------------------------------------------------------
Corporate expenses (af-
ter taxes) (23)
Net financing expenses
(after taxes) (47)
Income from discontinued
operations 166**
-------
Net loss $ (115)
-------
Depreciation, depletion
and amortization $ 250 $ 17 $ -- $ 267
- -------------------------------------------------------------------------------------
Capital expenditures $ 374 $ 34 $ -- $ 408
- -------------------------------------------------------------------------------------
Identifiable assets $ 4,526 $140 $359*** $ 5,025
- -------------------------------------------------------------------------------------
</TABLE>
* Includes after-tax provision for write-down of assets and other matters of
$254 million (Notes 2 and 12).
** Consists of income from international production operations, including a
$125 million after-tax gain resulting from the divestment of this business
(Note 2).
*** Includes investment in real estate operations held for sale of $79 million
(Note 2).
48
<PAGE>
SEGMENT INFORMATION
(Millions of Dollars)
<TABLE>
<CAPTION>
Coal
Refining and Mining and
Marketing Cokemaking*Corporate Consolidated
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Sales to unaffiliated
customers and other op-
erating
revenue (including con-
sumer excise taxes) $9,747 $ 87 $ -- $9,834
- -----------------------------------------------------------------------------------
Operating profit (loss) $ 45 $ 22 $ (8) $ 59
Equity income 17 -- -- 17
Related income tax (ex-
pense) benefit (11) 3 3 (5)
- -----------------------------------------------------------------------------------
Profit contribution
(loss) before net fi-
nancing
expenses and after
tax** $ 51 $ 25 $ (5) 71
- ----------------------------------------------------------------------
Corporate expenses (af-
ter taxes) (24)
Net financing expenses
(after taxes) (55)
Income from discontinued
operations 235***
Cumulative effect of
change in accounting
principle (87)+
------
Net income $ 140
------
Depreciation, depletion
and amortization $ 253 $ 10 $ -- $ 263
- -----------------------------------------------------------------------------------
Capital expenditures $ 410 $ 7 $ -- $ 417
- -----------------------------------------------------------------------------------
Identifiable assets $4,397 $143 $545++ $5,085
- -----------------------------------------------------------------------------------
</TABLE>
* Reflects coal and cokemaking operations as an operation held for sale for the
first half of 1995 and on a fully consolidated basis thereafter. Accordingly,
the amounts presented for sales and other operating revenue, depreciation,
depletion and amortization and capital expenditures are for the second half
of 1995 (Note 2).
** Includes after-tax provision for write-down of assets and other matters of
$57 million in refining and marketing and $4 million in corporate. In addi-
tion, corporate includes a $1 million loss from real estate operations held
for sale (Note 2).
*** Consists of $57 million of income from international production operations
and $178 million of income from Canadian upstream petroleum operations. In-
cluded in the Canadian income is a $157 million after-tax gain resulting
from the completion of the divestment of Suncor (Note 2).
+ Reflects the cumulative effect for years prior to 1995 of a change in the
method of accounting for the impairment of long-lived assets (Note 3).
++ Includes investments in real estate operations held for sale of $87 million
and discontinued international production operations of $143 million (Note
2).
<TABLE>
<CAPTION>
Refining and
Marketing Corporate Consolidated
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
1994
Sales to unaffiliated customers and
other operating
revenue (including consumer excise
taxes) $9,502 $ 11 $9,513
- -------------------------------------------------------------------------------
Operating profit (loss) $ 41 $(34) $ 7
Equity income 13 -- 13
Related income tax (expense) benefit (15) 34 19
- -------------------------------------------------------------------------------
Profit contribution before net fi-
nancing
expenses and after tax* $ 39 $ --** 39
- ------------------------------------------------------------------
Corporate expenses (after taxes) (23)
Net financing expenses (after taxes) (35)**
Income from discontinued operations 116***
Cumulative effect of change in ac-
counting principle (7)+
------
Net income $ 90
------
Depreciation, depletion and amorti-
zation $ 246 $ -- $ 246
- -------------------------------------------------------------------------------
Capital expenditures $ 550 $ -- $ 550
- -------------------------------------------------------------------------------
Identifiable assets $4,807 $839++ $5,646
</TABLE>
- --------------------------------------------------------------------------------
* Includes after-tax provision for write-down of assets and other matters of
$12 million in refining and marketing and $20 million in corporate (Note 2).
** Net financing expenses of leasing operations are included in corporate. In
addition, corporate includes income from coal and real estate operations
held for sale of $15 and $2 million, respectively (Note 2).
*** Consists of $88 million of income from international production operations
and $28 million from Canadian upstream petroleum operations (Note 2).
+ Reflects the cumulative effect for years prior to 1994 of a change in the
method of accounting for postemployment benefits (Note 3).
++ Includes investments in coal and real estate operations held for sale of $51
and $123 million, respectively. Also includes investments in discontinued
international production and Canadian upstream petroleum operations of $171
and $225 million, respectively (Note 2).
49
<PAGE>
Prior to completion of the divestment of Suncor on June 8, 1995, Canadian re-
fining and marketing activities were reflected in continuing operations as part
of the refining and marketing segment and also disclosed as part of the Cana-
dian geographic information. The following is a summary of the amounts related
to Canadian downstream operations included in the refining and marketing indus-
try segment:
<TABLE>
<CAPTION>
(Millions of Dollars) 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Sales to unaffiliated customers and other operating revenue $558 $1,333
- --------------------------------------------------------------------------
Operating profit $ 5 $ 24
Equity income -- 1
Related income tax expense (3) (16)
- --------------------------------------------------------------------------
Profit contribution $ 2 $ 9
- --------------------------------------------------------------------------
Depreciation, depletion and amortization $ 11 $ 28
- --------------------------------------------------------------------------
Capital expenditures $ 8 $ 22
- --------------------------------------------------------------------------
Identifiable assets $ -- $ 626
- --------------------------------------------------------------------------
</TABLE>
Income tax amounts give effect to tax credits in each of the designated indus-
try segments. Overhead expenses that can be identified with Sun's operations in
the designated industry segments have been included as deductions in determin-
ing operating profits and profit contributions. Net financing expenses consist
of interest cost and debt expense less interest income and interest capital-
ized. Identifiable assets are those assets that are utilized within a specific
segment.
50
<PAGE>
REPORT OF MANAGEMENT
To the Shareholders of Sun Company, Inc.
The accompanying consolidated financial statements of Sun Company, Inc. and
its subsidiaries ("Sun") and the related information are the responsibility of
management. The financial statements, which include amounts based on informed
estimates and judgments, were prepared using generally accepted accounting
principles deemed appropriate in the circumstances. Management believes these
financial statements present fairly, in all material respects, Sun's financial
position, results of operations and cash flows. Other financial information
presented in this Annual Report is consistent with that in the financial
statements.
To fulfill its responsibility for the financial statements, Sun maintains a
system of internal accounting controls which in management's opinion provides
reasonable assurance of achieving the objectives of internal accounting con-
trol. These objectives include safeguarding of assets from loss through unau-
thorized use or disposition and maintaining reliable records permitting the
preparation of financial statements and accountability for assets. The system
of internal accounting controls is subject to ongoing evaluation of its con-
tinuing effectiveness.
Sun's independent auditors, Ernst & Young LLP, have expressed an opinion on
the fairness of management's 1996 financial statements by conducting their au-
dit in accordance with generally accepted auditing standards and issuing the
report presented on this page.
The Audit Committee of the Board of Directors is comprised of directors who
are not employees of Sun and meets a minimum of four times annually. It as-
sists the Board of Directors in discharging its duties relating to accounting
and reporting practices and internal controls, and it assesses the performance
and recommends the appointment of independent auditors. Both the independent
auditors and Sun's internal auditors have unrestricted access to the Committee
to discuss audit findings and other financial matters.
/s/ Robert H. Campbell
ROBERT H. CAMPBELL
Chairman & Chief Executive Officer
/s/ Robert M. Aiken, Jr.
ROBERT M. AIKEN, JR.
Executive Vice President & Chief Financial Officer
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors, Sun Company, Inc.
We have audited the accompanying consolidated balance sheet of Sun Company,
Inc. and subsidiaries as of December 31, 1996, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these fi-
nancial statements based on our audit. The consolidated balance sheet as of
December 31, 1995 and the consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the two years in the period
ended December 31, 1995 were audited by other auditors whose report dated Feb-
ruary 13, 1996 (except for the restatement for discontinued operations as de-
scribed in Note 2 for which the date is February 13, 1997) expressed an un-
qualified opinion on those financial statements and included an explanatory
paragraph that disclosed the changes in the Company's method of accounting for
the impairment of long-lived assets in 1995 and its method of accounting for
postemployment benefits in 1994, discussed in Note 3 to these financial state-
ments.
We conducted our audit in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audit provides a reasonable basis for our opin-
ion.
In our opinion, the 1996 financial statements referred to above present fair-
ly, in all material respects, the consolidated financial position of Sun Com-
pany, Inc. and subsidiaries at December 31, 1996 and the consolidated results
of their operations and their cash flows for the year then ended, in confor-
mity with generally accepted accounting principles.
/s/ Ernst & Young LLP
February 13, 1997
51
<PAGE>
SUPPLEMENTAL FINANCIAL AND OPERATING INFORMATION (Unaudited)
DOMESTIC REFINING AND MARKETING DATA
<TABLE>
<CAPTION>
REFINERY UTILIZATION* 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Refinery crude unit capacity at Decem-
ber 31 777.0** 777.0 777.0 600.0 600.0
- -------------------------------------------------------------------------------
Total input to crude units:
Crude oil 691.4 673.9 551.4 465.8 530.8
Other feedstocks 29.6 26.5 39.2 36.3 6.0
- -------------------------------------------------------------------------------
721.0 700.4 590.6*** 502.1 536.8
- -------------------------------------------------------------------------------
Refinery crude unit capacity utilized 93% 90% 88% 84% 89%
- -------------------------------------------------------------------------------
* Thousands of barrels daily except percentages. Reflects the acquisition on
August 4, 1994 of the 177.0 thousand barrel-per-day Girard Point refining fa-
cilities.
** Sun's crude unit capacity will decrease 85 thousand barrels per day in con-
nection with a project to be completed in the first quarter of 1997 to
reconfigure the Puerto Rico refinery to process intermediate feedstocks in-
stead of crude oil. This will result in a significant reduction in fuels
production while maintaining the current volume and quality of lubricants
production at this facility.
*** Includes 78.9 thousand barrels daily attributable to the Girard Point re-
fining facilities and reflects total input at Girard Point from August 4,
1994 through December 31, 1994 divided by 365 days. During this 150-day pe-
riod, input to crude units at these facilities actually totalled 191.9
thousand barrels daily.
<CAPTION>
REFINED PRODUCT SALES* 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gasoline:
Wholesale 167.0 154.0 95.1 56.7 80.0
Retail 205.7 204.6 214.9 223.6 233.9
Middle distillates 219.9 210.9 186.6 161.8 169.0
Residual fuel 82.4 73.9 51.5 40.8 50.5
Petrochemicals 31.5 31.1 27.5 28.8 28.9
Lubricants 23.9 20.0 22.3 19.5 19.6
Asphalt** 18.3 26.7 29.3 29.9 29.3
Other 46.1 56.6 50.3 34.5 34.6
- -------------------------------------------------------------------------------
794.8 777.8 677.5 595.6 645.8
- -------------------------------------------------------------------------------
* Thousands of barrels daily to third parties.
** Sun withdrew from the asphalt business in December 1996.
<CAPTION>
REFINED PRODUCT MARGIN INFORMATION* 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average sales price $28.65 $25.26 $24.31 $25.39 $26.47
Average cost of products sold** 23.59 19.95 18.70 19.08 20.96
- -------------------------------------------------------------------------------
$ 5.06 $ 5.31 $ 5.61 $ 6.31 $ 5.51
- -------------------------------------------------------------------------------
* Dollars per barrel.
** Consists of crude oil and other purchased feedstocks and refined products.
<CAPTION>
RETAIL GASOLINE OUTLETS 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Direct outlets:
Company owned or leased 1,389 1,446 1,519 1,577 1,645
Dealer owned 562 611 658 741 880
- -------------------------------------------------------------------------------
Total direct outlets 1,951 2,057 2,177 2,318 2,525
Distributor outlets 1,855 1,804 1,938 2,124 2,864
- -------------------------------------------------------------------------------
3,806 3,861 4,115 4,442 5,389
- -------------------------------------------------------------------------------
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
THROUGHPUT PER DIRECT OUTLET* 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Company owned or leased 101.6 96.1 97.2 93.5 89.4
Dealer owned 74.1 71.3 70.3 63.6 58.6
- -------------------------------------------------------------------------------
Average-total direct outlets 93.6 88.6 88.8 83.5 78.3
- -------------------------------------------------------------------------------
*Thousands of gallons of gasoline monthly.
<CAPTION>
PIPELINE MILEAGE* 1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Crude lines 5,119 5,264 5,577 5,579 5,493
Product lines 4,548 4,805 4,552 4,303 4,605
- -------------------------------------------------------------------------------
*Includes all pipelines in which Sun has an ownership interest.
COAL AND COKEMAKING DATA
<CAPTION>
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Proven and probable coal reserves (mil-
lions of tons) at December 31:*
Bituminous:
Metallurgical 115 116 116 117 120
Steam 17 23** 71 134 197
Subbituminous -- -- -- -- 384
- -------------------------------------------------------------------------------
132 139 187 251 701
- -------------------------------------------------------------------------------
Proven coal reserves (million of tons) at
December 31 63 70 104 147 564
- -------------------------------------------------------------------------------
*Sun sold its western U.S. coal operations during 1993 and certain of its
eastern U.S. coal operations during 1994 which resulted in a reduction in
proven and probable reserves of 508 million tons in the 1993-94 period. (See
Note 2 to the consolidated financial statements.)
** Reflects a 45 million ton revision of previous estimates.
<CAPTION>
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Production (thousands of tons):
Bituminous:
Metallurgical 1,490 1,627 1,633 1,959 2,047
Steam 2,926 3,494 4,962 6,209 7,265
Subbituminous -- -- -- 4,690 13,338
- -------------------------------------------------------------------------------
4,416 5,121 6,595 12,858 22,650
- -------------------------------------------------------------------------------
Coke 648 638 678 642 640
- -------------------------------------------------------------------------------
Sales (thousands of tons):
Bituminous:
Metallurgical 592 674 772 1,033 1,197
Steam 2,921 3,556 5,537 6,214 7,385
Subbituminous -- -- -- 4,690 13,338
- -------------------------------------------------------------------------------
3,513 4,230 6,309 11,937 21,920
- -------------------------------------------------------------------------------
Coke 621 660 782 622 634
- -------------------------------------------------------------------------------
Average sales price of coal and coke (per
ton)* $40.03 $37.65 $34.00 $21.49 $15.86
Net acreage (in thousands) at December
31:
Developed:
Bituminous 22 35 34 45 49
Subbituminous -- -- -- -- 8
Undeveloped bituminous 103 112 113 154 163
- -------------------------------------------------------------------------------
</TABLE>
*Reflects the absence of lower-value subbituminous coal sales subsequent to
the divestment of Sun's western U.S. coal operations during 1993.
53
<PAGE>
QUARTERLY FINANCIAL AND STOCK MARKET INFORMATION
(Millions of Dollars Except Per Share Amounts and Common Stock Prices)
<TABLE>
<CAPTION>
1996 1995
-------------------------------------- ---------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and other
operating revenue
(including consumer
excise taxes) $ 2,460* $ 2,886 $2,874 $3,013 $2,477* $2,580 $2,347 $2,430
Gross profit** $112 $210 $148 $124 $142 $207 $263 $146
Income (loss) from
continuing operations
before cumulative
effect of change in
accounting principle $(24)*** $(22)+ $(11) $(224)++ $(36)*** $(43)+++ $70 $1
Income (loss) before
cumulative effect of
change in accounting
principle $(5) $(3) $117# $(224) $(7) $138## $78 $18
Net income (loss) $(5) $(3) $117 $(224) $(94)### $138 $78 $18
Income (loss) per share
of common stock from
continuing operations
before cumulative
effect of change in
accounting principle@ $(.47)*** $(.45) $(.30) $(3.22) $(.34)*** $(.40) $.77 $(.13)
Income (loss) per share
of common stock before
cumulative effect of
change in accounting
principle@ $(.22) $(.19) $1.44 $(3.22) $(.07) $1.29 $.87 $.09
Net income (loss) per
share of common stock@ $(.22) $(.19) $1.44 $(3.22) $(.88)### $1.29 $.87 $.09
Cash dividends per share
of preference stock $.90 $.90 $.90 $.90 $ -- $ -- $.90 $.90
Cash dividends per share
of common stock $.25 $.25 $.25 $.25 $.45 $.45 $.25 $.25
Common stock price
range@@ --high $30 1/4 $32 5/8 $30 3/8 $25 5/8 $30 1/4 $32 7/8 $29 3/4 $29 3/4
- --low $25 3/8 $27 3/4 $21 7/8 $21 7/8 $27 1/8 $27 1/4 $25 3/4 $24 3/4
- ------------------------------------------------------------------------------------------------------------
</TABLE>
* Reflects decreases of $71 and $101 million in the quarters ended March 31,
1996 and 1995, respectively, compared to amounts previously reported on
Securities and Exchange Commission Form 10-Q. The decreases are due to the
presentation of International Production and Canadian Upstream Petroleum
operations as discontinued operations effective in the second quarter of
1996.
** Gross profit equals sales and other operating revenue less cost of products
sold and operating expenses; depreciation, depletion and amortization; and
consumer excise, payroll and other applicable taxes.
*** For the first quarters of 1996 and 1995, reflects increases compared to
amounts previously reported on Securities and Exchange Commission Form 10-
Q in the loss from continuing operations before cumulative effect of
change in accounting principle of $(19) and $(29) million, respectively,
or $(.25) and $(.27), respectively, per share of common stock. The
increases are due to the presentation of International Production and
Canadian Upstream Petroleum operations as discontinued operations
effective in the second quarter of 1996.
+ Includes a $53 million after-tax provision for write-down of assets and
other matters.
++ Includes a $201 million after-tax provision for write-down of assets and
other matters and an $8 million after-tax profit due to the reduction in
certain inventory quantities which were valued at lower LIFO costs
prevailing in prior years.
+++ Includes a $61 million after-tax provision for write-down of assets and
other matters.
# Includes a $125 million after-tax gain on the sale of the International
Production business.
## Includes a $157 million after-tax gain on the sale of Suncor common stock.
### Includes net loss of $87 million or $.81 per share of common stock due to
the cumulative effect for years prior to 1995 of a change in the method of
accounting for the impairment of long-lived assets.
@ Represents both primary and fully diluted earnings per share, except in the
third quarters of 1996 and 1995 when income (loss) per share from continuing
operations, income per share before cumulative effect of change in
accounting principle and net income per share, on a fully diluted basis,
were $(.11), $1.19, and $1.19, respectively, in 1996 and $.68, $.76 and
$.76, respectively, in 1995.
@@ The Company's common stock is principally traded on the New York Stock
Exchange, Inc. under the symbol "SUN." The Company had approximately 38,500
holders of record of common stock as of January 31, 1997.
54
<PAGE>
1
Exhibit 21
SUN COMPANY, INC. DECEMBER 31, 1996
SUBSIDIARIES OF THE REGISTRANT
COMPANY NAME: INC/REG
- ------------ -------
COS Corporation IL
Elk River Resources, Inc. DE
- --Elk River Minerals Corporation DE
- --Indiana Harbor Coke Company DE
- ----Indiana Harbor Coke Company L.P. DE
- --Indiana Harbor Coke Corporation IN
- --Jewell Coke Company DE
- --Jewell Resources Corporation VA
- ----Dominion Coal Corporation VA
- ----Jewell Coal & Coke Company, Inc. VA
- ----Jewell Smokeless Coal Corporation VA
- ----Oakwood Red Ash Coal Corporation VA
- ----Vansant Coal Corporation VA
- --Shamrock Coal Company, Incorporated DE
Helios Capital Corporation DE
- --Beneco Leasing Two, Inc. OH
- --Sunoco Leasing, Inc. DE
- ----HCC Financial Group, Inc. DE
- ----Heleasco Twenty, Inc. DE
- ----Heleasco Twenty-Three, Inc. DE
- ----Jalisco Corporation CA
- --Sun Leasing Company DE
Marine Investment Company of Delaware DE
- --Alaska Bulk Carriers, Inc. PA
- --Aston Shipping Company DE
- --Eastern Sun Barge Company DE
- --Florida Barge Company DE
- --New York Sun Shipping Co., Inc. DE
- --Philadelphia Sun Shipping Co., Inc. DE
- --Sun Barge Company DE
- --Sun Transport, Inc. DE
Mascot Petroleum Company, Inc. DE
Mohawk Valley Oil, Inc. NY
<PAGE>
2
SUN COMPANY, INC. DECEMBER 31, 1996
SUBSIDIARIES OF THE REGISTRANT
COMPANY NAME: INC/REG
- ------------ -------
Radnor Corporation PA
- --Morgan's Run Investment Company DE
- --Radnor Development Corporation DE
- --Radnor MidAtlantic Corporation PA
- --Radnor Suncoast Corporation DE
- --Radnor West, Inc. DE
- --Radnor/Aire Corporation PA
- --Radnor/Alexandria Corporation DE
- ----#1 Radnor/Alexandria Corporation DE
- --Radnor/Argyle Corporation DE
- --Radnor/Beachway Corporation DE
- --Radnor/Bowie Corporation DE
- --Radnor/California Corporation DE
- --Radnor/California Service Corporation DE
- --Radnor/Credit Corporation DE
- --Radnor/Delaware Avenue Corporation PA
- --Radnor/Dutton Mill Corporation PA
- --Radnor/Edgewater, Inc. DE
- --Radnor/Fulton County Corporation DE
- --Radnor/Fulton Industrial Corporation DE
- --Radnor/Grand Oaks Corporation DE
- --Radnor/Green Meadows Corporation DE
- --Radnor/Greenway Corporation DE
- --Radnor/Hampton Corporation DE
- --Radnor/Investment Corporation DE
- --Radnor/Island Corporation DE
- --Radnor/La Jolla Corporation DE
- --Radnor/Lakeside Corporation DE
- --Radnor/Lemon Grove Corporation DE
- --Radnor/Loudoun Corporation DE
- ----Radnor/Loudoun Day Care Corporation DE
- --Radnor/Main St. Corporation DE
- --Radnor/Marina Corporation PA
- --Radnor/Matsonford Corporation PA
- --Radnor/Murrieta Corporation DE
- --Radnor/North Corporation DE
- --Radnor/Orange Grove Corporation DE
- --Radnor/Pacific Corporate Center Corporation DE
- --Radnor/Painted Desert Corporation DE
- --Radnor/Parke East Corporation DE
- --Radnor/Peachtree Point Corporation DE
- --Radnor/Pier 5 Corporation PA
- --Radnor/Plantation Corporation DE
- ----Radnor Realty, Inc. DE
<PAGE>
3
SUN COMPANY, INC. DECEMBER 31, 1996
SUBSIDIARIES OF THE REGISTRANT
COMPANY NAME: INC/REG
- ------------ -------
- --Radnor/Plymouth Corporation PA
- --I Radnor/Plymouth Investment Company DE
- ----Plymouth Building I Business Trust PA
- --III Radnor/Plymouth Investment Company DE
- --Radnor/Rancho California Corporation DE
- --Radnor/Sarasota Corporation DE
- ----Laurel Oak Realty Corporation DE
- --Radnor/Service Corporation PA
- --Radnor/Spring Ridge Corporation DE
- ----Radnor/Frederick Corporation DE
- --Radnor/Spring Valley Corporation DE
- --Radnor/Sun Village Construction Corporation DE
- --Radnor/Sun Village Corporation DE
- --Radnor/Vail Ranch Corporation DE
- --Radnor/Vanguard Corporation DE
- --Radnor/Victorville Corporation DE
- --Radnor/Villa Trinidad Corporation DE
- --Radnor/Vista Mar Corporation DE
- --Radnor/Willoughby Corporation DE
- --Radnor/Yorba Linda-I Corporation DE
- --Striker Investment Company DE
Stop-N-Go Foods, Inc. DE
- --Stop-N-Go Foods of Dayton, Inc. OH
Sun Alternate Energy Corporation DE
Sun Atlantic Refining and Marketing Company DE
- --Sun Atlantic Refining and Marketing B.V., Inc. DE
- --Sun Atlantic Refining and Marketing B.V. NL
- ------Atlantic Petroleum Corporation DE
- --------Atlantic Pipeline Corp. DE
- --------Atlantic Refining & Marketing Corp. DE
Sun Canada, Inc. DE
- --Helios Assurance Company Limited BA
- --Petrosun Limited EN
- --Sun International Limited BA
- --Sun Mexico One, Inc. DE
- ----Sunoco de Mexico, S.A. de C.V. MX
- --Sun Mexico Two, Inc. DE
- --Sun Oil Ghadames Algerie Limited BA
- --Sunoco Limited EN
Sun Coal Company DE
Sun Company, Inc. (Name Saver) DE
<PAGE>
4
SUN COMPANY, INC. DECEMBER 31, 1996
SUBSIDIARIES OF THE REGISTRANT
COMPANY NAME: INC/REG
- ------------ -------
Sun Company, Inc. (R&M) PA
- --Hemisphere Oil Company, Inc. DE
- --Mid-State Oil Company DE
- --Puerto Rico Sun Oil Company DE
- --Sun BEF, Inc. TX
- --Sun Far East Trading, Inc. DE
- --Sun Lubricants and Specialty Products Inc. QU
- --Sun Oil Far East, Inc. DE
- --Sun Petrochemicals, Inc. DE
- --Sunmarks, Inc. DE
- --Sunoco Power Marketing L.L.C. PA
Sun Executive Services Company PA
Sun Ocean Ventures, Inc. DE
Sun Oil Argentina Limited BA
Sun Oil Argentina Limited S.A. AT
Sun Oil Company (Name Saver) DE
Sun Oil Company (U.K.) Ltd. DE
Sun Oil Export Company DE
Sun Oil International, Inc. DE
Sun Oil Shabwa Yemen Limited BA
Sun Oil (Thailand) Limited TH
Sun Oil Trading Company DE
Sun Pipe Line Company of Delaware DE
- --Mid-Continent Pipe Line Company OK
- --Mid-Valley Pipeline Company OH
- --Sun Oil Line Company of Michigan MI
- --Sun Pipe Line Company PA
- --Sun Pipe Line Services Co. DE
Sun Refining and Marketing Company (Name Saver) DE
Sun Services Corporation PA
Sun Ship, Inc. PA
- --Lesley Corporation DE
<PAGE>
5
SUN COMPANY, INC. DECEMBER 31, 1996
SUBSIDIARIES OF THE REGISTRANT
COMPANY NAME: INC/REG
- ------------ -------
Sun-Del Services, Inc. DE
Suncrest Industries, Inc. PA
Sunoco Overseas, Inc. DE
- --Lugrasa, S.A. PN
Sunoco Science and Technological Services, Inc. NY
(Name Saver)
The Claymont Investment Company DE
- --Sunoco Credit Corporation DE
Triad Carriers, Inc. PA
- --BBQ, Inc. PA
- --Carrier Systems Motor Freight, Inc. DE
<PAGE>
1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Sun Company, Inc. of our report dated February 13, 1997, included
in the 1996 Annual Report to Shareholders of Sun Company, Inc.
Our audit also included the financial statement schedule of Sun Company,
Inc. for the year ended December 31, 1996, listed in Item 14(a). This schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audit. In our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also consent to the incorporation by reference of this report on the
financial statement schedule and our report dated February 13, 1997 with respect
to the consolidated financial statements of Sun Company, Inc. incorporated by
reference in this Annual Report (Form 10-K) for the year ended December 31,
1996, in the following registration statements:
Sun Company, Inc. Capital Accumulation Plan Form S-8 Registration
Statement (Registration No. 33-9931);
Sun Company, Inc. Long-Term Incentive Plan Form S-8 Registration
Statement (Registration No. 33-10055);
Sun Company, Inc. & Subsidiaries Stock Supplement Plan Form S-8
Registration Statement (Registration No. 2-53283);
Sun Company, Inc. Executive Long-Term Stock Investment Plan
Form S-8 Registration Statement (Registration No. 33-44059);
Sun Company, Inc. Employee Option Plan Form S-8 Registration
Statement (Registration No. 33-49275);
Sun Company, Inc. Form S-3 Registration Statement (Registration
No. 33-53717);
Sun Company, Inc. Dividend Reinvestment Plan Form S-3 Registration
Statement (Registration No. 33-39834); and
Sun Company, Inc. Dividend Reinvestment Plan Form S-3
Registration Statement (Registration No. 33-52615).
/s/ERNST & YOUNG LLP
- ------------------------
Ernst & Young LLP
March 7, 1997
<PAGE>
EXHIBIT 23.2
1
CONSENT OF COOPERS & LYBRAND L.L.P.
We consent to the incorporation by reference of our report dated February
13, 1996 except for the restatement for discontinued operations as described in
Note 2 to the consolidated financial statements for which the date is February
13, 1997 (which includes an explanatory paragraph regarding the Company's change
in method of accounting for impairment of long-lived assets in 1995 and the
Company's change in method of accounting for postemployment benefits in 1994) on
our audits of the consolidated financial statements and financial statement
schedule of Sun Company, Inc. and subsidiaries as of December 31, 1995 and for
each of the two years in the period ended December 31, 1995, which report is
included in this Annual Report on Form 10-K, in the following registration
statements:
Sun Company, Inc. Capital Accumulation Plan Form S-8 Registration Statement
(Registration No. 33-9931);
Sun Company, Inc. Long-Term Incentive Plan Form S-8 Registration Statement
(Registration No. 33-10055);
Sun Company, Inc. & Subsidiaries Stock Supplement Plan Form S-8
Registration Statement (Registration No. 2-53283);
Sun Company, Inc. Executive Long-Term Stock Investment Plan Form S-8
Registration Statement (Registration No. 33-44059);
Sun Company, Inc. Employee Option Plan Form S-8 Registration Statement
(Registration No. 33-49275);
Sun Company, Inc. Form S-3 Registration Statement (Registration No.
33-53717);
Sun Company, Inc. Dividend Reinvestment Plan Form S-3 Registration
Statement (Registration No. 33-39834); and
Sun Company, Inc. Dividend Reinvestment Plan Form S-3 Registration
Statement (Registration No. 33-52615).
/s/COOPERS & LYBRAND L.L.P.
- ---------------------------
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, PA 19103
March 7, 1997
<PAGE>
EXHIBIT 23.3
1
REPORT OF COOPERS & LYBRAND L.L.P.
To the Shareholders and Board of Directors of
Sun Company, Inc.:
We have audited the consolidated balance sheet of Sun Company, Inc. and its
subsidiaries as of December 31, 1995 and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the two
years in the period ended December 31, 1995 that are included in Exhibit 13 to
this Form 10-K. In connection with our audit of such consolidated financial
statements, we have also audited the related financial statement schedule for
the years ended December 31, 1995 and 1994 listed on page 21 of this Form 10-K.
These financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and the financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly in all material respects, the consolidated financial position of Sun
Company, Inc. and its subsidiaries as of December 31, 1995, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedule referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
As discussed in Note 3 to the consolidated financial statements, the Company
changed its method of accounting for the impairment of long-lived assets in 1995
and its method of accounting for postemployment benefits in 1994.
/s/COOPERS & LYBRAND L.L.P.
- ---------------------------
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 13, 1996 except for
the restatement for discontinued
operations as described in Note 2
to the consolidated financial
statements for which the date is
February 13, 1997
<PAGE>
EXHIBIT 24.1
1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, That the undersigned officers and/or
directors of Sun Company, Inc., a Pennsylvania corporation, do and each of
them does, hereby constitute and appoint Robert M. Aiken, Jr., Thomas W.
Hofmann and Jack L. Foltz, his or her true and lawful attorneys-in-fact and
agents, and each of them with full power to act without the others, for him
or her and in his or her name, place and stead, to sign the Sun Company,
Inc. Form 10-K for the year ending December 31, 1996 and any and all future
amendments thereto; and to file said Form 10-K and any such amendments with
all exhibits thereto, and any and all other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them,
may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and
seals this 6th day of March, 1997.
/s/ROBERT M. AIKEN, JR. /s/THOMAS W. HOFMANN
Robert M. Aiken, Jr. Thomas W. Hofmann
Executive Vice President & Comptroller
Chief Financial Officer (Principal Accounting Officer)
(Principal Financial Officer)
/s/ROBERT H. CAMPBELL /s/JAMES G. KAISER
Robert H. Campbell James G. Kaiser
Chairman & Chief Executive Director
Officer
(Principal Executive Officer)
/s/RAYMOND E. CARTLEDGE /s/ROBERT D. KENNEDY
Raymond E. Cartledge Robert D. Kennedy
Director Director
/s/ROBERT E. CAWTHORN /s/THOMAS W. LANGFITT
Robert E. Cawthorn Thomas W. Langfitt
Director Director
/s/JOHN G. DROSDICK /s/R. ANDERSON PEW
John G. Drosdick R. Anderson Pew
President & Chief Director
Operating Officer
/s/MARY J. EVANS /s/WILLIAM F. POUNDS
Mary J. Evans William F. Pounds
Director Director
/s/THOMAS P. GERRITY /s/ALEXANDER B. TROWBRIDGE
Thomas P. Gerrity Alexander B. Trowbridge
Director Director
<PAGE>
EXHIBIT 24.2
1
I, Ann C. Mule, Secretary of Sun Company, Inc., a Pennsylvania corporation,
hereby certify that the following is a full, true and complete copy of a
resolution adopted at a meeting of the Board of Directors of Sun Company, Inc.,
duly called and held on March 6, 1997, at which a quorum was present and acting
throughout and that no action has been taken to rescind or amend said resolution
and that the same is now in full force and effect:
RESOLVED, That the Sun Company, Inc. Annual Report to the Securities
and Exchange Commission on Form 10-K, for the year ended December 31, 1996,
is approved in the form presented to this meeting, subject to such changes
or amendments as may be approved (as so amended, the "Form 10-K") by any
one of the following officers of the Company: Chairman and Chief Executive
Officer; President and Chief Operating Officer; Executive Vice President
and Chief Financial Officer; Senior Vice President and Chief Administrative
Officer; or Vice President and General Counsel;
FURTHER RESOLVED, That each of the above-named officers and the
Comptroller (collectively, the "Authorized Officers") is authorized to sign
and file, or cause to be filed, on behalf of the Corporation, the Form 10-
K, together with any such other certificates, documents, instruments or
notices as may be necessary or as any such officer may deem necessary or
desirable in order to effectuate or carry out the purposes and intent of
the foregoing resolutions; and that all such actions heretofore taken by
any one or more of the Authorized Officers in order to effectuate or carry
out the purposes and intent of the foregoing resolutions are hereby
ratified, adopted and approved.
(Corporate Seal) /s/ANN C. MULE
--------------
Ann C. Mule
Secretary
March 6, 1997
Philadelphia, Pennsylvania
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 67
<SECURITIES> 0
<RECEIVABLES> 872
<ALLOWANCES> 8
<INVENTORY> 476
<CURRENT-ASSETS> 1,535
<PP&E> 5,829
<DEPRECIATION> 2,785
<TOTAL-ASSETS> 5,025
<CURRENT-LIABILITIES> 1,817
<BONDS> 835
0
748
<COMMON> 130
<OTHER-SE> 560
<TOTAL-LIABILITY-AND-EQUITY> 5,025
<SALES> 11,233
<TOTAL-REVENUES> 11,300
<CGS> 8,718
<TOTAL-COSTS> 8,718
<OTHER-EXPENSES> 2,903
<LOSS-PROVISION> 8
<INTEREST-EXPENSE> 79
<INCOME-PRETAX> (408)
<INCOME-TAX> (127)
<INCOME-CONTINUING> (281)
<DISCONTINUED> 166
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (115)
<EPS-PRIMARY> (2.17)
<EPS-DILUTED> (2.17)
</TABLE>
