<PAGE>
<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-6841
SUN COMPANY, INC.
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(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1743282
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
TEN PENN CENTER, 1801 MARKET STREET, PHILADELPHIA, PA 19103-1699
----------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(215) 977-3000
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
------ ------
At June 30, 1998, there were 93,479,295 shares of Common Stock, $1 par
value outstanding.
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<PAGE> 2
SUN COMPANY, INC.
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INDEX
Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income
for the Six Months Ended June 30, 1998 and
1997 3
Condensed Consolidated Statements of Income
for the Three Months Ended June 30, 1998
and 1997 4
Condensed Consolidated Balance Sheets at
June 30, 1998 and December 31, 1997 5
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended June 30,
1998 and 1997 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of Security
Holders 22
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURE 25
<PAGE>
<PAGE> 3
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Sun Company, Inc. and Subsidiaries
(Millions of Dollars and Shares Except Per Share Amounts)
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months
Ended June 30
-------------------
1998 1997
------ ------
(UNAUDITED)
<S> <C> <C>
REVENUES
Sales and other operating revenue (including
consumer excise taxes) $4,252 $5,310
Interest income (Note 2) 17 4
Other income (Note 3) 39 23
------ ------
4,308 5,337
------ ------
COSTS AND EXPENSES
Cost of products sold and operating expenses 2,886 3,893
Selling, general and administrative expenses 247 267
Consumer excise taxes 756 753
Payroll, property and other taxes 44 41
Depreciation, depletion and amortization 124 130
Provision for employee terminations (Note 4) -- 32
Interest cost and debt expense 38 38
Interest capitalized (5) (1)
------ ------
4,090 5,153
------ ------
Income before income tax expense 218 184
Income tax expense 70 61
------ ------
NET INCOME 148 123
Dividends on preference stock (Note 8) (20) (22)
------ ------
Net income attributable to common shareholders $ 128 $ 101
====== ======
Net income per share of common stock (Note 5):
Basic $1.71 $1.39
Diluted $1.55 $1.26
Weighted average number of shares outstanding:
Basic 74.9 72.9
Diluted 95.6 97.9
Cash dividends paid per share:
Preference stock (Note 8) $1.6516 $1.80
Common stock $.50 $.50
</TABLE>
(See Accompanying Notes)
<PAGE>
<PAGE> 4
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Sun Company, Inc. and Subsidiaries
(Millions of Dollars and Shares Except Per Share Amounts)
- --------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Three Months
Ended June 30
--------------------
1998 1997
------ ------
(UNAUDITED)
<S> <C> <C>
REVENUES
Sales and other operating revenue (including
consumer excise taxes) $2,166 $2,577
Interest income 5 2
Other income 19 14
------ ------
2,190 2,593
------ ------
COSTS AND EXPENSES
Cost of products sold and operating expenses 1,431 1,805
Selling, general and administrative expenses 128 140
Consumer excise taxes 398 392
Payroll, property and other taxes 20 17
Depreciation, depletion and amortization 62 64
Interest cost and debt expense 17 19
Interest capitalized (2) (1)
------ ------
2,054 2,436
------ ------
Income before income tax expense 136 157
Income tax expense 44 52
------ ------
NET INCOME 92 105
Dividends on preference stock (Note 8) (9) (11)
------ ------
Net income attributable to common shareholders $ 83 $ 94
====== ======
Net income per share of common stock (Note 5):
Basic $1.05 $1.29
Diluted $.97 $1.07
Weighted average number of shares outstanding:
Basic 79.1 72.8
Diluted 95.2 97.8
Cash dividends paid per share:
Preference stock (Note 8) $.7516 $.90
Common stock $.25 $.25
</TABLE>
(See Accompanying Notes)
<PAGE>
<PAGE> 5
CONDENSED CONSOLIDATED BALANCE SHEETS
Sun Company, Inc. and Subsidiaries
<TABLE>
<CAPTION>
At At
June 30 December 31
1998 1997*
(Millions of Dollars) (UNAUDITED)
- --------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 11 $ 33
Accounts and notes receivable, net 542 671
Inventories:
Crude oil 186 150
Refined products 259 214
Materials, supplies and other 77 67
Deferred income taxes 105 113
------ ------
Total Current Assets 1,180 1,248
Investments and long-term receivables 121 137
Properties, plants and equipment 6,097 5,838
Less accumulated depreciation, depletion
and amortization 2,837 2,774
------ ------
Properties, plants and equipment, net 3,260 3,064
Deferred charges and other assets 220 218
------ ------
Total Assets $4,781 $4,667
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 569 $ 830
Accrued liabilities 443 534
Short-term borrowings (Note 9) 22 --
Current portion of long-term debt (Note 9) 68 12
Taxes payable 134 88
------ ------
Total Current Liabilities 1,236 1,464
Long-term debt (Note 9) 859 824
Retirement benefit liabilities 487 477
Deferred income taxes 110 73
Other deferred credits and liabilities (Note 6) 544 367
Commitments and contingent liabilities (Note 7)
Shareholders' equity (Note 8) 1,545 1,462
------ ------
Total Liabilities and Shareholders' Equity $4,781 $4,667
====== ======
</TABLE>
- ----------
*Reclassified to conform to the 1998 presentation.
(See Accompanying Notes)
<PAGE>
<PAGE> 6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Sun Company, Inc. and Subsidiaries
(Millions of Dollars)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months
Ended June 30
--------------------
1998 1997
----- -----
(UNAUDITED)
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 148 $ 123
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for employee terminations -- 32
Depreciation, depletion and amortization 124 130
Deferred income tax expense 46 62
Changes in working capital pertaining to
operating activities:
Accounts and notes receivable 126 191
Inventories (70) (47)
Accounts payable and accrued liabilities (363) (339)
Taxes payable 32 (8)
Other (22) (20)
----- -----
Net cash provided by operating activities 21 124
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (224) (154)
Acquisition of Philadelphia phenol facility,
net of $109 seller financing (48) --
Proceeds from divestments 103 92
Other -- 1
----- -----
Net cash used in investing activities (169) (61)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from short-term borrowings 10 --
Repayments of long-term debt (6) (1)
Proceeds from transferred interest in coke-
making operations 200 --
Cash dividend payments (55) (59)
Purchases of preference stock for retirement (2) (8)
Purchases of common stock for treasury (23) (13)
Proceeds from issuance of common stock under
management incentive and employee option plans 10 2
Other (8) (1)
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Net cash provided by (used in) financing activities 126 (80)
----- -----
Net decrease in cash and cash equivalents (22) (17)
Cash and cash equivalents at beginning of period 33 67
----- -----
Cash and cash equivalents at end of period $ 11 $ 50
===== =====
</TABLE>
(See Accompanying Notes)<PAGE>
<PAGE> 7
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
1. General.
The accompanying condensed consolidated financial statements are
presented in accordance with the requirements of Form 10-Q and
generally accepted accounting principles for interim financial
reporting. They do not include all disclosures normally made in
financial statements contained in Form 10-K. In management's opinion
all adjustments necessary for a fair presentation of the results of
operations, financial position and cash flows for the periods shown
have been made. All such adjustments are of a normal recurring nature
except for the 1997 provision for employee terminations (Note 4).
Results for the three and six months ended June 30, 1998 are not
necessarily indicative of results for the full year 1998.
2. Settlement of Income Tax Dispute.
In March 1998, Sun settled an income tax dispute with the Internal
Revenue Service related to certain deductions claimed in prior years.
The settlement, which includes the recognition of $11 million of
interest income, increased results of operations by $9 million after
tax in the first quarter of 1998.
3. Other Income.
During the first six months of 1998, Oil Insurance Limited, a
petroleum industry insurance consortium in which the Company is a
member, paid a dividend to its shareholders. Sun's share of this
dividend amounted to $8 million and is included in other income in the
condensed consolidated statement of income for the six months ended
June 30, 1998. The dividend increased Sun's results of operations by
$5 million after tax in the first quarter of 1998.
4. Employee Terminations.
During the first quarter of 1997, Sun established a $32 million pretax
accrual ($21 million after tax) for approximately 320 involuntary
employee terminations and related costs. The employee reductions were
throughout the organization and included senior management, support
staff and operations personnel.
5. Earnings Per Share.
In the fourth quarter of 1997, Sun adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128")
which replaced the disclosure of earnings per share ("EPS") on a
primary and fully diluted basis with basic and diluted EPS. Unlike
primary EPS, basic EPS excludes any dilutive effect of stock incentive
awards. Diluted EPS is very similar to fully diluted EPS. All EPS
amounts in the accompanying consolidated statements of income have
been presented in accordance with SFAS No. 128. The new standard had
no impact on previously reported six- and three-month EPS amounts
except that basic EPS for the six months ended June 30, 1997 increased
from $1.38 to $1.39 per share.
<PAGE>
<PAGE> 8
Basic EPS was computed by dividing earnings after deducting dividends
on preference stock by the weighted average number of common shares
outstanding. Diluted EPS was determined by dividing earnings by the
weighted average number of shares outstanding after giving effect to
the assumed issuance of common stock under stock incentive awards and
to the assumed redemption of preference shares for common stock prior
to the actual redemption of the preference shares on May 28, 1998
(Note 8).
The following table sets forth the computation of basic and diluted
EPS for the six-month and three-month periods ended June 30, 1998 and
1997 (in millions, except per share amounts):
<TABLE>
<CAPTION>
Six Months Three Months
Ended Ended
June 30 June 30
------------- -------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income after dividends on
preference stock (basic EPS
numerator) $128 $101 $83 $ 94
Add: Dividends on preference stock 20 22 9 11
---- ---- --- ----
Net income (diluted EPS numerator) $148 $123 $92 $105
==== ==== === ====
Weighted average number of common
shares outstanding (basic EPS
denominator) 74.9 72.9 79.1 72.8
Add effect of dilutive securities:
Redeemable preference shares 19.5 24.8 14.9 24.8
Stock incentive awards 1.2 .2 1.2 .2
---- ---- ---- ----
Weighted average number of shares
(diluted EPS denominator) 95.6 97.9 95.2 97.8
==== ==== ==== ====
Basic EPS $1.71 $1.39 $1.05 $1.29
Diluted EPS $1.55 $1.26 $.97 $1.07
</TABLE>
6. Transferred Interests in Cokemaking Operations.
In the first quarter of 1998, Sun transferred an interest in its
cokemaking operations in East Chicago, IN, to a third party for $200
million in cash and, in 1995, transferred an interest in its Jewell
cokemaking operations to another third party for $95 million in cash.
The transferees are entitled to preferential returns from these
respective cokemaking operations until certain cumulative return
targets have been met. Sun did not recognize a gain or loss on these
transactions. The outstanding balance attributable to the transferred
interests in these operations totalled $252 million at June 30, 1998
and is reflected in other deferred credits and liabilities in the
condensed consolidated balance sheet.
<PAGE>
<PAGE> 9
7. Commitments and Contingent Liabilities.
A wholly owned subsidiary of the Company is a one-third partner in
Belvieu Environmental Fuels ("BEF"), a joint venture formed for the
purpose of constructing, owning and operating a $225 million methyl
tertiary butyl ether ("MTBE") production facility in Mont Belvieu,
Texas. The facility was completed during 1995.
In order to obtain a secure supply of oxygenates for the manufacture
of reformulated 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 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
minimum, will equal the sum of BEF's annual raw material and operating
costs associated with this production plus BEF's debt service payments
(collectively, the "minimum price") if the minimum price per gallon
exceeds the applicable formula 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 conditions existing at that
time.
Sun's MTBE purchases under this agreement for the first 12,600 barrels
daily of MTBE production were based upon the formula price through May
1997 and the minimum price thereafter. The formula prices paid by Sun
during most of 1996 were believed to have approximated prices of other
MTBE long-term sales agreements in the marketplace. However,
management believes that the contract market changed in the latter
part of 1996 as feedstock-plus-fixed-priced contracts expired and were
replaced by spot-market-price-based contracts, which have been more
favorable to the purchaser. Management also believes that the spot
market for MTBE had developed by the latter part of 1996. During the
fourth quarter of 1996, spot market prices for MTBE were less than the
prices paid by Sun under the off-take agreement with BEF. At that
time, the Company expected this adverse relationship to continue into
the future. Accordingly, a $130 million accrual ($85 million after
tax) was established at December 31, 1996 for the estimated losses
expected to be realized with respect to this agreement. During the
first six months of 1998 and the full year 1997, actual MTBE purchase
costs in excess of market prices totalling $21 and $65 million,
respectively, were charged against the accrual.
<PAGE>
<PAGE> 10
On June 30, 1998, Sun completed the sale of the wastewater treatment
facility at its Toledo, Ohio refinery for $47 million in cash. No
gain or loss was recognized on this transaction. In connection with
the sale, the Company entered into a twenty-year service agreement
with the purchaser of the facility to treat the Toledo refinery's
wastewater.
Sun is subject to numerous federal, state and local laws regulating
the discharge of materials into, or otherwise relating to the
protection of, the environment. The Comprehensive Environmental
Response Compensation and Liability Act ("CERCLA") and the Solid Waste
Disposal Act as amended by the Resource Conservation and Recovery Act
("RCRA"), and related federal and 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 June 30, 1998, Sun had been named
as a PRP at 50 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 various environmental laws, including RCRA, Sun has initiated
corrective remedial action at its facilities, formerly-owned
facilities and third-party sites and could be required to undertake
similar actions at various other sites. 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.
The accrued liability for environmental remediation is classified in
the condensed consolidated balance sheets as follows (in millions of
dollars):
At At
June 30 December 31
1998 1997
------- -----------
Accrued liabilities $ 54 $ 59
Other deferred credits and
liabilities 135 145
---- ----
$189 $204
==== ====
<PAGE>
<PAGE> 11
Pretax charges against income for environmental remediation amounted
to $1 and $2 million for the six months ended June 30, 1998 and 1997,
respectively. Claims for recovery of environmental liabilities that
are probable of realization, which totalled $3 million at June 30,
1998, are included in deferred charges and other assets in the
condensed consolidated balance sheets.
On October 4, 1996, Sun filed a complaint in Los Angeles County
Superior Court, Jalisco Corporation, Inc., et al. v. Argonaut
Insurance Company, et al. (Case No. BC 158441), naming more than 45
insurance companies as defendants and seeking recovery under numerous
insurance policies for certain environmental expenditures of Sun,
including its predecessor companies and subsidiaries, arising from the
ownership and operation of its business and properties. The Company
cannot quantify the ultimate outcome of this litigation which may be
protracted.
Total future costs for environmental remediation activities will
depend upon, among other things, the identification of any additional
sites, the determination of the extent of the contamination at 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.
Many other legal and administrative proceedings are pending against
Sun. The ultimate outcome of these proceedings and the matters
discussed above cannot be ascertained at this time; however, it is
reasonably possible that some of them could be resolved unfavorably to
Sun. Management believes that any expenditures attributable to these
matters will be incurred over an extended period of time and will be
funded from Sun's net cash flows from operating activities. Although
the ultimate impact of these matters could have a significant impact
on results of operations or cash flows for any future quarter or 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 June 30, 1998.
Furthermore, management believes that the overall costs for
environmental activities will not have a material impact, over an
extended period of time, on Sun's cash flows or liquidity.
<PAGE>
<PAGE> 12
8. Shareholders' Equity.
<TABLE>
<CAPTION>
At At
June 30 December 31
1998 1997
-------- -----------
(Millions of Dollars)
<S> <C> <C>
Cumulative preference stock - Series A,
no par value $ -- $ 723
Common stock, par value $1 per share 132 132
Capital in excess of par value 1,388 1,361
Earnings employed in the business 1,523 1,430
------ ------
3,043 3,646
Less common stock held in treasury,
at cost 1,498 2,184
------ ------
Total $1,545 $1,462
====== ======
</TABLE>
On May 28, 1998, the Company redeemed all of its 24,067,520 then
outstanding depositary shares. Each depositary share represented
ownership of one-half share of the Company's Series A cumulative
preference stock. Under the terms of redemption, established when the
depositary shares were issued in August 1995, each depositary share
was redeemed in exchange for 0.949837 share of Sun's common stock plus
accrued and unpaid dividends of $.3758 (or $.7516 per share of
underlying preference stock). The depositary-to-common exchange rate
represented the call price of $40 per depositary share payable in Sun
common stock valued at $42.1125 per common share -- the average of the
closing prices for Sun common stock on the New York Stock Exchange, as
reported on the consolidated tape, for the five consecutive trading
days from April 20 to April 24, 1998, inclusive. At the exchange rate
of 0.949837 share of common stock for each depositary share,
22,859,633 shares of Sun common stock were reissued.
In the first six months of 1998, the Company repurchased 573,500
shares of its common stock and 46,780 of its depositary shares on the
open market for $25 million. At June 30, 1998, the Company had a
remaining authorization from its Board of Directors to purchase up to
$125 million of Company stock in the open market or through privately
negotiated transactions from time to time depending on prevailing
market conditions.
<PAGE>
<PAGE> 13
9. Acquisition of AlliedSignal Inc.'s Phenol Facility.
On June 30, 1998, Sun acquired the Philadelphia phenol facility of
AlliedSignal Inc. ("Allied") and related working capital for $157
million. Of this amount, $48 million was paid on the acquisition date
and $109 million will be paid in installments over eighteen months.
The acquisition has been accounted for as a purchase. The results of
operations of this facility will be included in the consolidated
statements of income subsequent to the date of acquisition. The
purchase price has been allocated to the assets acquired and
liabilities assumed based on their relative fair market values. The
following is a summary of the effects of this transaction on Sun's
consolidated financial position as of the acquisition date (in
millions of dollars):
Allocation of purchase price:
Inventories $ 20
Properties, plants and equipment 155
Other assets 4
Accounts payable and accrued liabilities (1)
Retirement benefit liabilities (5)
Other liabilities (16)
-----
157
-----
Seller financing:
Short-term borrowings and current
portion of long-term debt (74)
Long-term debt (35)
-----
(109)
-----
Cash paid on acquisition date $ 48
=====
The phenol facility currently has the capacity to produce annually more
than one billion pounds of phenol, 620 million pounds of acetone and 70
million pounds of alphamethylstyrene. In connection with this
acquisition, Sun has agreed to supply Allied with approximately 735
million pounds of phenol annually at a price based on the market value
of cumene feedstock plus an amount approximating its other phenol
production costs.
<PAGE>
<PAGE> 14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS - SIX MONTHS
Earnings Profile of Sun Businesses (after tax)
- ----------------------------------------------
Six Months Ended
June 30
------------------
1998 1997 Variance
---- ---- --------
(Millions of Dollars)
Sun Northeast Refining $ 40 $ 41 $ (1)
Sunoco Northeast Marketing 26 37 (11)
Sunoco Chemicals 17 41 (24)
Sun Lubricants 8 (6) 14
Sunoco MidAmerica Marketing &
Refining 27 20 7
Sunoco Logistics 26 27 (1)
Sun Coke 26 18 8
Corporate expenses (11) (10) (1)
Net financing expenses and other (11) (24) 13
---- ---- ----
148 144 4
Special Item:
Provision for employee terminations -- (21) 21
---- ---- ----
Consolidated net income $148 $123 $ 25
==== ==== ====
Analysis of Earnings Profile of Sun Businesses
- ----------------------------------------------
In the six-month period ended June 30, 1998, Sun earned $148 million, or
$1.55 per share of common stock on a diluted basis, compared to net income
of $123 million, or $1.26 per share, for the first six months of 1997.
Excluding the $21 million after-tax provision for employee termination
benefits shown separately in the Earnings Profile of Sun Businesses, Sun
had income of $144 million in the first six months of 1997.
<PAGE>
<PAGE> 15
Sun Northeast Refining -- The Sun Northeast Refining business had income of
$40 million in the first six months of 1998 versus income of $41 million in
the first six months of 1997. The decrease in earnings was primarily due
to the impact of a 4.0 million barrel decline in gasoline and distillate
production caused by a substantial increase in the amount of scheduled and
unscheduled refinery conversion unit downtime. The increased downtime
reflects a 29-day shutdown of the 68,000 barrel-per-day catalytic cracking
unit at the Girard Point facility due to an emergency power interruption
from the local utility and subsequent start-up problems. A scheduled six-
week modernization of this unit, which commenced on June 12, 1998, also
contributed to the increased downtime. The unit was restarted on July 30,
1998. Higher refinery fuel costs due to increased natural gas prices also
adversely impacted earnings. Partially offsetting these negative factors
was the effect of a favorable foreign sweet crude oil market.
Sunoco Northeast Marketing -- The Sunoco Northeast Marketing business
earned $26 million in the current six-month period versus income of $37
million in the first six months of 1997. Significantly lower retail
gasoline margins, which were down almost three cents per gallon versus the
first half of 1997, were partially offset by lower expenses ($10 million).
Compared to the first six months of 1997, total gasoline sales volumes
increased one percent; average throughput at the Company's direct sites
improved three percent; and average merchandise sales per convenience store
increased nine percent.
Sunoco Chemicals -- Sunoco Chemicals earned $17 million in the first six
months of 1998 versus $41 million in the first six months of 1997. The
decline in earnings was due to lower margins, particularly for polymer-
grade propylene (down 50 percent) and cumene.
Sun Lubricants -- The Sun Lubricants business earned $8 million in the
first six months of 1998, compared to a loss of $6 million in the 1997 six-
month period. The improved results were due largely to higher margins for
lubricants, waxes and residual fuels. Production volumes and results
during the first six months of 1998 were limited by scheduled maintenance
turnarounds at the Puerto Rico and Tulsa refineries. After completion of
the Puerto Rico turnaround in mid-April, lubricants production at the
facility increased from approximately eight thousand barrels daily to more
than nine thousand barrels daily.
Sunoco MidAmerica Marketing & Refining -- Sunoco MidAmerica Marketing &
Refining earned $27 million during the current six-month period versus $20
million in the first six months of 1997. The increase in earnings was
largely due to higher refinery production (in 1998, input to the crude unit
averaged 136.2 thousand barrels per day or 105 percent of rated capacity)
and higher wholesale product margins. Also contributing to the improved
results were nine percent higher retail gasoline volumes. Partially
offsetting these positive factors were lower petrochemicals margins and the
impact of a shutdown that limited refinery operations during the last week
of June 1998. The shutdown was the result of a regional electricity
emergency.
<PAGE>
<PAGE> 16
Sun Coke -- Sun Coke earned $26 million in the first six months of 1998
versus $18 million in the 1997 period. The increase in earnings was due to
improved results at Sun's coal and cokemaking operations in Virginia and a
$5 million after-tax income contribution from the Indiana Harbor cokemaking
facility. The 1998 six-month results also included a $2 million tax
benefit related to the settlement of an income tax dispute with the
Internal Revenue Service.
Start-up of Sun's Indiana Harbor cokemaking operation in East Chicago, IN,
commenced in the first quarter of 1998. The first battery of 67 new coke
ovens began production in late March with the second and third 67-oven
batteries commencing production in mid-April and early May, respectively.
All four batteries, totalling 268 ovens, are now producing at close to the
full rated capacity of 1.3 million tons of coke annually.
Net Financing Expenses and Other -- Net financing expenses and other
totalled $11 million for the 1998 six-month period versus $24 million in
the first six months of 1997. The $13 million decrease was primarily due
to the recognition in the first quarter of 1998 of $5 million of after-tax
earnings from a dividend paid to Sun by Oil Insurance Limited, a petroleum
industry insurance consortium in which Sun is a member, and $7 million of
after-tax interest income related to the federal income tax settlement
discussed under Sun Coke above (see Notes 2 and 3 to the condensed
consolidated financial statements).
Provision for Employee Terminations -- During the first quarter of 1997,
Sun established a $32 million pretax accrual ($21 million after tax) for
approximately 320 involuntary employee terminations and related costs. The
employee reductions were throughout the organization and included senior
management, support staff and operations personnel.
Analysis of Consolidated Statements of Income
- ---------------------------------------------
Revenues -- Total revenues were $4.3 billion in the first six months of
1998 compared to $5.3 billion in the first six months of 1997. The 19
percent decrease in the first half of 1998 was primarily due to lower
refined product prices. Lower revenues from resales of purchased crude oil
also contributed to the decline.
Costs and Expenses -- Total pretax costs and expenses were $4.1 billion in
the first six months of 1998 compared to $5.2 billion in the 1997 six-month
period. The 21 percent decrease in the first half of 1998 was primarily
due to lower crude oil and refined product acquisition costs largely as a
result of a decline in crude oil prices. Lower resales of purchased crude
oil also contributed to the decline along with lower selling, general and
administrative expenses reflecting cost containment efforts and the absence
of a provision for employee termination benefits and related costs.
<PAGE>
<PAGE> 17
RESULTS OF OPERATIONS - THREE MONTHS
Earnings Profile of Sun Businesses (after tax)
- ----------------------------------------------
Three Months Ended
June 30
------------------
1998 1997 Variance
---- ---- --------
(Millions of Dollars)
Sun Northeast Refining $ 25 $ 37 $(12)
Sunoco Northeast Marketing 11 17 (6)
Sunoco Chemicals 7 22 (15)
Sun Lubricants 11 2 9
Sunoco MidAmerica Marketing &
Refining 25 20 5
Sunoco Logistics 15 15 --
Sun Coke 15 9 6
Corporate expenses (5) (5) --
Net financing expenses and other (12) (12) --
---- ---- ----
Consolidated net income $ 92 $105 $(13)
==== ==== ====
Analysis of Earnings Profile of Sun Businesses
- ----------------------------------------------
In the three-month period ended June 30, 1998, Sun earned $92 million, or
$.97 per share of common stock on a diluted basis, compared to net income
of $105 million, or $1.07 per share, for the second quarter of 1997.
Sun Northeast Refining -- The Sun Northeast Refining business had income of
$25 million in the second quarter of 1998 versus income of $37 million in
the second quarter of 1997. The decrease in earnings was primarily due to
the impact of a 3.4 million barrel decline in gasoline and distillate
production levels compared to the 1997 second quarter. The decline in
production was principally a result of the 29 days of downtime at the
Girard Point catalytic cracking unit due to the emergency power
interruption from the local utility and subsequent start-up problems. The
scheduled six-week modernization of this unit, which commenced on June 12,
1998, also contributed to the decline in production. Partially offsetting
these negative factors was the effect of a favorable foreign sweet crude
oil market.
<PAGE>
<PAGE> 18
Sunoco Northeast Marketing -- The Sunoco Northeast Marketing business
earned $11 million in the current quarter versus income of $17 million in
the second quarter of 1997. Lower retail gasoline margins, which were down
over two cents per gallon versus the second quarter of 1997, were partially
offset by lower expenses ($4 million). Compared to the second quarter of
1997, total gasoline sales volumes increased one percent; average
throughput at the Company's direct sites improved three percent; and
average merchandise sales per convenience store were over eight percent
higher.
Sunoco Chemicals -- Sunoco Chemicals earned $7 million in the second
quarter of 1998 versus $22 million in the second quarter of 1997. The
decline in earnings was due to significantly lower margins, particularly
for polymer-grade propylene (down 53 percent) and cumene. Chemicals
production was lower by eight percent primarily due to the planned shutdown
in early June 1998 of the cumene plant at Girard Point. The shutdown was
related to the expansion work being done to increase cumene production
capacity from 500 million pounds to 850 million pounds annually. The
project was completed in late July 1998. All of the cumene production will
be used in the production of phenol at the plant recently acquired from
AlliedSignal (see Note 9 to the condensed consolidated financial
statements).
Sun Lubricants -- The Sun Lubricants business earned $11 million in the
1998 second quarter versus $2 million in the 1997 second quarter. The
improved results were due to higher margins for lubricants, waxes and
residual fuels as well as a two percent increase in total production,
including base oils. These results were achieved despite the carryover of
the Puerto Rico refinery maintenance turnaround into April 1998.
Sunoco MidAmerica Marketing & Refining -- Sunoco MidAmerica Marketing &
Refining earned $25 million during the current quarter, compared to $20
million in the 1997 second quarter. The increase in earnings was largely
due to higher refinery production (input to the crude unit averaged 141.5
thousand barrels per day or 109 percent of capacity) and higher wholesale
gasoline margins. Also contributing to the improved results were nine
percent higher retail gasoline volumes. Partially offsetting these
positive factors were lower petrochemicals margins and the impact of a
shutdown that limited refinery operations during the last week of June
1998. The shutdown was the result of a regional electricity emergency.
Sun Coke -- Sun Coke earned $15 million in the second quarter of 1998
versus $9 million in the second quarter of 1997. The increase in earnings
was due to improved results at Sun's coal and cokemaking operations in
Virginia and a $4 million after-tax income contribution from the Indiana
Harbor cokemaking facility. Coke production at Indiana Harbor totalled
172,000 tons during the second quarter of 1998 as production was being
phased in.
<PAGE>
<PAGE> 19
Analysis of Consolidated Statements of Income
- ---------------------------------------------
Revenues -- Total revenues were $2.2 billion in the second quarter of 1998
compared to $2.6 billion in the second quarter of 1997. The 15 percent
decrease in the second quarter of 1998 was primarily due to lower refined
product prices.
Costs and Expenses -- Total pretax costs and expenses were $2.1 billion in
the second quarter of 1998 compared to $2.4 billion in the second quarter
of 1997. The 13 percent decrease in the second quarter of 1998 was
primarily due to lower crude oil and refined product acquisition costs
largely as a result of a decline in crude oil prices. Also contributing to
the decrease was lower selling, general and administrative expenses
reflecting cost containment efforts.
FINANCIAL CONDITION
Cash and Working Capital
- ------------------------
At June 30, 1998, Sun had cash and cash equivalents of $11 million compared
to $33 million at December 31, 1997, and had a working capital deficit of
$56 million compared to a working capital deficit of $216 million at
December 31, 1997. Sun's working capital position is considerably stronger
than indicated because of the relatively low historical costs assigned
under the LIFO method of accounting for most of the inventories reflected
in the condensed consolidated balance sheets. The current replacement cost
of all such inventories exceeds the carrying value at June 30, 1998 by $272
million. Inventories valued at LIFO, which consist of crude oil and
refined products, are readily marketable at their current replacement
values. Management believes that the current levels of Sun's cash and
working capital are adequate to support Sun's ongoing operations.
Cash Flows and Financial Capacity
- ---------------------------------
In the first six months of 1998, Sun's net cash provided by operating
activities ("cash generation") was $21 million compared to $124 million in
the first six months of 1997. This $103 million decrease in cash
generation was primarily due to an increase in working capital uses
pertaining to operating activities.
Management believes that future cash generation generally will be
sufficient to satisfy Sun's capital requirements and to pay the current
level of cash dividends on Sun's common 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.
<PAGE>
<PAGE> 20
The Company has a $500 million revolving credit agreement ("Agreement")
with commercial banks that provides access to short-term financing through
September 2002. The Company can borrow directly from the participating
banks under this Agreement or use it to support commercial paper issued by
Sun. The Company 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 as well as Sun's other borrowings (in
millions of dollars):
At At
June 30 December 31
1998 1997
-------- -----------
Short-term borrowings $ 22 $ --
Current portion of long-term debt 68 12
Long-term debt 859 824
---- ----
Total borrowings $949 $836
==== ====
Sun's debt-to-capital ratio was 38.1 percent at June 30, 1998 compared to
36.4 percent at December 31, 1997. The increase in this ratio during the
first half of 1998 was primarily attributable to the $109 million of debt,
issued in connection with the acquisition of AlliedSignal Inc.'s phenol
facility in Philadelphia, PA, which is payable during the 1998-99 period
(see Note 9 to the condensed consolidated financial statements).
Management believes there is sufficient borrowing capacity available to
pursue other strategic investment opportunities as they arise. No
commitments have been made with respect to any other investment opportunity
which would require the use of a significant portion of Sun's unused
financial capacity. In addition, the Company has the option of issuing
additional common or preference stock as a means of increasing its equity
base; however, there are no current plans to do so.
In the first quarter of 1998, Sun transferred an interest in its cokemaking
operations in East Chicago, IN, to a third party in exchange for $200
million in cash. The transferee is entitled to a preferential return from
this cokemaking operation until certain cumulative return targets have been
met.
DEPOSITARY SHARE REDEMPTION
On May 28, 1998, the Company redeemed all of its outstanding depositary
shares. Each depositary share represented ownership of one-half share of
the Company's Series A cumulative preference stock. For a further
discussion of this share redemption, see Note 8 to the condensed
consolidated financial statements.
<PAGE>
<PAGE> 21
FORWARD-LOOKING STATEMENTS
Those statements in the foregoing report 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. Such statements generally will
be accompanied by words such as "anticipate," "believe," "estimate,"
"expect," "forecast," "intend," "possible," "potential," "predict,"
"project," or other similar words that convey the uncertainty of future
events or outcomes. 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's operating results are dependent upon the reliability and efficiency
of the Company's operating facilities, the level of operating expenses and
hazards common to operating facilities (including equipment malfunction,
explosions, fires, oil spills and the effects of severe weather
conditions). Plans for the construction, modernization or debottlenecking
of refineries, chemical plants and/or cokemaking facilities, and the
utilization and timing of production from these facilities are subject to
many factors, including unplanned delays, and the issuance of applicable
building, environmental and other permits. Sun's income and revenues are
affected by market supply and demand for Sun's products and actions taken
by competitors (including both pricing and expansion and retirement of
refinery capacity in response to market conditions), as well as changes in
industry-wide refining margins, market forces affecting the availability
and pricing of oxygenates such as MTBE, changes in crude oil and other raw
material costs, and world and regional events that could significantly
increase volatility in the marketplace.
The ability to meet liquidity requirements, including the funding of the
Company's capital program from operations, is subject to changes in
commodity prices and crude oil supply that could be affected by factors
beyond Sun's control, such as embargoes, the continued discovery and
production of light sweet crude oil, or military conflicts involving (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), 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. 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.
<PAGE>
<PAGE> 22
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. All
forward-looking statements included in this Form 10-Q are expressly
qualified in their entirety by the foregoing cautionary statements. The
Company undertakes no obligation to update publicly any forward-looking
statement (or its associated cautionary language) whether as a result of
new information or future events.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Many 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
June 30, 1998.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Company's shareholders was held on May 7,
1998. Proxies for the meeting were solicited pursuant to Section
14(a) of the Securities Exchange Act of 1934 and there was no
solicitation in opposition to the Company's solicitations. At this
meeting, the shareholders were requested (1) to elect a Board of
Directors and (2) to approve the appointment of independent auditors.
The following action was taken by the Company's shareholders with
respect to each of the above items:
1. Concerning the election of a Board of Directors of the Company,
there was a total of 69,615,799 votes cast. The tabulation below
sets forth the number of votes cast for, against or withheld
(abstentions) for each director. There were no broker non-votes.
<PAGE>
<PAGE> 23
Item 4. Submission of Matters to a Vote of Security Holders (Continued)
<TABLE>
<CAPTION>
Number
Number Number "WITHHELD"
NAME "FOR" "AGAINST" (ABSTENTIONS)
-------------- ---------- --------- ------------
<S> <C> <C> <C>
R. H. Campbell 68,741,324 874,375 245
R. E. Cartledge 68,907,244 708,533 167
R. E. Cawthorn 68,981,659 634,140 145
J. G. Drosdick 69,000,714 614,977 253
M. J. Evans 68,761,473 853,152 1,319
T. P. Gerrity 68,949,230 666,569 145
R. B. Greco 68,890,831 724,968 145
J. G. Kaiser 68,986,044 629,753 147
R. D. Kennedy 68,931,613 683,815 516
R. A. Pew 68,866,788 747,408 1,748
W. F. Pounds 68,889,279 726,262 403
G. J. Ratcliffe 68,945,599 669,942 403
A. B. Trowbridge 68,889,581 725,529 834
</TABLE>
2. Concerning the motion to appoint Ernst & Young LLP as the
Company's independent auditors, there was a total of 69,475,127
votes cast, with an aggregate of 69,305,206 votes cast in favor
of such appointment and 169,921 against. There were 141,063
withheld (abstentions). There were no broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
10.1 - Amended Schedule to the Form of Indemnification Agreement,
individually entered into between Sun Company, Inc. and
certain officers and directors of the Company. The Form of
Indemnification Agreement is incorporated by reference to
Exhibit 10.15 of the Company's 1995 Form 10-K filed March 7,
1996, File No. 1-6841.
10.2 - Amendment No. 1998-1 to the Sun Company, Inc. Executive
Incentive Plan, effective July 1, 1998.
10.3 - Amendment No. 1998-3 to the Sun Company, Inc. Executive
Retirement Plan, effective July 1, 1998.
12 - Statement re Sun Company, Inc. and Subsidiaries Computation of
Ratio of Earnings to Fixed Charges for the Six-Month Period
Ended June 30, 1998.
27 - Article 5 of Regulation S-X, Financial Data Schedule.
<PAGE>
<PAGE> 24
Reports on Form 8-K:
On April 28, 1998, a report on Form 8-K was filed to disclose under
Item 5 - "Other Events" and Item 7 - "Financial Statements and
Exhibits," a press release issued by the Company announcing its
intention to redeem all outstanding Sun depositary shares on May 28,
1998.
We are pleased to furnish this report to shareholders who request it by
writing to:
Sun Company, Inc.
Investor Relations
Ten Penn Center
1801 Market Street
Philadelphia, PA 19103-1699
<PAGE>
<PAGE> 25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
SUN COMPANY, INC.
BY s/ JOSEPH P. KROTT
-----------------------
Joseph P. Krott
Comptroller
(Principal Accounting Officer)
DATE August 6, 1998
<PAGE>
<PAGE> 1
EXHIBIT INDEX
Exhibit
Number Exhibit
- ------- -----------------------------------------
10.1 Amended Schedule to the Form of Indemnification Agreement,
individually entered into between Sun Company, Inc. and
certain officers and directors of the Company. The Form of
Indemnification Agreement is incorporated by reference to
Exhibit 10.15 of the Company's 1995 Form 10-K filed March 7,
1996, File No. 1-6841.
10.2 Amendment No. 1998-1 to the Sun Company, Inc. Executive
Incentive Plan, effective July 1, 1998.
10.3 Amendment No. 1998-3 to the Sun Company, Inc. Executive
Retirement Plan, effective July 1, 1998.
12 Statement re Sun Company, Inc. and Subsidiaries Computation
of Ratio of Earnings to Fixed Charges for the Six-Month
Period Ended June 30, 1998.
27 Article 5 of Regulation S-X, Financial Data Schedule.
<PAGE>
<PAGE> 1 EXHIBIT 10.1
AMENDED SCHEDULE TO
INDEMNIFICATION AGREEMENT
The Indemnification Agreements between Sun Company, Inc. and the directors
and executive officers named below are identical in all material respects.
Officer Date of Agreement
------- -----------------
Robert M. Aiken, Jr. February 1, 1996
Robert H. Campbell February 1, 1996
John G. Drosdick February 1, 1997
Jack L. Foltz February 1, 1996
Deborah M. Fretz February 1, 1996
Thomas W. Hofmann February 1, 1996
David E. Knoll February 1, 1996
Joseph P. Krott July 1, 1998
Robert W. Owens February 6, 1997
Malcolm I. Ruddock, Jr. February 1, 1996
David C. Shanks February 17, 1997
Sheldon L. Thompson February 1, 1996
Director Date of Agreement
-------- -----------------
Raymond E. Cartledge February 1, 1996
Robert E. Cawthorn February 1, 1996
Mary J. Evans February 1, 1996
Thomas P. Gerrity February 1, 1996
Rosemarie B. Greco May 7, 1998
James G. Kaiser February 1, 1996
Robert D. Kennedy February 1, 1996
R. Anderson Pew February 1, 1996
William F. Pounds February 1, 1996
G. Jackson Ratcliffe May 7, 1998
Alexander B. Trowbridge February 1, 1996
<PAGE>
<PAGE> 1 EXHIBIT 10.2
SUN COMPANY, INC.
EXECUTIVE INCENTIVE PLAN
Amendment No. 1998-1
--------------------
1. Section 3.2 ("Guideline Percentages") is amended to provide that
the Guideline Incentive as a Percentage of Position Salary Range
Midpoint for Grades 17 and 18 be increased from the current
thirty-five percent (35%) to forty percent (40%).
2. This amendment is effective July 1, 1998.
<PAGE>
<PAGE> 1 EXHIBIT 10.3
SUN COMPANY, INC.
EXECUTIVE RETIREMENT PLAN
Amendment No. 1998-3
- --------------------
1. There is added a new Section 3.09 as follows:
"3.09 Effective July 1, 1998, the monthly benefits
of (i) retirees who retired prior to January
1, 1981, as result of normal retirement under
Section 3.01 or early retirement under
Section 3.05, (ii) surviving Spouses,
contingent annuitants or Beneficiaries of the
retirees described in subsection (i) who are
receiving benefits on July 1, 1998, or (iii)
surviving Spouses who began receiving
surviving Spouse's benefits under Section
5.04 or Section 5.05 prior to January 1,
1990, shall be increased by the amount
determined in the following sentence,
subject, however, to the limitation that the
combined increases under the Base Plan and
the Plan effective July 1, 1998, shall not
exceed $85.00. The monthly benefit increase
shall be the excess of the sum of twenty
percent (20%) of the combined monthly benefit
under the Base Plan and the Plan up to
$250.00, ten percent (10%) of the combined
monthly benefit under the Base Plan and the
Plan in excess of $250.00 up to $500.00,
three percent (3%) of the combined monthly
benefit under the Base Plan and the Plan in
excess of $500.00 up to $750.00, and one
percent of the combined monthly benefit under
the Base Plan and the Plan in excess of
$750.00 up to $1,000, over the monthly
benefit increase effective July 1, 1998 under
the Base Plan. Benefits payable on account
of disability shall not be increased. Fifty
percent (50%) of these retiree benefit
increases shall be continued to the surviving
Spouse; provided, that any such increases in
retirement income shall not be subject to
adjustments in effect at the time of the
election or retirement reflecting the cost of
benefit increases under this Section."
2. This amendment is effective July 1, 1998.
<PAGE>
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 12
STATEMENT RE COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(a)
Sun Company, Inc. and Subsidiaries
(Millions of Dollars Except Ratio)
- --------------------------------------------------------------------------
For the Six Months
Ended June 30, 1998
--------------------
(UNAUDITED)
<S> <C>
Fixed Charges:
Consolidated interest cost and debt expense $ 38
Interest allocable to rental expense(b) 18
----
Total $ 56
====
Earnings:
Consolidated income before income tax expense $218
Proportionate share of income tax expense of
50 percent owned but not controlled
affiliated companies 4
Equity in income of less than 50 percent owned
affiliated companies (7)
Dividends received from less than 50 percent
owned affiliated companies 5
Fixed charges 56
Interest capitalized (5)
Amortization of previously capitalized interest 2
----
Total $273
====
Ratio of Earnings to Fixed Charges 4.88
====
</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 for Radnor
Corporation, the Company's wholly owned real estate development
subsidiary, which is accounted for as an investment held for sale.
Affiliated companies over which the Company has the ability to exercise
significant influence but that are not controlled (generally 20 to 50
percent owned) are accounted for by the equity method.
(b) Represents one-third of total operating lease rental expense which is
that portion deemed to be interest.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 11
<SECURITIES> 0
<RECEIVABLES> 548
<ALLOWANCES> 6
<INVENTORY> 522
<CURRENT-ASSETS> 1,180
<PP&E> 6,097
<DEPRECIATION> 2,837
<TOTAL-ASSETS> 4,781
<CURRENT-LIABILITIES> 1,236
<BONDS> 859
<COMMON> 132
0
0
<OTHER-SE> 1,413
<TOTAL-LIABILITY-AND-EQUITY> 4,781
<SALES> 4,252
<TOTAL-REVENUES> 4,308
<CGS> 2,886
<TOTAL-COSTS> 2,886
<OTHER-EXPENSES> 1,164
<LOSS-PROVISION> 2
<INTEREST-EXPENSE> 38
<INCOME-PRETAX> 218
<INCOME-TAX> 70
<INCOME-CONTINUING> 148
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 148
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.55
</TABLE>
