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, 1999
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
SUNOCO, INC.
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(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-1743282
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
TEN PENN CENTER, 1801 MARKET STREET, PHILADELPHIA, PA 19103-1699
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(Address of principal executive offices)
(Zip Code)
(215) 977-3000
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------ ______
At June 30, 1999, there were 90,509,352 shares of Common Stock, $1 par value
outstanding.
SUNOCO, 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, 1999 and
1998 3
Condensed Consolidated Statements of Income
for the Three Months Ended June 30, 1999
and 1998 4
Condensed Consolidated Balance Sheets at
June 30, 1999 and December 31, 1998 5
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended June 30,
1999 and 1998 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 4. Submission of Matters to a Vote of Security
Holders 26
Item 6. Exhibits and Reports on Form 8-K 27
SIGNATURE 28
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Sunoco, Inc. and Subsidiaries
(Millions of Dollars and Shares Except Per Share Amounts)
- --------------------------------------------------------------------------
For the Six Months
Ended June 30
------------------
1999 1998
------ ------
(UNAUDITED)
REVENUES
Sales and other operating revenue (including
consumer excise taxes) $4,210 $ 4,252
Interest income (Note 2) 2 17
Other income (Note 3) 94 39
------ -------
4,306 4,308
------ -------
COSTS AND EXPENSES
Cost of products sold and operating expenses 3,001 2,886
Selling, general and administrative expenses 267 247
Consumer excise taxes 757 756
Payroll, property and other taxes 40 44
Depreciation, depletion and amortization 134 124
Interest cost and debt expense 40 38
Interest capitalized (1) (5)
------ -------
4,238 4,090
------ -------
Income before income tax expense 68 218
Income tax expense 23 70
------ -------
NET INCOME 45 148
Dividends on preference stock -- (20)
------ -------
Net income applicable to common shareholders $ 45 $ 128
====== =======
Net income per share of common stock (Note 4):
Basic $ .50 $ 1.71
Diluted $ .49 $ 1.55
Weighted average number of shares outstanding:
Basic 90.4 74.9
Diluted 91.2 95.6
Cash dividends paid per share:
Preference stock (Note 7) $ -- $1.6516
Common stock $ .50 $ .50
(See Accompanying Notes)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Sunoco, Inc. and Subsidiaries
(Millions of Dollars and Shares Except Per Share Amounts)
- --------------------------------------------------------------------------
For the Three Months
Ended June 30
--------------------
1999 1998
------ ------
REVENUES
Sales and other operating revenue (including
consumer excise taxes) $2,328 $2,166
Interest income 1 5
Other income (Note 3) 44 19
------ ------
2,373 2,190
------ ------
COSTS AND EXPENSES
Cost of products sold and operating expenses 1,695 1,431
Selling, general and administrative expenses 134 128
Consumer excise taxes 401 398
Payroll, property and other taxes 17 20
Depreciation, depletion and amortization 68 62
Interest cost and debt expense 19 17
Interest capitalized (1) (2)
------ ------
2,333 2,054
------ ------
Income before income tax expense 40 136
Income tax expense 14 44
------ ------
NET INCOME 26 92
Dividends on preference stock -- (9)
------ ------
Net income applicable to common shareholders $ 26 $ 83
====== ======
Net income per share of common stock (Note 4):
Basic $ .29 $ 1.05
Diluted $ .28 $ .97
Weighted average number of shares outstanding:
Basic 90.5 79.1
Diluted 91.3 95.2
Cash dividends paid per share:
Preference stock (Note 7) $ -- $.7516
Common stock $ .25 $ .25
(See Accompanying Notes)
CONDENSED CONSOLIDATED BALANCE SHEETS
Sunoco, Inc. and Subsidiaries
At At
June 30 December 31
1999 1998
(Millions of Dollars) (UNAUDITED)
- --------------------------------------------------------------------------
ASSETS
Current Assets
Cash and cash equivalents $ 24 $ 38
Accounts and notes receivable, net 616 537
Inventories:
Crude oil 167 184
Refined products 199 219
Materials, supplies and other 79 80
Deferred income taxes 118 122
------ ------
Total Current Assets 1,203 1,180
Investments and long-term receivables 104 108
Properties, plants and equipment 6,243 6,248
Less accumulated depreciation, depletion
and amortization 2,925 2,902
------ ------
Properties, plants and equipment, net 3,318 3,346
Deferred charges and other assets 206 215
------ ------
Total Assets $4,831 $4,849
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 690 $ 589
Accrued liabilities 445 488
Short-term borrowings 122 120
Current portion of long-term debt 35 69
Taxes payable 120 118
------ ------
Total Current Liabilities 1,412 1,384
Long-term debt 823 823
Retirement benefit liabilities 443 449
Deferred income taxes 191 175
Other deferred credits and liabilities (Note 5) 444 504
Commitments and contingent liabilities (Note 6)
Shareholders' equity (Note 7) 1,518 1,514
------ ------
Total Liabilities and Shareholders' Equity $4,831 $4,849
====== ======
(See Accompanying Notes)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Sunoco, Inc. and Subsidiaries
(Millions of Dollars)
- -------------------------------------------------------------------------
For the Six Months
Ended June 30
------------------
1999 1998
------ ------
(UNAUDITED)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 45 $ 148
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on divestments (14) (7)
Depreciation, depletion and amortization 134 124
Deferred income tax expense 21 46
Changes in working capital pertaining to
operating activities:
Accounts and notes receivable (82) 126
Inventories 36 (70)
Accounts payable and accrued liabilities 42 (363)
Taxes payable 3 32
Other (25) (15)
----- -----
Net cash provided by operating activities 160 21
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (140) (224)
Acquisition of Philadelphia phenol facility,
net of $109 seller financing -- (48)
Proceeds from divestments 41 103
----- -----
Net cash used in investing activities (99) (169)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from short-term borrowings 2 10
Repayments of long-term debt (34) (6)
Proceeds from transferred interest in coke-
making operations -- 200
Cash dividend payments (45) (55)
Purchases of preference stock for retirement -- (2)
Purchases of common stock for treasury -- (23)
Proceeds from issuance of common stock under
management incentive and employee option plans 3 10
Other (1) (8)
----- -----
Net cash provided by (used in) financing activities (75) 126
----- -----
Net decrease in cash and cash equivalents (14) (22)
Cash and cash equivalents at beginning of period 38 33
----- -----
Cash and cash equivalents at end of period $ 24 $ 11
===== =====
(See Accompanying Notes)
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. Results for the three and six months ended June
30, 1999 are not necessarily indicative of results for the full year 1999.
2. Settlement of Income Tax Issue.
In March 1998, Sunoco settled an income tax issue 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 1998 first quarter net income by $9 million.
3. Other Income.
In February 1999, Sunoco divested its Shamrock steam coal mining operation
located in Kentucky for $13 million in cash. The divestment resulted in the
recognition of an $11 million pretax gain ($7 million after tax) in the
1999 first quarter. The Shamrock operation earned $5 million for the full
year 1998. With this divestment, the Company ceased steam coal mining
activities.
In the second and first quarters of 1999, Sunoco recognized $25 and $11
million, respectively, of pretax gains ($16 and $7 million after tax) in
connection with the settlement of certain insurance claims. The claims
related to certain environmental matters of Sunoco, including its
predecessor companies and subsidiaries, arising from ownership and
operation of its businesses (Note 6).
4. Earnings Per Share.
The following table sets forth the computation of basic and diluted
earnings per share ("EPS") for the six-month and three-month periods ended
June 30, 1999 and 1998 (in millions, except per share amounts):
Six Months Three Months
Ended Ended
June 30 June 30
------------------ -------------------
1999 1998 1999 1998
----- ----- ----- -----
Net income after dividends on
preference stock (basic EPS
numerator) $ 45 $ 128 $ 26 $ 83
Add: Dividends on preference stock -- 20 -- 9
--- ---- --- ----
Net income (diluted EPS numerator) $ 45 $ 148 $ 26 $ 92
=== ==== === ====
Weighted average number of common
shares outstanding (basic EPS
denominator) 90.4 74.9 90.5 79.1
Add effect of dilutive securities:
Redeemable preference shares
(Note 7) -- 19.5 -- 14.9
Stock incentive awards .8 1.2 .8 1.2
---- ---- ---- ----
Weighted average number of shares
(diluted EPS denominator) 91.2 95.6 91.3 95.2
==== ==== ==== ====
Basic EPS $ .50 $1.71 $ .29 $1.05
Diluted EPS $ .49 $1.55 $ .28 $ .97
5. Transferred Interests in Cokemaking Operations.
In the first quarter of 1998, Sunoco transferred an interest in its Indiana
Harbor cokemaking operation in East Chicago, IN, to a third party for $200
million in cash. In 1995, Sunoco transferred an interest in its Jewell
cokemaking operation in Vansant, VA, to another third party for $95 million
in cash. The investors in each operation are entitled to 95 percent of the
cash flows and tax benefits from the respective cokemaking operations until
certain cumulative return targets have been met. After these preferential
return periods, which are expected to end in 2002 and 2000, respectively,
the third parties will be entitled to variable minority interests in the
cash flows and tax benefits from the respective operations ranging from 5
to 25 percent. Sunoco did not recognize any gain or loss on these
transactions. The outstanding balance attributable to the transferred
interests in these operations totalled $203 and $226 million at June 30,
1999 and December 31, 1998, respectively, and is reflected in other
deferred credits and liabilities in the condensed consolidated balance
sheets.
6. 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 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, Sunoco entered into an off-take agreement with BEF
whereby Sunoco agreed to purchase all of the MTBE production from the
plant. From May 1997 through May 2000, for the first 14,000 barrels daily
of production, Sunoco agreed to pay BEF a price based on then-existing MTBE
prices in the contract market (the "contract market price"). Sunoco also
agreed to pay BEF the current spot market price for production above 14,000
barrels daily. In addition, the price to be paid by Sunoco for the first
12,600 barrels daily of MTBE production from May 1997 through May 2000, at
a minimum, generally will equal the sum of BEF's annual raw material and
cash operating costs associated with this production plus BEF's debt
service payments (collectively, the "minimum price") if the minimum price
per gallon exceeds the contract market price. Sunoco has been paying the
minimum price under this agreement since May 1997. After May 2000, Sunoco
and BEF will negotiate a new price for the last four years of the agreement
based upon the market conditions existing at that time.
During the fourth quarter of 1996, spot market prices for MTBE were less
than the prices paid by Sunoco 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 purchase commitment
loss expected to be realized with respect to this agreement.
The $130 million loss accrual was based primarily on the Company's
marketplace assumptions concerning the worldwide supply and demand for MTBE
through May 2000. At December 31, 1996, the Company believed that MTBE
demand would increase in 1999 largely as a result of various jurisdictions
electing to voluntarily comply with (or opt into) the reformulated gasoline
requirements of the Clean Air Act by the end of 1998. At December 31, 1998,
the number of "opt ins" was lower than what the Company had originally
anticipated and certain other jurisdictions were considering "opting out"
of the voluntary reformulated fuel requirements. As a result of these and
other market factors, management believed that MTBE demand would not
increase as previously anticipated. Accordingly, an additional $40 million
provision ($26 million after tax) was added to the accrual in December 1998
for incremental losses expected to be realized with respect to this
agreement. During the first six months of 1999 and the full years 1998 and
1997, actual MTBE purchase costs in excess of spot market prices totalling
$17, $47 and $65 million, respectively, were charged against the accrual.
The accrual has a remaining balance of $41 million as of June 30, 1999.
Sunoco is subject to numerous federal, state and local laws which regulate
the discharge of materials into the environment or that otherwise relate 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 Sunoco to the
potential obligation to remove or mitigate the environmental effects of the
disposal or release of certain pollutants at Sunoco's facilities and at
third-party or formerly-owned sites. Under CERCLA, Sunoco 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, 1999, Sunoco had been named as a PRP at 54 sites
identified or potentially identifiable as "Superfund" sites under CERCLA.
Sunoco has reviewed the nature and extent of its involvement at each site
and other relevant circumstances and, based upon the other parties involved
or Sunoco's negligible participation therein, believes that its potential
liability associated with such sites will not be significant.
Under various environmental laws, including RCRA, Sunoco 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.
Sunoco 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
1999 1998
-------- -----------
Accrued liabilities $ 47 $ 56
Other deferred credits and
liabilities 125 126
---- ----
$ 172 $ 182
==== ====
Pretax charges against income for environmental remediation amounted to $6
and $1 million for the six months ended June 30, 1999 and 1998,
respectively. Claims for recovery of environmental liabilities that are
probable of realization totalled $4 million at June 30, 1999 and are
included in deferred charges and other assets in the condensed consolidated
balance sheets.
On October 4, 1996, Sunoco 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 matters of Sunoco, including its predecessor
companies and subsidiaries, arising from the ownership and operation of its
businesses. In the first six months of 1999 and fourth quarter of 1998, the
Company entered into several settlements which resolved a portion of these
claims. As a result, the Company received net cash proceeds totalling $4
million in 1998 and $57 million in the first six months of 1999 and will
receive an additional $33 million primarily during the remainder of 1999.
Pretax gains of $36 million ($23 million after tax) and $58 million ($38
million after tax) were recognized in other income in the first six months
of 1999 and fourth quarter of 1998, respectively, in connection with these
settlements. While negotiations are currently ongoing with certain of the
other insurance companies to resolve the remaining litigation, the Company
cannot quantify the ultimate outcome of this matter.
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 Sunoco'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 Sunoco.
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 Sunoco. Management believes
that any expenditures attributable to these matters will be incurred over
an extended period of time and will be funded from Sunoco'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 Sunoco believes that any
additional liabilities which may arise pertaining to such matters would not
be material in relation to the consolidated financial position of Sunoco at
June 30, 1999. Furthermore, management believes that the overall costs for
environmental activities will not have a material impact, over an extended
period of time, on Sunoco's cash flows or liquidity.
7. Shareholders' Equity.
At At
June 30 December 31
1999 1998
------------ -----------
(Millions of Dollars)
Common stock, par value $1 per share $ 132 $ 132
Capital in excess of par value 1,397 1,393
Earnings employed in the business 1,608 1,608
------ ------
3,137 3,133
Less common stock held in treasury,
at cost 1,619 1,619
------ ------
Total $1,518 $1,514
====== ======
On May 28, 1998, the Company redeemed all of its 12,033,760 then
outstanding shares of preference stock. Under the terms of redemption,
established when the shares of preference stock were issued, each
preference share was redeemed in exchange for 1.899674 shares of Sunoco's
common stock plus accrued and unpaid dividends of $.7516. The preference-
to-common stock exchange ratio represented the call price of $80 per
preference share payable in Sunoco common stock valued at $42.1125 per
common share--the average of the closing prices for Sunoco 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 ratio of 1.899674 shares of common stock for each share of
preference stock, 22,859,633 shares of Sunoco common stock held in treasury
were reissued. In connection with this redemption, a lawsuit has been filed
alleging that Sunoco incorrectly calculated the exchange ratio and should
have issued an additional 1.36 million shares of Sunoco common stock. The
Company believes the exchange ratio was correctly calculated and is
vigorously defending its position.
8. Business Segment Information.
The following tables set forth information concerning Sunoco's business
segments for the six-month and three-month periods ended June 30, 1999 and
1998 (in millions of dollars):
Sales and Other
Operating Revenue
----------------------------
Profit Contri-
Six Months Ended Unaffiliated Inter- bution (Loss)
June 30, 1999 Customers segment (after tax)
- ---------------- ------------ ------- --------------
Northeast Refining $1,278 $664 $(27)
Northeast Marketing 1,428 -- 31
Chemicals 239 -- 17
Lubricants 462 16 (4)
MidAmerica Marketing &
Refining 673 -- (13)
Logistics 27 56 27
Coke 103 -- 34
------ ---- ----
Consolidated $4,210 $ -- 65
====== ====
Gain on settlement of
insurance litigation 23
Corporate expenses (12)
Net financing expenses
and other (31)
----
Net income $ 45
====
Six Months Ended
June 30, 1998
- ----------------
Northeast Refining $1,326 $674 $ 40
Northeast Marketing 1,392 -- 26
Chemicals 165 -- 17
Lubricants 519 29 8
MidAmerica Marketing &
Refining 728 -- 27
Logistics 27 57 26
Coke 95 -- 26
------ ---- ----
Consolidated $4,252 $ -- 170
====== ====
Corporate expenses (11)
Net financing expenses
and other (11)
----
Net income $148
====
Sales and Other
Operating Revenue
----------------------------
Profit Contri-
Three Months Ended Unaffiliated Inter- bution (Loss)
June 30, 1999 Customers segment (after tax)
- ------------------ ------------ ------- --------------
Northeast Refining $ 720 $387 $(11)
Northeast Marketing 792 -- 18
Chemicals 122 -- 7
Lubricants 248 9 (9)
MidAmerica Marketing &
Refining 381 -- (1)
Logistics 13 28 14
Coke 52 -- 14
------ ---- ----
Consolidated $2,328 $ -- 32
====== ====
Gain on settlement of
insurance litigation 16
Corporate expenses (6)
Net financing expenses
and other (16)
----
Net income $ 26
====
Three Months Ended
June 30, 1998
- ------------------
Northeast Refining $ 649 $349 $ 25
Northeast Marketing 723 -- 11
Chemicals 76 -- 7
Lubricants 268 8 11
MidAmerica Marketing &
Refining 377 -- 25
Logistics 14 29 15
Coke 59 -- 15
------ ---- ----
Consolidated $2,166 $ -- 109
====== ====
Corporate expenses (5)
Net financing expenses
and other (12)
----
Net income $ 92
====
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS - SIX MONTHS
Earnings Profile of Sunoco Businesses (after tax)
- -------------------------------------------------
Six Months Ended
June 30
--------------------
1999 1998 Variance
----- ---- --------
(Millions of Dollars)
Sun Northeast Refining $ (27) $ 40 $ (67)
Sunoco Northeast Marketing 31 26 5
Sunoco Chemicals 17 17 --
Sun Lubricants (4) 8 (12)
Sunoco MidAmerica Marketing & Refining (13) 27 (40)
Sunoco Logistics 27 26 1
Sun Coke 34 26 8
Corporate expenses (12) (11) (1)
Net financing expenses and other (31) (11) (20)
---- ---- ------
22 148 (126)
Special item:
Gain on settlement of insurance
litigation 23 -- 23
---- ---- ------
Consolidated net income $ 45 $ 148 $(103)
==== ==== ======
Analysis of Earnings Profile of Sunoco Businesses
- -------------------------------------------------
In the six-month period ended June 30, 1999, Sunoco earned $45 million, or $.49
per share of common stock on a diluted basis, compared to net income of $148
million, or $1.55 per share, for the first six months of 1998. Excluding the $23
million after-tax gain on settlement of insurance litigation shown separately in
the Earnings Profile of Sunoco Businesses, Sunoco had income of $22 million in
the first six months of 1999.
Sunoco's 1999 first half results benefited from several previously announced
self-help initiatives including higher production of fuels, chemicals and
lubricants, higher retail gasoline sales volumes and added income from the
Company's Indiana Harbor cokemaking facility which commenced operations in March
1998. In the aggregate, these initiatives contributed approximately $35 million
after tax to 1999 first half results. However, because of a low refining margin
environment and the impact of both voluntary refinery run reductions and some
unscheduled operating downtime, it is unlikely that Sunoco will achieve its goal
of generating $116 million of additional after-tax income during 1999 from these
self-help initiatives.
Sun Northeast Refining -- The Sun Northeast Refining business recorded a loss of
$27 million in the first six months of 1999 versus income of $40 million in the
first six months of 1998. The decrease in earnings was primarily due to
significantly lower refining margins. Realized refining margins were down $1.22
per barrel versus the 1998 first half. Partially offsetting the lower margins
were higher production levels (up 5.1 million barrels, or 6 percent). Despite
some refinery run cutbacks due to the low margin environment, during the first
half of 1999, inputs to the crude units in the Northeast averaged 488,500
barrels daily (97 percent utilization), and catalytic cracking throughput
averaged 198,800 barrels per day (95 percent utilization).
Sunoco Northeast Marketing -- The Sunoco Northeast Marketing business earned $31
million in the current six-month period versus income of $26 million in the
first six months of 1998. The improvement in earnings was primarily due to
slightly higher retail gasoline margins, a four percent increase in retail
gasoline sales volumes and higher non-gasoline income. Partially offsetting
these increases were higher expenses largely attributable to the higher sales
volumes and to expenditures supporting a retail site reimaging program.
Sunoco Chemicals -- Sunoco Chemicals earned $17 million in the first six months
of 1999, unchanged compared with last year's first six months. Lower margins for
polymer-grade propylene (down 47 percent) were offset by additional earnings
from a cumene plant expansion completed in the third quarter of 1998 and from
the phenol facility acquired on June 30, 1998.
Sun Lubricants -- The Sun Lubricants business recorded a loss of $4 million in
the first six months of 1999 compared to income of $8 million in the 1998 first
six months. The decrease in results was primarily due to margin declines for all
products manufactured by Sun Lubricants. Base oil and specialty oil margins were
down significantly, as wholesale and retail lubricant prices have not kept pace
with recent crude oil price increases, and margins for wholesale fuels produced
at Sun Lubricants' two refineries declined by $1.20 per barrel. Partially
offsetting the margin declines were lower expenses and higher base oil
lubricants production.
Sunoco MidAmerica Marketing & Refining -- Sunoco MidAmerica Marketing & Refining
recorded a loss of $13 million during the current six-month period versus
earnings of $27 million in the first six months of 1998. The decrease in results
was primarily due to a decline of $2.40 per barrel in realized wholesale fuels
margins. Production levels also declined due to both planned and unplanned
refinery maintenance activities and voluntary production cuts due to the low
margins.
Sunoco Logistics -- Sunoco Logistics earned $27 million in the first half of
1999 versus $26 million in the first half of 1998. The increase in income was
primarily due to improved results from Sunoco's Southwestern logistics
operations.
Sun Coke -- Sun Coke earned $34 million in the first six months of 1999 versus
$26 million in the 1998 first half. The improvement in earnings was due to an
increase in income from the Indiana Harbor cokemaking facility, which commenced
operations in late March 1998, and to a $7 million after-tax gain from the
divestment of Shamrock Coal Company ("Shamrock"), Sun Coke's steam coal mining
operation located in Kentucky. Cash proceeds from the sale of this business,
which earned $5 million for the full year 1998, amounted to $13 million. With
this divestment, Sun Coke ceased steam coal mining activities. Partially
offsetting these positive factors were lower earnings at the Jewell cokemaking
operation and the absence of a $2 million tax benefit recorded in the first
quarter of 1998 related to the settlement of an income tax issue with the
Internal Revenue Service.
Net Financing Expenses and Other -- Net financing expenses and other activities
totalled $31 million for the first half of 1999 versus $11 million for the 1998
first half. The 1998 amount includes $5 million in after-tax earnings from a
dividend from a petroleum industry insurance consortium in which Sunoco
participates and $7 million of after-tax interest income related to the federal
income tax settlement discussed above. Excluding these items, net financing
expenses and other were $31 million for the current half versus $23 million for
the first half of 1998. This $8 million increase was primarily attributable to
lower capitalized interest and higher interest expense due to a higher average
debt level.
Gain on Settlement of Insurance Litigation -- In the first six months of 1999,
Sunoco recognized a $23 million after-tax gain in connection with the settlement
of certain insurance claims. The claims relate to certain environmental matters
of Sunoco, including its predecessor companies and subsidiaries, arising from
ownership and operation of its businesses (see Note 6 to the condensed
consolidated financial statements).
Analysis of Consolidated Statements of Income
- ---------------------------------------------
Revenues -- Total revenues were $4.3 billion in both the first six months of
1999 and 1998. The impact of lower refined product prices was offset by higher
refined product sales volumes, higher revenues from resales of purchased crude
oil, higher convenience store merchandise sales and $36 million of pretax gains
recognized in connection with the settlement of the insurance litigation
discussed above.
Costs and Expenses -- Total pretax costs and expenses were $4.2 billion in the
first six months of 1999 compared to $4.1 billion in the 1998 first half. The 2
percent increase in the first half of 1999 was primarily due to higher crude oil
and refined product acquisition costs, higher resales of purchased crude oil and
higher selling, general and administrative expenses.
RESULTS OF OPERATIONS - THREE MONTHS
Earnings Profile of Sunoco Businesses (after tax)
- -------------------------------------------------
Three Months Ended
June 30
------------------
1999 1998 Variance
---- ---- --------
(Millions of Dollars)
Sun Northeast Refining $ (11) $ 25 $(36)
Sunoco Northeast Marketing 18 11 7
Sunoco Chemicals 7 7 --
Sun Lubricants (9) 11 (20)
Sunoco MidAmerica Marketing & Refining (1) 25 (26)
Sunoco Logistics 14 15 (1)
Sun Coke 14 15 (1)
Corporate expenses (6) (5) (1)
Net financing expenses and other (16) (12) (4)
---- ---- ----
10 92 (82)
Special item:
Gain on settlement of insurance
litigation 16 -- 16
---- ---- ----
Consolidated net income $ 26 $ 92 $(66)
==== ==== ====
Analysis of Earnings Profile of Sunoco Businesses
- -------------------------------------------------
In the three-month period ended June 30, 1999, Sunoco earned $26 million, or
$.28 per share of common stock on a diluted basis, compared to net income of $92
million, or $.97 per share, for the second quarter of 1998. Excluding the $16
million after-tax gain on settlement of insurance litigation shown separately in
the Earnings Profile of Sunoco Businesses, Sunoco had income of $10 million in
the second quarter of 1999.
Sun Northeast Refining -- The Sun Northeast Refining business recorded a loss of
$11 million in the second quarter of 1999 versus income of $25 million in the
second quarter of 1998. The decrease was primarily due to significantly lower
realized refining margins, which were down $1.30 per barrel from 1998 second
quarter levels. The reduction in margins was largely due to weak market
conditions resulting from high industry inventory levels. Realized margins were
also reduced by the unfavorable impact of end-of-quarter crude oil price
increases on crude oil purchases
and on projected inventory replacement costs. Higher production levels (up 3.4
million barrels or 8 percent) partially offset the lower margins. Despite some
voluntary production reductions due to the low margin environment, crude unit
inputs averaged over 492,000 barrels daily (97 percent utilization) and
catalytic cracking throughput averaged over 202,000 barrels per day (96 percent
utilization) during the current quarter. Expenses were down slightly versus the
year-ago period.
Sunoco Northeast Marketing -- The Sunoco Northeast Marketing business earned $18
million in the current quarter versus $11 million in the second quarter of 1998.
The increase was primarily due to higher gasoline margins, which improved
approximately 1.5 cents per gallon over second quarter 1998 levels. Also
contributing to the improvement were a four percent increase in retail gasoline
sales volumes and higher non-gasoline income.
Sunoco Chemicals -- Sunoco Chemicals earned $7 million in the second quarter of
1999, unchanged compared with last year's second quarter. Lower margins for
polymer-grade propylene (down 40 percent) were offset by additional earnings
from the cumene plant expansion completed in the third quarter of 1998 and from
the phenol facility acquired on June 30, 1998.
Sun Lubricants -- The Sun Lubricants business recorded a loss of $9 million in
the 1999 second quarter versus income of $11 million in the 1998 second quarter.
The decrease was largely due to margin reductions versus last year's second
quarter for all products manufactured by Sun Lubricants. Base oil margins were
down more than $5.00 per barrel while margins for specialty oils were down over
$6.00 per barrel, as wholesale and retail lubricant prices have not kept pace
with recent crude oil price increases. Margins for wholesale fuels produced at
Sun Lubricants' two refineries declined by approximately $2.50 per barrel. The
facilities produce approximately 7 million barrels of fuels per quarter.
Partially offsetting the margin declines were lower expenses and higher base oil
lubricants production.
Sunoco MidAmerica Marketing & Refining -- Sunoco MidAmerica Marketing & Refining
recorded a loss of $1 million during the current quarter, versus earnings of $25
million in the 1998 second quarter. The decrease was primarily due to a decline
of $3.30 per barrel in realized wholesale fuels margins. Production levels were
also down versus the second quarter of 1998 due to both unplanned maintenance
and some voluntary refinery cutbacks due to the low margins.
Sunoco Logistics -- Net income was $14 million in the 1999 second quarter versus
$15 million in the year-ago period.
Sun Coke -- Sun Coke earned $14 million in the second quarter of 1999 versus $15
million in the second quarter of 1998. Higher income contribution from the
Indiana Harbor cokemaking facility was more than offset by the absence of
earnings from Shamrock Coal Company, which was sold in February 1999, and lower
earnings from the Jewell cokemaking operation.
Net Financing Expenses and Other -- Net financing expenses and other activities
totalled $16 million for the second quarter of 1999 versus $12 million for the
1998 second quarter. The increase was due to higher interest expense, largely
associated with the phenol facility acquired on June 30, 1998, and lower
capitalized interest.
Gain on Settlement of Insurance Litigation -- In the second quarter of 1999,
Sunoco recognized a $16 million after-tax gain associated with the settlement of
insurance claims related to certain environmental matters (see Note 6 to the
condensed consolidated financial statements).
Analysis of Consolidated Statements of Income
- ---------------------------------------------
Revenues -- Total revenues were $2.4 billion in the second quarter of 1999
compared to $2.2 billion in the second quarter of 1998. The 9 percent increase
in the second quarter of 1999 was primarily due to higher refined product sales
volumes and prices. Also contributing to the increase were higher revenues from
resales of purchased crude oil and $25 million of pretax gains recognized in the
second quarter of 1999 in connection with the settlement of insurance
litigation.
Costs and Expenses -- Total pretax costs and expenses were $2.3 billion in the
second quarter of 1999 compared to $2.1 billion in the second quarter of 1998.
The 10 percent increase in the second quarter of 1999 was primarily due to
higher crude oil and refined product acquisition costs and higher resales of
purchased crude oil.
FINANCIAL CONDITION
Cash and Working Capital
- ------------------------
At June 30, 1999, Sunoco had cash and cash equivalents of $24 million compared
to $38 million at December 31, 1998, and had a working capital deficit of $209
million compared to $204 million at December 31, 1998. Sunoco'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 their carrying value at June
30, 1999 by approximately $460 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 cash
and working capital are adequate to support Sunoco's ongoing operations.
Cash Flows and Financial Capacity
- ---------------------------------
In the first six months of 1999, Sunoco's net cash provided by operating
activities ("cash generation") was $160 million compared to $21 million in the
first six months of 1998. This $139 million increase in cash generation was
primarily due to a decrease in working capital uses pertaining to operating
activities, partially offset by a decline in income before special items.
In the first quarter of 1998, Sunoco transferred an interest in its Indiana
Harbor cokemaking operation in East Chicago, IN, to a third party in exchange
for $200 million in cash. The investor is entitled to 95 percent of the cash
flows and tax benefits from this cokemaking operation until certain cumulative
return targets have been met. After this preferential return period, which is
expected to end in 2002, the third party will be entitled to a variable minority
interest in the cash flows and tax benefits from the Indiana Harbor cokemaking
operation ranging from 5 to 23 percent. Sunoco did not recognize any gain or
loss on this transaction.
Management believes that future cash generation will be sufficient to satisfy
Sunoco's capital requirements and to pay the current level of cash dividends on
Sunoco'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.
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 the issuance of commercial paper. The Company
also has access to short-term financing under a non-committed money market
facility. The following table sets forth amounts outstanding related to Sunoco's
borrowings (in millions of dollars):
At At
June 30 December 31
1999 1998
----------- -----------
Short-term borrowings:
Commercial paper $122 $ --
Bank borrowings under revolving
credit agreement -- 120
Current portion of long-term debt 35 69
Long-term debt 823* 823
---- ------
Total borrowings $980 $1,012
==== ======
__________
*Includes the Company's $150 million 8-1/8 percent notes due in 1999 which
Sunoco intends to refinance on a long-term basis.
Sunoco's debt-to-capital ratio was 39.2 percent at June 30, 1999 compared to
40.1 percent at December 31, 1998. Management believes there is sufficient
borrowing capacity available to pursue strategic investment opportunities as
they arise. No commitments have been made with respect to any investment
opportunity which would require the use of a significant portion of Sunoco'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.
ENVIRONMENTAL MATTERS
Pursuant to the Clean Air Act, the U.S. Environmental Protection Agency ("EPA")
has under review whether it is appropriate to require more stringent emissions
standards ("Tier 2 Standards") for new passenger cars and light duty trucks. In
connection with these potential Tier 2 Standards, the EPA issued proposed
regulations in early May 1999, which would mandate significant reductions in the
sulfur levels in reformulated and conventional gasoline commencing in 2004. The
proposal is subject to a 90-day public comment period, and it is anticipated
that the EPA will issue final rules by the end of 1999. While it is likely that
the EPA will require significant gasoline sulfur reductions, there are a number
of uncertainties about the final regulations and how they would be implemented,
including the allowable sulfur levels, the timing of any requirements, the
impact of any banking and trading system, the areas of the country that would be
subject to any such requirements and the technology available to meet the
requirements. While some of the alternatives would be potentially significant to
Sunoco and its operations, the ultimate impact of the Tier 2 Standards cannot be
determined until the EPA issues the finalized rules.
In November 1998, the EPA convened an advisory Panel on Oxygenate Use in
Gasoline (the "Panel"). The purpose of the Panel is to review public health and
environmental issues that have been raised by the use of MTBE in gasoline, and
specifically the discovery of MTBE in water supplies. The Panel made its
recommendations to the EPA on July 27, 1999. The recommendations call for the
improved protection of drinking water from MTBE contamination, a substantial
reduction in the use of MTBE, and action by Congress to remove the oxygenate
requirements for reformulated gasoline under the Clean Air Act. State and
federal environmental agencies could implement the majority of the
recommendations, and some would require Congressional legislative action.
California has acted to ban MTBE use by December 31, 2002. In connection with
the MTBE ban, California has requested a waiver from the EPA of its oxygenate
requirements. Other states are also reviewing the use of MTBE in gasoline. MTBE
is the primary oxygenate used by Sunoco and throughout the industry to meet the
reformulated gasoline requirements under the Clean Air Act. While phase-outs or
restrictions on the use of MTBE could have a significant impact on Sunoco and
its operations, it is not possible to reach any conclusions until federal or
further state actions, if any, are taken.
SHARE REPURCHASES
During 1998, the Company repurchased 3,727,850 shares of its common stock and
46,780 of its depositary shares for $145 million. On December 28, 1998, the
Board of Directors authorized a new program to purchase up to an additional $150
million of Company stock in the open market or through privately negotiated
transactions from time to time depending on prevailing market conditions. As of
July 31, 1999, $155 million remained available under the share repurchase
programs.
YEAR 2000 READINESS DISCLOSURE
Sunoco, like most companies, is faced with the Year 2000 Issue as a result of
its use of computer systems that were designed to use two digits rather than
four to define a year. For example, some computer software may interpret a date
using the two digit representation "00" as the year 1900 instead of the year
2000. If not corrected, such misinterpretations could result in outright system
failures or in miscalculations causing operational or financial processing
disruptions.
Sunoco began significant efforts to address its exposures related to the Year
2000 Issue in 1997. A project team was put in place to assess, remediate or
replace, test and implement computer systems and applications (which consist of
internally developed and purchased computer applications, hardware, systems
software and embedded chip and manufacturing process control systems) so that
such systems and related processes will continue to operate and properly process
information dated after December 31, 1999.
The initial phases of these plans, an inventory and assessment of potential
problem areas and the remediation/replacement of the Company's key computer
applications, are essentially complete. The Company is conducting a complete
Year 2000 readiness test and a full systems integration test in an environment
that simulates the processing conditions that will exist after December 31,
1999. The Company anticipates that the testing phase for all of its key
computer applications will be completed by August 31, 1999.
The Company has contacted its key customers and suppliers and is examining their
Year 2000 public disclosures in an attempt to ascertain their ability to
continue to meet their obligations to the Company. While some of these third
parties are more prepared than others, the Company has no reason to believe that
its key customers and suppliers will not be able to meet their obligations to
the Company due to the Year 2000 Issue. This readiness assessment will continue
throughout 1999.
Additionally, the Company is developing contingency plans for its key operations
and business processes. These plans will attempt to mitigate the potential
impacts of any failures of either Company or third-party systems and processes.
In developing such plans, Sunoco's primary consideration is to continue to
operate the Company's facilities without compromising the health or safety of
its employees, agents or neighboring communities. Plans may include, but are not
limited to, scheduling and timing of operations, minimizing certain
discretionary activities, and ensuring that adequate staff is available to
handle any unforeseen disruptions. The Company may also choose to develop
alternative sources of supply, markets or other contingencies in response to the
potential failures of customers and suppliers to meet their obligations to the
Company. Contingency plans are expected to be complete by September 30, 1999.
With regard to third-party system interfaces, Sunoco's computer systems have
been remediated to correctly interpret dates as they are currently supplied and
to have the capability to both send and receive expanded dates if necessary.
Third parties with whom the Company has interfaces have been contacted, advised
of Sunoco's plans for such interfaces and asked to promptly notify the Company
should their own remediation plans result in a change to their current system
interface with the Company. The Company has been notified by several third
parties that minor interface changes are required. Such changes are being made
and tested as they are received.
The total cost to Sunoco during the 1997-99 period of achieving Year 2000
compliant systems is currently estimated to be $37 million, which represents
approximately 20 percent of the information technology budget during that
period. Such amount, which includes both expense and capital spending, is being
funded from Sunoco's net cash flows from operating activities. It consists of
$21 million of expense incurred remediating and testing existing software and
hardware and $16 million of capital expenditures to replace two key non-
compliant systems with newly purchased systems that, in addition to being
compliant, provide enhanced business functionality. Through June 30, 1999, $34
million has been spent, of which $19 million relating to the remediation and
testing of existing software and hardware has been expensed and $15 million
relating to the replacement of the two non-compliant systems has been
capitalized.
The failure to correct a material Year 2000 problem or the inability of any key
customer, key supplier or a governmental agency to make the necessary computer
system changes on a timely basis, could result in interruptions to Company
operations or business activities. Such interruptions could have a material
adverse impact on the Company's results of operations, liquidity or financial
condition. Due to the general uncertainty inherent in the Year 2000 Issue,
particularly as it relates to the readiness of the Company's key customers and
suppliers, and of governmental agencies, the Company cannot ascertain at this
time whether the consequences of Year 2000 failures will have a material impact
on the Company's results of operations, liquidity or financial condition.
The foregoing Year 2000 discussion constitutes a "forward-looking" statement
within the meaning of Section 21E of the Securities Exchange Act of 1934. It is
based on management's current expectations, estimates and projections, which
could ultimately prove to be inaccurate. Factors which could affect the
Company's ability to be Year 2000 compliant by the end of 1999 include the
failure of customers, suppliers and governmental agencies to achieve compliance,
the inaccuracy of certifications received from them, and a shortage of necessary
personnel to modify or repair existing software.
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 Sunoco 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.
Sunoco'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. Sunoco's
income and revenues are affected by market supply and demand for Sunoco's
products and actions taken by competitors (including both pricing and expansion
and retirement of refinery capacity), 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 Sunoco'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 Sunoco's
business include the continued availability of debt and equity financing,
changes in labor relations, nonperformance by major customers, general business
and economic conditions (including recessionary trends, inflation and interest
and currency exchange rates), and civil, criminal, regulatory or administrative
actions, claims or proceedings. Sunoco'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. Sunoco 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
Sunoco. 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
On April 9, 1999, Sunoco paid civil fines in the amount of $168,950
pursuant to a Consent Order executed with the U.S. EPA (Region V). This
Consent Order stemmed from an administrative enforcement action dealing
with sulfur dioxide exceedances identified in 1994 and benzene waste NESHAP
violations at Sunoco's Toledo, OH, refinery and its formerly owned
wastewater treatment plant at this facility.
Many other legal and administrative proceedings are pending against Sunoco.
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 Sunoco. Management of Sunoco believes that any liabilities
which may arise from such proceedings would not be material in relation to
the consolidated financial position of Sunoco at June 30, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Company's shareholders was held on May 6, 1999.
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 76,719,281 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.
Number
Number Number "WITHHELD"
NAME "FOR" "AGAINST" (ABSTENTIONS)
- ---------------- ---------- --------- -------------
R. H. Campbell 75,806,278 910,997 2,006
R. E. Cartledge 75,950,059 769,222 --
J. G. Drosdick 76,000,841 717,847 593
M. J. Evans 75,809,233 910,048 --
T. P. Gerrity 75,967,461 751,820 --
R. B. Greco 75,945,259 773,862 160
J. G. Kaiser 75,998,769 720,352 160
R. D. Kennedy 75,978,040 741,077 164
R. A. Pew 75,885,967 832,748 566
W. F. Pounds 75,914,749 804,201 331
G. J. Ratcliffe 75,987,917 730,881 483
A. B. Trowbridge 75,920,560 798,561 160
2. Concerning the motion to appoint Ernst & Young LLP as the Company's
independent auditors, there was a total of 76,431,253 votes cast, with
an aggregate of 76,221,295 votes cast in favor of such appointment and
209,958 against. There were 288,028 withheld (abstentions). There were
no broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
1 - Form of Underwriting Agreement, as amended, for the
Sunoco, Inc. Form S-3 Registration Statement (Registration
No. 33-53717) filed May 20, 1994.
12 - Statement re Sunoco, Inc. and Subsidiaries Computation of Ratio of
Earnings to Fixed Charges for the Six-Month Period Ended June 30,
1999.
27 - Article 5 of Regulation S-X, Financial Data Schedule.
Reports on Form 8-K:
The Company has not filed any reports on Form 8-K during the quarter ended
June 30, 1999.
**********
We are pleased to furnish this Form 10-Q to shareholders who request it by
writing to:
Sunoco, Inc.
Investor Relations
Ten Penn Center
1801 Market Street
Philadelphia, PA 19103-1699
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.
SUNOCO, INC.
BY /s/ JOSEPH P. KROTT
-----------------------
Joseph P. Krott
Comptroller
(Principal Accounting Officer)
DATE July 30, 1999
EXHIBIT INDEX
Exhibit
Number Exhibit
- ------- ----------------------------------------
1 Form of Underwriting Agreement, as amended, for the Sunoco, Inc.
Form S-3 Registration Statement (Registration No. 33-53717) filed
May 20, 1994.
12 Statement re Sunoco, Inc. and Subsidiaries Computation of Ratio of
Earnings to Fixed Charges for the Six-Month Period Ended June 30,
1999.
27 Article 5 of Regulation S-X, Financial Data Schedule.