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, 2001
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
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
TEN PENN CENTER, 1801 MARKET STREET, PHILADELPHIA, PA 19103-1699
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(Address of principal executive offices)
(Zip Code)
(215) 977-3000
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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At June 30, 2001, there were 80,873,251 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, 2001
and 2000 1
Condensed Consolidated Statements of Income
for the Three Months Ended June 30, 2001
and 2000 2
Condensed Consolidated Balance Sheets at
June 30, 2001 and December 31, 2000 3
Condensed Consolidated Statements of Cash
Flows for the Six Months Ended June 30,
2001 and 2000 4
Notes to Condensed Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 25
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
-------------------------
2001 2000
----- -----
(UNAUDITED)
REVENUES
Sales and other operating revenue (including
consumer excise taxes) $7,311 $6,668
Interest income 5 6
Other income (Note 2) 38 147
------ ------
7,354 6,821
------ ------
COSTS AND EXPENSES
Cost of products sold and operating expenses 5,435 5,121
Consumer excise taxes 839 789
Selling, general and administrative expenses 324 287
Depreciation, depletion and amortization 157 147
Payroll, property and other taxes 51 42
Provision for employee terminations and other
matters (Note 3) 20 (7)
Interest cost and debt expense 52 42
Interest capitalized -- (2)
------ ------
6,878 6,419
------ ------
Income from continuing operations before
income tax expense 476 402
Income tax expense 174 120
------ ------
Income from continuing operations 302 282
Income from discontinued operations (Note 4) -- 11
------ ------
NET INCOME $ 302 $ 293
====== ======
Earnings per share of common stock (Note 5):
Basic:
Income from continuing operations $3.62 $3.19
Net income $3.62 $3.31
Diluted:
Income from continuing operations $3.58 $3.18
Net income $3.58 $3.30
Weighted average number of shares outstanding:
Basic 83.4 88.5
Diluted 84.4 88.9
Cash dividends paid per share of common stock $.50 $.50
(See Accompanying Notes)
1
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
------------------------
2001 2000
---- ----
(UNAUDITED)
REVENUES
Sales and other operating revenue (including
consumer excise taxes) $3,795 $3,518
Interest income 3 4
Other income (Note 2) 24 112
------ ------
3,822 3,634
------ ------
COSTS AND EXPENSES
Cost of products sold and operating expenses 2,763 2,659
Consumer excise taxes 444 418
Selling, general and administrative expenses 165 149
Depreciation, depletion and amortization 80 74
Payroll, property and other taxes 24 20
Provision for employee terminations and other
matters (Note 3) 9 (7)
Interest cost and debt expense 27 22
Interest capitalized -- (1)
------ ------
3,512 3,334
------ ------
Income before income tax expense 310 300
Income tax expense 114 85
------ ------
NET INCOME $ 196 $ 215
====== ======
Net income per share of common stock (Note 5):
Basic $2.38 $2.45
Diluted $2.35 $2.44
Weighted average number of shares outstanding:
Basic 82.4 87.8
Diluted 83.5 88.3
Cash dividends paid per share of common stock $.25 $.25
(See Accompanying Notes)
2
CONDENSED CONSOLIDATED BALANCE SHEETS
Sunoco, Inc. and Subsidiaries
At At
June 30 December 31
2001 2000
(Millions of Dollars)
-------------------------------------------------------------------------------
(UNAUDITED)
ASSETS
Current Assets
Cash and cash equivalents $ 78 $ 239
Accounts and notes receivable, net 883 890
Inventories:
Crude oil 213 210
Petroleum and chemical products 350 171
Materials, supplies and other 116 79
Deferred income taxes 92 94
------ ------
Total Current Assets 1,732 1,683
Investments and long-term receivables 195 170
Properties, plants and equipment 7,460 6,747
Less accumulated depreciation, depletion
and amortization 3,387 3,357
------ ------
Properties, plants and equipment, net 4,073 3,390
Deferred charges and other assets 204 183
------ ------
Total Assets $6,204 $5,426
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $1,134 $1,052
Accrued liabilities 358 377
Current portion of long-term debt 153 2
Taxes payable 274 215
------ ------
Total Current Liabilities 1,919 1,646
Long-term debt (Note 7) 1,142 933
Retirement benefit liabilities 412 385
Deferred income taxes 458 250
Other deferred credits and liabilities 468 510
Commitments and contingent liabilities (Note 8)
Shareholders' equity (Note 9) 1,805 1,702
------ ------
Total Liabilities and Shareholders' Equity $6,204 $5,426
====== ======
(See Accompanying Notes)
3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Sunoco, Inc. and Subsidiaries
(Millions of Dollars)
--------------------------------------------------------------------------------
For the Six Months
Ended June 30
-------------------------
2001 2000*
----- -----
(UNAUDITED)
INCREASES (DECREASES) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 302 $ 293
Adjustments to reconcile net income to net
cash provided by operating activities:
Income from discontinued operations -- (11)
Provision for employee terminations and other
matters 20 --
Gain on income tax settlement -- (90)
Depreciation, depletion and amortization 157 147
Deferred income tax expense 103 74
Changes in working capital pertaining to operating
activities, net of effect of acquisitions:
Accounts and notes receivable 174 (74)
Inventories (84) (199)
Accounts payable and accrued liabilities (135) 134
Taxes payable 49 38
Other (40) (44)
----- -----
Net cash provided by operating activities 546 268
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (145) (184)
Acquisitions, net of debt assumed of $163 (Note 10) (542) --
Proceeds from divestments 17 24
Other (15) (8)
----- -----
Net cash used in investing activities (685) (168)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from short-term borrowings -- 10
Proceeds from issuance of long-term debt 200 --
Repayments of long-term debt (1) --
Cash dividend payments (42) (44)
Purchases of common stock for treasury (192) (81)
Proceeds from issuance of common stock under
management incentive and employee option plans 36 --
Other (23) (9)
----- -----
Net cash used in financing activities (22) (124)
----- -----
Net decrease in cash and cash equivalents (161) (24)
Cash and cash equivalents at beginning of period 239 87
----- -----
Cash and cash equivalents at end of period $ 78 $ 63
===== =====
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*Reclassified to conform to the 2001 presentation.
(See Accompanying Notes)
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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1. General.
The accompanying condensed consolidated financial statements are presented
in accordance with the requirements of Form 10-Q and accounting principles
generally accepted in the United States 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 gain on income tax
settlement (Note 2), the provision for employee terminations and other
matters (Note 3) and income from discontinued operations (Note 4). Results
for the three and six months ended June 30, 2001 are not necessarily
indicative of results for the full year 2001.
2. Income Tax Settlement.
In the second quarter of 2000, Sunoco recognized a $90 million pretax gain
in other income ($79 million after tax) in connection with the settlement
of certain federal income tax issues which had been in dispute. Certain
additional elements were resolved at the end of 2000 resulting in the
recognition of an additional $30 million pretax gain ($38 million after
tax) in the fourth quarter of 2000. In connection with these settlements,
Sunoco received cash proceeds of $132 million in the fourth quarter of
2000, which consisted of $47 million for interest and an $85 million tax
refund.
3. Restructuring of Lubricants Operations and Other Matters.
On March 30, 2001, Sunoco completed the sale of its lubricants marketing
assets (which include the Kendall(R) motor oil brand, and the customer
lists and other related assets for both the Sunoco(R) and Kendall(R) brand
labels). During June 2001, Sunoco shut down its Puerto Rico refinery, and
in July 2001, closed its lubricants blend plants in Marcus Hook, PA, Tulsa,
OK and Richmond, CA. Previously, Sunoco had signed a letter of intent to
sell the Tulsa and Richmond blend facilities; however, the parties were
unable to come to a final resolution on this arrangement and discussions
were terminated.
Sunoco established $11 and $17 million accruals ($7 and $11 million after
tax) in the first and second quarters of 2001, respectively, for
approximately 235 employee terminations and other required exit costs and
in the 2001 second quarter also recorded a benefit increasing the estimated
net realizable value of previously written down lubricants assets held for
sale by $8 million ($5 million after tax). During the first half of 2001,
payments charged against the accruals described above and other accruals
previously established for employee terminations throughout the Company
totaled $12 million. At June 30, 2001, the remaining balance in the
termination benefit and exit cost accruals totaled $32 million. Payments
against these accruals are expected to continue through 2002. Sunoco may
also recognize additional charges for employee terminations and exit costs
in connection with the lubricants restructuring, depending upon the outcome
of ongoing efforts to divest the Puerto Rico refinery. In the
5
third quarter of 2000, Sunoco recorded a $123 million after-tax non-cash
charge to write-down the lubricants assets held for sale to their estimated
values.
Liquidation of related working capital in connection with the disposal of
the lubricants assets generated approximately $50 million of cash in the
first half of 2001 and should result in about $75-$100 million of
additional cash generation in the second half of the year. Liquidation of
the remaining inventory could also result in a significant gain.
In the second quarter of 2000, the Company reversed into income the
remainder of a previously established loss accrual related to an MTBE
purchase commitment in the amount of $7 million ($4 million after tax).
4. Discontinued Operations.
During the first quarter of 2000, Sunoco recorded an $11 million after-tax
favorable adjustment (including a $7 million tax benefit) to the gain
recognized in 1996 in connection with the divestment of the Company's
international oil and gas production business. The adjustment resulted from
the favorable resolution of certain United Kingdom income tax issues. At
the time of the sale, this business was treated as a discontinued
operation; therefore, this adjustment was classified similarly in the
condensed consolidated statement of income for the six months ended June
30, 2000.
6
5. 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, 2001 and 2000 (in millions, except per share amounts):
Six Months Ended Three Months Ended
June 30 June 30
------------------- ------------------
2001 2000 2001 2000
---- ---- ---- ----
Income from continuing operations $302 $282 $196 $215
Income from discontinued operations -- 11 -- --
---- ---- ---- ----
Net income $302 $293 $196 $215
==== ==== ==== ====
Weighted average number of common
shares outstanding (basic EPS
denominator) 83.4 88.5 82.4 87.8
Add effect of dilutive stock
incentive awards 1.0 .4 1.1 .5
---- ---- ---- ----
Weighted average number of shares
(diluted EPS denominator) 84.4 88.9 83.5 88.3
==== ==== ==== ====
Basic EPS:
Income from continuing
operations $3.62 $3.19 $2.38 $2.45
Income from discontinued
operations -- .12 -- --
----- ----- ----- -----
Net Income $3.62 $3.31 $2.38 $2.45
===== ===== ===== =====
Diluted EPS:
Income from continuing
operations $3.58 $3.18 $2.35 $2.44
Income from discontinued
operations -- .12 -- --
----- ----- ----- -----
Net Income $3.58 $3.30 $2.35 $2.44
===== ===== ===== =====
7
6. Derivatives and Hedging Activity.
Effective January 1, 2001, Sunoco adopted the new derivative accounting
prescribed by Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" as amended
by Statement of Financial Accounting Standards No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities". There was
no impact on Sunoco's consolidated net income or total shareholders' equity
on the date of adoption. A reconciliation of changes in the separate
component of shareholders' equity attributable to derivatives and hedging
activity during the six months ended June 30, 2001, net of applicable
income taxes, is as follows (in millions of dollars):
Accumulated net derivative gains/losses,
beginning of period $--
Current period hedging gains, net 1
Reclassifications to earnings, net (1)
---
Accumulated net derivative gains/losses,
end of period $--
===
The amount of hedge ineffectiveness on derivative contracts during the
first half of 2001 was not material. Open contracts as of June 30, 2001
vary in duration but do not extend beyond the second quarter of 2002.
7. Long-Term Debt.
On March 29, 2001, the Company issued $200 million of 6-3/4 percent 10-year
bonds through its $1.5 billion shelf registration statement. While the
primary purpose of this borrowing was to repay the Company's $150 million
of 7.95 percent notes maturing in December 2001, the proceeds were used
initially to pay down outstanding commercial paper.
8
8. Commitments and Contingent Liabilities.
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. These laws result in liabilities and
loss contingencies for remediation at Sunoco's facilities and at
third-party or formerly owned sites. 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
2001 2000
------------ -----------
Accrued liabilities $ 33 $ 37
Other deferred credits and
liabilities 110 104
---- ----
$143 $141
==== ====
Pretax charges against income for environmental remediation amounted to $7
million for both the six months ended June 30, 2001 and 2000. Claims for
recovery of environmental liabilities that are probable of realization
totalled $6 million at June 30, 2001 and are included in deferred charges
and other assets in the condensed consolidated balance sheets.
The U.S. Environmental Protection Agency ("EPA") has issued a series of
information requests to several U.S. refiners pursuant to Section 114 of
the Clean Air Act as part of an enforcement initiative relating to New
Source Review ("NSR"), leak detection and repair ("LDAR"), Benzene Waste
NESHAP, and start-up/shut-down malfunctions. Sunoco received Section 114
information requests in 2000 pertaining to its five refineries and its
phenol facility in Philadelphia, PA. Sunoco has completed its response to
the requests and has provided additional clarification requested by the
EPA, which is focusing solely on the refineries at this time. While Sunoco
has not been named in any proceeding, it is currently evaluating its
position and is engaging in discussions with the EPA concerning these
issues.
The use of MTBE continues to be the focus of federal and state government
attention. MTBE is the primary oxygenate used by Sunoco and the industry to
meet reformulated gasoline requirements under the Clean Air Act. Congress
is considering several pieces of legislation that would prohibit,
phase-down or regulate the use of MTBE. The EPA is also seeking legislative
and/or regulatory changes on the use of oxygenates. Several states,
including some in Sunoco's marketing territory, have laws banning the use
of MTBE beginning in 2003 and 2004; however, litigation was initiated
challenging the legislation in California and New York. An initial court
decision on a case brought by a trade association has upheld New York's law
banning MTBE. In addition, the EPA rejected California's request for a
waiver of the federal oxygenate mandate. Numerous other states continue to
explore options concerning MTBE. If MTBE is banned throughout the United
States, the effect on Sunoco will depend on the specific regulations,
9
the cost and availability of alternative oxygenates if the minimum
oxygenate requirements remain in effect, and the ability of Sunoco to
recover its costs in the marketplace. A wholly owned subsidiary of the
Company is a one-third partner in Belvieu Environmental Fuels ("BEF"), a
joint venture that owns and operates an MTBE production facility in Mont
Belvieu, TX. At June 30, 2001, the Company had a $61 million investment in
this operation. The joint venture is currently evaluating alternative uses
for this facility in the event MTBE is banned.
Any required cleanup of groundwater aquifers contaminated by MTBE would be
driven by cleanup thresholds based on drinking water protection. Though not
all groundwater is used for drinking, several states have initiated or
proposed more stringent MTBE cleanup thresholds. While actual cleanup costs
for specific sites are variable and depend on many factors, more stringent
thresholds for MTBE remediation would cause costs at some sites to
increase.
Private litigants, purportedly on behalf of classes of private well owners
in numerous states, filed class action lawsuits against major petroleum
refiners and marketers who sold gasoline containing MTBE, alleging MTBE may
have contaminated groundwater. One such class action was filed in New York
on behalf of New York well owners. (LaSusa, et al v. Amerada Hess
Corporation, et al, (formerly styled as Berisha, et al v. Amerada Hess
Corporation, et al,) Case No. 00-CIV-1898-SAS, United States District
Court, Southern District of New York.) Sunoco is one of sixteen petroleum
refiner and marketer defendants in this lawsuit. Sunoco has filed a motion
to dismiss the complaint. Discovery has been allowed by the judge and is
proceeding. The Judicial Panel on Multidistrict Litigation consolidated
this matter with several other federal court MTBE class action cases from
other states. Sunoco is not a defendant in the class actions involving the
other states. Also before the same judge are two other New York cases in
which Sunoco has been named a defendant.
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 potentially subject to 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, 2001, Sunoco had
been named as a PRP at 50 sites identified or potentially identifiable as
"Superfund" sites under federal or state law.
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.
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
10
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 these matters could have a significant impact on results of operations
or cash flows for any future quarter or year. However, management does not
believe that any additional liabilities which may arise pertaining to such
matters would be material in relation to the consolidated financial
position of Sunoco at June 30, 2001. Furthermore, management does not
believe that the overall costs for environmental activities will have a
material impact, over an extended period of time, on Sunoco's cash flows or
liquidity.
9. Shareholders' Equity.
At At
June 30 December 31
2001 2000
------------ -----------
(Millions of Dollars)
Common stock, par value $1 per share $ 134 $ 132
Capital in excess of par value 1,437 1,403
Earnings employed in the business 2,209 1,950
------ ------
3,780 3,485
Less common stock held in treasury,
at cost 1,975 1,783
------ ------
Total $1,805 $1,702
====== ======
10. Acquisition of Aristech Chemical Corporation.
Effective January 1, 2001, Sunoco completed the acquisition of Aristech
Chemical Corporation ("Aristech"), a wholly owned subsidiary of Mitsubishi
Corporation ("Mitsubishi"), for $509 million in cash and the assumption of
$163 million of debt. The purchase price includes approximately $110
million for working capital. Contingent payments with a net present value
of up to $167 million (the "earn out") may also be made if realized margins
for polypropylene and phenol exceed certain agreed upon thresholds over the
next six years. In connection with the transaction, Sunoco also entered
into a margin hedge agreement with Mitsubishi whereby Mitsubishi has
provided polypropylene margin protection in 2001 of up to $6.5 million per
quarter. Any earn out or margin hedge payments/receipts would be treated as
adjustments to the purchase price. In addition, Mitsubishi is responsible
during a 25-year indemnification period for up to $100 million of potential
environmental liabilities for the business arising out of or related to the
period prior to the acquisition date.
11
In connection with the margin hedge agreement, Sunoco received $6.5 million
from Mitsubishi in the second quarter of 2001 related to Aristech's
operations for the first quarter and will receive an additional $6.5
million in the third quarter of 2001 related to the second quarter's
operations. These payments are being reflected as reductions in the
purchase price when received.
Included in the purchase are Aristech's five chemical plants located at
Neal, WV; Haverhill, OH; Neville Island, PA; and Pasadena and LaPorte, TX
and a research center in Pittsburgh, PA. These facilities produce
polypropylene, phenol and related derivatives (including bisphenol-A) and
plasticizers.
The acquisition has been accounted for as a purchase. The results of
operations of Aristech have been included in the consolidated statement of
income from the date of acquisition. The purchase price has been
tentatively allocated to the assets acquired and liabilities assumed based
on their relative estimated fair market values at the acquisition date. The
following is a summary of the effects of this transaction on Sunoco's
consolidated financial position as of the acquisition date (in millions of
dollars):
Allocation of purchase price:
Accounts and notes receivable, net $ 161
Inventories 130
Investments and long-term receivables 8
Properties, plants and equipment, net 668
Deferred charges and other assets 20
Accounts payable (111)
Accrued liabilities (51)
Current portion of long-term debt (1)
Taxes payable (9)
Long-term debt (162)
Retirement benefit liabilities (28)
Deferred income taxes (110)
Other deferred credits and liabilities (13)
-----
Cash paid, net of cash received under margin
hedge agreement and cash acquired $ 502
=====
The unaudited pro forma sales and other operating revenue of Sunoco for the
six months ended June 30, 2000, as if the acquisition of these assets had
occurred on January 1, 2000, was $7,102 million. The unaudited pro forma
income from continuing operations for the six months ended June 30, 2000
was $250 million ($2.81 per share on a diluted basis). The pro forma
information does not purport to be indicative of the results that actually
would have been obtained if the combined operations had been conducted
during the period presented and is not intended to be a projection of
future results. Accordingly, the pro forma results do not reflect any
restructuring costs, changes in operating levels, or potential cost savings
and other synergies that Sunoco's management expects to realize as a result
of the acquisition.
12
11. Business Segment Information.
The following table sets forth certain income statement information
concerning Sunoco's business segments for the six-month and three-month
periods ended June 30, 2001 and 2000 (in millions of dollars):
Sales and Other
Operating Revenue
-------------------------- Profit Contri-
Six Months Ended Unaffiliated Inter- bution (Loss)
June 30, 2001 Customers segment (after tax)
-------------------- ------------ ------- -------------
Northeast Refining $2,043 $1,525 $189
Northeast Marketing 2,433 -- 39
Chemicals 736 -- (15)
Lubricants* 736 28 33
MidAmerica Marketing & Refining 1,223 -- 69
Logistics 25 62 24
Coke 115 -- 31
------ ----
Consolidated $7,311 370
======
Provision for employee
terminations and other matters (13)
Corporate expenses (12)
Net financing expenses and
other (43)
----
Net income $302
====
Six Months Ended
June 30, 2000
--------------------
Northeast Refining $2,208 $1,327 $113
Northeast Marketing 2,118 -- 13
Chemicals 370 -- 33
Lubricants* 742 3 (14)
MidAmerica Marketing & Refining 1,094 -- 43
Logistics 24 63 23
Coke 112 -- 27
------ ----
Consolidated $6,668 238
======
Gain on income tax settlement
and other matters 83
Corporate expenses (12)
Net financing expenses
and other (27)
Income from discontinued
operations 11
----
Net income $293
====
----------
*Includes the Company's Puerto Rico refinery and lubricants blend facilities
prior to their shutdown in mid-2001 and the Company's lubricants marketing
assets prior to their sale in March 2001 (Note 3).
13
Sales and Other
Operating Revenue
------------------------- Profit Contri-
Three Months Ended Unaffiliated Inter- bution (Loss)
June 30, 2001 Customers segment (after tax)
-------------------- ------------ ------- ---------------
Northeast Refining $1,016 $830 $ 87
Northeast Marketing 1,324 -- 28
Chemicals 353 -- 4
Lubricants* 377 19 21
MidAmerica Marketing & Refining 653 -- 60
Logistics 13 32 15
Coke 59 -- 15
------ ----
Consolidated $3,795 230
======
Provision for employee
terminations and other matters (6)
Corporate expenses (6)
Net financing expenses
and other (22)
----
Net income $196
====
Three Months Ended
June 30, 2000
--------------------
Northeast Refining $1,120 $725 $ 63
Northeast Marketing 1,133 -- 4
Chemicals 199 -- 20
Lubricants* 387 2 (2)
MidAmerica Marketing & Refining 608 -- 38
Logistics 14 33 14
Coke 57 -- 14
------ ----
Consolidated $3,518 151
======
Gain on income tax settlement
and other matters 83
Corporate expenses (6)
Net financing expenses
and other (13)
----
Net income $215
====
----------
*Includes the Company's Puerto Rico refinery and lubricants blend facilities
prior to their shutdown in mid-2001 and the Company's lubricants marketing
assets prior to their sale in March 2001 (Note 3).
14
The following table sets forth Sunoco's total assets by business segment at
June 30, 2001 (in millions of dollars):
Northeast Refining $1,537
Northeast Marketing 1,001
Chemicals 1,628
Lubricants 397
MidAmerica Marketing & Refining 717
Logistics 525
Coke 319
------
Consolidated $6,204*
======
----------
*After elimination of intersegment receivables of $76 million.
Identifiable assets also include Sunoco's $92 million consolidated
deferred income tax asset and $64 million attributable to corporate
activities.
12. New Accounting Standard.
In June 2001, Statement of Financial Accounting Standards No. 142,
"Goodwill and Other Intangible Assets" ("SFAS No. 142") was finalized.
Sunoco will adopt SFAS No. 142 effective January 1, 2002 when adoption is
mandatory. SFAS No. 142 will require the testing of goodwill and indefinite
lived intangible assets for impairment rather than amortizing them.
Sunoco is currently assessing the impact of adopting SFAS No. 142 on its
consolidated financial statements. Sunoco's current level of annual
amortization of goodwill and indefinite lived intangible assets, which will
be eliminated upon the adoption of SFAS No. 142, is approximately $5
million after tax.
15
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
-----------------
2001 2000 Variance
---- ---- --------
(Millions of Dollars)
Northeast Refining $189 $113 $ 76
Northeast Marketing 39 13 26
Chemicals (15) 33 (48)
Lubricants* 29 (14) 43
MidAmerica Marketing & Refining 69 43 26
Logistics 24 23 1
Coke 31 27 4
Corporate expenses (12) (12) --
Net financing expenses and other (43) (27) (16)
---- ---- ----
311 199 112
Special items:
Value Added and Eastern Lubricants* 4 -- 4
Employee terminations and other
matters (13) 4 (17)
Income tax settlement -- 79 (79)
Discontinued operations** -- 11 (11)
---- ---- ----
Consolidated net income $302 $293 $ 9
==== ==== ====
----------
*In connection with the Company's decision to dispose of its Puerto Rico
refinery, lubricants blend facilities and lubricants branded marketing
assets (collectively "Value Added and Eastern Lubricants"), commencing
with the fourth quarter of 2000, such operations are reported separately
as a special item prior to their disposition. Value Added and Eastern
Lubricants losses of $18 million in the first half of 2000 are included in
Lubricants (see Note 3 to the condensed consolidated financial
statements).
**Represents a favorable adjustment to the gain on divestment of Sunoco's
international oil and gas production business which was sold in 1996 (see
Note 4 to the condensed consolidated financial statements).
16
Analysis of Earnings Profile of Sunoco Businesses
-------------------------------------------------
In the six-month period ended June 30, 2001, Sunoco earned $302 million, or
$3.58 per share of common stock on a diluted basis, compared to net income of
$293 million, or $3.30 per share, for the first six months of 2000. Excluding
the special items shown separately in the Earnings Profile of Sunoco Businesses,
Sunoco earned $311 million in the first six months of 2001 compared to $199
million in the first six months of 2000.
Northeast Refining -- Northeast Refining earned $189 million in the first six
months of 2001 versus $113 million in the first six months of 2000. The
improvement was due largely to higher realized margins for gasoline
(particularly reformulated and premium grades) and distillates and increased
production levels. In addition, high natural gas prices resulted in increased
margins for chemical feedstocks, residual fuels, butane, propane and other
related products which more than offset increased refinery fuel costs. Realized
refining margins averaged $7.18 per barrel for the six-month period, up $2.43
per barrel from 2000 levels. Cash expenses, excluding fuel, were $5 million
lower than the first six months of 2000. Despite an extensive amount of planned
maintenance activity, refinery production totalled 95 million barrels for the
first six months of 2001, an increase of almost one million barrels versus the
first six months of 2000.
Northeast Marketing -- Northeast Marketing earned $39 million in the current
six-month period versus $13 million in the first six months of 2000. The
increase in earnings was primarily due to higher retail gasoline margins, which
were up 2.7 cents per gallon versus the 2000 first half, and higher retail
gasoline sales volumes, which increased nine percent versus the first six months
of 2000. Higher non-gasoline income and increased earnings from retail heating
oil operations also contributed to the improvement in operating results.
Partially offsetting these positive factors was a planned increase in expenses.
Chemicals -- Chemicals had a loss of $15 million in the first six months of 2001
versus income of $33 million in the first six months of 2000. The 2001 first
half results include an after-tax loss of $8 million from Aristech's operations,
which were acquired effective January 1, 2001. Sunoco's Delaware Valley and
Aristech chemical operations were adversely impacted by high operating costs and
weak margins, largely as a result of higher natural gas prices. Also
contributing to the decline in earnings was lower equity income from Sunoco's
joint venture chemical operations. With the acquisition of Aristech, net
production increased to almost 2.8 billion pounds for the first six months of
2001 despite being somewhat limited by both scheduled and unscheduled
maintenance activity and lower demand.
Lubricants - Lubricants earned $29 million in the first half of 2001 from the
continuing operations of its Tulsa refinery and related process oils business
("Western Lubricants"). Western Lubricants earned $4 million in the 2000 first
half. The improved results were largely due to significantly higher margins for
lubricant base oils and fuels produced at the Tulsa refinery, partially offset
by higher expenses due to an increase in refinery fuel costs. Production was
limited during the first half of 2001 due to a planned maintenance shutdown in
the first quarter. Lubricants results for the 2000 first half also included a
loss of $18 million from
17
Sunoco's Value Added and Eastern Lubricants operations. Subsequent to the
Company's third quarter 2000 decision to dispose of these assets, these
operations are being reported separately as a special item.
MidAmerica Marketing & Refining -- MidAmerica Marketing & Refining earned $69
million during the current six-month period, versus $43 million in the 2000
first half. The increase was largely due to higher average wholesale fuels
margins, which were up $2.90 per barrel from 2000 levels. Refinery production
for the first half totalled 27.8 million barrels, an increase of 3.7 million
barrels from the first half of 2000 when major planned maintenance work was in
progress. Partially offsetting these improvements were significantly higher
refinery fuel costs and lower retail gasoline margins.
Coke -- Coke earned $31 million in the first six months of 2001 versus $27
million in the first half of 2000. The increased earnings are due to higher tax
benefits recognized by Sun Coke and higher coke production at Indiana Harbor.
Net Financing Expenses and Other - Net financing expenses and other activities
totalled $43 million in the first half of 2001 versus $27 million in the first
six months of 2000. The increase is primarily due to Aristech acquisition
financing costs.
Employee Terminations and Other Matters - During the first six months of 2001,
Sunoco recorded an $18 million after-tax charge for employee terminations and
other required exit costs related to the disposal of its Value Added and Eastern
Lubricants operations and recorded a benefit increasing the net realizable value
of previously written down lubricants assets held for sale by $5 million after
tax. In the second quarter of 2000,the Company recorded a $4 million after-tax
benefit attributable to the reversal of a loss accrual related to an MTBE
purchase commitment. (See Note 3 to the condensed consolidated financial
statements.)
Income Tax Settlement - In the second quarter of 2000, Sunoco recorded a $79
million after-tax gain from the settlement of certain federal income tax issues
(see Note 2 to the condensed consolidated financial statements).
Discontinued Operations -- During the first quarter of 2000, Sunoco recorded an
$11 million after-tax favorable adjustment to the gain on divestment of its
international oil and gas production business which was sold in 1996 (see Note 4
to the condensed consolidated financial statements).
Analysis of Consolidated Statements of Income
---------------------------------------------
Revenues -- Total revenues were $7.35 billion in the first half of 2001 compared
to $6.82 billion in the first six months of 2000. The 8 percent increase was
primarily as a result of increased chemical sales volumes due to the Aristech
acquisition. Also contributing to the increase were higher refined product sales
prices and consumer excise taxes. Partially offsetting these increases was the
absence of a $90 million pretax gain recognized in the second quarter of 2000 in
connection with the settlement of certain federal income tax issues that had
been in dispute.
18
Costs and Expenses -- Total pretax costs and expenses were $6.88 billion in the
first six months of 2001 compared to $6.42 billion in the first half of 2000.
The 7 percent increase was primarily due to the Aristech acquisition, higher
refinery fuel costs and higher consumer excise taxes, partially offset by lower
crude oil and refined product acquisition costs.
RESULTS OF OPERATIONS - THREE MONTHS
Earnings Profile of Sunoco Businesses (after tax)
-------------------------------------------------
Three Months Ended
June 30
--------------------
2001 2000 Variance
---- ---- --------
(Millions of Dollars)
Northeast Refining $ 87 $ 63 $ 24
Northeast Marketing 28 4 24
Chemicals 4 20 (16)
Lubricants* 23 (2) 25
MidAmerica Marketing & Refining 60 38 22
Logistics 15 14 1
Coke 15 14 1
Corporate expenses (6) (6) --
Net financing expenses and other (22) (13) (9)
---- ---- ----
204 132 72
Special items:
Value Added and Eastern Lubricants* (2) -- (2)
Employee terminations and other
matters (6) 4 (10)
Income tax settlement -- 79 (79)
---- ---- ----
Consolidated net income $196 $215 $(19)
==== ==== ====
----------
* In connection with the Company's decision to dispose of its Value Added and
Eastern Lubricants operations, commencing with the fourth quarter of 2000,
such operations are reported separately as a special item prior to their
disposition. Value Added and Eastern Lubricants losses of $10 million in the
second quarter of 2000 are included in Lubricants (see Note 3 to the
condensed consolidated financial statements).
19
Analysis of Earnings Profile of Sunoco Businesses
-------------------------------------------------
In the three-month period ended June 30, 2001, Sunoco earned $196 million, or
$2.35 per share of common stock on a diluted basis, compared to net income of
$215 million, or $2.44 per share, for the second quarter of 2000. Excluding the
special items shown separately in the Earnings Profile of Sunoco Businesses,
Sunoco earned $204 million in the second quarter of 2001 compared to
$132 million in the second quarter of 2000.
Northeast Refining -- Northeast Refining earned $87 million in the second
quarter of 2001 versus $63 million in the second quarter of 2000. Despite a
lower average 6-3-2-1 crackspread (a market margin derived from refining six
barrels of crude oil into three barrels of regular gasoline, two barrels of
distillate and one barrel of residual fuel), realized refining margins for the
quarter averaged $6.56 per barrel, up $1.49 per barrel from second quarter 2000
levels. The increase in realized margins and earnings was due largely to higher
margins for reformulated and premium gasoline products. Northeast Refining
maximized production of reformulated and premium gasoline during the quarter
with a record 87 percent of total gasoline production attributable to these
products. Partially offsetting the higher margins were higher fuel and utility
expenses, mainly as a result of higher natural gas prices.
Northeast Marketing -- Northeast Marketing earned $28 million in the current
quarter versus $4 million in the second quarter of 2000. The increase in
earnings was primarily due to higher retail gasoline margins, which were up
4.4 cents per gallon versus the second quarter of 2000. Also contributing to the
improvement were higher retail gasoline sales volumes, which increased over
nine percent versus the comparable period a year ago.
Chemicals -- Chemicals earned $4 million in the second quarter of 2001 versus
$20 million in the second quarter of 2000. The decline in earnings was due to
lower results of Sunoco's Delaware Valley chemical operations which lost
$1 million in the quarter versus income of $16 million in the second quarter of
2000. This decline was due largely to the negative impact of higher natural gas
prices on feedstock costs, propylene margins and operating expenses. The
Aristech operations acquired earlier this year earned $1 million in the second
quarter. Chemicals joint venture income for the quarter was unchanged at
$4 million.
Lubricants - Western Lubricants earned $23 million in the second quarter of 2001
versus $8 million in the 2000 second quarter. The improved results were largely
due to significantly higher margins for both fuels and lubricant base oils
produced at the Tulsa refinery. Lubricants results for the 2000 second quarter
also included a loss of $10 million from Sunoco's Value Added and Eastern
Lubricants operations. Subsequent to the Company's third quarter 2000 decision
to dispose of these assets, these operations have been reported separately as a
special item.
20
MidAmerica Marketing & Refining -- MidAmerica Marketing & Refining earned a
record $60 million during the current quarter, versus $38 million in the 2000
second quarter. The increase was largely due to higher average wholesale fuels
margins, which were up $3.42 per barrel from 2000 levels. Refinery operations
for the quarter were strong, with inputs to crude units at approximately
144 thousand barrels per day and total refinery production volumes up
1.1 million barrels from the second quarter of 2000. Partially offsetting these
improvements were higher refinery fuel costs.
Coke -- Coke earned $15 million in the second quarter of 2001 versus $14 million
in the second quarter of 2000. The increased earnings are due to higher tax
benefits recognized by Sun Coke.
Net Financing Expenses and Other - Net financing expenses and other activities
totalled $22 million in the second quarter of 2001 versus $13 million in the
second quarter of 2000. The increase is largely due to Aristech acquisition
financing costs.
Employee Terminations and Other Matters - For a discussion of the provisions for
employee terminations and other matters recorded in the second quarters of 2001
and 2000, see Note 3 to the condensed consolidated financial statements.
Income Tax Settlement - For a discussion of the gain on income tax settlement
recorded in the second quarter of 2000, see Note 2 to the condensed consolidated
financial statements.
Analysis of Consolidated Statements of Income
---------------------------------------------
Revenues -- Total revenues were $3.82 billion in the second quarter of 2001
compared to $3.63 billion in the second quarter of 2000. The 5 percent increase
was primarily as a result of increased chemical sales volumes due to the
Aristech acquisition. Also contributing to the increase were higher refined
product sales prices and consumer excise taxes. Partially offsetting these
increases were lower refined product sales volumes and the absence of the
$90 million pretax gain recognized in the second quarter of 2000 in connection
with the settlement of certain federal income tax issues that had been in
dispute.
Costs and Expenses -- Total pretax costs and expenses were $3.51 billion in the
second quarter of 2001 compared to $3.33 billion in the second quarter of 2000.
The 5 percent increase was primarily due to the Aristech acquisition, higher
refinery fuel costs and higher consumer excise taxes, partially offset by lower
crude oil and refined product acquisition costs.
21
FINANCIAL CONDITION
Cash and Working Capital
------------------------
At June 30, 2001, Sunoco had cash and cash equivalents of $78 million compared
to $239 million at December 31, 2000, and had a working capital deficit of
$187 million compared to working capital of $37 million at December 31, 2000.
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, 2001 by approximately $875 million. Inventories
valued at LIFO, which consist of crude oil, and petroleum and chemical 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 2001, Sunoco's net cash provided by operating
activities ("cash generation") was $546 million compared to $268 million in the
first half of 2000. This $278 million increase in cash generation was primarily
due to an increase in income before special items, a decrease in working capital
uses pertaining to operating activities and higher deferred income tax expense.
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, natural gas, refined product and chemical 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.
During the second quarter of 2001, Sunoco established Sunoco Receivables
Corporation, Inc., a wholly owned special purpose subsidiary. On June 29, 2001,
this subsidiary entered into a five-year agreement to sell up to a $200 million
undivided interest in a designated pool of certain Sunoco accounts receivable.
As of June 30, 2001, no receivables had been sold under this agreement.
The Company has a shelf registration statement which provides the Company with
financing flexibility to offer senior and subordinated debt, common and
preferred stock, warrants and trust preferred securities. On March 29, 2001,
the Company issued $200 million of 6-3/4 percent 10-year bonds, leaving
$1,300 million available under this shelf registration statement. While the
primary purpose of this borrowing was to repay the Company's $150
22
million of 7.95 percent notes maturing in December 2001, the proceeds were used
initially to pay down outstanding commercial paper. The amount and timing of any
additional financings will depend upon market conditions and the Company's
funding requirements.
The following table sets forth Sunoco's outstanding borrowings (in millions of
dollars):
At At
June 30 December 31
2001 2000
------------- -----------
Current portion of long-term debt $ 153 $ 2
Long-term debt 1,142 933
------ ----
Total outstanding borrowings $1,295 $935
====== ====
Sunoco's ratio of debt (net of cash and cash equivalents) to total capital was
40.3 percent at June 30, 2001 compared to 29.0 percent at December 31, 2000.
This increase was due to the Aristech acquisition. In connection with the
acquisition, Sunoco issued $200 million of commercial paper and assumed
$163 million of long-term debt from Aristech. 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.
SHARE REPURCHASES
During the first six months of 2001, the Company repurchased 5,192,711 shares of
common stock for $192 million, which completed the $200 million share repurchase
program initiated in September 2000. In July 2001, the Company received
authorization from its Board of Directors to repurchase an additional $500
million of Company stock in the open market or through privately negotiated
transactions from time to time depending on prevailing market conditions.
23
FORWARD-LOOKING STATEMENTS
Those statements in the foregoing report that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. 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. Forward-looking statements involve a
number of risks and uncertainties. Important factors that could cause actual
results to differ materially from the forward-looking statements include,
without limitation:
. Changes in industry-wide refined product and chemical margins;
. Variation in commodity prices and crude oil supply;
. Volatility in the marketplace which may affect market supply and demand for
Sunoco's products;
. Increased competition;
. Changes in the reliability and efficiency of the Company's operating
facilities or those of third parties;
. Changes in 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);
. Changes in the expected level of environmental remediation spending;
. Delays related to work on facilities and the issuance of applicable
permits;
. Changes in product specifications;
. Availability and pricing of oxygenates such as MTBE;
. Phase-outs or restrictions on the use of MTBE;
. Political and economic conditions in international markets in which the
Company operates;
. Changes in the availability of debt and equity financing resulting in
increased costs or reduced liquidity;
. Risks related to labor relations;
. Nonperformance by major customers or suppliers;
24
. General economic, financial and business conditions which could affect
Sunoco's financial condition and results of operations;
. Changes in applicable statutes and government regulations or their
interpretations;
. Claims of the Company's noncompliance with statutory and regulatory
requirements; and
. Changes in the status of litigation to which the Company is a party.
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 June 11, 2001, an agreement in principle was reached with the
Pennsylvania Department of Environmental Protection to settle alleged
violations of Pennsylvania permit conditions at Sunoco's Marcus Hook
refinery. This agreement, if finalized, would require Sunoco to pay a civil
penalty in excess of $100,000.
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, 2001.
25
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Company's shareholders was held on May 3, 2001.
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; (2) to approve the Sunoco,
Inc. Executive Incentive Plan; (3) to approve the Long-Term Performance
Enhancement Plan II ("LTPEP II"); (4) to approve the appointment of
independent auditors; and (5) to consider a shareholder proposal regarding
the nomination of directors. 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 72,162,549 votes cast. The tabulation below sets forth
the number of votes cast for or withheld (abstentions) from each
director. There were no broker non-votes.
Number
Number "WITHHELD"
NAME "FOR" (ABSTENTIONS)
---------------- ---------- -------------
R. E. Cartledge 69,861,148 2,301,401
R. J. Darnall 69,883,260 2,279,289
J. G. Drosdick 69,880,440 2,282,109
M. J. Evans 69,805,113 2,357,436
U. F. Fairbairn 69,237,035 2,925,514
T. P. Gerrity 67,030,336 5,132,213
R. B. Greco 67,026,525 5,136,024
J. G. Kaiser 69,882,938 2,279,611
R. D. Kennedy 69,860,246 2,302,303
N. S. Matthews 69,857,764 2,304,785
R. A. Pew 66,978,334 5,184,215
G. J. Ratcliffe 69,882,533 2,280,016
A. B. Trowbridge 69,865,905 2,296,644
2. Concerning the motion to approve the Sunoco, Inc. Executive Incentive
Plan, there was a total of 72,162,549 votes cast, with an aggregate of
64,419,462 votes cast in favor of such approval and 7,066,084 against.
There were 677,003 withheld (abstentions). There were no broker
non-votes.
3. Concerning the motion to approve the LTPEP II, there was a total of
72,162,549 votes cast, with an aggregate of 64,787,010 votes cast in
favor of such approval and 6,751,655 against. There were 623,884
withheld (abstentions). There were no broker non-votes.
4. Concerning the motion to appoint Ernst & Young LLP as the Company's
independent auditors, there was a total of 72,162,549 votes cast, with
an aggregate of 70,849,202 votes cast in favor of such appointment and
960,002 against. There were 353,345 withheld (abstentions). There were
no broker non-votes.
5. Concerning the shareholder proposal regarding the nomination of
directors, there was a total of 72,162,549 votes cast, with an
aggregate of 4,546,979 votes cast in favor of such proposal and
26
57,096,784 against. There were 1,371,099 withheld (abstentions).
There were 9,147,687 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
Exhibits:
4 - Third Amendment, dated as of July 6, 2001, to the Rights Agreement
between Sunoco, Inc. and EquiServe Trust Company, N.A. dated as of
February 1, 1996.
10.1 - Sunoco, Inc. Long-Term Performance Enhancement Plan II as of May 3,
2001 (incorporated by reference to Exhibit B to the Company's
definitive Proxy Statement for the 2001 Annual Meeting of
Shareholders of Sunoco, Inc., filed March 16, 2001, File No.
1-6841).
10.2 - Amendment to the Sunoco, Inc. Long-Term Performance Enhancement Plan
II, dated July 6, 2001.
10.3 - Sunoco, Inc. Executive Incentive Plan, as amended and restated
effective as of May 3, 2001 (incorporated by reference to Exhibit A
to the Company's definitive Proxy Statement for the 2001 Annual
Meeting of Shareholders of Sunoco, Inc., filed March 16, 2001, File
No. 1-6841).
10.4 - Sunoco, Inc. Retainer Stock Plan for Outside Directors, as amended
and restated effective as of May 3, 2001.
10.5 - Amended Schedule to the Form of Indemnification Agreement,
individually entered into between Sunoco, Inc. and certain officers
and directors of the Company.
12 - Statement re Sunoco, Inc. and Subsidiaries Computation of Ratio of
Earnings to Fixed Charges for the Six-Month Period Ended June 30,
2001.
Reports on Form 8-K:
The Company has not filed any reports on Form 8-K during the quarter ended
June 30, 2001.
**********
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
27
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 August 7, 2001
28
EXHIBIT INDEX
Exhibit
Number Exhibit
------- -----------------------------------------
4 Third Amendment, dated as of July 6, 2001, to the Rights Agreement
between Sunoco, Inc. and EquiServe Trust Company, N.A. dated as of
February 1, 1996.
10.1 Sunoco, Inc. Long-Term Performance Enhancement Plan II as of May 3,
2001 (incorporated by reference to Exhibit B to the Company's
definitive Proxy Statement for the 2001 Annual Meeting of
Shareholders of Sunoco, Inc., filed March 16, 2001, File
No. 1-6841).
10.2 Amendment to the Sunoco, Inc. Long-Term Performance Enhancement
Plan II, dated July 6, 2001.
10.3 Sunoco, Inc. Executive Incentive Plan, as amended and restated
effective as of May 3, 2001 (incorporated by reference to Exhibit A
to the Company's definitive Proxy Statement for the 2001 Annual
Meeting of Shareholders of Sunoco, Inc., filed March 16, 2001, File
No. 1-6841).
10.4 Sunoco, Inc. Retainer Stock Plan for Outside Directors, as amended
and restated effective as of May 3, 2001.
10.5 Amended Schedule to the Form of Indemnification Agreement,
individually entered into between Sunoco, Inc. and certain officers
and directors of the Company.
12 Statement re Sunoco, Inc. and Subsidiaries Computation of Ratio of
Earnings to Fixed Charges for the Six-Month Period Ended June 30,
2001.