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| SUN > SEC Filings for SUN > Form 10-Q on 6-Nov-2008 | All Recent SEC Filings |
6-Nov-2008
Quarterly Report
RESULTS OF OPERATIONS - NINE MONTHS
Earnings Profile of Sunoco Businesses (after tax)
Nine Months
Ended
September 30
2008 2007 Variance
(Millions of Dollars)
Refining and Supply $ 333 $ 729 $ (396 )
Retail Marketing 98 68 30
Chemicals 40 28 12
Logistics 56 33 23
Coke 77 31 46
Corporate and Other:
Corporate expenses (26 ) (44 ) 18
Net financing expenses and other (17 ) (35 ) 18
Asset write-downs and other matters 1 - 1
Income tax matters 10 - 10
Issuance of Sunoco Logistics Partners L.P. limited
partnership units - 90 (90 )
Consolidated net income $ 572 $ 900 $ (328 )
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Analysis of Earnings Profile of Sunoco Businesses
In the nine-month period ended September 30, 2008, Sunoco earned $572 million, or $4.88 per share of common stock on a diluted basis, compared to $900 million, or $7.46 per share, in the first nine months of 2007.
The $328 million decrease in results in the first nine months of 2008 was primarily due to lower margins in Sunoco's Refining and Supply business ($211 million). Also contributing to the decline in earnings were the absence of a gain recognized in 2007 related to the prior issuance of Sunoco Logistics Partners L.P. limited partnership units ($90 million), higher expenses ($117 million), lower production of refined products ($37 million), lower gains on asset divestments ($15 million), lower retail gasoline and distillate sales volumes ($16 million) and a provision for asset write-downs relating to a capital project which the Company has elected not to complete ($10 million). Partially offsetting these negative factors were higher average retail gasoline and distillate margins ($60 million); higher income attributable to Sunoco's Coke ($46 million), Logistics ($23 million) and Chemicals ($12 million) businesses; lower net financing expenses ($18 million); and gains recognized in 2008 related to an insurance recovery ($11 million) and certain income tax matters ($10 million).
Refining and Supply
For the Nine
Months Ended
September 30
2008 2007
Income (millions of dollars) $ 333 $ 729
Wholesale margin* (per barrel):
Total Refining and Supply $ 8.51 $ 9.94
Northeast Refining $ 8.70 $ 8.05
MidContinent Refining $ 7.99 $ 15.37
Crude inputs as percent of crude unit rated capacity** 86 % 91 %
Throughputs (thousands of barrels daily):
Crude oil 782.5 818.3
Other feedstocks 83.3 79.0
Total throughputs 865.8 897.3
Products manufactured (thousands of barrels daily):
Gasoline 397.3 432.3
Middle distillates 317.2 304.1
Residual fuel 55.2 66.3
Petrochemicals 35.7 36.3
Lubricants 11.7 11.7
Other 80.6 79.6
Total production 897.7 930.3
Less: Production used as fuel in refinery operations 40.2 43.2
Total production available for sale 857.5 887.1
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* Wholesale sales revenue less related cost of crude oil, other feedstocks, product purchases and terminalling and transportation divided by production available for sale.
** Reflects the impact of a 10 thousand barrels-per-day increase in crude unit capacity in MidContinent Refining in July 2007 attributable to a crude unit debottleneck project at the Toledo refinery.
Refining and Supply earned $333 million in the first nine months of 2008 versus $729 million in the first nine months of 2007. The $396 million decrease in results was primarily due to significantly lower realized margins ($211 million) and higher expenses ($140 million). Also contributing to the decline were lower production volumes ($37 million). The lower margins reflect the negative impact of much higher average crude oil costs and lower product demand than a year ago, especially for gasoline, and a $16 million after-tax charge for sulfur credits relating to production at the Tulsa refinery (see Note 6 to the condensed consolidated financial statements), while the higher expenses were largely the result of increased prices for purchased fuel and utilities. Production volumes decreased approximately 7.2 million barrels in the first nine months of 2008 compared to the year-ago period. Planned and unplanned maintenance work and economically driven rate reductions in the current period reduced production throughout the refining system, while production in the first nine months of 2007 was negatively impacted by major turnaround and expansion work at the Philadelphia refinery as well as downtime at the Tulsa and Marcus Hook refineries.
Retail Marketing
For the Nine
Months Ended
September 30
2008 2007
Income (millions of dollars) $ 98 $ 68
Retail margin* (per barrel):
Gasoline $ 5.20 $ 4.15
Middle distillates $ 5.95 $ 4.88
Sales (thousands of barrels daily):
Gasoline 288.5 303.2
Middle distillates 37.4 41.3
325.9 344.5
Retail gasoline outlets 4,716 4,687
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* Retail sales price less related wholesale price, terminalling and transportation costs and consumer excise taxes per barrel. The retail sales price is the weighted-average price received through the various branded marketing distribution channels.
Retail Marketing earned $98 million in the first nine months of 2008 versus $68 million in the first nine months of 2007. The $30 million increase in earnings was primarily due to higher retail gasoline ($53 million) and distillate ($7 million) margins and lower expenses ($5 million), partially offset by lower retail gasoline ($12 million) and distillate ($4 million) sales volumes and lower divestment gains from the Retail Portfolio Management ("RPM") program ($15 million), in part due to the recognition in the third quarter of 2008 of impairment losses and associated costs totaling $5 million after tax on certain properties held for sale at September 30, 2008. The Company anticipates that the future gains to be recognized from the divestment of sites under the RPM program will exceed the impairment losses and associated costs recognized during the quarter.
Chemicals
For the Nine
Months Ended
September 30
2008 2007
Income (millions of dollars) $ 40 $ 28
Margin* (cents per pound):
All products** 10.6 ¢ 10.1 ¢
Phenol and related products 9.1 ¢ 8.6 ¢
Polypropylene** 12.5 ¢ 11.9 ¢
Sales (millions of pounds):
Phenol and related products 1,797 1,869
Polypropylene 1,662 1,747
Other 57 61
3,516 3,677
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* Wholesale sales revenue less the cost of feedstocks, product purchases and related terminalling and transportation divided by sales volumes.
** The polypropylene and all products margins include the impact of a long-term supply contract with Equistar Chemicals, L.P. which is priced on a cost-based formula that includes a fixed discount.
Chemicals earned $40 million in the first nine months of 2008 versus $28 million in the first nine months of 2007. The $12 million increase in earnings was due primarily to higher margins ($13 million) and lower expenses ($12 million), partially offset by lower sales volumes ($11 million). The lower expenses during the first nine months of 2008 were largely due to the transfer of cumene and propylene splitter assets to Refining and Supply, effective January 1, 2008.
Logistics
Sunoco's Logistics segment earned $56 million in the first nine months of 2008 versus $33 million in the prior year period. The $23 million increase was due to earnings from Sunoco Logistics Partners L.P. primarily resulting from increased pipeline fees and higher lease acquisition margins in its western pipeline system. Also contributing to the increase were higher earnings from the eastern pipeline system and terminalling operations.
On April 28, 2008, Sunoco Logistics Partners L.P. entered into definitive agreements with affiliates of Exxon Mobil Corporation to acquire a 472-mile refined products pipeline system, six refined products terminal facilities with a combined storage capacity of approximately 1.2 million barrels and certain other related assets located in Texas for approximately $200 million. The transactions, which are subject to satisfaction of certain closing conditions, are expected to be completed in the fourth quarter of 2008.
Coke
Coke earned $77 million in the nine-month period ended September 30, 2008 versus $31 million in the first nine months of 2007. The $46 million increase in earnings was due primarily to increased price realizations from coal and coke production and higher coke sales volumes at Jewell. Partially offsetting these positive factors were lower tax benefits from cokemaking operations and higher minority interest, selling, general and administrative and depreciation expenses. Beginning in 2008, most of the coke production at the Jewell cokemaking operation and all of the coke production at the Indiana Harbor cokemaking operation are no longer eligible to generate nonconventional fuel tax credits.
In February 2007, SunCoke Energy entered into an agreement with two affiliates of OAO Severstal under which a local affiliate of SunCoke Energy will build, own and operate a second 550 thousand tons-per-year cokemaking facility and associated cogeneration power plant at its Haverhill site. Limited operations from this cokemaking facility commenced in July 2008 with full operations expected in the first quarter of 2009. Total capital outlays for the project are estimated at $265 million, of which $239 million has been spent through September 30, 2008. In connection with this agreement, the customers agreed to purchase, over a 15-year period, a combined 550 thousand tons per year of coke from the cokemaking facility. In addition, the heat recovery steam generation associated with the cokemaking process will produce and supply steam to the 67 megawatt turbine, which will provide, on average, 46 megawatts of power into the regional power market. With the income attributable to this project and the anticipated impact of higher coal prices at Jewell in the fourth quarter of 2008, Coke's income is expected to total approximately $110-$115 million after tax for the full-year 2008.
In February 2008, SunCoke Energy entered into an agreement with U.S. Steel under which SunCoke Energy will build, own and operate a 650 thousand tons-per-year cokemaking facility adjacent to U.S. Steel's steelmaking facility in Granite City, Illinois. Construction of this facility, which is estimated to cost approximately $300 million, is currently underway and is expected to be completed in the fourth quarter of 2009. Expenditures through September 30, 2008 totaled $101 million. In connection with this agreement, U.S. Steel has agreed to purchase, over a 15-year period, such coke production as well as the steam generated from the heat recovery cokemaking process at this facility.
In March 2008, SunCoke Energy entered into an agreement with AK Steel under which SunCoke Energy will build, own and operate a cokemaking facility and associated cogeneration power plant adjacent to AK Steel's Middletown, Ohio steelmaking facility. These facilities, which are expected to cost approximately $350 million, will be capable of producing approximately 550 thousand tons of coke per year. In addition, the heat recovery steam generation associated with the cokemaking process will provide, on average, 46 megawatts of power into the regional power market. In connection with this agreement, which is contingent upon receipt of all necessary permits on terms acceptable to SunCoke Energy and available economic incentives, AK Steel has agreed to purchase, over a 20-year period, all of the coke and available electrical power from these facilities.
SunCoke Energy is currently discussing other opportunities for developing new heat recovery cokemaking facilities with several domestic and international steel companies. Such cokemaking facilities could be either wholly owned or owned through a joint venture with one or more parties. The steel company customers would be expected to purchase coke production under long-term contracts. The facilities will also generate steam, which is typically sold to the steel customer, or electrical power, which could be sold to the steel customer or into the local power market.
Corporate and Other
Corporate Expenses - Corporate administrative expenses were $26 million after tax in the first nine months of 2008 versus $44 million after tax in the first nine months of 2007. The $18 million decrease was primarily due to lower accruals for performance-related incentive compensation.
Net Financing Expenses and Other - Net financing expenses and other were $17 million after tax in the current nine-month period versus $35 million after tax in the first nine months of 2007. The $18 million decrease was primarily due to lower interest expense ($4 million), higher capitalized interest ($5 million) and the absence of expense attributable to the preferential return of third-party investors in Sunoco's Indiana Harbor cokemaking operations ($8 million). The preferential return period related to Indiana Harbor ended in the fourth quarter of 2007 (see Note 2 to the condensed consolidated financial statements).
Asset Write-Downs and Other Matters - During the third quarter of 2008, Sunoco elected not to proceed with a capital project at its Tulsa refinery and, in connection therewith, recorded a $10 million after-tax provision to write-off the expenditures incurred to date on this project. During the second quarter of 2008, Sunoco recognized an $11 million after-tax gain on an insurance recovery related to an MTBE litigation settlement (see Note 6 to the condensed consolidated financial statements).
Income Tax Matters - During the second quarter of 2008, Sunoco recognized a $10 million after-tax gain related to the settlement of economic nexus issues pertaining to certain state corporate income tax returns filed for prior years (see Note 3 to the condensed consolidated financial statements).
Issuance of Sunoco Logistics Partners L.P. Limited Partnership Units - During the first quarter of 2007, Sunoco recognized a $90 million after-tax gain related to the prior issuance of limited partnership units of the Partnership to the public. (See Note 2 to the condensed consolidated financial statements.)
Analysis of Condensed Consolidated Statements of Income
Revenues - Total revenues were $45.01 billion in the first nine months of 2008 compared to $31.57 billion in the first nine months of 2007. The 43 percent increase was primarily due to higher refined product prices and higher crude oil prices in connection with the crude oil gathering and marketing activities of the Company's Logistics operations. Partially offsetting these positive factors were lower refined product sales volumes.
Costs and Expenses - Total pretax costs and expenses were $44.12 billion in the current nine-month period compared to $30.13 billion in the first nine months of 2007. The 46 percent increase was primarily due to higher crude oil and refined product acquisition costs. The higher acquisition costs were largely the result of price increases, partially offset by lower crude oil throughputs. Also contributing to the increase in pretax costs and expenses were higher crude oil costs in connection with the crude oil gathering and marketing activities of the Company's Logistics operations.
RESULTS OF OPERATIONS - THREE MONTHS
Earnings Profile of Sunoco Businesses (after tax)
Three Months
Ended
September 30
2008 2007 Variance
(Millions of Dollars)
Refining and Supply $ 424 $ 171 $ 253
Retail Marketing 72 31 41
Chemicals 19 13 6
Logistics 20 14 6
Coke 29 7 22
Corporate and Other:
Corporate expenses 2 (11 ) 13
Net financing expenses and other (7 ) (9 ) 2
Asset write-downs and other matters (10 ) - (10 )
Consolidated net income $ 549 $ 216 $ 333
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Analysis of Earnings Profile of Sunoco Businesses
In the three-month period ended September 30, 2008, Sunoco earned $549 million, or $4.70 per share of common stock on a diluted basis, compared to $216 million, or $1.81 per share, in the third quarter of 2007.
The $333 million increase in results in the third quarter of 2008 was primarily due to higher margins in Sunoco's Refining and Supply ($352 million) and Retail Marketing ($59 million) businesses, higher income attributable to Sunoco's Coke ($22 million), Logistics ($6 million) and Chemicals ($6 million) businesses and a favorable income tax consolidation adjustment in the third quarter of 2008 ($11 million). Partially offsetting these increases in earnings were higher expenses ($44 million), lower production of refined products ($48 million), lower gains on asset divestments ($6 million), lower retail gasoline sales volumes ($7 million) and a provision for asset write-downs relating to a capital project which the Company has elected not to complete ($10 million).
Refining and Supply
For the Three
Months Ended
September 30
2008 2007
Income (millions of dollars) $ 424 $ 171
Wholesale margin* (per barrel):
Total Refining and Supply $ 14.72 $ 8.06
Northeast Refining $ 15.20 $ 6.35
MidContinent Refining $ 13.41 $ 13.10
Crude inputs as percent of crude unit rated capacity** 88 % 96 %
Throughputs (thousands of barrels daily):
Crude oil 803.6 873.1
Other feedstocks 89.4 79.1
Total throughputs 893.0 952.2
Products manufactured (thousands of barrels daily):
Gasoline 404.8 456.9
Middle distillates 331.1 329.0
Residual fuel 58.1 73.2
Petrochemicals 38.5 37.7
Lubricants 11.6 11.1
Other 81.1 80.4
Total production 925.2 988.3
Less: Production used as fuel in refinery operations 41.3 45.5
Total production available for sale 883.9 942.8
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* Wholesale sales revenue less related cost of crude oil, other feedstocks, product purchases and terminalling and transportation divided by production available for sale.
** Reflects the impact of a 10 thousand barrels-per-day increase in crude unit capacity in MidContinent Refining in July 2007 attributable to a crude unit debottleneck project at the Toledo refinery.
Refining and Supply earned $424 million in the third quarter of 2008 versus $171 million in the third quarter of 2007. The $253 million increase in results was primarily due to higher realized margins ($352 million), partially offset by higher expenses ($44 million) and lower production volumes ($48 million). The higher margins primarily resulted from tighter product markets following storms in the U.S. Gulf Coast region, partially offset by a $16 million after-tax charge for sulfur credits relating to production at the Tulsa refinery (see Note 6 to the condensed consolidated financial statements). The higher expenses were largely the result of increased prices for purchased fuel and utilities. Production volumes decreased approximately 5.4 million barrels in the third quarter of 2008 compared to the year-ago period primarily due to economically driven rate reductions.
Retail Marketing
For the Three
Months Ended
September 30
2008 2007
Income (millions of dollars) $ 72 $ 31
Retail margin* (per barrel):
Gasoline $ 7.85 $ 4.68
Middle distillates $ 5.94 $ 3.41
Sales (thousands of barrels daily):
Gasoline 287.0 302.9
Middle distillates 37.3 37.3
324.3 340.2
Retail gasoline outlets 4,716 4,687
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* Retail sales price less related wholesale price, terminalling and transportation costs and consumer excise taxes per barrel. The retail sales price is the weighted-average price received through the various branded marketing distribution channels.
Retail Marketing earned $72 million in the current quarter versus $31 million in the third quarter of 2007. The $41 million increase in earnings was primarily due to higher average retail gasoline ($54 million) and distillate ($5 million) margins, partially offset by lower retail gasoline sales volumes ($7 million) and lower divestment gains attributable to the Retail Portfolio Management program ($6 million), largely attributable to the recognition in the third quarter of 2008 of impairment losses and associated costs totaling $5 million after tax.
Chemicals
For the Three
Months Ended
September 30
2008 2007
Income (millions of dollars) $ 19 $ 13
Margin* (cents per pound):
All products** 12.0 ¢ 10.0 ¢
Phenol and related products 10.6 ¢ 8.7 ¢
Polypropylene** 14.0 ¢ 11.7 ¢
Sales (millions of pounds):
Phenol and related products 607 633
Polypropylene 531 623
Other 14 19
1,152 1,275
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* Wholesale sales revenue less the cost of feedstocks, product purchases and related terminalling and transportation divided by sales volumes.
** The polypropylene and all products margins include the impact of a long-term supply contract with Equistar Chemicals, L.P. which is priced on a cost-based . . .
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