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| SUN > SEC Filings for SUN > Form 10-Q on 6-Aug-2009 | All Recent SEC Filings |
6-Aug-2009
Quarterly Report
RESULTS OF OPERATIONS - SIX MONTHS
Earnings Profile of Sunoco Businesses (after tax)
Six Months
Ended
June 30
2009 2008 Variance
(Millions of Dollars)
Refining and Supply:
Continuing operations $ (63 ) $ (96 ) $ 33
Discontinued Tulsa operations 3 5 (2 )
Retail Marketing 16 26 (10 )
Chemicals (4 ) 21 (25 )
Logistics 56 36 20
Coke 67 48 19
Corporate and Other:
Corporate expenses (26 ) (28 ) 2
Net financing expenses and other (21 ) (10 ) (11 )
Asset write-downs and other matters:
Continuing operations (88 ) 11 (99 )
Discontinued Tulsa operations (3 ) - (3 )
Sale of discontinued Tulsa operations 20 - 20
Income tax matters - 10 (10 )
Net income (loss) attributable to Sunoco, Inc. shareholders $ (43 ) $ 23 $ (66 )
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Analysis of Earnings Profile of Sunoco Businesses
In the six-month period ended June 30, 2009, the net loss attributable to Sunoco Inc. shareholders was $43 million, or $.37 per share of common stock on a diluted basis versus net income attributable to Sunoco, Inc. shareholders of $23 million, or $.20 per share, in the first six months of 2008.
The $66 million decrease in results attributable to Sunoco, Inc. shareholders in the first half of 2009 was primarily due to higher provisions for asset write-downs and other matters ($102 million), lower production of refined products ($36 million), lower average retail gasoline margins ($33 million), lower results attributable to Sunoco's Chemicals business ($25 million), the impact of the write-off of the ethylene complex at the Marcus Hook refinery ($14 million), higher net financing expenses ($11 million) and the absence of a gain that was recognized in the second quarter of 2008 related to certain income tax matters ($10 million). Partially offsetting these negative factors were lower expenses ($109 million), a net gain recognized in connection with the divestment of the discontinued Tulsa operations ($20 million) and higher income attributable to the Logistics ($20 million) and Coke ($19 million) businesses.
Included in the provision for asset write-downs and other matters in the first six months of 2009 is a $78 million after-tax charge attributable to a previously announced business improvement initiative to reduce costs and improve business processes that was approved by management in March 2009. The goal of the business improvement initiative is to reduce pretax costs by more than $300 million on an annualized basis by year-end 2009. The reduced costs are attributable to a workforce reduction of approximately 750 positions, or approximately 20 percent of the salaried workforce, as well as expected savings in energy costs, and the use of materials, equipment and contract services. This phase of the review included all business and operations support functions, operations at the Philadelphia and Marcus Hook refineries and hourly employees in certain identified areas. (See Note 3 to the condensed consolidated financial statements.)
Refining and Supply - Continuing Operations*
For the Six
Months Ended
June 30
2009 2008
Loss (millions of dollars) $ (63 ) $ (96 )
Wholesale margin** (per barrel) $ 4.95 $ 5.06
Crude inputs as percent of crude unit rated capacity 77 % 84 %
Throughputs (thousands of barrels daily):
Crude oil 635.6 692.9
Other feedstocks 74.7 80.2
Total throughputs 710.3 773.1
Products manufactured (thousands of barrels daily):
Gasoline 360.2 376.2
Middle distillates 231.5 277.5
Residual fuel 61.5 53.6
Petrochemicals 28.6 34.3
Other 58.1 63.0
Total production 739.9 804.6
Less: Production used as fuel in refinery operations 35.2 37.1
Total production available for sale 704.7 767.5
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* The financial and operating data presented in the table excludes amounts attributable to the Tulsa refinery, which was sold to Holly Corporation on June 1, 2009.
** Wholesale sales revenue less related cost of crude oil, other feedstocks, product purchases and terminalling and transportation divided by production available for sale.
Refining and Supply's loss from continuing operations totaled $63 million in the first six months of 2009 versus a loss of $96 million in the first half of 2008. The $33 million improvement in results was due to lower expenses ($90 million), partially offset by lower production volumes ($36 million), the write-off of certain assets in connection with the shutdown of the ethylene complex at the Marcus Hook refinery ($14 million) and lower realized margins ($9 million). Production volumes decreased in the first half of 2009 compared to the year-ago period, as market-driven rate reductions reduced production throughout the refining system. During the first six months of 2009, Sunoco continued its efforts to optimize its production slate and run a broader mix of lower-cost crude oil grades resulting in an overall crude utilization rate of 77 percent for this period.
In June 2009, Sunoco acquired Northeast Biofuels, LP, the owner of a 100 million gallon-per-year ethanol manufacturing facility in New York, for $9 million. The plant is expected to require approximately $15-$20 million in additional capital and is anticipated to start up in the first half of 2010.
Refining and Supply - Discontinued Tulsa Operations
In December 2008, Sunoco announced its intention to sell the Tulsa refinery or convert it to a terminal by the end of 2009 because it did not expect to achieve an acceptable return on investment on a capital project to comply with the new off-road diesel fuel requirements at this facility. On June 1, 2009, Sunoco completed the sale of its Tulsa refinery to Holly Corporation. The transaction also included the sale of inventory attributable to the refinery which was valued at market prices at closing. Sunoco recognized a $20 million net after-tax gain on divestment of this business, which is reported separately in Corporate and Other in the Earnings Profile of Sunoco Businesses. Sunoco received a total of $157 million in cash proceeds from this divestment, comprised of $64 million from the sale of the refinery and $93 million from the sale of the related inventory. As a result of the sale, the Tulsa refinery has been classified as a discontinued operation for all periods presented in the condensed consolidated financial statements herein.
Discontinued Tulsa refining operations had income of $3 million in the first half of 2009 versus $5 million in the first half of 2008. The $2 million decrease in earnings from operations was primarily attributable to lower production volumes, partially offset by higher realized margins and lower expenses.
Retail Marketing
For the Six
Months Ended
June 30
2009 2008
Income (millions of dollars) $ 16 $ 26
Retail margin* (per barrel):
Gasoline $ 2.82 $ 3.87
Middle distillates $ 7.89 $ 5.95
Sales (thousands of barrels daily):
Gasoline 291.1 289.2
Middle distillates 33.5 37.5
324.6 326.7
Retail gasoline outlets 4,708 4,714
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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 $16 million in the first half of 2009 versus $26 million in the first half of 2008. The $10 million decrease in earnings was primarily due to lower average retail gasoline margins ($33 million), partially offset by higher distillate margins ($8 million) and lower expenses ($17 million). Retail gasoline margins were negatively affected by periods of rising wholesale prices and a weak demand environment.
Chemicals
For the Six
Months Ended
June 30
2009 2008
Income (loss) (millions of dollars) $ (4 ) $ 21
Margin* (cents per pound):
All products** 8.2 ¢ 9.9 ¢
Phenol and related products 7.4 ¢ 8.3 ¢
Polypropylene** 9.0 ¢ 11.9 ¢
Sales (millions of pounds):
Phenol and related products 834 1,190
Polypropylene 1,006 1,131
Other 8 43
1,848 2,364
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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. These margins exclude a favorable lower of cost or market inventory adjustment totaling $20 million ($12 million after tax) for the six months ended June 30, 2009.
Chemicals had a loss of $4 million in the first half of 2009 versus income of $21 million in the first half of 2008. The $25 million decrease in results was due primarily to lower margins ($25 million) and sales volumes ($26 million), partially offset by lower expenses ($13 million) and the reversal of a lower of cost or market adjustment to its polypropylene inventory that had been previously recorded in the fourth quarter of 2008 ($12 million). Sunoco permanently shut down its Bayport polypropylene facility in March 2009. Sunoco also intends to sell its Chemicals business if it can obtain an appropriate value.
Logistics
Logistics earned $56 million in the first six months of 2009 versus $36 million in the first half of 2008. The $20 million increase was due to significantly higher lease acquisition results, increased crude oil pipeline and storage revenues, and earnings from a refined products pipeline and terminal system acquired in November 2008.
Coke
Coke earned $67 million in the first half of 2009, versus $48 million in the first six months of 2008. The $19 million increase in earnings was due primarily to increased price realizations from coke production at Jewell and the receipt of a $6 million after-tax dividend from the Brazilian cokemaking operations. Partially offsetting these positive factors were higher operating costs at Haverhill and at Jewell coal operations and higher depreciation expense.
Beginning in January 2008, the price of coke from Jewell changed from a fixed price to an amount equal to the sum of (i) the cost of delivered coal to the Haverhill facility multiplied by an adjustment factor, (ii) actual transportation costs, (iii) an operating cost component indexed for inflation, and (iv) a fixed-price component. In July 2009, ArcelorMittal filed a lawsuit challenging the prices charged to ArcelorMittal under the coke purchase agreement. SunCoke Energy believes that the prices have been determined in accordance with the agreement and intends to vigorously defend its rights under the contract.
In February 2007, SunCoke Energy entered into an agreement with two affiliates of OAO Severstal under which a local affiliate of SunCoke Energy would build, own and operate an expansion of the Haverhill plant (that would double its cokemaking capacity to 1.1 million tons of coke per year) and a cogeneration power plant. Operations from this cokemaking facility commenced in July 2008 with the expansion essentially completed in the second quarter of 2009. Capital outlays for the project totaled $266 million through June 30, 2009. In connection with this agreement, two affiliates of OAO Severstal agreed to purchase on a take-or-pay basis, over a 15-year period, 550 thousand tons per year of coke from the cokemaking facility.
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 $315 million, is currently underway and is expected to be completed in the fourth quarter of 2009. Expenditures through June 30, 2009 totaled $263 million. In connection with this agreement, U.S. Steel has agreed to purchase on a take-or-pay basis, 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 subject to resolution of all contingencies, including necessary permits. These facilities are expected to cost in aggregate approximately $350 million and be completed 15 to 18 months after resolution of the contingencies, which may move the targeted completion date beyond the previously announced 2010. The plant is expected to produce approximately 550 thousand tons of coke per year and provide, on average, 46 megawatts of power into the regional power market. In connection with this agreement, AK Steel has agreed to purchase, over a 20-year period, all of the coke and available electrical power from these facilities. Expenditures through June 30, 2009 totaled $70 million. In the event contingencies (including permit issues) to constructing the project cannot be resolved, AK Steel is obligated to reimburse substantially all of this amount to Sunoco.
SunCoke Energy is currently discussing other opportunities for developing new heat recovery cokemaking facilities with domestic and international steel companies. Such cokemaking facilities could be either wholly owned or developed through other business structures. As applicable, the steel company customers would be expected to purchase coke production under long-term contracts. The facilities would also generate steam, which would typically be sold to the steel customer, or electrical power, which could be sold to the steel customer or into the local power market. SunCoke Energy's ability to enter into additional arrangements is dependent upon market conditions in the steel industry.
Corporate and Other
Corporate Expenses - Corporate administrative expenses were $26 million after tax in the first half of 2009 versus $28 million after tax in the first half of 2008. The $2 million decrease was primarily due to a lower unfavorable income tax consolidation adjustment, partially offset by higher accruals for performance- related incentive compensation. Corporate expenses included income tax consolidation adjustments amounting to $5 and $11 million in the first six months of 2009 and 2008, respectively.
Net Financing Expenses and Other - Net financing expenses and other were $21 million after tax in the first half of 2009 versus $10 million after tax in the first six months of 2008. The $11 million increase was primarily due to lower interest income ($5 million) and higher interest expense ($7 million).
Asset Write-Downs and Other Matters - During the first six months of 2009, Sunoco established a $78 million after-tax accrual for employee terminations and related costs in connection with a business improvement initiative, of which $48 million after tax was attributable to a noncash provision for pension and postretirement settlement and curtailment losses; established a $4 million after-tax accrual for a take-or-pay contract loss, employee terminations and other exit costs in connection with the shutdown of the Bayport, TX polypropylene plant; and recorded a $9 million after-tax provision to write down to estimated fair value certain
assets primarily in the Refining and Supply business, including $3 million after tax attributable to discontinued Tulsa operations. 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 Notes 3 and 6 to the condensed consolidated financial statements.)
Sale of Discontinued Tulsa Operations - During the second quarter of 2009, Sunoco recognized a $20 million net after-tax gain related to the divestment of the discontinued Tulsa operations (see Note 2 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 4 to the condensed consolidated financial statements).
Analysis of Condensed Consolidated Statements of Operations
Revenues - Total revenues were $13.64 billion in the first half of 2009 compared to $27.28 billion in the first half of 2008. The 50 percent decrease was primarily due to lower refined product prices and sales volumes. Also contributing to the decline were lower crude oil sales in connection with the crude oil gathering and marketing activities of the Company's Logistics operations.
Costs and Expenses - Total pretax costs and expenses were $13.69 billion in the first six months of 2009 compared to $27.23 billion in the first half of 2008. The 50 percent decrease was primarily due to lower crude oil and refined product acquisition costs resulting from price declines and lower crude oil throughputs. Also contributing to the decline were lower 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
June 30
2009 2008 Variance
(Millions of Dollars)
Refining and Supply:
Continuing operations $ (77 ) $ 27 $ (104 )
Discontinued Tulsa operations (6 ) 5 (11 )
Retail Marketing 10 - 10
Chemicals - 3 (3 )
Logistics 26 21 5
Coke 42 23 19
Corporate and Other:
Corporate expenses (15 ) (11 ) (4 )
Net financing expenses and other (11 ) (7 ) (4 )
Asset write-downs and other matters:
Continuing operations (44 ) 11 (55 )
Discontinued Tulsa operations - - -
Sale of discontinued Tulsa operations 20 - 20
Income tax matters - 10 (10 )
Net income (loss) attributable to Sunoco, Inc. shareholders $ (55 ) $ 82 $ (137 )
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Analysis of Earnings Profile of Sunoco Businesses
In the three-month period ended June 30, 2009, the net loss attributable to Sunoco Inc. shareholders was $55 million, or $.47 per share of common stock on a diluted basis versus net income attributable to Sunoco, Inc. shareholders of $82 million, or $.70 per share, in the second quarter of 2008.
The $137 million decrease in results attributable to Sunoco, Inc. shareholders in the second quarter of 2009 was primarily due to lower margins from continuing operations in Sunoco's Refining and Supply business ($141 million), higher provisions for asset write-downs and other matters ($55 million), lower production of refined products ($9 million), lower operating results attributable to discontinued Tulsa refining operations ($11 million), the impact of the write-off of the ethylene complex at the Marcus Hook refinery ($14 million) and the absence of a gain that was recognized in the second quarter of 2008 related to certain income tax matters ($10 million). Partially offsetting these negative factors were lower expenses ($64 million), higher income attributable to the Coke business ($19 million) and a net gain recognized in connection with the divestment of the discontinued Tulsa operations ($20 million).
Refining and Supply - Continuing Operations*
For the Three
Months Ended
June 30
2009 2008
Income (loss) (millions of dollars) $ (77 ) $ 27
Wholesale margin** (per barrel) $ 3.65 $ 6.98
Crude inputs as percent of crude unit rated capacity 78 % 83 %
Throughputs (thousands of barrels daily):
Crude oil 644.2 687.0
Other feedstocks 81.7 82.2
Total throughputs 725.9 769.2
Products manufactured (thousands of barrels daily):
Gasoline 370.3 376.6
Middle distillates 229.5 288.2
Residual fuel 61.9 51.0
Petrochemicals 31.5 35.8
Other 61.8 48.6
Total production 755.0 800.2
Less: Production used as fuel in refinery operations 34.8 36.5
Total production available for sale 720.2 763.7
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* The financial and operating data presented in the table excludes amounts attributable to the Tulsa refinery, which was sold to Holly Corporation on June 1, 2009.
** Wholesale sales revenue less related cost of crude oil, other feedstocks, product purchases and terminalling and transportation divided by production available for sale.
Refining and Supply had a loss from continuing operations totaling $77 million in the current quarter versus income of $27 million in the second quarter of 2008. The $104 million decrease in results was due to lower realized margins ($141 million), the write-off of certain assets in connection with the shutdown of the ethylene complex at the Marcus Hook refinery ($14 million) and lower production volumes ($9 million), partially offset by lower expenses ($56 million). Realized margins and the crude utilization rate were negatively affected by market weakness and rising crude prices during the quarter. The overall crude utilization rate was 78 percent for the quarter. The third quarter production will also be impacted by a planned turnaround at the Company's Toledo refinery which commenced in early August and will extend to mid-September. In addition, the Company is taking a one-month maintenance outage at a fluid catalytic cracking unit in its Philadelphia refinery for repairs that should improve the unit's operating performance.
Refining and Supply - Discontinued Tulsa Operations
Discontinued Tulsa refining operations had a loss of $6 million in the second quarter of 2009 versus income of $5 million in the second quarter of 2008. The $11 million decline in operating results was primarily attributable to lower realized margins and production volumes, partially offset by lower expenses.
Retail Marketing . . . |
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