Add
SUN to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| SUN > SEC Filings for SUN > Form 10-Q on 5-Nov-2009 | All Recent SEC Filings |
5-Nov-2009
Quarterly Report
RESULTS OF OPERATIONS - NINE MONTHS
Earnings Profile of Sunoco Businesses (after tax)
Nine Months
Ended
September 30
2009 2008 Variance
(Millions of Dollars)
Refining and Supply:
Continuing operations $ (181 ) $ 302 $ (483 )
Discontinued Tulsa operations 3 31 (28 )
Retail Marketing 65 98 (33 )
Chemicals (5 ) 40 (45 )
Logistics 75 56 19
Coke 102 77 25
Corporate and Other:
Corporate expenses (32 ) (26 ) (6 )
Net financing expenses and other (33 ) (17 ) (16 )
Asset write-downs and other matters:
Continuing operations (392 ) 11 (403 )
Discontinued Tulsa operations (3 ) (10 ) 7
Sale of discontinued Tulsa operations 20 - 20
Sale of retail heating oil and propane
distribution business 26 - 26
Income tax matters - 10 (10 )
Net income (loss) attributable to Sunoco, Inc.
shareholders $ (355 ) $ 572 $ (927 )
|
Analysis of Earnings Profile of Sunoco Businesses
In the nine-month period ended September 30, 2009, the net loss attributable to Sunoco Inc. shareholders was $355 million, or $3.04 per share of common stock on a diluted basis versus net income attributable to Sunoco, Inc. shareholders of $572 million, or $4.88 per share, in the first nine months of 2008.
The $927 million decrease in results attributable to Sunoco, Inc. shareholders in the first nine months of 2009 was primarily due to lower margins from continuing operations in Sunoco's Refining and Supply business ($554 million), higher provisions for asset write-downs and other matters ($396 million), lower production of refined products ($64 million), lower average retail gasoline margins ($70 million) and lower results attributable to Sunoco's Chemicals business ($45 million). Partially offsetting these negative factors were lower expenses ($167 million).
Included in the provision for asset write-downs and other matters in the first nine months of 2009 is a $92 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 and the Company believes it is currently on track to achieve this goal. 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 4 to the condensed consolidated financial statements.)
Refining and Supply - Continuing Operations*
For the Nine
Months Ended
September 30
2009 2008
Income (loss) (millions of dollars) $ (181 ) $ 302
Wholesale margin** (per barrel) $ 4.23 $ 8.47
Crude inputs as percent of crude unit rated capacity 76 % 85 %
Throughputs (thousands of barrels daily):
Crude oil 628.1 703.8
Other feedstocks 71.9 83.3
Total throughputs 700.0 787.1
Products manufactured (thousands of barrels daily):
Gasoline 355.4 379.9
Middle distillates 227.4 285.2
Residual fuel 61.5 55.1
Petrochemicals 27.6 35.7
Other 55.1 63.0
Total production 727.0 818.9
Less: Production used as fuel in refinery operations 34.3 37.7
Total production available for sale 692.7 781.2
|
* 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 $181 million in the first nine months of 2009 versus income of $302 million in the first nine months of 2008. The $483 million decrease in results was due to lower realized margins ($554 million) and production volumes ($64 million), partially offset by lower expenses ($140 million). Production volumes decreased in the first nine months of 2009 compared to the year-ago period, as market-driven rate reductions reduced production throughout the refining system. During the first nine 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 76 percent for this period. The lower expenses were largely the result of lower costs for purchased fuel and utilities attributable to price declines and lower production volumes as well as the impact of the business improvement initiative.
On September 30, 2009, the Company's Board of Directors approved a plan to idle indefinitely all process units at the Eagle Point refinery in an effort to reduce losses in Refining and Supply at a time when weak demand and increased global refining capacity have created margin pressure on the entire refining industry. The Company intends to idle Eagle Point until there is significant, sustainable improvement in market conditions and will evaluate this decision and other options on an ongoing basis, including the feasibility of using the facility to produce alternative fuels in the future. The Company intends to shift current production from the Eagle Point refinery to the Marcus Hook and Philadelphia refineries which will now operate at higher capacity utilization. Approximately 400 employees will be furloughed during the idling of the facility. The Company expects to reduce its pretax expense base by approximately $250 million per year from the idling of Eagle Point, which is in addition to its previously announced target of $300 million in annualized business improvement initiative savings by the end of 2009. All processing units have ceased production in early November. In connection with this decision, Sunoco recorded a $278 million after-tax provision to write down the affected assets to their estimated fair values and to establish accruals for employee terminations, pension and postretirement curtailment losses and other related costs. This charge is reported as part of the Asset Write-Downs and Other Matters shown separately in Corporate and Other in the Earnings Profile of Sunoco Businesses (see Note 4 to the condensed consolidated financial statements). The Company may incur additional charges in the fourth quarter of 2009 and first quarter of 2010 in connection with this decision.
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 $25-$30 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 nine months of 2009 versus $31 million in the first nine months of 2008. The $28 million decrease in earnings from operations was primarily attributable to lower realized margins and production volumes, partially offset by lower expenses.
Retail Marketing
For the Nine
Months Ended
September 30
2009 2008
Income (millions of dollars) $ 65 $ 98
Retail margin* (per barrel):
Gasoline $ 3.72 $ 5.20
Middle distillates $ 6.96 $ 5.95
Sales (thousands of barrels daily):
Gasoline 292.4 288.5
Middle distillates 32.1 37.4
324.5 325.9
Retail gasoline outlets 4,704 4,716
|
* 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 $65 million in the first nine months of 2009 versus $98 million in the first nine months of 2008. The $33 million decrease in earnings was primarily due to lower average retail gasoline margins ($70 million) and lower distillate sales volumes ($6 million), partially offset by lower expenses ($33 million) and higher distillate margins ($6 million). Retail gasoline margins in the prior-year period benefited from the rapid decrease in wholesale prices during the third quarter of 2008. During the third quarter of 2009, Sunoco sold its retail heating oil and propane distribution business for $83 million and recognized a $26 million net after-tax gain in connection with the transaction. This gain is shown separately in Corporate and Other in the Earnings Profile of Sunoco Businesses.
Chemicals
For the Nine
Months Ended
September 30
2009 2008
Income (loss) (millions of dollars) $ (5 ) $ 40
Margin* (cents per pound):
All products** 8.4 ¢ 10.6 ¢
Phenol and related products 7.4 ¢ 9.1 ¢
Polypropylene** 9.5 ¢ 12.5 ¢
Sales (millions of pounds):
Phenol and related products 1,317 1,797
Polypropylene 1,438 1,662
Other 14 57
2,769 3,516
|
* 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 nine months ended September 30, 2009.
Chemicals had a loss of $5 million in the first nine months of 2009 versus income of $40 million in the first nine months of 2008. The $45 million decrease in results was due primarily to lower margins ($48 million) and sales volumes ($39 million), partially offset by lower expenses ($30 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). The lower expenses were largely the result of lower costs for purchased fuel and utilities attributable to price declines and lower production volumes. 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. In the event Sunoco elects to move forward with the divestment of all or a portion of this business, it is likely that a significant write-down of the asset would be required.
Logistics
Logistics earned $75 million in the first nine months of 2009 versus $56 million in the first nine months of 2008. The $19 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.
In the third quarter of 2009, Sunoco Logistics Partners L.P. acquired Excel Pipeline LLC, the owner of a crude oil pipeline which services Gary Williams' Wynnewood, OK refinery and a refined products terminal in Romulus, MI for a total of $50 million.
Coke
Coke earned $102 million in the first nine months of 2009 versus $77 million in the first nine months of 2008. The $25 million increase in earnings was due primarily to improved results from Jewell operations largely associated with higher price realizations from coke production and the receipt of a $6 million after-tax dividend from the Brazilian cokemaking operations.
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 $269 million through September 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 August 2009, SunCoke Energy entered into a 12-year coke purchase agreement with AK Steel, which replaces the take-or-pay contract with the affiliates of OAO Severstal effective January 1, 2010. Under the new agreement, AK Steel will be required to purchase all 550 thousand tons of coke per year from this facility. In addition, AK Steel is obligated to purchase 50 percent of the electricity produced at the associated cogeneration power plant. These contracts are subject to early termination after November 2014 provided AK Steel has given at least two years notice of its intention to terminate. The affiliates of OAO Severstal and AK Steel will each take approximately one half of this coke production in the fourth quarter.
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 is complete and production has commenced in the fourth quarter of 2009. Expenditures through September 30, 2009 totaled $300 million. In connection with this agreement, U.S. Steel has agreed to purchase on a take-or-pay basis, over a 15-year period, all 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 is expected to 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 September 30, 2009 totaled $74 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 $32 million after tax in the first nine months of 2009 versus $26 million after tax in the first nine months of 2008. The $6 million increase was primarily due to the absence of credits to stock-based compensation expense, partially offset by lower payroll and other employee-related costs.
Net Financing Expenses and Other - Net financing expenses and other were $33 million after tax in the first nine months of 2009 versus $17 million after tax in the first nine months of 2008. The $16 million increase was primarily due to lower interest income ($7 million) and higher interest expense ($12 million), partially offset by higher capitalized interest ($4 million).
Asset Write-Downs and Other Matters - During the first nine months of 2009, Sunoco recorded a $278 million after-tax provision in connection with a plan to idle indefinitely all process units at the Eagle Point refinery, of which $254 million after tax represents noncash charges; established a $92 million after-tax accrual for employee terminations and related costs in connection with a business improvement initiative, of which $62 million after tax was attributable to a noncash provision for pension and postretirement settlement and curtailment losses; and recorded a $25 million after-tax provision to recognize loss accruals related to the shutdown of Chemicals' polypropylene plant in Bayport, TX and to write down to estimated fair value certain other assets primarily in the Refining and Supply business, including $3 million after tax attributable to discontinued Tulsa operations. During the first nine
months of 2008, Sunoco recognized an $11 million after-tax gain on an insurance recovery related to an MTBE litigation settlement and recorded a $10 million after-tax provision to write off certain assets attributable to discontinued Tulsa operations. (See Notes 4 and 7 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).
Sale of Retail Heating Oil and Propane Distribution Business - During the third quarter of 2009, Sunoco recognized a $26 million net after-tax gain on divestment of the retail heating oil and propane distribution business (see Note 3 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 5 to the condensed consolidated financial statements).
Analysis of Condensed Consolidated Statements of Operations
Revenues - Total revenues were $22.34 billion in the first nine months of 2009 compared to $42.44 billion in the first nine months of 2008. The 47 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 $22.89 billion in the first nine months of 2009 compared to $41.51 billion in the first nine months of 2008. The 45 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
September 30
2009 2008 Variance
(Millions of Dollars)
Refining and Supply:
Continuing operations $ (118 ) $ 398 $ (516 )
Discontinued Tulsa operations - 26 (26 )
Retail Marketing 49 72 (23 )
Chemicals (1 ) 19 (20 )
Logistics 19 20 (1 )
Coke 35 29 6
Corporate and Other:
Corporate expenses (6 ) 2 (8 )
Net financing expenses and other (12 ) (7 ) (5 )
Asset write-downs and other matters:
Continuing operations (304 ) - (304 )
Discontinued Tulsa operations - (10 ) 10
Sale of retail heating oil and propane
distribution business 26 - 26
Net income (loss) attributable to Sunoco, Inc.
shareholders $ (312 ) $ 549 $ (861 )
|
Analysis of Earnings Profile of Sunoco Businesses
In the three-month period ended September 30, 2009, the net loss attributable to Sunoco Inc. shareholders was $312 million, or $2.67 per share of common stock on a diluted basis versus net income attributable to Sunoco, Inc. shareholders of $549 million, or $4.70 per share, in the third quarter of 2008.
The $861 million decrease in results attributable to Sunoco, Inc. shareholders in the third quarter of 2009 was primarily due to lower margins from continuing operations in Sunoco's Refining and Supply business ($551 million), higher provisions for asset write-downs and other matters ($294 million), lower average retail gasoline margins ($37 million) and lower results attributable to Sunoco's Chemicals business ($20 million). Partially offsetting these negative factors were lower expenses ($71 million).
Refining and Supply - Continuing Operations* . . . |
|
|