Sunoco Reports First Quarter Results

PHILADELPHIA, May 5 /PRNewswire-FirstCall/ -- Sunoco, Inc. today reported net income of $116 million ($1.67 per share diluted) for the first quarter of 2005 versus $89 million ($1.17 per share diluted) for the 2004 first quarter.

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"Our first quarter results reflect an excellent start to 2005," said John G. Drosdick, Sunoco Chairman and Chief Executive Officer. "While Refining and Supply results were up only modestly versus the first-quarter 2004, significantly higher Chemicals earnings, lower net financing expenses and nine percent fewer shares outstanding enabled us to increase earnings per share by 43 percent versus the year-ago quarter. With favorable market conditions entering the driving season, momentum remains positive for the Company."

Regarding the first quarter's results, Drosdick said, "Our Refining and Supply business continued to lead the way, earning $108 million for the quarter. Margins, although lower than the 2004 fourth quarter in the Northeast, were still well above historical norms. Our Refining and Supply results also benefited from three percent higher production than last year's first quarter and increased use of discounted high-acid crude oils in Northeast Refining. We have gradually increased our processing of such crudes over the past three quarters and averaged approximately 48,000 barrels per day in the first quarter. With continued strong discounts to light-sweet crude oils, we would expect to process approximately 60,000 - 70,000 barrels per day of high-acid crude oils in the second quarter. Without new units or additional capital, our refining organization has met the challenges of processing these crude oils, improving our refining margins, and increasing our crude oil options for the future.

"Chemicals improved most significantly versus last year's first quarter, earning $33 million versus $12 million a year ago. Despite continued feedstock cost pressures, Chemicals results have improved year-on-year for eight consecutive quarters. Fundamentals remain positive and we expect the recovery to continue.

"In other businesses, Retail Marketing lost $8 million, as retail margins could not keep pace with persistently rising wholesale prices, which increased over 40 cents per gallon during the quarter. As we approach the peak driving season, market conditions for this business are improved.

"Coke and Logistics earned $10 million and $3 million, respectively, in the quarter. We completed startup of our new coke plant in Haverhill, Ohio in late March. This plant is expected to increase annual Coke earnings by approximately $12 million and provide low-cost steam to our adjacent Chemicals phenol facility. Logistics earnings include a $3 million after-tax charge associated with a pipeline spill on the Mid-Valley crude oil pipeline.

"We also continued to act on our strategy to return cash to our shareholders. During the quarter, we increased our dividend by 33 percent, repurchased 724,500 shares ($70 million) and had our share repurchase authorization increased by $500 million. With a strong balance sheet and a favorable market outlook, we have the financial capacity to continue to invest in our existing assets while opportunistically growing the portfolio and returning cash to our shareholders."

DETAILS OF FIRST QUARTER RESULTS REFINING AND SUPPLY

Refining and Supply earned $108 million in the current quarter versus $100 million in the first quarter of 2004. The $8 million increase was largely due to higher realized margins and higher production volumes. The first quarter of 2004 included significant scheduled maintenance activity in MidContinent Refining. Partially offsetting these positive variances were higher expenses, including fuel and other energy-related expenditures.

Total crude unit throughput averaged 875 thousand barrels daily (97 percent utilization) for the quarter, with total production available for sale approximating 83 million barrels.

RETAIL MARKETING

Retail Marketing had a loss of $8 million in the first quarter of 2005 versus a loss of $4 million in the first quarter of 2004. The decrease in results was due largely to lower retail margins for gasoline and distillate, partially offset by lower expenses. Current quarter results included a $2 million income contribution from the ConocoPhillips sites acquired in April 2004.

CHEMICALS

Chemicals earned $33 million in the first quarter of 2005 versus $12 million in the prior-year period. The increase in earnings was due largely to higher realized margins for phenol and polypropylene. Total sales volumes and expenses were largely unchanged versus the year-ago period.

LOGISTICS

Earnings for the Logistics segment were $3 million versus $8 million in the year-ago period. The decline in earnings was due largely to the $3 million after-tax charge associated with the Mid-Valley pipeline spill and a $2 million unfavorable tax adjustment.

COKE

The Coke business earned $10 million in the first quarter of 2005 versus $9 million in the first quarter of 2004.

CORPORATE AND OTHER

Corporate administrative expenses were $16 million after tax in the current quarter versus $12 million in the comparable quarter last year. The increase was largely due to higher employee-related expenses, primarily accruals for stock-based incentive compensation.

Net financing expenses were $14 million after tax in the first quarter of 2005 versus $24 million in the prior-year quarter. The decrease was primarily due to lower interest expense resulting from 2004 debt restructuring activities and increased capitalized interest.

Sunoco, Inc., headquartered in Philadelphia, PA, is a leading manufacturer and marketer of petroleum and petrochemical products. With 900,000 barrels per day of refining capacity, approximately 4,800 retail sites selling gasoline and convenience items, over 4,300 miles of crude oil and refined product owned and operated pipelines and 38 product terminals, Sunoco is one of the largest independent refiner-marketers in the United States. Sunoco is a significant manufacturer of petrochemicals with annual sales of approximately five billion pounds, largely chemical intermediates used to make fibers, plastics, film and resins. Utilizing a unique, patented technology, Sunoco also has the capacity to manufacture over 2.5 million tons annually of high-quality metallurgical-grade coke for use in the steel industry.

Anyone interested in obtaining further insights into the first quarter's results can monitor the Company's quarterly teleconference call, which is scheduled for 3:00 p.m. ET today (May 5, 2005). It can be accessed through Sunoco's Web site - http://www.sunocoinc.com/. It is suggested that you visit the site prior to the teleconference to ensure that you have downloaded any necessary software.

Those statements made in this release that are not historical facts are forward-looking statements intended to be covered by the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although Sunoco believes that the assumptions underlying these statements are reasonable, investors are cautioned that such forward-looking statements are inherently uncertain and necessarily involve risks that may affect Sunoco's business prospects and performance causing actual results to differ from those discussed in the foregoing release. Such risks and uncertainties include, by way of example and not of limitation: general business and economic conditions; competitive products and pricing; effects of weather conditions and natural disasters on the Company's operating facilities and on product supply and demand; changes in refining, marketing and chemical margins; variation in petroleum-based commodity prices and availability of crude oil and feedstock supply or transportation; effects of transportation disruptions; changes in the price differentials between light-sweet and heavy-sour crude oils; fluctuations in supply of feedstocks and demand for products manufactured; changes in product specifications; availability and pricing of oxygenates; phase-outs or restrictions on the use of MTBE; changes in operating conditions and costs; changes in the expected level of environmental capital, operating or remediation expenditures; age of, and changes in the reliability and efficiency of, the Company's or a third party's operating facilities; potential equipment malfunction; potential labor relations problems; the legislative and regulatory environment; ability to identify acquisitions, execute them under favorable terms and integrate them into the Company's existing businesses; ability to enter into joint ventures and other similar arrangements with favorable terms; plant construction/repair delays; nonperformance by major customers, suppliers, dealers, distributors or other business partners; changes in financial markets impacting pension expense and funding requirements; political and economic conditions, including the impact of potential terrorist acts and international hostilities; and changes in the status of, or initiation of new, litigation. These and other applicable risks and uncertainties have been described more fully in Sunoco's 2004 Form 10-K filed with the Securities and Exchange Commission on March 4, 2005 and in other periodic reports filed with the Securities and Exchange Commission. Sunoco undertakes no obligation to update any forward-looking statements in this release, whether as a result of new information or future events.

Sunoco, Inc. 2005 First Quarter Financial Summary (Unaudited) First Quarter 2005 2004 Revenues $7,209,000,000 $5,245,000,000 Net Income $116,000,000 $89,000,000 Net Income Per Share of Common Stock: Basic $1.68 $1.18 Diluted $1.67 $1.17 Weighted-Average Number of Shares Outstanding (In Millions): Basic 69.1 75.5 Diluted 69.5 76.3 Sunoco, Inc. Earnings Profile of Sunoco Businesses (after tax) (Millions of Dollars Except Per Share Amounts) (Unaudited) Three Months Ended March 31 2005 2004 Variance Refining and Supply $108 $100 $8 Retail Marketing (8) (4) (4) Chemicals 33 12 21 Logistics 3 8 (5) Coke 10 9 1 Corporate and Other: Corporate expenses (16) (12) (4) Net financing expenses and other (14) (24) 10 Consolidated net income $116 $ 89 $27 Net income per share of common stock (diluted) $1.67 $1.17 $.50 Sunoco, Inc. Financial and Operating Statistics (Unaudited) For the Three Months Ended March 31 2005 2004 TOTAL REFINING AND SUPPLY Income (Millions of Dollars) $108 $100 Realized Wholesale Margin* (Per Barrel of Production Available for Sale) $5.93 $5.68 Crude Inputs as Percent of Crude Unit Rated Capacity** 97 95 Throughputs*** (Thousand Barrels Daily): Crude Oil 875.0 824.6 Other Feedstocks 52.7 65.6 Total Throughputs 927.7 890.2 Products Manufactured*** (Thousand Barrels Daily): Gasoline 442.9 419.0 Middle Distillates 304.3 285.1 Residual Fuel 77.3 77.5 Petrochemicals 38.6 33.3 Lubricants 12.6 13.0 Other 89.5 96.0 Total Production 965.2 923.9 Less: Production Used as Fuel in Refinery Operations 46.7 42.9 Total Production Available for Sale 918.5 881.0 * Wholesale sales revenue less related cost of crude oil, other feedstocks, product purchases and terminalling and transportation divided by production available for sale. ** Effective January 1, 2005, crude unit capacity increased from 890 to 900 thousands of barrels daily due to a 10 thousand barrels-per-day adjustment in MidContinent Refining. *** Data pertaining to the Eagle Point refinery for the three months ended March 31, 2004 are based on the amounts attributable to the 79-day ownership period (January 13, 2004 - March 31, 2004) divided by 91, the number of days in the period. Sunoco, Inc. Financial and Operating Statistics (Unaudited) For the Three Months Ended March 31 2005 2004 Northeast Refining* Realized Wholesale Margin (Per Barrel of Production Available for Sale) $6.11 $5.74 Market Benchmark 6-3-2-1 (Per Barrel) $4.51 $7.14 Crude Inputs as Percent of Crude Unit Rated Capacity 99 99 Throughputs** (Thousand Barrels Daily): Crude Oil 646.2 630.9 Other Feedstocks 46.7 58.9 Total Throughputs 692.9 689.8 Products Manufactured** (Thousand Barrels Daily): Gasoline 328.6 320.3 Middle Distillates 230.7 226.5 Residual Fuel 73.2 74.7 Petrochemicals 30.1 29.2 Other 57.8 65.3 Total Production 720.4 716.0 Less: Production Used as Fuel in Refinery Operations 35.5 34.8 Total Production Available for Sale 684.9 681.2 * Comprised of the Marcus Hook, Philadelphia and Eagle Point refineries. ** Data pertaining to the Eagle Point refinery for the three months ended March 31, 2004 are based on the amounts attributable to the 79-day period subsequent to the January 13, 2004 acquisition date divided by 91, the number of days in the period. MidContinent Refining* Realized Wholesale Margin (Per Barrel of Production Available for Sale) $5.42 $5.46 Market Benchmark 3-2-1 (Per Barrel) $6.24 $6.39 Crude Inputs as Percent of Crude Unit Rated Capacity** 93 82 Throughputs (Thousand Barrels Daily): Crude Oil 228.8 193.7 Other Feedstocks 6.0 6.7 Total Throughputs 234.8 200.4 * Comprised of the Toledo and Tulsa refineries. ** Effective January 1, 2005, crude unit capacity increased from 235 to 245 thousands of barrels daily as a result of a 10 thousand barrels- per-day adjustment. Sunoco, Inc. Financial and Operating Statistics (Unaudited) For the Three Months Ended March 31 2005 2004 MidContinent Refining (continued) Products Manufactured (Thousand Barrels Daily): Gasoline 114.3 98.7 Middle Distillates 73.6 58.6 Residual Fuel 4.1 2.8 Petrochemicals 8.5 4.1 Lubricants 12.6 13.0 Other 31.7 30.7 Total Production 244.8 207.9 Less: Production Used as Fuel in Refinery Operations 11.2 8.1 Total Production Available for Sale 233.6 199.8 RETAIL MARKETING Loss (Millions of Dollars) $(8) $(4) Retail Margin* (Per Barrel): Gasoline $2.37 $2.68 Middle Distillates $5.06 $6.27 Sales of Petroleum Products (Thousand Barrels Daily): Gasoline 289.8 273.7 Middle Distillates 49.4 44.5 339.2 318.2 Total Retail Gasoline Outlets, End of Period 4,805 4,532 Gasoline and Diesel Throughput per Company Owned or Leased Outlet (M Gal/Site/Month) 132 125 Convenience Stores: Total Stores, End of Period 735 804 Merchandise Sales (M$/Store/Month) $71 $68 Merchandise Margin (Company Operated) (% of Sales) 28% 24% * Retail sales price less related wholesale price and terminalling and transportation costs per barrel. The retail sales price is the weighted-average price received through the various branded marketing distribution channels. Sunoco, Inc. Financial and Operating Statistics (Unaudited) For the Three Months Ended March 31 2005 2004 CHEMICALS Income (Millions of Dollars) $33 $12 Margin* (Cents per Pound): All Products** 12.6 9.1 Phenol and Related Products 11.0 8.6 Polypropylene** 15.4 10.4 Sales (Millions of Pounds): Phenol and Related Products 681 614 Polypropylene 533 575 Plasticizers*** -- 28 Other 33 48 1,247 1,265 * Wholesale sales revenue less 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 entered into on March 31, 2003 with Equistar Chemicals, L.P. which is priced on a cost-based formula that includes a fixed discount. *** The plasticizer business was divested in January 2004. COKE Income (Millions of Dollars) $10 $9 Coke Production (Thousands of Tons) 503 478 Coke Sales (Thousands of Tons) 497 482 Sunoco, Inc. Financial and Operating Statistics (Unaudited) For the Three Months Ended March 31 2005 2004 CAPITAL EXPENDITURES (Millions of Dollars) Refining and Supply $149 $70 * Retail Marketing 11 16 Chemicals 18 6 * Logistics 8 4 * Coke 22 16 $208 $112 * Excludes $250 million acquisition from El Paso Corporation of the Eagle Point refinery and related chemical and logistics assets, which includes inventory. The purchase price is comprised of $190, $40 and $20 million attributable to Refining and Supply, Chemicals and Logistics, respectively. DEPRECIATION, DEPLETION AND AMORTIZATION (Millions of Dollars) Refining and Supply $49 $48 Retail Marketing 27 25 Chemicals 18 17 Logistics 8 7 Coke 3 3 $105 $100 Sunoco, Inc. Earnings Profile of Sunoco Businesses (after tax) (Millions of Dollars Except Per Share Amounts) (Unaudited) 2004 1st 2nd 3rd 4th Total Refining and Supply $100 $217 $89 $135 $541 Retail Marketing (4) 20 22 30 68 Chemicals 12 12 30 40 94 Logistics 8 9 9 5 31 Coke 9 9 12 10 40 Corporate and Other: Corporate expenses (12) (13) (15) (27) (67) Net financing expenses and other (24) (20) (19) (15) (78) 89 234 128 178 629 Special items -- -- (24) -- (24) Consolidated net income $89 $234 $104 $178 $605 Earnings (loss) per share of common stock (diluted): Income before special items $1.17 $3.07 $1.71 $2.48 $8.40 Special items -- -- (.32) -- (.32) Net income $1.17 $3.07 $1.39 $2.48 $8.08 Sunoco, Inc. Earnings Profile of Sunoco Businesses (after tax) (Millions of Dollars Except Per Share Amounts) (Unaudited) 2005 First Quarter Refining and Supply $108 Retail Marketing (8) Chemicals 33 Logistics 3 Coke 10 Corporate and Other: Corporate expenses (16) Net financing expenses and other (14) 116 Special items -- Consolidated net income $116 Earnings per share of common stock (diluted): Income before special items $1.67 Special items -- Net income $1.67 Sunoco, Inc. Consolidated Statements of Income (Millions of Dollars) (Unaudited) 2004 1st 2nd 3rd 4th Total REVENUES Sales and other operating revenue (including consumer excise taxes) $5,232 $6,265 $6,575 $7,396 $25,468 Interest income 2 1 4 3 10 Other income (loss), net 11 10 (21) 30 30 5,245 6,276 6,558 7,429 25,508 COSTS AND EXPENSES Cost of products sold and operating expenses 4,254 4,949 5,417 6,114 20,734 Consumer excise taxes 498 571 611 602 2,282 Selling, general and administrative expenses 187 223 203 260 873 Depreciation, depletion and amortization 100 100 103 106 409 Payroll, property and other taxes 33 28 30 27 118 Interest cost and debt expense 29 28 28 23 108 Interest capitalized (1) (2) (3) (5) (11) 5,100 5,897 6,389 7,127 24,513 Income before income tax expense 145 379 169 302 995 Income tax expense 56 145 65 124 390 Net income $89 $234 $104 $178 $605 Sunoco, Inc. Consolidated Statements of Income (Millions of Dollars) (Unaudited) 2005 First Quarter REVENUES Sales and other operating revenue (including consumer excise taxes) $7,191 Interest income 3 Other income, net 15 7,209 COSTS AND EXPENSES Cost of products sold and operating expenses 6,059 Consumer excise taxes 585 Selling, general and administrative expenses 209 Depreciation, depletion and amortization 105 Payroll, property and other taxes 36 Interest cost and debt expense 23 Interest capitalized (6) 7,011 Income before income tax expense 198 Income tax expense 82 Net income $116 Sunoco, Inc. Consolidated Balance Sheets (Millions of Dollars) (Unaudited) At At March 31 December 31 2005 2004 ASSETS Current Assets Cash and cash equivalents $346 $405 Accounts and notes receivable, net 1,656 1,271 Inventories 912 765 Deferred income taxes 110 110 Total Current Assets 3,024 2,551 Investments and long-term receivables 104 115 Properties, plants and equipment, net 5,094 4,966 Prepaid retirement costs 12 11 Deferred charges and other assets 445 436 Total Assets $8,679 $8,079 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and accrued liabilities $3,094 $2,570 Short-term borrowings and current portion of long-term debt 103 103 Taxes payable 331 349 Total Current Liabilities 3,528 3,022 Long-term debt 1,374 1,379 Retirement benefit liabilities 538 539 Deferred income taxes 781 755 Other deferred credits and liabilities 323 247 Minority interests 521 530 Shareholders' equity 1,614 1,607 Total Liabilities and Shareholders' Equity $8,679 $8,079 Sunoco, Inc. Consolidated Statements of Cash Flows (Millions of Dollars) (Unaudited) For the Three Months Ended March 31 2005 2004 INCREASES (DECREASES) IN CASH AND CASH EQUIVALENTS CASH FLOWS FROM OPERATING ACTIVITIES: Net income $116 $89 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 105 100 Deferred income tax expense 26 35 Proceeds from power contract restructuring 48 -- Payments less than (in excess of) expense for retirement plans (1) 1 Changes in working capital pertaining to operating activities, net of effect of acquisitions (51) (33) Other 4 (4) Net cash provided by operating activities 247 188 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (208) (112) Acquisitions -- (235) Proceeds from divestments 12 97 Other 3 1 Net cash used in investing activities (193) (249) CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from short-term borrowings -- 100 Net proceeds from issuance of long-term debt 1 2 Repayments of long-term debt (5) (102) Cash distributions to investors in cokemaking operations (11) (19) Cash distributions to investors in Sunoco Logistics Partners L.P. (6) (3) Cash dividend payments (21) (21) Purchases of common stock for treasury (70) (37) Proceeds from issuance of common stock under management incentive and employee option plans 5 24 Other (6) (3) Net cash used in financing activities (113) (59) Net decrease in cash and cash equivalents (59) (120) Cash and cash equivalents at beginning of period 405 431 Cash and cash equivalents at end of period $346 $311