Sunoco Reports Second Quarter Results

PHILADELPHIA, Aug. 3 /PRNewswire-FirstCall/ -- Sunoco, Inc. today reported net income of $242 million ($1.75 per share diluted) for the second quarter of 2005 versus $234 million ($1.53 per share diluted) for the 2004 second quarter. For the first half of 2005, Sunoco reported net income of $358 million ($2.58 per share diluted) versus net income of $323 million ($2.12 per share diluted) for the first half of 2004. All per-share amounts reflect the two-for-one stock split effected as a dividend on August 1, 2005.

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"Results continued to be very strong," said John G. Drosdick, Sunoco Chairman and Chief Executive Officer. "Our second-quarter earnings represent a new record for the Company and on a per-share basis, year-to-date earnings are up 22 percent versus last year's then-record first half.

"Market conditions for our refining business remained robust and operationally we set several new quarterly production records, including total crude unit and conversion unit throughput. In a particularly strong market for distillate products, we achieved record distillate production. We also increased our use of discounted high-acid crude oils to approximately 59,000 barrels per day during the quarter and have run over 70,000 barrels per day when market conditions have warranted. Optimization efforts and reliability improvements such as these helped Refining and Supply earn $212 million for the quarter. This organization has done an excellent job meeting the challenges and the opportunities that the market has provided.

"Chemicals continued to improve year-on-year results, earning $30 million in the quarter versus $12 million in the second quarter of 2004. Margins, particularly for phenol and related products, were much improved versus the year-ago quarter. Over the past twelve months, Sunoco Chemicals has earned $133 million and has become a much bigger contributor to our overall results. Despite some slowdown in apparent demand growth, we believe the outlook for continued improvement in this business remains favorable."

Drosdick continued, "In other businesses, Retail Marketing earned $7 million. While much improved from the 2005 first quarter, generally rising crude oil and wholesale gasoline prices have persistently squeezed retail margins throughout the first half of the year. Sun Coke earned $13 million in the quarter as operations at our new coke plant in Haverhill, Ohio began to contribute. Logistics earned $9 million for the quarter.

"In other matters, we continued our share repurchase program - $61 million during the quarter and $131 million year to date - and on August 1, we completed a two-for-one stock split. We ended the quarter with $417 million of cash and a net debt-to-capital ratio, as defined in our revolving credit agreement, of 33 percent - each improved from year-end 2004. We will continue to carefully use this financial capacity to both invest in and grow our asset portfolio and appropriately return cash to our shareholders."

DETAILS OF SECOND QUARTER RESULTS REFINING AND SUPPLY

Refining and Supply earned $212 million in the current quarter versus $217 million in the second quarter of 2004. Despite a decline in benchmark margins in the Northeast, realized margins have improved versus the year-ago quarter largely as a result of the increased use of discounted high-acid crude oils and the favorable impact of product optimization activities. The higher realized margins and higher production volumes were more than offset by higher expenses, including fuel and employee-related charges.

Total crude unit throughput averaged 890.8 thousand barrels daily (99 percent utilization) for the quarter, with total production available for sale approximating 86 million barrels.

RETAIL MARKETING

Retail Marketing earned $7 million in the second quarter of 2005 versus $20 million in the second quarter of 2004. The decrease in results was due largely to lower retail margins for gasoline, partially offset by lower expenses and higher gains on asset divestments.

CHEMICALS

Chemicals earned $30 million in the second 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 were down slightly from the year-ago period due primarily to scheduled maintenance performed during the quarter at the Haverhill, Ohio phenol facility. This maintenance was performed concurrent with work to tie in the plant to the steam generation system at Sun Coke's adjacent cokemaking facility which will serve to reduce the phenol facility's energy costs in the future.

LOGISTICS

Earnings for the Logistics segment were $9 million in both second-quarter periods.

COKE

The Coke business earned $13 million in the second quarter of 2005 versus $9 million in the second quarter of 2004. The increase was due largely to higher coal sales volumes and prices and the start-up of the Haverhill coke plant during the quarter.

CORPORATE AND OTHER

Corporate administrative expenses were $16 million after tax in the current quarter versus $13 million in the comparable quarter last year. The increase was largely due to higher employee-related expenses, including accruals for stock-based incentive compensation.

Net financing expenses were $13 million after tax in the second quarter of 2005 versus $20 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.

SIX MONTH RESULTS

Sunoco earned $358 million for the first six months of 2005 versus $323 million in the comparable 2004 period. The increase was primarily due to higher refining margins and volumes, increased chemicals margins and lower net financing expenses. Partially offsetting these improvements were lower retail gasoline margins and higher expenses.

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, approximately 4,500 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 second quarter's results can monitor the Company's quarterly teleconference call, which is scheduled for 3:00 p.m. ET today (August 3, 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 materially 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 under 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 Form 10-Q filed with the Securities and Exchange Commission on May 5, 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 Second Quarter and Six-Month Financial Summary (Unaudited) Second Quarter 2005 2004 Revenues $7,990,000,000 $6,276,000,000 Net Income $242,000,000 $234,000,000 Net Income Per Share of Common Stock*: Basic $1.77 $1.55 Diluted $1.75 $1.53 Weighted-Average Number of Shares Outstanding* (In Millions): Basic 137.1 150.9 Diluted 138.0 152.6 Six Months Revenues $15,199,000,000 $11,521,000,000 Net Income $358,000,000 $323,000,000 Net Income Per Share of Common Stock*: Basic $2.60 $2.14 Diluted $2.58 $2.12 Weighted-Average Number of Shares Outstanding* (In Millions): Basic 137.7 150.9 Diluted 138.5 152.7 *Share and per-share data presented for all periods reflect the effect of a two-for-one stock split, which was effected in the form of a common stock dividend distributed on August 1, 2005. Sunoco, Inc. Earnings Profile of Sunoco Businesses (after tax) (Millions of Dollars Except Per Share Amounts) (Unaudited) Three Months Ended June 30 2005 2004 Variance Refining and Supply $212 $217 $(5) Retail Marketing 7 20 (13) Chemicals 30 12 18 Logistics 9 9 -- Coke 13 9 4 Corporate and Other: Corporate expenses (16) (13) (3) Net financing expenses and other (13) (20) 7 Consolidated net income $242 $234 $8 Net income per share of common stock (diluted) $1.75 $1.53 $.22 Sunoco, Inc. Earnings Profile of Sunoco Businesses (after tax) (Millions of Dollars Except Per Share Amounts) (Unaudited) Six Months Ended June 30 2005 2004 Variance Refining and Supply $320 $317 $3 Retail Marketing (1) 16 (17) Chemicals 63 24 39 Logistics 12 17 (5) Coke 23 18 5 Corporate and Other: Corporate expenses (32) (25) (7) Net financing expenses and other (27) (44) 17 Consolidated net income $358 $323 $ 35 Net income per share of common stock (diluted) $2.58 $2.12 $.46 Sunoco, Inc. Financial and Operating Statistics (Unaudited) For the Three For the Six Months Ended Months Ended June 30 June 30 2005 2004 2005 2004 TOTAL REFINING AND SUPPLY Income (Millions of Dollars) $212 $217 $320 $317 Realized Wholesale Margin* (Per Barrel of Production Available for Sale) $7.87 $7.59 $6.92 $6.66 Crude Inputs as Percent of Crude Unit Rated Capacity** 99 100 98 97 Throughputs*** (Thousand Barrels Daily): Crude Oil 890.8 887.0 882.9 855.8 Other Feedstocks 63.3 57.1 58.0 61.4 Total Throughputs 954.1 944.1 940.9 917.2 Products Manufactured*** (Thousand Barrels Daily): Gasoline 437.8 471.4 440.4 445.2 Middle Distillates 327.3 307.0 315.9 296.1 Residual Fuel 78.0 77.3 77.6 77.5 Petrochemicals 38.4 40.4 38.5 36.9 Lubricants 13.5 15.1 13.1 14.1 Other 95.0 69.8 92.2 82.8 Total Production 990.0 981.0 977.7 952.6 Less: Production Used as Fuel in Refinery Operations 48.9 50.9 47.8 46.9 Total Production Available for Sale 941.1 930.1 929.9 905.7 *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 six months ended June 30, 2004 are based on the amounts attributable to the 170-day ownership period (January 13, 2004 - June 30, 2004) divided by 182, the number of days in the period. Sunoco, Inc. Financial and Operating Statistics (Unaudited) For the Three For the Six Months Ended Months Ended June 30 June 30 2005 2004 2005 2004 Northeast Refining* Realized Wholesale Margin (Per Barrel of Production Available for Sale) $7.55 $7.42 $6.84 $6.59 Market Benchmark 6-3-2-1 (Per Barrel) $6.06 $7.67 $5.29 $7.41 Crude Inputs as Percent of Crude Unit Rated Capacity 100 101 99 100 Throughputs** (Thousand Barrels Daily): Crude Oil 655.1 659.5 650.6 645.2 Other Feedstocks 56.5 52.0 51.7 55.5 Total Throughputs 711.6 711.5 702.3 700.7 Products Manufactured** (Thousand Barrels Daily): Gasoline 320.6 349.0 324.6 334.7 Middle Distillates 248.5 241.9 239.7 234.2 Residual Fuel 73.3 72.7 73.2 73.7 Petrochemicals 29.4 32.8 29.7 31.0 Other 65.4 41.7 61.6 53.5 Total Production 737.2 738.1 728.8 727.1 Less: Production Used as Fuel in Refinery Operations 36.8 38.8 36.1 36.8 Total Production Available for Sale 700.4 699.3 692.7 690.3 *Comprised of the Marcus Hook, Philadelphia and Eagle Point refineries. **Data pertaining to the Eagle Point refinery for the six months ended June 30, 2004 are based on the amounts attributable to the 170-day period subsequent to the January 13, 2004 acquisition date divided by 182, the number of days in the period. MidContinent Refining* Realized Wholesale Margin (Per Barrel of Production Available for Sale) $8.80 $8.11 $7.14 $6.88 Market Benchmark 3-2-1 (Per Barrel) $9.94 $10.34 $8.09 $8.36 Crude Inputs as Percent of Crude Unit Rated Capacity** 96 97 95 90 Throughputs (Thousand Barrels Daily): Crude Oil 235.7 227.5 232.3 210.6 Other Feedstocks 6.8 5.1 6.3 5.9 Total Throughputs 242.5 232.6 238.6 216.5 *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 For the Six Months Ended Months Ended June 30 June 30 2005 2004 2005 2004 MidContinent Refining (continued) Products Manufactured (Thousand Barrels Daily): Gasoline 117.2 122.4 115.8 110.5 Middle Distillates 78.8 65.1 76.2 61.9 Residual Fuel 4.7 4.6 4.4 3.8 Petrochemicals 9.0 7.6 8.8 5.9 Lubricants 13.5 15.1 13.1 14.1 Other 29.6 28.1 30.6 29.3 Total Production 252.8 242.9 248.9 225.5 Less: Production Used as Fuel in Refinery Operations 12.1 12.1 11.7 10.1 Total Production Available for Sale 240.7 230.8 237.2 215.4 RETAIL MARKETING Income (Loss) (Millions of Dollars) $7 $20 $(1) $16 Retail Margin* (Per Barrel): Gasoline $3.32 $4.50 $2.86 $3.64 Middle Distillates $3.34 $3.66 $4.27 $5.04 Sales of Petroleum Products (Thousand Barrels Daily): Gasoline 305.4 304.7 297.6 289.2 Middle Distillates 42.2 40.0 45.8 42.3 347.6 344.7 343.4 331.5 Total Retail Gasoline Outlets, End of Period 4,804 4,864 4,804 4,864 Gasoline and Diesel Throughput per Company Owned or Leased Outlet (M Gal/Site/Month) 139 135 135 130 Convenience Stores: Total Stores, End of Period 742 788 742 788 Merchandise Sales (M$/Store/Month) $81 $76 $76 $72 Merchandise Margin (Company Operated) (% of Sales) 29% 26% 28% 25% *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 For the Six Months Ended Months Ended June 30 June 30 2005 2004 2005 2004 CHEMICALS Income (Millions of Dollars) $30 $12 $63 $24 Margin* (Cents per Pound): All Products** 12.8 9.7 12.7 9.4 Phenol and Related Products 12.8 8.2 11.9 8.4 Polypropylene** 13.2 12.1 14.3 11.2 Sales (Millions of Pounds): Phenol and Related Products 617 648 1,298 1,262 Polypropylene 583 547 1,116 1,122 Plasticizers*** -- -- -- 28 Other 16 43 49 91 1,216 1,238 2,463 2,503 *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) $13 $9 $23 $18 Coke Production (Thousands of Tons) 625 493 1,128 971 Coke Sales (Thousands of Tons) 621 491 1,118 973 Sunoco, Inc. Financial and Operating Statistics (Unaudited) For the Three For the Six Months Ended Months Ended June 30 June 30 2005 2004 2005 2004 CAPITAL EXPENDITURES (Millions of Dollars) Refining and Supply $202 $ 78 $351 $148* Retail Marketing 36 23** 47 39** Chemicals 10 13 28 19* Logistics 11 28 19 32* Coke 3 28 25 44 262 $170 $470 $282 *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. **Excludes $181 million acquisition from ConocoPhillips of 340 retail outlets located primarily in Delaware, Maryland, Virginia and Washington, D.C., which includes inventory. DEPRECIATION, DEPLETION AND AMORTIZATION (Millions of Dollars) Refining and Supply $ 47 $ 44 $ 96 $ 92 Retail Marketing 25 28 52 53 Chemicals 17 17 35 34 Logistics 8 7 16 14 Coke 5 4 8 7 $102 $100 $207 $200 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 $.58 $1.53 $.85 $1.24 $4.20 Special items -- -- (.16) -- (.16) Net income $.58 $1.53 $.69 $1.24 $4.04 Sunoco, Inc. Earnings Profile of Sunoco Businesses (after tax) (Millions of Dollars Except Per Share Amounts) (Unaudited) 2005 1st 2nd Refining and Supply $108 $212 Retail Marketing (8) 7 Chemicals 33 30 Logistics 3 9 Coke 10 13 Corporate and Other: Corporate expenses (16) (16) Net financing expenses and other (14) (13) 116 242 Special items -- -- Consolidated net income $116 $242 Earnings per share of common stock (diluted): Income before special items $.83 $1.75 Special items -- -- Net income $.83 $1.75 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 1st 2nd REVENUES Sales and other operating revenue (including consumer excise taxes) $7,191 $7,970 Interest income 3 3 Other income, net 15 17 7,209 7,990 COSTS AND EXPENSES Cost of products sold and operating expenses 6,059 6,581 Consumer excise taxes 585 640 Selling, general and administrative expenses 209 225 Depreciation, depletion and amortization 105 102 Payroll, property and other taxes 36 28 Interest cost and debt expense 23 23 Interest capitalized (6) (6) 7,011 7,593 Income before income tax expense 198 397 Income tax expense 82 155 Net income $116 $242 Sunoco, Inc. Consolidated Balance Sheets (Millions of Dollars) (Unaudited) At At June 30 December 31 2005 2004 ASSETS Current Assets Cash and cash equivalents $417 $405 Accounts and notes receivable, net 1,703 1,271 Inventories 987 765 Deferred income taxes 110 110 Total Current Assets 3,217 2,551 Investments and long-term receivables 111 115 Properties, plants and equipment, net 5,239 4,966 Prepaid retirement costs 12 11 Deferred charges and other assets 445 436 Total Assets $9,024 $8,079 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable and accrued liabilities $3,161 $2,570 Short-term borrowings and current portion of long-term debt 103 103 Taxes payable 336 349 Total Current Liabilities 3,600 3,022 Long-term debt 1,366 1,379 Retirement benefit liabilities 534 539 Deferred income taxes 781 755 Other deferred credits and liabilities 322 247 Minority interests 619 530 Shareholders' equity 1,802 1,607 Total Liabilities and Shareholders' Equity $9,024 $8,079 Sunoco, Inc. Consolidated Statements of Cash Flows (Millions of Dollars) (Unaudited) For the Six Months Ended June 30 2005 2004 INCREASES (DECREASES) IN CASH AND CASH EQUIVALENTS CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 358 $ 323 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, depletion and amortization 207 200 Deferred income tax expense 25 105 Proceeds from power contract restructuring 48 -- Payments in excess of expense for retirement plans (5) -- Changes in working capital pertaining to operating activities, net of effect of acquisitions (74) 58 Other 12 (7) Net cash provided by operating activities 571 679 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (470) (282) Acquisitions -- (416) Proceeds from divestments 21 111 Other 5 9 Net cash used in investing activities (444) (578) CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from short-term borrowings -- 100 Repayments of long-term debt (13) (108) Net proceeds from issuance of Sunoco Logistics Partners L.P. limited partnership units 99 129 Cash distributions to investors in cokemaking operations (11) (27) Cash distributions to investors in Sunoco Logistics Partners L.P. (12) (8) Cash dividend payments (48) (42) Purchases of common stock for treasury (131) (65) Proceeds from issuance of common stock under management incentive and employee option plans 6 28 Other (5) (4) Net cash provided by (used in) financing activities (115) 3 Net increase in cash and cash equivalents 12 104 Cash and cash equivalents at beginning of period 405 431 Cash and cash equivalents at end of period $417 $535