Sunoco 2003 Annual Report Download - page 19

2003 2002 2001
Income (millions of dollars) $53 $28 $6
Margin* (cents per pound):
All products 7.9¢ 6.3¢ 6.4¢
Phenol and related products 8.2¢ 6.6¢ 7.4¢
Polypropylene** 11.0¢ 9.5¢ 8.9¢
Sales (millions of pounds):
Phenol and related products 2,629 2,831 2,605
Polypropylene** 1,562 1,346 1,384
Plasticizers*** 591 615 532
Propylene 774 774 715
Other 162 178 175
5,718 5,744 5,411
* Wholesale sales price less the cost of feedstocks, product purchases, internally produced fuel and related terminalling and trans-
portation divided by sales volumes. The polypropylene margin for 2003 excludes 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 amount (see
below).
** Excludes Epsilon joint venture. Includes Bayport facility subsequent to its purchase effective March 31, 2003 (see below).
*** Consists of amounts attributable to the plasticizer business, which was divested in January 2004 (see below).
Chemicals segment income increased $25 million in 2003 due largely to higher margins for
both phenol and polypropylene ($50 million) and $14 million of after-tax income related
to a supply agreement with Equistar Chemicals, L.P. (“Equistar”) and sales from the poly-
propylene facility acquired from Equistar (see below). Partially offsetting the positive var-
iances were higher expenses ($8 million), including natural gas fuel costs; lower sales
volumes ($15 million); and lower equity income from BEF ($10 million), due to weakness
in MTBE demand. Also included in 2003 results were $4 million of after-tax charges
primarily related to employee terminations in connection with a productivity improve-
ment plan.
Chemicals segment income increased $22 million in 2002 primarily as a result of higher
sales volumes ($14 million), which increased 6 percent versus 2001. Also contributing to
the increase were lower operating expenses ($4 million) due to a decline in both fuel costs
and controllable expenses and higher equity income from Sunoco’s joint venture chemical
operations ($7 million). Partially offsetting these positive factors were lower margins
($5 million), primarily for phenol and related products.
During 2003, BEF recorded a provision to write down its MTBE production facility to its
estimated fair value. Sunoco’s share of this provision amounted to $15 million after tax.
During 2003, Sunoco also announced its intention to sell its plasticizer business and re-
corded a $17 million after-tax charge to write down the assets held for sale to their esti-
mated fair values less costs to sell and to establish accruals for employee terminations under
a postemployment plan and other required exit costs. Sunoco sold this business and related
inventory in January 2004 to BASF for approximately $90 million in cash. The sale in-
cluded the Company’s plasticizer facility in Pasadena, TX. The Company’s Neville Island,
PA site was not part of the transaction and will continue to produce plasticizers exclusively
for BASF under a three-year tolling agreement. Sunoco also agreed to provide terminalling
services at this facility to BASF for a 15-year period. During 2002, Sunoco shut down a 200
million pounds-per-year polypropylene line at its LaPorte, TX plant and a 170 million
pounds-per-year aniline and diphenylamine production facility in Haverhill, OH. In con-
nection with the 2002 shutdowns, the Company recorded a $14 million after-tax provision
in 2002, primarily related to the write-off of the affected assets. These items are 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 Notes 2 and 3 to the consolidated
financial statements). The shutdowns have not had a material impact on Chemicals’ re-
sults of operations.
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