Sunoco 2004 Annual Report Download - page 18

Hook, PA Epsilon Products Company, LLC joint venture facility (“Epsilon”). This busi-
ness also distributes and markets these products. In September 2004, Sunoco sold its one-
third interest in its Mont Belvieu, TX Belvieu Environmental Fuels (“BEF”) MTBE
production facility to Enterprise Products Operating L.P. (“Enterprise”). In addition, a fa-
cility in Pasadena, TX, which produces plasticizers, was sold to BASF in January 2004,
while a facility in Neville Island, PA continues to produce plasticizers exclusively for BASF
under a three-year tolling agreement.
2004 2003* 2002
Income (millions of dollars) $94 $53 $28
Margin** (cents per pound):
All products*** 11.0¢ 9.5¢ 6.3¢
Phenol and related products 9.7¢ 8.2¢ 6.6¢
Polypropylene*** 13.4¢ 11.5¢ 9.0¢
Sales (millions of pounds):
Phenol and related products 2,615 2,629 2,831
Polypropylene†2,239 2,248 1,346
Plasticizers†† 28 591 615
Propylene††† —— 774
Other 187 173 178
5,069 5,641 5,744
* Restated to reflect the consolidation of Epsilon, effective January 1, 2003, in connection with the adoption of FASB Interpretation No.
46 in the first quarter of 2004.
** 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 entered into on March 31, 2003 with
Equistar Chemicals, L.P. (“Equistar”) which is priced on a cost-based formula that includes a fixed discount (see below).
†Includes amounts attributable to the Bayport facility subsequent to its purchase effective March 31, 2003 (see below) and the Epsilon
joint venture subsequent to its consolidation effective January 1, 2003.
†† The plasticizer business was divested in January 2004 (see below).
††† Effective with the consolidation of Epsilon beginning January 1, 2003, excludes refinery-grade propylene sold to Epsilon which is now
eliminated in consolidation.
Chemicals segment income increased $41 million in 2004 due largely to higher realized
margins for both phenol and polypropylene ($35 million) and an increased income con-
tribution associated with the March 2003 propylene supply agreement with Equistar ($12
million). Also contributing to the improvement were higher operating earnings from the
recently divested BEF joint venture chemical operations ($6 million) (see below). Partially
offsetting these positive factors were higher expenses ($9 million), largely natural gas fuel
costs.
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 the supply agreement with Equistar. Partially offsetting the positive variances 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 de-
mand. Also included in 2003 results were $4 million of after-tax charges primarily related
to employee terminations in connection with a productivity improvement plan.
In 2004, Sunoco sold its one-third partnership interest in BEF to Enterprise for $15 million
in cash, resulting in an $8 million after-tax loss on divestment. In connection with the
sale, Sunoco has retained one-third of any liabilities and damages exceeding $300 thou-
sand in the aggregate arising from any claims resulting from the ownership of the assets and
liabilities of BEF for the period prior to the divestment date, except for any on-site
environmental claims which are retained by Enterprise. As a result of various gov-
ernmental actions which caused a material adverse impact on MTBE industry demand, in
2003, BEF recorded a write-down of its MTBE production facility to its estimated fair value
at that time. Sunoco’s share of this provision amounted to $15 million after tax. During
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