Sunoco 2004 Annual Report Download - page 56

The pro forma data does not purport to be indicative of
the results that actually would have been obtained if the
Eagle Point refinery and related assets, the retail outlets
and the Bayport facility had been part of Sunoco’s busi-
nesses for the periods presented and is not intended to be
a projection of future results. Accordingly, the pro forma
results do not reflect any restructuring costs, changes in
operating levels, or potential cost savings and other
synergies prior to the acquisition dates.
Logistics Assets—In 2004, Sunoco Logistics Partners
L.P. completed the following acquisitions: in March, cer-
tain pipeline and other logistics assets previously pur-
chased by Sunoco with the Eagle Point refinery for $20
million; in April, two ConocoPhillips refined product
terminals located in Baltimore, MD and Manassas, VA
for $12 million; in June, an additional one-third interest
in the Harbor Pipeline from El Paso Corporation for $7
million; and in November, a refined product terminal
located in Columbus, OH from a subsidiary of Certified
Oil Company for $8 million. In November 2002, the
Partnership completed the acquisition from an affiliate of
Union Oil Company of California (“Unocal”) of interests
in three Midwestern and Western U.S. products pipeline
companies. This acquisition consisted of a 31.5 percent
interest in Wolverine Pipe Line Company, a 9.2 percent
interest in West Shore Pipe Line Company and a 14.0
percent interest in Yellowstone Pipe Line Company, for
$54 million. During September 2003, the Partnership
acquired an additional 3.1 percent interest in West Shore
Pipe Line Company for $4 million, increasing its overall
ownership interest in West Shore to 12.3 percent. In
November 2002, the Partnership also completed the ac-
quisition of an ownership interest in West Texas Gulf
Pipeline for $6 million, which coupled with the 17.3 per-
cent interest it acquired from Sunoco on the same date,
gave it a 43.8 percent ownership interest. The purchase
price of the 2004 acquisitions has been included in
properties, plants and equipment, while the purchase
price of the 2003 and 2002 acquisitions has been included
in investments and long-term receivables in the con-
solidated balance sheets. No pro forma information has
been presented since the acquisitions were not material
in relation to Sunoco’s consolidated results of operations.
Divestments
Belvieu Environmental Fuels—In 2004, Sunoco sold its
one-third partnership interest in Belvieu Environmental
Fuels (“BEF”), a joint venture that owns and operates an
MTBE production facility in Mont Belvieu, TX, to Enter-
prise Products Operating L.P. (“Enterprise”) for $15 mil-
lion in cash, resulting in a $13 million loss on divestment
($8 million after tax). This charge is included as a loss on
divestment in other income, net, in the 2004 con-
solidated statement of operations. In connection with the
sale, Sunoco has retained one-third of any liabilities and
damages exceeding $300 thousand in the aggregate aris-
ing from any claims resulting from the ownership of the
assets and liabilities of BEF for the period prior to the di-
vestment date, except for any on-site environmental
claims which are retained by Enterprise. Due to the na-
ture of this indemnification, the Company cannot esti-
mate the fair value, nor determine the total amount of
the indemnification, if any. During 2003, as a result of
various governmental actions which caused a material
adverse impact on MTBE industry demand, BEF evaluated
its various alternative uses for its MTBE production fa-
cility, including the conversion to the production of iso-
octane or alkylate. In connection therewith, in 2003, BEF
recorded a write-down of its MTBE production facility to
its estimated fair value at that time. The estimated fair
value was determined by an independent appraiser using
present value techniques which reflect various alternative
operating assumptions. Sunoco’s share of this provision,
which is included as an equity loss in other income, net,
in the 2003 consolidated statement of operations,
amounted to $23 million ($15 million after tax).
Under an off-take agreement with BEF, which expired in
2004, Sunoco had agreed to purchase all of the MTBE
production from the facility. Sunoco’s total MTBE pur-
chases from BEF, which are included in costs of products
sold and operating expenses in the consolidated state-
ments of operations, were $149, $183 and $234 million
during 2004, 2003 and 2002, respectively.
Retail Portfolio Management Program—A Retail
Portfolio Management (“RPM”) program is ongoing,
which is selectively reducing the Company’s invested
capital in Company-owned or leased sites. During the
2003-2005 period, selected sites, including some of the
recently acquired Speedway®and Mobil®outlets, are
being divested with most of the sites being converted to
contract dealers and distributors. The Company expects
to generate divestment proceeds of approximately $170
million, of which $120 million has been received in 2003
and 2004 related to the sale of 241 sites. Most of the
gasoline sales volume attributable to the divested sites has
been retained within the Sunoco branded business. Dur-
ing 2004 and 2003, net gains of $11 and $12 million, re-
spectively ($7 and $8 million after tax, respectively) were
recognized as gains on divestments in other income, net,
in the consolidated statements of operations in con-
nection with the RPM program. The Company expects
the RPM program to generate additional gains in 2005.
Midwest Marketing Divestment Program—In 2003,
Sunoco announced its intention to sell its interest in 190
retail sites in Michigan and the southern Ohio markets of
Columbus, Dayton and Cincinnati (“Midwest Marketing
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