Sunoco 2006 Annual Report Download - page 65

Some of these environmental indemnifications are sub-
ject to caps and limits. No accruals have been recorded
for any potential contingent liabilities that will be funded
by the prior owners as management does not believe,
based on current information, that it is likely that any of
the former owners will not perform under any of these
agreements. Other than the preceding arrangements, the
Company has not entered into any arrangements with
third parties to mitigate its exposure to loss from
environmental contamination. Claims for recovery of
environmental liabilities that are probable of realization
totaled $16 million at December 31, 2006 and are in-
cluded principally in deferred charges and other assets in
the consolidated balance sheets.
MTBE Litigation
Sunoco, along with other refiners, manufacturers and sell-
ers of gasoline, owners and operators of retail gasoline
sites, and manufacturers of MTBE, are defendants in ap-
proximately 65 cases in 18 states involving the manu-
facture and use of MTBE in gasoline and MTBE
contamination in groundwater. Plaintiffs, which include
private well owners, water providers and certain gov-
ernmental authorities, allege that refiners and suppliers of
gasoline containing MTBE are responsible for manufactur-
ing and distributing a defective product that con-
taminated groundwater. Plaintiffs are asserting primarily
product liability claims but additional claims are also be-
ing asserted including, nuisance, trespass, negligence, vio-
lation of environmental laws and deceptive business
practices. Plaintiffs are seeking compensatory damages,
and in some cases injunctive relief, exemplary and puni-
tive damages and attorneys’ fees. All of the public water
provider cases have been removed to federal court and
consolidated for pretrial purposes in the U.S. District
Court for the Southern District of New York (MDL
1358). Motions to remand these cases to state courts have
been denied. Motions to dismiss were also denied.
Discovery is proceeding in four focus cases. Sunoco is a
defendant in three of those cases. In addition, several of
the private well owner cases are moving forward. Sunoco
is a focus defendant in two of those cases. Up to this
point, for the group of MTBE cases currently pending,
there has been insufficient information developed about
the plaintiffs’ legal theories or the facts that would be
relevant to an analysis of potential exposure. Based on
the current law and facts available at this time, Sunoco
believes that these cases will not have a material adverse
effect on its consolidated financial position.
Conclusion
Many other legal and administrative proceedings are
pending or possible against Sunoco from its current and
past operations, including proceedings related to
commercial and tax disputes, product liability, antitrust,
employment claims, leaks from pipelines and under-
ground storage tanks, natural resource damage claims,
premises-liability claims, allegations of exposures of third
parties to toxic substances (such as benzene or asbestos)
and general environmental claims. The ultimate outcome
of pending proceedings and other matters identified
above cannot be ascertained at this time; however, it is
reasonably possible that some of them could be resolved
unfavorably to Sunoco. Management believes that these
matters could have a significant impact on results of
operations for any one year. However, management does
not believe that any additional liabilities which may arise
pertaining to such matters would be material in relation
to the consolidated financial position of Sunoco at De-
cember 31, 2006.
15. Minority Interests
Cokemaking Operations
Sunoco received a total of $309 million in exchange for
interests in its Jewell cokemaking operations in two sepa-
rate transactions in 1995 and 2000. Sunoco also received
a total of $415 million in exchange for interests in its In-
diana Harbor cokemaking operations in two separate
transactions in 1998 and 2002. Sunoco did not recognize
any gain as of the dates of these transactions because the
third-party investors were entitled to a preferential return
on their respective investments.
In December 2006, Sunoco acquired the limited partner-
ship interest of the third-party investor in the Jewell
cokemaking operation for $155 million and recognized a
$3 million after-tax loss in connection with this trans-
action (Note 2). As a result, such third-party investor is
no longer entitled to any preferential or residual return.
The preferential returns of the investors in the Indiana
Harbor cokemaking operations are currently equal to 98
percent of the cash flows and tax benefits from such
cokemaking operations during the preferential return
period, which continues until the investor entitled to the
preferential return recovers its investment and achieves a
cumulative annual after-tax return of approximately 10
percent. The preferential return period for the Indiana
Harbor operations is projected to end during 2007. The
63