Sunoco 2011 Annual Report Download - page 53

In January 2011, SunCoke Energy and ArcelorMittal participated in court ordered mediation to resolve
ArcelorMittal’s challenges related to the prices charged for coke produced at the Jewell and Haverhill
cokemaking facilities. The parties reached commercial resolutions of these issues which included, effective
January 1, 2011, amending the Jewell coke supply agreement to eliminate the fixed coal cost adjustment factor
and increasing the operating cost and fixed fee components under both the Jewell and Haverhill agreements. The
volume terms of both agreements were also modified to remain take-or-pay through the end of each contract in
December 2020 rather than converting to “requirements” in the fourth quarter of 2012. SunCoke Energy also
entered into a confidential settlement to resolve the Indiana Harbor arbitration claims.
In March 2008, SunCoke Energy entered into a coke purchase agreement and related energy sales
agreement with AK Steel under which SunCoke Energy built, owns and operates a cokemaking facility and
associated cogeneration power plant adjacent to AK Steel’s Middletown, OH steelmaking facility. In connection
with this agreement, AK Steel has agreed to purchase, over a 20-year period, all of the coke and available
electrical power from these facilities. SunCoke Energy commenced operations at the Middletown facility in
October 2011. The plant is expected to produce 550 thousand tons of coke per year and provide, on average, 44
megawatts of power. Construction on these facilities was completed during the fourth quarter of 2011 at an
aggregate cost of $432 million.
Corporate and Other
Corporate Expenses—Corporate administrative expenses decreased $28 million pretax in 2011 largely due
to lower one-time project costs as well as lower staffing and incentive compensation costs. Corporate
administrative expenses increased $42 million pretax in 2010 largely due to higher accruals for performance-
related incentive compensation resulting from the Company’s improved financial performance compared to 2009
and start-up costs associated with outsourcing and other corporate initiatives.
Net Financing Expenses and Other—Net financing expenses and other decreased $9 million pretax in 2011
primarily due to higher interest income and capitalized interest, partially offset by increased interest expense
attributable to new borrowings of Sunoco Logistics Partners L.P. and SunCoke Energy. The increased interest
income was primarily attributable to notes receivable resulting from the sale of the Toledo refinery and related
inventory. The capitalized interest was largely attributable to construction of the Middletown cokemaking
facility. Net financing expenses and other increased $24 million pretax in 2010 primarily due to higher interest
expense and lower capitalized interest. The increased interest expense was largely driven by interest incurred
under new borrowings of Sunoco Logistics Partners L.P. associated with its growth capital.
Asset Write-Downs and Other Matters—Continuing Operations—In 2011, Sunoco recorded a $2,346
million noncash provision ($1,405 million after tax) to write down assets at the Philadelphia and Marcus Hook
refineries to their estimated fair values and recorded provisions for severance, contract terminations and idling
expenses of $243 million ($144 million after tax) in connection with Sunoco’s decision to exit its refining
business; recorded a $13 million provision ($8 million after tax) primarily for pension settlement and curtailment
losses and employee terminations and related costs in connection with business improvement initiatives; and
recorded a $5 million provision ($3 million after tax) to write down certain Eagle Point storage assets which were
taken out of service. In 2010, Sunoco recorded a $57 million provision ($34 million after tax) primarily for
additional asset write-downs attributable to a decline in the fair market value of certain assets of the Eagle Point
refinery which was permanently shut down in the fourth quarter of 2009 and contract losses in connection with
excess barge capacity resulting from this shutdown; recorded a $68 million provision ($40 million after tax)
primarily for pension settlement losses and accruals for employee terminations and related costs in connection
with business improvement initiatives; and recognized a $16 million gain ($9 million after tax) on an insurance
settlement related to MTBE coverage. In 2009, Sunoco recorded a $476 million provision ($284 million after
tax) in connection with the shutdown of all process units at the Eagle Point refinery; established a $169 million
accrual ($100 million after tax) for employee terminations and related costs in connection with business
improvement initiatives; recorded a $35 million provision ($21 million after tax) to write down to estimated fair
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