Sunoco 2003 Annual Report Download - page 15

Results of Operations
Earnings Profile of Sunoco Businesses (after tax)
(Millions of Dollars) 2003 2002 2001
Refining and Supply $261 $(31) $290
Retail Marketing 91 20 87
Chemicals 53 28 6
Logistics 26 33 42
Coke 43 42 61
Corporate and Other:
Corporate expenses (40) (26) (24)
Net financing expenses and other (99) (91) (82)
Income tax settlements —— 21
Asset write-downs and other matters (23) (22) (1)
Value Added and Eastern Lubricants* —— (2)
Consolidated net income (loss) $312 $(47) $398
* In connection with the Company’s decision to dispose of its Puerto Rico refinery, lubricants blending and packaging facilities and
lubricants branded marketing assets (collectively, “Value Added and Eastern Lubricants”), those operations are reported as a separate
item.
Analysis of Earnings Profile of Sunoco Businesses
In 2003, Sunoco, Inc. and its subsidiaries earned $312 million, or $4.03 per share of com-
mon stock on a diluted basis, compared to a net loss of $47 million, or $.62 per share, in
2002 and net income of $398 million, or $4.85 per share, in 2001.
The $359 million increase in net income in 2003 was primarily due to significantly higher
margins in Sunoco’s Refining and Supply ($339 million), Retail Marketing ($78 million)
and Chemicals ($50 million) businesses. Also contributing to the improvement in earnings
were higher production of refined products ($13 million), $7 million of after-tax income
from the 193 retail gasoline sites acquired from Marathon and $14 million of after-tax in-
come related to a supply agreement with Equistar and the polypropylene facility acquired
from Equistar. Partially offsetting these positive factors were higher expenses across the
Company ($109 million), primarily refinery fuel and utility costs and employee-related
expenses including pension and performance-related incentive compensation; lower chem-
ical sales volumes ($15 million); higher net financing expenses ($8 million), primarily due
to higher expenses attributable to the preferential return of third-party investors in Suno-
co’s cokemaking operations; and a higher effective income tax rate ($7 million).
In 2002, the $445 million decrease in net income was primarily due to significantly lower
margins in Sunoco’s Refining and Supply ($341 million) and Retail Marketing ($70 mil-
lion) businesses. Also contributing to the decline in earnings were a $9 million reduction
in Logistics income largely due to the sale in February 2002 of a 24.8 percent interest in
Sunoco Logistics Partners L.P., the master limited partnership that is 75.3 percent owned
by Sunoco; a $19 million reduction in Coke earnings, which were negatively impacted by
the bankruptcy filing of a former long-term contract customer; the absence of gains on in-
come tax settlements ($21 million); higher insurance and pension costs ($24 million); and
higher provisions for asset write-downs and other matters ($21 million). Partially offsetting
these negative factors were higher production of refined products ($9 million), higher re-
tail gasoline ($14 million) and chemicals ($14 million) sales volumes and lower refinery
fuel costs ($20 million).
Refining and Supply
The Refining and Supply business manufactures petroleum products at its Marcus Hook, Phil-
adelphia, Toledo and Tulsa refineries and commodity petrochemicals at its Marcus Hook,
Philadelphia and Toledo refineries and sells these products to other Sunoco businesses and to
wholesale and industrial customers. This business also manufactures lubricant products at its
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