Sunoco 2003 Annual Report Download - page 49

2. Other Income
(Millions of Dollars) 2003 2002 2001
Equity income (loss):
Belvieu Environmental Fuels
(Note 7) $(29) $9 $ 5
Epsilon Products Company,
LLC (Notes 1, 7 and 12) 10 (3) (11)
Pipeline joint ventures
(Notes 3 and 7) 20 14 11
Other 233
Noncash reduction in minority
interests in cokemaking
operations (Note 13) 335 37
Gain on divestments 32 65
Other 16 14 21
$54 $78 $ 71
Sunoco has a one-third partnership interest in Belvieu
Environmental Fuels (“BEF”), a joint venture that owns
and operates an MTBE production facility in Mont Bel-
vieu, TX. Various governmental authorities have banned
or are considering the ban or phase-down of MTBE. These
governmental actions have had, and are expected to con-
tinue to have, a materially adverse impact on MTBE in-
dustry demand. As a result, the joint venture is currently
evaluating alternative uses for its MTBE production fa-
cility, including the conversion from the production of
MTBE to the production of iso-octane or alkylate, which
are used as gasoline blending components. Although in-
dustry MTBE production capacity has been contracting,
MTBE supply is expected to exceed future demand. Ac-
cordingly, during the third quarter of 2003, the joint ven-
ture recorded a provision to write down its MTBE
production facility to its estimated fair value. The esti-
mated fair value was determined by an independent ap-
praiser using present value techniques which reflect
various alternative operating assumptions. Sunoco’s share
of this provision amounted to $23 million ($15 million
after tax). If the assumptions used to estimate the fair
market value of the MTBE production facility change, an
additional write-down of this facility may be necessary. In
order to obtain a secure supply of oxygenates for the
manufacture of reformulated gasoline, in 1995, Sunoco
entered into an off-take agreement with BEF, which ex-
pires in 2004, whereby Sunoco agreed to purchase all of
the MTBE production from the plant. Sunoco’s total
MTBE purchases under this agreement, which are in-
cluded in cost of products sold and operating expenses in
the consolidated statements of operations, were $183,
$234 and $207 million during 2003, 2002 and 2001,
respectively
In April 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 Divestment Program”). During
2003, 75 Company-owned or leased properties and con-
tracts to supply 23 dealer-owned sites were divested under
this program. The cash generated from these divestments
totaled $46 million, which represents substantially all of
the proceeds expected from the program. The remaining
92 sites are virtually all dealer-owned locations that are
expected to be converted to distributor outlets in 2004.
During 2003, a $14 million gain ($9 million after tax)
was recognized in connection with the Midwest Market-
ing Divestment Program. Sunoco continues to supply
branded gasoline to substantially all of the divested
outlets.
3. Changes in Business
Write-Down of Assets and Other Matters
The following table sets forth summary information re-
garding the provisions for write-down of assets and other
matters:
(Millions of Dollars)
Pretax
Provisions
After-Tax
Provisions
2003
Plasticizer business $28 $17
2002
Chemical facilities $21 $14
Toledo refinery processing units 42
Pipeline and related terminal 53
Litigation accrual 43
$34 $22
2001
Value Added and Eastern Lubricants:
Exit costs $15 $10
Employee terminations 16 11
Puerto Rico refinery sale (12) (11)
Other employee terminations 42
Real estate accrual adjustment (17) (11)
$6 $1
During 2003, Sunoco announced its decision to sell its
plasticizer business and recorded a $23 million provision
($15 million after tax) to write down the assets held for
sale to their estimated fair values less costs to sell and es-
tablished a $5 million accrual ($2 million after tax) for
employee terminations under a postemployment plan and
other required exit costs. Sunoco sold this business and
related inventory in January 2004 to BASF for approx-
imately $90 million in cash. The sale included the Com-
pany’s plasticizer facility in Pasadena, TX. The
Company’s Neville Island, PA, site was not part of the
transaction and will continue to produce plasticizers ex-
clusively for BASF under a three-year tolling agreement.
Sunoco also agreed to provide terminalling services at
this facility to BASF for a 15-year period.
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