Sunoco 2003 Annual Report Download - page 52

Pipeline Interests—In November 2002, Sunoco Logistics
Partners L.P. (the “Partnership”), a master limited part-
nership which is 75.3 percent owned by Sunoco and
operates a substantial portion of the Company’s logistics
operations, 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. The 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 in cash. During September 2003, the
Partnership acquired an additional 3.1 percent interest in
West Shore Pipe Line Company for $4 million, increas-
ing its overall ownership interest in West Shore to 12.3
percent. In November 2002, the Partnership also com-
pleted the acquisition of an additional interest in West
Texas Gulf pipeline for $6 million in cash, which in-
creased its ownership interest in this pipeline from 17.3
percent to 43.8 percent. The purchase prices for the ac-
quired pipeline interests have been reflected as invest-
ments and long-term receivables in the consolidated
balance sheets. No pro forma information has been pre-
sented relating to these pipeline interests since the
acquisitions were not material in relation to Sunoco’s
consolidated results of operations.
Aristech Chemical Corporation—Effective January 1,
2001, Sunoco completed the acquisition of Aristech
Chemical Corporation (“Aristech”), a wholly owned sub-
sidiary of Mitsubishi Corporation (“Mitsubishi”), for $506
million in cash and the assumption of $163 million of
debt. The purchase price included $107 million for work-
ing capital. Contingent payments with a net present
value as of the acquisition date of up to $167 million (the
“earn out”) may also be made if realized margins for poly-
propylene and phenol exceed certain agreed-upon
thresholds through 2006. As of December 31, 2003, no
such payments have been earned. Since the $167 million
represents a present value as of January 1, 2001, the ac-
tual amounts that could ultimately be paid under the earn
out provisions increase over time by a contract-specified
11 percent per year. However, the contingent payments
are limited to $90 million per year. Any earn out pay-
ments would be treated as adjustments to the purchase
price. Sunoco also entered into a margin hedge agree-
ment with Mitsubishi whereby Mitsubishi provided poly-
propylene margin protection for 2001 of up to $6.5
million per quarter. In connection with the margin hedge
agreement, Sunoco received $19.5 million from Mitsu-
bishi in 2001 related to Aristech’s operations for the first
nine months and an additional $6.5 million in the first
quarter of 2002 related to the 2001 fourth quarter’s oper-
ations. These payments were reflected as reductions in
the purchase price when received. In addition, Mitsubishi
is responsible during a 25-year indemnification period for
up to $100 million of potential environmental liabilities
of the business arising out of or related to the period prior
to the acquisition date.
Included in the purchase were Aristech’s five chemical
plants located at Neal, WV; Haverhill, OH; Neville Is-
land, PA; and Pasadena and LaPorte, TX and a research
center in Pittsburgh, PA. These facilities produce poly-
propylene, phenol and related derivatives (including
biphenol-A) and plasticizers. The facility in Pasadena,
TX, which produces plasticizers, was sold to BASF in Jan-
uary 2004, while the facility in Neville Island, PA will
continue to produce plasticizers exclusively for BASF un-
der a three-year tolling agreement.
The purchase price has been allocated to the assets ac-
quired and liabilities assumed based on their relative
estimated fair market values at the acquisition date. The
following is a summary of the effects of this transaction
on Sunoco’s consolidated financial position:
(Millions of Dollars):
Allocation of purchase price:
Accounts and notes receivable, net $ 156
Inventories 130
Investments and long-term receivables 8
Properties, plants and equipment, net 674
Accounts payable (110)
Accrued liabilities (57)
Current portion of long-term debt (1)
Taxes payable (10)
Long-term debt (162)
Retirement benefit liabilities (25)
Deferred income taxes (103)
Other deferred credits and liabilities (20)
Cash paid, net of cash received under margin hedge
agreement and cash acquired $ 480
4. Income Taxes
The components of income tax expense (benefit) are as
follows:
(Millions of Dollars) 2003 2002 2001
Income taxes currently payable:
U.S. federal $61 $(47) $ (19)
State and other 11 25
72 (45) (14)
Deferred taxes:
U.S. federal 101 18 195
State and other 10 18
111 19 203
$183 $(26) $189
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