Sunoco 2004 Annual Report Download - page 14

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Results of Operations
Earnings Profile of Sunoco Businesses (after tax)
(Millions of Dollars) 2004 2003 2002
Refining and Supply $541 $261 $(31)
Retail Marketing 68 91 20
Chemicals 94 53 28
Logistics 31 26 33
Coke 40 43 42
Corporate and Other:
Corporate expenses (67) (40) (26)
Net financing expenses and other (78) (99) (91)
Income tax settlement 18 ——
Midwest marketing divestment program —9—
Asset write-downs and other matters (8) (32) (22)
Debt restructuring (34) ——
Consolidated net income (loss) $605 $312 $(47)
Analysis of Earnings Profile of Sunoco Businesses
In 2004, Sunoco earned $605 million, or $8.08 per share of common stock on a diluted
basis, compared to net income of $312 million, or $4.03 per share, in 2003 and a net loss of
$47 million, or $.62 per share, in 2002.
The $293 million increase in net income in 2004 was primarily due to an increase in mar-
gins in Sunoco’s Refining and Supply business ($234 million) and the income contribution
from the Eagle Point refinery acquired on January 13, 2004 ($135 million). Also con-
tributing to the improvement were higher production of refined products ($15 million),
higher margins from Sunoco’s Chemicals business ($35 million), income attributable to
the Mobil®retail gasoline outlets acquired from ConocoPhillips in April 2004 ($15
million), increased income from the Speedway®sites acquired from Marathon in June
2003 ($6 million), increased earnings related to the March 2003 propylene supply agree-
ment with Equistar ($12 million), lower net financing expenses ($21 million), a gain on an
income tax settlement ($18 million) and lower provisions for asset write-downs and other
matters ($24 million). Partially offsetting these positive factors were higher expenses across
the Company ($104 million), primarily fuel, depreciation and employee-related charges,
including pension and performance-related incentive compensation; lower non-gasoline
income ($9 million); lower margins for retail gasoline ($27 million); an accrual for the
estimated liability attributable to retrospective premiums related to certain insurance poli-
cies ($10 million); the absence of gains from a retail marketing divestment program in the
Midwest ($9 million); a loss on early extinguishment of debt in connection with a debt
restructuring ($34 million); and a higher effective income tax rate ($23 million).
In 2003, the $359 million increase in net income 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 retail gasoline sites acquired from Marathon and $14 million of after-tax income
related to the propylene supply agreement with 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 chemical 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 Sunoco’s cokemaking operations; and a
higher effective income tax rate ($7 million).
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