Sunoco 2004 Annual Report Download - page 19

2003, Sunoco also announced its decision to sell its plasticizer business and recorded a $17
million after-tax charge to write down the assets held for sale to their estimated fair values
less costs to sell and to establish accruals for employee terminations 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 Company’s plasticizer facility in
Pasadena, TX. The Company’s Neville Island, PA site was not part of the transaction and
continues to produce plasticizers exclusively 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. During 2002, Sunoco shut down a 200 million pounds-per-year polypropylene line
at its LaPorte, TX plant and a 170 million pounds-per-year aniline and diphenylamine
production facility in Haverhill, OH. In connection with the 2002 shutdowns, the Com-
pany recorded a $14 million after-tax provision in 2002, primarily related to the write-off
of the affected assets. All of these items are reported as part of the Asset Write-Downs and
Other Matters shown separately in Corporate and Other in the Earnings Profile of Sunoco
Businesses (see Notes 2 and 3 to the consolidated financial statements).
Effective March 31, 2003, Sunoco formed a limited partnership with Equistar involving
Equistar’s ethylene facility in LaPorte, TX. Equistar is a wholly owned subsidiary of Lyon-
dell Chemical Company. In connection with this transaction, Equistar and the new part-
nership entered into a 700 million pounds-per-year, 15-year propylene supply contract
with Sunoco. Of this amount, 500 million pounds per year is priced on a cost-based for-
mula that includes a fixed discount that declines over the life of the contract, while the
remaining 200 million pounds per year is based on market prices. Sunoco also purchased
Equistar’s polypropylene facility in Bayport, TX. Sunoco paid $194 million in cash and
borrowed $4 million from the seller to form the partnership and acquire the Bayport fa-
cility. Through the new partnership, the Company believes it has secured a favorable long-
term supply of propylene for its Gulf Coast polypropylene business. Realization of these
benefits is largely dependent upon performance by Equistar, which has a credit rating be-
low investment grade. Equistar has not given any indication that it will not perform under
its contracts. In the event of nonperformance, Sunoco has collateral and certain other
contractual rights under the partnership agreement. The acquisition of the Bayport facility
has increased the Company’s polypropylene capacity, complementing and enhancing the
Company’s existing polypropylene business and strengthening its market position (see
Note 2 to the consolidated financial statements).
Effective January 1, 2001, Sunoco completed the acquisition of Aristech, a wholly owned
subsidiary of Mitsubishi Corporation (“Mitsubishi”), for $506 million in cash and the as-
sumption of $163 million in debt. 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 polypropylene and phenol exceed certain agreed-upon thresholds through 2006. As of
December 31, 2004, no such payments have been earned. Since the $167 million represents
a present value as of January 1, 2001, the actual amounts that could ultimately be paid un-
der the earn out provisions increase over time by a contract-specified 11 percent per year.
However, these contingent payments are limited to $90 million per year. Any earn out
payments would be treated as adjustments to the purchase price. In addition, Mitsubishi is
responsible for up to $100 million of any potential environmental liabilities of the business
identified through 2026 arising out of or related to the period prior to the acquisition date.
Logistics
The Logistics business operates refined product and crude oil pipelines and terminals and
conducts crude oil acquisition and marketing activities primarily in the Northeast, Mid-
west and South Central regions of the United States. In addition, the Logistics business
has an ownership interest in several refined product and crude oil pipeline joint ventures.
Logistics operations are conducted primarily through Sunoco Logistics Partners L.P., the
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