Sunoco 2004 Annual Report Download - page 23

companies will purchase all of the electricity produced at the cogeneration power plant.
Those off-take agreements are to be negotiated. The facilities are expected to be opera-
tional in 2006.
Given the rise in demand for steel and the related demand increases for coke, the Com-
pany is currently discussing other opportunities for developing new heat recovery and non-
recovery cokemaking facilities with several domestic and international steel companies. It
is intended that Sun Coke will license its proprietary technology, oversee the construction
of coke production facilities and any associated cogeneration power plants, and operate the
cokemaking facilities. The steel company customers are expected to purchase the coke
production on a take-or-pay or equivalent basis. The ownership of the project companies
would likely be shared by several parties, including the steel company customers, with Sun
Coke generally holding a minority ownership interest.
Corporate and Other
Corporate Expenses—Corporate administrative expenses increased $27 million in 2004 af-
ter increasing $14 million in 2003. These increases were largely due to higher employee-
related expenses, including pension and performance-related incentive compensation. In
2004, an accrual for the estimated liability attributable to retrospective premiums related
to certain insurance policies also contributed to the increase.
Net Financing Expenses and Other—Net financing expenses and other decreased $21 million
in 2004 primarily due to lower after-tax expense attributable to the preferential return of
third-party investors in Sunoco’s cokemaking operations (see “Coke” above) ($5 million),
lower interest expense in part due to debt restructuring activities ($6 million), a higher ef-
fective income tax rate ($6 million) and higher capitalized interest ($5 million). In the
third quarter of 2004, the Company repurchased outstanding debt with a par value of $352
million through a series of tender offers and open market purchases utilizing the net pro-
ceeds from the issuance of $250 million of 4
7
⁄ 8 percent, 10-year notes under its shelf regis-
tration statement and $154 million of cash. The Company recognized a $34 million after-
tax loss in 2004 due to the early extinguishment of the debt, which is reported separately
in Corporate and Other in the Earnings Profile of Sunoco Businesses. (See “Financial
Condition—Financial Capacity” below and Note 11 to the consolidated financial
statements.) In 2003, net financing expenses and other increased $8 million primarily due
to a $9 million increase in after-tax expense attributable to the preferential return of third-
party investors in Sunoco’s cokemaking operations.
Income Tax Settlements—During 2004, Sunoco settled a dispute concerning the computa-
tion of interest on numerous federal income tax issues which increased net income by $18
million.
Midwest Marketing Divestment Program—During 2003, Sunoco recognized a $9 million
after-tax gain from Retail Marketing’s divestment of certain sites in connection with its
Midwest Marketing Divestment program. (See Note 2 to the consolidated financial
statements.)
Asset Write-Downs and Other Matters—During 2004, Sunoco sold Chemicals’ one-third
interest in BEF and, in connection therewith, recorded an $8 million after-tax loss on
divestment.
During 2003, as a result of various governmental actions which caused a material adverse
impact on MTBE industry demand, the BEF joint venture recorded a provision to write
down its MTBE production facility to its estimated fair value at that time. Sunoco’s share of
this provision amounted to $15 million after tax. In 2003, Sunoco also recorded a $17 mil-
lion after-tax charge to write down Chemicals’ plasticizer assets that were held for sale at
December 31, 2003 to their estimated fair values less costs to sell and to establish accruals
for employee terminations and other required exit costs.
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