Sunoco 2005 Annual Report Download - page 17

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. The above items are reported as Asset Write-Downs and Other Matters, which are
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 partnership
entered into a 700 million pounds-per-year, 15-year propylene supply contract with Suno-
co. Of this amount, 500 million pounds per year is priced on a cost-based formula that in-
cludes 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 poly-
propylene facility in Bayport, TX. Sunoco paid $194 million in cash and borrowed $4 mil-
lion from the seller to form the partnership and acquire the Bayport facility. Through the
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 below 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 Compa-
ny’s polypropylene capacity, complementing and enhancing the Company’s existing poly-
propylene business and strengthening its market position. (See Note 2 to the consolidated
financial statements.)
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.
Substantially all logistics operations are conducted through Sunoco Logistics Partners L.P.,
the consolidated master limited partnership that is 47.9 percent owned by Sunoco (see
“Capital Resources and Liquidity—Other Cash Flow Information” below).
2005 2004 2003
Income (millions of dollars) $22 $31 $26
Pipeline and terminal throughput (thousands of barrels daily)*:
Unaffiliated customers 835 842 827
Affiliated customers 1,666 1,525 1,225
2,501 2,367 2,052
*Excludes joint-venture operations.
Logistics segment income decreased $9 million in 2005 primarily due to a $5 million
after-tax accrual attributable to a pipeline spill in January 2005, a $3 million after-tax
charge for environmental remediation activities and asset impairments, a $2 million un-
favorable tax adjustment and Sunoco’s reduced ownership in the Partnership subsequent to
public offerings in 2005 and 2004. Partially offsetting these negative factors in 2005 were
higher earnings from terminalling and Western crude oil pipeline operations. In 2004, Lo-
gistics segment income increased $5 million due to the absence of $12 million of after-tax
charges recognized in 2003 for litigation associated with two pipeline spills that occurred in
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