Sunoco 2005 Annual Report Download - page 62

Over the years, Sunoco has sold thousands of retail gaso-
line outlets as well as refineries, terminals, coal mines, oil
and gas properties and various other assets. In connection
with these sales, the Company has indemnified the pur-
chasers for potential environmental and other contingent
liabilities related to the period prior to the transaction
dates. In most cases, the effect of these arrangements was
to afford protection for the purchasers with respect to
obligations for which the Company was already primarily
liable. While some of these indemnities have spending
thresholds which must be exceeded before they become
operative, or limits on Sunoco’s maximum exposure, they
generally are not limited. The Company recognizes the
fair value of the obligations undertaken for all guarantees
entered into or modified after January 1, 2003. In addi-
tion, the Company accrues for any obligations under
these agreements when a loss is probable and reasonably
estimable. The Company cannot reasonably estimate the
maximum potential amount of future payments under
these agreements.
Sunoco is a party under agreements which provide for
future payments to secure wastewater treatment services
at its Toledo refinery and coal handling services at its
Indiana Harbor cokemaking facility. The fixed and
determinable amounts of the obligations under these
agreements are as follows (in millions of dollars):
Year ending December 31:
2006 $ 9
2007 9
2008 8
2009 8
2010 8
2011 through 2018 38
Total 80
Less: Amount representing interest (23)
Total at present value $ 57
Payments under these agreements, including variable
components, totaled $20, $19 and $18 million for the
years 2005, 2004 and 2003, respectively.
Effective January 1, 2001, Sunoco completed the acquis-
ition of Aristech Chemical Corporation (“Aristech”), a
wholly owned subsidiary of Mitsubishi Corporation
(“Mitsubishi”), for $506 million in cash and the assump-
tion of $163 million of debt. Contingent payments (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, 2005, no
such payments have been made; however, a $14 million
payment was earned in 2005 which will be paid in 2006.
Any additional contingent payment earned in 2006 is
limited to $90 million. All 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 identi-
fied through 2026 arising out of or related to the period
prior to the acquisition date.
Environmental Remediation Activities
Sunoco is subject to extensive and frequently changing
federal, state and local laws and regulations, including,
but not limited to, those relating to the discharge of
materials into the environment or that otherwise deal
with the protection of the environment, waste manage-
ment and the characteristics and composition of fuels. As
with the industry generally, compliance with existing and
anticipated laws and regulations increases the overall cost
of operating Sunoco’s businesses, including remediation,
operating costs and capital costs to construct, maintain
and upgrade equipment and facilities.
Existing laws and regulations result in liabilities and loss
contingencies for remediation at Sunoco’s facilities and at
formerly owned or third-party sites. The accrued liability
for environmental remediation is classified in the con-
solidated balance sheets as follows:
December 31
(Millions of Dollars) 2005 2004
Accrued liabilities $37 $39
Other deferred credits and liabilities 100 109
$137 $148
60