Sunoco 2006 Annual Report Download - page 16

ported as a charge against 2005 earnings and are shown separately as Phenol Supply Con-
tract Dispute under Corporate and Other in the Earnings Profile of Sunoco Businesses. In
March 2006, a U.S. District Court judge upheld the first arbitrator’s ruling. In July 2006,
the second arbitrator ruled that the pricing through July 2009 should be based essentially
on the pricing formula established in the first arbitration. The prices charged to Honeywell
during 2006 have been based on this formula. (See Note 2 to the consolidated financial
statements.)
In 2004, Sunoco sold its one-third partnership interest in its Mont Belvieu, TX Belvieu
Environmental Fuels (“BEF”) MTBE production facility to Enterprise Products Operating
L.P. (“Enterprise”) for $15 million in cash, resulting in an $8 million after-tax loss on di-
vestment. This loss is reported separately as Asset Write-Downs and Other Matters under
Corporate and Other in the Earnings Profile of Sunoco Businesses. In connection with the
sale, Sunoco has retained one-third of any liabilities and damages arising from any claims
resulting from the ownership of the assets and liabilities of BEF for the period prior to the
divestment date, except for any on-site environmental claims which are retained by Enter-
prise. During 2003, Sunoco announced its decision to sell its plasticizer business and re-
corded 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 that have been paid out for
employee terminations and other required exit costs. Sunoco sold this business and related
inventory in January 2004 to BASF for approximately $90 million in cash. (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.,
a consolidated master limited partnership. Sunoco has a 43 percent interest in Sunoco
Logistics Partners L.P., which includes its 2 percent general partnership interest (see
“Capital Resources and Liquidity—Other Cash Flow Information” below).
2006 2005 2004
Income (millions of dollars) $36 $22 $31
Pipeline and terminal throughput (thousands of barrels daily)*:
Unaffiliated customers 1,033 838 842
Affiliated customers 1,644 1,663 1,525
2,677 2,501 2,367
*Excludes joint-venture operations.
Logistics segment income increased $14 million in 2006 primarily due to the absence of: 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; and a $2
million unfavorable tax adjustment. Also contributing to the increase were higher earnings
attributable to Eastern pipeline operations and crude oil acquisition and marketing activ-
ities as well as operating results from the Partnership’s acquisitions completed in 2006 and
2005. Partially offsetting these positive factors in 2006 was Sunoco’s reduced ownership in
the Partnership subsequent to the public equity offerings in 2006 and 2005.
Logistics segment income decreased $9 million in 2005 primarily due to the pipeline spill
accrual, environmental remediation and asset impairment charge and unfavorable tax ad-
justment recorded in 2005 as well as 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.
During the 2004-2006 period, the Partnership issued a total of 10.5 million limited
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