Sunoco 2006 Annual Report Download - page 63

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”) could also have been made if realized margins
for polypropylene and phenol exceeded certain agreed-
upon thresholds through 2006. For 2005, a $14 million
payment was earned, which was paid in 2006. This pay-
ment was treated as an adjustment to the purchase price.
No payment was earned for 2006. 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.
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) 2006 2005
Accrued liabilities $36 $37
Other deferred credits and liabilities 85 100
$121 $137
The following table summarizes the changes in the accrued liability for environmental remediation activities by
category:
(Millions of Dollars) Refineries
Marketing
Sites
Chemicals
Facilities
Pipelines
and Terminals
Hazardous
Waste Sites Other Total
At December 31, 2003 $ 43 $ 74 $ 7 $ 15 $ 5 $ 2 $146
Accruals 2 20 — 3 2 — 27
Payments (10) (21) (1) (3) (3) — (38)
Acquisitions and divestments 11 — (1) — — — 10
Other 2 1 — — — — 3
At December 31, 2004 $ 48 $ 74 $ 5 $ 15 $ 4 $ 2 $148
Accruals 222 1 6 1 — 32
Payments (14) (25) (2) (7) (2) — (50)
Other — 7 (1) 1 — — 7
At December 31, 2005 $ 36 $ 78 $ 3 $ 15 $ 3 $ 2 $137
Accruals 619 1 2 1—29
Payments (9) (24) (1) (5) (2) (1) (42)
Other 1(4)— — ——(3)
At December 31, 2006 $ 34 $ 69 $ 3 $12 $ 2 $ 1 $121
Sunoco’s accruals for environmental remediation activ-
ities reflect management’s estimates of the most likely
costs that will be incurred over an extended period to
remediate identified conditions for which the costs are
both probable and reasonably estimable. Engineering
studies, historical experience and other factors are used to
identify and evaluate remediation alternatives and their
related costs in determining the estimated accruals for
environmental remediation activities. Losses attributable
to unasserted claims are also reflected in the accruals to
the extent they are probable of occurrence and reason-
ably estimable.
Total future costs for the environmental remediation ac-
tivities identified above will depend upon, among other
things, the identification of any additional sites, the
determination of the extent of the contamination at each
site, the timing and nature of required remedial actions,
the nature of operations at each site, the technology
available and needed to meet the various existing legal
requirements, the nature and terms of cost-sharing ar-
rangements with other potentially responsible parties, the
availability of insurance coverage, the nature and extent
of future environmental laws, inflation rates and the
determination of Sunoco’s liability at the sites, if any, in
light of the number, participation level and financial via-
bility of the other parties. Management believes it is rea-
sonably possible (i.e., less than probable but greater than
remote) that additional environmental remediation losses
will be incurred. At December 31, 2006, the aggregate of
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