Sunoco 2007 Annual Report Download - page 18

the investor entitled to the preferential return recovered its investment and achieved a
cumulative annual after-tax return of approximately 10 percent. After payment of the
preferential return, the investors in the Indiana Harbor operations are now entitled to a
minority interest in the related net income amounting to 34 percent which declines to 10
percent by 2038.
Prior to completion of the preferential return periods, expense was recognized to reflect the
investors’ preferential returns in the Jewell and Indiana Harbor operations. Such expense,
which is included in Net Financing Expenses and Other under Corporate and Other in the
Earnings Profile of Sunoco Businesses, totaled $13, $31 and $27 million after tax in 2007,
2006 and 2005, respectively. The 2006 amount includes $9 million after tax attributable to
the third-party investor’s preferential return in the Jewell cokemaking operation. As a re-
sult of Sunoco’s acquisition of the investor’s interest in this operation, such investor is no
longer entitled to any preferential or residual return. Income is recognized by the Coke
business as coke production and sales generate cash flows and tax benefits. Such cash flows
and tax benefits were allocated to Sunoco and the third-party investors prior to completion
of the preferential return periods. The Coke business’ after-tax income attributable to the
tax benefits, which primarily consist of nonconventional fuel credits, was $20, $38 and $38
million after tax in 2007, 2006 and 2005, respectively. Under existing tax law, beginning
in 2008, most of the coke production at Jewell and all of the coke production at Indiana
Harbor are no longer eligible to generate nonconventional fuel tax credits. With the com-
pletion of the preferential return periods, the third-party investor’s share of net income is
now recognized as minority interest expense by the Coke business.
With respect to the Jewell operation, beginning in 2008, the pricing for coke production
from this facility (700 thousand tons per year) changed from a fixed price to a price equal
to the delivered cost of coal multiplied by an adjustment factor as well as the pass through
of transportation costs, operating costs indexed for inflation and a fixed-price component.
Based on current coal prices, the estimated impact of this increase in coke selling prices for
Jewell production along with the expiration of tax credits as well as income from the
cokemaking operations in Vitória, Brazil and from the new cokemaking facility and asso-
ciated cogeneration power plant at SunCoke Energy’s Haverhill site (see below), collec-
tively are expected to increase Coke’s annual after-tax income to approximately $80-$85
million for 2008.
In February 2007, SunCoke Energy entered into an agreement with two customers under
which SunCoke Energy will build, own and operate a second 550 thousand tons-per-year
cokemaking facility and associated cogeneration power plant at its Haverhill site. Con-
struction of these facilities, which is estimated to cost approximately $250 million, is cur-
rently underway, and the facilities are expected to be operational in the second half of
2008. In connection with this agreement, the customers agreed to purchase, over a 15-year
period, a combined 550 thousand tons per year of coke from the cokemaking facility. In
addition, the heat recovery steam generation associated with the cokemaking process will
produce and supply steam to the 67 megawatt turbine, which will provide, on average, 46
megawatts of power into the regional power market.
SunCoke Energy is currently discussing other opportunities for developing new heat recov-
ery cokemaking facilities with several domestic and international steel companies. Such
cokemaking facilities could be either wholly owned or owned through a joint venture with
one or more parties. The steel company customers would be expected to purchase coke
production and, as applicable, steam or electrical power production under long-term
take-or-pay contracts or on an equivalent basis.
Corporate and Other
Corporate Expenses—Corporate administrative expenses increased $9 million in 2007 in
part due to higher charitable contributions expense. In 2006, corporate administrative
expenses decreased $26 million primarily due to lower accruals for performance-related
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