Sunoco 2007 Annual Report Download - page 51

other from affiliates of Alon USA Energy, Inc. for $68
million. The Black Hills acquisition also includes a lease
acquisition marketing business and related inventory. In
August 2006, the Partnership purchased from Sunoco for
$65 million a company that has a 55 percent interest in
Mid-Valley Pipeline Company (“Mid-Valley”), a joint
venture which owns a crude oil pipeline system in the
Midwest.
In August 2005, the Partnership completed the acquis-
ition of a crude oil pipeline system and related storage fa-
cilities located in Texas from ExxonMobil for $100
million. In December 2005, the Partnership completed
the acquisition of an ownership interest in the Mesa
Pipeline from Chevron for $5 million, which, coupled
with the 7.2 percent interest it acquired from Sunoco,
gave it a 37 percent ownership interest.
Sunoco did not recognize any gain or loss on the
Mid-Valley transaction. The purchase prices of the other
acquisitions have been included in properties, plants and
equipment in the consolidated balance sheets (except for
$2 million allocated to inventories related to the Black
Hills acquisition). No pro forma information has been
presented since the acquisitions were not material in rela-
tion to Sunoco’s consolidated results of operations.
Minority Interest in Jewell Cokemaking Operations—
In December 2006, Sunoco completed the purchase of a
third party’s minority interest in the Jewell cokemaking
operations for $155 million. In connection with this
transaction, Sunoco recognized a $5 million loss ($3 mil-
lion after tax) in other income (loss), net, in the 2006
consolidated statement of income as a result of the
settlement of a preexisting financial relationship attribut-
able to the investor’s interest in the Partnership.
The purchase price has been allocated to the assets ac-
quired and liabilities assumed based on their relative fair
market values at the acquisition date. The following is a
summary of the effects of the acquisition and related loss
on Sunoco’s consolidated financial position:
(Millions of Dollars)
Increase in:
Properties, plants and equipment, net $47
Deferred charges and other assets 11*
Decrease in:
Deferred income taxes 2
Minority interests 92
Shareholders’ equity 3
Cash paid for acquisition $155
*Consists of $3 million allocated to goodwill and $8 million allocated to a sales
contract with a customer.
No pro forma information has been presented since the
impact of the acquisition was not material in relation to
Sunoco’s consolidated results of operations.
Divestments
Retail Portfolio Management Program—During the
2005-2007 period, Sunoco generated $162 million of di-
vestment proceeds related to the sale of 211 sites under a
Retail Portfolio Management (“RPM”) program to se-
lectively reduce the Company’s invested capital in
Company-owned or leased retail sites. Most of the sites
were converted to contract dealers or distributors thereby
retaining most of the gasoline sales volume attributable to
the divested sites within the Sunoco branded business.
During 2007, 2006 and 2005, net gains of $35, $17 and
$8 million, respectively ($21, $10 and $5 million after
tax, respectively) were recognized as gains on divestments
in other income (loss), net, in the consolidated state-
ments of income in connection with the RPM program.
Other Matters
Asset Write-Downs and Other Matters—The following
table summarizes information regarding the provision for
asset write-downs and other matters recognized during
2007:
(Millions of Dollars)
Pretax
Provisions
After-Tax
Provisions
Haverhill chemical plant production line $13 $ 8
Neville Island terminal facility 12 7
MTBE litigation 28 17
$53 $32
During 2007, a phenol line at the Haverhill, OH
chemical plant that had previously been idled in order to
eliminate less efficient production capacity was
permanently shut down as it was determined that it had
become uneconomic to restart this line. In connection
therewith, Sunoco recorded a provision to write off the
affected production line. Sunoco also sold its Neville
Island, PA terminal facility and recorded a loss on the
divestment and established accruals for enhanced pension
benefits associated with employee terminations and for
other exit costs. In addition, the Company entered into a
settlement in principle pertaining to certain MTBE
litigation (Note 14) and established an accrual for the
costs associated with the settlement.
Phenol Supply Contract Dispute—During the third
quarter of 2005, an arbitrator ruled that Sunoco was li-
able in an arbitration proceeding for breaching a supply
agreement concerning the prices charged to Honeywell
International Inc. (“Honeywell”) for phenol produced at
Sunoco’s Philadelphia chemical plant from June 2003
through April 2005. Damages of approximately $95 mil-
lion ($56 million after tax), including prejudgment inter-
est, were assessed. Such damages, which were paid to
Honeywell in April 2006, were recorded as a charge
against earnings in other income (loss), net, in the 2005
consolidated statement of income. The pricing through
49