Sunoco 2008 Annual Report Download - page 49

In February 2008, SunCoke Energy entered into an agreement with U.S. Steel under which SunCoke Energy
will build, own and operate a 650 thousand tons-per-year cokemaking facility adjacent to U.S. Steel’s
steelmaking facility in Granite City, Illinois. Construction of this facility, which is estimated to cost
approximately $300 million, is currently underway and is expected to be completed in the fourth quarter of 2009.
Expenditures through December 31, 2008 totaled $164 million. In connection with this agreement, U.S. Steel has
agreed to purchase, over a 15-year period, such coke production as well as the steam generated from the heat
recovery cokemaking process at this facility.
In March 2008, SunCoke Energy entered into an agreement with AK Steel under which SunCoke Energy
will build, own and operate a cokemaking facility and associated cogeneration power plant adjacent to AK
Steel’s Middletown, Ohio steelmaking facility subject to resolution of all contingencies, including necessary
permits. These facilities are expected to cost in aggregate approximately $350 million and be completed 15 to 18
months after resolution of the contingencies, which may move the targeted completion date beyond the
previously announced 2010. The plant is expected to produce 550 thousand tons of coke per year and on average,
46 megawatts of power into the regional power market. In connection with this agreement, AK Steel has agreed
to purchase, over a 20-year period, all of the coke and available electrical power from these facilities.
Expenditures through December 31, 2008 totaled $48 million, with additional funds committed of approximately
$25 million. In the event contingencies (including permit issues) to constructing the project cannot be resolved,
AK Steel is obligated to reimburse substantially all of these amounts to Sunoco.
SunCoke Energy is currently discussing other opportunities for developing new heat recovery cokemaking
facilities with domestic and international steel companies. Such cokemaking facilities could be either wholly
owned or developed through other business structures. As applicable, the steel company customers would be
expected to purchase coke production under long-term contracts. The facilities would also generate steam, which
would typically be sold to the steel customer, or electrical power, which could be sold to the steel customer or
into the local power market. SunCoke Energy’s ability to enter into additional arrangements is dependent upon
market conditions in the steel industry.
Corporate and Other
Corporate Expenses—Corporate administrative expenses decreased $21 million in 2008 primarily due to
the absence of an adjustment to charitable contributions expense that was made in 2007 and lower accruals for
performance-related incentive compensation. In 2007, corporate administrative expenses increased $9 million in
part due to the adjustment to charitable contributions expense.
Net Financing Expenses and Other—Net financing expenses and other decreased $19 million in 2008
primarily due to higher capitalized interest ($8 million) and the absence of expense attributable to the preferential
return of third-party investors in Sunoco’s Indiana Harbor cokemaking operations ($9 million). In 2007, net
financing expenses and other decreased $8 million primarily due to higher capitalized interest ($7 million), lower
expenses attributable to the preferential return of third-party investors in Sunoco’s cokemaking operations ($18
million) and the absence of a loss pertaining to the purchase of the minority interest in the Jewell cokemaking
operations ($3 million), partially offset by lower interest income ($6 million), higher interest expense ($8
million) and the absence of a net gain attributable to income tax matters ($5 million).
Asset Write-Downs and Other Matters—During 2008, Sunoco recorded a $95 million after-tax provision
to write down Refining and Supply’s Tulsa refinery, which it intends to sell or convert to a terminal by the end of
2009; recorded a $35 million after-tax provision to write down Chemicals’ Bayport, TX polypropylene plant that
will be permanently shut down no later than April 30, 2009; recorded a $19 million after-tax provision to write
off the goodwill pertaining to Chemicals’ polypropylene business; and recorded an $11 million after-tax gain on
an insurance recovery related to an MTBE litigation settlement. In 2007, Sunoco recorded an $8 million after-tax
provision to write off a previously idled phenol line at Chemicals’ Haverhill, OH plant which was permanently
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