Sunoco 2010 Annual Report Download - page 50

In December 2010, Sunoco entered into an agreement to sell its Toledo refinery and related crude and
refined product inventories. The purchase price for the refinery is $400 million consisting of $200 million in cash
and a $200 million note due two years after closing. The purchase price of the inventory will be based upon
market prices near the time of closing. The purchase agreement also includes a participation payment of up to
$125 million based on the future profitability of the refinery. The transaction is subject to customary closing
conditions, and is expected to be completed in the first quarter of 2011. Sunoco does not expect a material impact
on its 2011 net income as a result of the closing of this transaction. At December 31, 2010, the Toledo refinery
and related assets have been classified as held for sale in the consolidated balance sheet. The results of operations
for the Toledo refinery have not been classified as discontinued operations due to Sunoco’s expected continuing
involvement with the Toledo refinery through a three-year agreement for the purchase of gasoline and distillate
to supply Sunoco retail sites in this area.
In 2009, Sunoco permanently shut down all process units at the Eagle Point refinery due to weak demand
and increased global refining capacity which have created margin pressure on the entire refining industry. As part
of this decision, the Company shifted production from the Eagle Point refinery to the Marcus Hook and
Philadelphia refineries which are now operating at higher capacity utilization. Approximately 380 employees
were terminated in connection with the shutdown. Sunoco recorded a $284 million after-tax provision in 2009 to
write down the affected assets to their estimated fair values and to establish accruals for employee terminations,
pension and postretirement curtailment losses and other related costs and recognized a $55 million after-tax
LIFO inventory gain from the liquidation of refined product inventories. In 2010, Sunoco recorded an additional
$34 million after-tax provision primarily for additional asset write-downs and contract losses in connection with
excess barge capacity resulting from the shutdown of the Eagle Point refining operations and recognized a $100
million after-tax LIFO inventory gain largely attributable to the Eagle Point shutdown. These charges, which are
reported as part of Asset Write-Downs and Other Matters, and the LIFO profits are shown separately in
Corporate and Other in the Earnings Profile of Sunoco Businesses (see Notes 2 and 6 to the Consolidated
Financial Statements under Item 8).
Refining and Supply’s segment results from continuing operations decreased $764 million in 2009 primarily
due to lower realized margins ($873 million) and production volumes ($80 million), partially offset by lower
expenses ($190 million). Production volumes decreased in 2009 as market-driven rate reductions reduced
production throughout the refining system. During 2009, Sunoco continued its efforts to optimize its production
slate and run a broader mix of lower-cost crude oil grades resulting in an overall crude utilization rate of 78
percent for this period. The lower expenses were largely the result of lower costs for purchased fuel and utilities
attributable to price declines and lower production volumes as well as the impact of the business improvement
initiative.
In June 2009, Sunoco acquired a 100 million gallon-per-year ethanol manufacturing facility in New York
from Northeast Biofuels, LP for $9 million. After completion of start up capital expenditures of $26 million, the
plant successfully began operations in June 2010.
Refining and Supply—Discontinued Tulsa Operations
In December 2008, Sunoco announced its intention to sell the Tulsa refinery or convert it to a terminal by
the end of 2009 because it did not expect to achieve an acceptable return on investment on a capital project to
comply with the new off-road diesel fuel requirements at this facility. In connection with this decision, during
2008, Sunoco recorded a $95 million after-tax provision to write down the affected assets to their estimated fair
values. In June 2009, Sunoco completed the sale of its Tulsa refinery to Holly Corporation. The transaction also
included the sale of inventory attributable to the refinery which was valued at market prices at closing. Sunoco
received a total of $157 million in cash proceeds from this divestment, comprised of $64 million from the sale of
the refinery and $93 million from the sale of the related inventory. Sunoco recognized a $41 million net after-tax
gain on divestment of this business. The charge recorded in 2008 and the gain on divestment are reported
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