The Company, through its subsidiaries, is principally a petroleum refiner and
marketer and chemicals manufacturer with interests in logistics and cokemaking.
Sunoco's petroleum refining and marketing operations include the manufacturing
and marketing of a full range of petroleum products, including fuels, lubricants
and some petrochemicals. Sunoco's chemical operations comprise the manufacturing,
distribution and marketing of commodity and intermediate petrochemicals. The petroleum
refining and marketing, chemicals and logistics operations are conducted principally
in the eastern half of the United States. Sunoco's cokemaking operations are conducted
in Virginia and Indiana.
The Company's operations are organized into five business segments (Refining
and Supply, Retail Marketing, Chemicals, Logistics and Coke) plus a holding
company and a shared services organization. Sunoco, Inc., the holding company,
is a non-operating parent company. It includes certain corporate officers and
their staffs. The shared services organization consists of a number of staff
functions, including: communications; engineering services; transaction processing;
systems operations and information technology planning; legal; insurance; health,
environment and safety; human resources; public affairs; and procurement and
facilities management. Costs incurred by the shared services organization to
provide these services are allocated to the five business segments and the holding
company.
Sales made by the Chemicals business were distributed through the following
channels:
Phenol and Related Products'Long-term phenol contract sales to Honeywell are
used in nylon production. Other phenol contract sales are to large manufacturers
of resins and adhesives primarily for use in building products. Large contract
sales of acetone are to major customers who manufacture polymers. Other sales
of acetone are made to individually smaller customers for use in inks, paints,
varnishes and adhesives. Bisphenol-A, manufactured from phenol and acetone,
is sold to manufacturers of epoxy resins and polycarbonates;
Polypropylene'Sales are made to a diverse group of customers for use in fibers,
carpeting, packaging, automotive, furniture and other end products;
Refinery-grade Propylene'Refinery-grade propylene is sold to the Epsilon joint
venture for its use in the production of polypropylene; and
Competition
In all of its operations, Sunoco is subject to competition, both from companies
in the industries in which it operates and from products of companies in other
industries.
The refining and marketing business is very competitive. Sunoco competes with
a number of other domestic refiners and marketers in the northeastern United
States and U.S. Gulf Coast, with foreign refiners who import products into the
United States and with producers and marketers in other industries supplying
other forms of energy and fuels to consumers. While the number of Sunoco's competitors
has decreased due to consolidation in the refining and marketing industry, the
competitiveness in the marketplace has not declined.
Profitability in the refining and marketing industry depends largely on refined
product margins, which can fluctuate significantly, as well as operating efficiency,
product mix, and costs of product distribution and transportation. Certain of
Sunoco's competitors that have larger and more complex refineries may be able
to realize lower per barrel costs or higher margins per barrel of throughput.
Several of Sunoco's principal competitors are integrated national or international
oil companies that are larger and have substantially greater resources than
Sunoco. Because of their integrated operations and larger capitalization, these
companies may be more flexible in responding to volatile industry or market
conditions, such as shortages of feedstocks or intense price fluctuations. Refining
margins are frequently impacted by sharp changes in crude oil costs, which may
not be immediately reflected in product prices.
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