Sunoco 2003 Annual Report Download - page 51

The Company believes these acquisitions fit its long-term
strategy to build a retail and convenience store network
that will provide attractive long-term returns. The addi-
tion of these convenience stores gives Sunoco critical
mass in the high-growth market in the Southeast.
The purchase prices have been allocated to the assets
acquired and liabilities assumed based on their relative
estimated fair market values at the acquisition dates. The
following is a summary of the effects of these transactions
on Sunoco’s consolidated financial position as of the ac-
quisition dates:
(Millions of Dollars) 2003 2001
Increase in:
Inventories $21 $8
Properties, plants and equipment, net 143 51
Other deferred credits and liabilities (2) —
Cash paid on acquisition dates $162 $59
Transaction with Equistar Chemicals, L.P.—Effective
March 31, 2003, Sunoco formed a limited partnership
with Equistar Chemicals, L.P. (“Equistar”) involving
Equistar’s ethylene facility in LaPorte, TX. Equistar is a
joint venture between Lyondell Chemical Company and
Millennium Chemicals Inc. In connection with this
transaction, Equistar and the new partnership entered
into a 700 million pounds-per-year, 15-year propylene
supply contract with Sunoco. Of this amount, 500 mil-
lion pounds per year is priced on a cost-based formula
that includes a fixed discount that declines over the life
of the contract, while the remaining 200 million pounds
per year is based on market prices. Sunoco also purchased
Equistar’s polypropylene facility in Bayport, TX. Sunoco
paid $194 million in cash and borrowed $4 million from
the seller to form the partnership and acquire the Bayport
facility.
Through the new partnership, the Company believes it
has secured a favorable long-term supply of propylene for
its Gulf Coast polypropylene business, while the acquis-
ition of the Bayport facility has increased the Company’s
polypropylene capacity. This transaction complements
and enhances the Company’s polypropylene business and
strengthens its market position.
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 transaction on Sunoco’s
consolidated financial position:
(Millions of Dollars):
Increase in:
Inventories $11
Properties, plants and equipment, net 30
Deferred charges and other assets 160*
Accrued liabilities (2)
Retirement benefit liabilities (1)
198
Seller financing:
Current portion of long-term debt (1)
Long-term debt (3)
(4)
Cash paid on acquisition date $194
* Represents the amounts allocated to the propylene supply contract and the related
partnership. The Company will amortize this deferred cost into income over the 15-
year life of the supply contract in a manner that reflects the future decline in the fixed
discount over the contract period. Following the acquisition, this amortization expense
amounted to $11 million in 2003 and is expected to approximate $15 million in 2004,
$14 million in 2005, $13 million in 2006, $11 million in 2007 and $11 million in
2008.
Pro Forma Data for 2003 Acquisitions—The unaudited
pro forma sales and other operating revenue, net income
(loss) and net income (loss) per share of common stock of
Sunoco, as if the acquisition of the 193 Speedway service
stations and the Bayport polypropylene facility had oc-
curred on January 1, 2002, are as follows:
(Millions of Dollars, Except Per Share Amounts) 2003 2002
Sales and other operating revenue $18,224 $15,128
Net income (loss) $313 $(52)
Net income (loss) per share of common
stock— diluted $4.04 $(.68)
The pro forma amounts above do not include any effects
attributable to the propylene supply contract or the re-
lated partnership with Equistar since the supply contract
did not exist prior to the transaction date. In addition, no
pro forma information has been presented relating to the
473 Coastal retail outlets acquired in 2001 since this ac-
quisition was not material in relation to Sunoco’s con-
solidated results of operations.
The pro forma information does not purport to be in-
dicative of the results that actually would have been ob-
tained if the 193 Speedway service stations and the
Bayport polypropylene facility had been part of Sunoco’s
businesses during the periods presented and is not in-
tended to be a projection of future results. Accordingly,
the pro forma results do not reflect any restructuring
costs, changes in operating levels, or potential cost sav-
ings and other synergies.
49