Sunoco 2006 Annual Report Download - page 22

In the second quarter of 2004, the Partnership issued 3.4 million limited partnership units
at a price of $39.75 per unit. Proceeds from the offering, net of underwriting discounts and
offering expenses, totaled $129 million. Coincident with the offering, the Partnership re-
deemed 2.2 million limited partnership units owned by Sunoco for $83 million. The pro-
ceeds from the offering also were principally used by the Partnership to finance its
acquisitions during 2004. In the second quarter of 2005, the Partnership issued 2.8 million
limited partnership units at a price of $37.50 per unit. Proceeds from the offering, net of
underwriting discounts and offering expenses, totaled approximately $99 million. These
proceeds were used to redeem an equal number of limited partnership units owned by
Sunoco. In the third quarter of 2005, the Partnership issued 1.6 million limited partnership
units at a price of $39.00 per unit. Proceeds from the offering, which totaled approximately
$61 million, net of underwriting discounts and offering expenses, were used by the Partner-
ship principally to repay a portion of the borrowings under its revolving credit facility. In
the second quarter of 2006, the Partnership issued $175 million of senior notes due 2016
and 2.7 million limited partnership units at a price of $43.00 per unit. Proceeds from the
2006 offerings, net of underwriting discounts and offering expenses, totaled approximately
$173 and $110 million, respectively. These proceeds were used by the Partnership in part
to repay the outstanding borrowings under its revolving credit facility with the balance
used to fund a portion of the Partnership’s 2006 growth capital program. Upon completion
of the equity offerings, Sunoco’s interest in the Partnership, including its 2 percent general
partnership interest, decreased to 43 percent.
The Partnership, which is included in Sunoco’s consolidated financial statements, distrib-
utes to its general and limited partners all available cash (generally cash on hand at the
end of each quarter less the amount of cash the general partner determines in its reason-
able discretion is necessary or appropriate to: provide for the proper conduct of the
Partnership’s business; comply with applicable law, any of the Partnership’s debt instru-
ments or other agreements; pay fees and expenses, including payments to the general part-
ner; or provide funds for distribution to unitholders and to the general partner for any one
or more of the next four quarters). The minimum quarterly distribution is $.45 per limited
partnership unit. As of December 31, 2006, Sunoco owned 12.06 million limited partner-
ship units consisting of 6.37 million common units and 5.69 million subordinated units.
Distributions on Sunoco’s subordinated units are payable only after the minimum quarterly
distributions for the common units held by the public and Sunoco, including any arrea-
rages, have been made. The subordinated units convert to common units if certain finan-
cial tests related to earning and paying the minimum quarterly distribution for the
preceding three consecutive one-year periods have been met. In February 2007, 2006 and
2005, when the quarterly cash distributions pertaining to the fourth quarters of 2006, 2005
and 2004 were paid, all three three-year requirements were satisfied. As a result, all of
Sunoco’s subordinated units were converted to common units, 5.69 million in February
2007 and 2.85 million each in February 2006 and February 2005. During the 2002-2006
period, the Partnership increased its quarterly distribution per unit from the minimum of
$.45 to $.8125.
The Partnership’s issuance of common units to the public has resulted in an increase in the
value of Sunoco’s proportionate share of the Partnership’s equity as the issuance price per
unit exceeded Sunoco’s carrying amount per unit at the time of issuance. The resultant
gain to Sunoco on these transactions, which totaled approximately $150 million pretax at
December 31, 2006 was deferred as a component of minority interest in the Company’s
consolidated balance sheet as the common units issued did not represent residual interests
in the Partnership at that time due to Sunoco’s ownership of the subordinated units. The
deferred gain will be recognized in income during the first quarter of 2007 when Sunoco’s
remaining subordinated units converted to common units at which time the common units
became the residual interests.
The Partnership acquired interests in various pipelines and other logistics assets during the
2004-2006 period, which were financed with long-term borrowings or from the proceeds
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