Sunoco 2003 Annual Report Download - page 63

Logistics Operations
On February 8, 2002, the Company contributed a sub-
stantial portion of its Logistics business to Sunoco Logis-
tics Partners L.P., a master limited partnership formed in
2001, in exchange for a 73.2 percent limited partnership
interest, a 2 percent general partnership interest, in-
centive distribution rights and a special distribution, rep-
resenting the net proceeds from the Partnership’s issuance
of $250 million of ten-year 7
1
⁄ 4 percent senior notes
(Note 11). The Partnership concurrently issued 5.75 mil-
lion limited partnership units, representing a 24.8 percent
interest in the Partnership, in an initial public offering at
a price of $20.25 per unit. Proceeds from the offering
were used by the Partnership to establish working capital
that was not contributed to the Partnership by Sunoco.
Sunoco liquidated this retained working capital sub-
sequent to the Partnership’s formation. The accounts of
the Partnership continue to be included in Sunoco’s con-
solidated financial statements. No gain or loss was recog-
nized on this transaction.
Concurrent with the offering, Sunoco entered into vari-
ous agreements with the Partnership which require
Sunoco to pay for minimum storage and throughput usage
of certain Partnership assets. These agreements also
establish fees for administrative services provided by
Sunoco to the Partnership and provide indemnifications
by Sunoco to the Partnership for certain environmental,
toxic tort and other liabilities.
The following table sets forth the minority interest bal-
ance and the changes to this balance attributable to the
third-party investors’ interests in Sunoco Logistics Part-
ners L.P.:
(Millions of Dollars) 2003 2002
Balance at beginning of year $100 $—
Net proceeds from the initial public offering on
February 8, 2002 —96
Minority interest share of income * 15 11
Cash distributions to third-party investors** (11) (7)
Balance at end of year $104 $100
* Included in selling, general and administrative expenses in the consolidated
statements of operations.
** The Partnership increased its quarterly cash distribution per unit from $.45 to
$.4875 for the fourth quarter of 2002 and then to $.50 for the second quarter of
2003, $.5125 for the third quarter of 2003 and $.55 for the fourth quarter of 2003.
14. Shareholders’ Equity
Each share of Company common stock is entitled to one
full vote. The $10 million of outstanding 6
3
⁄ 4 percent
debentures are convertible into shares of Sunoco com-
mon stock at any time prior to maturity at a conversion
price of $40.81 per share and are redeemable at the op-
tion of the Company. At December 31, 2003, there were
242,981 shares of common stock reserved for this poten-
tial conversion (Note 11).
Commencing with the fourth quarter of 2003, the Com-
pany increased the quarterly dividend paid on common
stock from $.25 per share ($1.00 per year) to $.275 per
share ($1.10 per year).
In 2003 and 2001, the Company repurchased 2.9 and
10.7 million shares, respectively, of its common stock for
$136 and $393 million, respectively. The Company did
not repurchase any of its common stock during 2002. At
December 31, 2003, the Company had a remaining au-
thorization from its Board to purchase up to $243 million
of Company common stock in the open market from time
to time depending on prevailing market conditions and
available cash.
The Company’s Articles of Incorporation authorize the
issuance of up to 15,000,000 shares of preference stock
without par value, subject to approval by the Board. The
Board also has authority to fix the number, designation,
rights, preferences and limitations of these shares, subject
to applicable laws and the provisions of the Articles of
Incorporation. At December 31, 2003, no such shares had
been issued.
On February 1, 1996, the Company adopted a share-
holder rights plan and designated 1,743,019 shares of its
preference stock as Series B participating cumulative
preference stock. Pursuant to the plan, the Company de-
clared a dividend of one stock purchase right (“Right”)
for each share of common stock outstanding on February
12, 1996. A Right will be granted for each share of com-
mon stock issued after such date and prior to the expira-
tion date of the rights plan. The Rights are attached to
the common stock until they become exercisable. Gen-
erally, the Rights become exercisable a specified period
after a party acquires 15 percent or more of the aggregate
outstanding common stock or announces a tender offer
for 15 percent or more of the common stock. Each Right
initially entitles a holder to purchase one one-hundredth
of a share of the Series B participating cumulative prefer-
ence stock for $100. After a party has acquired 15 percent
or more of the common stock, each Right will entitle a
holder to pay $100 for the number of shares of Company
common stock (or in certain situations, common stock of
the acquiring party) having a then current market value
of $200. Alternatively, the Company has the option to
exchange one share of Company common stock for each
Right at any time after a party has acquired at least 15
percent but less than 50 percent of the common stock.
The Company may redeem each Right for $.01 per Right
at any time until a party has acquired 15 percent or more
of the common stock. In general, none of the benefits of
the Rights will be available to a holder of 15 percent or
more of the common stock. The Rights will expire on
February 12, 2006, unless earlier exchanged or redeemed.
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