Sunoco 2004 Annual Report Download - page 55

million, including inventory. Of the total sites acquired,
112 were owned outright or subject to long-term leases.
The remaining network consisted of contracts to supply
34 dealer-owned and operated locations and 194 branded
distributor-owned sites. These outlets, which included 31
sites that are Company-operated and have convenience
stores, are located primarily in Delaware, Maryland, Vir-
ginia and Washington, D.C. These sites are being re-
branded to Sunoco®gasoline and APlus®convenience
stores over time. In the second quarter of 2003, Sunoco
completed the purchase of 193 Speedway®retail gasoline
sites from a subsidiary of Marathon Ashland Petroleum
LLC for $162 million, including inventory. The sites,
which are located primarily in Florida and South Caro-
lina, were all Company-operated locations with con-
venience stores. Of the 193 outlets, Sunoco became the
lessee for 54 sites under long-term lease agreements. The
Speedway®sites were re-branded as Sunoco®locations
during the 2003-2004 period. The Company believes
these acquisitions fit its long-term strategy of building a
retail and convenience store network designed to provide
attractive long-term returns.
The purchase prices for the service stations acquired have
been allocated to the assets acquired and liabilities as-
sumed 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:
(Millions of Dollars)
Mobil®
Sites
Speedway®
Sites
Increase in:
Inventories $1 $21
Properties, plants and equipment, net 136 143
Deferred charges and other assets 45* —
Accrued liabilities (1) —
Other deferred credits and liabilities —(2)
Cash paid for acquisitions $181 $162
*Consists of $6 million allocated to goodwill and $39 million allocated to contracts with
dealers and distributors. The value of the dealer and distributor contracts is being
amortized primarily on a straight-line basis over a 10-15 year period, which represents
the expected lives of the Company’s affiliation with these dealers and distributors.
During the eight-month period since the acquisition, this amortization expense
amounted to $1 million.
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
wholly owned subsidiary of Lyondell Chemical Company.
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 million 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 Bay-
port, 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 for acquisition $194
*Represents the amounts allocated to the propylene supply contract and the related
partnership. The Company is amortizing this deferred cost 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. This amortization expense amounted to $15 and $11 million in
2004 and 2003, respectively, and is expected to approximate $14 million in 2005, $13
million in 2006, $11 million in 2007, $11 million in 2008 and $11 million in 2009.
The unamortized cost related to the supply contract and related partnership amounted
to $134 million at December 31, 2004.
Pro Forma Data for Acquisitions—The unaudited pro
forma sales and other operating revenue, net income and
net income per share of common stock of Sunoco, as if
the acquisition of the Eagle Point refinery and related
assets, the Mobil®and Speedway®retail outlets and the
Bayport polypropylene facility had occurred on January 1,
2003, are as follows:
(Millions of Dollars, Except Per Share Amounts) 2004 2003
Sales and other operating revenue $25,741 $20,809
Net income $610 $355
Net income per share of common
stock—diluted $8.14 $4.58
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.
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