Sunoco 2004 Annual Report Download - page 70

Logistics Operations
On February 8, 2002, the Company contributed a sub-
stantial portion of its Logistics business to a master lim-
ited partnership, Sunoco Logistics Partners L.P., in
exchange for a 73.2 percent limited partnership interest,
a 2 percent general partnership interest, incentive dis-
tribution rights and a special distribution, representing
the net proceeds from the Partnership’s issuance of $250
million of 7
1
⁄ 4 percent senior notes due 2012 (Note 11).
The Partnership concurrently issued 5.75 million 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. No gain or loss was recognized on these
transactions.
Concurrent with the offering, Sunoco entered into various
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 for
certain environmental, toxic tort and other liabilities.
On April 7, 2004, the Partnership issued 3.4 million lim-
ited partnership units under its shelf registration state-
ment at a price of $39.75 per unit. Proceeds from the
offering, net of underwriting discounts and offering ex-
penses, totaled approximately $129 million. Coincident
with the offering, the Partnership redeemed 2.2 million
limited partnership units owned by Sunoco for $83 mil-
lion. With the completion of the offering and related
redemption of Sunoco’s limited partnership units, Sunoco
now has a 62.6 percent interest in the Partnership,
including its 2 percent general partnership interest. The
accounts of the Partnership continue to be included in
Sunoco’s consolidated financial statements. No gain or
loss was recognized on these transactions.
The following table sets forth the minority interest balance
and the changes to this balance attributable to the third-
party investors’ interests in Sunoco Logistics Partners L.P.:
(Millions of Dollars) 2004 2003 2002
Balance at beginning of year $104 $100 $ —
Net proceeds from public offerings 129 —96
Minority interest share of income* 19 15 11
Cash distributions to third-party
investors** (20) (11) (7)
Balance at end of year $232 $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, $.55 for the fourth quarter of 2003, $.57
for the first quarter of 2004, $.5875 for the second quarter of 2004, $.6125 for the
third quarter of 2004 and $.625 for the fourth quarter of 2004.
14. Shareholders’ Equity
Each share of Company common stock is entitled to one
full vote. The $9 million of outstanding 6
3
⁄ 4 percent sub-
ordinated debentures are convertible into shares of
Sunoco common stock at any time prior to maturity at a
conversion price of $40.81 per share and are redeemable
at the option of the Company. At December 31, 2004,
there were 216,785 shares of common stock reserved for
this potential conversion (Note 11).
The Company increased the quarterly dividend paid on
common stock from $.25 per share ($1.00 per year) to
$.275 per share ($1.10 per year) for the fourth quarter of
2003 and then to $.30 per share ($1.20 per year) for the
third quarter of 2004 and to $.40 per share ($1.60 per
year) for the second quarter of 2005.
In 2004 and 2003, the Company repurchased 8.0 and 2.9
million shares, respectively, of its common stock for $568
and $136 million, respectively. The Company did not
repurchase any of its common stock during 2002. In Sep-
tember 2004, the Company announced that its Board
approved an increase of $500 million to the share re-
purchase authorization. At December 31, 2004, the
Company had a remaining authorization from its Board
to purchase up to $227 million of Company common
stock in the open market from time to time depending on
prevailing market conditions and available cash. In
March 2005, an additional $500 million authorization
was approved.
The Company’s Articles of Incorporation authorize the
issuance of up to 15 million 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, 2004, 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-
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