Sunoco 2005 Annual Report Download - page 52

troleum LLC for $162 million, including inventory. The
sites, which are located primarily in Florida and South
Carolina, were all Company-operated locations with
convenience 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®loca-
tions during the 2003-2004 period. The Company be-
lieves 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 fair market values at the
acquisition dates. The following is a summary of the ef-
fects 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 133 143
Deferred charges and other assets 48* —
Accrued liabilities (1) —
Other deferred credits and liabilities —(2)
Cash paid for acquisitions $181 $162
*Consists of $10 million allocated to goodwill and $38 million allocated to contracts
with dealers and distributors. The values of the dealer and distributor contracts are
being amortized primarily on a straight-line basis over periods ranging from 10 to 15
years, which represent the expected lives of the Company’s affiliations with these
dealers and distributors. The unamortized cost related to the dealer and distributor
contracts amounted to $32 million at December 31, 2005.
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
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
Bayport, TX. Sunoco paid $194 million in cash and bor-
rowed $4 million from the seller to form the partnership
and acquire the Bayport facility.
Through the partnership, the Company believes it has
secured a favorable long-term supply of propylene for its
Gulf Coast polypropylene business, while the acquisition
of the Bayport facility has increased the Company’s poly-
propylene 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 $14, $15 and $11 million
in 2005, 2004 and 2003, respectively, and is expected to approximate $13 million in
2006, $12 million in 2007, $11 million in 2008, $11 million in 2009 and $10 million
in 2010. The unamortized cost related to the supply contract and related partnership
amounted to $123 million at December 31, 2005.
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 for the
year ended December 31, 2004, as if the acquisition of the
Eagle Point refinery and related assets and the Mobil
®
re-
tail outlets had occurred on January 1, 2004, are as follows:
(Millions of Dollars, Except Per-Share Amount)
Sales and other operating revenue $25,741
Net income $610
Net income per share of common stock—diluted $4.07
The pro forma data does not purport to be indicative of
the results that actually would have been obtained if the
Eagle Point refinery and related assets and the Mobil®
retail outlets had been part of Sunoco’s businesses for the
period presented and is not intended to be a projection of
future results. Accordingly, the pro forma results do not
reflect any restructuring costs, changes in operating lev-
els, or potential cost savings and other synergies prior to
the acquisition dates.
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