Sunoco 2006 Annual Report Download - page 53

2. Changes in Business and Other Matters
Acquisitions
Eagle Point Refinery and Related Assets—Effective Jan-
uary 13, 2004, Sunoco completed the purchase of the Eagle
Point refinery and related assets from El Paso Corporation
(“El Paso”) for $250 million, including inventory. In con-
nection with this transaction, Sunoco also assumed certain
environmental and other liabilities. The Eagle Point refin-
ery is located in Westville, NJ, near the Company’s exist-
ing Northeast Refining operations. The acquisition of the
Eagle Point refinery complements and enhances the Com-
pany’s refining operations in the Northeast and enables the
capture of significant synergies in Northeast Refining. The
related assets acquired include certain pipeline and other
logistics assets associated with the refinery which Sunoco
subsequently sold in March 2004 for $20 million to
Sunoco Logistics Partners L.P. (the “Partnership”), the
consolidated master limited partnership, which is 43 per-
cent owned by Sunoco and conducts a substantial portion
of the Company’s logistics operations. No gain or loss was
recognized on this transaction.
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 $159
Properties, plants and equipment, net 108
Accrued liabilities (3)
Other deferred credits and liabilities (14)
Cash paid for acquisition $250
Service Stations—In the second quarter of 2004, Sunoco
completed the purchase of 340 retail outlets operated
under the Mobil®brand from ConocoPhillips for $181
million, including inventory. Of the total sites acquired,
50 were owned outright and 62 were 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, Virginia and Washington, D.C. These sites
have been re-branded to Sunoco®gasoline and APlus®
convenience stores. This acquisition fits the Company’s
long-term strategy of building a retail and convenience
store network designed to provide attractive long-term
returns.
The purchase price for the service stations acquired has
been allocated to the assets acquired and liabilities as-
sumed based on their relative fair market values at the
acquisition date. The following is a summary of the effects
of this transaction on Sunoco’s consolidated financial
position:
(Millions of Dollars)
Increase in:
Inventories $1
Properties, plants and equipment, net 133
Deferred charges and other assets 48*
Accrued liabilities (1)
Cash paid for acquisition $181
*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 $28 million at December 31, 2006.
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®retail
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.
Logistics Assets—In March 2006, the Partnership pur-
chased two separate crude oil pipeline systems and related
storage facilities located in Texas, one from affiliates of
Black Hills Energy, Inc. (“Black Hills”) for $41 million
and the other from affiliates of Alon USA Energy, Inc.
(“Alon”) for $68 million. The Black Hills acquisition also
includes a lease acquisition marketing business and re-
lated inventory. In August 2006, the Partnership pur-
chased from Sunoco for $65 million a company that has a
55 percent interest in Mid-Valley Pipeline Company
(“Mid-Valley”), a joint venture which owns a crude oil
pipeline system in the Midwest.
In August 2005, the Partnership completed the acquis-
ition of a crude oil pipeline system and related storage fa-
cilities located in Texas from ExxonMobil for $100
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