Sunoco 2003 Annual Report Download - page 26

Financial Capacity—Management currently believes that future cash generation will be
sufficient to satisfy Sunoco’s ongoing capital requirements, to fund its pension obligations
(see “Pension Plan Funded Status” below) and to pay the current level of cash dividends
on Sunoco’s common stock. However, from time to time, the Company’s short-term cash
requirements may exceed its cash generation due to various factors including reductions in
margins for products sold and increases in the levels of capital spending (including acquis-
itions) and working capital. During those periods, the Company may supplement its cash
generation with proceeds from financing activities.
The Company has a revolving credit facility (the “Facility”) totaling $785 million, which
consists of a $385 million commitment through July 2005 and a $400 million commitment
that matures in July 2004. The Facility provides the Company with access to short-term
financing and is intended to support the issuance of commercial paper and letters of credit.
The Company also can borrow directly from the participating banks under the Facility.
The Facility is subject to commitment fees, which are not material. Under the terms of the
Facility, Sunoco is required to maintain tangible net worth (as defined in the Facility) in
an amount greater than or equal to targeted tangible net worth (targeted tangible net
worth being determined by adding $1.0 billion and 50 percent of the excess of net income
over share repurchases (as defined in the Facility) for each quarter ended after March 31,
2002). At December 31, 2003, the Company’s tangible net worth was $1.6 billion and its
targeted tangible net worth was $1.1 billion. The Facility also requires that Sunoco’s ratio
of consolidated net indebtedness, including borrowings of Sunoco Logistics Partners L.P.,
to consolidated capitalization (as those terms are defined in the Facility) not exceed .60 to
1. At December 31, 2003, this ratio was .42 to 1. There were no borrowings under the Fa-
cility at December 31, 2003 and 2002.
Sunoco Logistics Partners L.P. has a three-year $250 million revolving credit facility
through January 2005, which is available to fund the Partnership’s working capital
requirements, to finance acquisitions, and for general partnership purposes. It includes a
$20 million distribution sublimit that is available for distributions to third-party unithold-
ers and Sunoco. At December 31, 2003 and 2002, $65 million was outstanding under this
credit facility. The credit facility contains covenants requiring the Partnership to maintain
a ratio of up to 4 to 1 of its consolidated total debt to its consolidated EBITDA (each as de-
fined in the credit facility) and an interest coverage ratio (as defined in the credit facility)
of at least 3.5 to 1. At December 31, 2003, the Partnership’s ratio of its consolidated debt
to its consolidated EBITDA was 3.0 to 1 and the interest coverage ratio was 5.1 to 1.
The following table sets forth Sunoco’s outstanding borrowings:
December 31
(Millions of Dollars) 2003 2002
Current portion of long-term debt $ 103 $2
Long-term debt 1,350 1,453
Total borrowings $1,453 $1,455
Sunoco’s ratio of debt (net of cash and cash equivalents) to total capital was 39.6 percent
at December 31, 2003 compared to 43.3 percent at December 31, 2002. The Company
currently intends to refinance the current portion of long-term debt through the issuance
of commercial paper. Management believes there is sufficient borrowing capacity available
to pursue strategic investment opportunities as they arise. In addition, the Company has
the option of issuing additional shares of its common or preference stock or selling a por-
tion of its Sunoco Logistics Partners L.P. common units.
The Company has an effective shelf registration statement which provides the Company
with financing flexibility to offer senior and subordinated debt, common and preferred
stock, warrants and trust preferred securities. At December 31, 2003, $1,300 million re-
mains available under this shelf registration statement. Sunoco Logistics Partners L.P. also
has a shelf registration, which became effective in 2003. Under this registration statement,
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