Sunoco 2004 Annual Report Download - page 64

is reflected in other income, net, in the 2004 con-
solidated statement of operations (Note 3).
In 2004, the Company issued $103 million of floating-
rate notes due in 2034 and used the proceeds to redeem
the 7.60 percent environmental industrial revenue bonds
that were due in 2024. These floating-rate notes, which
are remarketed weekly, have been classified as long-term
debt as the Company intends to remarket the notes. In
the event the notes are not remarketed, the Company
can refinance them on a long-term basis utilizing the
New Facility (Note 10). In 2004, the Company also is-
sued $100 million of commercial paper and used the pro-
ceeds to repay its maturing 7
1
⁄ 8 percent notes.
Cash payments for interest related to short-term borrow-
ings and long-term debt (net of amounts capitalized) were
$98, $111 and $100 million in 2004, 2003 and 2002, re-
spectively.
The following table summarizes Sunoco’s long-term debt
(including current portion) by issuer:
December 31
(Millions of Dollars) 2004 2003
Sunoco, Inc. $ 702 $ 807
Sunoco Logistics Partners L.P. 313 313
Epsilon Products Company, LLC 126 148
Other 241 333
$1,382 $1,601
12. Commitments and Contingent Liabilities
Leases and Other Commitments
Sunoco, as lessee, has noncancelable operating leases for
marine transportation vessels, service stations, office
space and other property and equipment. Total rental
expense for such leases for the years 2004, 2003 and 2002
amounted to $197, $144 and $136 million, respectively,
which include contingent rentals totaling $15, $17 and
$16 million, respectively. Approximately 5 percent of
total rental expense was recovered through related sub-
lease rental income during 2004.
The aggregate amount of future minimum annual rentals
applicable to noncancelable operating leases, including
amounts pertaining to lease extension options which are
assumed to be exercised, are as follows (in millions of
dollars):
Current
Lease
Term
Lease
Extension
Options Total
Year ending December 31:
2005 $157 $ 1 $ 158
2006 141 4 145
2007 122 7 129
2008 101 9 110
2009 87 10 97
Thereafter 270 246 516
Future minimum lease payments $878 $277 1,155
Less: Sub-lease rental income (25)
Net minimum lease payments $1,130
Approximately 36 percent of the aggregate amount of
future minimum annual rentals applicable to non-
cancelable operating leases relates to time charters for
marine transportation vessels. Most of these time charters
contain terms of up to seven years with renewal and sub-
lease options. The lease payments consist of a fixed-price
minimum and a variable component based on spot-
market rates. In the table above, the variable component
of the lease payments has been estimated utilizing the
average spot-market prices for the year 2004. The actual
variable component of the lease payments attributable to
these time charters could vary significantly from the
estimates included in the table.
Sunoco is contingently liable under various arrangements
which guarantee debt of third parties aggregating to ap-
proximately $11 million at December 31, 2004. At this
time, management does not believe that it is likely that
the Company will have to perform under any of these
guarantees.
Over the years, Sunoco has sold thousands of retail gaso-
line outlets as well as refineries, terminals, coal mines, oil
and gas properties and various other assets. In connection
with these sales, the Company has indemnified the pur-
chasers for potential environmental and other contingent
liabilities related to the period prior to the transaction
dates. In most cases, the effect of these arrangements was
to afford protection for the purchasers with respect to
obligations for which the Company was already primarily
liable. While some of these indemnities have spending
thresholds which must be exceeded before they become
operative, or limits on Sunoco’s maximum exposure, they
generally are not limited. The Company recognizes the
fair value of the obligations undertaken for all guarantees
entered into or modified after January 1, 2003. In addi-
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