Sunoco 2005 Annual Report Download - page 22

Financial Condition
Capital Resources and Liquidity
Cash and Working Capital—At December 31, 2005, Sunoco had cash and cash equivalents
of $919 million compared to $405 million at December 31, 2004 and $431 million at De-
cember 31, 2003 and had a working capital deficit of $523 million compared to $471 mil-
lion at December 31, 2004 and $73 million at December 31, 2003. The $514 million
increase in cash and cash equivalents in 2005 was due to $2,069 million of net cash pro-
vided by operating activities (“cash generation”), partially offset by a $1,035 million net
use of cash in investing activities and a $520 million net use of cash in financing activities.
The $26 million decrease in cash and cash equivalents in 2004 was due to a $1,060 million
net use of cash in investing activities and a $713 million net use of cash in financing activ-
ities, partially offset by $1,747 million of net cash provided by operating activities. Suno-
co’s working capital position is considerably stronger than indicated because of the
relatively low historical costs assigned under the LIFO method of accounting for most of the
inventories reflected in the consolidated balance sheets. The current replacement cost of
all such inventories exceeded their carrying value at December 31, 2005 by $2,304 million.
Inventories valued at LIFO, which consist of crude oil as well as petroleum and chemical
products, are readily marketable at their current replacement values. Management believes
that the current levels of cash and working capital are adequate to support Sunoco’s on-
going operations.
Cash Flows from Operating Activities—In 2005, Sunoco’s cash generation was $2,069 million
compared to $1,747 million in 2004 and to $1,000 million in 2003. The $322 million in-
crease in cash generation in 2005 was primarily due to an increase in net income and $48
million of cash proceeds received in connection with a power contract restructuring, par-
tially offset by a decrease in working capital sources pertaining to operating activities and a
reduction in noncash charges. The $747 million increase in cash generation in 2004 was
primarily due to an increase in net income and an increase in working capital sources per-
taining to operating activities. The working capital changes in 2004 included $100 million
of proceeds attributable to the sale of the Company’s private label credit card program.
Working capital sources in 2003 included a $73 million income tax refund for the 2002 tax
year. Increases in crude oil prices typically increase cash generation as the payment terms
on Sunoco’s crude oil purchases are generally longer than the terms on product sales. Con-
versely, decreases in crude oil prices typically result in a decline in cash generation. In both
2005 and 2004, crude oil prices increased, which generated significant cash for Sunoco.
Other Cash Flow Information—Divestment activities also have been a source of cash. During
the 2003-2005 period, proceeds from divestments totaled $337 million and related primar-
ily to the divestment of retail gasoline outlets as well as to sales of the Company’s plasti-
cizer business and its one-third partnership interest in BEF.
In the second quarter of 2004, the Partnership issued 3.4 million limited partnership units
under its shelf registration statement at a price of $39.75 per unit. Proceeds from the offer-
ing, net of underwriting discounts and offering expenses, totaled $129 million. Coincident
with the offering, the Partnership redeemed 2.2 million limited partnership units owned by
Sunoco for $83 million. The proceeds from the offering also were principally used by the
Partnership to finance its acquisitions during 2004. In the second quarter of 2005, the
Partnership issued an additional 2.8 million limited partnership units under its shelf regis-
tration statement at a price of $37.50 per unit. Proceeds from the offering, net of under-
writing discounts and offering expenses, totaled approximately $99 million. These proceeds
were used to redeem an equal number of limited partnership units owned by Sunoco. In
the third quarter of 2005, the Partnership issued an additional 1.6 million limited partner-
ship units under its shelf registration statement at a price of $39.00 per unit. Proceeds from
the offering, which totaled approximately $61 million, net of underwriting discounts and
offering expenses, were used by the Partnership principally to repay a portion of the
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