Sunoco 2005 Annual Report Download - page 24

following year after Sunoco’s minimum obligation for the year had been met. Sunoco’s
obligations under these agreements may be reduced or suspended under certain circum-
stances. Sunoco also has agreements with the Partnership which establish fees for admin-
istrative services provided by Sunoco to the Partnership and provide indemnifications by
Sunoco to the Partnership for certain environmental, toxic tort and other liabilities.
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 $900 million, which
matures in August 2010. The Facility provides the Company with access to short-term fi-
nancing and is intended to support the issuance of commercial paper, letters of credit and
other debt. 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 $1.125 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, 2004). At December 31, 2005, the Company’s tangible net worth was $2.3
billion and its targeted tangible net worth was $1.3 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, 2005, this ratio was .17 to 1. At December 31, 2005, the
Facility was being used to support $103 million of floating-rate notes due in 2034.
Sunoco Logistics Partners L.P. has a revolving credit facility, which was scheduled to ma-
ture in November 2009. In December 2005, the facility was amended to increase the
amount available under the facility from $250 million to $300 million and to extend its
term until November 2010. This facility is available to fund the Partnership’s working
capital requirements, to finance acquisitions, and for general partnership purposes. It in-
cludes a $20 million distribution sublimit that is available for distributions to third-party
unitholders and Sunoco. Amounts outstanding under the facility totaled $107 and $65
million at December 31, 2005 and 2004, respectively. The credit facility contains cove-
nants requiring the Partnership to maintain a ratio of up to 4.75 to 1 of its consolidated
total debt to its consolidated EBITDA (each as defined in the credit facility) and an interest
coverage ratio (as defined in the credit facility) of at least 3 to 1. At December 31, 2005,
the Partnership’s ratio of its consolidated debt to its consolidated EBITDA was 2.9 to 1 and
the interest coverage ratio was 5.2 to 1.
Epsilon, the Company’s consolidated joint venture, has a $40 million revolving credit fa-
cility that matures in September 2006. The credit facility contains restrictive covenants
which, among other things, limit the incurrence of additional debt and the sale of assets by
Epsilon. At December 31, 2005, no amounts were outstanding under the credit facility.
Any borrowings under this credit facility as well as Epsilon’s $120 million term loan that is
also due in September 2006 are guaranteed by Sunoco, Inc.
The following table sets forth Sunoco’s outstanding debt:
December 31
(Millions of Dollars) 2005 2004
Short-term borrowings $— $ 100
Current portion of long-term debt 177 3
Long-term debt 1,234 1,379
Total debt $1,411 $1,482
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