Sunoco 2005 Annual Report Download - page 26

Sunoco’s operating leases include leases for marine transportation vessels, service stations,
office space and other property and equipment. Operating leases include all operating
leases that have initial noncancelable terms in excess of one year. Approximately 36 per-
cent of the $1,135 million of future minimum annual rentals relates to time charters for
marine transportation vessels. Most of these time charters contain terms of between three
to seven years with renewal and sublease options. The time charter leases typically require
a fixed-price payment or 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 2005. The actual variable
component of the lease payments attributable to these time charters could vary sig-
nificantly from the estimates included in the table.
A purchase obligation is an enforceable and legally binding agreement to purchase goods
or services that specifies significant terms, including: fixed or minimum quantities to be
purchased; fixed, minimum or variable price provisions; and the approximate timing of the
transaction. Sunoco has various obligations to purchase in the ordinary course of business:
crude oil, other feedstocks and refined products; convenience store items; transportation
and distribution services, including pipeline and terminal throughput and railroad services;
and fuel and utilities. Approximately one quarter of the contractual obligations to purchase
crude oil, other feedstocks and refined products reflected in the above table for 2006 relates
to spot-market purchases to be satisfied within the first 60-90 days of the year. Sunoco also
has contractual obligations supporting financing arrangements of third parties, contracts to
acquire or construct properties, plants and equipment, and other contractual obligations,
primarily related to services and materials, including commitments to purchase supplies
and various other maintenance, systems and communications services. Most of Sunoco’s
purchase obligations are based on market prices or formulas based on market prices. These
purchase obligations generally include fixed or minimum volume requirements. The pur-
chase obligation amounts in the table above are based on the minimum quantities to be
purchased at estimated prices to be paid based on current market conditions. Accordingly,
the actual amounts may vary significantly from the estimates included in the table.
Sunoco also has obligations with respect to its defined benefit pension plans and postretire-
ment health care plans (see “Pension Plan Funded Status” below and Note 9 to the con-
solidated financial statements).
Off-Balance Sheet Arrangements—Sunoco is contingently liable under various arrangements
that guarantee debt of third parties aggregating to approximately $7 million at De-
cember 31, 2005. At this time, management does not believe that it is likely that the
Company will have to perform under any of these guarantees.
A wholly owned subsidiary of the Company, Sunoco Receivables Corporation, Inc., is a
party to an accounts receivable securitization facility that terminates in December 2006
under which the subsidiary may sell, on a revolving basis, up to a $200 million undivided
interest in a designated pool of certain accounts receivable. No receivables have been sold
to third parties under this facility.
Capital Expenditures and Acquisitions
The Company expects capital expenditures to be approximately $2.8 billion over the next
three years. Approximately $1.9 billion is anticipated to be spent in Refining and Supply,
including $775 million for income improvement projects. Refining and Supply has placed
a greater emphasis on income improvement projects, which are designed to increase total
crude unit capacity to 1.0 million barrels per day, while improving product yields and crude
oil and other feedstock processing flexibility. The first phase of this capital program is un-
derway. A $300 million project to expand the capacity of one of the fluid catalytic crack-
ing units at the Philadelphia refinery by 15 thousand barrels per day, resulting in an
upgrade of approximately 25 thousand barrels per day of residual fuel production into
higher-value gasoline and distillate production, is expected to be completed in early 2007
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