Sunoco 2006 Annual Report Download - page 23

from the equity offerings (see “Capital Expenditures and Acquisitions” below). The Part-
nership intends to take advantage of additional growth opportunities in the future, both
within its current system and with third-party acquisitions. The Partnership expects to fi-
nance these capital outlays with a combination of long-term borrowings and the issuance
of additional limited partnership units to the public to maintain a balanced capital
structure. Any issuance of limited partnership units to the public would dilute Sunoco’s
ownership interest in the Partnership.
Sunoco has entered into various agreements with the Partnership which require Sunoco to
pay for minimum storage and throughput usage of certain Partnership assets. Sunoco’s us-
age of the various assets during 2006, which generated approximately $150 million of rev-
enue for the Partnership, is expected to exceed the minimum required amounts under
substantially all of these agreements. If, other than as a result of force majeure, Sunoco fails
to meet its minimum obligations under these agreements, it would be required to pay the
amount of any shortfall to the Partnership. Any such payments would be available as a
credit in the 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
circumstances. Sunoco also has agreements with the Partnership which establish fees for
administrative services provided by Sunoco to the Partnership and provide in-
demnifications 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”), which matures in August
2011. In January 2007, the Facility was amended to increase the amount available under
the Facility from $900 million to $1.3 billion. The Facility provides the Company with
access to short-term financing and is intended to support the issuance of commercial paper,
letters of credit and other debt. The Company also can borrow directly from the participat-
ing 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, 2006, the Company’s tangible
net worth was $2.5 billion and its targeted tangible net worth was $1.5 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, 2006, this ratio was .40 to 1. At
December 31, 2006, the Facility was being used to support $275 million of commercial
paper and $103 million of floating-rate notes due in 2034.
Sunoco Logistics Partners L.P. has a $300 million revolving credit facility, which matures
in November 2010. This facility is available to fund the Partnership’s working capital re-
quirements, to finance acquisitions, and for general partnership purposes. It includes a $20
million distribution sublimit that is available for distributions to third-party unitholders
and Sunoco. During the first quarter of 2006, the Partnership borrowed $109 million
against the facility to fund its March 2006 acquisition of two separate crude oil pipeline
systems and related storage facilities located in Texas. During the second quarter of 2006,
the Partnership used a portion of the proceeds of its May 2006 debt and equity offerings
under its shelf registration statements to repay the $216 million of the then outstanding
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