Sunoco 2009 Annual Report Download - page 53

December 31, 2007. The $137 million increase in cash and cash equivalents in 2009 was due to $548 million of
net cash provided by operating activities (“cash generation”) and $174 million of net cash provided by financing
activities, partially offset by a $585 million net use of cash in investing activities. The $408 million decrease in
cash and cash equivalents in 2008 was due to a $1,401 million net use of cash in investing activities, partially
offset by $836 million of cash generation and $157 million of net cash provided by financing activities.
Management believes that the current levels of cash and working capital are adequate to support Sunoco’s
ongoing operations. Sunoco’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, 2009 by $2,725 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. Sunoco anticipates
generating approximately $70 million of cash in 2010 from the liquidation of inventories attributable to the
permanent shutdown of the Eagle Point refinery, assuming current price levels. In addition, the Company expects
to receive a federal income tax refund of approximately $400 million during 2010 for the carryback of its 2009
net operating loss. Certain pending legislative and regulatory proposals effectively could limit, or even eliminate,
use of the LIFO inventory method for financial and income tax purposes. Although the final outcome of these
proposals cannot be ascertained at this time, the ultimate impact to Sunoco of the transition from LIFO to another
inventory method could be material.
Cash Flows from Operating Activities—In 2009, Sunoco’s cash generation was $548 million compared
to $836 million in 2008 and $2,367 million in 2007. The $288 million decrease in cash generation in 2009 was
primarily due to a decrease in operating results, partially offset by a decrease in cash used to fund working capital
levels and an increase in noncash charges. The $1,531 million decrease in cash generation in 2008 was primarily
due to an increase in working capital levels pertaining to operating activities. 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. Conversely, decreases in crude oil prices typically result in a decline in cash
generation. Crude oil prices increased in 2009 after decreasing in 2008.
Other Cash Flow Information—Divestment activities also have been a source of cash. During the 2007-
2009 period, proceeds from divestments totaled $456 million and related primarily to the divestments of the
Tulsa refinery and related inventory and the retail heating oil and propane distribution business in 2009 as well as
the sale of retail gasoline outlets throughout the 2007-2009 period.
In 2009, Sunoco Logistics Partners L.P. issued 2.25 million limited partnership units in a public offering,
generating approximately $110 million of net proceeds. Upon completion of this transaction, Sunoco’s interest in
the Partnership, including its 2 percent general partnership interest, decreased to 40 percent. Sunoco’s general
partnership interest also includes incentive distribution rights, which have provided Sunoco, as the general
partner, up to 50 percent of the Partnership’s incremental cash flow. Sunoco received approximately 56, 56 and
53 percent of the Partnership’s cash distributions during 2009, 2008 and 2007, respectively, attributable to its
limited and general partnership interests and its incentive distribution rights. In February 2010, Sunoco received
$201 million in cash from the Partnership in connection with a modification of the incentive distribution rights
which was financed by the Partnership’s issuance of $500 million of long-term debt, consisting of $250 million
of 5.50 percent notes due in 2020 and $250 million of 6.85 percent notes due in 2040. In February 2010, Sunoco
also sold 2.20 million of its limited partnership units to the public, generating approximately $145 million of net
proceeds, which further reduced its interest in the Partnership to 33 percent. As a result of these two transactions,
Sunoco’s share of Partnership distributions is expected to be approximately 48 percent at the Partnership’s
current quarterly cash distribution rate.
The Partnership acquired interests in various pipelines and other logistics assets during the 2007-2009
period (see “Capital Program” below). The Partnership expects to finance future growth opportunities with a
combination of 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.
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