Sunoco 2011 Annual Report Download - page 33

and our funding sources could decrease. In addition, our suppliers may not extend favorable credit terms to us or
may require us to provide collateral, letters of credit or other forms of security which would drive up our
operating costs. As a result, a downgrade in our credit ratings could have a materially adverse impact on our
future operations and financial position.
Distributions from our subsidiaries may be inadequate to fund our capital needs, make payments on our
indebtedness, and pay dividends on our equity securities.
As a holding company, we derive substantially all of our income from, and hold substantially all of our
assets through, our subsidiaries. As a result, we depend on distributions of funds from our subsidiaries, including
the Partnership, to meet our capital needs and our payment obligations with respect to our indebtedness. Our
operating subsidiaries are separate and distinct legal entities and have no obligation to pay any amounts due with
respect to our indebtedness or to provide us with funds for our capital needs or our debt payment obligations,
whether by dividends, distributions, loans or otherwise. In addition, provisions of applicable law, such as those
restricting the legal sources of dividends, could limit our subsidiaries’ ability to make payments or other
distributions to us, or our subsidiaries could agree to contractual restrictions on their ability to make distributions.
Our rights with respect to the assets of any subsidiary and, therefore, the rights of our creditors with respect
to those assets are effectively subordinated to the claims of that subsidiary’s creditors. In addition, if we were a
creditor of any subsidiary, our rights as a creditor would be subordinate to any security interest in the assets of
that subsidiary and any indebtedness of that subsidiary senior to that held by us.
If we cannot obtain funds from our subsidiaries as a result of restrictions under our debt instruments,
applicable laws and regulations, or otherwise, and are unable to meet our capital needs, pay interest or principal
with respect to our indebtedness when due or pay dividends on our equity securities, we cannot be certain that we
will be able to obtain the necessary funds from other sources, or on terms that will be acceptable to us.
The tax treatment of the Partnership depends on its status as a partnership for federal income tax purposes, as
well as not being subject to a material amount of entity level taxation by individual states. If the Internal
Revenue Service, or IRS, treats the Partnership as a corporation or it becomes subject to a material amount of
entity level taxation for state tax purposes, it would substantially reduce the amount of cash available for
distribution to its unitholders, including Sunoco.
The anticipated after-tax economic benefit of Sunoco’s investment in the common units of the Partnership
depends largely on the Partnership being treated as a partnership for federal income tax purposes. The
Partnership has not requested, and does not plan to request, a ruling from the IRS on this matter. The IRS may
adopt positions that differ from the ones the Partnership has taken. A successful IRS contest of the federal
income tax positions the Partnership takes may impact adversely the market for its common units, and the costs
of any IRS contest will reduce the Partnership’s cash available for distribution to unitholders, including Sunoco.
If the Partnership was treated as a corporation for federal income tax purposes, it would pay federal income tax at
the corporate tax rate, and likely would pay state income tax at varying rates. Distributions to unitholders,
including Sunoco, generally would be taxed again as corporate distributions. Treatment of the Partnership as a
corporation would result in a material reduction in its anticipated cash flow and after-tax return to unitholders,
including Sunoco. Current law may change so as to cause the Partnership to be treated as a corporation for
federal income tax purposes or to otherwise subject it to a material level of entity level taxation. States are
evaluating ways to subject partnerships to entity level taxation through the imposition of state income, franchise
and other forms of taxation. If any of these states were to impose a tax on the Partnership, the cash available for
distribution to unitholders, including Sunoco, would be reduced.
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