Sunoco 2006 Annual Report Download - page 26

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 2007 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 $5 million at De-
cember 31, 2006. 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., was a
party to an accounts receivable securitization facility under which the subsidiary had the
ability to sell, on a revolving basis, up to a $200 million undivided interest in a designated
pool of certain accounts receivable. No receivables were sold to third parties under this fa-
cility. In December 2006, the term of the facility expired and was not extended. Rather,
the Company increased the amount available under its revolving credit facility by $400
million to $1.3 billion in January 2007 (see “Financial Capacity” above).
Capital Expenditures and Acquisitions
The Company expects capital expenditures to be approximately $3.5 billion over the
2006-2008 period. Approximately $700-$800 million annually is anticipated to be spent in
Refining and Supply, including a total of $800 million for income improvement projects
over the three-year period. Refining and Supply has placed a greater emphasis on income
improvement projects, which are designed to increase, by 2008, total crude unit capacity
from 900 to 930 thousand barrels per day and total conversion capacity from 372 to
430 thousand barrels per day. These projects are designed to result in an improvement in
product yields and crude oil and other feedstock processing flexibility. In addition, Refin-
ing and Supply’s anticipated capital expenditures during the 2006-2008 period include
approximately $500 million to be spent largely to complete projects at its Philadelphia and
Toledo refineries under a 2005 Consent Decree, which settled certain alleged violations
under the Clean Air Act. Subsequently, additional capital outlays related to projects at the
Marcus Hook and Tulsa refineries are expected to be made under the 2005 Consent De-
cree through 2013. The current status of the above capital projects ranges from the
preliminary design and engineering phase to the construction phase. During 2006, market
conditions for engineering, procurement and construction of refinery projects have tight-
ened, resulting in increasing costs and project delays. In addition, as more detailed en-
gineering work is completed, increases in the original scope of work have been identified.
The Refining and Supply capital plan for the 2006-2008 period includes a $500 million
project to expand the capacity of one of the fluid catalytic cracking units at the Phila-
delphia refinery by 15 thousand barrels per day, which is designed to result in an upgrade of
approximately 25 thousand barrels per day of residual fuel production into higher-value
gasoline and distillate production (the “Philadelphia Project”). Capital outlays pertaining
to the Philadelphia Project amounted to $279 and $43 million in 2006 and 2005, re-
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