Sunoco 2008 Annual Report Download - page 32

in its judgment, circumstances so warrant. Specifically, if Fitch, Moody’s or S&P were to downgrade our long-
term rating, particularly below investment grade, our borrowing costs would increase, which could adversely
affect our ability to attract potential investors 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.
We are exposed to the credit and other counterparty risk of our customers in the ordinary course of our
business.
We have various credit terms with virtually all of our customers, and our customers have varying degrees of
creditworthiness. Although we evaluate the creditworthiness of each of our customers, we may not always be
able to fully anticipate or detect deterioration in their creditworthiness and overall financial condition, which
could expose us to an increased risk of nonpayment or other default under our contracts and other arrangements
with them. In the event that a material customer or customers default on their payment obligations to us, this
could materially adversely affect our financial condition, results of operations or cash flows.
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 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.
Poor performance in the financial markets could have a material adverse effect on the level of funding of our
pension obligations, on the level of pension expense and on our financial position. In addition, any use of
current cash flow to fund our pension and postretirement health care obligations could have a significant
adverse effect on our financial position.
We have substantial benefit obligations in connection with our noncontributory defined benefit pension
plans that provide retirement benefits for about one-half of our employees. We have made contributions to the
plans each year over the past several years to improve their funded status, and we expect to make additional
contributions to the plans in the future as well. As a result of the poor performance of the financial markets
during 2008, the projected benefit obligation of our funded defined benefit plans at December 31, 2008 exceeded
the market value of our plan assets by $358 million. As a result, we were required to recognize a $299 million
after-tax charge to our shareholders’ equity at December 31, 2008. In addition, the poor investment results for the
plans during 2008 will also result in an increase of approximately $40 million after tax in pension expense for
24