Sunoco 2008 Annual Report Download - page 50

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shut down; recorded a $7 million after-tax loss related to the sale of Chemicals’ Neville Island, PA terminal
facility, which included an accrual for enhanced pension benefits associated with employee terminations and for
other required exit costs; and recorded a $17 million after-tax accrual related to the settlement of certain MTBE
litigation. (See Notes 2 and 14 to the Consolidated Financial Statements under Item 8.)
Income Tax Matters—During 2008, Sunoco recognized a $16 million after-tax gain related primarily to
tax credits claimed on amended federal income tax returns filed for certain prior years and a $10 million after-tax
gain related to the settlement of economic nexus issues pertaining to certain prior-year state corporate income tax
returns (see Note 4 to the Consolidated Financial Statements under Item 8).
Issuance of Sunoco Logistics Partners L.P. Limited Partnership Units—During 2008 and 2007,
Sunoco recognized after-tax gains totaling $14 and $90 million, respectively, related to the prior issuance of
limited partnership units of the Partnership to the public. (See Note 15 to the Consolidated Financial Statements
under Item 8.)
Analysis of Consolidated Statements of Income
Revenues—Total revenues were $54.15 billion in 2008, $44.73 billion in 2007 and $38.72 billion in 2006.
The 21 percent increase in 2008 was primarily due to higher refined product prices as well as higher crude oil
prices in connection with the crude oil gathering and marketing activities of the Company’s Logistics operations.
Partially offsetting these positive factors were lower refined product sales volumes. In 2007, the 16 percent
increase was primarily due to higher refined product prices and sales volumes as well as higher crude oil sales in
connection with the crude oil gathering and marketing activities of the Company’s Logistics operations.
Costs and Expenses—Total pretax costs and expenses were $52.97 billion in 2008, $43.32 billion in 2007
and $37.14 billion in 2006. The 22 and 17 percent increases in 2008 and 2007, respectively, were primarily due
to higher crude oil and refined product acquisition costs resulting largely from price increases and higher crude
oil costs in connection with the crude oil gathering and marketing activities of the Company’s Logistics
operations.
Financial Condition
Capital Resources and Liquidity
Cash and Working Capital—At December 31, 2008, Sunoco had cash and cash equivalents of $240
million compared to $648 million at December 31, 2007 and $263 million at December 31, 2006 and had a
working capital deficit of $1,102 million compared to $1,002 million at December 31, 2007 and $740 million at
December 31, 2006. 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 net cash provided by operating activities
(“cash generation”) and $157 million of net cash provided by financing activities. The $385 million increase in
cash and cash equivalents in 2007 was due to $2,367 million of cash generation, partially offset by a $1,193
million net use of cash in investing activities and a $789 million net use of cash in 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, 2008 by $1,400 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. Certain recent
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.
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