Murphy USA Inc 10-Q for FY2021 Q3
Murphy USA Inc. (MUSA)
10-Q
2021-10-28
For: 2021-09-30
View Original
Added on
April 10, 2026
About this 10-Q
Murphy USA Inc filed this 10-Q on October 28, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $4.6B
- up 62.0% from $2.84B a year earlier
- Net income
- $104M
- up 55.5% from net income of $66.9M a year earlier
- Diluted EPS
- $3.98
- up 75.3% from $2.27 a year earlier
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
For the quarterly period ended September 30, 2021
OR
For the transition period from _______________ to _______________
Commission File Number 001-35914
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
(870 ) 875-7600
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☑ Yes ☐ No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☑ Yes ☐ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No
Number of shares of Common Stock, $0.01 par value, outstanding at September 30, 2021 was 25,633,198 .
| MURPHY USA INC. | ||
| TABLE OF CONTENTS | ||
1
ITEM 1. FINANCIAL STATEMENTS
Murphy USA Inc.
Consolidated Balance Sheets
| September 30, | December 31, | ||||||||||
| (Millions of dollars, except share amounts) | 2021 | 2020 | |||||||||
| (unaudited) | |||||||||||
| Assets | |||||||||||
| Current assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable—trade, less allowance for doubtful accounts of $ | |||||||||||
| Inventories | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
Property, plant and equipment, at cost less accumulated depreciation and amortization of $ | |||||||||||
| Operating lease right of use assets, net* | |||||||||||
| Intangible assets, net of amortization* | |||||||||||
| Goodwill | |||||||||||
| Other assets* | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and Stockholders' Equity | |||||||||||
| Current liabilities | |||||||||||
| Current maturities of long-term debt | $ | $ | |||||||||
| Trade accounts payable and accrued liabilities | |||||||||||
| Income taxes payable | |||||||||||
| Total current liabilities | |||||||||||
| Long-term debt, including capitalized lease obligations | |||||||||||
| Deferred income taxes | |||||||||||
| Asset retirement obligations | |||||||||||
| Non current operating lease liabilities* | |||||||||||
| Deferred credits and other liabilities* | |||||||||||
| Total liabilities | |||||||||||
| Stockholders' Equity | |||||||||||
Preferred Stock, par $ | |||||||||||
Common Stock, par $ | |||||||||||
Treasury stock ( | |||||||||||
| 2021 and 2020, respectively) | ( | ( | |||||||||
| Additional paid in capital (APIC) | |||||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive income (loss) (AOCI) | ( | ( | |||||||||
| Total stockholders' equity | |||||||||||
| Total liabilities and stockholders' equity | $ | $ | |||||||||
See notes to consolidated financial statements.
2
Murphy USA Inc.
Consolidated Statements of Income
(unaudited)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (Millions of dollars, except share and per share amounts) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Operating Revenues | ||||||||||||||||||||||||||
| Petroleum product sales (a) | $ | $ | $ | $ | ||||||||||||||||||||||
| Merchandise sales | ||||||||||||||||||||||||||
| Other operating revenues | ||||||||||||||||||||||||||
| Total operating revenues | ||||||||||||||||||||||||||
| Operating Expenses | ||||||||||||||||||||||||||
| Petroleum product cost of goods sold (a) | ||||||||||||||||||||||||||
| Merchandise cost of goods sold | ||||||||||||||||||||||||||
| Store and other operating expenses | ||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||
| Selling, general and administrative | ||||||||||||||||||||||||||
| Accretion of asset retirement obligations | ||||||||||||||||||||||||||
| Acquisition related costs | ||||||||||||||||||||||||||
| Total operating expenses | ||||||||||||||||||||||||||
| Gain (loss) on sale of assets | ||||||||||||||||||||||||||
| Income (loss) from operations | ||||||||||||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||||
| Interest income | ||||||||||||||||||||||||||
| Interest expense | ( | ( | ( | ( | ||||||||||||||||||||||
| Other nonoperating income (expense) | ( | ( | ||||||||||||||||||||||||
| Total other income (expense) | ( | ( | ( | ( | ||||||||||||||||||||||
| Income (loss) before income taxes | ||||||||||||||||||||||||||
| Income tax expense (benefit) | ||||||||||||||||||||||||||
| Net Income | $ | $ | $ | $ | ||||||||||||||||||||||
| Basic and Diluted Earnings Per Common Share | ||||||||||||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||||||||||||
| Weighted-Average Common Shares Outstanding (in thousands): | ||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||
| Supplemental information: | ||||||||||||||||||||||||||
| (a) Includes excise taxes of: | $ | $ | $ | $ | ||||||||||||||||||||||
See notes to consolidated financial statements.
3
Murphy USA Inc.
Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
| (Millions of dollars) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||
| Other comprehensive income (loss), net of tax | ||||||||||||||||||||||||||
| Interest rate swap: | ||||||||||||||||||||||||||
| Realized gain (loss) | ( | ( | ( | |||||||||||||||||||||||
| Unrealized gain (loss) | ( | |||||||||||||||||||||||||
| Reclassifications: | ||||||||||||||||||||||||||
| Realized gain reclassified to interest expense | ||||||||||||||||||||||||||
| Amortization of unrealized gain to interest expense | ||||||||||||||||||||||||||
| ( | ||||||||||||||||||||||||||
| Deferred income tax (benefit) expense | ( | |||||||||||||||||||||||||
| Other comprehensive income (loss) | ( | |||||||||||||||||||||||||
| Comprehensive income | $ | $ | $ | $ | ||||||||||||||||||||||
See notes to consolidated financial statements.
4
Murphy USA Inc.
Consolidated Statements of Cash Flows
(unaudited)
(Millions of dollars) | Nine Months Ended September 30, | ||||||||||
| 2021 | 2020 | ||||||||||
| Operating Activities | |||||||||||
| Net income | $ | $ | |||||||||
| Adjustments to reconcile net income (loss) to net cash provided by (required by) operating activities | |||||||||||
| Depreciation and amortization | |||||||||||
| Deferred and noncurrent income tax charges (credits) | |||||||||||
| Accretion of asset retirement obligations | |||||||||||
| Pretax (gains) losses from sale of assets | ( | ( | |||||||||
| Net (increase) decrease in noncash operating working capital | ( | ||||||||||
| Other operating activities - net | |||||||||||
| Net cash provided by (required by) operating activities | |||||||||||
| Investing Activities | |||||||||||
| Property additions | ( | ( | |||||||||
| Payments for acquisition, net of cash acquired | ( | ||||||||||
| Proceeds from sale of assets | |||||||||||
| Other investing activities - net | ( | ( | |||||||||
| Net cash provided by (required by) investing activities | ( | ( | |||||||||
| Financing Activities | |||||||||||
| Purchase of treasury stock | ( | ( | |||||||||
| Dividends paid | ( | ||||||||||
| Borrowings of debt | |||||||||||
| Repayments of debt | ( | ( | |||||||||
| Debt issuance costs | ( | ||||||||||
| Amounts related to share-based compensation | ( | ( | |||||||||
| Net cash provided by (required by) financing activities | ( | ||||||||||
| Net increase (decrease) in cash, cash equivalents, and restricted cash | |||||||||||
| Cash, cash equivalents, and restricted cash at beginning of period | |||||||||||
| Cash, cash equivalents, and restricted cash at end of period | $ | $ | |||||||||
See notes to consolidated financial statements.
5
Murphy USA Inc.
Consolidated Statements of Changes in Equity
(unaudited)
| Common Stock | |||||||||||||||||||||||||||||||||||||||||
| (Millions of dollars, except share amounts) | Shares | Par | Treasury Stock | APIC | Retained Earnings | AOCI | Total | ||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2019 | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Cumulative effect of a change in accounting principle | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Loss on interest rate hedge, net of tax | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Purchase of treasury stock | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Issuance of treasury stock | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||||||||
| Amounts related to share-based compensation | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2020 | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Loss on interest rate hedge, net of tax | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2020 | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Loss on interest rate hedge, net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Purchase of treasury stock | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Issuance of treasury stock | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||
| Amounts related to share-based compensation | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2020 | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
6
Murphy USA Inc.
Consolidated Statements of Changes in Equity
(unaudited)
| Common Stock | |||||||||||||||||||||||||||||||||||||||||
| (Millions of dollars, except share amounts) | Shares | Par | Treasury Stock | APIC | Retained Earnings | AOCI | Total | ||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Gain on interest rate hedge, net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Dividend equivalent units accrued | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||
| Purchase of treasury stock | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Issuance of treasury stock | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||
| Amounts related to share-based compensation | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Gain on interest rate hedge, net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Dividend equivalent units accrued | — | — | — | — | |||||||||||||||||||||||||||||||||||||
| Purchase of treasury stock | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Issuance of treasury stock | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||
| Amounts related to share-based compensation | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2021 | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Gain on interest rate hedge, net of tax | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
Cash dividends declared ($ | — | — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||||||
| Dividend equivalent units accrued | — | — | — | ( | — | ||||||||||||||||||||||||||||||||||||
| Purchase of treasury stock | — | — | ( | — | — | — | ( | ||||||||||||||||||||||||||||||||||
| Issuance of treasury stock | — | — | ( | — | — | ||||||||||||||||||||||||||||||||||||
| Amounts related to share-based compensation | — | — | — | ( | — | — | ( | ||||||||||||||||||||||||||||||||||
| Share-based compensation expense | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||
See notes to consolidated financial statements.
7
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 — Description of Business and Basis of Presentation
Description of business — Murphy USA Inc. and its consolidated subsidiaries (“Murphy USA” or the “Company”) markets refined products through a network of retail gasoline stores and to unbranded wholesale customers. In addition, it operates non-fuel convenience stores in select markets in the Northeast. Murphy USA operates a chain of owned retail stores under the brand name of Murphy USA® which are almost all located in close proximity to Walmart stores in 25 states, markets gasoline and other products at standalone stores under the Murphy Express brand, and Quick Chek Corporation ("QuickChek") has convenience stores located in New Jersey and New York. At September 30, 2021, the Company had a total of 1,669 Company stores of which 1,151 were Murphy USA, 360 were Murphy Express and 158 were QuickChek.
Basis of Presentation — Murphy USA was incorporated in March 2013 and, in connection with its incorporation, Murphy USA issued 100 shares of common stock, par value $0.01 per share, to Murphy Oil Corporation (“Murphy Oil”) for $1.00 . On August 30, 2013, Murphy USA was separated from Murphy Oil through the distribution of 100 % of the common stock of Murphy USA to holders of Murphy Oil stock. Murphy USA Inc., Murphy Oil USA, and certain of its subsidiaries operate on a calendar year basis, while the subsidiary QuickChek uses a weekly retail calendar where each quarter has 13 weeks and its historical fiscal year end was the Friday nearest to October 31. For the three month period ended September 30, 2021, the QuickChek results cover the period from July 3, 2021 to October 1, 2021. For the year-to-date period, the QuickChek results cover the period from January 29, 2021 (the date of acquisition) to October 1, 2021. The difference in timing of the month ends is immaterial to the overall consolidated results.
Accounting policies related to the acquisition of QuickChek —
Business combinations — The purchase price of an acquisition is measured as the aggregate of the fair value of the consideration transferred. The purchase price is allocated to the fair values of the tangible and intangible assets acquired and liabilities assumed, with any excess recorded as goodwill. These fair value determinations require judgment and may involve the use of significant estimates and assumptions. The purchase price allocation may be provisional during a measurement period of up to one year to provide reasonable time to obtain the information necessary to identify and measure the assets acquired and liabilities assumed. Any such measurement period adjustments are recognized in the period in which the adjustment amount is determined. Transaction costs associated with the acquisition are expensed as incurred.
Goodwill and intangible assets — Goodwill represents the excess of the aggregate of the consideration transferred over the net assets acquired and liabilities assumed and is tested annually for impairment, or more frequently if there are indicators of impairment. Acquired finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives, and are reviewed for impairment when events or circumstances indicate that the asset group to which the intangible assets belong might be impaired. The Company revises the estimated remaining useful life of these assets when events or changes in circumstances warrant a revision. If the Company revises the useful life, the unamortized balance is amortized over the useful life on a prospective basis. Indefinite-lived intangibles are tested annually for impairment, or more often if indicators warrant.
Interim Financial Information — The interim period financial information presented in these consolidated financial statements is unaudited and includes all known accruals and adjustments, in the opinion of management, necessary for a fair presentation of the consolidated financial position of Murphy USA and its results of operations and cash flows for the periods presented. All such adjustments are of a normal and recurring nature.
These interim consolidated financial statements should be read together with our audited financial statements for the years ended December 31, 2020, 2019 and 2018, included in our Annual Report on Form 10-K (File No. 001-35914), as filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934 on February 19, 2021.
8
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 2 — Revenues
Revenue Recognition
Revenue is recognized when obligations under the terms of a contract with our customers are satisfied; generally, this occurs with the transfer of control of our petroleum products, convenience merchandise, Renewable Identification Numbers ("RINs") and other assets to our third-party customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Excise and sales tax that we collect where we have determined we are the principal in the transaction have been recorded as revenue on a jurisdiction-by-jurisdiction basis.
The Company enters into buy/sell and similar arrangements when petroleum products are held at one location but are needed at a different location. The Company often pays or receives funds related to the buy/sell arrangements based on location or quality differences. The Company continues to account for these transactions as non-monetary exchanges under existing accounting guidance and typically reports these on a net basis in the Consolidated Statements of Income.
The following tables disaggregate our revenues by major source for the three and nine months ended September 30, 2021 and 2020, respectively:
| Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | |||||||||||||||||||||||||||||||||||||
| (Millions of dollars) | Marketing | Corporate and Other Assets | Consolidated | Marketing | Corporate and Other Assets | Consolidated | ||||||||||||||||||||||||||||||||
Petroleum product sales (at retail) 1 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
| Petroleum product sales (at wholesale) | ||||||||||||||||||||||||||||||||||||||
| Total petroleum product sales | ||||||||||||||||||||||||||||||||||||||
| Merchandise sales | ||||||||||||||||||||||||||||||||||||||
| Other operating revenues: | ||||||||||||||||||||||||||||||||||||||
| RINs | ||||||||||||||||||||||||||||||||||||||
Other revenues 2 | ( | |||||||||||||||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||||||
9
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | |||||||||||||||||||||||||||||||||||||
| (Millions of dollars) | Marketing | Corporate and Other Assets | Consolidated | Marketing | Corporate and Other Assets | Consolidated | ||||||||||||||||||||||||||||||||
Petroleum product sales (at retail) 1 | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||
| Petroleum product sales (at wholesale) | ||||||||||||||||||||||||||||||||||||||
| Total petroleum product sales | ||||||||||||||||||||||||||||||||||||||
| Merchandise sales | ||||||||||||||||||||||||||||||||||||||
| Other operating revenues: | ||||||||||||||||||||||||||||||||||||||
| RINs | ||||||||||||||||||||||||||||||||||||||
Other revenues 2 | ||||||||||||||||||||||||||||||||||||||
| Total revenues | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
1 Includes excise and sales taxes that remain eligible for inclusion under Topic 606
2 Primarily includes collection allowance on excise and sales taxes and other miscellaneous items
Marketing segment
Petroleum product sales (at retail). For our retail store locations, the revenue related to petroleum product sales is recognized as the fuel is pumped to our customers. The transaction price at the pump typically includes some portion of sales or excise taxes as levied in the respective jurisdictions. Those taxes that are collected for remittance to governmental entities on a pass through basis are not recognized as revenue and they are recorded to a liability account until they are paid. Our customers typically use a mixture of cash, checks, credit cards and debit cards to pay for our products as they are received. We have accounts receivable from the various credit/debit card providers at any point in time related to product sales made on credit cards and debit cards. These receivables are typically collected in to seven days , depending on the terms with the particular credit/debit card providers. Payment fees retained by the credit/debit card providers are recorded as store and other operating expenses.
Petroleum product sales (at wholesale). Our sales of petroleum products at wholesale are generally recorded as revenue when the deliveries have occurred and legal ownership of the product has transferred to the customer. Title transfer for bulk refined product sales typically occurs at pipeline custody points and upon trucks loading at product terminals. For bulk pipeline sales, we record receivables from customers that are generally collected within a week from custody transfer date. For our rack product sales, the majority of our customers' accounts are drafted by us within 10 days from product transfer.
Merchandise sales. For our retail store locations, the revenue related to merchandise sales is recognized as the customer completes their purchase at our locations. The transaction price typically includes some portion of sales tax as levied in the respective jurisdictions. Those taxes that are collected for remittance to governmental entities on a pass through basis are not recognized as revenue and they are recorded to a liability account until they are paid. As noted above, a mixture of payment types are used for these revenues and the same terms for credit/debit card receivables are realized.
10
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The most significant judgment with respect to merchandise sales revenue is determining whether we are the principal or agent for some categories of merchandise such as lottery tickets, lotto, newspapers and other small categories of merchandise. For scratch-off lottery tickets, we have determined we are the principal in the majority of the jurisdictions and therefore we record those sales on a gross basis. We have some categories of merchandise (such as lotto) where we are the agent and the revenues recorded for those transactions are our net commission only.
The Company offers loyalty programs through its Murphy USA, Murphy Express, and QuickChek branded retail locations. The customers earn rewards based on their spending or other promotional activities. These programs create a performance obligation which requires us to defer a portion of sales revenue to the loyalty program participants until they redeem their rewards. The rewards may be redeemed for free or discounted merchandise or cash discounts at all stores and on fuel purchases only at Murphy USA and Murphy Express stores. Earned rewards expire after an account is inactive for a period of 90 days at Murphy USA and Murphy Express, while certain QuickChek rewards require use within the month. We recognize loyalty revenue when a customer redeems an earned reward. Deferred revenue associated with both rewards programs are included in Trade accounts payable and accrued liabilities in our Consolidated Balance Sheet. The deferred revenue balances at September 30, 2021 and December 31, 2020 were immaterial.
RINs sales. For the sale of RINs, we recognize revenue when the RIN is transferred to the counter-party and the sale is completed. Receivables from our counter-parties related to the RIN sales are typically collected within five days of the sale.
Other revenues. Items reported as other operating revenues include collection allowances for excise and sales tax and other miscellaneous items and are recognized as revenue when the transaction is completed.
Accounts receivable
Note 3 — Inventories
| (Millions of dollars) | September 30, 2021 | December 31, 2020 | ||||||||||||
| Petroleum products - First-In, First-Out ("FIFO") basis | $ | $ | ||||||||||||
| Less: Last-In, First-Out ("LIFO") reserve - petroleum products | ( | ( | ||||||||||||
| Petroleum products - LIFO basis | ||||||||||||||
| Store merchandise for resale | ||||||||||||||
| Materials and supplies | ||||||||||||||
| Total inventories | $ | $ | ||||||||||||
At September 30, 2021 and December 31, 2020, the replacement cost (market value) of LIFO inventories exceeded the LIFO carrying value by $232.7 million and $101.3 million, respectively. The QuickChek subsidiary values its general merchandise inventory utilizing the LIFO method and values the inventory of gasoline and certain other merchandise items using the FIFO method. The QuickChek LIFO reserve balance for the current year was immaterial.
11
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 4 — Business Acquisition
On January 29, 2021, MUSA completed the previously announced transaction to acquire 100 % of QuickChek, a privately-held convenience store chain with a regional brand consisting of 156 stores located in New Jersey and New York, in an all-cash transaction. The acquisition was made to expand the MUSA network into the Northeast by adding stores that had an existing food and beverage model and is consistent with the Company's stated strategic priorities of developing enhanced food and beverage capabilities and accelerating its growth plans.
The excess of the purchase price over the preliminary estimated fair value of the net, identifiable assets acquired was recorded as goodwill. The factors contributing to the recognition of goodwill are a mixture of direct and reverse synergies that are expected to be realized by both QuickChek and Murphy USA as a result of this acquisition. The direct synergies include additional margin capture on the retail fuel side from the tactical pricing decisions and improved benefits from increased scale on the product acquisition side combined with other cost savings in both merchandise and store operations. The reverse synergies reflect management's ability to leverage QuickChek's product pricing and operational capabilities related to food and beverage sales to Murphy's existing store footprint.
The Company has determined that the trade name has an indefinite life, as there is no economic, contractual, or other factors that limit its useful life and expects to generate value as long as the trade name is utilized, and therefore is not subject to amortization. The fair value of intangible assets was based on widely-accepted valuation techniques, including discounted cash flows.
The following table summarizes the preliminary fair value of the consideration transferred at the date of the acquisition, as well as the calculation of preliminary goodwill based on the excess of consideration over the provisional fair value of net assets acquired:
| (Millions of dollars) | ||||||||
| Cash paid to shareholders | $ | |||||||
| Less cash and cash equivalents acquired | ||||||||
| Fair value of consideration transferred, net of cash acquired | $ | |||||||
| Assets acquired: | ||||||||
| Accounts receivable | $ | |||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Property and equipment | ||||||||
| Right of use assets | ||||||||
| Other assets | ||||||||
| Identified intangible assets | ||||||||
| Liabilities assumed: | ||||||||
| Accounts payable and accrued expenses | ( | |||||||
| Deferred income tax liabilities | ( | |||||||
| Asset retirement obligation | ( | |||||||
| Current and long term debt, including finance lease obligations | ( | |||||||
| Deferred credits and other liabilities | ( | |||||||
| Operating lease liabilities | ( | |||||||
| Net assets acquired | ||||||||
| Goodwill | ||||||||
| Fair value of consideration transferred, net of cash and cash equivalents acquired | $ | |||||||
12
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Due to the timing of the acquisition, the allocation of the purchase price to assets acquired and liabilities assumed is preliminary pending finalization of management's analysis and is expected to be completed prior to December 31, 2021.
The Company has not disclosed pro forma information of the combined business as the transaction is not material to revenue or net earnings.
Note 5 — Goodwill and Intangible Assets
The Company's goodwill is assigned to its Marketing segment and no ne of the goodwill is deductible for tax purposes.
| (Millions of dollars) | ||||||||
| Goodwill balance, January 1, 2021 | $ | |||||||
| QuickChek acquisition | ||||||||
Goodwill balance, September 30, 2021 | $ | |||||||
We amortize intangible assets subject to amortization on a straight-line or accelerated basis based on the period for which the economic benefits of the asset or liability are expected to be realized. In connection with our acquisition of QuickChek on January 29, 2021, we recorded the following amounts of intangible assets, in addition to the Company's existing intangible asset pipeline space, which is being amortized over a 40 year life.
| January 29, 2021 | Remaining Useful Life | |||||||||||||
| (Millions of dollars) | Carrying Value | (in years) | ||||||||||||
| Intangible assets subject to amortization: | ||||||||||||||
| Intangible lease liability | $ | ( | ||||||||||||
| Intangible assets not subject to amortization: | ||||||||||||||
| Trade name | n/a | |||||||||||||
| Liquor licenses | n/a | |||||||||||||
| Total intangible assets acquired | $ | |||||||||||||
Intangible assets subject to amortization at September 30, 2021 and December 31, 2020 consisted of the following:
| Remaining Useful Life (in years) | September 30, 2021 | December 31, 2020 | |||||||||||||||||||||||||||
| (Millions of dollars) | Cost | Net | Cost | Net | |||||||||||||||||||||||||
| Pipeline space | $ | $ | $ | $ | |||||||||||||||||||||||||
| Intangible lease liability | ( | ( | |||||||||||||||||||||||||||
| Total intangible assets subject to amortization | $ | $ | $ | $ | |||||||||||||||||||||||||
13
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 6 — Long-Term Debt
| (Millions of dollars) | September 30, 2021 | December 31, 2020 | ||||||||||||
| $ | $ | |||||||||||||
Term loan due 2023 (effective interest rate of n/a at September 30, 2021 and | ||||||||||||||
Term loan due 2028 (effective interest rate of | ||||||||||||||
| Capitalized lease obligations, autos and equipment, due through 2025 | ||||||||||||||
| Capitalized lease obligations, buildings, due through 2059 | ||||||||||||||
| Less unamortized debt issuance costs | ( | ( | ||||||||||||
| Total long-term debt | ||||||||||||||
| Less current maturities | ||||||||||||||
| Total long-term debt, net of current | $ | $ | ||||||||||||
Senior Notes
On April 25, 2017, Murphy Oil USA, Inc., our primary operating subsidiary, issued $300 million of 5.625 % Senior Notes due 2027 (the "2027 Senior Notes") under its existing shelf registration statement. The 2027 Senior Notes are fully and unconditionally guaranteed by Murphy USA, and are guaranteed by certain 100% owned subsidiaries that guarantee our credit facilities. The indenture governing the 2027 Senior Notes contains restrictive covenants that limit, among other things, the ability of Murphy USA, Murphy Oil USA, Inc. and the restricted subsidiaries to incur additional indebtedness or liens, dispose of assets, make certain restricted payments or investments, enter into transactions with affiliates or merge with or into other entities.
On September 13, 2019, Murphy Oil USA, Inc., issued $500 million of 4.75 % Senior Notes due 2029 (the “2029 Senior Notes”). The net proceeds from the issuance of the 2029 Senior Notes were used to fund, in part, the tender offer and redemption of the $500 million aggregate principal amount of its senior notes due 2023. The 2029 Senior Notes are fully and unconditionally guaranteed by Murphy USA, and are guaranteed by certain 100% owned subsidiaries that guarantee our credit facilities. The indenture governing the 2029 Senior Notes contains restrictive covenants that are essentially identical to the covenants for the 2027 Senior Notes.
On January 29, 2021, Murphy Oil USA, Inc., issued $500 million of 3.75 % Senior Notes due 2031 (the “2031 Senior Notes” and, together with the 2027 Senior Notes and the 2029 Senior Notes, the "Senior Notes"). The net proceeds from the issuance of the 2031 Senior Notes were used to fund the acquisition of QuickChek and for other general corporate purposes. The 2031 Senior Notes are fully and unconditionally guaranteed by Murphy USA, and are guaranteed by certain 100% owned subsidiaries that guarantee our credit facilities. The indenture governing the 2031 Senior Notes contains restrictive covenants that are essentially identical to the covenants for the 2027 and 2029 Senior Notes.
The Senior Notes and the guarantees rank equally with all of our and the guarantors’ existing and future senior unsecured indebtedness and effectively junior to our and the guarantors’ existing and future secured indebtedness (including indebtedness with respect to the credit facilities) to the extent of the value of the assets securing such indebtedness. The Senior Notes are structurally subordinated to all of the existing and future third-party liabilities, including trade payables, of our existing and future subsidiaries that do not guarantee the notes.
14
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Credit Facilities and Term Loan
On January 29, 2021, the Company entered into a new credit agreement that consists of both a cash flow revolving credit facility and a senior unsecured term loan that replaced the Company's prior ABL facility and term loan contained in the credit facility that was last renewed in 2019, respectively.
The credit agreement provides for a senior secured term loan in an aggregate principal amount of $400 350 million (the "Revolving Facility", and together with the Term Facility, the "Credit Facilities").
Interest payable on the credit facilities is based on either:
•the London interbank offered rate, adjusted for statutory reserve requirements (the “Adjusted LIBO Rate”);
or
•the Alternate Base Rate, which is defined as the highest of (a) the rate of interest last quoted by The Wall Street Journal as the "Prime Rate", (b) the greater of the federal funds effective rate and the overnight bank funding rate determined by the Federal Reserve Bank of New York from time to time plus 0.50 % per annum and (c) the one-month Adjusted LIBO Rate plus 1.00 % per annum,
plus, (A) in the case of Adjusted LIBO Rate borrowings, (i) with respect to the Revolving Facility, spreads ranging from 1.75 % to 2.25 % per annum depending on a total debt to EBITDA ratio or (ii) with respect to the Term Facility, a spread of 1.75 % per annum and (B) in the case of Alternate Base Rate borrowings (i) with respect to the Revolving Facility, spreads ranging from 0.75 % to 1.25 % per annum depending on a total debt to EBITDA ratio or (ii) with respect to the Term Facility, a spread of 1.75 % per annum.
The Term Facility amortizes in quarterly installments starting with the first amortization payment being due on July 1, 2021 at a rate of 1.00 % per annum. Murphy USA is also required to prepay the Term Facility with a portion of its excess cash flow, a portion of the net cash proceeds of certain asset sales, casualty events (subject to certain reinvestment rights) and issuances of indebtedness not permitted under the Credit Agreement and with designated proceeds received from certain asset sales, issuances of indebtedness and sale-leaseback transactions, subject to certain exceptions. The Credit Agreement allows Murphy USA to prepay, in whole or in part, the Term Facility outstanding thereunder, together with any accrued and unpaid interest, with prior notice but without premium or penalty other than breakage and redeployment costs.
The credit agreement contains certain covenants that limit, among other things, the ability of the Company and certain of its subsidiaries to incur additional indebtedness or liens, to make certain investments, to enter into sale-leaseback transactions, to make certain restricted payments, to enter into consolidations, mergers or sales of material assets and other fundamental changes, to transact with affiliates, to enter into agreements restricting the ability of subsidiaries to incur liens or pay dividends, or to make certain accounting changes. The Credit Agreement also contains total leverage ratio and secured net leverage ratio financial maintenance covenants which are tested quarterly. Pursuant to the total leverage ratio financial maintenance covenant, the Company must maintain a total leverage ratio of not more than 5.0 to 1.0 with an ability in certain circumstances to temporarily increase that limit to 5.5 to 1.0. In conformance to the secured net leverage ratio financial maintenance covenant, the Company must maintain a maximum secured net leverage ratio of 3.75 to 1.0 with an ability in certain circumstances to temporarily increase that limit to 4.25 to 1.0. The Credit Agreement also contains customary events of default.
15
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 7— Asset Retirement Obligations (ARO)
The majority of the ARO recognized by the Company at September 30, 2021 and December 31, 2020 is related to the estimated costs to dismantle and abandon certain of its retail gasoline stores. The Company has not recorded an ARO for certain of its marketing assets because sufficient information is presently not available to estimate a range of potential settlement dates for the obligation. These assets are consistently being upgraded and are expected to be operational into the foreseeable future. In these cases, the obligation will be initially recognized in the period in which sufficient information exists to estimate the obligation.
A reconciliation of the beginning and ending aggregate carrying amount of the ARO is shown in the following table.
| (Millions of dollars) | September 30, 2021 | December 31, 2020 | ||||||||||||
| Balance at beginning of period | $ | $ | ||||||||||||
| Addition for acquisition | ||||||||||||||
| Accretion expense | ||||||||||||||
| Settlements of liabilities | ( | ( | ||||||||||||
| Liabilities incurred | ||||||||||||||
| Balance at end of period | $ | $ | ||||||||||||
The estimation of future ARO is based on a number of assumptions requiring professional judgment. The Company cannot predict the type of revisions to these assumptions that may be required in future periods due to the lack of availability of additional information.
Note 8 — Income Taxes
The effective tax rate is calculated as the amount of income tax expense (benefit) divided by income before income tax expense (benefit). For the three and nine month periods ended September 30, 2021 and 2020, the Company’s approximate effective tax rates were as follows:
| 2021 | 2020 | |||||||||||||
| Three months ended September 30, | ||||||||||||||
| Nine months ended September 30, | ||||||||||||||
In the nine months ended September 30, 2021, the Company recognized approximately $1.2 million of excess tax benefits related to stock compensation for employees, $1.0 million in expense for other discrete tax items related to state deferred tax rate adjustments due to the QuickChek acquisition, and $0.4 million in other discrete tax benefits. For the nine months ended September 30, 2020, the Company recognized tax benefits of approximately $1.4 million in excess tax benefits related to stock compensation and $1.7 million for other discrete tax items.
As of September 30, 2021, the earliest years remaining open for federal and state audit and/or settlement are 2017 and 2015, respectively. Although the Company believes that recorded liabilities for uncertain tax positions are adequate, additional gains or losses could occur in future periods from resolution of outstanding unsettled matters.
Note 9 — Incentive Plans
2013 Long-Term Incentive Plan
Effective August 30, 2013, certain of our employees participate in the Murphy USA 2013 Long-Term Incentive Plan which was subsequently amended and restated effective as of February 8, 2017 (the “MUSA 2013 Plan”). The MUSA 2013 Plan authorizes the Executive Compensation Committee of our Board of Directors (“the Committee”) to grant non-qualified or incentive stock options, stock appreciation rights, stock awards (including restricted stock and restricted stock unit awards), cash awards, and performance awards to our employees. No more than 5.5 million shares of MUSA common stock may be delivered under the MUSA 2013 Plan and no more than 1 million shares of
16
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
common stock may be awarded to any one employee, subject to adjustment for changes in capitalization. The maximum cash amount payable pursuant to any “performance-based” award to any participant in any calendar year is $5.0 million.
Effective with its initial quarterly dividend in December 2020, the Company issues dividend equivalent units ("DEU") on all outstanding, unvested equity awards (except stock options) in an amount commensurate with regular quarterly dividends paid on common stock. The terms of the DEU mirror the underlying awards and will only vest if the related award vests. DEUs issued are included with grants in each respective table as applicable.
STOCK OPTIONS – The Committee fixes the option price of each option granted at no less than fair market value (FMV) on the date of the grant and fixes the option term at no more than 7 years from such date. In February 2021, the Committee granted nonqualified stock options to certain employees of the Company. The Black-Scholes valuation for these awards was $32.00 per option.
| Assumptions used to value awards: | ||||||||
| Dividend yield | % | |||||||
| Expected volatility | % | |||||||
| Risk-free interest rate | % | |||||||
| Expected life (years) | ||||||||
| Stock price at valuation date | $ | |||||||
Changes in options outstanding for Company employees during the period from December 31, 2020 to September 30, 2021 are presented in the following table:
| Options | Number of Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (Millions of Dollars) | |||||||||||||||||||
| Outstanding at 12/31/2020 | $ | ||||||||||||||||||||||
| Granted | $ | ||||||||||||||||||||||
| Exercised | ( | ||||||||||||||||||||||
| Forfeited | ( | ||||||||||||||||||||||
| Outstanding at 9/30/2021 | $ | $ | |||||||||||||||||||||
| Exercisable at 9/30/2021 | $ | $ | |||||||||||||||||||||
RESTRICTED STOCK UNITS (MUSA 2013 Plan) – The Committee has granted time based restricted stock units (RSUs) as part of the compensation plan for its executives and certain other employees since its inception. The awards granted in the current year were under the MUSA 2013 Plan, are valued at the grant date fair value, and vest over 3 years.
17
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Changes in restricted stock units outstanding for Company employees during the period from December 31, 2020 to September 30, 2021 are presented in the following table:
| Employee RSUs | Number of units | Weighted Average Grant Date Fair Value | Total Fair Value (Millions of Dollars) | ||||||||||||||
| Outstanding at 12/31/2020 | $ | ||||||||||||||||
| Granted | $ | ||||||||||||||||
| Vested and issued | ( | $ | $ | ||||||||||||||
| Forfeited | ( | $ | |||||||||||||||
| Outstanding at 9/30/2021 | $ | $ | |||||||||||||||
PERFORMANCE-BASED RESTRICTED STOCK UNITS (MUSA 2013 Plan) – In February 2021, the Committee awarded performance-based restricted stock units (performance units) to certain employees. Half of the performance units vest based on a 3-year return on average capital employed (ROACE) calculation and the other half vest based on a 3-year total shareholder return (TSR) calculation that compares MUSA to a group of 18 peer companies. The portion of the awards that vest based on TSR qualify as a market condition and must be valued using a Monte Carlo valuation model. For the TSR portion of the awards, the fair value was determined to be $168.42 per unit. For the ROACE portion of the awards, the valuation will be based on the grant date fair value of $126.00 per unit and the number of awards will be periodically assessed to determine the probability of vesting.
Changes in performance-based restricted stock units outstanding for Company employees during the period from December 31, 2020 to September 30, 2021 are presented in the following table:
| Employee PSU's | Number of Units | Weighted Average Grant Date Fair Value | Total Fair Value (Millions of Dollars) | ||||||||||||||
| Outstanding at 12/31/2020 | $ | ||||||||||||||||
| Granted | $ | ||||||||||||||||
| Vested and issued | ( | $ | $ | ||||||||||||||
| Forfeited | ( | $ | |||||||||||||||
| Outstanding at 9/30/2021 | $ | $ | |||||||||||||||
2013 Stock Plan for Non-employee Directors
Effective August 8, 2013, Murphy USA adopted the 2013 Murphy USA Stock Plan for Non-employee Directors (the “Directors Plan”). The directors for Murphy USA are compensated with a mixture of cash payments and equity-based awards. Awards under the Directors Plan may be in the form of restricted stock, restricted stock units, stock options, or a combination thereof. An aggregate of 500,000 shares of common stock shall be available for issuance of grants under the Directors Plan.
RESTRICTED STOCK UNITS (Directors Plan) – The Committee has also granted time based RSUs to the non-employee directors of the Company as part of their overall compensation package for being a member of the Board of Directors. These awards typically vest at the end of three years .
18
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Changes in restricted stock units outstanding for Company non-employee directors during the period from December 31, 2020 to September 30, 2021 are presented in the following table:
| Director RSU's | Number of Units | Weighted Average Grant Date Fair Value | Total Fair Value (Millions of Dollars) | ||||||||||||||
| Outstanding at 12/31/2020 | $ | ||||||||||||||||
| Granted | $ | ||||||||||||||||
| Vested and issued | ( | $ | $ | ||||||||||||||
| Outstanding at 9/30/2021 | $ | $ | |||||||||||||||
For the nine months ended September 30, 2021 and 2020, share-based compensation was $10.0 million and $11.0 million, respectively. There was $0.4 million in income tax benefits realized for the tax deductions from options exercised for the nine months ended September 30, 2021 and there were $0.8 million in the period ended September 30, 2020.
Note 10 — Financial Instruments and Risk Management
At September 30, 2021 there was $0.9 million cash deposit and at December 31, 2020 the cash deposit was $0.6 million related to commodity derivative contracts reported in Prepaid expenses and other current assets in the Consolidated Balance Sheets. These cash deposits have not been used to increase the reported net assets or reduce the reported net liabilities on the derivative contracts at September 30, 2021 or December 31, 2020.
Interest Rate Risks
19
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 11 — Earnings Per Share
Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted average of common shares outstanding during the period. Diluted earnings per common share adjusts basic earnings per common share for the effects of stock options and restricted stock in the periods where such items are dilutive.
On October 28, 2020, the Board of Directors approved an up to $500 million share repurchase program to be in effect through December 2023. For the nine months ended September 30, 2021, the Company repurchased 1,699,043 shares of common stock for an average price of $136.22 per share including brokerage fees. For the nine months ended September 30, 2020, 2,018,934 shares were repurchased for an average price of $114.16 per share under previous board authorizations.
The following table provides a reconciliation of basic and diluted earnings per share computations for the three and nine months ended September 30, 2021 and 2020:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (Millions of dollars, except share and per share amounts) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Earnings per common share: | |||||||||||||||||||||||
| Net income per share - basic | |||||||||||||||||||||||
| Net income attributable to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average common shares outstanding (in thousands) | |||||||||||||||||||||||
| Earnings per common share | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per common share - assuming dilution: | |||||||||||||||||||||||
| Net income per share - diluted | |||||||||||||||||||||||
| Net income attributable to common stockholders | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average common shares outstanding (in thousands) | |||||||||||||||||||||||
| Common equivalent shares: | |||||||||||||||||||||||
| Dilutive share-based awards | |||||||||||||||||||||||
| Weighted average common shares outstanding - assuming dilution (in thousands) | |||||||||||||||||||||||
| Earnings per common share assuming dilution | $ | $ | $ | $ | |||||||||||||||||||
20
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
We have excluded from the earnings-per-share calculation certain stock options and shares that are considered to be anti-dilutive under the treasury stock method and are reported in the table below.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| Potentially dilutive shares excluded from the calculation as their inclusion would be anti-dilutive | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Stock Options | |||||||||||||||||||||||
| Restricted share units | |||||||||||||||||||||||
| Total anti-dilutive shares | |||||||||||||||||||||||
Note 12 — Other Financial Information
CASH FLOW DISCLOSURES — Cash income taxes paid, net of refunds, were $86.1 million and $66.5 million for the nine month periods ended September 30, 2021 and 2020, respectively. Interest paid, net of amounts capitalized, was $57.9 million and $39.0 million for the nine month periods ended September 30, 2021 and 2020, respectively.
| Nine Months Ended September 30, | |||||||||||
| (Millions of dollars) | 2021 | 2020 | |||||||||
| Accounts receivable | $ | ( | $ | ||||||||
| Inventories | ( | ||||||||||
| Prepaid expenses and other current assets | ( | ||||||||||
| Accounts payable and accrued liabilities | ( | ||||||||||
| Income taxes payable | ( | ||||||||||
| Net (increase) decrease in noncash operating working capital | $ | $ | ( | ||||||||
Note 13 — Assets and Liabilities Measured at Fair Value
The Company carries certain assets and liabilities at fair value in its Consolidated Balance Sheets. The fair value hierarchy is based on the quality of inputs used to measure fair value, with Level 1 being the highest quality and Level 3 being the lowest quality. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included within Level 1. Level 3 inputs are unobservable inputs which reflect assumptions about pricing by market participants.
At the balance sheet date, the fair value of derivative contracts was determined using NYMEX quoted values but was immaterial.
21
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
| At September 30, 2021 | At December 31, 2020 | |||||||||||||||||||||||||
| Carrying | Carrying | |||||||||||||||||||||||||
| (Millions of dollars) | Amount | Fair Value | Amount | Fair Value | ||||||||||||||||||||||
| Financial liabilities | ||||||||||||||||||||||||||
| Current and long-term debt, excluding finance leases | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||||||||||||
Note 14 — Contingencies
The Company’s operations and earnings have been and may be affected by various forms of governmental action. Examples of such governmental action include, but are by no means limited to: tax increases and retroactive tax claims; import and export controls; price controls; allocation of supplies of crude oil and petroleum products and other goods; laws and regulations intended for the promotion of safety and the protection and/or remediation of the environment; governmental support for other forms of energy; and laws and regulations affecting the Company’s relationships with employees, suppliers, customers, stockholders and others. Because governmental actions are often motivated by political considerations, may be taken without full consideration of their consequences, and may be taken in response to actions of other governments, it is not practical to attempt to predict the likelihood of such actions, the form the actions may take or the effect such actions may have on the Company.
ENVIRONMENTAL MATTERS AND LEGAL MATTERS — Murphy USA is subject to numerous federal, state and local laws and regulations dealing with the environment. Violation of such environmental laws, regulations and permits can result in the imposition of significant civil and criminal penalties, injunctions and other sanctions. A discharge of hazardous substances into the environment could, to the extent such event is not insured, subject the Company to substantial expense, including both the cost to comply with applicable regulations and claims by neighboring landowners and other third parties for any personal injury, property damage and other losses that might result.
The Company currently owns or leases, and has in the past owned or leased, properties at which hazardous substances have been or are being handled. Although the Company believes it has used operating and disposal practices that were standard in the industry at the time, hazardous substances may have been disposed of or released on or under the properties owned or leased by the Company or on or under other locations where they have been taken for disposal. In addition, many of these properties have been operated by third parties whose management of hazardous substances was not under the Company’s control. Under existing laws, the Company could be required to remediate contaminated property (including contaminated groundwater) or to perform remedial actions to prevent future contamination. Certain of these contaminated properties are in various stages of negotiation, investigation, and/or cleanup, and the Company is investigating the extent of any related liability and the availability of applicable defenses. With the sale of the U.S. refineries in 2011, Murphy Oil retained certain liabilities related to environmental matters. Murphy Oil also obtained insurance covering certain levels of environmental exposures. The Company believes costs related to these sites will not have a material adverse effect on Murphy USA’s net income, financial condition or liquidity in a future period.
Certain environmental expenditures are likely to be recovered by the Company from other sources, primarily environmental funds maintained by certain states. Since no assurance can be given that future recoveries from other sources will occur, the Company has not recorded a benefit for likely recoveries at September 30, 2021, however certain jurisdictions provide reimbursement for these expenses which have been considered in recording the net exposure.
The U.S. Environmental Protection Agency (EPA) currently considers the Company a Potentially Responsible Party (PRP) at one Superfund site. The potential total cost to all parties to perform necessary remedial work at this site may be substantial. However, based on current negotiations and available information, the Company believes that it is a de minimis party as to ultimate responsibility at the Superfund site. Accordingly, the Company has not recorded a liability for remedial costs at the Superfund site at September 30, 2021. The Company could be required to bear a pro rata share of costs attributable to nonparticipating PRPs or could be assigned additional responsibility for remediation at this site or other Superfund sites. The Company believes that its share of the ultimate costs to
22
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
clean-up this site will be immaterial and will not have a material adverse effect on its net income, financial condition or liquidity in a future period.
Based on information currently available to the Company, the amount of future remediation costs to be incurred to address known contamination sites is not expected to have a material adverse effect on the Company’s future net income, cash flows or liquidity. However, there is the possibility that additional environmental expenditures could be required to address contamination, including as a result of discovering additional contamination or the imposition of new or revised requirements applicable to known contamination.
Other than as noted above, Murphy USA is engaged in a number of other legal proceedings, all of which the Company considers routine and incidental to its business. Based on information currently available to the Company, the ultimate resolution of those other legal matters is not expected to have a material adverse effect on the Company’s net income, financial condition or liquidity in a future period.
INSURANCE — The Company maintains insurance coverage at levels that are customary and consistent with industry standards for companies of similar size. Murphy USA maintains statutory workers compensation insurance with a deductible of $1.0 million per occurrence, general liability insurance with a self-insured retention of $3.0 million per occurrence, and auto liability insurance with a deductible of $0.3 million per occurrence. As of September 30, 2021, there were a number of outstanding claims that are of a routine nature. The estimated incurred but unpaid liabilities relating to these claims are included in Trade account payables and accrued liabilities on the Consolidated Balance Sheets. While the ultimate outcome of these claims cannot presently be determined, management believes that the accrued liability of $37.7 million will be sufficient to cover the related liability for all insurance claims and that the ultimate disposition of these claims will have no material effect on the Company’s financial position and results of operations.
The Company has obtained insurance coverage as appropriate for the business in which it is engaged, but may incur losses that are not covered by insurance or reserves, in whole or in part, and such losses could adversely affect our results of operations and financial position.
TAX MATTERS — Murphy USA is subject to extensive tax liabilities imposed by multiple jurisdictions, including income taxes, indirect taxes (excise/duty, sales/use and gross receipts taxes), payroll taxes, franchise taxes, withholding taxes and ad valorem taxes. New tax laws and regulations and changes in existing tax laws and regulations are continuously being enacted or proposed that could result in increased expenditures for tax liabilities in the future. Many of these liabilities are subject to periodic audits by the respective taxing authority. Subsequent changes to our tax liabilities because of these audits may subject us to interest and penalties.
OTHER MATTERS — In the normal course of its business, the Company is required under certain contracts with various governmental authorities and others to provide financial guarantees or letters of credit that may be drawn upon if the Company fails to perform under those contracts. At September 30, 2021, the Company had contingent liabilities of $10.5 million on outstanding letters of credit. The Company has not accrued a liability in its balance sheet related to these financial guarantees and letters of credit because it is believed that the likelihood of having these drawn is remote.
Note 15 — Lease Accounting
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Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
lease costs are immaterial. The Company reviews all options to extend, terminate, or otherwise modify its lease agreements to determine if changes are required to the right of use assets and liabilities.
As the implicit interest rate is not readily determinable in most of the Company's lease agreements, the Company uses its estimated secured incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
Lessor — We have various arrangements for certain spaces for food service and vending equipment as well as subleases under which we are the lessor. These leases meet the criteria for operating lease classification. Lease income associated with these leases is immaterial.
| (Millions of dollars) | Classification | September 30, 2021 | December 31, 2020 | ||||||||||||||
| Assets | |||||||||||||||||
| Operating (Right-of-use) | Operating lease right-of-use assets | $ | $ | ||||||||||||||
| Finance | of $ | ||||||||||||||||
| Total leased assets | $ | $ | |||||||||||||||
| Liabilities | |||||||||||||||||
| Current | |||||||||||||||||
| Operating | $ | $ | |||||||||||||||
| Finance | |||||||||||||||||
| Noncurrent | |||||||||||||||||
| Operating | Non current operating lease liabilities | ||||||||||||||||
| Finance | |||||||||||||||||
| Total lease liabilities | $ | $ | |||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||
| (Millions of dollars) | Classification | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||||
| Operating lease cost | Store and other operating expenses | $ | $ | $ | $ | ||||||||||||||||||||||||
| Finance lease cost | |||||||||||||||||||||||||||||
| Amortization of leased assets | Depreciation & amortization expense | ||||||||||||||||||||||||||||
| Interest on lease liabilities | Interest expense | ||||||||||||||||||||||||||||
| Net lease costs | $ | $ | $ | $ | |||||||||||||||||||||||||
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Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Cash flow information:
| Nine Months Ended September 30, | |||||||||||||||||
| (Millions of dollars) | 2021 | 2020 | |||||||||||||||
| Cash paid for amounts included in the measurement of liabilities | |||||||||||||||||
| Operating cash flows from operating leases | $ | $ | |||||||||||||||
| Operating cash flows from finance leases | $ | $ | |||||||||||||||
| Financing cash flows from finance leases | $ | $ | |||||||||||||||
| (Millions of dollars) | Operating leases | Finance leases | ||||||||||||
| 2021 | $ | $ | ||||||||||||
| 2022 | ||||||||||||||
| 2023 | ||||||||||||||
| 2024 | ||||||||||||||
| 2025 | ||||||||||||||
| After 2025 | ||||||||||||||
| Total lease payments | ||||||||||||||
| less: interest | ||||||||||||||
| Present value of lease liabilities | $ | $ | ||||||||||||
Lease Term and Discount Rate:
| Nine Months Ended September 30, | |||||||||||
| 2021 | |||||||||||
| Weighted average remaining lease term (years) | |||||||||||
| Finance leases | |||||||||||
| Operating leases | |||||||||||
| Weighted average discount rate | |||||||||||
| Finance leases | % | ||||||||||
| Operating leases | % | ||||||||||
25
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 16 — Business Segment
The Company's operations have one reportable segment which is Marketing. The operations include the sale of retail motor fuel products and convenience merchandise along with the wholesale and bulk sale capabilities of our Product Supply and Wholesale ("PS&W") group. As the primary purpose of the PS&W group is to support our retail operations and provide fuel for their daily operation, the bulk and wholesale fuel sales are secondary to the support functions performed by these groups. As such, they are all treated as one segment for reporting purposes as they sell the same products. This Marketing segment contains essentially all of the revenue generating functions of the Company. Results not included in the reportable segment include Corporate and Other Assets. Net settlement proceeds from litigation are included in Corporate and other assets operating income. The reportable segment was determined based on information reviewed by the Chief Operating Decision Maker (CODM).
| Three Months Ended | ||||||||||||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||||||||||
| (Millions of dollars) | Total Assets at September 30, 2021 | External Revenues | Income (Loss) | External Revenues | Income (Loss) | |||||||||||||||||||||||||||
| Marketing | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Corporate and other assets | ( | ( | ( | |||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
| Nine Months Ended | ||||||||||||||||||||||||||||||||
| September 30, 2021 | September 30, 2020 | |||||||||||||||||||||||||||||||
| External Revenues | Income (Loss) | External Revenues | Income (Loss) | |||||||||||||||||||||||||||||
| (Millions of dollars) | ||||||||||||||||||||||||||||||||
| Marketing | $ | $ | $ | $ | ||||||||||||||||||||||||||||
| Corporate and other assets | ( | ( | ||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“Management’s Discussion and Analysis” or "MD&A") is the Company’s analysis of its financial performance and of significant trends that may affect future performance. It should be read in conjunction with the consolidated financial statements and notes included in this Quarterly Report on Form 10-Q. It contains forward-looking statements including, without limitation, statements relating to the Company’s plans, strategies, objectives, expectations and intentions. The words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions identify forward-looking statements. The Company does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the Company’s disclosures under “Forward-Looking Statements” and “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q.
For purposes of this Management’s Discussion and Analysis, references to “Murphy USA”, the “Company”, “we”, “us” and “our” refer to Murphy USA Inc. and its subsidiaries on a consolidated basis.
Management’s Discussion and Analysis is organized as follows:
•Executive Overview—This section provides an overview of our business and the results of operations and financial condition for the periods presented. It includes information on the basis of presentation with respect to the amounts presented in the Management’s Discussion and Analysis and a discussion of the trends affecting our business.
•Results of Operations—This section provides an analysis of our results of operations, including the results of our operating segment for the three and nine months ended September 30, 2021 and 2020.
•Capital Resources and Liquidity—This section provides a discussion of our financial condition and cash flows as of and for the three and nine months ended September 30, 2021 and 2020. It also includes a discussion of our capital structure and available sources of liquidity.
•Critical Accounting Policies—This section describes the accounting policies and estimates that we consider most important for our business and that require significant judgment.
Executive Overview
The following MD&A is intended to help the reader understand our results of operations and financial condition. This section is provided to supplement, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to these financial statements contained elsewhere in this Quarterly Report on Form 10-Q, this MD&A section and the consolidated financial statements in our Annual Report on Form 10-K. Our Form 10-K contains a discussion of matters not included within this document, such as disclosures regarding critical accounting policies and estimates, and contractual obligations.
On January 29, 2021, MUSA acquired 100% of Quick Chek Corporation ("Quick Chek"), a privately held convenience store chain with a strong regional brand consisting of 156 stores, at the time of acquisition, located in New Jersey and New York, in an all-cash transaction. The acquisition expanded the MUSA network into the Northeast by adding high-performance stores that had an existing best-in-class food and beverage model and is consistent with the Company's stated strategic priorities of developing enhanced food and beverage capabilities. For additional information concerning the acquisition, see Note 4, "Business Acquisition" in the accompanying unaudited consolidated financial statements.
Our Business
We market refined products through a network of retail gasoline stores and to unbranded wholesale customers and in addition, we operate non-fuel convenience stores in select markets in the Northeast. The Company operates a chain of owned retail stores under the brand name of Murphy USA®, which are almost all located in close proximity to Walmart stores in 25 states. We also market gasoline and other products at standalone stores under the Murphy
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Express brand, and have a mix of convenience stores and retail gasoline stores located in New Jersey and New York that operate under the name of QuickChek. At September 30, 2021, we had a total of 1,669 Company stores of which 1,151 were Murphy USA, 360 were Murphy Express and 158 were QuickChek.
Basis of Presentation
Murphy USA was incorporated in March 2013, and until the separation from Murphy Oil Corporation was completed on August 30, 2013, it had not commenced operations and had no material assets, liabilities or commitments. The financial information presented in this Management’s Discussion and Analysis is derived from the consolidated financial statements of Murphy USA Inc. and its subsidiaries for all periods presented. QuickChek uses a weekly retail calendar where each quarter has 13 weeks and its historical fiscal year end was the Friday nearest to October 31. For Q3 2021, the QuickChek results cover the period from July 3, 2021 to October 1, 2021. For the year-to-date period, the QuickChek results cover the period from January 29, 2021 (the date of acquisition) to October 1, 2021. The difference in the timing of the month ends is immaterial to the overall consolidated results.
Trends Affecting Our Business
Our operations are significantly impacted by the gross margins we receive on our fuel sales. These gross margins are commodity-based, change daily and are volatile. While we generally expect our total fuel and merchandise sales volumes to grow over time and the gross margins we realize on those sales to remain strong in a normalized environment, these gross margins can change rapidly due to many factors. These factors include, but are not limited to, the price of refined products, interruptions in our fuel and merchandise supply caused by severe weather or pandemics such as COVID-19, travel restrictions and stay-at-home orders imposed during a pandemic, severe refinery mechanical failures for an extended period of time, cyber-attacks, and competition in the local markets in which we operate. The COVID-19 pandemic continued to impact gasoline demand in the first quarter of 2021 but demand has grown steadily throughout 2021 as the pandemic pressures lessened, COVID-19 vaccines became more readily available, government intervention decreased, and the spring and summer driving season started. During Q3 various parts of the country experienced a resurgence of COVID-19 cases, but overall, the impact was not material in our areas of operation. If the recoveries experienced to-date stall or reverse as a result of a resurgence in COVID-19 infection rates and related government intervention, our volumes could decline.
The cost of our main sales products, gasoline and diesel, is greatly impacted by the cost of crude oil in the United States. Generally, rising prices for crude oil increase the Company’s cost for wholesale fuel products purchased. When wholesale fuel costs rise, the Company is not always able to immediately pass these price increases on to its retail customers at the pump, which in turn impacts the Company’s sales margin. Also, rising prices tend to cause our customers to reduce discretionary fuel consumption, which tends to reduce our fuel sales volumes. Crude oil prices continued the volatile trend in 2021 with prices ranging from $47 per barrel to $75 per barrel, with an average price in Q3 2021 of approximately $71 per barrel which compares to an average price of almost $41 per barrel in Q3 2020. Total fuel contribution (retail fuel margin plus product supply and wholesale ("PS&W") results including Renewable Identification Numbers ("RINs")) for Q3 2021 was 26.6 cents per gallon ("cpg"), compared to 22.3 cpg in Q3 2020. Retail fuel margins increased 40.9% in the current quarter despite rising prices, while retail fuel volumes improved 11.4%; combined with the inclusion of QuickChek, total retail fuel contribution increased by $76.7 million in Q3 2021 compared to Q3 2020.
Our revenues are impacted by the ability to leverage our diverse supply infrastructure in pursuit of obtaining the lowest cost fuel supply available; for example, activities such as blending bulk fuel with ethanol and bio-diesel to capture and subsequently sell RINs. Under the Energy Policy Act of 2005, the Environmental Protection Agency (“EPA”) is authorized to set annual quotas establishing the percentage of motor fuels consumed in the United States that must be attributable to renewable fuels. Obligated parties are required to demonstrate that they have met any applicable quotas by submitting a certain amount of RINs to the EPA. RINs in excess of the set quota can be sold in a market for RINs at then-prevailing prices. The market price for RINs fluctuates based on a variety of factors, including but not limited to governmental and regulatory action. There are other market related factors that can impact the net benefit we receive from RINs on a company-wide basis either favorably or unfavorably. The Renewable Fuel Standard ("RFS") program continues to be unpredictable and prices received for ethanol RINs averaged $1.40 in Q3 2021 compared to $0.47 in Q3 2020. Our business model does not depend on our ability to generate revenues from RINs. Revenue from the sales of RINs is included in “Other operating revenues” in the Consolidated Statements of Income.
As of September 30, 2021, we have $1.3 billion of Senior Notes and a $399 million term loan outstanding. We believe that we will generate sufficient cash from operations to fund our ongoing operating requirements and service
28
our debt obligations. At September 30, 2021, we have additional available capacity under the committed $350 million cash flow revolving credit facility. We expect to use the credit facilities to provide us with available financing to meet any short-term ongoing cash needs in excess of internally generated cash flows. To the extent necessary, we will borrow under these facilities to fund our ongoing operating requirements. There can be no assurances, however, that we will generate sufficient cash from operations or be able to draw on the credit facilities, obtain commitments for our incremental facility and/or obtain and draw upon other credit facilities. For additional information see Significant Sources of Capital in the Capital Resources and Liquidity section.
The Company currently anticipates total capital expenditures (including land for future developments) for the full year 2021 to range from approximately $325 million to $375 million depending on how many new stores are completed. We intend to fund the remainder of our capital program in 2021 primarily using operating cash flow but will supplement funding where necessary using borrowings available under cash flow revolving credit facilities.
We believe that our business will continue to grow in the future as we expect to build additional locations that have the characteristics we look for in a strong site as chosen by our real estate development team. The pace of this growth is continually monitored by our management, and these plans can be altered based on operating cash flows generated and the availability of debt facilities.
We currently estimate our ongoing effective tax rate to be between 23% and 25% for the remainder of the year.
Seasonality
Our business has inherent seasonality due to the concentration of our retail stores in certain geographic areas, as well as customer activity and behaviors during different seasons. In general, sales volumes and operating incomes are typically highest in the second and third quarters during the summer-activity months and lowest during the winter months. As the pandemic-related travel restraints decreased in the first half of 2021, we began to see historical seasonal patterns trending closer to normal. At the present time, we cannot forecast the exact timing of a complete recovery. As a result, operating results for the three and nine months ended September 30, 2021 may not be necessarily indicative of the results that may be expected for the year ending December 31, 2021.
Business Segment
The Company has one operating segment which is Marketing. This segment includes our retail marketing stores and product supply and wholesale assets. For additional operating segment information, see Note 20 “Business Segments” in the audited combined financial statements for the year ended December 31, 2020 included with our Annual Report on Form 10-K and Note 16 “Business Segments” in the accompanying unaudited consolidated financial statements for the three and nine months ended September 30, 2021.
Results of Operations
Consolidated Results
For the three months ended September 30, 2021, the Company reported net income of $104.0 million, or $3.98 per diluted share, on revenue of $4.6 billion. Net income was $66.9 million for the same period in 2020, or $2.27 per diluted share, on $2.8 billion in revenue. The increase in net income is primarily due to higher all-in fuel contribution, improved merchandise contribution, and lower general and administrative expenses that were partially offset by higher store operating expenses, increased payment fees, higher depreciation expense and interest expense.
For the nine month period ended September 30, 2021, the Company reported net income of $288.1 million, or $10.72 per diluted share, on revenue of $12.6 billion. Net income was $325.1 million for the same period in 2020, or $10.88 per diluted share, on $8.4 billion in revenue. The decrease in net income is primarily due to higher store operating expense, increased payment fees, depreciation expense, acquisition related costs and interest expense, partially offset by a higher all-in fuel and merchandise contribution.
The consolidated financial results include QuickChek for the quarter and year of 2021 from July 3, 2021 through October 1, 2021 and January 29, 2021 (date of acquisition) through October 1, 2021, respectively.
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Three Months Ended September 30, 2021 versus Three Months Ended September 30, 2020
Quarterly revenues for 2021 increased $1.8 billion, or 62.0%, compared to the same quarter in 2020. The increase in revenues was due to higher retail fuel sales prices, an increase in retail fuel sales volumes, higher RINs sales revenues, increased merchandise sales, and the inclusion of QuickChek.
Total cost of sales increased $1.6 billion, or 64.7% when compared to Q3 2020. In the current-year quarter, the higher costs were primarily due to higher wholesale fuel prices, increased fuel sales volumes, higher merchandise costs, and the inclusion of QuickChek results.
Store and other operating expenses increased $78.2 million, or 54.7%, from Q3 2020, due primarily to the inclusion of QuickChek stores which have higher store operating costs due to its larger format stores with an enhanced food and beverage offering, higher other related store costs, and increased payment fees.
SG&A expenses for Q3 2021 decreased $6.5 million, or 12.1%, from Q3 2020. The decrease in SG&A costs is primarily due to a charitable donation of $10 million in the prior year Q3 and was partially offset by the inclusion of QuickChek in the current year.
Depreciation and amortization expense increased $12.6 million, or 31.0%, from Q3 2020 primarily due to the inclusion of QuickChek stores and the additions of new larger store formats of the MUSA stores.
The effective income tax rate was approximately 24.5% for Q3 2021 versus 24.1% for the same period of 2020.
Nine Months Ended September 30, 2021 versus Nine Months Ended September 30, 2020
Year-to-date revenues for 2021 increased $4.2 billion, or 49.9%, compared to the same period in 2020. The increase in revenues was due to higher retail fuel sales prices, higher retail fuel sales volumes, increased merchandise sales, improved PS&W revenues including RINs, and the inclusion of QuickChek sales results since its acquisition.
Total cost of sales increased $4.0 billion, or 54.4% when compared to 2020. In the current-year period, the higher costs were primarily due to higher wholesale fuel prices combined with higher sales volumes, higher merchandise costs and the inclusion of QuickChek results.
Store and other operating expenses increased $197.3 million, or 48.1%, in the first nine months of 2021, due primarily to the inclusion of QuickChek stores which have higher store operating costs due to its larger format stores with an enhanced food and beverage offering and due to increased payment fees.
SG&A expenses for the first nine months of 2021 increased $10.0 million, or 7.7%, compared to the first nine months of 2020. The increase in SG&A costs is primarily due to an increase in wages and benefits and to the inclusion of QuickChek, partially offset by a charitable contribution of $10.0 million in 2020.
Depreciation and amortization expense increased $38.0 million, or 31.8% year-to-date from 2020 primarily due to the inclusion of QuickChek, combined with the newer larger store formats of MUSA stores.
The effective income tax rate was approximately 24.4% for the nine months ended September 30, 2021 versus 24.1% for the same period of 2020. The increase in the effective tax rate was due to a discrete tax item related to adjustments of deferred state income taxes from the acquisition of QuickChek that was partially offset by excess tax benefits on stock compensation vesting compared to a discrete tax credit in 2020.
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Segment Results
A summary of the Company’s earnings by business segment follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (Millions of dollars) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Marketing | $ | 121.1 | $ | 81.7 | $ | 347.1 | $ | 362.2 | ||||||||||||||||||
| Corporate and other assets | (17.1) | (14.8) | (59.0) | (37.1) | ||||||||||||||||||||||
| Net Income | $ | 104.0 | $ | 66.9 | $ | 288.1 | $ | 325.1 | ||||||||||||||||||
Three Months Ended September 30, 2021 versus Three Months Ended September 30, 2020
Net income for the three months ended September 30, 2021 increased compared to the same period in 2020 primarily due to:
•Higher retail fuel contribution
•Higher retail fuel sales volumes
•Higher merchandise contribution
•Lower SG&A expenses
The items below partially offset the increase in net income in the current period:
•Higher store operating expense
•Higher depreciation and amortization expense
•Higher interest expense
Nine Months Ended September 30, 2021 versus Nine Months Ended September 30, 2020
Net income for the nine months ended September 30, 2021 decreased compared to the same period in 2020 primarily due to:
•Higher store and other operating expense
•Increased payment fees
•Higher depreciation and amortization expense
•Higher SG&A expenses
•Acquisition related costs
•Higher interest expense
The items below partially offset the decrease in net income in the current period:
•Higher retail fuel contribution
•Higher fuel contribution from PS&W, including RINs
•Higher merchandise contribution
•Higher retail fuel sales volumes
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| (Millions of dollars, except revenue per store month (in thousands) and store counts) | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||||
| Marketing Segment | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Operating Revenues | ||||||||||||||||||||||||||
| Petroleum product sales | $ | 3,573.9 | $ | 2,056.0 | $ | 9,614.2 | $ | 6,125.1 | ||||||||||||||||||
| Merchandise sales | 953.4 | 756.8 | 2,750.0 | 2,211.4 | ||||||||||||||||||||||
| Other operating revenues | 73.0 | 26.3 | 229.1 | 66.9 | ||||||||||||||||||||||
| Total operating revenues | 4,600.3 | 2,839.1 | 12,593.3 | 8,403.4 | ||||||||||||||||||||||
| Operating expenses | ||||||||||||||||||||||||||
| Petroleum products cost of goods sold | 3,353.5 | 1,862.2 | 9,004.8 | 5,409.8 | ||||||||||||||||||||||
| Merchandise cost of goods sold | 766.1 | 638.7 | 2,229.8 | 1,867.4 | ||||||||||||||||||||||
| Store and other operating expenses | 221.0 | 142.8 | 607.0 | 409.7 | ||||||||||||||||||||||
| Depreciation and amortization | 49.5 | 36.9 | 145.9 | 108.6 | ||||||||||||||||||||||
| Selling, general and administrative | 47.2 | 53.7 | 140.0 | 130.0 | ||||||||||||||||||||||
| Accretion of asset retirement obligations | 0.6 | 0.6 | 1.9 | 1.7 | ||||||||||||||||||||||
| Total operating expenses | 4,437.9 | 2,734.9 | 12,129.4 | 7,927.2 | ||||||||||||||||||||||
| Gain (loss) on sale of assets | 0.2 | (0.1) | 0.2 | 1.3 | ||||||||||||||||||||||
| Income (loss) from operations | 162.6 | 104.1 | 464.1 | 477.5 | ||||||||||||||||||||||
| Other income (expense) | ||||||||||||||||||||||||||
| Interest expense | (2.3) | — | (5.7) | (0.1) | ||||||||||||||||||||||
| Total other income (expense) | (2.3) | — | (5.7) | (0.1) | ||||||||||||||||||||||
| Income (loss) before income taxes | 160.3 | 104.1 | 458.4 | 477.4 | ||||||||||||||||||||||
| Income tax expense (benefit) | 39.2 | 22.4 | 111.3 | 115.2 | ||||||||||||||||||||||
| Income (loss) from operations | $ | 121.1 | $ | 81.7 | $ | 347.1 | $ | 362.2 | ||||||||||||||||||
Total tobacco sales revenue same store sales1,2 | $ | 123.3 | $ | 123.5 | $ | 120.6 | $ | 119.8 | ||||||||||||||||||
Total non-tobacco sales revenue same store sales1,2 | 48.7 | 47.7 | 49.0 | 46.0 | ||||||||||||||||||||||
Total merchandise sales revenue same store sales1,2 | $ | 172.0 | $ | 171.2 | $ | 169.6 | $ | 165.8 | ||||||||||||||||||
12020 amounts not revised for 2021 raze-and-rebuild activity | ||||||||||||||||||||||||||
2Includes store-level discounts for MDR redemptions and excludes change in value of unredeemed MDR points | ||||||||||||||||||||||||||
| Store count at end of period | 1,669 | 1,488 | 1,669 | 1,488 | ||||||||||||||||||||||
| Total store months during the period | 4,944 | 4,407 | 14,718 | 13,317 | ||||||||||||||||||||||
Average Per Store Month (APSM) metric includes all stores open through the date of the calculation, including stores acquired during the period.
Same store sales (SSS) metric includes aggregated individual store results for all stores open throughout both periods presented. For all periods presented, the store must have been open for the entire calendar year to be included in the comparison. Remodeled stores that remained open or were closed for just a very brief time (less than a month) during the period being compared remain in the same store sales calculation. If a store is replaced either at the same location (raze-and-rebuild) or relocated to a new location, it will be excluded from the calculation during the period it is out of service. Newly constructed stores do not enter the calculation until they are open for each full calendar year for the periods being compared (open by January 1, 2020 for the stores being compared in the 2021 versus 2020 comparison). Acquired stores are not included in the calculation of same stores for the first
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12 months after the acquisition. When prior period same store sales volumes or sales are presented, they have not been revised for current year activity for raze-and-rebuilds, asset acquisitions and asset dispositions.
QuickChek uses a weekly retail calendar where each quarter has 13 weeks and its historical fiscal year end was the Friday nearest to October 31. For the Q3 2021 period, the QuickChek results cover the period from July 3, 2021 to October 1, 2021. For the year-to-date period, the QuickChek results cover the period from January 29, 2021 (the date of acquisition) to October 1, 2021. The difference in the timing of the month ends is immaterial to the overall consolidated results.
Fuel
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| Key Operating Metrics | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Total retail fuel contribution ($ Millions) | $ | 264.4 | $ | 187.7 | $ | 666.0 | $ | 739.5 | ||||||||||||||||||
| Total PS&W contribution ($ Millions) | (43.0) | 6.9 | (53.7) | (21.5) | ||||||||||||||||||||||
| RINs and other (included in Other operating revenues on Consolidated Income Statement) ($ Millions) | 71.5 | 25.2 | 224.5 | 63.3 | ||||||||||||||||||||||
| Total fuel contribution ($ Millions) | $ | 292.9 | $ | 219.8 | $ | 836.8 | $ | 781.3 | ||||||||||||||||||
| Retail fuel volume - chain (Million gal) | 1,100.2 | 987.3 | 3,232.7 | 2,888.2 | ||||||||||||||||||||||
Retail fuel volume - per store (K gal APSM)1 | 231.7 | 224.0 | 228.0 | 216.9 | ||||||||||||||||||||||
Retail fuel volume - per store (K gal SSS)2 | 227.6 | 220.3 | 224.5 | 213.7 | ||||||||||||||||||||||
| Total fuel contribution (including retail, PS&W and RINs) (cpg) | 26.6 | 22.3 | 25.9 | 27.1 | ||||||||||||||||||||||
| Retail fuel margin (cpg) | 24.0 | 19.0 | 20.6 | 25.6 | ||||||||||||||||||||||
| PS&W including RINs contribution (cpg) | 2.6 | 3.3 | 5.3 | 1.5 | ||||||||||||||||||||||
1APSM metric includes all stores open through the date of calculation | ||||||||||||||||||||||||||
22020 amounts not revised for 2021 raze-and-rebuild activity | ||||||||||||||||||||||||||
The reconciliation of the components of total fuel contribution to the Consolidated Income Statements is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (Millions of dollars) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Petroleum product sales | $ | 3,573.9 | $ | 2,056.0 | $ | 9,614.2 | $ | 6,125.1 | ||||||||||||||||||
| Less Petroleum product cost of goods sold | (3,353.5) | (1,862.2) | (9,004.8) | (5,409.8) | ||||||||||||||||||||||
| Plus RINs and other (included in Other Operating Revenues line) | 72.5 | 26.0 | 227.4 | 66.0 | ||||||||||||||||||||||
| Total fuel contribution | $ | 292.9 | $ | 219.8 | $ | 836.8 | $ | 781.3 | ||||||||||||||||||
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Merchandise
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| Key Operating Metrics | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Total merchandise contribution ($ Millions) | $ | 187.3 | $ | 118.1 | $ | 520.2 | $ | 344.0 | ||||||||||||||||||
| Total merchandise sales ($ Millions) | $ | 953.4 | $ | 756.8 | $ | 2,750.0 | $ | 2,211.4 | ||||||||||||||||||
Total merchandise sales ($K SSS)1,2 | $ | 172.0 | $ | 171.2 | $ | 169.6 | $ | 165.8 | ||||||||||||||||||
| Merchandise unit margin (%) | 19.6 | % | 15.6 | % | 18.9 | % | 15.6 | % | ||||||||||||||||||
Tobacco contribution ($K SSS)1,2 | $ | 17.4 | $ | 16.7 | $ | 16.7 | $ | 16.4 | ||||||||||||||||||
Non-tobacco contribution ($K SSS)1,2 | $ | 11.1 | $ | 10.7 | $ | 10.7 | $ | 10.1 | ||||||||||||||||||
Total merchandise contribution ($K SSS)1,2 | $ | 28.5 | $ | 27.4 | $ | 27.4 | $ | 26.5 | ||||||||||||||||||
12020 amounts not revised for 2021 raze-and-rebuild activity | ||||||||||||||||||||||||||
2Includes store-level discounts for MDR redemptions and excludes change in value of unredeemed MDR points | ||||||||||||||||||||||||||
Three Months Ended September 30, 2021 versus Three Months Ended September 30, 2020
Net income in the Marketing segment for Q3 2021 increased $39.4 million compared to the Q3 2020 period, due to higher all-in fuel and merchandise contributions, higher fuel sales volume and lower SG&A expense, combined with the inclusion of QuickChek results, partially offset by higher store operating expense, increased payment fees and additional depreciation and amortization expense.
Total revenues for the Marketing segment were approximately $4.6 billion in Q3 2021 compared to $2.8 billion in Q3 2020. The increased revenues were due to a 52.2% increase in retail fuel sales prices and a 11.4% increase in the number of gallons sold, and a 26.0% increase in merchandise sales. Revenues included excise taxes collected and remitted to government authorities of $520.9 million in Q3 2021 and $447.0 million in Q3 2020.
Retail fuel margin dollars increased 40.9% compared to the prior year quarter on a higher margin rate of 24.0 cpg for Q3 2021 when compared to 19.0 cpg in the same quarter of 2020, combined with an increase in retail fuel volumes. Total fuel sales volumes on a SSS basis increased 1.9% to 227.6 thousand gallons per store in the 2021 period.
Total PS&W margin dollars, including RINs, decreased by $3.6 million from Q3 2020 results. The quarter-over-quarter decrease is primarily due to negative spot-to-rack margins, driven by market demand concerns and partially offset by higher RIN prices. The 2021 quarter includes the sale of 51 million RINs at an average selling price of $1.40 per RIN while the prior-year quarter had sales of 54 million RINs at an average price of $0.47 per RIN.
Total merchandise sales increased 26.0% to $953.4 million in Q3 2021 compared to $756.8 million in Q3 2020 due to higher sales across the chain in most categories and the inclusion of QuickChek results. Quarterly total merchandise contribution in 2021 improved 58.6% compared to Q3 2020. Total SSS merchandise contribution dollars grew 4.0%. On a SSS basis there was a slight decrease of 0.3% in tobacco products sales and 0.2% in non-tobacco sales, partially offset by improved beverage and general merchandise sales. Food and beverage contribution, a subset of non-tobacco contribution, experienced a significant shift to 14.8% of total merchandise contribution as the enterprise benefited from QuickChek's robust offerings.
Store and other operating expenses increased $78.2 million in the current period compared to Q3 2020 levels, primarily due to the inclusion of QuickChek, which has higher store operating expense due to its larger format stores which support an enhanced food and beverage offering. On an APSM basis, expenses applicable to store OPEX excluding payment fees and rent increased 39.6%, primarily due to the inclusion of higher QuickChek related store costs.
Depreciation and amortization expense increased $12.6 million, or 34.1% in Q3 2021 when compared to the prior year quarter due primarily to the inclusion of QuickChek combined with new larger store formats of MUSA stores.
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Selling, general, and administrative expenses decreased $6.5 million in Q3 2021 compared to Q3 2020 due primarily to the charitable contribution of $10.0 million in Q3 2020, partially offset by the inclusion of QuickChek in 2021.
Nine Months Ended September 30, 2021 versus Nine Months Ended September 30, 2020
Net income in the Marketing segment for the nine months ended September 30, 2021 decreased $15.1 million compared to the nine months ended September 30, 2020 period, due to higher store operating expense, higher SG&A costs, and increased depreciation and amortization expense, partially offset by improved all-in fuel and merchandise contributions and the inclusion of QuickChek results.
Total revenues for the Marketing segment were approximately $12.6 billion for the nine month period ended September 30, 2021 compared to $8.4 billion for the same period ended September 30, 2020. The increased revenues were due to a 38.4% increase in retail fuel sales prices combined with a 11.9% higher number of gallons sold, improved PS&W revenues, including RINs, and a 24.4% increase in merchandise sales. Revenues included excise taxes collected and remitted to government authorities of $1.5 billion in the nine months ended September 30, 2021 and $1.3 billion in the nine months ended September 30, 2020.
Retail fuel margin dollars decreased 9.9% in 2021 compared to the prior year nine months on a smaller margin rate of 20.6 cpg for the nine months ended September 30, 2021 when compared to 25.6 cpg in the same period of 2020. Total fuel sales volumes on a SSS basis increased 3.6% to 224.5 gallons per store in the 2021 period.
Total PS&W margin dollars, including RINs, were a gain of $170.8 million in the 2021 nine month period compared to a gain of $41.8 million in the first nine months of 2020. The nine months ended September 30, 2021 includes the sales of 167.7 million RINs at an average selling price of $1.34 per RIN while the prior-year period had sales of 182.2 million RINs at an average price of $0.35 per RIN.
Total merchandise sales increased 24.4% to $2.8 billion in the nine months ended September 30, 2021 compared to $2.2 billion in the first nine months of 2020 due to higher sales across the chain in most categories and the inclusion of QuickChek results. Year-to-date total merchandise contribution in 2021 increased 51.2% compared to the same period of 2020. Total SSS merchandise contribution dollars grew 3.4%. On a SSS basis there was an increase of 0.6% in tobacco products sales and 4.2% in non-tobacco sales, combined with higher beverage and lottery sales. Food and beverage contribution was 14.0% of total merchandise contribution in 2021 versus 0.7% in 2020 which reflects the benefits from QuickChek results.
Store and other operating expenses increased $197.3 million in the current year compared to the same period of 2020, primarily due to the inclusion of QuickChek, which has higher store operating expense due to its larger format stores and greater food and beverage offering. On an APSM basis, expenses applicable to store OPEX excluding payment fees and rent increased 34.6%, primarily due to the inclusion of higher QuickChek related store costs.
Depreciation and amortization expense increased $37.3 million, or 34.3%, in the first nine months of 2021 due primarily to the inclusion of QuickChek combined with new larger store formats.
Selling, general and administrative expenses increased $10.0 million in 2021 compared to 2020 due primarily to the inclusion of QuickChek and company wide increases in employee wages and benefits.
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Same store sales information compared to APSM metrics
| Variance from prior year | Variance from prior year | |||||||||||||||||||||||||
| Three months ended | Nine months ended | |||||||||||||||||||||||||
| September 30, 2021 | September 30, 2021 | |||||||||||||||||||||||||
SSS1 | APSM2 | SSS1 | APSM2 | |||||||||||||||||||||||
| Fuel gallons per month | 1.9 | % | 3.4 | % | 3.6 | % | 5.1 | % | ||||||||||||||||||
| Merchandise sales | (0.3 | %) | 12.3 | % | 1.6 | % | 12.5 | % | ||||||||||||||||||
| Tobacco sales | (0.3 | %) | (0.6 | %) | 0.6 | % | 0.1 | % | ||||||||||||||||||
| Non-tobacco sales | (0.2 | %) | 45.0 | % | 4.2 | % | 44.6 | % | ||||||||||||||||||
| Merchandise margin | 4.0 | % | 41.3 | % | 3.4 | % | 36.8 | % | ||||||||||||||||||
| Tobacco margin | 5.7 | % | 6.7 | % | 3.3 | % | 4.9 | % | ||||||||||||||||||
| Non-tobacco margin | 1.6 | % | 91.5 | % | 3.4 | % | 85.6 | % | ||||||||||||||||||
1Includes store-level discounts for MDR redemptions and excludes change in value of unredeemed MDR points | ||||||||||||||||||||||||||
2Includes all MDR activity | ||||||||||||||||||||||||||
Corporate and Other Assets
Three Months Ended September 30, 2021 versus Three Months Ended September 30, 2020
After-tax results for Corporate and other assets for Q3 2021 were a loss of $17.1 million compared to a loss of $14.8 million in Q3 2020, due primarily to increased interest expense related to debt incurred in January 2021 to finance the QuickChek acquisition.
Nine Months Ended September 30, 2021 versus Nine Months Ended September 30, 2020
After-tax results for Corporate and other assets for the nine months ended September 30, 2021 were a loss of $59.0 million compared to a loss of $37.1 million in the same period of 2020, due primarily to the acquisition related costs and increased interest expense due to the acquisition.
Non-GAAP Measures
The following table sets forth the Company’s Adjusted EBITDA for the three and nine months ended September 30, 2021 and 2020. EBITDA means net income (loss) plus net interest expense, plus income tax expense, depreciation and amortization, and Adjusted EBITDA adds back (i) other non-cash items (e.g., impairment of properties and accretion of asset retirement obligations) and (ii) other items that management does not consider to be meaningful in assessing our operating performance (e.g., (income) from discontinued operations, net settlement proceeds, (gain) loss on sale of assets, loss on early debt extinguishment, transaction and integration costs related to acquisition, and other non-operating (income) expense). EBITDA and Adjusted EBITDA are not measures that are prepared in accordance with U.S. generally accepted accounting principles (GAAP).
We use Adjusted EBITDA in our operational and financial decision-making, believing that the measure is useful to eliminate certain items in order to focus on what we deem to be a more reliable indicator of ongoing operating performance and our ability to generate cash flow from operations. Adjusted EBITDA is also used by many of our investors, research analysts, investment bankers, and lenders to assess our operating performance. We believe that the presentation of Adjusted EBITDA provides useful information to investors because it allows understanding of a key measure that we evaluate internally when making operating and strategic decisions, preparing our annual plan, and evaluating our overall performance. However, non-GAAP measures are not a substitute for GAAP disclosures, and EBITDA and Adjusted EBITDA may be prepared differently by us than by other companies using similarly titled non-GAAP measures.
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The reconciliation of net income (loss) to EBITDA and Adjusted EBITDA is as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
| (Millions of dollars) | 2021 | 2020 | 2021 | 2020 | ||||||||||||||||||||||
| Net income | $ | 104.0 | $ | 66.9 | $ | 288.1 | $ | 325.1 | ||||||||||||||||||
| Income tax expense (benefit) | 33.7 | 21.2 | 92.9 | 103.3 | ||||||||||||||||||||||
| Interest expense, net of interest income | 20.4 | 12.4 | 62.1 | 37.7 | ||||||||||||||||||||||
| Depreciation and amortization | 53.2 | 40.6 | 157.5 | 119.5 | ||||||||||||||||||||||
| EBITDA | 211.3 | 141.1 | 600.6 | 585.6 | ||||||||||||||||||||||
| Accretion of asset retirement obligations | 0.6 | 0.6 | 1.9 | 1.7 | ||||||||||||||||||||||
| (Gain) loss on sale of assets | (0.3) | — | (0.4) | (1.4) | ||||||||||||||||||||||
| Acquisition related costs | 0.7 | — | 9.7 | — | ||||||||||||||||||||||
| Other nonoperating (income) expense | 0.2 | (0.2) | — | 0.5 | ||||||||||||||||||||||
| Adjusted EBITDA | $ | 212.5 | $ | 141.5 | $ | 611.8 | $ | 586.4 | ||||||||||||||||||
Capital Resources and Liquidity
Significant Sources of Capital
We have a committed $350 million cash flow revolving credit facility (the "revolving facility”), which was undrawn at September 30, 2021 (which can be utilized for working capital and other general corporate purposes, including supporting our operating model as described herein).
We believe our short-term and long-term liquidity is adequate to fund not only our operations, but also our anticipated near-term and long-term funding requirements, including capital spending programs, execution of announced share repurchase programs, potential dividend payments, repayment of debt maturities and other amounts that may ultimately be paid in connection with contingencies.
Operating Activities
Net cash provided by operating activities was $587.0 million for the nine months ended September 30, 2021 and was $467.8 million for the comparable period in 2020. The increase for the current year is primarily related to the changes in working capital, an increase in depreciation expense and was partially offset by the decrease in net income of $37.0 million compared to the corresponding period in 2020. Non-cash operating working capital changes in the current year consisted of a $15.0 million decrease in inventories, a $0.2 million decrease in income taxes payable, a $137.0 million increase in accounts payable and accrued liabilities and was partially offset by a $31.5 million increase in accounts receivable and an $8.1 million increase in prepaid expenses and other current assets. The changes in accounts receivable were due to the timing of payments received, and the inclusion of QuickChek activity. The changes in accounts payable and accrued liabilities were due to the timing of payments, increased prices of wholesale fuel, and the inclusion of QuickChek activity.
Investing Activities
For the nine months ended September 30, 2021, cash required by investing activities was $853.7 million compared to $163.3 million in 2020. The increase in investing cash requirements in the current period was primarily due to the cash payments for the acquisition of QuickChek and the timing of capital expenditures. In addition, the sale of the Company's Minnesota assets were included in the reported $7.7 million proceeds from sale of assets in 2020 whereas there was no such sale included in the 2021 amount of $1.0 million. Other investing activities required $2.0 million in cash during 2021 compared to cash required of $1.6 million in 2020.
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Financing Activities
Financing activities in the nine months ended September 30, 2021 provided cash of $404.4 million compared to cash required of $267.3 million in the nine months ended September 30, 2020. The first nine months of 2021 included payments of $231.5 million for the repurchase of common shares, which was an increase of $1.0 million from the prior-year period, and dividend payments of $19.9 million in 2021 versus none in the first nine months of 2020. Borrowings of debt in 2021 provided $892.8 million compared to no borrowings in the same period of 2020. Repayments of debt required $220.5 million in 2021 compared to net repayments of $26.1 million in 2020. Debt issuance costs required cash of $9.9 million in 2021 and there were no such costs in 2020. Amounts related to share-based compensation required $4.1 million less in cash during 2021 than in 2020.
Dividends
The Company paid a dividend of $0.25 per Common share in July 2021 with no comparable dividend in the prior year quarter. In October 2021, the Board approved an increase in the quarterly dividend to $0.29 per Common share to be paid on December 1, 2021 to shareholders of record as of November 8, 2021. As a part of our capital allocation strategy, the Company's intention is to deliver targeted double-digit growth in the per share dividend over time.
Share Repurchase Program
During the quarter ended September 30, 2021, a total of 215,285 shares were repurchased for $33.2 million, and for the nine months ended September 30, 2021 a total of 1,699,043 shares were repurchased for $231.5 million. Purchases made in 2021 were made under the $500 million share repurchase program approved by the Board of Directors in November 2020, with approximately $143.6 million remaining in the plan at September 30, 2021.
Debt
Our long-term debt at September 30, 2021 and December 31, 2020 was as set forth below:
| (Millions of dollars) | September 30, 2021 | December 31, 2020 | ||||||||||||
| 3.75% senior notes due 2031 (net of unamortized discount of $5.8 at September 30, 2021) | $ | 494.2 | $ | — | ||||||||||
| 5.625% senior notes due 2027 (net of unamortized discount of $2.1 at September 30, 2021 and $2.4 at December 2020) | 297.9 | 297.6 | ||||||||||||
| 4.75% senior notes due 2029 (net of unamortized discount of $5.0 at September 30, 2021 and $5.4 at December 31, 2020) | 495.0 | 494.6 | ||||||||||||
| Term loan due 2023 (effective interest rate of 2.67% at December 31, 2020) | — | 212.5 | ||||||||||||
| Term loan due 2028 (effective interest rate of 2.27% at September 30, 2021) (net of unamortized discount of $0.9) | 398.1 | — | ||||||||||||
| Capitalized lease obligations, autos and equipment, due through 2025 | 2.7 | 2.1 | ||||||||||||
| Capitalized lease obligations, buildings, due through 2059 | 137.8 | — | ||||||||||||
| Less unamortized debt issuance costs | (11.6) | (4.4) | ||||||||||||
| Total notes payable, net | 1,814.1 | 1,002.4 | ||||||||||||
| Less current maturities | 14.8 | 51.2 | ||||||||||||
| Total long-term debt, net of current | $ | 1,799.3 | $ | 951.2 | ||||||||||
Senior Notes
On April 25, 2017, Murphy Oil USA, Inc., our primary operating subsidiary, issued $300 million of 5.625% Senior Notes due 2027 (the "2027 Senior Notes") under its existing shelf registration statement. The 2027 Senior Notes are fully and unconditionally guaranteed by Murphy USA, and are guaranteed by certain 100% owned subsidiaries that guarantee our credit facilities. The indenture governing the 2027 Senior Notes contains restrictive covenants
38
that limit, among other things, the ability of Murphy USA, Murphy Oil USA, Inc. and the restricted subsidiaries to incur additional indebtedness or liens, dispose of assets, make certain restricted payments or investments, enter into transactions with affiliates or merge with or into other entities.
On September 13, 2019, Murphy Oil USA, Inc., issued $500 million of 4.75% Senior Notes due 2029 (the “2029 Senior Notes”). The net proceeds from the issuance of the 2029 Senior Notes were used to fund, in part, the tender offer and redemption of the $500 million aggregate principal amount of its senior notes due 2023. The 2029 Senior Notes are fully and unconditionally guaranteed by Murphy USA, and are guaranteed by certain 100% owned subsidiaries that guarantee our credit facilities. The indenture governing the 2029 Senior Notes contains restrictive covenants that are essentially identical to the covenants for the 2027 Senior Notes.
On January 29, 2021, Murphy Oil USA, Inc., issued $500 million of 3.75% Senior Notes due 2031 (the “2031 Senior Notes” and, together with the 2027 Senior Notes and the 2029 Senior Notes, the "Senior Notes"). The net proceeds from the issuance of the 2031 Senior Notes were used to fund the acquisition of QuickChek and for other general corporate purposes. The 2031 Senior Notes are fully and unconditionally guaranteed by Murphy USA, and are guaranteed by certain 100% owned subsidiaries that guarantee our credit facilities. The indenture governing the 2031 Senior Notes contains restrictive covenants that are essentially identical to the covenants for the 2027 and 2029 Senior Notes.
The Senior Notes and the guarantees rank equally with all of our and the guarantors’ existing and future senior unsecured indebtedness and effectively junior to our and the guarantors’ existing and future secured indebtedness (including indebtedness with respect to the credit facilities) to the extent of the value of the assets securing such indebtedness. The Senior Notes are structurally subordinated to all of the existing and future third-party liabilities, including trade payables, of our existing and future subsidiaries that do not guarantee the notes.
Credit Facilities and Term Loan
On January 29, 2021, the Company entered into a new credit agreement that consists of both a cash flow revolving credit facility and a senior unsecured term loan that replaced the Company's prior ABL facility and term loan contained in the credit facility that was last renewed in 2019, respectively.
The credit agreement provides for a senior secured term loan in an aggregate principal amount of $400 million (the "Term Facility")(which was borrowed in full on January 29, 2021) and revolving credit commitments in an aggregate amount equal to $350 million (the "Revolving Facility", and together with the Term Facility, the "Credit Facilities").
Interest payable on the credit facilities is based on either:
•the London interbank offered rate, adjusted for statutory reserve requirements (the “Adjusted LIBO Rate”);
or
•the Alternate Base Rate, which is defined as the highest of (a) the rate of interest last quoted by The Wall Street Journal as the "Prime Rate", (b) the greater of the federal funds effective rate and the overnight bank funding rate determined by the Federal Reserve Bank of New York from time to time plus 0.50% per annum and (c) the one-month Adjusted LIBO Rate plus 1.00% per annum,
plus, (A) in the case of Adjusted LIBO Rate borrowings, (i) with respect to the Revolving Facility, spreads ranging from 1.75% to 2.25% per annum depending on a total debt to EBITDA ratio or (ii) with respect to the Term Facility, a spread of 1.75% per annum and (B) in the case of Alternate Base Rate borrowings (i) with respect to the Revolving Facility, spreads ranging from 0.75% to 1.25% per annum depending on a total debt to EBITDA ratio or (ii) with respect to the Term Facility, a spread of 1.75% per annum.
The Term Facility amortizes in quarterly installments starting with the first amortization payment being due on July 1, 2021 at a rate of 1.00% per annum. Murphy USA is also required to prepay the Term Facility with a portion of its excess cash flow, a portion of the net cash proceeds of certain asset sales, casualty events (subject to certain reinvestment rights) and issuances of indebtedness not permitted under the Credit Agreement and with designated proceeds received from certain asset sales, issuances of indebtedness and sale-leaseback transactions, subject to certain exceptions. The Credit Agreement allows Murphy USA to prepay, in whole or in part, the Term Facility
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outstanding thereunder, together with any accrued and unpaid interest, with prior notice but without premium or penalty other than breakage and redeployment costs.
The credit agreement contains certain covenants that limit, among other things, the ability of the Company and certain of its subsidiaries to incur additional indebtedness or liens, to make certain investments, to enter into sale-leaseback transactions, to make certain restricted payments, to enter into consolidations, mergers or sales of material assets and other fundamental changes, to transact with affiliates, to enter into agreements restricting the ability of subsidiaries to incur liens or pay dividends, or to make certain accounting changes. The Credit Agreement also contains total leverage ratio and secured net leverage ratio financial maintenance covenants which are tested quarterly. Pursuant to the total leverage ratio financial maintenance covenant, the Company must maintain a total leverage ratio of not more than 5.0 to 1.0 with an ability in certain circumstances to temporarily increase that limit to 5.5 to 1.0. In conformance to the secured net leverage ratio financial maintenance covenant, the Company must maintain a maximum secured net leverage ratio of 3.75 to 1.0 with an ability in certain circumstances to temporarily increase that limit to 4.25 to 1.0. The Credit Agreement also contains customary events of default.
Pursuant to the credit agreement's covenant limiting certain restricted payments, certain payments in respect of our equity interests, including dividends, when the total leverage ratio, calculated on a pro forma basis, is greater than 3.0 to 1.0 could be limited. At September 30, 2021, our total leverage ratio was 2.40 to 1.0 which meant our ability at that date to make restricted payments was not limited. If our total leverage ratio, on a pro forma basis, exceeds 3.0 to 1.0, any restricted payments made following that time until the ratio is once again, on a pro forma basis, below 3.0 to 1.0 would be limited by the covenant, which contains certain exceptions, including the ability to make restricted payments in cash in an aggregate amount not to exceed $100 million in any fiscal year and an additional ability to make restricted payments in an aggregate amount not to exceed the greater of $113 million or 4.5% of consolidated net tangible assets over the life of the credit agreement.
Supplemental Guarantor Financial Information
The following is a description of the guarantees with respect to the Senior Notes and the Credit Facilities, for which MOUSA is primary obligor, and for which the Company and certain 100% owned subsidiaries provide full and unconditional guarantees on a joint and several basis. See "—Debt" above for additional information concerning the Company's outstanding indebtedness, all of which is guaranteed as described below. See also Note 6 "Long Term Debt" in the accompanying consolidated financial statements.
The Senior Notes and related guarantees rank equally with all of our and the guarantors’ existing and future senior unsecured indebtedness and effectively junior to our and the guarantors’ existing and future secured indebtedness (including indebtedness with respect to the Credit Facilities) to the extent of the value of the assets securing such indebtedness. The Senior Notes and related guarantees are structurally subordinated to all of the existing and future third-party liabilities, including trade payables, of our existing and future subsidiaries that do not guarantee the notes.
All obligations under the Credit Facilities are guaranteed by the Company and the same subsidiary guarantors that guarantee the Senior Notes. All obligations under the Credit Facilities, including the guarantees of those obligations, are secured by certain assets of the Company, MOUSA, and the other guarantors.
The combined assets, liabilities and results of operations of MOUSA and the guarantors are not materially different from corresponding amounts presented in the consolidated financial statements included herein. MOUSA is our primary operating subsidiary and generated the vast majority of our revenues for the three and nine months ended September 30, 2021, and accounted for the vast majority of our total assets as of September 30, 2021. In the event MOUSA itself were unable to service the Company's consolidated debt obligations, our business and financial condition would be materially adversely impacted.
Capital Spending
Capital spending and investments in our Marketing segment relate primarily to the acquisition of land and the construction of new Company stores. Marketing capital is also deployed to improve our existing stores as needed to ensure reliability and continued performance, which we refer to as sustaining capital. We also invest capital in our Corporate and other assets segment.
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The following table outlines our capital spending and investments by segment for the three and nine month periods ended September 30, 2021 and 2020:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (Millions of dollars) | 2021 | 2020 | 2021 | 2020 | |||||||||||||||||||
| Marketing: | |||||||||||||||||||||||
| Company stores | $ | 64.2 | $ | 54.1 | $ | 175.9 | $ | 134.3 | |||||||||||||||
| Terminals | 0.6 | 1.3 | 1.4 | 1.9 | |||||||||||||||||||
| Sustaining capital | 4.3 | 5.1 | 12.4 | 16.5 | |||||||||||||||||||
| Corporate and other assets | 4.9 | 0.1 | 28.9 | 19.8 | |||||||||||||||||||
| Total | $ | 74.0 | $ | 60.6 | $ | 218.6 | $ | 172.5 | |||||||||||||||
We currently expect capital expenditures for the full year 2021 to range from approximately $325 million to $375 million, including $298 million for retail growth, approximately $25 million for maintenance capital, with the remaining funds earmarked for other corporate investments and other strategic initiatives. See Note 16 “Commitments” in the audited consolidated financial statements for the year ended December 31, 2020 included in our Annual Report on Form 10-K for more information.
Critical Accounting Policies
Our critical accounting policies have been updated to include changes since our Annual Report on Form 10-K for the year ended December 31, 2020. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies” in the Form 10-K.
Business combinations — We account for business combinations using the purchase method of accounting. The purchase price of an acquisition is measured as the aggregate of the fair value of the consideration transferred. The purchase price is allocated to the fair values of the tangible and intangible assets acquired and liabilities assumed, with any excess recorded as goodwill. These fair value determinations require judgment and may involve the use of significant estimates and assumptions. The purchase price allocation may be provisional during a measurement period of up to one year to provide reasonable time to obtain the information necessary to identify and measure the assets acquired and liabilities assumed. Any such measurement period adjustments are recognized in the period in which the adjustment amount is determined. Transaction costs associated with the acquisition are expensed as incurred.
Goodwill and intangible assets — Goodwill represents the excess of the aggregate of the consideration transferred over the net assets acquired and liabilities assumed and is tested annually for impairment, or more frequently if there are indicators of impairment. Acquired finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives and are reviewed for impairment when events or circumstances indicate that the asset group to which the intangible assets belong might be impaired. The Company revises the estimated remaining useful life of these assets when events or changes in circumstances warrant a revision. If the Company revises the useful life, the unamortized balance is amortized over the use life on a prospective basis. Indefinite-lived intangibles are tested annually for impairment, or more often if indicators warrant.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain statements or may suggest “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995) that involve risk and uncertainties, including, but not limited to M&A activity, anticipated store openings, fuel margins, merchandise margins, sales of RINs, trends in our operations, dividends, and share repurchases. Such statements are based upon the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual future results may differ materially from historical results or current expectations depending upon factors including, but not limited to: the Company's ability to realize projected synergies from the acquisition of QuickChek and successfully expand our food and beverage offerings; our ability to continue to maintain a good business relationship with Walmart; successful execution of our growth strategy, including our ability to realize the anticipated benefits from
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such growth initiatives, and the timely completion of construction associated with our newly planned stores which may be impacted by the financial health of third parties; our ability to effectively manage our inventory, disruptions in our supply chain and our ability to control costs; the impact of severe weather events, such as hurricanes, floods and earthquakes; the impact of a global health pandemic, such as COVID-19 and the government reaction in response thereof: the impact of any systems failures, cybersecurity and/or security breaches of the company or its vendor partners, including any security breach that results in theft, transfer or unauthorized disclosure of customer, employee or company information or our compliance with information security and privacy laws and regulations in the event of such an incident; successful execution of our information technology strategy; reduced demand for our products due to the implementation of more stringent fuel economy and greenhouse gas reduction requirements, or increasingly widespread adoption of electric vehicle technology; future tobacco or e-cigarette legislation and any other efforts that make purchasing tobacco products more costly or difficult could hurt our revenues and impact gross margins; efficient and proper allocation of our capital resources, including the timing, declaration, amount and payment of any future dividends or levels of the company's share repurchases, or management of operating cash; the market price of the Company's stock prevailing from time to time, the nature of other investment opportunities presented to the Company from time to time, the Company's cash flows from operations, and general economic conditions; compliance with debt covenants; availability and cost of credit; and changes in interest rates. Our SEC reports, including our most recent Annual Report on our Form 10-K and our Form 10-Q, contain other information on these and other factors that could affect our financial results and cause actual results to differ materially from any forward-looking information we may provide. The Company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events, new information or future circumstances.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Price Risk
We are exposed to market risks related to the volatility in the price of refined products (primarily gasoline and diesel) used in our operations. These fluctuations can affect our revenues and purchases, as well as the cost of operating, investing and financing activities. We make limited use of derivative instruments to manage certain risks related to commodity prices. The use of derivative instruments for risk management is covered by operating policies and is closely monitored by our middle-office function and the Company’s senior management.
As described in Note 10 “Financial Instruments and Risk Management” in the accompanying unaudited consolidated financial statements, there were short-term commodity derivative contracts in place at September 30, 2021 to hedge the purchase price of refined products. A 10% increase or decrease in the respective benchmark price of the commodities underlying these derivative contracts would have been immaterial to the Company. Changes in the fair value of these derivative contracts generally offset the changes in the value for an equivalent volume of these products.
Interest Rate Risk
We have exposure to interest rate risks related to volatility of our floating rate term loan of $399 million and to our Revolving Facility which currently is undrawn. Both of these loans are tied to LIBOR interest rates which can move in either direction and cause fluctuations in our interest expense recognized in any period and in our cash flows related to interest payments made. We make limited use of interest rate swaps to hedge a portion of our exposure to these rate movements. The acquisition of any interest rate derivatives is undertaken by senior management when appropriate with delegated authority from the appropriate Board level committee.
As described in Note 10 “Financial Instruments and Risk Management” in the accompanying unaudited consolidated financial statements, we currently have an interest rate swap that hedges exposure to one-month LIBOR for $150 million of our outstanding term loan amount at September 30, 2021. A 10% increase or decrease in the underlying interest rate would have an immaterial impact on the financial statements of the Company at September 30, 2021.
For additional information about our use of derivative instruments, see Note 12 “Financial Instruments and Risk Management” in our audited combined financial statements for the year ended December 31, 2020 included in the Form 10-K and Note 10 “Financial Instruments and Risk Management” in the accompanying unaudited consolidated financial statements for the nine months ended September 30, 2021.
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ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
Our management has evaluated, with the participation of our principal executive and financial officers, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934) as of the end of the period covered by this report, and has concluded that our disclosure controls and procedures were effective and appropriately allowed for timely decisions regarding required disclosures as of September 30, 2021.
Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of September 30, 2021, the Company was engaged in a number of legal proceedings, all of which the Company considers routine and incidental to its business. See Note 14 ”Contingencies” in the accompanying consolidated financial statements. Based on information currently available to the Company, the ultimate resolution of environmental and legal matters referred to in this Item is not expected to have a material adverse effect on the Company’s net income, financial condition or liquidity in a future period.
ITEM 1A. RISK FACTORS
Our business, results of operations, cash flows and financial condition involve various risks and uncertainties. These risk factors are discussed under the caption “Risk Factors” in our Annual Report on Form 10-K. We have not identified any additional risk factors not previously disclosed in the Form 10-K and in the quarterly report on Form 10-Q for the period ended September 30, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Below is detail of the Company’s purchases of its own equity securities during the period:
| Issuer Purchases of Equity Securities | ||||||||||||||||||||||||||
| Total Number | Approximate | |||||||||||||||||||||||||
| of Shares | Dollar Value of | |||||||||||||||||||||||||
| Purchased as | Shares That May | |||||||||||||||||||||||||
| Total Number | Average | Part of Publicly | Yet Be Purchased | |||||||||||||||||||||||
| of Shares | Price Paid | Announced Plans | Under the Plans | |||||||||||||||||||||||
| Period Duration | Purchased | Per Share | or Programs | or Programs 1 | ||||||||||||||||||||||
| July 1, 2021 to July 31, 2021 | 12,746 | $ | 132.90 | 12,746 | $ | 175,000,573 | ||||||||||||||||||||
| August 1, 2021 to August 31, 2021 | 88,882 | 153.01 | 88,882 | 161,400,761 | ||||||||||||||||||||||
| September 1, 2021 to September 30, 2021 | 113,657 | 157.05 | 113,657 | 143,551,446 | ||||||||||||||||||||||
| Three Months Ended September 30, 2021 | 215,285 | $ | 153.95 | 215,285 | $ | 143,551,446 | ||||||||||||||||||||
1 Terms of the repurchase plan authorized by the Murphy USA Inc. Board of Directors and announced on October 28, 2020 include authorization for the Company to acquire up to $500 million of its common shares by December 31, 2023. Upon completing the existing repurchase program, the Company may elect to repurchase additional shares utilizing existing available cash balances if prices are favorable in management's opinion.
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ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
The Exhibit Index on page 46 of this Form 10-Q report lists the exhibits that are filed herewith or incorporated herein by reference.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| MURPHY USA INC. | ||||||||
| (Registrant) | ||||||||
| By | __/s/ Donald R. Smith Jr.___________ | |||||||
| Donald R. Smith Jr., Vice President | ||||||||
and Controller (Chief Accounting Officer | ||||||||
| and Duly Authorized Officer) | ||||||||
October 28, 2021
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| EXHIBIT INDEX | |||||
Exhibit Number | Description | ||||
| 10.1* | |||||
| 31.1* | |||||
| 31.2* | |||||
| 32.1* | |||||
| 32.2* | |||||
| 101. INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | ||||
| 101. SCH* | Inline XBRL Taxonomy Extension Schema Document | ||||
| 101. CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | ||||
| 101. DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | ||||
| 101. LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document | ||||
| 101. PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase | ||||
| 104 | Cover Page Interactive Data File - the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | ||||
* Filed herewith.
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