10-Q 1 musa-20220331.htm 10-Q musa-20220331
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
 
             (Mark one)        
  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2022
 
OR

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______________ to _______________
 
Commission File Number 001-35914

musa-20220331_g1.jpg
MURPHY USA INC.

(Exact name of registrant as specified in its charter)
Delaware46-2279221
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
200 Peach Street 
El Dorado,Arkansas71730-5836
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 Par ValueMUSANew York Stock Exchange

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.
 
Large accelerated filer  Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company

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 March 31, 2022 was 24,201,591.

















 
MURPHY USA INC.
 
TABLE OF CONTENTS
 
 
 
 
 


1


















ITEM 1.  FINANCIAL STATEMENTS
Murphy USA Inc.
Consolidated Balance Sheets
March 31,December 31,
(Millions of dollars, except share amounts)20222021
(unaudited)
Assets  
Current assets  
Cash and cash equivalents$356.2 $256.4 
Accounts receivable—trade, less allowance for doubtful accounts of $0.1 at 2022 and 2021
260.4 195.7 
Inventories265.9 292.3 
Prepaid expenses and other current assets28.3 23.4 
Total current assets910.8 767.8 
Property, plant and equipment, at cost less accumulated depreciation and amortization of $1,428.2 and $1,373.4 at 2022 and 2021, respectively
2,391.6 2,378.4 
Operating lease right of use assets, net420.5 419.2 
Intangible assets, net of amortization140.6 140.7 
Goodwill328.0 328.0 
Other assets14.7 14.1 
Total assets$4,206.2 $4,048.2 
Liabilities and Stockholders' Equity  
Current liabilities  
Current maturities of long-term debt$14.9 $15.0 
Trade accounts payable and accrued liabilities790.8 660.3 
Income taxes payable35.1  
Total current liabilities840.8 675.3 
Long-term debt, including capitalized lease obligations1,797.4 1,800.1 
Deferred income taxes303.5 295.9 
Asset retirement obligations39.3 39.2 
Non current operating lease liabilities411.5 408.9 
Deferred credits and other liabilities22.2 21.6 
Total liabilities3,414.7 3,241.0 
Stockholders' Equity  
  Preferred Stock, par $0.01 (authorized 20,000,000 shares,
none outstanding)
  
  Common Stock, par $0.01 (authorized 200,000,000 shares,
46,767,164 shares issued at 2022 and 2021, respectively)
0.5 0.5 
Treasury stock (22,565,573 and 21,831,904 shares held at
2022 and 2021, respectively)(1,982.3)(1,839.3)
Additional paid in capital (APIC)516.7 534.8 
Retained earnings2,257.6 2,112.4 
Accumulated other comprehensive income (loss) (AOCI)(1.0)(1.2)
Total stockholders' equity791.5 807.2 
Total liabilities and stockholders' equity$4,206.2 $4,048.2 

See notes to consolidated financial statements.
2

















Murphy USA Inc.
Consolidated Statements of Income
(unaudited)
 Three Months Ended
March 31,
(Millions of dollars, except share and per share amounts)20222021
Operating Revenues
Petroleum product sales (a)$4,148.4 $2,635.8 
Merchandise sales892.0 833.2 
Other operating revenues78.0 68.1 
Total operating revenues5,118.4 3,537.1 
Operating Expenses
Petroleum product cost of goods sold (a)3,856.2 2,476.1 
Merchandise cost of goods sold716.3 684.8 
Store and other operating expenses222.7 177.1 
Depreciation and amortization55.4 51.0 
Selling, general and administrative46.2 44.3 
Accretion of asset retirement obligations0.7 0.6 
Acquisition related costs0.2 8.8 
Total operating expenses4,897.7 3,442.7 
Gain (loss) on sale of assets 0.2 
Income (loss) from operations220.7 94.6 
Other income (expense)
Interest expense(19.6)(21.3)
Other nonoperating income (expense)(0.7) 
Total other income (expense)(20.3)(21.3)
Income before income taxes200.4 73.3 
Income tax expense (benefit)48.0 18.0 
Net Income $152.4 $55.3 
Basic and Diluted Earnings Per Common Share
Basic$6.18 $2.04 
Diluted$6.08 $2.01 
Weighted-Average Common Shares Outstanding (in thousands):
Basic24,655 27,131 
Diluted25,074 27,488 
Supplemental information:
(a) Includes excise taxes of:$514.1 $469.6 

See notes to consolidated financial statements.



3

















Murphy USA Inc.
Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
(Millions of dollars)Three Months Ended
March 31,
20222021
Net income $152.4 $55.3 
Other comprehensive income (loss), net of tax
Interest rate swap:
Realized gain (loss) (0.1)
Unrealized gain (loss) 0.1 
Reclassifications:
Realized gain reclassified to interest expense 0.1 
Amortization of unrealized (gain) loss to interest expense0.2 0.2 
0.2 0.3 
Deferred income tax (benefit) expense 0.1 
Other comprehensive income (loss)0.2 0.2 
Comprehensive income $152.6 $55.5 



See notes to consolidated financial statements.
4

















Murphy USA Inc.
Consolidated Statements of Cash Flows
(unaudited) 
 (Millions of dollars)
Three Months Ended
March 31,
20222021
Operating Activities  
Net income $152.4 $55.3 
Adjustments to reconcile net income (loss) to net cash provided by (required by) operating activities 
Depreciation and amortization55.4 51.0 
Deferred and noncurrent income tax charges (credits)7.5 3.7 
Accretion of asset retirement obligations0.7 0.6 
(Gains) losses from sale of assets (0.2)
Net (increase) decrease in noncash operating working capital118.9 108.0 
Other operating activities - net4.3 11.4 
Net cash provided by (required by) operating activities339.2 229.8 
Investing Activities  
Property additions(64.0)(53.6)
Payments for acquisition, net of cash acquired (642.1)
Proceeds from sale of assets 0.3 
Other investing activities - net(0.4)(0.9)
Net cash provided by (required by) investing activities(64.4)(696.3)
Financing Activities  
Purchase of treasury stock(151.8)(50.0)
Dividends paid(7.2)(6.8)
Borrowings of debt 892.8 
Repayments of debt(3.8)(214.4)
Debt issuance costs (8.8)
Amounts related to share-based compensation(12.2)(5.8)
Net cash provided by (required by) financing activities(175.0)607.0 
Net increase (decrease) in cash, cash equivalents, and restricted cash99.8 140.5 
Cash, cash equivalents, and restricted cash at beginning of period256.4 163.6 
Cash, cash equivalents, and restricted cash at end of period$356.2 $304.1 
 
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)SharesParTreasury StockAPICRetained EarningsAOCITotal
Balance as of December 31, 202046,767,164 $0.5 $(1,490.9)$533.3 $1,743.1 $(1.9)$784.1 
Net income— — — — 55.3 — 55.3 
Amortization of unrealized loss on interest rate hedge, net of tax— — — — — 0.2 0.2 
Cash dividends declared ($0.25 per share)
— — — — (6.8)— (6.8)
Dividend equivalent units accrued— — — 0.1 (0.1)—  
Purchase of treasury stock— — (50.0)— — — (50.0)
Issuance of treasury stock— — 5.6 (5.6)— —  
Amounts related to share-based compensation— — — (5.8)— — (5.8)
Share-based compensation expense— — — 3.6 — — 3.6 
Balance as of March 31, 202146,767,164 $0.5 $(1,535.3)$525.6 $1,791.5 $(1.7)$780.6 



 Common Stock    
(Millions of dollars, except share amounts)SharesParTreasury StockAPICRetained EarningsAOCITotal
Balance as of December 31, 202146,767,164 $0.5 $(1,839.3)$534.8 $2,112.4 $(1.2)$807.2 
Net income— — — — 152.4 — 152.4 
Amortization of unrealized loss on interest rate hedge, net of tax— — — — — 0.2 0.2 
Cash dividends declared ($0.29 per share)
— — — — (7.2)— (7.2)
Purchase of treasury stock— — (151.8)— — — (151.8)
Issuance of treasury stock— — 8.8 (8.8)— —  
Amounts related to share-based compensation— — — (12.2)— — (12.2)
Share-based compensation expense— — — 2.9 — — 2.9 
Balance as of March 31, 202246,767,164 $0.5 $(1,982.3)$516.7 $2,257.6 $(1.0)$791.5 
 
 
See notes to consolidated financial statements.
6


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, we operate non-fuel convenience stores in select markets. The Company owns and operates a chain of retail stores under the brand name of Murphy USA® which are almost all located in close proximity to Walmart stores, markets gasoline and other products at standalone stores under the Murphy Express brand, and also has a mix of convenience stores with and without retail gasoline that operate under the name of QuickChek®. At March 31, 2022, the Company had a total of 1,686 Company stores of which 1,151 were Murphy USA, 376 were Murphy Express and 159 were QuickChek. The Company also has certain product supply and wholesale assets, including product distribution terminals and pipeline positions.
 
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. On January 29, 2021, the Company acquired 100% of QuickChek Corporation ("QuickChek"), a privately held convenience store chain. Murphy USA Inc., Murphy Oil USA, Inc. 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. For the three month period ended March 31, 2022, the QuickChek results cover the period from January 1, 2022 to April 1, 2022 and for the three month period ended March 31, 2021, results cover the period January 29, 2021 to April 2, 2021. The difference in timing of the period ends is immaterial to the overall consolidated results.
 
In preparing the financial statements of Murphy USA in conformity with accounting principles generally accepted in the United States, management has made a number of estimates and assumptions related to the reporting of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. Actual results may differ from these estimates.

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, 2021, 2020 and 2019, 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 17, 2022.

Recently Issued Accounting Standards 

In January 2021, the FASB issued ASU 2021-01, "Reference Rate Reform (Topic 848): Scope". This standard extends certain of the optional expedients and exceptions in ASC 848 that apply to derivative contracts impacted by the discounting transition, including derivatives that do not reference LIBOR or other reference rates that are expected to be discontinued. The new standard applies to all entities and is in effect for a limited time, from March 12, 2020 through December 31, 2022. The Company has determined this standard has not had a material impact on the Company's consolidated financial statements.

In August 2021, the FASB issued ASU 2021-08, "Accounting for Contract Assets and Contract Liabilities from Contracts with Customers," which requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. Under Topic 606, the acquirer applies the revenue model as if it had originated the contracts. This is a departure from the current requirement to measure contract assets and contract liabilities at fair value. This ASU is effective for the Company for the year beginning January 1, 2023, with early adoption permitted. The Company has determined this will not likely have a material impact on the Company's consolidated financial statements.

7


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 months ended March 31, 2022 and 2021, respectively:

Three Months Ended March 31, 2022Three Months Ended March 31, 2021
(Millions of dollars)MarketingCorporate and Other AssetsConsolidatedMarketingCorporate and Other AssetsConsolidated
Petroleum product sales (at retail) 1
$3,728.4  $3,728.4 $2,384.8 $ $2,384.8 
Petroleum product sales (at wholesale) 1
420.0  420.0 251.0  251.0 
Total petroleum product sales4,148.4  4,148.4 2,635.8  2,635.8 
Merchandise sales892.0  892.0 833.2  833.2 
Other operating revenues:
RINs76.6  76.6 66.7  66.7 
Other revenues 2
1.3 0.1 1.4 1.4  1.4 
Total revenues$5,118.3 $0.1 $5,118.4 $3,537.1 $ $3,537.1 


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 two to seven days, depending on the terms with the particular credit/debit card
8


Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



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.

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 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 March 31, 2022 and December 31, 2021 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

Trade accounts receivable on the balance sheet represents both receivables related to contracts with customers and other trade receivables. At March 31, 2022 and December 31, 2021, we had $165.1 million and $111.8 million of receivables, respectively, related to contracts with customers recorded. All of the trade accounts receivable related to contracts with customers outstanding at the end of each period were collected during the succeeding quarter. These receivables were generally related to credit and debit card transactions along with short term bulk and wholesale sales to our customers, which have a very short settlement window.

9


Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



Note 3 Inventories
 
Inventories consisted of the following:
(Millions of dollars)March 31,
2022
December 31,
2021
Petroleum products - FIFO basis$451.1 $339.8 
Store merchandise for resale - FIFO basis182.3 173.1 
Less LIFO reserve(373.7)(228.0)
Total petroleum products and store merchandise inventory259.7 284.9 
Materials and supplies6.2 7.4 
Total inventories$265.9 $292.3 
 
Murphy USA and Murphy Express branded petroleum products are valued using the last-in, first-out (LIFO) method and certain QuickChek store merchandise for resale is valued using the LIFO method. At March 31, 2022 and December 31, 2021, the replacement cost (market value) of LIFO inventories exceeded the LIFO carrying value for petroleum products by $373.2 million and $227.5 million, respectively and for store merchandise for resale was $0.5 million for both March 31, 2022 and December 31, 2021.


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 which consisted 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 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 branded stores. All fair values were final as of December 31, 2021.

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 fair value of the consideration transferred at the date of the acquisition, as well as the calculation of goodwill based on the excess of consideration over the fair value of net assets acquired:

(Millions of dollars)
Cash paid to shareholders$641.9 
 Less cash and cash equivalents acquired0.8 
Fair value of consideration transferred, net of cash acquired$641.1 
10


Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



(Millions of dollars)
Assets acquired:
Accounts receivable$8.0 
Inventories24.3 
Prepaid expenses and other current assets5.5 
Property and equipment447.1 
Right of use assets237.6 
Other assets5.4 
Identified intangible assets106.8 
Liabilities assumed:
Accounts payable and accrued expenses(68.4)
Deferred income tax liabilities(58.5)
Asset retirement obligation(1.2)
Current and long term debt, including finance lease obligations(148.5)
Deferred credits and other liabilities(7.4)
Operating lease liabilities(237.6)
Net assets acquired313.1 
Goodwill328.0 
Fair value of consideration transferred, net of cash and cash equivalents acquired$641.1 


In connection with the acquisition, the Company recognized certain acquisition-related expenses which were expensed as incurred. These expenses, recognized within acquisition related costs in the consolidated statements of operations, include amounts related to transaction and integration costs, including fees for advisory and professional services incurred as part of the acquisition and integration costs subsequent to the acquisition in the amount of $0.2 million and $8.8 million for the three months ended March 31, 2022 and 2021, respectively.

Note 5 — Goodwill and Intangible Assets

The Company's goodwill is assigned to its Marketing segment and none of the goodwill is deductible for tax purposes.

(Millions of dollars)March 31,
2022
December 31,
2021
Goodwill balance, at beginning of period$328.0 $ 
QuickChek acquisition 328.0 
Goodwill balance, at end of period$328.0 $328.0 


11


Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



In connection with the acquisition of QuickChek on January 29, 2021, we recorded the following amount of intangible assets.
January 29,
2021
Remaining Useful Life
(Millions of dollars)Carrying Value(in years)
Intangible assets subject to amortization:
Intangible lease liability$(9.1)13.6
Intangible assets not subject to amortization:
Trade name 115.4 n/a
Liquor licenses0.5 n/a
Total intangible assets acquired$106.8 

We amortize intangible assets subject to amortization on a straight-line basis based on the period for which the economic benefits of the asset or liability are expected to be realized. The intangible assets subject to amortization was in addition to the Company's existing intangible asset pipeline space, which is being amortized over a 40 year life.

Intangible assets subject to amortization at March 31, 2022 and December 31, 2021 consisted of the following:

Remaining Useful Life (in years)March 31, 2022December 31, 2021
(Millions of dollars)CostNetCostNet
Intangible assets subject to amortization:
Pipeline space33.4$39.6 $33.4 $39.6 $33.7 
Intangible lease liability12.2(9.1)(8.4)(9.1)(8.6)
Total intangible assets subject to amortization30.5 25.0 30.5 25.1 
Intangible assets not subject to amortization, indefinite lives:
Trade name115.4 115.4 115.4 115.4 
Liquor licenses0.2 0.2 0.2 0.2 
Total intangible assets not subject to amortization115.6 115.6 115.6 115.6 
Intangible assets, net of amortization$146.1 $140.6 $146.1 $140.7 


12


Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



Note 6 Long-Term Debt
 
Long-term debt consisted of the following:
(Millions of dollars)March 31,
2022
December 31,
2021
5.625% senior notes due 2027 (net of unamortized discount of $1.9 at March 31, 2022 and $2.0 at December 2021)
$298.1 $298.0 
4.75% senior notes due 2029 (net of unamortized discount of $4.7 at March 31, 2022 and $4.8 at December 31, 2021)
495.3 495.2 
3.75% senior notes due 2031 (net of unamortized discount of $5.5 at March 31, 2022 and $5.7 at December 31,2021)
494.5 494.3 
Term loan due 2028 (effective interest rate of 2.27% at March 31, 2022 and December 31, 2021 and net of unamortized discount of $0.8 at March 31, 2022 and $0.9 at December 31, 2021)
396.2 397.1 
Capitalized lease obligations, autos and equipment, due through 20252.3 2.7 
Capitalized lease obligations, buildings, due through 2059136.6 138.9 
Less unamortized debt issuance costs(10.7)(11.1)
Total long-term debt1,812.3 1,815.1 
Less current maturities14.9 15.0 
Total long-term debt, net of current$1,797.4 $1,800.1 

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"). 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, as defined herein. 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 prior note issuance. 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 substantially similar 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, in part, to fund the acquisition of QuickChek and other obligations related to that transaction. The 2031 Senior Notes are fully and unconditionally guaranteed by the Company and by the Company's subsidiaries that guarantee our Credit facilities. The indenture governing the 2031 Senior Notes contains restrictive covenants that are substantially similar 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 Senior Notes.

13


Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



Revolving Credit Facility 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 secured term loan that replaced the Company's prior ABL facility and term loan.

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"). The outstanding balance of the term loan was $397 million at March 31, 2022 and $398 million at December 31, 2021. The term loan is due January 2028 and we are required to make quarterly principal payments of $1 million, which began on July 1, 2021. As of March 31, 2022, we had no outstanding borrowings under the revolving facility while there were $4.1 million in outstanding letters of credit, which reduces the amount available to borrow.

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 and casualty events (subject to certain reinvestment rights) and the net cash proceeds of issuances of indebtedness not permitted under the Credit Agreement. 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 Revolving Facility credit agreement also impose 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 and a maximum secured net leverage ratio of not more than 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 March 31, 2022, our total leverage ratio was 1.90 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 an ability to make
14


Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



restricted payments in cash in an aggregate amount not to exceed the greater of $112.3 million or 4.50% of consolidated net tangible assets over the life of the credit agreement.

All obligations under the credit agreement are guaranteed by Murphy USA and the subsidiary guarantors party thereto, and all obligations under the credit agreement, including the guarantees of those obligations, are secured by certain assets of Murphy USA, Murphy Oil USA, Inc. and the guarantors party to the guarantee and collateral agreement in respect thereof.

Note 7— Asset Retirement Obligations (ARO)

The majority of the ARO recognized by the Company at March 31, 2022 and December 31, 2021 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)March 31,
2022
December 31,
2021
Balance at beginning of period$39.2 $35.1 
Addition for acquisition 1.2 
Accretion expense0.7 2.5 
Settlements of liabilities(0.9)(1.0)
Liabilities incurred0.3 1.4 
Balance at end of period$39.3 $39.2 
 
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 month periods ended March 31, 2022 and 2021, the Company’s approximate effective tax rates were as follows:
 
 20222021
Three months ended March 31,24.0%24.6%

In the three months ended March 31, 2022, the Company recognized approximately $1.5 million of excess tax benefits related to stock compensation for employees. For the three months ended March 31, 2021, the Company recognized approximately $0.9 million in excess tax benefits related to stock compensation and $1.0 million for other discrete tax items related to state deferred tax rate adjustments due to the QuickChek acquisition.
 
As of March 31, 2022, the earliest years remaining open for federal audit and/or settlement are 2018 and 2016 for state purposes.  Although the Company believes that recorded liabilities for unsettled issues are adequate, additional gains or losses could occur in future periods from resolution of outstanding unsettled matters.

15


Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)



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 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.

Beginning 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 2022, the Committee granted nonqualified stock options to certain employees of the Company. The Black-Scholes valuation for these awards was $51.46 per option.

Assumptions used to value awards:
Dividend yield0.64 %
Expected volatility32.2 %
Risk-free interest rate1.8 %
Expected life (years)4.7
Stock price at valuation date$181.18


Changes in options outstanding for Company employees during the period from December 31, 2021 to March 31, 2022 are presented in the following table:

OptionsNumber of SharesWeighted Average Exercise PriceWeighted Average Remaining Contractual Term (Years)Aggregate Intrinsic Value (Millions of Dollars)
Outstanding at 12/31/2021366,100 $90.44 
Granted55,150 $181.80 
Exercised(2,200)$87.33 
Forfeited(9,100)$119.43 
Outstanding at 3/31/2022409,950 $102.10 4.3$40.1 
Exercisable at 3/31/2022246,450 $76.35 3.1$30.5 


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. 
16


Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)




Changes in restricted stock units outstanding for Company employees during the period from December 31, 2021 to March 31, 2022 are presented in the following table:

Employee RSUsNumber of unitsWeighted Average Grant Date Fair ValueTotal Fair Value (Millions of Dollars)
Outstanding at 12/31/2021175,627 $95.93 
Granted40,388 $186.61 
Vested and issued(58,746)$79.38 $11.2 
Forfeited(3,835)$111.27 
Outstanding at 3/31/2022153,434 $125.76 $30.7 
 

PERFORMANCE-BASED RESTRICTED STOCK UNITS (MUSA 2013 Plan) – In February 2022, the Committee awarded performance-based restricted stock units (performance units or PSU) 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 $259.17 per unit.  For the ROACE portion of the awards, the valuation will be based on the grant date fair value of $181.18 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, 2021 to March 31, 2022 are presented in the following table:

Employee PSU'sNumber of UnitsWeighted Average Grant Date Fair ValueTotal Fair Value (Millions of Dollars)
Outstanding at 12/31/2021127,638 $117.59 
Granted78,586 $217.15 
Vested and issued(94,226)$87.62 $17.1 
Forfeited(6,360)$133.98 
Outstanding at 3/31/2022105,638 $159.63 $21.1 


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 was reserved 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.

17


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, 2021 to March 31, 2022 are presented in the following table:

Director RSU'sNumber of UnitsWeighted Average Grant Date Fair ValueTotal Fair Value (Millions of Dollars)
Outstanding at 12/31/202130,664 $100.23 
Granted7,902 $174.90 
Vested and issued(11,735)$75.96 $2.1 
Outstanding at 3/31/202226,831 $132.84 $5.4 

 
For the three months ended March 31, 2022 and 2021, share-based compensation was $2.9 million and $3.6 million, respectively.

Note 10 — Financial Instruments and Risk Management
 
DERIVATIVE INSTRUMENTS — The Company makes limited use of derivative instruments to manage certain risks related to commodity prices and interest rates. The use of derivative instruments for risk management is covered by operating policies and is closely monitored by the Company’s senior management. The Company does not hold any derivatives for speculative purposes and it does not use derivatives with leveraged or complex features. Derivative instruments are traded primarily with credit worthy major financial institutions or over national exchanges such as the New York Mercantile Exchange (“NYMEX”). For accounting purposes, the Company has not designated commodity derivative contracts as hedges, and therefore, it recognizes all gains and losses on these derivative contracts in its Consolidated Statement of Income. Certain interest rate derivative contracts were accounted for as hedges and gain or loss associated with recording the fair value of these contracts was deferred in AOCI until the anticipated transactions occur. As of March 31, 2022, all current commodity derivative activity is immaterial.
 
At March 31, 2022, there was $1.6 million cash deposit and at December 31, 2021 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 March 31, 2022 or December 31, 2021.

Interest Rate Risks

Under hedge accounting rules, the Company deferred the net charge or benefit associated with the interest rate swap entered into to manage the variability in interest payments for the variable-rate debt in association with $150.0 million of our outstanding term loan dated August 27, 2019 until the debt was repaid on January 29, 2021. At that time the hedge was de-designated and therefore hedge accounting is no longer applicable and mark-to-market gains and losses are recognized in the period in which the change occurs in the Consolidated Statement of Income in interest expense. The current loan balance subject to the hedge is $90.0 million.The Company is reclassifying the accumulated other comprehensive loss on the previous interest rate swap, $2.4 million as of the de-designation date, into interest expense using a straight-line approach over the remaining life of the originally designated hedging relationship. The amount of pre-tax gains in accumulated other comprehensive loss that was reclassified into interest expense was $0.2 million for the three months ended March 31, 2022 and 2021. The remaining balance at March 31, 2022 was $1.3 million. Prior to the de-designation, changes in the fair values of the interest rate swaps were recorded as a component of other comprehensive loss.






18


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 a $500 million share repurchase program effective through December 2023. The 2020 program was completed in January 2022, and a new authorized program for up to $1 billion, approved in December 2021 to be executed by December 31, 2026, is now in effect. For the three months ended March 31, 2022, the Company repurchased 836,953 shares of common stock for an average price of $181.36 per share including brokerage fees. For the three months ended March 31, 2021, 397,882 shares were repurchased for an average price of $125.67 per share.
 
The following table provides a reconciliation of basic and diluted earnings per share computations for the three months ended March 31, 2022 and 2021:

 Three Months Ended
March 31,
(Millions of dollars, except share and per share amounts)20222021
Earnings per common share:
Net income per share - basic
Net income attributable to common stockholders$152.4 $55.3 
Weighted average common shares outstanding (in thousands)24,655 27,131 
Earnings per common share$6.18 $2.04 
 
Earnings per common share - assuming dilution:
Net income per share - diluted
Net income attributable to common stockholders$152.4 $55.3 
Weighted average common shares outstanding (in thousands)24,655 27,131 
Common equivalent shares:
Dilutive share-based awards419 357 
Weighted average common shares outstanding - assuming dilution (in thousands)25,074 27,488 
Earnings per common share assuming dilution$6.08 $2.01 


19


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
March 31,
Potentially dilutive shares excluded from the calculation as their inclusion would be anti-dilutive20222021
Stock Options51,900 81,300 
PSUs14,673 20,491 
Total anti-dilutive shares66,573 101,791 


Note 12 — Other Financial Information
  
CASH FLOW DISCLOSURES — There were no cash income taxes paid nor refunds received for the three month periods ended March 31, 2022 and 2021, respectively. Interest paid, net of amounts capitalized, was $26.2 million and $18.4 million for the three month periods ended March 31, 2022 and 2021, respectively.  

CHANGES IN WORKING CAPITAL:
 Three Months Ended
March 31,
(Millions of dollars)20222021
Accounts receivable$(64.6)$(5.3)
Inventories26.4 20.5 
Prepaid expenses and other current assets(4.8)(3.3)
Accounts payable and accrued liabilities126.8 81.6 
Income taxes payable35.1