Published: 2022-05-05 00:00:00 ET

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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.

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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, 2022																		Three Months Ended March 31, 2021
(Millions of dollars)						Marketing						Corporate and Other Assets						Consolidated						Marketing						Corporate and Other Assets						Consolidated
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 sales						4,148.4						—						4,148.4						2,635.8						—						2,635.8
Merchandise sales						892.0						—						892.0						833.2						—						833.2
Other operating revenues:
RINs						76.6						—						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

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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

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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 basis						182.3						173.1
Less LIFO reserve						(373.7)						(228.0)
Total petroleum products and store merchandise inventory						259.7						284.9
Materials and supplies						6.2						7.4
Total inventories						$	265.9					$	292.3

 

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 acquired						0.8
Fair value of consideration transferred, net of cash acquired						$	641.1

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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

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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 licenses

0.5

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, 2022												December 31, 2021
(Millions of dollars)									Cost						Net						Cost						Net
Intangible assets subject to amortization:
Pipeline space			33.4						$	39.6					$	33.4					$	39.6					$	33.7
Intangible lease liability			12.2						(9.1)						(8.4)						(9.1)						(8.6)
Total intangible assets subject to amortization									30.5						25.0						30.5						25.1
Intangible assets not subject to amortization, indefinite lives:
Trade name									115.4						115.4						115.4						115.4
Liquor licenses									0.2						0.2						0.2						0.2
Total intangible assets not subject to amortization									115.6						115.6						115.6						115.6
Intangible assets, net of amortization									$	146.1					$	140.6					$	146.1					$	140.7

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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 2025						2.3						2.7
Capitalized lease obligations, buildings, due through 2059						136.6						138.9
Less unamortized debt issuance costs						(10.7)						(11.1)
Total long-term debt						1,812.3						1,815.1
Less current maturities						14.9						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.

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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

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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.

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 expense						0.7						2.5
Settlements of liabilities						(0.9)						(1.0)
Liabilities incurred						0.3						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.

 

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:

 

						2022						2021
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.

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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 yield						0.64		%
Expected volatility						32.2		%
Risk-free interest rate						1.8		%
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:

Options			Number of Shares						Weighted Average Exercise Price						Weighted Average Remaining Contractual Term (Years)						Aggregate Intrinsic Value (Millions of Dollars)
Outstanding at 12/31/2021			366,100						$	90.44
Granted			55,150						$	181.80
Exercised			(2,200)						$	87.33
Forfeited			(9,100)						$	119.43
Outstanding at 3/31/2022			409,950						$	102.10					4.3						$	40.1
Exercisable at 3/31/2022			246,450						$	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. 

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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 RSUs			Number of units						Weighted Average Grant Date Fair Value						Total Fair Value (Millions of Dollars)
Outstanding at 12/31/2021			175,627						$	95.93
Granted			40,388						$	186.61
Vested and issued			(58,746)						$	79.38					$	11.2
Forfeited			(3,835)						$	111.27
Outstanding at 3/31/2022			153,434						$	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's			Number of Units						Weighted Average Grant Date Fair Value						Total Fair Value (Millions of Dollars)
Outstanding at 12/31/2021			127,638						$	117.59
Granted			78,586						$	217.15
Vested and issued			(94,226)						$	87.62					$	17.1
Forfeited			(6,360)						$	133.98
Outstanding at 3/31/2022			105,638						$	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.

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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's			Number of Units						Weighted Average Grant Date Fair Value						Total Fair Value (Millions of Dollars)
Outstanding at 12/31/2021			30,664						$	100.23
Granted			7,902						$	174.90
Vested and issued			(11,735)						$	75.96					$	2.1
Outstanding at 3/31/2022			26,831						$	132.84					$	5.4

 

 

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

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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)															2022						2021
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 awards															419						357
Weighted average common shares outstanding - assuming dilution (in thousands)															25,074						27,488
Earnings per common share assuming dilution															$	6.08					$	2.01

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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-dilutive															2022						2021
Stock Options															51,900						81,300
PSUs															14,673						20,491
Total anti-dilutive shares															66,573						101,791

  

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)						2022						2021
Accounts receivable						$	(64.6)					$	(5.3)
Inventories						26.4						20.5
Prepaid expenses and other current assets						(4.8)						(3.3)
Accounts payable and accrued liabilities						126.8						81.6
Income taxes payable						35.1						14.5
Net (increase) decrease in noncash operating working capital						$	118.9					$	108.0

 

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 commodity derivatives contracts was determined using NYMEX quoted values and the value of the Interest rate swap derivative was derived by using level 3 inputs, but the balances for each were immaterial. The carrying value of the Company’s Cash and cash equivalents, Accounts receivable-trade, Trade accounts payable, interest rate swap contracts and accrued liabilities approximates fair value. See also Note 10 "Financial Instruments and Risk Management" in these consolidated financial statements for the period ended March 31, 2022, for more information.

 

The following table presents the carrying amounts and estimated fair values of financial instruments held by the Company at March 31, 2022 and December 31, 2021. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The table excludes Cash and cash equivalents, Accounts receivable-trade, Restricted cash, and Trade accounts payable and accrued liabilities, all of which had fair values approximating carrying amounts. The fair value of Current and Long-term debt was estimated based on rates offered to the Company at that time for debt of the same maturities and these qualify as Level 1 inputs. The Company has off-balance sheet exposures relating to certain financial guarantees and

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letters of credit. The fair value of these, which represents fees associated with obtaining the instruments, was nominal.  

						At March 31, 2022												At December 31, 2021
						Carrying												Carrying
(Millions of dollars)						Amount						Fair Value						Amount						Fair Value
Financial liabilities
Current and long-term debt, excluding finance leases						$	(1,673.4)					$	(1,681.5)					$	(1,673.5)					$	(1,709.5)

 

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. With respect to any remaining potential liabilities, the Company believes costs related to these properties 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 March 31, 2022, 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. As to the 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 March 31, 2022. The Company could be required to bear a pro rata share of costs attributable to nonparticipating PRPs or could be

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assigned additional responsibility for remediation at this site or other Superfund sites. The Company believes that its share of the ultimate costs to 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.

 

Murphy USA is engaged in a number of other legal proceedings, all of which the Company considers routine and incidental to its business. Currently, the City of Charleston, South Carolina and the state of Delaware have filed lawsuits against energy companies, including the Company. These lawsuits allege damages as a result of climate change and the plaintiffs are seeking unspecified damages and abatement under various tort theories. At this early stage, the ultimate outcome of these matters remain uncertain, and neither the likelihood of an unfavorable outcome nor the ultimate liability, if any, can be determined. 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 March 31, 2022, 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 $40.9 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 March 31, 2022, the Company had contingent liabilities of $10.1 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.

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at the Company's sole discretion. Due to the uncertainties of future markets, economic factors, technology changes, demographic shifts and behavior, environmental regulatory requirements and other information that impacts decisions as to store location, management has determined that it was not reasonably certain to exercise contract options and they are not included in the lease term. Additionally, short-term leases and leases with variable 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.

Lessee —We lease land for 412 stores, one terminal, a hangar and various equipment. Our lease agreements do not contain any material residual value guarantees and approximately 102 stores leased from Walmart contain restrictive covenants, though the restrictions are deemed to have an immaterial impact.

Leases are reflected in the following balance sheet accounts:

(Millions of dollars)			Classification						March 31, 2022						December 31, 2021
Assets
Operating (Right-of-use)			Operating lease right-of-use assets, net						$	420.5					$	419.2
Finance			Property, plant, and equipment, at cost, less accumulated depreciation of $20.7 at March 31, 2022 and $16.7 at December 31, 2021						133.4						137.3
Total leased assets									$	553.9					$	556.5
Liabilities
Current
Operating			Trade accounts payable and accrued liabilities						$	18.4					$	18.1
Finance			Current maturities of long-term debt						10.9						11.0
Noncurrent
Operating			Non current operating lease liabilities						411.5						408.9
Finance			Long-term debt, including capitalized lease obligations						128.0						130.6
Total lease liabilities									$	568.8					$	568.6

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Lease Cost:

															Three Months Ended March 31,
(Millions of dollars)			Classification																		2022						2021
Operating lease cost			Store and other operating expenses																		$	12.0					$	8.9
Finance lease cost
Amortization of leased assets			Depreciation & amortization expense																		4.0						2.6
Interest on lease liabilities			Interest expense																		2.3						1.4
Net lease costs																					$	18.3					$	12.9

Cash flow information:

									Three Months Ended March 31,
(Millions of dollars)									2022						2021
Cash paid for amounts included in the measurement of liabilities
Operating cash flows from operating leases									$	11.0					$	8.2
Operating cash flows from finance leases									$	2.3					$	1.4
Financing cash flows from finance leases									$	2.8					$	1.8

Maturity of Lease Liabilities at March 31, 2022:

(Millions of dollars)						Operating leases						Finance leases
2022						$	33.9					$	14.9
2023						44.8						18.5
2024						44.4						16.9
2025						43.4						15.9
2026						42.7						15.3
After 2026						507.8						137.1
Total lease payments						717.0						218.6
less: interest						287.1						79.7
Present value of lease liabilities						$	429.9					$	138.9

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Our 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 group. As the primary purpose of the product supply and wholesale group is to support our retail operations and provide fuel for their daily operation, the bulk and wholesale fuel sales are secondary to the group's support functions to our retail operations. As such, they are all treated as one segment for reporting purposes as they sell the same products and have similar economic characteristics. This Marketing segment contains essentially all of the revenue generating activities of the Company. Results not included in the reportable segment include Corporate and Other Assets. The reportable segment was determined based on information reviewed by the Chief Operating Decision Maker.

 

												Three Months Ended
												March 31, 2022												March 31, 2021
						Total Assets at March 31, 2022						External Revenues						Income (Loss)						External Revenues						Income (Loss)
(Millions of dollars)
Marketing						$	3,721.9					$	5,118.3					$	169.1					$	3,537.1					$	80.4
Corporate and other assets						484.3						0.1						(16.7)						—						(25.1)
Total						$	4,206.2					$	5,118.4					$	152.4					$	3,537.1					$	55.3

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