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MarketScreener Homepage  >  Equities  >  Nyse  >  Murphy USA Inc.    MUSA

MURPHY USA INC.

(MUSA)
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MURPHY : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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10/31/2019 | 03:42pm EST
Management's Discussion and Analysis of Financial Condition and Results of
Operations ("Management's Discussion and Analysis" or "MD&A") is the Company's
analysis of its financial performance and of significant trends that may affect
future performance. It should be read in conjunction with the consolidated
financial statements and notes included in this Quarterly Report on Form 10-Q.
It contains forward-looking statements including, without limitation, statements
relating to the Company's plans, strategies, objectives, expectations and
intentions. The words "anticipate," "estimate," "believe," "budget," "continue,"
"could," "intend," "may," "plan," "potential," "predict," "seek," "should,"
"will," "would," "expect," "objective," "projection," "forecast," "goal,"
"guidance," "outlook," "effort," "target" and similar expressions identify
forward-looking statements. The Company does not undertake to update, revise or
correct any of the forward-looking information unless required to do so under
the federal securities laws. Readers are cautioned that such forward-looking
statements should be read in conjunction with the Company's disclosures under
"Forward-Looking Statements" and "Risk Factors" included elsewhere in this
Quarterly Report on Form 10-Q.

For purposes of this Management's Discussion and Analysis, references to "Murphy USA", the "Company", "we", "us" and "our" refer to Murphy USA Inc. and its subsidiaries on a consolidated basis.

Management's Discussion and Analysis is organized as follows:

• Executive Overview-This section provides an overview of our business and

       the results of operations and financial condition for the periods
       presented. It includes information on the basis of presentation with
       respect to the amounts presented in the Management's Discussion and
       Analysis and a discussion of the trends affecting our business.


• Results of Operations-This section provides an analysis of our results of

operations, including the results of our operating segment for the three

       and nine months ended September 30, 2019 and 2018.


• Capital Resources and Liquidity-This section provides a discussion of our

financial condition and cash flows as of and for the three and nine months

       ended September 30, 2019 and 2018. It also includes a discussion of our
       capital structure and available sources of liquidity.



•      Critical Accounting Policies-This section describes the accounting

policies and estimates that we consider most important for our business

and that require significant judgment.

Executive Overview


The following MD&A is intended to help the reader understand our results of
operations and financial condition. This section is provided to supplement, and
should be read in conjunction with, our consolidated financial statements and
the accompanying notes to these financial statements contained elsewhere in this
Quarterly Report on Form 10-Q, this MD&A section and the consolidated financial
statements in our Annual Report on Form 10-K. Our Form 10-K contains a
discussion of matters not included within this document, such as disclosures
regarding critical accounting policies and estimates, and contractual
obligations.

Our Business


We market refined products through a network of retail gasoline stations and to
unbranded wholesale customers. Our owned retail stations are almost all located
in close proximity to Walmart stores and use the brand name Murphy USA®. We also
market gasoline and other products at standalone stations under the Murphy
Express brand. At September 30, 2019, we had a total of 1,479 Company stations
in 26 states, principally in the Southeast, Southwest and Midwest United States.


Basis of Presentation

Murphy USA was incorporated in March 2013, and until the separation from Murphy
Oil Corporation was completed on August 30, 2013, it had not commenced
operations and had no material assets, liabilities or commitments.  The
financial information presented in this Management's Discussion and Analysis is
derived from the consolidated financial statements of Murphy USA Inc. and its
subsidiaries for all periods presented.

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Trends Affecting Our Business


Our operations are significantly impacted by the gross margins we receive on our
fuel sales. These gross margins are commodity-based, change daily and are
volatile. While we expect our total fuel sales volumes to grow over time and the
gross margins we realize on those sales to remain strong, these gross margins
can change rapidly due to many factors.  These factors include, but are not
limited to, the price of refined products, interruptions in supply caused by
severe weather, severe refinery mechanical failures for an extended period of
time, and competition in the local markets in which we operate.

The cost of our main sales products, gasoline and diesel, is greatly impacted by
the cost of crude oil in the United States.  Generally, rising prices for crude
oil increase the Company's cost for wholesale fuel products purchased.  When
wholesale fuel costs rise, the Company is not always able to immediately pass
these price increases on to its retail customers at the pump, which in turn
reduces the Company's sales margin.  Also, rising prices tend to cause our
customers to reduce discretionary fuel consumption, which generally reduces our
fuel sales volumes.  Crude oil prices in 2019 have fluctuated widely during the
first nine months of 2019 and the price per barrel has ranged from a low in
January of approximately $47 to a high in April of approximately $66, and ended
September at approximately $54. Total fuel contribution (retail fuel margin plus
product supply and wholesale ("PS&W") results including Renewable Identification
Numbers ("RINs") for the third quarter of 2019 was 20.1 cents per gallon, a
24.1% increase when compared to the 2018 third quarter total fuel contribution
of 16.2 cents per gallon.

In addition, our revenues are impacted by our ability to leverage our diverse
supply infrastructure in pursuit of obtaining the lowest cost fuel supply
available; for example, activities such as blending bulk fuel with ethanol and
bio-diesel to capture and subsequently sell RINs. Under the Energy Policy Act of
2005, the Environmental Protection Agency ("EPA") is authorized to set annual
quotas establishing the percentage of motor fuels consumed in the United States
that must be attributable to renewable fuels. Obligated parties are required to
demonstrate that they have met any applicable quotas by submitting a certain
amount of RINs to the EPA. RINs in excess of the set quota can be sold in a
market for RINs at then-prevailing prices. The market price for RINs fluctuates
based on a variety of factors, including but not limited to governmental and
regulatory action. There are other market related factors that can impact the
net benefit we receive from RINs on a company-wide basis either favorably or
unfavorably. Revenue from the sales of RINs is included in "Other operating
revenues" in the Consolidated Statements of Income. The Renewable Fuel Standard
("RFS") program continues to be unpredictable and ethanol RIN prices have ranged
from $0.14 to $0.25 during Q3 2019, which compares to $0.11 to $0.27 in Q3 2018.
The average RIN price received in Q3 of both 2019 and 2018 was $0.20.

As of September 30, 2019, we have $800 million of Senior Notes and $200 million
of a term loan outstanding. We believe that we will generate sufficient cash
from operations to fund our ongoing operating requirements. We expect to use the
credit facilities to provide us with available financing intended to meet any
ongoing cash needs in excess of internally generated cash flows. To the extent
necessary, we will borrow under these facilities to fund our ongoing operating
requirements. At September 30, 2019, we have additional available capacity under
the committed $325 million credit facilities (subject to the borrowing base),
together with capacity under a $150 million incremental uncommitted facility.
There can be no assurances, however, that we will generate sufficient cash from
operations or be able to draw on the credit facilities, obtain commitments for
our incremental facility and/or obtain and draw upon other credit facilities.
For additional information see Significant Sources of Capital in the Capital
Resources and Liquidity section.

The Company currently anticipates total capital expenditures (including land for
future developments) for the full year 2019 to range from approximately $225
million to $275 million depending on how many new sites are completed.  We
intend to fund the remainder of our capital program in 2019 primarily using
operating cash flow but will supplement funding where necessary using borrowings
available under credit facilities.

We believe that our business will continue to grow in the future as we expect to
build additional locations chosen by our real estate development team that have
the characteristics we look for in a strong site. The pace of this growth is
continually monitored by our management, and these plans can be altered based on
operating cash flows generated and the availability of credit facilities.

We currently estimate our ongoing effective tax rate to be between 21% and 25% for the remainder of the year.

                                       34

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Seasonality


Our business has inherent seasonality due to the concentration of our retail
sites in certain geographic areas, as well as customer activity behaviors during
different seasons.  In general, sales volumes and operating incomes are
typically highest in the second and third quarters during the summer-activity
months and lowest during the winter months. As a result, operating results for
the three and nine months ended September 30, 2019 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2019.

Business Segment

The Company has one operating segment which is Marketing. This segment includes
our retail marketing sites and product supply and wholesale assets.  For
additional operating segment information, see Note 19 "Business Segments" in the
audited combined financial statements for the year ended December 31, 2018
included with our Annual Report on Form 10-K and Note 14 "Business Segment" in
the accompanying unaudited consolidated financial statements for the three and
nine months ended September 30, 2019.

Results of Operations

Consolidated Results


For the three month period ended September 30, 2019, the Company reported net
income of $69.2 million, or $2.18 per diluted share, on revenue of $3.7
billion. Net income was $45.0 million for the same period in 2018, or $1.38 per
diluted share, on $3.8 billion in revenue.  The increase in net income is
primarily due to higher all-in fuel margins combined with increased merchandise
margins, partially offset by higher station operating expenses, loss on early
debt extinguishment, and increased income tax expense.

For the nine month period ended September 30, 2019, the Company reported net
income of $107.2 million, or $3.33 per diluted share, on revenue of $10.6
billion. Net income was $136.1 million for the same period in 2018, or $4.11 per
diluted share, on $10.9 billion in revenue.  The decrease in net income for the
nine month period is primarily due to the receipt in 2018 of approximately $37.8
million (after tax) from the settlement of damages incurred in connection with
the 2010 Deepwater Horizon oil spill, combined with higher station operating
expenses, increased depreciation expense, and the loss on early debt
extinguishment, which was partially offset by improved total fuel contribution
and merchandise margins.

Three Months Ended September 30, 2019 versus Three Months Ended September 30, 2018


Quarterly revenues for 2019 decreased $130.4 million, or 3.4%, compared to the
same quarter in 2018. The lower revenues were related to lower average retail
and wholesale fuel prices and lower PS&W revenues including RINs, partially
offset by increased merchandise sales revenues, higher retail fuel sales
volumes, and increased store count in 2019.

Total cost of sales decreased $191.0 million, or 5.4%, compared to 2018. In the
current-year quarter, the lower costs were primarily due to lower fuel purchase
costs which were driven by lower wholesale prices, partially offset by higher
fuel volumes purchased and higher merchandise costs.

Station and other operating expenses increased $3.7 million, or 2.6%, from 2018. Increased store count along with higher employee related benefits contributed to the increase in the current quarter.


Selling, general and administrative ("SG&A") expenses for 2019 increased $3.4
million, or 10.4%, from 2018. The increase in SG&A costs is primarily due to
higher professional fees and incentive award expense.

Depreciation and amortization expense increased $3.4 million, or 9.9%, due primarily to an increase in store counts from the third quarter of 2018.


The effective income tax rate was approximately 24.2% for the third quarter of
2019 versus 21.1% for the same period of 2018. The effective income tax rate in
the prior year was lower due to the excess tax benefits related to share-based
payments in the third quarter of 2018.


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Nine Months Ended September 30, 2019 versus Nine Months Ended September 30, 2018


Year-to-date revenues for 2019 decreased $286.8 million, or 2.6%, compared to
the same period in 2018. The lower revenues were related to lower average retail
and wholesale fuel prices and lower PS&W revenues including RINs, partially
offset by increased merchandise sales revenues, higher retail fuel sales
volumes, and increased store count in 2019.

Total cost of sales decreased $357.4 million, or 3.5%, compared to 2018. In the
current year, the lower costs were primarily due to lower fuel purchase costs
which were driven by lower wholesale prices, partially offset by higher fuel
volumes and increased merchandise cost of goods sold.

Station and other operating expenses increased $19.9 million, or 5.0%, from
2018. Increased store count along with higher employee related benefits, planned
and unplanned maintenance activity, and other store-level costs contributed to
the increase in the current year.

SG&A expenses for 2019 increased year-over-year by 3.3%, or $3.4 million, from 2018, due primarily to professional fees.

Net settlement proceeds for the first nine months of 2019 were $50.3 million (before tax) lower than in the same period of 2018.

Depreciation and amortization expense increased $14.8 million, or 14.9%, due primarily to an increase in store count from the same period last year.


The effective income tax rate was approximately 23.7% for 2019 versus 21.5% for
the same period of 2018. The lower effective income tax rate in 2018 was
primarily due to the higher amount of excess tax benefits related to share-based
payments in 2018 and the effects of the settlement of state uncertain tax
positions in Q1 2018.

Segment Results

A summary of the Company's earnings by business segment follows:

                                Three Months Ended         Nine Months Ended
                                  September 30,              September 30,
(Millions of dollars)            2019          2018         2019         2018
Marketing                    $    94.0$ 54.6$    154.7$ 126.1

Corporate and other assets (24.8 ) (9.6 ) (47.5 ) 10.0 Net Income

                   $    69.2$ 45.0$    107.2$ 136.1

Three Months Ended September 30, 2019 versus Three Months Ended September 30, 2018

Net income for the three months ended September 30, 2019 increased compared to the same period in 2018 primarily due to:

• Higher retail fuel volumes and margins

• Higher merchandise contribution

The items below partially offset the increase in earnings in the current period:

• Lower PS&W margins including RINS

• Higher station and other operating expenses

• Increased depreciation expense due to higher store count

• Loss on early debt extinguishment in Q3 2019






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Nine Months Ended September 30, 2019 versus Nine Months Ended September 30, 2018

Net income for the nine months ended September 30, 2019 decreased compared to the same period in 2018 primarily due to:

• Results for 2018 included net settlement proceeds of $37.7 million (after

       tax) from the 2010 Deepwater Horizon oil spill recorded in Corporate and
       other assets compared to none in the current year

• Lower PS&W margin including RINs

• Higher station and other operating expenses

• Increased depreciation expense due to higher store count

• Loss on early debt extinguishment

The items below partially offset the decrease in earnings in the current period:

• Higher retail fuel volumes and margins

• Higher merchandise contribution




(Millions of dollars, except revenue
per store month (in thousands) and         Three Months Ended             Nine Months Ended
store counts)                                 September 30,                 September 30,
Marketing Segment                          2019           2018           2019           2018

Operating Revenues
Petroleum product sales                $  2,965.5$  3,151.5$  8,595.0$  8,982.8
Merchandise sales                           681.1          623.7        1,946.1        1,807.5
Other operating revenues                     11.0           12.8           33.2           70.4
Total operating revenues                  3,657.6        3,788.0       10,574.3       10,860.7
Operating expenses
Petroleum products cost of goods sold     2,749.6        2,991.3        8,104.8        8,584.9
Merchandise cost of goods sold              569.9          519.2        1,631.9        1,509.2
Station and other operating expenses        143.4          139.7          421.8          401.9
Depreciation and amortization                34.2           31.5          104.0           92.4
Selling, general and administrative          36.0           32.6          105.7          102.3
Accretion of asset retirement
obligations                                   0.6            0.5            1.6            1.5
Total operating expenses                  3,533.7        3,714.8       10,369.8       10,692.2

Gain (loss) on sale of assets                 0.2           (0.5 )          0.1           (0.7 )
Income (loss) from operations               124.1           72.7          204.6          167.8

Other income (expense)
Interest expense                                -              -           (0.1 )            -
Other nonoperating income (expense)             -              -              -            0.1
Total other income (expense)                    -              -           

(0.1 ) 0.1


Income (loss) before income taxes           124.1           72.7          204.5          167.9
Income tax expense (benefit)                 30.1           18.1           49.8           41.8
Income (loss) from operations          $     94.0$     54.6$    154.7$    126.1



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(Millions of dollars, except revenue
per store month (in thousands) and            Three Months Ended                  Nine Months Ended
store counts)                                    September 30,                      September 30,
Marketing Segment                             2019              2018             2019             2018

Total tobacco sales revenue same store
sales1,2                               $      112.3$    104.7$     106.0$    100.7
Total non-tobacco sales revenue same
store sales1,2                                 42.0               40.0            41.3              39.3
Total merchandise sales revenue same
store sales1,2                         $      154.3$    144.7$     147.3$    140.0
12018 amounts not revised for 2018
raze-and-rebuild activity
2SSS metric does not reflect loyalty program activity. See Note 2 "Revenues" in the consolidated financial
statements of this Form 10-Q


Store count at end of period 1,479 1,461 1,479 1,461 Total store months during the period 4,398 4,327 13,185 12,974

Average Per Store Month (APSM) metric includes all stores open through the date of the calculation.


Same store sales (SSS) metric includes aggregated individual store results for
all stores open throughout both periods presented. For all periods presented,
the store must have been open for the entire calendar year to be included in the
comparison. Remodeled stores that remained open or were closed for just a very
brief time (less than a month) during the period being compared remain in the
same store sales calculation. If a store is replaced either at the same location
(raze-and-rebuild) or relocated to a new location, it will be excluded from the
calculation during the period it is out of service. Newly constructed sites do
not enter the calculation until they are open for each full calendar year for
the periods being compared (open by January 1, 2018 for the sites being compared
in the 2019 versus 2018 comparison). When prior period same store sales volumes
or sales are presented, they have not been revised for current year activity for
raze-and-rebuilds and asset dispositions.

Fuel
                                               Three Months Ended                  Nine Months Ended
                                                  September 30,                      September 30,
        Key Operating Metrics                 2019              2018              2019             2018
Total retail fuel contribution ($
Millions)                               $     206.4$     151.4$     446.3$     375.5
Total PS&W contribution ($ Millions)           10.7                 9.7            46.6               24.7
RINs and other (included in Other
operating revenues on Consolidated
Income Statement) ($ Millions)                  8.5                11.6            28.6               67.3
Total fuel contribution ($ Millions)    $     225.6$     172.7$     521.5$     467.5
Retail fuel volume - chain (Million
gal)                                        1,120.6             1,064.2         3,302.6            3,143.4
Retail fuel volume - per site (K gal
APSM)                                         254.8               245.9           250.5              242.3
Retail fuel volume - per site (K gal
SSS)*                                         249.5               243.7           245.9              241.4
Total fuel contribution (including
retail, PS&W and RINs) (cpg)                   20.1                16.2            15.8               14.9
Retail fuel margin (cpg)                       18.4                14.2            13.5               11.9
PS&W including RINs contribution
(cpg)                                           1.7                 2.0             2.3                3.0
*2018 amounts not revised for 2019
raze-and-rebuild activity









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The reconciliation of the components of total fuel contribution to the Consolidated Income Statements is as follows:

                                            Three Months Ended             Nine Months Ended
                                               September 30,                 September 30,
(Millions of dollars)                       2019           2018           2019           2018
Petroleum product sales                 $  2,965.5$  3,151.5$  8,595.0$  8,982.8
Less Petroleum product cost of goods
sold                                      (2,749.6 )     (2,991.3 )     (8,104.8 )     (8,584.9 )
Plus RINs and other (included in
Other Operating Revenues line)                 9.7           12.5           31.3           69.6
Total fuel contribution                 $    225.6$    172.7$    521.5$    467.5




Merchandise

                                                 Three Months Ended                   Nine Months Ended
                                                    September 30,                       September 30,
        Key Operating Metrics                  2019                2018              2019             2018
Total merchandise contribution ($
Millions)                                $       111.2$     104.5$       314.2$    298.3
Total merchandise sales ($ Millions)     $       681.1$     623.7$     1,946.1$  1,807.5
Total merchandise sales ($K SSS)1,2      $       154.3$     144.7$       147.3$    140.0
Merchandise unit margin (%)                       16.3 %             16.8 %              16.1 %         16.5 %

Tobacco contribution ($K SSS)1,2 $ 15.5$ 14.2

     $        14.4$     13.6
Non-tobacco contribution ($K SSS)1,2     $        10.2$      10.2       $         9.8     $      9.6
Total merchandise contribution ($K
SSS)1,2                                  $        25.7$      24.4$        24.2$     23.2
12018 amounts not revised for 2019
raze-and-rebuild activity
2SSS metric does not reflect loyalty program activity. See Note 2 "Revenues" in the consolidated financial
statements of this Form 10-Q




Three Months Ended September 30, 2019 versus Three Months Ended September 30, 2018


Net income in the Marketing segment for 2019 increased $39.4 million compared to
the 2018 period. The primary drivers were the 24.1% increase on a cpg basis in
total fuel contribution to 20.1 cpg in 2019 and higher total merchandise
contribution which increased 6.4% to $111.2 million, which were partially offset
by a higher station operating expenses.

Total revenues for the Marketing segment were approximately $3.7 billion in 2019
compared to $3.8 billion in 2018. The primary cause of the lower revenues was a
$0.23 per gallon decrease in the average retail fuel price in the 2019 third
quarter and lower RIN revenues, which were offset by a 9.2% increase in
merchandise sales and higher fuel volumes.  Revenues included
excise taxes collected and remitted to government authorities of $498.9
million in 2019 and $464.1 million in 2018.

Total fuel sales volumes on a same store sales ("SSS") basis increased 2.7% to
249.5 thousand gallons per store in the 2019 period.  Retail fuel margin dollars
increased 36.3% in the 2019 quarter on higher volumes and margin rate of
18.4 cpg for the third quarter of 2019 which compared to 14.2 cpg in the same
quarter of 2018.

Total PS&W margin dollars, excluding RINs, were $10.7 million in the 2019 period
compared to $9.7 million in 2018. The increase in the current period was due to
improvements and optimization activities across our supply and distribution
network.

The 2019 quarter includes the sale of RINs of $8.5 million compared to $11.6 million in 2018, which consisted of sales of 42 million RINs at an average selling price of $0.20 per RIN while the prior-year quarter had sales of 57 million RINs at an average price of $0.20 per RIN.

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Total merchandise sales increased 9.2% to $681.1 million in 2019's third quarter from $623.7 million in 2018 and was primarily due to an increase in tobacco products sales of 8.7% and in non-tobacco sales of 3.3%, on an SSS basis. Quarterly total merchandise contribution in 2019 was 6.4% higher than 2018.

The

increase in gross margin dollars in the current period was due primarily to higher sales across the chain and strong new store performance. Increased contribution from lower-margin tobacco categories and enhanced promotional activities lowered the average unit margins to 16.3% in the current-year quarter. Total merchandise contribution dollars per store grew 6.0% to $25.7 thousand on a SSS basis from growth in the tobacco category.


Station and other operating expenses increased $3.7 million in the
current period compared to 2018 levels. On an APSM basis, expenses applicable to
retail excluding payment fees increased 1.7%, primarily due to higher employee
related costs.

Depreciation expense increased $2.7 million in the 2019 period, an increase of 8.6% over the prior period. This increase was primarily caused by more stores operating in the 2019 period compared to the prior-year period.

Nine Months Ended September 30, 2019 versus Nine Months Ended September 30, 2018


Net income in the Marketing segment for 2019 increased $28.6 million compared to
the 2018 period. The primary drivers were the 6.0% increase in total fuel
contribution to 15.8 cpg in 2019 from 14.9 cpg in 2018, an increase of 5.3% in
merchandise gross margin to $314.2 million, which were partially offset by
higher station operating expenses and depreciation expense.

Total revenues for the Marketing segment were approximately $10.6 billion for
2019 compared to $10.9 billion for 2018. The primary cause of the decrease in
revenues was a $0.18 per gallon decrease in the average retail fuel price in the
2019 period and lower RIN revenues. This decrease was partially offset by a 7.7%
increase in merchandise sales and increased fuel volumes. Revenues included
excise taxes collected and remitted to government authorities of $1.5 billion in
2019 and $1.4 billion in 2018.

Retail fuel margin dollars increased 18.9% in the 2019 period on higher volumes, and the margin rate was 13.5 cpg in 2019, a 13.4% increase from the prior year. Total fuel sales volumes increased 5.1% in the 2019 period.


Total PS&W margin dollars, excluding RINs, were $46.6 million in the 2019 period
compared to $24.7 million in 2018. The improvement in the current period was
primarily due to our ongoing optimization activities within our supply and
distribution network that enabled us to reduce the total laid-in costs at our
retail sites.

The 2019 period includes the sale of RINs of $28.6 million compared to $67.3
million in 2018, which consisted of sales of 157 million RINs at an average
selling price of $0.18 per RIN in the current year compared to 2018 sales of
177 million RINs at an average price of $0.38 per RIN.

Total merchandise sales increased 7.7% to $1.9 billion in the first nine months
of 2019 from $1.8 billion in 2018 and was primarily due to an increase in
tobacco products sales of 7.1% and non-tobacco sales of 4.0% on an SSS basis.
Total merchandise contribution in 2019 was 5.3% higher than 2018.  The increase
in gross margin dollars in the current period was due primarily to higher sales
across the chain and strong new store performance. While unit margins were
slightly lower than the prior year at 16.1%, total merchandise contribution
dollars grew 5.3% on a SSS basis through successful execution of store level
initiatives and enhanced promotional activities, which helped to improve both
tobacco and non-tobacco categories.

Station and other operating expenses increased $19.9 million in the
current period compared to 2018 levels. On an APSM basis, expenses applicable to
retail excluding payment fees increased 4.3%, primarily due to higher employee
related costs, planned and unplanned maintenance activity and other store-level
costs.

Depreciation expense increased $11.6 million in the 2019 period, an increase of 12.6% over the prior period. This increase was primarily caused by more stores operating in the 2019 period compared to the prior-year period.





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Same store sales information compared to APSM metrics

                                                   Variance from prior year                Variance from prior year
                                                      Three months ended                      Nine months ended
                                                      September 30, 2019                      September 30, 2019
                                                 SSS*                  APSM                SSS*                  APSM
Fuel gallons per month                            2.7  %                   3.6 %           2.8 %                  3.4 %

Merchandise sales                                 7.2  %                   7.4 %           6.2 %                  5.9 %
Tobacco sales                                     8.7  %                   8.5 %           7.1 %                  6.4 %
Non-tobacco sales                                 3.3  %                   5.4 %           4.0 %                  5.7 %

Merchandise margin                                6.0  %                   4.7 %           5.3 %                  3.6 %
Tobacco margin                                   10.8  %                   9.5 %           8.2 %                  6.7 %
Non-tobacco margin                               (0.5 )%                   1.4 %           1.2 %                  3.0 %

*SSS metric does not reflect loyalty program activity. See Note 2 "Revenues" in the consolidated financial statements of this Form 10-Q





Corporate and Other Assets

Three Months Ended September 30, 2019 versus Three Months Ended September 30, 2018


After-tax results for Corporate and other assets for the third quarter were a
loss of $24.8 million compared to a loss of $9.6 million in the third quarter of
2018. The difference is primarily due to the loss on early debt extinguishment,
additional interest expense due to the early extinguishment of the 2023 Notes
and higher depreciation expense during the current-year quarter.

Nine Months Ended September 30, 2019 versus Nine Months Ended September 30, 2018


After-tax results for Corporate and other assets for the first nine months were
a loss of $47.5 million compared to a profit of $10.0 million in the same period
of 2018. The difference is primarily due to the prior-year nine months including
proceeds of $37.8 million (after tax) from the settlement of damages incurred in
connection with the 2010 Deepwater Horizon oil spill combined with the loss on
early debt extinguishment of $14.8 million recorded in the third quarter of
2019.

Non-GAAP Measures


The following table sets forth the Company's Adjusted EBITDA for the three and
nine months ended September 30, 2019 and 2018.  EBITDA means net income (loss)
plus net interest expense, plus income tax expense, depreciation and
amortization, and Adjusted EBITDA adds back (i) other non-cash items (e.g.,
impairment of properties and accretion of asset retirement obligations) and (ii)
other items that management does not consider to be meaningful in assessing our
operating performance (e.g., (income) from discontinued operations, net
settlement proceeds, (gain) loss on sale of assets, loss on early debt
extinguishment and other non-operating (income) expense).  EBITDA and Adjusted
EBITDA are not measures that are prepared in accordance with U.S. generally
accepted accounting principles (GAAP).

We use Adjusted EBITDA in our operational and financial decision-making,
believing that the measure is useful to eliminate certain items in order to
focus on what we deem to be a more reliable indicator of ongoing operating
performance and our ability to generate cash flow from operations. Adjusted
EBITDA is also used by many of our investors, research analysts, investment
bankers, and lenders to assess our operating performance. We believe that the
presentation of Adjusted EBITDA provides useful information to investors because
it allows understanding of a key measure that we evaluate internally when making
operating and strategic decisions, preparing our annual plan, and evaluating our
overall performance. However, non-GAAP measures are not a substitute for GAAP
disclosures, and EBITDA and Adjusted EBITDA may be prepared differently by us
than by other companies using similarly titled non-GAAP measures.


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The reconciliation of net income (loss) to EBITDA and Adjusted EBITDA is as
follows:


                                                Three Months Ended               Nine Months Ended
                                                  September 30,                    September 30,
(Millions of dollars)                          2019            2018             2019             2018
Net income (loss)                          $      69.2$     45.0$     107.2$    136.1

Income tax expense (benefit)                      22.1           12.0            33.3              37.3
Interest expense, net of interest income          14.5           13.0            39.7              38.8
Depreciation and amortization                     37.6           34.2           113.8              99.0
EBITDA                                           143.4          104.2           294.0             311.2


Net settlement proceeds                           -           -       (0.1 )     (50.4 )
Accretion of asset retirement obligations       0.6         0.5        1.6  

1.5

(Gain) loss on sale of assets                  (0.2 )       0.5       (0.1 )       0.7
Loss on early debt extinguishment              14.8           -       14.8  

-

Other nonoperating (income) expense             0.1           -          -        (0.1 )
Adjusted EBITDA                             $ 158.7$ 105.2$ 310.2$ 262.9

Capital Resources and Liquidity

Significant Sources of Capital


We have a committed $325 million asset based loan facility (the "ABL facility"),
which is subject to the remaining borrowing capacity of $258 million at
September 30, 2019 (which can be utilized for working capital and other general
corporate purposes, including supporting our operating model as described
herein) and a $250 million term loan facility, as well as a $150 million
incremental uncommitted facility. As of September 30, 2019, we had $200 million
outstanding under our term loan and no amounts outstanding under our ABL.  See
"Debt - Credit Facilities" below for the calculation of our borrowing base.
We believe our short-term and long-term liquidity is adequate to fund not only
our operations, but also our anticipated near-term and long-term funding
requirements, including capital spending programs, execution of announced share
repurchase programs, potential dividend payments, repayment of debt maturities
and other amounts that may ultimately be paid in connection with contingencies.

Our term loan matures in August 2023 and our $325 million asset-backed lending
facility, which has not been drawn against to-date, matures in August 2024. The
remainder of the term facility, $50 million, may be incurred to fund working
capital and other general corporate purposes and may be drawn in no more than
two borrowings occurring on or prior to December 31, 2019.

Operating Activities


Net cash provided by operating activities was $251.6 million for the nine
months ended September 30, 2019 and was $241.4 million for the
comparable period in 2018. Net income decreased $28.9 million in 2019
compared to the corresponding period in 2018 and was offset in part by the
adjustment for loss on early debt extinguishment of $14.8 million, additional
depreciation and amortization expense of $14.8 million, and changes in working
capital $12.1 million.

Investing Activities

For the nine months ended September 30, 2019, cash required by
investing activities was $152.0 million compared to $167.7 million in 2018. The
lower investing cash use in the current period was primarily due to timing of
capital expenditures in the current year. Other investing activities provided
$1.7 million in cash during 2019 compared to cash required of $4.7 million in
2018.


                                       42
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Financing Activities


Financing activities in the nine months ended September 30, 2019 required cash
of $36.4 million compared to $168.3 million of cash required in the nine months
ended September 30, 2018. The current period included $139.1 million for the
repurchase of common shares, which was a decrease of $5.3 million from the
prior-year period. Amounts related to share-based compensation required $3.6
million less in cash during 2019 than in 2018. Net borrowings of debt provided
$120.6 million compared to 2018 which had net repayments of debt requiring $15.9
million. In 2019, early debt extinguishment costs required the use of $10.4
million and debt issuance costs were $3.1 million compared to no such costs in
2018.

Share Repurchase Program

On July 24, 2019, the Board of Directors approved an up to $400 million share
repurchase program to be executed over the two-year period ending July 2021.
Purchases may be effected in the open market, through privately negotiated
transactions, through one or more accelerated stock repurchase programs, through
a combination of the foregoing or in any other manner in the discretion of
management. Purchases will be made subject to available cash, market conditions
and compliance with our financing arrangements at any time during the period of
authorization. We may use cash from operations as well as draws under our credit
facilities to effect purchases.

Prior to the July authorization, the Company had continued to conduct share
repurchases under quarterly allocations in line with our past practice. During
the first nine months of 2019, a total of 1,597,731 shares were repurchased for
$139.1 million, of which 1,093,334 shares for $98.4 million were made under the
new plan.


Debt

Our long-term debt at September 30, 2019 and December 31, 2018 are as set forth
below:

                                                       September 30,       December 31,
(Millions of dollars)                                      2019                2018
6.00% senior notes due 2023 (net of unamortized
discount of $4.1 at December 2018)                   $             -     $  

495.9

5.625% senior notes due 2027 (net of unamortized discount of $2.8 at September 30, 2019 and $3.1 at December 2018)

                                                 297.1        

296.9

4.75% senior notes due 2029 (net of unamortized
discount of $6.2 at September 30, 2019)                        493.8                   -
Term loan due 2023 (effective interest rate of
4.57% at September 30, 2019)                                   200.0                   -
Term loan due 2020 (effective interest rate of
5.0% at December 31,2018)                                          -        

72.0

Capitalized lease obligations, vehicles, due
through 2022                                                     2.5        

2.3

Less unamortized debt issuance costs                            (5.7 )              (3.8 )
Total notes payable, net                                       987.7               863.3
Less current maturities                                         21.3                21.2
Total long-term debt                                 $         966.4     $         842.1



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")
under its existing shelf registration statement. The 2027 Senior Notes are fully
and unconditionally guaranteed by Murphy USA, and are guaranteed by certain 100%
owned subsidiaries that guarantee our credit facilities. The indenture governing
the 2027 Senior Notes contains restrictive covenants that limit, among other
things, the ability of Murphy USA, Murphy Oil USA, Inc. and the restricted
subsidiaries to incur additional indebtedness or liens, dispose of assets, make
certain restricted payments or investments, enter into transactions with
affiliates or merge with or into other entities.


                                       43

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On September 13, 2019, Murphy Oil USA, Inc., consummated a partial tender offer
on its 6.00% $500 million Senior Notes due 2023 (the "2023 Senior Notes").
Following the completion of the tender offer, Murphy Oil USA, Inc. called the
remaining 2023 Senior Notes and satisfied and discharged the indenture governing
the 2023 Senior Notes. We paid a total of $514.5 million which included a call
premium and all applicable accrued and unpaid interest. The call premium and
unamortized debt discount and issuance costs were reported as Loss on early debt
extinguishment in the consolidated income statements for the period ended
September 30, 2019.

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 2023 Senior Notes. The 2029 Senior Notes are fully and
unconditionally guaranteed by Murphy USA, and are guaranteed by certain 100%
owned subsidiaries that guarantee our credit facilities. The indenture governing
the 2029 Senior Notes contains restrictive covenants that are essentially
identical to the covenants for the 2027 Senior Notes.

The 2027 and 2029 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 2027 and
2029 Senior Notes are structurally subordinated to all of the existing and
future third-party liabilities, including trade payables, of our existing and
future subsidiaries that do not guarantee the notes.

Credit Facilities and Term Loan


In August 2019, we amended and extended our existing credit agreement. The
effective date of the agreement was extended to August, 2024.  The credit
agreement provides for a committed $325 million asset-based loan (ABL) facility
(with availability subject to the borrowing base described below) and a $200
million term loan facility with an additional $50 million available until
December 31, 2019.  It also provides for a $150 million uncommitted incremental
facility. On August 27, 2019, Murphy Oil USA, Inc. borrowed $200 million under
the term loan facility that has a four-year term with a current outstanding
principal of $200 million in connection we prepaid the previous term loan
balance of $57 million. As of September 30, 2019, we have zero outstanding under
our ABL facility.

The borrowing base is, at any time of determination, the amount (net of reserves) equal to the sum of:

•    100% of eligible cash at such time, plus
•    90% of eligible credit card receivables at such time, plus
•    90% of eligible investment grade accounts, plus
•    85% of eligible other accounts, plus
•    80% of eligible midstream refined products inventory at such time, plus
•    75% of eligible retail refined products inventory at such time, plus

the lesser of (i) 70% of the average cost of eligible retail merchandise inventory at such time and (ii) 85% of the net orderly liquidation value of eligible retail merchandise inventory at such time.

The ABL facility includes a $100 million sublimit for the issuance of letters of credit. Letters of credit issued under the ABL facility reduce availability under the ABL facility.

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 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
ABL facility, spreads ranging from 1.50% to 2.00% per annum depending on a total
debt to EBITDA ratio under the ABL facility or (ii) with respect to the term
loan facility, spreads ranging from 2.50% to 2.75% per annum depending on a
total debt to EBITDA ratio and (B) in the case of Alternate Base Rate
borrowings, (i) with respect to the ABL facility, spreads ranging from

                                       44

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0.50% to 1.00% per annum depending on a total debt to EBITDA ratio or (ii) with
respect to the term loan facility, spreads ranging from 1.50% to 1.75% per annum
depending on a total debt to EBITDA ratio.
The interest rate period with respect to the Adjusted LIBO Rate interest rate
option can be set at one, two, three, or six months as selected by us in
accordance with the terms of the credit agreement.

The credit agreement contains certain covenants that limit, among other things,
the ability of us and our 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. In
addition, the credit agreement requires us to maintain a minimum fixed charge
coverage ratio of a minimum of 1.0 to 1.0 when availability for at least three
consecutive business days is less than the greater of (a) 17.5% of the lesser of
the aggregate ABL facility commitments and the borrowing base and (b) $70
million (including as of the most recent fiscal quarter end on the first date
when availability is less than such amount), as well as a maximum secured total
debt to EBITDA ratio of 4.5 to 1.0 at any time when the term loans are
outstanding.  As of September 30, 2019, our fixed charge coverage ratio was 1.1.
Our secured debt to EBITDA ratio as of September 30, 2019 was 0.43 to 1.0.

The credit agreement contains restrictions on certain payments, including
dividends, when availability under the credit agreement is less than or equal to
the greater of $100 million and 25% of the lesser of the revolving commitments
and the borrowing base and our fixed charge coverage ratio is less than 1.0 to
1.0 (unless availability under the credit agreement is greater than $100 million
and 40% of the lesser of the revolving commitments and the borrowing base). As
of September 30, 2019 and December 31, 2018, our ability to make restricted
payments was not limited as our fixed charge coverage ratio was greater than 1.0
to 1.0.

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 thereto.
Capital Spending

Capital spending and investments in our Marketing segment relate primarily to
the acquisition of land and the construction of new Company stations.  Our
Marketing capital is also deployed to improve our existing sites, which
we refer to as sustaining capital. We also use sustaining capital in
this business as needed to ensure reliability and continued performance of our
sites. We also invest in our Corporate and other assets segment.
The following table outlines our capital spending and investments by segment for
the three and nine month periods ended September 30, 2019 and 2018:

                                Three Months Ended            Nine Months Ended
                                  September 30,                 September 30,
(Millions of dollars)             2019           2018          2019           2018
Marketing:
Company stores             $     44.8$ 49.7$    104.4$ 110.4
Terminals                         2.2              0.3           2.7            0.4
Sustaining capital                5.4              9.4          12.2           26.4
Corporate and other assets       16.4              2.5          39.2           15.3
Total                      $     68.8$ 61.9$    158.5$ 152.5



We currently expect capital expenditures for the full year 2019 to range from
approximately $225 million to $275 million, including $140 million for
retail growth, approximately $30 million for maintenance capital, with the
remaining funds earmarked for other corporate investments, including EMV
compliance and other strategic initiatives. See Note 16 "Commitments" in the
audited consolidated financial statements for the year ended December 31, 2018
included in our Annual Report on Form 10-K for more information.

                                       45

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Critical Accounting Policies
There has been no material update to our critical accounting policies since our
Annual Report on Form 10-K for the year ended December 31, 2018. For more
information, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Critical Accounting Policies" in the Form 10-K.



                           FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain statements or may suggest
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995) that involve risk and uncertainties, including, but not
limited to anticipated store openings, fuel margins, merchandise margins, sales
of RINs and trends in our operations. Such statements are based upon the current
beliefs and expectations of the Company's management and are subject to
significant risks and uncertainties. Actual future results may differ materially
from historical results or current expectations depending upon factors
including, but not limited to: our ability to continue to maintain a good
business relationship with Walmart; successful execution of our growth strategy,
including our ability to realize the anticipated benefits from such growth
initiatives, and the timely completion of construction associated with our newly
planned stores which may be impacted by the financial health of third parties;
our ability to effectively manage our inventory, disruptions in our supply chain
and our ability to control costs; the impact of severe weather events, such as
hurricanes, floods and earthquakes; the impact of any systems failures,
cybersecurity and/or security breaches, including any security breach that
results in theft, transfer or unauthorized disclosure of customer, employee or
company information or our compliance with information security and privacy laws
and regulations in the event of such an incident; successful execution of our
information technology strategy; future tobacco or e-cigarette legislation and
any other efforts that make purchasing tobacco products more costly or difficult
could hurt our revenues and impact gross margins; efficient and proper
allocation of our capital resources; compliance with debt covenants;
availability and cost of credit; and changes in interest rates. Our public
filings, including our Annual Report on our Form 10-K for the year ended
December 31, 2018 contains other information on these and other factors that
could affect our financial results and cause actual results to differ materially
from any forward-looking information we may provide. The Company undertakes no
obligation to update or revise any forward-looking statements to reflect
subsequent events, new information or future circumstances.

© Edgar Online, source Glimpses

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