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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)

10/29/2020 | 03:39pm 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, 2020 and 2019.

•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, 2020 and 2019. 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, 2020, we had a total of 1,488 Company stations
in 25 states, principally in the Southeast, Southwest and Midwest United States.
During the second quarter of 2020, we exited Minnesota with the sale of nine
stores to a private company.

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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.

Trends Affecting Our Business


Our operations are significantly impacted by the gross margins we receive on our
fuel sales. These gross margins are commodity-based, change daily and are
volatile. While we generally expect our total fuel sales volumes to grow over
time and the gross margins we realize on those sales to remain strong in a
normalized environment, these gross margins can change rapidly due to many
factors.  These factors include, but are not limited to, the price of refined
products, interruptions in supply caused by severe weather, travel restrictions
and stay-at-home orders imposed during a pandemic such as COVID-19, severe
refinery mechanical failures for an extended period of time, and competition in
the local markets in which we operate. The COVID-19 pandemic continues to impact
gasoline demand as the work-from-home and virtual school environment is still
affecting many areas with no changes expected until early 2021. If the
recoveries experienced to-date stall or reverse as a resurgence in COVID-19
infection rates and related government intervention occur, this could cause
volume declines. Incrementally higher fuel margins related to a volume decline
may help mitigate any adverse financial impact.

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.  After dramatic swings in Q2 2020, crude oil prices closed
at approximately $40 per barrel in June. The price per barrel of oil remained
steady during Q3 2020 with an average price for the quarter of approximately $41
per barrel compared to an average price of around $56 per barrel a year ago.
Lower wholesale prices in the current year have resulted in a higher fuel
contribution on a cents per gallon ("cpg") basis, but this higher contribution
was offset by declines in fuel volume sold. Total fuel contribution (retail fuel
margin plus product supply and wholesale ("PS&W") results including Renewable
Identification Numbers ("RINs")) for Q3 2020 was 22.3 cpg, a 10.9% increase when
compared to the 2019 Q3 total fuel contribution of 20.1 cpg. However, fuel
volumes decreased 11.9% in the current quarter resulting in a decrease in retail
fuel contribution of $18.7 million in Q3 2020 compared to Q3 2019.

Our revenues are impacted by the ability to leverage our diverse supply
infrastructure in pursuit of obtaining the lowest cost fuel supply available;
for example, activities such as blending bulk fuel with ethanol and bio-diesel
to capture and subsequently sell RINs. Under the Energy Policy Act of 2005, the
Environmental Protection Agency ("EPA") is authorized to set annual quotas
establishing the percentage of motor fuels consumed in the United States that
must be attributable to renewable fuels. Obligated parties are required to
demonstrate that they have met any applicable quotas by submitting a certain
amount of RINs to the EPA. RINs in excess of the set quota can be sold in a
market for RINs at then-prevailing prices. The market price for RINs fluctuates
based on a variety of factors, including but not limited to governmental and
regulatory action. There are other market related factors that can impact the
net benefit we receive from RINs on a company-wide basis either favorably or
unfavorably. 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 prices received for ethanol
RINs averaged $0.47 in Q3 2020 compared to $0.20 in Q3 2019.

As of September 30, 2020, we have $800 million of Senior Notes and $225 million
of a term loan outstanding. We believe that we will generate sufficient cash
from operations to fund our ongoing operating requirements. At September 30,
2020, 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. 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. 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.

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The Company currently anticipates total capital expenditures (including land for
future developments) for the full year 2020 to range from approximately $250
million to $275 million depending on how many new sites are completed.  We
intend to fund the remainder of our capital program in 2020 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 that have the characteristics we look for in a strong
site as chosen by our real estate development team. The pace of this growth is
continually monitored by our management, and these plans can be altered based on
operating cash flows generated and the availability of credit facilities.

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

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. Beginning in the latter half of
March 2020, we began to see a disruption to typical seasonal patterns as a
result of stay-at-home restrictions due to the COVID-19 pandemic. This pattern
has continued through the summer, even though stay-at-home restrictions have
been lifted, with fuel volumes continuing to be lower than the historical
average. At present, we cannot forecast how such measures will affect seasonal
patterns for the remainder of fiscal 2020. As a result, operating results for
the three and nine months ended September 30, 2020 may not be necessarily
indicative of the results that may be expected for the year ending December 31,
2020.

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 20 "Business Segments" in the
audited combined financial statements for the year ended December 31, 2019
included with our Annual Report on Form 10-K and Note 14 "Business Segments" in
the accompanying unaudited consolidated financial statements for the three and
nine months ended September 30, 2020.

Results of Operations

Consolidated Results


For the three month period ended September 30, 2020, the Company reported net
income of $66.9 million, or $2.27 per diluted share, on revenue of $2.8
billion. Net income was $69.2 million for the same period in 2019, or $2.18 per
diluted share, on $3.7 billion in revenue.  The decrease in net income is
primarily due to lower all-in fuel contribution partially offset by a higher
merchandise contribution, and lower payment fees. In addition, Q3 2020 included
a $10 million increase in SG&A expense related to a donation to the Company's
charitable foundation while Q3 of 2019 included loss on early debt
extinguishment of $14.8 million. Continuing the trend that began in the latter
half of March 2020, the Company experienced reduced retail fuel volumes due to
COVID-19 related reduced travel which was partially offset by higher fuel
margins for both retail and PS&W including RINs. The Company noted improvements
in sales volumes beginning in Q2 2020 and continued improvements in Q3 2020 as
stay-at-home orders were gradually lifted in our areas of operation.

For the nine month period ended September 30, 2020, the Company reported net
income of $325.1 million, or $10.88 per diluted share, on revenue of $8.4
billion.  Net income was $107.2 million for the same period in 2019, or $3.33
per diluted share, on $10.6 billion in revenue.  The increase in net income is
primarily due to higher retail fuel contribution and a higher merchandise
contribution combined with lower payment fees, and was partially offset by lower
fuel volumes caused by the COVID-19 related restrictions and higher SG&A related
cost.


Three Months Ended September 30, 2020 versus Three Months Ended September 30, 2019


Quarterly revenues for 2020 decreased $0.9 billion, or 22.4%, compared to the
same quarter in 2019. The decrease in revenues was due primarily to lower retail
fuel sales prices combined with a decrease in retail fuel sales
                                       39

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volumes caused by COVID-19 related concerns and related travel reductions which were partially offset by higher merchandise sales and PS&W contribution including RINs.


Total cost of sales decreased $0.8 billion, or 24.7% when compared to 2019. In
the current-year quarter, the lower costs were primarily due to lower wholesale
fuel prices and lower fuel volumes sold, partially offset by higher merchandise
costs.

Station and other operating expenses decreased $0.5 million, or 0.3%, from Q3
2019, due primarily to lower payment fees which were caused by lower sales
revenue, mostly offset by higher employee-related expenses and COVID-related
costs.

SG&A expenses for Q3 2020 increased $17.7 million, or 49.2%, from Q3 2019. The
increase in SG&A costs is primarily due to a $10 million donation to the Murphy
USA Charitable Foundation, investments in new capabilities and timing of certain
project expenses.

Depreciation and amortization expense increased $3.0 million from Q3 2019 on newer large format stores and increased raze-and-rebuild activity.

The effective income tax rate was approximately 24.1% for Q3 2020 versus 24.2% for the same period of 2019.

Nine Months Ended September 30, 2020 versus Nine Months Ended September 30, 2019


Year-to-date revenues for 2020 decreased $2.2 billion, or 20.5%, compared to the
same period in 2019. The decrease in revenues was due to lower retail fuel sales
prices combined with lower sales volumes caused by reduced travel by consumers
due to COVID-19 concerns and were partially offset by higher merchandise and
RINs sales.

Year-to-date cost of sales for 2020 decreased $2.5 billion, or 25.3%, when
compared to 2019. In the current year, the decreased costs were primarily due to
lower wholesale fuel prices and lower fuel sales volumes, partially offset by
higher merchandise costs.

Station and other operating expenses decreased $12.0 million, or 2.8%, in the
first nine months of 2020, compared to the same period in 2019. This decline was
primarily due to lower payment fees, a result of lower sales revenues, partially
offset by higher employee-related expenses.

SG&A expenses for the first nine months of 2020 increased $24.3 million, or
23.0%, compared to the first nine months of 2019. The increase in SG&A costs is
primarily due to a $10 million donation to the Murphy USA Charitable Foundation,
increased employee-related expenses and investments in new capabilities and
timing of certain project expenses.

Depreciation and amortization expense increased $5.7 million on newer large format stores and raze-and-rebuild activity.

The effective income tax rate was approximately 24.1% for the nine months ended September 30, 2020 versus 23.7% for the same period of 2019.

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)                  2020             2019          2020          2019
Marketing                       $     81.7$ 94.0$    362.2$ 154.7
Corporate and other assets           (14.8)            (24.8)          (37.1)       (47.5)

Net Income                      $     66.9$ 69.2$    325.1$ 107.2


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Three Months Ended September 30, 2020 versus Three Months Ended September 30, 2019


Net income for the three months ended September 30, 2020 decreased compared to
the same period in 2019 primarily due to:
•Lower retail fuel volume sold
•Higher SG&A expenses
•Higher depreciation and amortization expense

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


•Higher PS&W contribution including RINs
•Higher merchandise contribution
•Lower station and other operating expenses
•No loss on early debt extinguishment in current quarter


Nine Months Ended September 30, 2020 versus Nine Months Ended September 30, 2019

Net income for the nine months ended September 30, 2020 increased compared to the same period in 2019 primarily due to:


•Significantly higher retail fuel contribution
•Higher merchandise contribution
•Lower station and other operating expenses
•No loss on early debt extinguishment in current period

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


•Lower PS&W revenues including RINs
•Lower retail fuel volume
•Higher SG&A expenses
•Higher depreciation and amortization expense


(Millions of dollars, except revenue per           Three Months Ended                     Nine Months Ended

store month (in thousands) and store counts) September 30,

                 September 30,
Marketing Segment                                2020               2019               2020               2019

Operating Revenues
Petroleum product sales                      $ 2,056.0$ 2,965.5$ 6,125.1$ 8,595.0
Merchandise sales                                756.8              681.1            2,211.4            1,946.1
Other operating revenues                          26.3               11.0               66.9               33.2
Total operating revenues                       2,839.1            3,657.6            8,403.4           10,574.3
Operating expenses
Petroleum products cost of goods sold          1,862.2            2,749.6            5,409.8            8,104.8
Merchandise cost of goods sold                   638.7              569.9            1,867.4            1,631.9
Station and other operating expenses             142.8              143.4              409.7              421.8
Depreciation and amortization                     36.9               34.2              108.6              104.0
Selling, general and administrative               53.7               36.0              130.0              105.7
Accretion of asset retirement obligations          0.6                0.6                1.7                1.6
Total operating expenses                       2,734.9            3,533.7            7,927.2           10,369.8


                                       41
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(Millions of dollars, except revenue per              Three Months Ended                      Nine Months Ended
store month (in thousands) and store counts)            September 30,                           September 30,
Marketing Segment                                   2020                2019               2020               2019
Gain (loss) on sale of assets                       (0.1)                 0.2                 1.3               0.1
Income (loss) from operations                      104.1                124.1               477.5             204.6

Other income (expense)
Interest expense                                       -                    -                (0.1)             (0.1)

Total other income (expense)                           -                    -                (0.1)             (0.1)

Income (loss) before income taxes                  104.1                124.1               477.4             204.5
Income tax expense (benefit)                        22.4                 30.1               115.2              49.8
Income (loss) from operations                 $     81.7$   94.0$    362.2$  154.7

Total tobacco sales revenue same store
sales1,2                                      $    123.5$  112.3$    119.8$  106.0
Total non-tobacco sales revenue same store
sales1,2                                            47.7                 42.0                46.0              41.3
Total merchandise sales revenue same store
sales1,2                                      $    171.2$  154.3$    165.8$  147.3
12019 amounts not revised for 2020
raze-and-rebuild activity
2Includes site-level discounts for MDR redemptions and excludes change in value of unredeemed MDR points



Store count at end of period              1,488     1,479        1,488      

1,479

Total store months during the period 4,407 4,398 13,317

 13,185



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, 2019 for the sites being compared
in the 2020 versus 2019 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.

                                       42

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Fuel
                                                          Three Months Ended                       Nine Months Ended
                                                             September 30,                           September 30,
           Key Operating Metrics                        2020                 2019               2020                2019
Total retail fuel contribution ($ Millions)       $    187.7$   206.4$    739.5$   446.3
Total PS&W contribution ($ Millions)                     6.9                  10.7               (21.5)              46.6
RINs and other (included in Other operating
revenues on Consolidated Income Statement)
($ Millions)                                            25.2                   8.5                63.3               28.6
Total fuel contribution ($ Millions)              $    219.8$   225.6$    781.3$   521.5
Retail fuel volume - chain (Million gal)               987.3               1,120.6             2,888.2            3,302.6
Retail fuel volume - per site (K gal APSM)1            224.0                 254.8               216.9              250.5
Retail fuel volume - per site (K gal SSS)2             220.3                 249.5               213.7              245.9
Total fuel contribution (including retail,
PS&W and RINs) (cpg)                                    22.3                  20.1                27.1               15.8
Retail fuel margin (cpg)                                19.0                  18.4                25.6               13.5
PS&W including RINs contribution (cpg)                   3.3                   1.7                 1.5                2.3
1APSM metric includes all stores open
through the date of calculation
22019 amounts not revised for 2020 raze-and-rebuild activity




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)                                2020               2019               2020               2019
Petroleum product sales                          $ 2,056.0$ 2,965.5$ 6,125.1$ 8,595.0
Less Petroleum product cost of goods sold         (1,862.2)          (2,749.6)          (5,409.8)          (8,104.8)
Plus RINs and other (included in Other
Operating Revenues line)                              26.0                9.7               66.0               31.3
Total fuel contribution                          $   219.8$   225.6$   781.3$   521.5




Merchandise

                                                         Three Months Ended                    Nine Months Ended
                                                           September 30,                         September 30,
           Key Operating Metrics                       2020              2019               2020               2019

Total merchandise contribution ($ Millions) $ 118.1$ 111.2$ 344.0$ 314.2 Total merchandise sales ($ Millions)

               $   756.8$  681.1$ 2,211.4$ 1,946.1
Total merchandise sales ($K SSS)1,2                $   171.2$  154.3$   165.8$   147.3
Merchandise unit margin (%)                             15.6  %           16.3  %            15.6  %            16.1  %
Tobacco contribution ($K SSS)1,2                   $    16.7$   15.5$    16.4$    14.4
Non-tobacco contribution ($K SSS)1,2               $    10.7$   10.2$    10.1$     9.8
Total merchandise contribution ($K SSS)1,2         $    27.4$   25.7$    26.5$    24.2
12019 amounts not revised for 2020
raze-and-rebuild activity
2Includes site-level discounts for MDR redemptions and excludes change in value of unredeemed MDR points




                                       43
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Three Months Ended September 30, 2020 versus Three Months Ended September 30, 2019


Net income in the Marketing segment for Q3 2020 decreased $12.3 million compared
to the Q3 2019 period, due to lower all-in fuel contributions, higher SG&A
costs, and increased depreciation and amortization expense. Total fuel
contribution decreased $5.8 million in Q3 2020 compared to Q3 2019 due mainly to
lower fuel sales, partially offset by increased cpg on fuel sold and higher RINs
revenues. SG&A expense increase was due mainly to a $10 million contribution to
the Company's charitable foundation and higher employee-related costs.

Total revenues for the Marketing segment were approximately $2.8 billion in Q3
2020 compared to $3.7 billion in Q3 2019. The decreased revenues were due to a
20.3% decrease in retail fuel sales prices combined with a 11.9% lower number of
gallons sold, and a slightly lower PS&W contribution, partially offset by a
11.1% increase in merchandise sales and higher RINs revenues.  Revenues included
excise taxes collected and remitted to government authorities of $447.0
million in Q3 2020 and $498.9 million in Q3 2019.

Retail fuel margin dollars decreased 9.0% compared to the prior year quarter on
a lower total sales volume, partially due to a margin rate of 19.0 cpg for Q3
2020 which compared to 18.4 cpg in the same quarter of 2019. Total
fuel sales volumes on a SSS basis decreased 12.7% to 220.3 thousand gallons per
store in the 2020 period due to travel reductions caused by COVID concerns.

Total PS&W margin dollars, excluding RINs, were $6.9 million in the 2020 period
compared to $10.7 million in 2019. The decrease in the current period was due
primarily to lower overall demand and the subsequent impact on refined product
inventory levels and commodity prices.

The 2020 quarter includes the sale of RINs of $25.2 million compared to $8.5
million in Q3 2019, which consisted of sales of 54 million RINs at an average
selling price of $0.47 per RIN while the prior-year quarter had sales of
42 million RINs at an average price of $0.20 per RIN.

Total merchandise sales increased 11.1% to $756.8 million in 2020's Q3 from
$681.1 million in Q3 2019 due to higher sales across the chain across most
categories. Quarterly total merchandise contribution in 2020 was 6.2% higher
than Q3 2019.  Total merchandise contribution dollars grew 6.2% on a SSS basis.
On a SSS basis there was an increase of 10.2% in tobacco products sales and
11.4% in non-tobacco sales, including higher lottery and general merchandise
sales.

Station and other operating expenses decreased $0.6 million in the
current period compared to Q3 2019 levels, primarily due to lower payment fees
due to lower sales revenues. On an APSM basis, expenses applicable to station
OPEX excluding payment fees and rent increased 4.2%, primarily due to higher
employee-related expenses. the current quarter includes $1.4 million of
COVID-related expenses.

Depreciation and amortization expense increased $2.7 million in Q3 2020 due to newer large format stores and raze-and-rebuild activity.

Nine Months Ended September 30, 2020 versus Nine Months Ended September 30, 2019


Net income in the Marketing segment for the nine months ended September 30, 2020
increased $207.5 million compared to the nine months ended September 30, 2019
period. The primary drivers were the 71.5% increase on a cpg basis in total fuel
contribution to 27.1 cpg in the first nine months of 2020 and higher total
merchandise contribution, which increased 9.5% to $344.0 million. These
increases were combined with lower station operating expenses which were
partially offset by lower retail fuel sales volumes and higher SG&A costs.

Total revenues for the Marketing segment were approximately $8.4 billion for the
nine month period ended September 30, 2020 compared to $10.6 billion for the
same period ended September 30, 2019. The decreased revenues were due to a 17.6%
decrease in the average fuel retail price combined with a 12.5% decrease in the
number of gallons sold due to the reduced travel caused by COVID-19 concerns and
lower PS&W revenues, partially offset by a 13.6% increase in merchandise sales
and higher RINs revenues.  Revenues included excise taxes collected and
remitted to government authorities of $1.3 billion in the first nine months of
2020 and $1.5 billion in the same period of 2019.
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Retail fuel margin dollars increased 65.7% compared to the prior year period on
a margin rate of 25.6 cpg for the first nine months of 2020 which compared to
13.5 cpg for the first nine months of 2019.  Sharply declining crude oil prices
that impacted early 2020 had an inverse positive effect on the business. Total
fuel sales volumes on a SSS basis decreased 14.1% to 213.7 thousand gallons per
store in the first nine months of 2020 compared to the nine months ended
September 30, 2019.

Total PS&W margin dollars, excluding RINs, were a loss of $21.5 million in the
nine month period ended September 30, 2020 compared to income of $46.6 million
in September 30, 2019. The decrease in the first nine months of 2020 was due to
lower year-over-year prices when compared to 2019.

The nine months period ended September 30, 2020 includes the sale of RINs of
$63.3 million compared to $28.6 million for the same period in 2019, and
consisted of sales of 182 million RINs at an average selling price of $0.35 per
RIN while the prior-year period had sales of 157 million RINs at an average
price of $0.18 per RIN.

Total merchandise sales increased $265.3 million, or 13.6%, to $2.2 billion in
the first nine months of 2020 compared to $1.9 billion for the same period ended
September 30, 2019 due to higher sales across the chain. The nine month total
merchandise contribution in 2020 was 9.5% higher than for the nine month period
ended September 30, 2019.  On a SSS basis, total merchandise contribution
dollars per store grew 9.3%. Compared to the nine months ended September 30,
2019, tobacco products sales increased 13.5% and non-tobacco sales increased
9.1% on higher lottery and general merchandise sales.

Station and other operating expenses decreased $12.1 million in the
current period compared to September 30, 2019 levels due primarily to lower
payment fees as a result of lower sales. On an APSM basis, expenses applicable
to station OPEX excluding payment fees and rent increased 1.0%, primarily due to
higher employee-related expenses.

Depreciation and amortization expense increased $4.6 million year-over-year due to newer large format stores and raze-and-rebuild activity.

Same store sales information compared to APSM metrics

                                                              Variance from prior year                       Variance from prior year
                                                                 Three months ended                             Nine months ended
                                                                 September 30, 2020                             September 30, 2020
                                                            SSS1                   APSM2                   SSS1                   APSM2
Fuel gallons per month                                         (12.7) %               (12.1) %                (14.1) %               (13.4) %

Merchandise sales                                               10.5  %                10.9  %                 12.3  %                12.5  %
Tobacco sales                                                   10.2  %                10.1  %                 13.5  %                13.1  %
Non-tobacco sales                                               11.4  %                13.2  %                  9.1  %                11.1  %

Merchandise margin                                               6.2  %                 6.0  %                  9.3  %                 8.4  %
Tobacco margin                                                   9.0  %                 8.1  %                 15.1  %                13.0  %
Non-tobacco margin                                               2.2  %                 4.2  %                  1.0  %                 2.9  %

1Includes site-level discounts for MDR redemptions and excludes change in value of unredeemed MDR points 2Includes all MDR activity




Corporate and Other Assets

Three Months Ended September 30, 2020 versus Three Months Ended September 30, 2019


After-tax results for Corporate and other assets for Q3 2020 were a loss of
$14.8 million compared to a loss of $24.8 million in Q3 2019. There was a loss
on early debt extinguishment of $14.8 million recorded in Q3 2019 and no related
costs for Q3 2020.

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Nine Months Ended September 30, 2020 versus Nine Months Ended September 30, 2019

After-tax results for Corporate and other assets for the nine months ended September 30, 2020 was a loss of $37.1 million compared to a loss of $47.5 million in the same period of 2019. There was a loss on early debt extinguishment of $14.8 million recorded in 2019 while there were no such costs in 2020.



Non-GAAP Measures

The following table sets forth the Company's Adjusted EBITDA for the three and
nine months ended September 30, 2020 and 2019.  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.

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)                                2020             2019          2020          2019
Net income                                    $     66.9$ 69.2$    325.1$ 107.2

Income tax expense (benefit)                        21.2              22.1           103.3         33.3
Interest expense, net of interest income            12.4              14.5            37.7         39.7
Depreciation and amortization                       40.6              37.6           119.5        113.8
EBITDA                                             141.1             143.4           585.6        294.0



Net settlement proceeds                               -            -            -         (0.1)
Accretion of asset retirement obligations           0.6          0.6          1.7          1.6
(Gain) loss on sale of assets                         -         (0.2)        (1.4)        (0.1)
Loss on early debt extinguishment                     -         14.8            -         14.8
Other nonoperating (income) expense                (0.2)         0.1          0.5            -
Adjusted EBITDA                                 $ 141.5$ 158.7$ 586.4$ 310.2

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 $197 million at September 30, 2020 (which can be utilized for working capital and other

                                       46

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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, 2020, we had $225
million outstanding under our term loan and no amounts outstanding under our
ABL.  See following "Debt - Credit Facilities" 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.
We have not sought government aid from federal programs established by the Cares
Act.

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.

Operating Activities


Net cash provided by operating activities was $467.8 million for the nine
months ended September 30, 2020 and was $251.6 million for the
comparable period in 2019. The increase for the current year is primarily due to
the increase in net income of $217.9 million compared to the corresponding
period in 2019. Non-cash operating working capital improved $1.5 million mainly
due to changes in the current year of a $31.0 million decrease in accounts
receivable, a $15.3 million decrease in prepaid expenses and other current
assets and a $19.4 million increase in income taxes payable, which were
partially offset by a $40.6 million increase in inventories and a $27.3 million
decrease in accounts payable and accrued liabilities. The changes in accounts
receivable and accounts payable were due to timing of invoicing, billing,
payments, and receipts. The variance in prepaid expenses and other current
assets and income taxes payable were due to increased pretax income in the
current year moving the Company from a prepaid position to a payable. The
Company also invested in inventory to meet expected demand due to stay-at-home
restrictions being eased in our areas of operations. There were debt
extinguishment costs of $14.5 million in 2019 and there was no such costs in
2020. Other operating activities in the current year included $7.8 million
benefit in payroll taxes which have been deferred under the CARES Act.

Investing Activities


For the nine months ended September 30, 2020, cash required by
investing activities was $163.3 million compared to $152.0 million in 2019. The
increase in investing cash requirements in the current period was primarily due
to the timing of capital expenditures and was partially offset by proceeds from
sale of Minnesota assets in the second quarter of 2020. Other investing
activities required $1.6 million in cash during 2020 compared to cash required
of $0.7 million in 2019.

Financing Activities

Financing activities in the nine months ended September 30, 2020 required cash
of $267.3 million compared to $36.4 million of cash required in the nine months
ended September 30, 2019. The first nine months of 2020 included payments of
$230.5 million for the repurchase of common shares, which was an increase of
$91.4 million from the prior-year period. Net repayments of debt required
$26.1 million in 2020 compared to net borrowings providing cash of
$120.6 million in 2019. Debt issuance and early debt extinguishment costs
required cash of $13.5 million in 2019 and there were no such costs in 2020.
Amounts related to share-based compensation required $6.3 million more in cash
during 2020 than in 2019.

Share Repurchase Program

During the quarter ended September 30, 2020, a total of 656,534 shares were
repurchased for $89.9 million and for the nine months ended September 30, 2020,
a total of 2,018,934 shares were repurchased for $230.5 million, all made under
the $400 million share repurchase program approved by the Board of Directors in
July 2019, with approximately $44.5 million remaining in the plan.

                                       47

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Debt


Our long-term debt at September 30, 2020 and December 31, 2019 was as set forth
below:

                                                                  September 30,           December 31,
(Millions of dollars)                                                 2020                    2019

5.625% senior notes due 2027 (net of unamortized discount of $2.5 at September 30, 2020 and $2.7 at December 2019) $ 297.5$ 297.3 4.75% senior notes due 2029 (net of unamortized discount of $5.6 at September 30, 2020 and $6.1 at December 31, 2019)

                                                                    494.4                  493.9

Term loan due 2023 (effective interest rate of 3.35% at September 30, 2020 and 4.31% at December 31, 2019)

                       225.0                  250.0

Capitalized lease obligations, vehicles, due through 2023                  2.1                    2.4
Less unamortized debt issuance costs                                      (4.6)                  (5.5)
Total notes payable, net                                               1,014.4                1,038.1

Less current maturities                                                   51.2                   38.8
Total long-term debt, net of current                            $        963.2$       999.3



Senior Notes

On April 25, 2017, Murphy Oil USA, Inc., our primary operating subsidiary,
issued $300 million of 5.625% Senior Notes due 2027 (the "2027 Senior Notes")
under its existing shelf registration statement. The 2027 Senior Notes are fully
and unconditionally guaranteed by Murphy USA, and are guaranteed by certain 100%
owned subsidiaries that guarantee our credit facilities. The indenture governing
the 2027 Senior Notes contains restrictive covenants that limit, among other
things, the ability of Murphy USA, Murphy Oil USA, Inc. and the restricted
subsidiaries to incur additional indebtedness or liens, dispose of assets, make
certain restricted payments or investments, enter into transactions with
affiliates or merge with or into other entities.

On September 13, 2019, Murphy Oil USA, Inc., issued $500 million of 4.75% Senior
Notes due 2029 (the "2029 Senior Notes"). The net proceeds from the issuance of
the 2029 Senior Notes were used to fund, in part, the tender offer and
redemption of the $500 million aggregate principal amount of its senior notes
due 2023. The 2029 Senior Notes are fully and unconditionally guaranteed by
Murphy USA, and are guaranteed by certain 100% owned subsidiaries that guarantee
our credit facilities. The indenture governing the 2029 Senior Notes contains
restrictive covenants that are essentially identical to the covenants for the
2027 Senior Notes.

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
maturity 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
$250.0 million term loan facility.  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 and
prepaid the remaining balance of the prior term loan of $57 million, and on
December 31, 2019, we borrowed the additional $50 million term loan. At
September 30, 2020 and December 31, 2019, the current outstanding principal
balance was $225 million and $250.0 million respectively. The term loan is due
August 2023 and requires quarterly principal payments of $12.5 million which
began April 1, 2020. As of September 30, 2020, 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

                                       48

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•    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 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, 2020, our fixed charge coverage ratio was 1.14
and we had $197.3 million of availability under the ABL facility at that time.
Our secured debt to EBITDA ratio as of September 30, 2020 was 0.32 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, 2020 our ability to make restricted payments was not limited as
our fixed charge coverage ratio was greater than 1.0 to 1.0, at 1.14.

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

                                       49

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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, 2020 and 2019:

                                   Three Months Ended              Nine Months Ended
                                     September 30,                   September 30,
(Millions of dollars)               2020             2019          2020          2019
Marketing:
Company stores               $     54.1$ 44.8$    134.3$ 104.4
Terminals                           1.3               2.2             1.9          2.7
Sustaining capital                  5.1               5.4            16.5         12.2
Corporate and other assets          0.1              16.4            19.8         39.2

Total                        $     60.6$ 68.8$    172.5$ 158.5



We currently expect capital expenditures for the full year 2020 to range from
approximately $250 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 Europay,
MasterCard, and Visa ("EMV") compliance and other strategic initiatives. See
Note 16 "Commitments" in the audited consolidated financial statements for the
year ended December 31, 2019 included in our Annual Report on Form 10-K for more
information.
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, 2019. 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, trends in our operations, dividends, share repurchases, and M&A
activity. 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 a global health pandemic, such as COVID-19 including the impact of our
fuel volumes if the gradual recoveries experienced in Q2 2020 stall or reverse
as a result of any resurgence in COVID-19 infection rates and government
reaction in response thereof; 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; changes to the company's capital
allocation, including the timing,declaration, amount and payment of any future
dividends or levels of the company's share repurchases, or management of
operating cash; the market price of the Company's stock prevailing from time to
time, the nature of other investment opportunities presented to the Company from
time to time, the Company's cash flows from operations, and general economic
conditions; compliance with debt covenants; availability and cost of credit; and
changes in interest rates. Our SEC reports, including our most recent Annual
Report on our Form 10-K and our Form 10-Q, contain other information on these
and other factors that could affect our financial results and cause actual
results to differ materially from any forward-looking information we may
provide. The Company undertakes no obligation to update or revise any
forward-looking statements to reflect subsequent events, new information or
future circumstances.
                                       50

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