Overview
Management's Discussion and Analysis of Results of Operations and Financial Condition ("Management's Discussion and Analysis") 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 Annual Report on Form 10-K. This section of this Form 10-K generally discusses 2021 and 2020 items and the year-to-year comparison between 2021 and 2020. Discussions of 2019 items and the year-to-year comparisons between 2020 and 2019 are not included in this Form 10-K and can be found in the Form 10-K for the year endedDecember 31, 2020 filed onFebruary 19, 2021 .
For purposes of this Management's Discussion and Analysis, references to "
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 business segments for the two years endedDecember 31, 2021 . •Capital Resources and Liquidity-this section provides a discussion of our financial condition and cash flows as of and for the two years endedDecember 31, 2021 . 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
OnJanuary 29, 2021 , MUSA acquired 100% ofQuick Chek Corporation ("QuickChek"), a privately held convenience store chain with a strong regional brand that consisted of 156 stores at the time of acquisition, located inNew Jersey andNew York , in an all-cash transaction. The acquisition expanded the MUSA network into the Northeast by adding high-performance stores that had an existing best-in-class food and beverage model and is consistent with the Company's stated strategic priorities of developing enhanced food and beverage capabilities. For additional information concerning the acquisition, see Note 5, "Business Acquisition" in the accompanying audited consolidated financial statements.
Our Business
The Company owns and operates a chain of retail stores under the brand name of Murphy USA® which are almost all located in close proximity to Walmart stores, principally in the Southeast, Midwest and Southwest areas ofthe United States . We also market gasoline and other products at standalone stores under the Murphy Express brand and have a mix of convenience stores and retail gasoline stores located inNew Jersey andNew York that operate under the brand name ofQuickChek . AtDecember 31, 2021 , we had a total of 1,679 Company stores in 27 states, of which 1,151 wereMurphy USA , 370 were Murphy Express and 158 wereQuickChek . We also market to unbranded wholesale customers through a mixture of Company owned and third-party terminals.
Trends Affecting Our Business
Our operations are significantly impacted by the gross margins we receive on our fuel sales. These gross margins are commodity-based, change daily and are volatile. While we generally expect our total fuel and merchandise sales volumes to grow over time and the gross margins to remain strong in a normalized environment, 30 -------------------------------------------------------------------------------- sales and gross margins can change rapidly due to many factors. These factors include, but are not limited to, the price of refined products, interruptions in our fuel and merchandise supply caused by severe weather or pandemics such as COVID-19, travel restrictions and stay-at-home orders imposed during a pandemic, severe refinery mechanical failures for an extended period of time, cyber attacks, and competition in the local markets in which we operate. The COVID-19 pandemic continued to impact gasoline demand and cause disruptions to supply chains throughout 2021 and into early 2022. If the incremental recoveries experienced throughout 2021 stall or reverse due to a resurgence in COVID-19 infection rates, and should related government intervention reoccur, this could cause volume declines. However, incrementally higher fuel margins related to 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 inthe 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 could negatively impact the Company's sales margin. Also, rising prices tend to cause our customers to reduce discretionary fuel consumption, which tends to reduce our fuel sales volumes. Crude oil prices in 2021 continued to be volatile during the year with prices ranging from$47 per barrel to$86 per barrel, with an average price in 2021 of$68 per barrel which compares to 2020 when prices ranged from negative territory to$63 per barrel with an average of$39 per barrel. Total fuel contribution (retail fuel margin plus product supply and wholesale ("PS&W") results including Renewable Identification Numbers ("RINs")) was 26.3 cpg in 2021, compared to 25.2 cpg in 2020. Our revenues are impacted by our ability to leverage our diverse supply infrastructure in pursuit of obtaining the lowest cost of fuel supply available; for example, activities such as blending bulk fuel with ethanol and bio-diesel to capture and subsequently sell Renewable Identification Numbers ("RINs"). Under the Energy Policy Act of 2005, theEPA is authorized to set annual quotas establishing the percentage of motor fuels consumed inthe 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 theEPA . RINs in excess of the set quota can then 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 for RINs on a company-wide basis either favorably or unfavorably. The Renewable Fuel Standard ("RFS") program continues to be unpredictable and prices received for ethanol RINs averaged$1.31 per RIN for the year 2021 compared to$0.41 in 2020. Our business model does not depend on our ability to generate revenues from RINs. Revenue from the sales of RINs is included in "Other operating revenues" in the Consolidated Income Statements. As ofDecember 31, 2021 , we had$1.3 billion of Senior Notes and a$398 million of term loan outstanding. We believe that we will generate sufficient cash from operations to fund our ongoing operating requirements and service our debt obligations. AtDecember 31, 2021 , we had additional available capacity under the committed$350 million cash flow revolving credit facility, with none drawn. We expect to use the credit facilities to provide us with available financing to meet any short-term ongoing cash needs in excess of internally generated cash flows. To the extent necessary, we will borrow under these facilities to fund our ongoing operating requirements. There can be no assurances, however, that we will generate sufficient cash from operations or be able to draw on the credit facilities, obtain commitments for our incremental facility and/or obtain and draw upon other credit facilities. For additional information, see Significant Sources of Capital in the Capital Resources and Liquidity section. The Company currently anticipates total capital expenditures (including land for future development) for the full year 2022 to range from approximately$350 million to$400 million depending on how many new stores are completed. We intend to fund our capital program in 2022 primarily using operating cash flow, but will supplement funding where necessary using borrowings under available credit facilities. We believe that our business will continue to grow in the future as we expand the food and beverage capabilities within our network. We have an active real estate development team that maintains a pipeline of desirable future store locations for development. The pace of this growth is continually monitored by our management, and these plans can be altered based on operating cash flows generated and the availability of debt facilities.
Seasonality
Our business has inherent seasonality due to the concentration of our retail stores in certain geographic areas, as well as customer behaviors during different seasons. In general, sales volumes and operating incomes
31 -------------------------------------------------------------------------------- are highest in the second and third quarters during the summer activity months and lowest during the winter months. Beginning in the latter half ofMarch 2020 through the remainder of the year, we saw disruptions to typical seasonal patterns due to the COVID-19 pandemic, resulting in fuel volumes sold falling below our historical average. As we moved into 2021, we saw seasonal patterns return to a more normal seasonal pattern which held through the entirety of 2021. At the present time, we cannot forecast how the pandemic will continue to influence travel behavior into 2022.
Business Segments
Our business is organized into one operating segment which is Marketing. The Marketing segment includes our retail marketing stores and product supply and wholesale assets. For operating segment information, see Note 22 "Business Segments" in the accompanying audited consolidated financial statements for the three-year period endedDecember 31, 2021 .
Results of Operations
Consolidated Results
For the year endedDecember 31, 2021 , the Company reported net income of$396.9 million or$14.92 per diluted share on revenue of$17.4 billion . Net income was$386.1 million for 2020 or$13.08 per diluted share on revenue of$11.3 billion . The consolidated financial results includeQuickChek fromJanuary 29, 2021 (date of acquisition).
A summary of the Company's earnings by business segment follows:
Year ended December 31, (millions of dollars) 2021 2020 2019 Marketing$ 472.8 $ 442.2 $ 215.0 Corporate and other assets (75.9) (56.1) (60.2) Net income$ 396.9 $ 386.1 $ 154.8
Net income for 2021 increased compared to 2020, primarily due to:
•Higher all-in fuel contribution; •Higher retail fuel sales volumes; •Higher merchandise contribution
The items below partially offset the increase in earnings in the current period:
•Higher store and other operating expenses, payment fees and rent; •Higher depreciation and amortization expense; •Higher selling, general and administrative ("SG&A") expenses; •Acquisition related costs; •Higher interest expense
Financial summary of 2021 compared to 2020
Revenues for the year endedDecember 31, 2021 increased$6.1 billion , or 54.1%, compared to 2020. The increase was due to higher average retail fuel prices which increased 86 cpg, retail fuel volumes which increased 11.6%, merchandise sales which increased 24.5%, improved PS&W revenues including RINs, and as a result of the consolidation ofQuickChek results since acquisition. Cost of sales increased$5.7 billion , or 57.9%, compared to 2020, due to the higher average cost of fuel which increased 71.1%, the increase in retail fuel volumes sold of 11.6%, and 19.2% higher merchandise costs which were primarily as a result of the consolidation ofQuickChek since acquisition. Store and other operating expenses increased$278.2 million , or 50.7%, in 2021 due primarily to the inclusion ofQuickChek stores which have higher store operating costs due to their larger format stores with an enhanced food and beverage offering, combined with higher payment fees and rent expense. On an average per store month ("APSM") basis, store operating expenses excluding credit card fees and rent increased 36.1% in 2021 when compared to 2020. 32 --------------------------------------------------------------------------------
The Company incurred
Depreciation and amortization expense in 2021 increased
Selling, general and administrative expenses for 2021 were higher by
Interest expense in 2021 increased by
The effective income tax expense rate in 2021 was 24.0% compared to 24.2% for 2020.
Segment Results Marketing Income before income taxes in the Marketing segment for 2021 increased$46.2 million , or 8.0%, from 2020 due primarily to the inclusion ofQuickChek results, higher all-in fuel margin, increased merchandise margins, partially offset by higher store and other operating costs, increased general and administrative costs, depreciation and interest expense.
The tables below show the results for the Marketing segment for the three years
ended
(Millions of dollars, except revenue per store month (in thousands) and store counts) Years Ended December 31, Marketing Segment 2021 2020 2019 Operating revenues Petroleum product sales$ 13,410.8 $
8,208.6$ 11,373.8 Merchandise sales 3,677.7 2,955.1 2,620.1 Other 271.4 100.3 40.4 Total operating revenues$ 17,359.9 $
11,264.0
Operating expenses Petroleum product cost of goods sold 12,535.5 7,325.7 10,707.4 Merchandise cost of goods sold 2,976.1 2,495.7 2,200.7 Store and other operating expenses 827.1 549.0 559.3 Depreciation and amortization 197.3 146.3 138.9 Selling, general and administrative 193.6 171.1 144.6 Accretion of asset retirement obligations 2.5 2.3 2.1 Total operating expenses$ 16,732.1 $ 10,690.1 $ 13,753.0 Gain (loss) on sale of assets 1.6 1.3 0.1 Income from operations 629.4 575.2 281.4 Other income (expense) Interest expense (8.1) (0.1) (0.1) Total other income (expense)$ (8.1) $
(0.1)
Income before income taxes 621.3 575.1 281.3 Income tax expense (benefit) 148.5 132.9 66.3 Income$ 472.8 $ 442.2 $ 215.0 33
-------------------------------------------------------------------------------- (Millions of dollars, except revenue per store month (in thousands) and store counts) Years Ended December 31, Marketing Segment 2021 2020 2019 Total tobacco sales revenue per same store sales1,2$ 120.2 $ 120.6 $ 107.3 Total non-tobacco sales revenue per same store sales1,2 48.6 45.5 41.0 Total merchandise sales revenue per same store sales1,2$ 168.8 $ 166.1 $ 148.3 12020 and 2019 amounts not revised for 2021 raze-and-rebuild activity (see SSS definition below) 2Includes store-level discounts for Murphy Drive Reward ("MDR") redemptions and excludes change in value of unredeemed MDR points Store count at end of period 1,679 1,503 1,489 Total store months during the period 19,702 17,770 17,621
Average Per Store Month ("APSM") metric includes all stores open through the date of the calculation, including stores acquired during the period.
Same store sales ("SSS") metric includes aggregated individual store results for all stores open throughout both periods presented. For all periods presented, the store must have been open for the entire calendar year to be included in the comparison. Remodeled stores that remained open or were closed for just a very brief time (less than a month) during the period being compared remain in the same store sales calculation. If a store is replaced either at the same location (raze-and-rebuild) or relocated to a new location, it will be excluded from the calculation during the period it is out of service. Newly constructed stores do not enter the calculation until they are open for each full calendar year for the periods being compared (open byJanuary 1, 2020 for the stores being compared in the 2021 versus 2020 comparison). Acquired stores are not included in the calculation of same stores for the first 12 months after the acquisition. When prior period SSS volumes or sales are presented, they have not been revised for current year activity for raze-and-rebuilds and asset dispositions.
Fuel
Twelve Months
Ended
Key Operating Metrics 2021 2020 2019
Total retail fuel contribution ($ Millions)
895.0$ 605.8 Total PS&W contribution ($ Millions) (72.3) (8.5) 64.0 RINs and other (included in Other operating revenues on Consolidated Income Statement) ($ Millions) 265.3 95.6 34.8
Total fuel contribution ($ Millions)
982.1$ 704.6 Retail fuel volume - chain (Million gal) 4,352.2 3,900.9 4,374.5 Retail fuel volume - per store (K gals APSM)1 229.4 219.5 248.3 Retail fuel volume - per store (K gal SSS)2 225.8 216.2 243.8 Total fuel contribution (including retail, PS&W and RINs) (cpg) 26.3 25.2 16.1 Retail fuel margin (cpg) 21.9 22.9 13.8 PS&W including RINs contribution (cpg) 4.4 2.3 2.3
1APSM metric includes all stores open through the date of calculation 22020 and 2019 amounts not revised for 2021 raze-and-rebuild activity
34 -------------------------------------------------------------------------------- The reconciliation of the total fuel contribution to the Consolidated Income Statements is as follows: Twelve Months Ended December 31, (Millions of dollars) 2021 2020 2019 Petroleum product sales$ 13,410.8 $ 8,208.6 $ 11,373.8 Less Petroleum product cost of goods sold (12,535.5) (7,325.7) (10,707.4) Plus RINs and other (included in Other Operating Revenues line) 269.0 99.2 38.2 Total fuel contribution$ 1,144.3 $ 982.1 $ 704.6 Merchandise Twelve Months Ended December 31, Key Operating Metrics 2021 2020 2019 Total merchandise contribution ($ Millions) $ 701.6$ 459.4 $ 419.4 Total merchandise sales ($ Millions)$ 3,677.7 $ 2,955.1 $ 2,620.1 Total merchandise sales ($K SSS)1,2 $ 168.8$ 166.1 $ 148.3 Merchandise unit margin (%) 19.1 % 15.6 % 16.0 % Tobacco contribution ($K SSS)1,2 $ 16.7$ 16.5 $ 14.6 Non-tobacco contribution ($K SSS)1,2 $ 10.8$ 10.0 $ 9.6 Total merchandise contribution ($K SSS)1,2 $ 27.5 $
26.5
Same store sales information compared to APSM metrics:
Variance from prior year periods December 31, 2021 December 31, 2020 December 31, 2019 SSS1 APSM2 SSS1 APSM2 SSS1 APSM2 Fuel gallons per month 3.0 % 4.5 % (12.3) % (11.6) % 1.2 % 1.7 % Merchandise sales 1.0 % 12.2 % 11.7 % 11.8 % 6.5 % 6.4 % Tobacco sales (0.4) % (0.8) % 12.8 % 12.4 % 7.7 % 7.2 % Non tobacco sales 4.5 % 46.2 % 8.7 % 10.8 % 3.5 % 5.3 % Merchandise margin 3.5 % 37.7 % 9.6 % 8.6 % 4.5 % 3.1 % Tobacco margin 2.3 % 4.3 % 14.9 % 13.0 % 8.2 % 6.7 % Non tobacco margin 5.4 % 89.2 % 2.0 % 4.2 % (0.6) % 1.0 % 1Includes store-level discounts for MDR redemptions and excludes change in value of unredeemed MDR points 2Includes all MDR activity 35
--------------------------------------------------------------------------------
Financial summary of 2021 compared to 2020
The Marketing segment had total revenues of$17.4 billion in 2021 compared to approximately$11.3 billion in 2020, an increase of$6.1 billion , due primarily to a higher average retail fuel price, increased volumes sold, higher merchandise sales and the inclusion ofQuickChek results. Revenue amounts included excise taxes collected and remitted to government authorities of$2.0 billion in 2021 and$1.8 billion in 2020. Total fuel contribution for the year endedDecember 31, 2021 was$1.1 billion , an increase of$162.2 million , or 16.5% over 2020. This contribution improvement was due to higher retail fuel contribution, increased fuel volumes for the year, and to improved contribution from PS&W margin (including RINs). Retail fuel margin on a cpg basis decreased in 2021 to 21.9 cpg, compared to 22.9 cpg in the prior year, and was offset by increased fuel volumes which increased 11.6%, primarily due to the acquisition ofQuickChek and the decrease in travel restrictions imposed by the COVID-19 pandemic in 2020. Total fuel sales volumes on an SSS basis were 225,792 gallons per month in 2021, an increase from 216,158 gallons per month in the prior year. Total product supply and wholesale margin dollars before RINs decreased in the current year due to negative spot-to-rack margins partially offset by timing and inventory price adjustments. This decline was offset by an increase in the contribution from sales of RINs. During 2021, operating income included$265.3 million from the sale of 202.0 million RINs at an average selling price of$1.31 per RIN compared to$95.5 million from the sale of 233.9 million RINs at an average price of$0.41 per RIN in 2020. Merchandise sales were up 24.5% in 2021 to$3.7 billion due to higher sales across the chain in most categories and the inclusion ofQuickChek results. Total merchandise contribution in 2021 increased$242.2 million , or 52.7% to$701.6 million compared to 2020 . Merchandise unit margins increased to 19.1% in 2021 from 15.6% in 2020. On an SSS basis, total merchandise sales were up 1.0%, due to a 4.5% increase in non-tobacco sales, while tobacco products decreased 0.4%. Total margins on a SSS basis for 2021 were up 3.5% with tobacco margins higher by 2.3%, and there was an overall increase of 5.4% in non-tobacco margins, mainly from increased beverage, snack, and lottery categories. Store and other operating expenses increased$278.1 million in 2021 compared to 2020 levels, an increase of 50.7%. This increase in total dollars was due mainly to the inclusion ofQuickChek stores which have higher store operating costs due to its larger format stores having an enhanced food and beverage offering. Murphy branded store operating expenses also increased as well as associated payment fees in 2021. Excluding credit card fees and rent on an APSM basis, store and other operating expenses at the retail level were higher in 2021 by 36.1% compared to 2020 levels. Depreciation and amortization increased$51.0 million in 2021, an increase of 34.9%. This increase was due primarily to the inclusion ofQuickChek stores and to more stores operating in the 2021 period. Selling, general and administrative expenses ("SG&A") increased$22.5 million in 2021 compared to 2020. The increased SG&A costs were primarily due to the inclusion ofQuickChek results in the current year.
Corporate and other assets
Income from continuing operations for Corporate and other assets in 2021 was a loss of$75.9 million , compared to a loss of$56.1 million in 2020. Net interest expense allocated to Corporate was higher in the current year by$23.1 million primarily due to the additional borrowings related to theQuickChek acquisition. Acquisition related costs were$10.4 million in 2021 compared to$1.7 million in 2020. Non-GAAP Measures The following table sets forth the Company's EBITDA and Adjusted EBITDA for the three years endedDecember 31, 2021 . EBITDA means net income (loss) plus net interest expense, plus income tax expense, depreciation and amortization, and Adjusted EBITDA adds back (i) other non-cash items (e.g., impairment of properties and accretion of asset retirement obligations) and (ii) other items that management does not consider to be meaningful in assessing our operating performance (e.g., (income) from discontinued operations, net settlement proceeds, (gain) loss on sale of assets, loss on early debt extinguishment, transaction and integration costs related to acquisitions, and other non-operating (income) expense). EBITDA and Adjusted EBITDA are not measures that are prepared in accordance withU.S. generally accepted accounting principles (GAAP). 36 -------------------------------------------------------------------------------- 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 an 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 to EBITDA and Adjusted EBITDA is as follows: Years Ended December 31, (Millions of dollars) 2021 2020 2019 Net income$ 396.9 $ 386.1 $ 154.8 Income tax expense (benefit) 125.0 123.0 47.6 Interest expense, net of interest income 82.3 50.2
51.7
Depreciation and amortization 212.6 161.0 152.2 EBITDA 816.8 720.3 406.3 Net settlement proceeds - - (0.1) Accretion of asset retirement obligations 2.5 2.3
2.1
(Gain) loss on sale of assets (1.5) (1.3)
(0.1)
Loss on early debt extinguishment - -
14.8
Acquisition related costs 10.4 1.7
-
Other nonoperating (income) expense (0.2) (0.3) (0.4) Adjusted EBITDA$ 828.0 $ 722.7 $ 422.6
Capital Resources and Liquidity
Significant sources of capital
As ofDecember 31, 2021 , we had$256.4 million of cash and cash equivalents. Our cash management policy provides that cash balances in excess of a certain threshold are reinvested in certain types of low-risk investments. We have a committed cash flow revolving credit facility (the "revolving facility") of$350 million , which was undrawn atDecember 31, 2021 , which can be utilized for working capital and other general corporate purposes, including supporting our operating model as described herein. Additional borrowing capacity under the revolving facility may be extended at our request and with the consent of the participating lenders.
We also have a shelf registration on file with the
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, dividend payments, repayment of debt maturities and other amounts that may ultimately be paid in connection with contingencies.
QuickChek Acquisition
OnJanuary 29, 2021 , the Company completed its acquisition ofQuickChek for an all-cash consideration of$641.1 million . In conjunction with the closing of the acquisition, the Company entered into a credit agreement that provides for a cash flow revolving facility with commitments of$350 million and a term loan in a principal amount of$400 million . The Company also issued a new series of 3.750% senior unsecured notes due 2031 in an aggregate principal amount of$500 million . As a result of the above transactions, the ABL facility existing atDecember 31, 2020 was terminated and the previous term loan with$200 million remaining balance outstanding atJanuary 29, 2021 was repaid and retired. 37 --------------------------------------------------------------------------------
Operating Activities
Net cash provided by operating activities was$737.4 million for the year endedDecember 31, 2021 and$563.7 million for the comparable period in 2020, an increase of 30.8%, mainly due to an increase in net income of$10.8 million in 2021, increased depreciation of$51.6 million , increased deferred and noncurrent tax changes of$16.5 million , and the amount of cash provided from changes in noncash working capital in 2021 increasing by$95.9 million . The impact ofQuickChek on the year-over-year changes in working capital was a cash requirement of approximately$7.6 million . For the current year, cash provided by changes in noncash operating working capital of$82.8 million was due to a decrease of$11.1 million in inventories, an increase of$102.9 million in accounts payable and accrued liabilities, offset by increases of$18.9 million in accounts receivable and of$3.6 million in prepaid expenses and other current assets, and a decrease of$8.7 million in income taxes payable. The changes in accounts receivable and accounts payable were due to timing of invoicing, billing, payments, and receipts and the acquisition and consolidation ofQuickChek . See also Note 16 "Other financial information" in the accompanying audited consolidated financial statements for the three-year period endedDecember 31, 2021 .
Investing Activities
For the year endedDecember 31, 2021 , cash required by investing activities was$914.2 million compared to cash required by investing activities of$224.3 million in 2020. The investing cash increase of$689.9 million in 2021 was due primarily to the$641.1 million cash purchase ofQuickChek and capital expenditures which required cash of$274.7 million in 2021 compared to$230.7 million in 2020 due primarily to more new store openings. Cash provided by investing activities in 2021 were$3.4 million , primarily from the sale of a store and were$8.1 million in 2020 primarily from proceeds of the sale ofMinnesota assets. Financing Activities Financing activities in the year endedDecember 31, 2021 provided net cash of$269.6 million compared to net cash required of$456.1 million in the year endedDecember 31, 2020 . The increase in financing cash provided was due to net borrowings of debt in 2021 of$668.5 million compared to net debt repayments of$38.9 million in 2020, a decrease of$44.6 million of share repurchases in 2021, and$4.0 million less in amounts related to share based compensation, and was partially offset by an increase of$20.4 million in dividend payments, and$9.9 million in debt issuance costs with no payments for debt issuance costs in 2020.
Dividends
The Company paid dividends of$1.04 per common share during 2021 for total payments of$27.3 million , compared to$6.9 million in 2020, the first year for a dividend payment. InOctober 2021 , the Board of Directors approved an increase in the quarterly dividend to$0.29 per common share,$1.16 per share on an annualized basis, beginning onDecember 1, 2021 . As part of our capital allocation strategy, the Company's intention is to deliver targeted double-digit growth in the per share dividend over time.
Share Repurchase program
OnJuly 24, 2019 , our Board of Directors approved an up to$400 million share repurchase program to be executed over the two-year period endingJuly 2021 . This repurchase plan was completed inNovember 2020 , and a new authorization of$500 million , went into effect inOctober 2020 . OnDecember 1, 2021 , our Board of Directors approved a new share repurchase authorization of up to$1 billion to begin upon completion of the current$500 million authorization, and is to be executed byDecember 31, 2026 . 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. During the year 2021, total purchases made under theOctober 2020 authorization were 2,398,477 common shares for$355.0 million , for an average price of$148.00 per share, leaving approximately$20.0 million remaining available, as ofDecember 31, 2021 , to be completed before the new 2021 authorization begins. Purchases in 2020 under theOctober 2020 authorization were 969,654 common shares for$125.0 million , for an average price of$128.91 per share. 38 --------------------------------------------------------------------------------
Debt
Our long-term debt at
December 31, (Millions of dollars) 2021 2020
5.625% senior notes due 2027 (net of unamortized discount
of
$
298.0 $ 297.6
4.75% senior notes due 2029 (net of unamortized discount
of
495.2 494.6
3.75% senior notes due 2031 (net of unamortized discount
of
494.3 -
Term loan due 2023 (effective interest rate of 2.67% at 2020)
- 212.5
Term loan due 2028 (effective interest rate of 2.27% at
2021) net of unamortized discount of
397.1 - Capitalized lease obligations, vehicles, due through 2025 2.7 2.1 Capitalized lease obligations, buildings, due through 2059 138.9 - Unamortized debt issuance costs (11.1) (4.4) Total long-term debt 1,815.1 1,002.4 Less current maturities 15.0 51.2 Total long-term debt, net of current $
1,800.1 $ 951.2
OnJanuary 29, 2021 , the Company completed its acquisition ofQuickChek for an all-cash consideration of$641.1 million . In conjunction with the closing of the acquisition, the Company entered in a credit agreement that provides for a cash flow revolving facility with commitments of$350 million and a term loan in a principal amount of$400 million . The Company also issued a new series of 3.750% senior unsecured notes due 2031 in an aggregate principal amount of$500 million . As a result of the above transactions, the ABL facility existing atDecember 31, 2020 , was terminated and the term loan with$200 million remaining balance outstanding atJanuary 29, 2021 was repaid and retired. For more detail on debt outstanding atDecember 31, 2021 , see Note 9 "Long-Term Debt" in the audited consolidated financial statements for the three years endedDecember 31, 2021 included in this Annual Report on Form 10-K.
Senior Notes
OnApril 25, 2017 ,Murphy Oil USA, Inc. ("MOUSA"), 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 the Company and by the Company's subsidiaries that guarantee our Credit Facilities (as defined below). The indenture governing the 2027 Senior Notes contains restrictive covenants that limit, among other things, the ability of the Company, MOUSA, 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. OnSeptember 13, 2019 , MOUSA 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 MOUSA's senior notes due 2023. The 2029 Senior Notes are fully and unconditionally guaranteed byMurphy USA , and are guaranteed by the Company and by the Company's 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. OnJanuary 29, 2021 , MOUSA issued$500 million of 3.75% Senior Notes due 2031 (the "2031 Senior Notes" and, together with the 2027 Senior Notes and the 2029 Senior Notes, the "Senior Notes"). The net proceeds from the issuance of the 2031 Senior Notes were used, in part, to fund the acquisition ofQuickChek and other obligations related to that transaction. The 2031 Senior Notes are fully and unconditionally guaranteed by the Company and by the Company's subsidiaries that guarantee our Credit Facilities. The indenture governing the 2031 Senior Notes contains restrictive covenants that are essentially identical to the covenants for the 2027 and 2029 Senior Notes. 39 -------------------------------------------------------------------------------- The Senior Notes and related guarantees rank equally with all of our and the guarantors' existing and future senior unsecured indebtedness and effectively junior to our and the guarantors' existing and future secured indebtedness (including indebtedness with respect to the Credit Facilities) to the extent of the value of the assets securing such indebtedness. The Senior Notes 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.
Revolving Credit Facility and Term Loan
On
The credit agreement provides for a senior secured term loan in an aggregate principal amount of$400 million (the "Term Facility") (which was borrowed in full onJanuary 29, 2021 ) and revolving credit commitments in an aggregate amount equal to$350 million (the "Revolving Facility", and together with the Term Facility, the "Credit Facilities"). The outstanding balance of the term loan was$398 million atDecember 31, 2021 . The term loan is dueJanuary 2028 and requires quarterly principal payments of$1 million beginningJuly 1, 2021 . As ofDecember 31, 2021 , we had none outstanding under the revolving facility while there were$3.7 million in outstanding letters of credit, which reduces the amount available to borrow.
Interest payable on the Credit Facilities is based on either:
•the
•the Alternate Base Rate, which is defined as the highest of (a) the rate of interest last quoted by The Wall Street Journal as the "Prime Rate", (b) the greater of federal funds effective rate and the overnight bank funding rate determined by theFederal Reserve Bank of New York from time to time plus 0.50% per annum and (c) the one-month Adjusted LIBO Rate plus 1.00% per annum, plus, (A) in the case of Adjusted LIBO Rate borrowings, (i) with respect to the Revolving Facility, spreads ranging from 1.75% to 2.25% per annum depending on a total debt to EBITDA ratio or (ii) with respect to the Term Facility, a spread of 1.75% per annum and (B) in the case of Alternate Base Rate borrowings (i) with respect to the Revolving Facility, spreads ranging from 0.75% to 1.25% per annum depending on a total debt to EBITDA ratio or (ii) with respect to the Term Facility, a spread of 1.75% per annum. The Term Facility amortizes in quarterly installments starting with the first amortization payment being due onJuly 1, 2021 at a rate of 1.00% per annum.Murphy USA is also required to prepay the Term Facility with a portion of its excess cash flow, a portion of the net cash proceeds of certain asset sales, and casualty events (subject to certain reinvestment rights) and the net cash proceeds of issuances of indebtedness not permitted under the Credit Agreement. The Credit Agreement allowsMurphy USA to prepay, in whole or in part, the Term Facility outstanding thereunder, together with any accrued and unpaid interest, with prior notice but without premium or penalty other than breakage and redeployment costs. The credit agreement contains certain covenants that limit, among other things, the ability of the Company and certain of its subsidiaries to incur additional indebtedness or liens, to make certain investments, to enter into sale-leaseback transactions, to make certain restricted payments, to enter into consolidations, mergers or sales of material assets and other fundamental changes, to transact with affiliates, to enter into agreements restricting the ability of subsidiaries to incur liens or pay dividends, or to make certain accounting changes. The credit agreement also contains total leverage ratio and secured net leverage ratio financial maintenance covenants solely for the benefit of the revolving facility which are tested quarterly. Pursuant to the total leverage ratio financial maintenance covenant, the Company must maintain a total leverage ratio of not more than 5.0 to 1.0 with an ability in certain circumstances to temporarily increase that limit to 5.5 to 1.0 and a maximum secured net leverage ratio of not more than 3.75 to 1.0 with an ability in certain circumstances to temporarily increase that limit to 4.25 to 1.0. The Credit Agreement also contains customary events of default. 40 -------------------------------------------------------------------------------- Pursuant to the credit agreement's covenant limiting certain restricted payments, certain payments in respect of our equity interests, including dividends, when the total leverage ratio, calculated on a pro forma basis, is greater than 3.0 to 1.0, could be limited. AtDecember 31, 2021 , our total leverage ratio was 2.20 to 1.0 which meant our ability at that date to make restricted payments was not limited. If our total leverage ratio, on a pro forma basis, exceeds 3.0 to 1.0, any restricted payments made following that time until the ratio is once again, on a pro forma basis, below 3.0 to 1.0 would be limited by the covenant, which contains certain exceptions, including an ability to make restricted payments in cash in an aggregate amount not to exceed$100 million in any fiscal year and an additional ability to make restricted payments in an aggregate not to exceed the greater of$112.7 million , or 4.5% of consolidated net tangible assets over the life of the credit agreement.
Supplemental Guarantor Financial Information
The following is a description of the guarantees with respect to the Senior Notes and the Credit Facilities, for which MOUSA is primary obligor, and for which the Company and certain 100% owned subsidiaries provide full and unconditional guarantees on a joint and several basis. See "-Debt" above for additional information concerning the Company's outstanding indebtedness, all of which is guaranteed as described below. See also Note 9 "Long Term Debt" in the accompanying consolidated financial statements for the three years endedDecember 31, 2021 . The Senior Notes and related guarantees rank equally with all of our and the guarantors' existing and future senior unsecured indebtedness and effectively junior to our and the guarantors' existing and future secured indebtedness (including indebtedness with respect to the Credit Facilities) to the extent of the value of the assets securing such indebtedness. The Senior Notes and related guarantees are structurally subordinated to all of the existing and future third-party liabilities, including trade payables, of our existing and future subsidiaries that do not guarantee the notes. All obligations under the Credit Facilities are guaranteed by the Company and the same subsidiary guarantors that guarantee the Senior Notes. All obligations under the Credit Facilities, including the guarantees of those obligations, are secured by certain assets of the Company, MOUSA, and the other guarantors. The combined assets, liabilities and results of operations of MOUSA and the guarantors are not materially different from corresponding amounts presented in the consolidated financial statements included herein. MOUSA is our primary operating subsidiary and generated the vast majority of our revenues for the year endedDecember 31, 2021 and accounted for the vast majority of our total assets as ofDecember 31, 2021 . In the event MOUSA itself were unable to service the Company's consolidated debt obligations, our business and financial condition would be materially adversely impacted.
Contractual Obligations
The following table summarizes our aggregate contractual fixed and variable
obligations as of
Less than 1 More than 5 (Millions of dollars) Total year 1-3 years 4-5 years years Debt obligations 1$ 1,839.6 $ 15.0
714.6 44.4 87.6 84.5 498.1 Purchase obligations 2 366.0 257.8 79.5 13.7 15.0 Asset retirement obligations 162.5 - - - 162.5 Other long-term obligations, including interest on long-term debt 524.4 69.4 136.5 132.4 186.1 Total$ 3,607.1 $ 386.6 $ 330.9 $ 256.2 $ 2,633.4 1For additional information, see Note 9 "Long-Term Debt" in the accompanying audited consolidated financial statements. 2Primarily includes ongoing new retail store construction in progress atDecember 31, 2021 , commitments to purchase land, take-or-pay supply contracts and other services. See Note 18 "Commitments" in the audited consolidated financial statements for the year endedDecember 31, 2021 . 41 --------------------------------------------------------------------------------
Capital Spending
Capital spending and investments in our Marketing segment relate primarily to the acquisition of land and the construction of new Company stores. Our Marketing capital is also deployed to improve our existing stores, which we refer to as sustaining capital. We use sustaining capital in this business as needed to ensure reliability and continued performance of our stores. We also invest in our Corporate and other assets segment which is primarily technology related.
The following table outlines our capital spending and investments by
category for the three years ended
(Millions of dollars) 2021 2020 2019 Marketing: Company stores$ 221.2 $ 175.9 $ 130.5 Terminals 2.5 2.0 3.6 Sustaining capital 21.8 22.9 21.4 Corporate and other assets 32.0 26.3 59.1 Total$ 277.5 $ 227.1 $ 214.6 We currently expect capital expenditures for the full year 2022 to range from approximately$350 million to$400 million , including$300 million to$325 million for retail growth, approximately$30 million to$40 million for maintenance capital, with the remaining funds earmarked for other corporate investments and other strategic initiatives. See Note 16 "Commitments" in the audited consolidated financial statements for the three years endedDecember 31, 2021 included in this Annual Report on Form 10-K.
Critical Accounting Policies
Business combinations
We account for business combinations using the purchase method of accounting. The purchase price of an acquisition is measured as the aggregate of the fair value of the consideration transferred. The purchase price is allocated to the fair values of the tangible and intangible assets acquired and liabilities assumed at date of acquisition, with any excess recorded as goodwill. These fair value determinations require management to make estimates which are based on all available information, and may involve the use of assumptions with respect to the timing and amount of future revenues and expenses, the weighted average cost of capital, and royalty rates associated with the transaction and the assets or liabilities acquired. This judgment and determination affects the amount of consideration paid that is allocable to assets and liabilities acquired in the business purchase transaction. The purchase price allocation may be provisional during a measurement period of up to one year to provide reasonable time to obtain the information necessary to identify and measure the assets acquired and liabilities assumed. Any such measurement period adjustments are recognized in the period in which the adjustment amount is determined. Transaction costs associated with the acquisition are expensed as incurred.
Goodwill represents the excess of the aggregate of the consideration transferred over the net assets acquired and liabilities assumed and is tested annually for impairment, or more frequently if there are indicators of impairment. Acquired finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives and are reviewed for impairment when events or circumstances indicate that the asset group to which the intangible assets belong might be impaired. The Company revises the estimated remaining useful life of these assets when events or changes in circumstances warrant a revision. If the Company revises the useful life, the unamortized balance is amortized over the use life on a prospective basis. Indefinite-lived intangibles are tested annually for impairment, or more often if indicators warrant.
Impairment of Long-Lived Assets
Individual retail stores are reviewed for impairment periodically or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. Our primary indicator that operating store assets may not be recoverable is consistent negative cash flow over a twenty-four month period for those retail 42 -------------------------------------------------------------------------------- stores that have been open in the same location for a sufficient period to allow for meaningful analysis of ongoing results. We also monitor other factors when evaluating retail stores for impairment, including individual store execution of operating plans and local market conditions. When an evaluation is required, the projected future undiscounted cash flows to be generated from each retail store over its remaining economic life are compared to the carrying value of the long-lived assets of that store to determine if a write-down of the carrying value to fair value is required. When determining future cash flows associated with an individual retail store, we make assumptions about key variables such as sales volume, gross margins and expenses. Cash flows vary for each retail store year to year. Changes in market demographics, traffic patterns, competition and other factors impact the overall operations of certain of our individual retail store locations. Similar changes may occur in the future that will require us to record impairment charges. We have not made any material change in the methodology used to estimate future cash flows of retail store locations during the past three years. Our impairment evaluations are based on assumptions we deem to be reasonable. If the actual results of our retail stores are not consistent with the estimates and judgments we have made in estimating future cash flows and determining fair values, our actual impairment losses could vary positively or negatively from our estimated impairment losses. Providing sensitivity analysis if other assumptions were used in performing the impairment evaluations is not practical due to the significant number of assumptions involved in the estimates.
Tax Matters
We are subject to extensive tax liabilities imposed by multiple jurisdictions, including income taxes, indirect taxes (excise/duty, sales/use, and gross receipts taxes), payroll taxes, franchise taxes, withholding taxes and ad valorem taxes. New tax laws and regulations and changes in existing tax laws and regulations are continuously being enacted or proposed that could result in increased expenditures for tax liabilities that cannot be predicted at this time. In addition, we have received claims from various jurisdictions related to certain tax matters. Tax liabilities include potential assessments of penalty and interest amounts. We record tax liabilities based on our assessment of existing tax laws and regulations. A contingent loss related to a transactional tax claim is recorded if the loss is both probable and estimable. The recording of our tax liabilities requires significant judgments and estimates. Actual tax liabilities can vary from our estimates for a variety of reasons, including different interpretations of tax laws and regulations and different assessments of the amount of tax due. In addition, in determining our income tax provision, we must assess the likelihood that our deferred tax assets will be recovered through future taxable income. Significant judgment is required in estimating the amount of valuation allowance, if any, that should be recorded against those deferred income tax assets. If our actual results of operations differ from such estimates or our estimates of future taxable income change, the valuation allowance may need to be revised. However, an estimate of the sensitivity to earnings that would result from changes in the assumptions and estimates used in determining our tax liabilities is not practicable due to the number of assumptions and tax laws involved, the various potential interpretations of the tax laws, and the wide range of possible outcomes. The Company is occasionally challenged by taxing authorities over the amount and/or timing of recognition of revenues and deductions in its various income tax returns. Although the Company believes it has adequate accruals for matters not resolved with various taxing authorities, gains or losses could occur in future years from changes in estimates or resolution of outstanding matters. See Note 9 "Income Taxes" in the accompanying audited consolidated financial statements for the three-year period endedDecember 31, 2021 for a further discussion of our tax liabilities.
Asset Retirement Obligations
We operate above ground and underground storage tanks at our facilities. We recognize the estimated future cost to remove these underground storage tanks ("USTs") over their estimated useful lives. We record a discounted liability for the fair value of an asset retirement obligation with a corresponding increase to the carrying value of the related long-lived asset at the time a UST is installed. We depreciate the amount added to cost of the property and recognize accretion expense in connection with the discounted liability over the remaining life of the UST. We have not made any material changes in the methodology used to estimate future costs for removal of a UST during the past three years. We base our estimates of such future costs on our prior experience with removal and normal and customary costs we expect to incur associated with UST removal. We compare our cost estimates with our actual removal cost experience, if any, on an annual basis, and if the actual costs we experience exceed our original estimates, we will recognize an additional liability for estimated future costs to remove the USTs. 43 -------------------------------------------------------------------------------- Because these estimates are subjective and are currently based on historical costs with adjustments for estimated future changes in the associated costs, the dollar amount of these obligations could change as more information is obtained. There were no material changes in our asset retirement obligation estimates during 2021, 2020, or 2019. See also Note 10 "Asset Retirement Obligation" in the accompanying audited consolidated financial statements for the three-year period endedDecember 31, 2021 . FORWARD-LOOKING STATEMENTS This Annual Report on Form 10-K 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 our M&A activity, anticipated store openings, fuel margins, merchandise margins, sales of RINs, trends in our operations, dividends, and share repurchases. Such statements are based upon the current beliefs and expectations of the Company's management and are subject to significant risks and uncertainties. Actual future results may differ materially from historical results or current expectations depending upon factors including, but not limited to: the Company's ability to realize projected synergies from the acquisition ofQuickChek and successfully expand our food and beverage offerings; our ability to continue to maintain a good business relationship with Walmart; successful execution of our growth strategy, including our ability to realize the anticipated benefits from 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, manage disruptions in our supply chain and our ability to control costs; the impact of severe weather events, such as hurricanes, floods and earthquakes; the impact of a global health pandemic, such as COVID-19 and the government reaction in response thereof; the impact of any systems failures, cybersecurity and/or security breaches of the company or its vendor partners, including any security breach that results in theft, transfer or unauthorized disclosure of customer, employee or company information or our compliance with information security and privacy laws and regulations in the event of such an incident; successful execution of our information technology strategy; reduced demand for our products due to the implementation of more stringent fuel economy and greenhouse gas reduction requirements, or increasingly widespread adoption of electric vehicle technology; future tobacco or e-cigarette legislation and any other efforts that make purchasing tobacco products more costly or difficult could hurt our revenues and impact gross margins; efficient and proper allocation of our capital resources, including the timing, declaration, amount and payment of any future dividends or levels of the company's share repurchases, or management of operating cash; the market price of the Company's stock prevailing from time to time, the nature of other investment opportunities presented to the Company from time to time, the Company's cash flows from operations, and general economic conditions; compliance with debt covenants; availability and cost of credit; and changes in interest rates. The Company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events, new information or future circumstances.
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