MURPHY USA INC.
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 "
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 months endedMarch 31, 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 months endedMarch 31, 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. AtMarch 31, 2020 , we had a total of 1,491 Company stations in 26 states, principally in the Southeast, Southwest and Midwest United States.
Basis of Presentation
Murphy USA was incorporated inMarch 2013 , and until the separation from Murphy Oil Corporation was completed onAugust 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 ofMurphy USA Inc. and its subsidiaries for all periods presented. 30 --------------------------------------------------------------------------------
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 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 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 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. Sharply declining crude oil prices have an inverse positive effect on the business. Crude oil prices dropped dramatically in earlyMarch 2020 asOPEC members increased oil production and the price per barrel of oil fell to approximately$20 , compared to prices of around$60 per barrel a year ago. This price decline primarily led to an increase in retail fuel contribution of$195.4 million in 2020 compared to Q1 2019, while PS&W margins were negative due to the lower-trending product prices which created unfavorable timing and inventory adjustments. Total fuel contribution (retail fuel margin plus product supply and wholesale ("PS&W") results including Renewable Identification Numbers ("RINs")) for Q1 2020 was22.5 cents per gallon, a 82.9% increase when compared to the 2019 Q1 total fuel contribution of12.3 cents per gallon. The COVID-19 pandemic has affected all sectors of the global economy. Beginning in mid-March, we began to see a reduction in customer count, which has impacted our business. The commodity environment for crude oil and refined gasoline and distillates remains volatile and while the current retail fuel margin is significantly higher than our 5-year historical averages, we are unable to forecast when that margin environment will normalize. In addition, our revenues are impacted by our ability to leverage our diverse supply infrastructure in pursuit of obtaining the lowest cost fuel supply available; for example, activities such as blending bulk fuel with ethanol and bio-diesel to capture and subsequently sell RINs. Under the Energy Policy Act of 2005, theEnvironmental Protection Agency ("EPA ") 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 be sold in a market for RINs at then-prevailing prices. The market price for RINs fluctuates based on a variety of factors, including but not limited to governmental and regulatory action. There are other market related factors that can impact the net benefit we receive from RINs on a company-wide basis either favorably or unfavorably. Revenue from the sales of RINs is included in "Other operating revenues" in the Consolidated Statements of Income. The Renewable Fuel Standard ("RFS") program continues to be unpredictable and ethanol RIN prices have ranged from$0.14 to$0.40 during Q1 2020, which compares to$0.11 to$0.25 in Q1 2019. The average RIN price received in Q1 2020 was$0.22 compared to$0.17 in Q1 2019. As ofMarch 31, 2020 , we have$800 million of Senior Notes and$250 million of a term loan outstanding. We believe that we will generate sufficient cash from operations to fund our ongoing operating requirements. AtMarch 31, 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. Currently we do not expect to seek government aid from the federal programs established by the CARES Act. For additional information see Significant Sources of Capital in the Capital Resources and Liquidity section. 31 -------------------------------------------------------------------------------- The Company currently anticipates total capital expenditures (including land for future developments) for the full year 2020 to range from approximately$225 million to$275 million depending on how many new sites are completed. We intend to fund the remainder of our capital program in 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 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 ofMarch 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. At present, we cannot forecast how such measures will affect seasonal patterns for fiscal 2020. As a result, operating results for the three months endedMarch 31, 2020 are not necessarily indicative of the results that may be expected for the year endingDecember 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 endedDecember 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 months endedMarch 31, 2020 . Results of Operations Consolidated Results For the three month period endedMarch 31, 2020 , the Company reported net income of$89.3 million , or$2.92 per diluted share, on revenue of$3.2 billion . Net income was$5.3 million for the same period in 2019, or$0.16 per diluted share, on$3.1 billion in revenue. The increase in net income is primarily due to higher all-in fuel contribution and higher total retail fuel volumes combined with an increased merchandise contribution, partially offset by higher station operating and selling, general and administrative ("SG&A") expenses. Beginning in the latter half ofMarch 2020 , the Company began experiencing reduced retail fuel volumes due to COVID-19 related stay-at-home restrictions that were more than offset by the higher retail fuel margins.
Three Months Ended
Quarterly revenues for 2020 increased$68.4 million , or 2.2%, compared to the same quarter in 2019. The increase in revenues were due to higher total retail fuel sales volumes, merchandise sales, RINs sales, and was partially offset by lower PS&W revenues. Total cost of sales decreased$50.4 million , or 1.7% when compared to 2019. In the current-year quarter, the lower costs were primarily due to lower fuel costs from lower wholesale prices, partially offset by higher fuel volumes and higher merchandise costs.
Station and other operating expenses increased
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SG&A expenses for Q1 2020 increased $4.6 million , or 13.3%, from Q1 2019. The
increase in SG&A costs is primarily due to increased employee-related expenses
and higher professional fees from business improvement initiatives.
The effective income tax rate was approximately 23.9% for Q1 2020 versus 10.9% for the same period of 2019. The higher rate in Q1 2020 was due to similar discrete tax items having a smaller impact on higher pretax income.
Segment Results
A summary of the Company's earnings by business segment follows:
Three Months Ended
March 31,
(Millions of dollars) 2020 2019
Marketing $ 100.9 $ 16.2
Corporate and other assets (11.6) (10.9)
Net Income $ 89.3 $ 5.3 Three Months Ended
Net income for the three months ended
•Significantly higher all-in fuel contribution •Higher merchandise contribution
The items below partially offset the increase in earnings in the current period:
•Higher station and other operating expenses •Higher SG&A expenses •Higher effected income tax rate (Millions of dollars, except revenue per store Three Months Ended month (in thousands) and store counts) March 31, Marketing Segment 2020 2019 Operating Revenues Petroleum product sales$ 2,480.2 $ 2,499.8 Merchandise sales 687.5 606.2 Other operating revenues 17.0 10.3 Total operating revenues 3,184.7 3,116.3 Operating expenses Petroleum products cost of goods sold 2,259.8 2,381.5 Merchandise cost of goods sold 580.0 508.7 Station and other operating expenses 135.1 132.8 Depreciation and amortization 35.9 36.6 Selling, general and administrative 39.2 34.6 Accretion of asset retirement obligations 0.6 0.5 Total operating expenses 3,050.6 3,094.7 Gain (loss) on sale of assets 0.1 (0.1) Income (loss) from operations 134.2 21.5 33
-------------------------------------------------------------------------------- (Millions of dollars, except revenue per store Three Months Ended month (in thousands) and store counts) March 31, Marketing Segment 2020 2019 Income (loss) before income taxes 134.2 21.5 Income tax expense (benefit) 33.3 5.3 Income (loss) from operations
Total tobacco sales revenue same store sales1,2$ 112.3 $ 98.8 Total non-tobacco sales revenue same store sales1,2 41.5 39.0 Total merchandise sales revenue same store sales1,2$ 153.8 $ 137.8 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 1,491 1,473 Total store months during the period 4,461 4,399
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 byJanuary 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. Fuel Three Months Ended March 31, Key Operating Metrics 2020 2019 Total retail fuel contribution ($ Millions)$ 283.0 $ 87.6 Total PS&W contribution ($ Millions) (61.5) 31.4
RINs and other (included in Other operating revenues on Consolidated Income Statement) ($ Millions)
15.5 9.2
Total fuel contribution ($ Millions) $ 237.0 $ 128.2
Retail fuel volume - chain (Million gal) 1,053.7 1,041.6
Retail fuel volume - per site (K gal APSM)1 236.2 236.8
Retail fuel volume - per site (K gal SSS)2 232.6 234.3
Total fuel contribution (including retail, PS&W and RINs) (cpg)
22.5 12.3
Retail fuel margin (cpg) 26.9 8.4
PS&W including RINs contribution (cpg) (4.4) 3.9
1APSM metric includes all stores open through the date of calculation 22019 amounts not revised for 2020 raze-and-rebuild activity
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The reconciliation of the components of total fuel contribution to the Consolidated Income Statements is as follows:
Three Months Ended
March 31,
(Millions of dollars) 2020 2019
Petroleum product sales $ 2,480.2 $ 2,499.8
Less Petroleum product cost of goods sold (2,259.8) (2,381.5)
Plus RINs and other (included in Other Operating Revenues
line) 16.6 9.9
Total fuel contribution $ 237.0 $ 128.2
Merchandise
Three Months Ended
March 31,
Key Operating Metrics 2020 2019
Total merchandise contribution ($ Millions) $ 107.5 $ 97.5
Total merchandise sales ($ Millions) $ 687.5 $ 606.2
Total merchandise sales ($K SSS)1,2 $ 153.8 $ 137.8
Merchandise unit margin (%) 15.6 % 16.1 %
Tobacco contribution ($K SSS)1,2 $ 15.5 $ 13.4
Non-tobacco contribution ($K SSS)1,2 $ 9.0 $ 9.0
Total merchandise contribution ($K SSS)1,2 $ 24.5 $ 22.4
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
Three Months Ended
Net income in the Marketing segment for Q1 2020 increased$84.7 million compared to the Q1 2019 period. The primary drivers were the 82.9% increase on a cpg basis in total fuel contribution to 22.5 cpg in Q1 2020 and higher total merchandise contribution which increased 10.3% to$107.5 million , both of which were partially offset by higher station operating expenses. Total revenues for the Marketing segment were approximately$3.2 billion in Q1 2020 compared to$3.1 billion in Q1 2019. The increased revenues were due to a 13.4% increase in merchandise sales, a 1.2% increase in the number of gallons sold, and higher RINs revenues. Revenues included excise taxes collected and remitted to government authorities of$473.5 million in Q1 2020 and$455.3 million in Q1 2019. Total fuel sales volumes on a same store sales ("SSS") basis decreased 1.0% to 232.6 thousand gallons per store in the 2020 period. Retail fuel margin dollars increased 223.0% compared to the prior year quarter on higher total volumes and a margin rate of 26.9 cpg for Q1 2020 which compared to 8.4 cpg in the same quarter of 2019. Total PS&W margin dollars, excluding RINs, were a loss of$61.5 million in the 2020 period compared to income of$31.4 million in 2019. The decrease in the current period was due to lower trending prices causing negative timing and inventory adjustments. The 2020 quarter includes the sale of RINs of$15.5 million compared to$9.2 million in Q1 2019, which consisted of sales of 69 million RINs at an average selling price of$0.22 per RIN while the prior-year quarter had sales of 53 million RINs at an average price of$0.17 per RIN. 35 -------------------------------------------------------------------------------- Total merchandise sales increased 13.4% to$687.5 million in 2020's Q1 from$606.2 million in Q1 2019 due to higher sales across the chain. There was an increase in tobacco products sales of 14.7% and 4.6% in non-tobacco sales, on an SSS basis. Quarterly total merchandise contribution in 2020 was 10.3% higher than Q1 2019. Increased contribution from lower-margin tobacco categories lowered the average unit margins to 15.6% in the current-year quarter. Total merchandise contribution dollars per store grew 9.7% on a SSS basis.
Station and other operating expenses increased
Same store sales information compared to APSM metrics
Variance from prior year
Three months ended
March 31, 2020
SSS1 APSM2
Fuel gallons per month (1.0) % (0.2) %
Merchandise sales 11.8 % 11.8 %
Tobacco sales 14.7 % 14.1 %
Non-tobacco sales 4.6 % 6.6 %
Merchandise margin 9.7 % 8.6 %
Tobacco margin 17.2 % 15.4 %
Non-tobacco margin (1.1) % 0.5 %
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
After-tax results for Corporate and other assets for Q1 2020 were a loss of
Non-GAAP Measures The following table sets forth the Company's Adjusted EBITDA for the three months endedMarch 31, 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 withU.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 36 --------------------------------------------------------------------------------
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
March 31,
(Millions of dollars) 2020 2019
Net income $ 89.3 $ 5.3
Income tax expense (benefit) 28.0 0.6
Interest expense, net of interest income 12.5 12.9
Depreciation and amortization 39.4 39.7 EBITDA 169.2 58.5 Net settlement proceeds - (0.1) Accretion of asset retirement obligations 0.6
0.5
(Gain) loss on sale of assets (0.1)
0.1
Other nonoperating (income) expense 1.0 (0.2) Adjusted EBITDA$ 170.7 $ 58.8
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$91 million atMarch 31, 2020 (which can be utilized for working capital and other general corporate purposes, including supporting our operating model as described herein) and a$250 million term loan facility, as well as a$150 million incremental uncommitted facility. As ofMarch 31, 2020 , we had$250 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. In addition, we do not currently expect to seek government aid from federal programs established by the CARES Act.
Our term loan matures in
Operating Activities
Net cash provided by operating activities was$113.7 million for the three months endedMarch 31, 2020 and was$48.1 million for the comparable period in 2019. Net income increased$84.0 million in 2020 compared to the corresponding period in 2019, and offset by decreases in non-cash working capital of$27.4 million . Investing Activities For the three months endedMarch 31, 2020 , cash required by investing activities was$47.2 million compared to$29.5 million in 2019. The investing cash use increase in the current period was primarily due to the timing of capital expenditures which were higher in the current period. Other investing activities required$0.8 million in cash during 2020 compared to cash required of$0.1 million in 2019. 37 --------------------------------------------------------------------------------
Financing Activities
Financing activities in the three months endedMarch 31, 2020 required cash of$146.5 million compared to$22.7 million of cash required in the three months endedMarch 31, 2019 . The current period included$140.6 million for the repurchase of common shares, which was an increase of$127.3 million from the prior-year period. Amounts related to share-based compensation required$1.6 million more in cash during 2020 than in 2019. Net repayments of debt required$0.3 million in 2020 compared to$5.4 million in 2019.
Share Repurchase Program
During the quarter ended
Debt
Our long-term debt atMarch 31, 2020 andDecember 31, 2019 was as set forth below: March 31, December 31, (Millions of dollars) 2020 2019
5.625% senior notes due 2027 (net of unamortized discount
of
$
297.3
494.1 493.9
Term loan due 2023 (effective interest rate of 3.91% at
250.0 250.0
Capitalized lease obligations, vehicles, due through 2023 2.4 2.4
Less unamortized debt issuance costs (5.2) (5.5)
Total notes payable, net 1,038.6 1,038.1
Less current maturities 51.2 38.8
Total long-term debt, net of current $ 987.4 $ 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.
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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
InAugust 2019 , we amended and extended our existing credit agreement. The effective date of the agreement was extended to August, 2024. The credit agreement provides for a committed$325 million asset-based loan (ABL) facility (with availability subject to the borrowing base described below) and a$250 million term loan facility. It also provides for a$150 million uncommitted incremental facility. OnAugust 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 onDecember 31, 2019 , we borrowed the additional$50 million term loan. AtDecember 31, 2019 andMarch 31, 2020 , the current outstanding principal balance was$250 million . The term loan is dueAugust 2023 and requires quarterly principal payments of$12.5 million beginningApril 1, 2020 . As ofMarch 31, 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 • 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
Interest payable on the credit facilities is based on either:
•theLondon 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 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 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
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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 March 31, 2020 , our fixed charge coverage ratio was 0.91,
and we had $91.3 million of availability under the ABL facility at that date.
Consequently, our ability to make certain restricted payments was limited but we
remain in compliance with the covenant. Our secured debt to EBITDA ratio as of
March 31, 2020 was 0.46 to 1.0.
The credit agreement contains restrictions on certain payments, including
dividends, when availability under the credit agreement (x) 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 (y) 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 March 31, 2020 and December 31, 2019 , our availability
under the borrowing base was less than $100 million , at $91.3 million , while our
fixed charge coverage ratio was less than 1.0 to 1.0, at 0.91. As a result, and
subject to an annual available basket of up to $25 million which remains unused
for the current year, our ability to make restricted payments was limited. As of
March 31, 2020 , the Company had a shortfall of approximately $53.9 million of
our net income and retained earnings subject to such restrictions before the
fixed charge coverage ratio would exceed 1.0 to 1.0.
All obligations under the credit agreement are guaranteed by Murphy USA and the
subsidiary guarantors party thereto, and all obligations under the credit
agreement, including the guarantees of those obligations, are secured by certain
assets of Murphy USA , Murphy Oil USA, Inc. and the guarantors party thereto.
Capital Spending
Capital spending and investments in our Marketing segment relate primarily to
the acquisition of land and the construction of new Company stations. Our
Marketing capital is also deployed to improve our existing sites, which
we refer to as sustaining capital. We also use sustaining capital in
this business as needed to ensure reliability and continued performance of our
sites. We also invest in our Corporate and other assets segment.
The following table outlines our capital spending and investments by segment for
the three month periods ended March 31, 2020 and 2019:
Three Months Ended
March 31,
(Millions of dollars) 2020 2019
Marketing:
Company stores $ 27.3 $ 24.0
Terminals 0.4 0.4
Sustaining capital 4.6 2.4
Corporate and other assets 13.1 3.9
Total $ 45.4 $ 30.7
We currently expect capital expenditures for the full year 2020 to range from
approximately $225 million to $275 million , including $140 million for
retail growth, approximately $30 million for maintenance capital, with the
remaining funds earmarked for other corporate investments, including 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.
40
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FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain statements or may suggest
"forward-looking" information (as defined in the Private Securities Litigation
Reform Act of 1995) that involve risk and uncertainties, including, but not
limited to anticipated store openings, fuel margins, merchandise margins, sales
of RINs and trends in our operations. Such statements are based upon the current
beliefs and expectations of the Company's management and are subject to
significant risks and uncertainties. Actual future results may differ materially
from historical results or current expectations depending upon factors
including, but not limited to: our ability to continue to maintain a good
business relationship with Walmart; successful execution of our growth strategy,
including our ability to realize the anticipated benefits from such growth
initiatives, and the timely completion of construction associated with our newly
planned stores which may be impacted by the financial health of third parties;
our ability to effectively manage our inventory, disruptions in our supply chain
and our ability to control costs; the impact of severe weather events, such as
hurricanes, floods and earthquakes; the impact of a global health pandemic, such
as COVID-19, and the responsive measures taken by governmental authorities; the
impact of any systems failures, cybersecurity and/or security breaches,
including any security breach that results in theft, transfer or unauthorized
disclosure of customer, employee or company information or our compliance with
information security and privacy laws and regulations in the event of such an
incident; successful execution of our information technology strategy; future
tobacco or e-cigarette legislation and any other efforts that make purchasing
tobacco products more costly or difficult could hurt our revenues and impact
gross margins; efficient and proper allocation of our capital resources;
compliance with debt covenants; availability and cost of credit; and changes in
interest rates. Our public filings, including our most recent Annual Report on
our Form 10-K contains other information on these and other factors that could
affect our financial results and cause actual results to differ materially from
any forward-looking information we may provide. The Company undertakes no
obligation to update or revise any forward-looking statements to reflect
subsequent events, new information or future circumstances.
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