MURPHY USA INC. 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. 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
Annual Report on Form 10-K.
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 three years endedDecember 31, 2020 . •Capital Resources and Liquidity-this section provides a discussion of our financial condition and cash flows as of and for the three years endedDecember 31, 2020 . 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 Our Business Our business consists primarily of the marketing of retail fuel products and convenience merchandise through a network of retail gasoline stores and unbranded wholesale customers. Our owned retail stores are primarily all located near Walmart stores and use the brand name Murphy USA®. We also market gasoline and other products at stand-alone stores under the Murphy Express brand. AtDecember 31, 2020 , we had a total of 1,503 Company stores in 25 states, principally in the Southeast, Southwest and Midwest United States.
Trends Affecting Our Business
Our operations are significantly impacted by the gross margins we receive on our
fuel sales. These gross margins are commodity-based, change daily and are
volatile. While we expect our total fuel sales volumes to grow over time and the
gross margins we realize on those sales to remain strong in a normalized
environment, these gross margins can change rapidly due to many factors. These
factors include, but are not limited to, the price of refined products,
interruptions in supply caused by severe weather, travel restrictions and
stay-at-home orders imposed during a pandemic such as COVID-19, severe refinery
mechanical failures for an extended period of time, and competition in the local
markets in which we operate. The COVID-19 pandemic continues to impact gasoline
demand as the work-from-home and virtual school environment is still affecting
many areas with no changes expected until mid 2021. If the recoveries
experienced throughout 2020 stall or reverse as a resurgence in COVID-19
infection rates and related government intervention occur, this could cause
volume declines. However, incrementally higher fuel margins related to volume
decline may help mitigate any adverse financial impact.
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The cost of our main sales products, gasoline and diesel, is greatly impacted by
the cost of crude oil in the United States . Generally, rising prices for crude
oil increase the Company's cost for wholesale fuel products purchased. When
wholesale fuel costs rise, the Company is not always able to immediately pass
these price increases on to its retail customers at the pump, which in turn
squeezes 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 2020 were very volatile during the year
ranging from negative territory to a maximum of $63 per barrel due to pandemic
related influences and other world events. The lower wholesale prices in 2020
have resulted in a higher fuel contribution on a cents per gallon ("cpg") basis,
but this higher contribution was partially offset by declines in the fuel volume
sold. Total fuel contribution (retail fuel margin plus product supply and
wholesale ("PS&W") results including Renewable Identification Numbers ("RINs"))
was 25.2 cpg in 2020, a 56.3% increase over 2019's total fuel contribution of
16.1 cpg.
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, the EPA is authorized to set annual quotas
establishing the percentage of motor fuels consumed in the United States that
must be attributable to renewable fuels. Obligated parties are required to
demonstrate that they have met any applicable quotas by submitting a certain
amount of RINs to the EPA . RINs in excess of the set quota can 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 ethanol RIN prices ranged from $0.05 to $0.72 , with an average
sales price of $0.41 per RIN for the year 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 of December 31, 2020 , we had $800 million of Senior Notes and $212.5 million
of term loan outstanding. We believe that we will generate sufficient cash from
operations to fund our ongoing operating requirements. At December 31, 2020 , we
had additional available capacity under the committed $325 million credit
facilities (subject to the borrowing base), together with capacity under a $150
million incremental uncommitted facility. We expect to use the credit facilities
to provide us with available financing intended to meet any ongoing cash needs
in excess of internally generated cash flows. To the extent necessary, we will
borrow under these facilities to fund our ongoing operating requirements.There
can be no assurances, however, that we will generate sufficient cash from
operations or be able to draw on the credit facilities, obtain commitments for
our incremental facility and/or obtain and draw upon other credit facilities.
For additional information, see Significant Sources of Capital in the Capital
Resources and Liquidity section.
The Company currently anticipates total capital expenditures (including land for
future development) for the full year 2021 to range from approximately $325
million to $375 million depending on how many new sites are completed. We intend
to fund our capital program in 2021 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 with our
acquisition that was completed on January 29, 2021 of the QuickChek chain of
stores and as we expand our food and beverage capabilities with development of a
fit-for-purpose F&B model for our stores. We have an active real estate
development team that maintains a ready pipeline of desirable site 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 sites in certain geographic areas, as well as customer behaviors during different seasons. In general, sales volumes and operating incomes 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 , we began to see a disruption to typical seasonal patterns as a result of stay-at-home restrictions due to the COVID-19 pandemic. This pattern continued throughout the remainder of the year, resulting in fuel volumes sold falling below our historical average. At present we cannot forecast how such measures will affect seasonal patterns into 2021 and the pandemic continues to influence travel behavior. 30 -------------------------------------------------------------------------------- Business Segments Our business is organized into one operating segment which is Marketing. The Marketing segment includes our retail marketing sites and product supply and wholesale assets. For operating segment information, see Note 20 "Business Segments" in the accompanying audited consolidated financial statements for the three-year period endedDecember 31, 2020 .
Results of Operations
Consolidated Results
For the year endedDecember 31, 2020 , the Company reported net income of$386.1 million or$13.08 per diluted share on revenue of$11.3 billion . Net income was$154.8 million for 2019 or$4.86 per diluted share on revenue of$14.0 billion .
A summary of the Company's earnings by business segment follows:
Year ended December 31,
(millions of dollars) 2020 2019 2018
Marketing $ 442.2 $ 215.0 $ 214.2
Corporate and other assets (56.1) (60.2) (0.6)
Net income $ 386.1 $ 154.8 $ 213.6
Net income for 2020 increased compared to 2019, primarily due to:
•Higher all-in fuel contribution;
•Higher merchandise contribution;
•Lower station and other operating expenses, primarily due to lower payment
fees;
•Lower interest expense;
•No loss on early debt extinguishment in 2020
The items below partially offset the increase in earnings in the current period:
•Higher depreciation expense;
•Higher general and administrative expenses
Net income for 2019 decreased compared to 2018 primarily due to:
•Lower settlement proceeds from Deepwater Horizon spill recorded in Corporate
and other assets;
•Higher station and other operating expenses;
•Higher general and administrative expenses;
•Higher depreciation;
•Loss on early debt extinguishment
The items below partially offset the decrease in earnings of 2019 from 2018:
•Higher all-in fuel contribution;
•Higher merchandise contribution
2020 versus 2019
Revenues for the year ended December 31, 2020 decreased $2.8 billion , or 19.7%,
compared to 2019. The decrease was due to a lower retail fuel price of 42 cpg
for 2020 due to lower wholesale fuel prices partially due to the travel
restrictions related to the COVID-19 pandemic and combined with a decrease in
retail fuel sales volumes of 10.8%. Merchandise sales were higher year-over-year
by 12.8% primarily due to sales from cigarettes and lottery.
Cost of sales decreased $3.1 billion , or 23.9%, compared to 2019, due to the
decrease in retail fuel volumes sold and lower average cost of fuel and was
partially offset by increased merchandise cost of sales due to an increase in
numbers of units sold.
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Station and other operating expenses decreased $10.2 million ,or 1.8% in 2020 due
primarily to lower payments fees driven by lower fuel revenues and was partially
offset by higher employee related expenses. On an average per store month (APSM)
basis, station operating expenses excluding credit card fees and rent increased
2.5% in 2020. For the year 2020, COVID-related operating expenses were $236 on
an APSM basis, without these costs the OPEX increase would have been 1.4%.
Selling, general and administrative expenses for 2020 were higher by $26.5
million . The increase was mainly due to a $10 million charitable contribution,
higher employee-related costs in the current year, and higher professional
service costs.
Interest expense in 2020 decreased by $3.7 million compared to 2019 due to lower
interest rates on the 2029 bonds outstanding compared to the 2023 bonds for a
full year compared to a partial year in 2019. Additionally, in 2019 there was an
accelerated write-off of associated debt issuance costs on redemption of the
2023 bonds and modification of the revolver.
During 2019, the company recorded a $14.8 million loss on early debt
extinguishment related to the call and redemption of our 2023 Senior Notes and
had no such costs in 2020.
Depreciation expense in 2020 increased $8.8 million due primarily to more stores
in operation when compared to 2019, combined with accelerated depreciation on
raze-and-rebuilds.
Income tax expense was higher in 2020 by $75.4 million due primarily to higher
pretax income. The effective income tax expense rate in 2020 was 24.2% compared
to 23.5% for 2019 due to fewer discrete state income tax benefits.
2019 versus 2018
Revenues for the year endedDecember 31, 2019 decreased$0.3 billion , or 2.3%, compared to 2018. The decrease was primarily due to a decrease in retail fuel prices of 14 cpg for the 2019 full year which was partially offset by an increase in retail fuel sales volumes of 3.4%, due primarily to an increase in the number of stores and improved pricing tactics. Merchandise sales were also higher year-over-year by 8.1% Cost of sales decreased$0.4 billion , or 2.8%, compared to 2018. This decrease was due to retail fuel sold at a lower average cost which was partially offset by higher volumes and increased merchandise cost of goods sold. Station and other operating expenses increased$18.0 million , or 3.3% in 2019 due primarily to the addition of 17 new stores, along with 27 larger stores under our raze-and-rebuild program. On an average per store month ("APSM") basis, the station operating expenses applicable to the retail marketing business increased 2.0% in 2019. The largest area of increase was in employee related expenses. Selling, general and administrative expenses for 2019 were higher by$8.4 million . The increase was mainly due to higher professional fees, employee benefit costs, and increased technology service costs. Net settlement proceeds for 2019 were$0.1 million (before tax), which represented the final remaining net settlement of damages incurred in connection with the 2010 Deepwater Horizon oil spill, compared to$50.4 million in 2018. Interest expense in 2019 increased by$2.0 million compared to 2018 due primarily to additional term loan borrowings in 2019 and the accelerated write-off of associated debt issuance costs on the modification of the revolver combined with a lower amount of capitalized interest. During 2019, the company recorded a$14.8 million loss on early debt extinguishment related to the call and redemption of our 2023 Senior Notes. Depreciation expense in 2019 increased$18.2 million due primarily to more stores in operation during 2019 when compared to 2018, combined with accelerated depreciation on raze-and-rebuilds. Income tax expense was lower in 2019 by$12.7 million due primarily to lower pretax income. The effective rate in 2019 was 23.5% compared to a tax benefit of 22.0% for 2018 due to fewer discrete state income tax benefits and lower excess tax benefits from equity compensation. 32 --------------------------------------------------------------------------------
Segment Results
Marketing
Income before income taxes in the Marketing segment for 2020 increased
The tables below show the results for the Marketing segment for the three years endedDecember 31, 2020 along with certain key metrics for the segment. (Millions of dollars, except revenue per store month (in thousands) and store counts) Years Ended December 31, Marketing Segment 2020 2019 2018 Operating revenues Petroleum product sales$ 8,208.6 $
11,373.8$ 11,858.4 Merchandise sales 2,955.1 2,620.1 2,423.0 Other 100.3 40.4 80.9 Total operating revenues$ 11,264.0 $
14,034.3
Operating expenses Petroleum product cost of goods sold 7,325.7 10,707.4 11,251.1 Merchandise cost of goods sold 2,495.7 2,200.7 2,022.5 Station and other operating expenses 549.0 559.3 541.3 Depreciation and amortization 146.3 138.9 124.5 Selling, general and administrative 171.1 144.6 136.2 Accretion of asset retirement obligations 2.3 2.1 2.0 Total operating expenses$ 10,690.1 $ 13,753.0 $ 14,077.6 Gain (loss) on sale of assets 1.3 0.1 (1.1) Income from operations 575.2 281.4 283.6 Other income (expense) Interest expense (0.1) (0.1) (0.1) Other nonoperating income - - 0.2 Total other income (expense)$ (0.1) $
(0.1)
Income before income taxes 575.1 281.3 283.7 Income tax expense (benefit) 132.9 66.3 69.5 Income$ 442.2 $
215.0
Total tobacco sales revenue per same store sales1,2$ 120.6 $ 107.3 $ 101.2 Total non-tobacco sales revenue per same store sales1,2 45.5 41.0 39.1 Total merchandise sales revenue per same store sales1,2$ 166.1 $
148.3
Store count at end of period 1,503 1,489 1,472
Total store months during the period 17,770 17,621 17,343
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APSM metric includes all stores open through the date of the calculation.
Same store sales ("SSS") metric includes aggregated individual store results for
all stores open throughout both periods presented. For all periods presented,
the store must have been open for the entire calendar year to be included in the
comparison. Remodeled stores that remained open or were closed for just a very
brief time (less than a month) during the period being compared remain in the
same store sales calculation. If a store is replaced either at the same location
(raze-and-rebuild) or relocated to a new location, it will be excluded from the
calculation during the period it is out of service. Newly constructed sites do
not enter the calculation until they are open for each full calendar year for
the periods being compared (open by January 1, 2019 for the sites being compared
in the 2020 versus 2019 comparison). When prior period same store sales volumes
or sales are presented, they have not been revised for current year activity for
raze-and-rebuilds and asset dispositions.
Fuel
Twelve Months
Ended
Key Operating Metrics 2020 2019 2018
Total retail fuel contribution ($ Millions)
605.8$ 624.2 Total PS&W contribution ($ Millions) (8.5) 64.0 (13.8) RINs and other (included in Other operating revenues on Consolidated Income Statement) ($ Millions) 95.6 34.8 75.2
Total fuel contribution ($ Millions)
704.6$ 685.6 Retail fuel volume - chain (Million gal) 3,900.9 4,374.5 4,232.2 Retail fuel volume - per site (K gals APSM)1 219.5 248.3 244.0 Retail fuel volume - per site (K gal SSS)2 216.2 243.8 242.6 Total fuel contribution (including retail, PS&W and RINs) (cpg) 25.2 16.1 16.2 Retail fuel margin (cpg) 22.9 13.8 14.7 PS&W including RINs contribution (cpg) 2.3 2.3 1.5
1APSM metric includes all stores open through the date of calculation 22019 and 2018 amounts not revised for subsequent raze-and-rebuild activity (see SSS definition above)
The reconciliation of the total fuel contribution to the Consolidated Income
Statements is as follows:
Twelve Months Ended December 31,
(Millions of dollars) 2020 2019 2018
Petroleum product sales $ 8,208.6 $ 11,373.8 $ 11,858.4
Less Petroleum product cost of goods sold (7,325.7) (10,707.4) (11,251.1)
Plus RINs and other (included in Other
Operating Revenues line) 99.2 38.2 78.3
Total fuel contribution $ 982.1 $ 704.6 $ 685.6
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Merchandise
Twelve Months
Ended
Key Operating Metrics 2020 2019 2018
Total merchandise contribution ($ Millions) $ 459.4 $ 419.4 $ 400.4
Total merchandise sales ($ Millions) $ 2,955.1 $ 2,620.1 $ 2,423.0
Total merchandise sales ($K SSS)1,2 $ 166.1 $ 148.3 $ 140.3
Merchandise unit margin (%) 15.6 % 16.0 % 16.5 %
Tobacco contribution ($K SSS)1,2 $ 16.5 $ 14.6 $ 13.7
Non-tobacco contribution ($K SSS)1,2 $ 10.0 $ 9.6 $ 9.6
Total merchandise contribution ($K SSS)1,2 $ 26.5 $ 24.2 $ 23.3
12019 and 2018 amounts not revised for subsequent raze-and-rebuild activity (see SSS definition above)
2Includes site-level discounts for MDR redemptions and excludes change in value of unredeemed MDR points
2020 versus 2019
Total fuel contribution for the year endedDecember 31, 2020 was$982.1 million , a 39.4% increase over 2019. This contribution improvement was partially offset by lower total fuel volumes for the year endedDecember 31, 2020 , which were down 10.8% primarily due to the COVID-19 pandemic travel restrictions and it impacted retail fuel volumes in 2020 on a SSS basis as well which were lower by 12.3% compared to 2019. The Marketing segment had total revenues of$11.3 billion in 2020 compared to approximately$14.0 billion in 2019, a decrease of$2.7 billion , due primarily to a lower average retail fuel price and decreased volumes sold. Revenue amounts included excise taxes collected and remitted to government authorities of$1.8 billion in 2020 and$1.9 billion in 2019. Total fuel sales volumes on an SSS basis were 216,158 gallons per month in 2020, a decrease from 243,818 gallons per month in the prior year. Retail fuel margin increased in 2020 to 22.9 cpg, compared to 13.8 cpg in the prior year. The higher fuel margins in the current year were attributed to a decrease in average wholesale fuel prices in 2020. Total product supply and wholesale margin dollars before RINs decreased in the current year, which is typical in a declining price environment due to timing and inventory price adjustments. This decline was offset by an increase in the contribution from sales of RINs. During 2020, operating income included$95.5 million from the sale of 233.9 million RINs at an average selling price of$0.41 per RIN compared to 2019's$34.8 million for the sale of 197.0 million RINs at an average price of$0.18 per RIN. Merchandise sales were up 12.8% in 2020 to$3.0 billion . Merchandise unit margins decreased 40 basis points, to 15.6% in 2020 from 16.0% in 2019. On a SSS basis, total merchandise sales were up 11.7% with tobacco products up 12.8%, along with an 8.7% increase in non-tobacco sales. Total margins on a SSS basis for 2020 were up 9.6% with tobacco margins higher by 14.9%, and there was an overall increase of 2.0% in non-tobacco margins, mainly from increased lottery but which were partially offset by lower sales in the snack categories. Station and other operating expenses decreased$10.3 million in 2020 compared to 2019 levels, a decrease of 1.8%. This decrease in total dollars was due mainly to lower payment fees due to lower retail sales which was mostly offset by increases in rents and store operating costs due to an increase in store count. Excluding credit card fees and rent on an APSM basis, station and other operating expenses at the retail level were higher in 2020 by 2.5% compared to 2019 levels. This increase was due primarily to higher employee related expenses and COVID-related expenses. COVID-related expense on an APSM basis were$236 , without these costs, the increase in OPEX would have been 1.4% versus 2019. Depreciation and amortization increased$7.4 million in 2020, an increase of 5.3%. This increase was caused by more stores operating in the 2020 period combined with accelerated depreciation on raze-and-rebuild sites. Selling, general and administrative expenses ("SG&A") increased$26.5 million in 2020 compared to 2019. The increased SG&A costs were primarily due to a$10 million charitable contribution, higher employee related expenses, and higher professional service costs. 35 --------------------------------------------------------------------------------
2019 versus 2018
Total fuel volumes for the year endedDecember 31, 2019 were up 3.4%. Retail fuel volumes in 2019 on a SSS basis were higher by 1.2% compared to 2018. The increase in retail volumes on a SSS basis was primarily attributable to improved pricing tactics. The Marketing segment had total revenues of$14.0 billion in 2019 compared to approximately$14.4 billion in 2018, an decrease of$0.4 billion . Revenue amounts included excise taxes collected and remitted to government authorities of$1.9 billion in 2019 and$1.8 billion in 2018. Total fuel sales volumes on an SSS basis were 243,818 gallons per month in 2019, increased from 242,562 gallons per month in the prior year. Retail fuel margin decreased in 2019 to 13.8 cpg, compared to 14.7 cpg in the prior year. The lower fuel margins in the period were attributed to a rising fuel price environment which typically compresses retail margins. Total product supply and wholesale margin dollars excluding RINs increased in 2019 which is typical in a rising price environment due to timing and inventory price adjustments, partially offset by a decline in the contribution of RINs sales. During 2019, operating income included$34.8 million from the sale of 197.0 million RINs at an average selling price of$0.18 per RIN compared to$75.2 million for the sale of 227.2 million RINs at an average price of$0.33 per RIN in 2018. Merchandise sales were up 8.1% in 2019 to$2.6 billion . Merchandise unit margins decreased 50 basis points, to 16.0% in 2019 from 16.5% in 2018. On a SSS basis, total merchandise sales were up 6.5% with tobacco products up 7.7%, along with a 3.5% increase in non-tobacco sales. Total margins on a SSS basis for 2019 were up 4.5% with tobacco margins higher 8.2%, partially offset by a 0.6% decrease in non-tobacco margins that were negatively impacted by the allocation of certain immaterial costs that were previously included in operating expense. Station and other operating expenses increased$18.0 million in 2019 compared to 2018 levels, an increase of 3.3%. This increase in total dollars was due mainly to increased store count. Excluding credit card fees, on an APSM basis, station and other operating expenses at the retail level were higher in 2019 by 2.0% compared to 2018 levels. This increase was due primarily to higher employee related expenses. Depreciation and amortization increased$14.4 million in 2019, an increase of 11.5%. This increase was caused by more stores operating in the 2019 period combined with accelerated on raze-and-rebuild sites. Selling, general and administrative expenses increased$8.4 million in 2019 compared to 2018. The increased SG&A costs were primarily due to higher professional fees, employee benefits and other technology service expenses. Corporate and other assets 2020 versus 2019 Income from continuing operations for Corporate and other assets in 2020 was a loss of$56.1 million , compared to a loss of$60.2 million in 2019. Net interest expense was lower in the current year by$3.7 million primarily due to the lower interest rates on the 2029 bonds for the full year compared to the interest rate on the 2023 bonds in the prior year as well as early amortization of associated debt issuance costs due to the call of the 2023 Senior Notes inSeptember 2019 . The Company incurred a$14.8 million loss on early debt extinguishment during 2019 related to the 2023 Senior Notes and had no such loss in 2020. 2019 versus 2018 Income from continuing operations for Corporate and other assets in 2019 was a loss of$60.2 million compared to a loss of$0.6 million in 2018. The 2018 results included the recognition of net settlement proceeds of approximately$50.4 million (pretax) from the 2010 Deepwater Horizon oil spill compared to$0.1 million (pretax) in 2019. Net interest expense was higher in 2019 compared to 2018 by$2.0 million primarily due to the additional borrowings on the term loan, early amortization of associated debt issuance costs due to the call of the 2023 Senior Notes inSeptember 2019 , and was partially offset by lower interest rates on the$500 million Senior Notes issued onSeptember 13, 2019 combined with lower capitalized interest. The Company incurred a$14.8 million loss on early debt extinguishment during 2019 related to the 2023 Senior Notes. Depreciation and amortization expense for 2019 was$3.8 million more than in 2018. 36 --------------------------------------------------------------------------------
Non-GAAP Measures
The following table sets forth the Company's EBITDA and Adjusted EBITDA for the three years endedDecember 31, 2020 . 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 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). 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) 2020 2019 2018 Net income$ 386.1 $ 154.8 $ 213.6 Income tax expense (benefit) 123.0 47.6 60.3 Interest expense, net of interest income 50.2 51.7
51.4
Depreciation and amortization 161.0 152.2 134.0 EBITDA 720.3 406.3 459.3 Net settlement proceeds - (0.1) (50.4) Accretion of asset retirement obligations 2.3 2.1
2.0
(Gain) loss on sale of assets (1.3) (0.1)
1.1
Loss on early debt extinguishment - 14.8
-
Acquisition related costs 1.7 -
-
Other nonoperating (income) expense (0.3) (0.4) (0.2) Adjusted EBITDA$ 722.7 $ 422.6 $ 411.8
Capital Resources and Liquidity
Significant sources of capital
As ofDecember 31, 2020 , we had$163.6 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. AtDecember 31, 2020 , we had borrowing capacity under a committed$325 million asset based loan facility (the "ABL facility") (subject to the borrowing base) and an outstanding balance in our term loan of$212.5 million , as well as a$150 million incremental uncommitted facility. AtDecember 31, 2020 , we had$325 million of borrowing capacity that we could utilize for working capital and other general corporate purposes under our existing facility, including to support our operating model as described herein. Our borrowing base limit for the facility was approximately$214.7 million based onDecember 31, 2020 balance sheet information. See "Debt - Credit Facilities" for the calculation of our borrowing base. Subsequent to year end the Company's capital structure was reconfigured as noted in the followingQuickChek acquisition section. 37 -------------------------------------------------------------------------------- We also have a shelf registration on file with theSEC for an indeterminate amount of debt and equity securities for future issuance, subject to our internal limitations on the amount of debt to be issued under this shelf registration statement. 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 which was announced onDecember 14, 2020 , for all-cash consideration of$645 million before adjustments for working capital and other items. In conjunction with the closing of the acquisition, the Company entered in a new credit agreement that provides for a new cash flow revolving facility with commitments of$350 million and a new term loan in a principal amount of$400 million . Additional borrowing capacity under the revolving facility may be extended at our request and with the consent of the participating lenders. 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 existing ABL facility was terminated and the term loan with$200 million remaining balance outstanding at closing was repaid and retired. Operating Activities Net cash provided by operating activities was$563.7 million for the year endedDecember 31, 2020 and$313.3 million for the comparable period in 2019, an increase of 79.9%, primarily due to an increase in net income of$231.3 million in 2020 compared to 2019 and the amount of cash provided from changes in noncash working capital in 2020 increasing by$35.6 million . For the current year, cash provided by changes in noncash operating working capital was due to a decrease of$4.9 million in accounts receivable, a decrease of$16.6 million in prepaid expenses and other current assets, an increase of$8.3 million in accounts payable and accrued liabilities, and an increase of$8.8 million in income taxes payable, which were partially offset by an increase of$51.7 million in inventories. Other sources of operating cash included a$5.9 million benefit in payroll taxes payable which have been deferred under the CARES Act. The changes in accounts receivable and accounts payable were due to timing of invoicing, billing, payments, and receipts. The variance in prepaid expenses and other current assets and income taxes payable were due to increased pretax income in the current year which moved the Company from a prepaid income tax position to a payable. See also Note 14 "Other financial information" in the accompanying audited consolidated financial statements for the three-year period endedDecember 31, 2020 . There were debt extinguishment costs in 2019 and there were no such costs in 2020. Net cash provided by operating activities was$313.3 million in 2019 and was$398.7 million in 2018. The primary reason for changes in the amounts between 2019 and 2018 related to lower net income, the amount of cash generated from working capital and was offset by benefits from non-cash depreciation and amortization and loss on early debt extinguishment. Changes in noncash working capital from 2018 to 2019 were an increase of$33.4 million from accounts receivable, an increase of$6.1 million in inventory, an increase of$3.3 million in prepaid expense and$5.9 million in accounts payable. Investing Activities For the year endedDecember 31, 2020 , cash required by investing activities was$224.3 million compared to cash required by investing activities of$203.1 million in 2019. The investing cash increase of$21.2 million in 2020 was due primarily to capital expenditures which required cash of$230.7 million in 2020 compared to$204.8 million in 2019 due primarily to more new store openings. Partially offsetting cash required for investing activities was proceeds of the sale ofMinnesota assets in 2020. In 2019, cash required by investing activities was$203.1 million , primarily due to capital expenditures of$204.8 million , while 2018 required cash from investing activities of$209.1 million , primarily due to capital expenditures of$204.3 million . Financing Activities Financing activities in the year endedDecember 31, 2020 required net cash of$456.1 million compared to a net cash required of$14.4 million in the year endedDecember 31, 2019 . The increase in financing cash requirements was due to an increase of$233.8 million in share repurchases and$6.9 million in dividends paid, 38 -------------------------------------------------------------------------------- partially offset by$209.3 million less in net borrowings of debt and no payments for debt extinguishment and debt issuance costs in 2020. Net cash required by financing activities was$14.4 million for the year endedDecember 31, 2019 and in 2018 was$175.1 million . The differences in 2019 were due to net borrowings of$170.4 million in 2019 compared to net payments of$21.3 million in 2018 and were partially offset by payments in 2019 of$10.4 million for debt extinguishment costs and$4.1 million for debt issuance costs. There were$165.8 million in stock repurchases in 2019 compared to$144.4 million in 2018. Share Repurchase program OnJuly 24, 2019 , the 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 , announcedOctober 28, 2020 , is currently in effect. 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 2020, total purchases under the two plans were 3,338,028 common shares for$399.6 million , or$119.70 per share. Purchases made under theJuly 2019 authorization in 2020 were 2,368,374 common shares for$274.6 million , or$115.93 per share and under theOctober 2020 authorization, 969,654 common shares were purchased for$125.0 million , or$128.91 per share, leaving approximately$375.0 million remaining available, as ofDecember 31, 2020 , throughDecember 2023 . Debt
Our long-term debt at
December 31,
(Millions of dollars) 2020 2019
5.625% senior notes due 2027 (net of unamortized discount
of
297.6 297.3
4.75% senior notes due 2029 (net of unamortized discount
of
494.6 493.9
Term loan due 2023 (effective interest rate of 2.67% at 2020 and 4.31% at 2019)
212.5 250.0
Capitalized lease obligations, vehicles, due through 2024 2.1 2.4
Unamortized debt issuance costs (4.4) (5.5)
Total long-term debt 1,002.4 1,038.1
Less current maturities 51.2 38.8
Total long-term debt, net of current $ 951.2 $ 999.3
Subsequent to year end, onJanuary 29, 2021 , the Company updated its debt structure as a result of theQuickChek acquisition. The information below has been updated to reflect the most recent outstanding debt obligations of the Company. For more detail on debt outstanding atDecember 31, 2020 , see Note 7 "Long-Term Debt" in the audited consolidated financial statements for the three years endedDecember 31, 2020 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. 39 -------------------------------------------------------------------------------- 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. 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.
Credit Facilities and Term Loan
OnJanuary 29, 2021 , the Company entered into a new credit agreement that consists of both a cash flow revolving credit facility and a senior secured term loan and that replaced the Company's prior ABL facility and term loan contained in the credit facility that was last renewed in 2019, respectively. 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").
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, casualty events (subject to certain reinvestment rights) and issuances of indebtedness not permitted under the Credit Agreement and with designated proceeds received from certain asset sales, issuances of indebtedness and sale-leaseback transactions, subject to certain exceptions. 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 40 --------------------------------------------------------------------------------
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 which are tested quarterly. The Credit Agreement also contains customary events of default.
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 7 "Long Term Debt" in the accompanying consolidated financial statements for the three years endedDecember 31, 2020 . 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, 2020 and accounted for the vast majority of our total assets as ofDecember 31, 2020 . 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 $ 1,014.6 $ 51.2
244.1 16.8 31.3 29.1 166.9
Purchase obligations 2 390.0 293.2 58.1 19.6 19.1
Asset retirement obligations 160.5 - - - 160.5
Other long-term obligations,
including interest on long-term
debt 359.8 64.1 93.4 82.1 120.2
Total $ 2,169.0 $ 425.3 $ 346.2 $ 130.8 $ 1,266.7
1For additional information, see Note 7 "Long-Term Debt" in the accompanying
audited consolidated financial statements.
2Primarily includes ongoing new retail station construction in progress at
December 31, 2020 , commitments to purchase land, take-or-pay supply contracts
and other services. See Note 16 "Commitments" in the audited consolidated
financial statements for the year ended December 31, 2020 .
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 sites, which
we refer to as sustaining capital. We 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 which is primarily technology
related.
41
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The following table outlines our capital spending and investments by segment for
the three years ended
(Millions of dollars) 2020 2019 2018 Marketing: Company stores$ 175.9 $ 130.5 $ 134.1 Terminals 2.0 3.6 0.6 Sustaining capital 22.9 21.4 34.5 Corporate and other assets 26.3 59.1 24.6 Total$ 227.1 $ 214.6 $ 193.8 We currently expect capital expenditures for the full year 2021 to range from approximately$325 million to$375 million , including$270-$325 million for retail growth, approximately$20 to$30 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, 2020 included in this Annual Report on Form 10-K. Critical Accounting Policies Impairment of Long-Lived Assets Individual retail sites 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 sites 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 sites for impairment, including individual site 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 site over its remaining economic life are compared to the carrying value of the long-lived assets of that site 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 site, we make assumptions about key variables such as sales volume, gross margins and expenses. Cash flows vary for each retail site year to year. Changes in market demographics, traffic patterns, competition and other factors impact the overall operations of certain of our individual retail site 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 site 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 sites 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 42 -------------------------------------------------------------------------------- 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, 2020 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. 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 2020, 2019, or 2018. See also Note 8 "Asset Retirement Obligation" in the accompanying audited consolidated financial statements for the three-year period endedDecember 31, 2020 . 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 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, 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 which may 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. The Company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events, new information or future circumstances. 43
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