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Item 7. Management’s Discussion and Analysis

2022-02-17 compared with 2021-02-19 · 184 added, 205 removed, 273 unchanged (59% of the section changed)

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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.

This section of this Form 10-K generally discusses 2021 and 2020 items and the year-to-year comparison between 2021 and 2020.

Discussions of 2019 items and the year-to-year comparisons between 2020 and 2019 are not included in this Form 10-K and can be found in the Form 10-K for the year ended December 31, 2020 filed on February 19, 2021.

For purposes of this Management’s Discussion and Analysis, references to “Murphy USA”, the “Company”, “we”, “us” and “our” refer to Murphy USA Inc.

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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 ended December 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 ended December 31, 2020.

• Results of Operations— this section provides an analysis of our results of operations, including the results of our business segments for the two years ended December 31, 2021.

• Capital Resources and Liquidity— this section provides a discussion of our financial condition and cash flows as of and for the two years ended December 31, 2021.

It also includes a discussion of our capital structure and available sources of liquidity.

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Executive Overview

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.

At December 31, 2020, we had a total of 1,503 Company stores in 25 states, principally in the Southeast, Southwest and Midwest United States.

On January 29, 2021, MUSA acquired 100% of Quick Chek Corporation ("QuickChek"), a privately held convenience store chain with a strong regional brand that consisted of 156 stores at the time of acquisition, located in New Jersey and New York, in an all-cash transaction.

The acquisition expanded the MUSA network into the Northeast by adding high-performance stores that had an existing best-in-class food and beverage model and is consistent with the Company's stated strategic priorities of developing enhanced food and beverage capabilities.

For additional information concerning the acquisition, see Note 5, "Business Acquisition" in the accompanying audited consolidated financial statements.

QuickChek uses a weekly retail calendar where each quarter has 13 weeks.

QuickChek results cover the period from January 29, 2021 (the date of acquisition) to December 31, 2021.

The Company owns and operates a chain of retail stores under the brand name of Murphy USA ® which are almost all located in close proximity to Walmart stores, principally in the Southeast, Midwest and Southwest areas of the United States.

We also market gasoline and other products at standalone stores under the Murphy Express brand and have a mix of convenience stores and retail gasoline stores located in New Jersey and New York that operate under the brand name of QuickChek.

At December 31, 2021, we had a total of 1,679 Company stores in 27 states, of which 1,151 were Murphy USA, 370 were Murphy Express and 158 were QuickChek.

We also market to unbranded wholesale customers through a mixture of Company owned and third-party terminals.

Trends Affecting Our Business

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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.

While we generally expect our total fuel and merchandise sales volumes to grow over time and the gross margins to remain strong in a normalized environment,

sales and gross margins can change rapidly due to many factors.

These factors include, but are not limited to, the price of refined products, interruptions in our fuel and merchandise supply caused by severe weather or pandemics such as COVID-19, travel restrictions and stay-at-home orders imposed during a pandemic, severe refinery mechanical failures for an extended period of time, cyber attacks, and competition in the local markets in which we operate.

The COVID-19 pandemic continued to impact gasoline demand and cause disruptions to supply chains throughout 2021 and into early 2022.

If the incremental recoveries experienced throughout 2021 stall or reverse due to a resurgence in COVID-19 infection rates, and should related government intervention reoccur, this could cause volume declines.

However, incrementally higher fuel margins related to volume decline may help mitigate any adverse financial impact.

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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.

When wholesale fuel costs rise, the Company is not always able to immediately pass these price increases on to its retail customers at the pump, which in turn could negatively impact the Company’s sales margin.

Also, rising prices tend to cause our customers to reduce discretionary fuel consumption, which tends to reduce our fuel sales volumes.

Crude oil prices in 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.

Crude oil prices in 2021 continued to be volatile during the year with prices ranging from $47 per barrel to $86 per barrel, with an average price in 2021 of $68 per barrel which compares to 2020 when prices ranged from negative territory to $63 per barrel with an average of $39 per barrel.

Total fuel contribution (retail fuel margin plus product supply and wholesale ("PS&W") results including Renewable Identification Numbers ("RINs")) was 26.3 cpg in 2021, compared to 25.2 cpg in 2020.

Our revenues are impacted by our ability to leverage our diverse supply infrastructure in pursuit of obtaining the lowest cost of fuel supply available;

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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.

The Renewable Fuel Standard ("RFS") program continues to be unpredictable and prices received for ethanol RINs averaged $1.31 per RIN for the year 2021 compared to $0.41 in 2020.

Our business model does not depend on our ability to generate revenues from RINs.

Revenue from the sales of RINs is included in “Other operating revenues” in the Consolidated Income Statements.

As 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.

As of December 31, 2021, we had $1.3 billion of Senior Notes and a $398 million of term loan outstanding.

We believe that we will generate sufficient cash from operations to fund our ongoing operating requirements and service our debt obligations.

At December 31, 2021, we had additional available capacity under the committed $350 million cash flow revolving credit facility, with none drawn.

We expect to use the credit facilities to provide us with available financing to meet any short-term ongoing cash needs in excess of internally generated cash flows.

To the extent necessary, we will borrow under these facilities to fund our ongoing operating requirements.

There can be no assurances, however, that we will generate sufficient cash from operations or be able to draw on the credit facilities, obtain commitments for our incremental facility and/or obtain and draw upon other credit facilities.

For additional information, see Significant Sources of Capital in the Capital Resources and Liquidity section.

The Company currently anticipates total capital expenditures (including land for future development) for the full year 2021 to range from approximately $325 million to $375 million depending on how many new sites are completed.

The Company currently anticipates total capital expenditures (including land for future development) for the full year 2022 to range from approximately $350 million to $400 million depending on how many new stores are completed.

We intend to fund our capital program in 2022 primarily using operating cash flow, but will supplement funding where necessary using borrowings under available credit facilities.

We believe that our business will continue to grow in the future 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.

We believe that our business will continue to grow in the future as we expand the food and beverage capabilities within our network.

We have an active real estate development team that maintains a pipeline of desirable future store locations for development.

The pace of this growth is continually monitored by our management, and these plans can be altered based on operating cash flows generated and the availability of debt facilities.

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 of March 2020, we began to see a disruption to typical seasonal patterns as a result of stay-at-home restrictions due to the COVID-19 pandemic.

This pattern 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.

Our business has inherent seasonality due to the concentration of our retail stores in certain geographic areas, as well as customer behaviors during different seasons.

In general, sales volumes and operating incomes

are highest in the second and third quarters during the summer activity months and lowest during the winter months.

Beginning in the latter half of March 2020 through the remainder of the year, we saw disruptions to typical seasonal patterns due to the COVID-19 pandemic, resulting in fuel volumes sold falling below our historical average.

As we moved into 2021, we saw seasonal patterns return to a more normal seasonal pattern which held through the entirety of 2021.

At the present time, we cannot forecast how the pandemic will continue to influence travel behavior into 2022.

Business Segments

Our business is organized into one operating segment which is Marketing.

The Marketing segment includes our retail marketing sites and product supply and wholesale assets.

The Marketing segment includes our retail marketing stores and product supply and wholesale assets.

For operating segment information, see Note 22 “Business Segments” in the accompanying audited consolidated financial statements for the three-year period ended December 31, 2021.

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Net income was $386.1 million for 2020 or $13.08 per diluted share on revenue of $11.3 billion.

The consolidated financial results include QuickChek from January 29, 2021 (date of acquisition).

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

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• Higher all-in fuel contribution;

• Higher retail fuel sales volumes;

• 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.

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 ended December 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.

• Higher store and other operating expenses, payment fees and rent;

• Higher depreciation and amortization expense;

• Higher selling, general and administrative ("SG&A") expenses;

• Acquisition related costs;

• Higher interest expense

Financial summary of 2021 compared to 2020

Revenues for the year ended December 31, 2021 increased $6.1 billion, or 54.1%, compared to 2020.

The increase was due to higher average retail fuel prices which increased 86 cpg, retail fuel volumes which increased 11.6%, merchandise sales which increased 24.5%, improved PS&W revenues including RINs, and as a result of the consolidation of QuickChek results since acquisition.

Cost of sales increased $5.7 billion, or 57.9%, compared to 2020, due to the higher average cost of fuel which increased 71.1%, the increase in retail fuel volumes sold of 11.6%, and 19.2% higher merchandise costs which were primarily as a result of the consolidation of QuickChek since acquisition.

Store and other operating expenses increased $278.2 million, or 50.7%, in 2021 due primarily to the inclusion of QuickChek stores which have higher store operating costs due to their larger format stores with an enhanced food and beverage offering, combined with higher payment fees and rent expense.

On an average per store month ("APSM") basis, store operating expenses excluding credit card fees and rent increased 36.1% in 2021 when compared to 2020.

The Company incurred $10.4 million in QuickChek acquisition and integration related costs in 2021 compared to $1.7 million in 2020.

These included transaction-specific costs to close the acquisition and costs related to integrating technology and systems.

Depreciation and amortization expense in 2021 increased $51.6 million due primarily to the inclusion of QuickChek since its acquisition and more Murphy branded stores in place with the larger format.

Selling, general and administrative expenses for 2021 were higher by $22.5 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.

The increase was mainly due to the inclusion of QuickChek since its acquisition and higher professional fees.

Interest expense in 2021 increased by $31.2 million compared to 2020 due to additional borrowings associated with the acquisition of QuickChek.

The effective income tax expense rate in 2021 was 24.0% compared to 24.2% for 2020.

Segment Results

Income before income taxes in the Marketing segment for 2020 increased $293.8 million, or 104.4%, from 2019 due to increased all-in fuel and merchandise margins and lower station and other operating costs, partially offset by increased general and administrative costs and depreciation.

Income before income taxes in the Marketing segment for 2021 increased $46.2 million, or 8.0%, from 2020 due primarily to the inclusion of QuickChek results, higher all-in fuel margin, increased merchandise margins, partially offset by higher store and other operating costs, increased general and administrative costs, depreciation and interest expense.

The tables below show the results for the Marketing segment for the three years ended December 31, 2021 along with certain key metrics for the segment.

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Merchandise cost of goods sold 2,976.1 2,495.7 2,200.7

Station and other operating expenses 549.0 559.3 541.3

Store and other operating expenses 827.1 549.0 559.3

Depreciation and amortization 197.3 146.3 138.9

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Interest expense (8.1) (0.1) (0.1)

Other nonoperating income — — 0.2

Total other income (expense) $ (8.1) $ (0.1) $ (0.1)

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Income $ 472.8 $ 442.2 $ 215.0

(Millions of dollars, except revenue per store month (in thousands) and store counts) Years Ended December 31,

Marketing Segment 2021 2020 2019

Total tobacco sales revenue per same store sales 1,2

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$ 168.8 $ 166.1 $ 148.3

1 2019 and 2018 amounts not revised for subsequent raze-and-rebuild activity

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

1 2020 and 2019 amounts not revised for 2021 raze-and-rebuild activity (see SSS definition below)

2 Includes store-level discounts for Murphy Drive Reward ("MDR") redemptions and excludes change in value of unredeemed MDR points

Store count at end of period 1,679 1,503 1,489

Total store months during the period 19,702 17,770 17,621

APSM metric includes all stores open through the date of the calculation.

Average Per Store Month ("APSM") metric includes all stores open through the date of the calculation, including stores acquired during the period.

Same store sales ("SSS") metric includes aggregated individual store results for all stores open throughout both periods presented.

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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.

Newly constructed stores do not enter the calculation until they are open for each full calendar year for the periods being compared (open by January 1, 2020 for the stores being compared in the 2021 versus 2020 comparison).

Acquired stores are not included in the calculation of same stores for the first 12 months after the acquisition.

When prior period SSS volumes or sales are presented, they have not been revised for current year activity for raze-and-rebuilds and asset dispositions.

Twelve Months Ended December 31,

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Retail fuel volume - chain (Million gal) 4,352.2 3,900.9 4,374.5

Retail fuel volume - per site (K gals APSM) 1

Retail fuel volume - per store (K gals APSM) 1

229.4 219.5 248.3

Retail fuel volume - per site (K gal SSS) 2

Retail fuel volume - per store (K gal SSS) 2

225.8 216.2 243.8

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1 APSM metric includes all stores open through the date of calculation

2 2019 and 2018 amounts not revised for subsequent raze-and-rebuild activity (see SSS definition above)

2 2020 and 2019 amounts not revised for 2021 raze-and-rebuild activity

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

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$ 27.5 $ 26.5 $ 24.2

1 2019 and 2018 amounts not revised for subsequent raze-and-rebuild activity (see SSS definition above)

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

2020 versus 2019

Total fuel contribution for the year ended December 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 ended December 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.

1 2020 and 2019 amounts not revised for 2021 raze-and-rebuild activity

2 Includes store-level discounts for MDR redemptions and excludes change in value of unredeemed MDR points

Same store sales information compared to APSM metrics:

Variance from prior year periods

December 31, 2021 December 31, 2020 December 31, 2019

Fuel gallons per month 3.0 % 4.5 % (12.3) % (11.6) % 1.2 % 1.7 %

Merchandise sales 1.0 % 12.2 % 11.7 % 11.8 % 6.5 % 6.4 %

Tobacco sales (0.4) % (0.8) % 12.8 % 12.4 % 7.7 % 7.2 %

Non tobacco sales 4.5 % 46.2 % 8.7 % 10.8 % 3.5 % 5.3 %

Merchandise margin 3.5 % 37.7 % 9.6 % 8.6 % 4.5 % 3.1 %

Tobacco margin 2.3 % 4.3 % 14.9 % 13.0 % 8.2 % 6.7 %

Non tobacco margin 5.4 % 89.2 % 2.0 % 4.2 % (0.6) % 1.0 %

1 Includes store-level discounts for MDR redemptions and excludes change in value of unredeemed MDR points

2 Includes all MDR activity

Financial summary of 2021 compared to 2020

The Marketing segment had total revenues of $17.4 billion in 2021 compared to approximately $11.3 billion in 2020, an increase of $6.1 billion, due primarily to a higher average retail fuel price, increased volumes sold, higher merchandise sales and the inclusion of QuickChek results.

Revenue amounts included excise taxes collected and remitted to government authorities of $2.0 billion in 2021 and $1.8 billion in 2020.

Total fuel 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.

Total fuel contribution for the year ended December 31, 2021 was $1.1 billion, an increase of $162.2 million, or 16.5% over 2020.

This contribution improvement was due to higher retail fuel contribution, increased fuel volumes for the year, and to improved contribution from PS&W margin (including RINs).

Retail fuel margin on a cpg basis decreased in 2021 to 21.9 cpg, compared to 22.9 cpg in the prior year, and was offset by increased fuel volumes which increased 11.6%, primarily due to the acquisition of QuickChek and the decrease in travel restrictions imposed by the COVID-19 pandemic in 2020.

Total fuel sales volumes on an SSS basis were 225,792 gallons per month in 2021, an increase from 216,158 gallons per month in the prior year.

Total product supply and wholesale margin dollars before RINs decreased in the current year due to negative spot-to-rack margins partially offset by timing and inventory price adjustments.

This decline was offset by an increase in the contribution from sales of RINs.

During 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.

During 2021, operating income included $265.3 million from the sale of 202.0 million RINs at an average selling price of $1.31 per RIN compared to $95.5 million from the sale of 233.9 million RINs at an average price of $0.41 per RIN in 2020.

Merchandise sales were up 24.5% in 2021 to $3.7 billion due to higher sales across the chain in most categories and the inclusion of QuickChek results.

Total merchandise contribution in 2021 increased $242.2 million, or 52.7% to $701.6 million compared to 2020 .

Merchandise unit margins increased to 19.1% in 2021 from 15.6% in 2020.

On an SSS basis, total merchandise sales were up 1.0%, due to a 4.5% increase in non-tobacco sales, while tobacco products decreased 0.4%.

Total margins on a SSS basis for 2021 were up 3.5% with tobacco margins higher by 2.3%, and there was an overall increase of 5.4% in non-tobacco margins, mainly from increased beverage, snack, and lottery categories.

Store and other operating expenses increased $278.1 million in 2021 compared to 2020 levels, an increase of 50.7%.

This increase in total dollars was due mainly to the inclusion of QuickChek stores which have higher store operating costs due to its larger format stores having an enhanced food and beverage offering.

Murphy branded store operating expenses also increased as well as associated payment fees in 2021.

Excluding credit card fees and rent on an APSM basis, store and other operating expenses at the retail level were higher in 2021 by 36.1% compared to 2020 levels.

Depreciation and amortization increased $51.0 million in 2021, an increase of 34.9%.

This increase was caused by more stores operating in the 2020 period combined with accelerated depreciation on raze-and-rebuild sites.

This increase was due primarily to the inclusion of QuickChek stores and to more stores operating in the 2021 period.

Selling, general and administrative expenses ("SG&A") increased $22.5 million in 2021 compared to 2020.

The increased SG&A costs were primarily due to a $10 million charitable contribution, higher employee related expenses, and higher professional service costs.

2019 versus 2018

Total fuel volumes for the year ended December 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.

The increased SG&A costs were primarily due to the inclusion of QuickChek results in the current year.

Corporate and other assets

2020 versus 2019

Income from continuing operations for Corporate and other assets in 2021 was a loss of $75.9 million, compared to a loss of $56.1 million in 2020.

Net interest expense 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 in September 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 in September 2019, and was partially offset by lower interest rates on the $500 million Senior Notes issued on September 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.

Net interest expense allocated to Corporate was higher in the current year by $23.1 million primarily due to the additional borrowings related to the QuickChek acquisition.

Acquisition related costs were $10.4 million in 2021 compared to $1.7 million in 2020.

Non-GAAP Measures

The following table sets forth the Company’s EBITDA and Adjusted EBITDA for the three years ended December 31, 2021.

EBITDA means net income (loss) plus net interest expense, plus income tax expense, depreciation and amortization, and Adjusted EBITDA adds back (i) other non-cash items (e.g., impairment of properties and accretion of asset retirement obligations) and (ii) other items that management does not consider to be meaningful in assessing our operating performance (e.g., (income) from discontinued operations, net settlement proceeds, (gain) loss on sale of assets, loss on early debt extinguishment, transaction costs related to acquisitions, and other non-operating (income) expense).

EBITDA means net income (loss) plus net interest expense, plus income tax expense, depreciation and amortization, and Adjusted EBITDA adds back (i) other non-cash items (e.g., impairment of properties and accretion of asset retirement obligations) and (ii) other items that management does not consider to be meaningful in assessing our operating performance (e.g., (income) from discontinued operations, net settlement proceeds, (gain) loss on sale of assets, loss on early debt extinguishment, transaction and integration costs related to acquisitions, and other non-operating (income) expense).

EBITDA and Adjusted EBITDA are not measures that are prepared in accordance with U.S.

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Our cash management policy provides that cash balances in excess of a certain threshold are reinvested in certain types of low-risk investments.

At December 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.

At December 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 on December 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 following QuickChek acquisition section.

We have a committed cash flow revolving credit facility (the "revolving facility") of $350 million, which was undrawn at December 31, 2021, which can be utilized for working capital and other general corporate purposes, including supporting our operating model as described herein.

Additional borrowing capacity under the revolving facility may be extended at our request and with the consent of the participating lenders.

We also have a shelf registration on file with the SEC 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.

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QuickChek Acquisition

On January 29, 2021, the Company completed its acquisition of QuickChek which was announced on December 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.

On January 29, 2021, the Company completed its acquisition of QuickChek for an all-cash consideration of $641.1 million.

In conjunction with the closing of the acquisition, the Company entered into a credit agreement that provides for a cash flow revolving facility with commitments of $350 million and a term loan in a principal amount of $400 million.

The Company also issued a new series of 3.750% senior unsecured notes due 2031 in an aggregate principal amount of $500 million.

As a result of the above transactions, the existing ABL facility was terminated and the term loan with $200 million remaining balance outstanding at closing was repaid and retired.

As a result of the above transactions, the ABL facility existing at December 31, 2020 was terminated and the previous term loan with $200 million remaining balance outstanding at January 29, 2021 was repaid and retired.

Operating Activities

Net cash provided by operating activities was $563.7 million for the year ended December 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.

Net cash provided by operating activities was $737.4 million for the year ended December 31, 2021 and $563.7 million for the comparable period in 2020, an increase of 30.8%, mainly due to an increase in net income of $10.8 million in 2021, increased depreciation of $51.6 million, increased deferred and noncurrent tax changes of $16.5 million, and the amount of cash provided from changes in noncash working capital in 2021 increasing by $95.9 million.

The impact of QuickChek on the year-over-year changes in working capital was a cash requirement of approximately $7.6 million.

For the current year, cash provided by changes in noncash operating working capital of $82.8 million was due to a decrease of $11.1 million in inventories, an increase of $102.9 million in accounts payable and accrued liabilities, offset by increases of $18.9 million in accounts receivable and of $3.6 million in prepaid expenses and other current assets, and a decrease of $8.7 million in income taxes payable.

The changes in accounts receivable and accounts payable were due to timing of invoicing, billing, payments, and receipts and the acquisition and consolidation of QuickChek.

See also Note 16 "Other financial information" in the accompanying audited consolidated financial statements for the three-year period ended December 31, 2021.

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 ended December 31, 2021, cash required by investing activities was $914.2 million compared to cash required by investing activities of $224.3 million in 2020.

The investing cash increase of $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 of Minnesota 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.

The investing cash increase of $689.9 million in 2021 was due primarily to the $641.1 million cash purchase of QuickChek and capital expenditures which required cash of $274.7 million in 2021 compared to $230.7 million in 2020 due primarily to more new store openings.

Cash provided by investing activities in 2021 were $3.4 million, primarily from the sale of a store and were $8.1 million in 2020 primarily from proceeds of the sale of Minnesota assets.

Financing Activities

Financing activities in the year ended December 31, 2020 required net cash of $456.1 million compared to a net cash required of $14.4 million in the year ended December 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,

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 ended December 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.

Financing activities in the year ended December 31, 2021 provided net cash of $269.6 million compared to net cash required of $456.1 million in the year ended December 31, 2020.

The increase in financing cash provided was due to net borrowings of debt in 2021 of $668.5 million compared to net debt repayments of $38.9 million in 2020, a decrease of $44.6 million of share repurchases in 2021, and $4.0 million less in amounts related to share based compensation, and was partially offset by an increase of $20.4 million in dividend payments, and $9.9 million in debt issuance costs with no payments for debt issuance costs in 2020.

The Company paid dividends of $1.04 per common share during 2021 for total payments of $27.3 million, compared to $6.9 million in 2020, the first year for a dividend payment.

In October 2021, the Board of Directors approved an increase in the quarterly dividend to $0.29 per common share, $1.16 per share on an annualized basis, beginning on December 1, 2021.

As part of our capital allocation strategy, the Company's intention is to deliver targeted double-digit growth in the per share dividend over time.

Share Repurchase program

On July 24, 2019, the Board of Directors approved an up to $400 million share repurchase program to be executed over the two-year period ending July 2021.

This repurchase plan was completed in November 2020, and a new authorization of $500 million, announced October 28, 2020, is currently in effect.

On July 24, 2019, our Board of Directors approved an up to $400 million share repurchase program to be executed over the two-year period ending July 2021.

This repurchase plan was completed in November 2020, and a new authorization of $500 million, went into effect in October 2020.

On December 1, 2021, our Board of Directors approved a new share repurchase authorization of up to $1 billion to begin upon completion of the current $500 million authorization, and is to be executed by December 31, 2026.

Purchases may be effected in the open market, through privately negotiated transactions, through one or more accelerated stock repurchase programs, through a combination of the foregoing or in any other manner in the discretion of management.

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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 the July 2019 authorization in 2020 were 2,368,374 common shares for $274.6 million, or $115.93 per share and under the October 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 of December 31, 2020, through December 2023.

During the year 2021, total purchases made under the October 2020 authorization were 2,398,477 common shares for $355.0 million, for an average price of $148.00 per share, leaving approximately $20.0 million remaining available, as of December 31, 2021, to be completed before the new 2021 authorization begins.

Purchases in 2020 under the October 2020 authorization were 969,654 common shares for $125.0 million, for an average price of $128.91 per share.

Our long-term debt at December 31, 2021 and 2020 was as set forth below:

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4.75% senior notes due 2029 (net of unamortized discount of $4.8 at 2021 and $5.4 at 2020) 495.2 494.6

Term loan due 2023 (effective interest rate of 2.67% at 2020 and 4.31% at 2019) 212.5 250.0

3.75% senior notes due 2031 (net of unamortized discount of $5.7 at 2021 and none at 2020) 494.3 —

Term loan due 2023 (effective interest rate of 2.67% at 2020) — 212.5

Term loan due 2028 (effective interest rate of 2.27% at 2021) net of unamortized discount of $0.9 at 2021 397.1 —

Capitalized lease obligations, vehicles, due through 2025 2.7 2.1

Capitalized lease obligations, buildings, due through 2059 138.9 —

Unamortized debt issuance costs (11.1) (4.4)

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Total long-term debt, net of current $ 1,800.1 $ 951.2

Subsequent to year end, on January 29, 2021, the Company updated its debt structure as a result of the QuickChek acquisition.

The information below has been updated to reflect the most recent outstanding debt obligations of the Company.

On January 29, 2021, the Company completed its acquisition of QuickChek for an all-cash consideration of $641.1 million.

In conjunction with the closing of the acquisition, the Company entered in a credit agreement that provides for a cash flow revolving facility with commitments of $350 million and a term loan in a principal amount of $400 million.

The Company also issued a new series of 3.750% senior unsecured notes due 2031 in an aggregate principal amount of $500 million.

As a result of the above transactions, the ABL facility existing at December 31, 2020, was terminated and the term loan with $200 million remaining balance outstanding at January 29, 2021 was repaid and retired.

For more detail on debt outstanding at December 31, 2021, see Note 9 "Long-Term Debt" in the audited consolidated financial statements for the three years ended December 31, 2021 included in this Annual Report on Form 10-K.

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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

On January 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.

Revolving Credit Facility and Term Loan

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 on January 29, 2021) and revolving credit commitments in an aggregate amount equal to $350 million (the “Revolving Facility”, and together with the Term Facility, the “Credit Facilities”).

The outstanding balance of the term loan was $398 million at December 31, 2021.

The term loan is due January 2028 and requires quarterly principal payments of $1 million beginning July 1, 2021.

As of December 31, 2021, we had none outstanding under the revolving facility while there were $3.7 million in outstanding letters of credit, which reduces the amount available to borrow.

Interest payable on the Credit Facilities is based on either:

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The Term Facility amortizes in quarterly installments starting with the first amortization payment being due on July 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.

Murphy USA is also required to prepay the Term Facility with a portion of its excess cash flow, a portion of the net cash proceeds of certain asset sales, and casualty events (subject to certain reinvestment rights) and the net cash proceeds of issuances of indebtedness not permitted under the Credit Agreement.

The Credit Agreement allows Murphy USA to prepay, in whole or in part, the Term Facility outstanding thereunder, together with any accrued and unpaid interest, with prior notice but without premium or penalty other than breakage and redeployment costs.

The credit agreement contains certain covenants that limit, among other things, the ability of the Company and certain of its subsidiaries to incur additional indebtedness or liens, to make certain investments, to enter into sale-leaseback transactions, to make certain restricted payments, to enter into consolidations, mergers or sales of material assets and other fundamental changes, to transact with affiliates, to enter into agreements restricting the

ability of subsidiaries to incur liens or pay dividends, or to make certain accounting changes.

The credit agreement also contains total leverage ratio and secured net leverage ratio financial maintenance covenants which are tested quarterly.

The credit agreement also contains total leverage ratio and secured net leverage ratio financial maintenance covenants solely for the benefit of the revolving facility which are tested quarterly.

Pursuant to the total leverage ratio financial maintenance covenant, the Company must maintain a total leverage ratio of not more than 5.0 to 1.0 with an ability in certain circumstances to temporarily increase that limit to 5.5 to 1.0 and a maximum secured net leverage ratio of not more than 3.75 to 1.0 with an ability in certain circumstances to temporarily increase that limit to 4.25 to 1.0.

The Credit Agreement also contains customary events of default.

Pursuant to the credit agreement's covenant limiting certain restricted payments, certain payments in respect of our equity interests, including dividends, when the total leverage ratio, calculated on a pro forma basis, is greater than 3.0 to 1.0, could be limited.

At December 31, 2021, our total leverage ratio was 2.20 to 1.0 which meant our ability at that date to make restricted payments was not limited.

If our total leverage ratio, on a pro forma basis, exceeds 3.0 to 1.0, any restricted payments made following that time until the ratio is once again, on a pro forma basis, below 3.0 to 1.0 would be limited by the covenant, which contains certain exceptions, including an ability to make restricted payments in cash in an aggregate amount not to exceed $100 million in any fiscal year and an additional ability to make restricted payments in an aggregate not to exceed the greater of $112.7 million, or 4.5% of consolidated net tangible assets over the life of the credit agreement.

Supplemental Guarantor Financial Information

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1 For additional information, see Note 9 “Long-Term Debt” in the accompanying audited consolidated financial statements.

2 Primarily includes ongoing new retail station construction in progress at December 31, 2020, commitments to purchase land, take-or-pay supply contracts and other services.

2 Primarily includes ongoing new retail store construction in progress at December 31, 2021, commitments to purchase land, take-or-pay supply contracts and other services.

See Note 18 “Commitments” in the audited consolidated financial statements for the year ended December 31, 2021.

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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.

Our Marketing capital is also deployed to improve our existing stores, which we refer to as sustaining capital.

We use sustaining capital in this business as needed to ensure reliability and continued performance of our stores.

We also invest in our Corporate and other assets segment which is primarily technology related.

The following table outlines our capital spending and investments by segment for the three years ended December 31, 2020:

The following table outlines our capital spending and investments by category for the three years ended December 31, 2021:

(Millions of dollars) 2021 2020 2019

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Total $ 277.5 $ 227.1 $ 214.6

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.

We currently expect capital expenditures for the full year 2022 to range from approximately $350 million to $400 million, including $300 million to $325 million for retail growth, approximately $30 million to $40 million for maintenance capital, with the remaining funds earmarked for other corporate investments and other strategic initiatives.

See Note 16 “Commitments” in the audited consolidated financial statements for the three years ended December 31, 2021 included in this Annual Report on Form 10-K.

Critical Accounting Policies

Business combinations

We account for business combinations using the purchase method of accounting.

The purchase price of an acquisition is measured as the aggregate of the fair value of the consideration transferred.

The purchase price is allocated to the fair values of the tangible and intangible assets acquired and liabilities assumed at date of acquisition, with any excess recorded as goodwill.

These fair value determinations require management to make estimates which are based on all available information, and may involve the use of assumptions with respect to the timing and amount of future revenues and expenses, the weighted average cost of capital, and royalty rates associated with the transaction and the assets or liabilities acquired.

This judgment and determination affects the amount of consideration paid that is allocable to assets and liabilities acquired in the business purchase transaction.

The purchase price allocation may be provisional during a measurement period of up to one year to provide reasonable time to obtain the information necessary to identify and measure the assets acquired and liabilities assumed.

Any such measurement period adjustments are recognized in the period in which the adjustment amount is determined.

Transaction costs associated with the acquisition are expensed as incurred.

Goodwill and intangible assets

Goodwill represents the excess of the aggregate of the consideration transferred over the net assets acquired and liabilities assumed and is tested annually for impairment, or more frequently if there are indicators of impairment.

Acquired finite-lived intangible assets are amortized on a straight-line basis over their estimated useful lives and are reviewed for impairment when events or circumstances indicate that the asset group to which the intangible assets belong might be impaired.

The Company revises the estimated remaining useful life of these assets when events or changes in circumstances warrant a revision.

If the Company revises the useful life, the unamortized balance is amortized over the use life on a prospective basis.

Indefinite-lived intangibles are tested annually for impairment, or more often if indicators warrant.

Impairment of Long-Lived Assets

Individual retail 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.

Individual retail stores are reviewed for impairment periodically or whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable.

Our primary indicator that operating store assets may not be recoverable is consistent negative cash flow over a twenty-four month period for those retail

stores that have been open in the same location for a sufficient period to allow for meaningful analysis of ongoing results.

We also monitor other factors when evaluating retail stores for impairment, including individual store execution of operating plans and local market conditions.

When an evaluation is required, the projected future undiscounted cash flows to be generated from each retail store over its remaining economic life are compared to the carrying value of the long-lived assets of that store to determine if a write-down of the carrying value to fair value is required.

When determining future cash flows associated with an individual retail store, we make assumptions about key variables such as sales volume, gross margins and expenses.

Cash flows vary for each retail store year to year.

Changes in market demographics, traffic patterns, competition and other factors impact the overall operations of certain of our individual retail store locations.

Similar changes may occur in the future that will require us to record impairment charges.

We have not made any material change in the methodology used to estimate future cash flows of retail site locations during the past three years.

We have not made any material change in the methodology used to estimate future cash flows of retail store locations during the past three years.

Our impairment evaluations are based on assumptions we deem to be reasonable.

If the actual results of our retail 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.

If the actual results of our retail stores are not consistent with the estimates and judgments we have made in estimating future cash flows and determining fair values, our actual impairment losses could vary positively or negatively from our estimated impairment losses.

Providing sensitivity analysis if other assumptions were used in performing the impairment evaluations is not practical due to the significant number of assumptions involved in the estimates.

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Actual tax liabilities can vary from our estimates for a variety of reasons, including different interpretations of tax laws and regulations and different assessments of the amount of tax due.

In addition, in determining our income tax provision, we must assess the likelihood that our deferred tax

assets will be recovered through future taxable income.

In addition, in determining our income tax provision, we must assess the likelihood that our deferred tax assets will be recovered through future taxable income.

Significant judgment is required in estimating the amount of valuation allowance, if any, that should be recorded against those deferred income tax assets.

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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;

our ability to effectively manage our inventory, manage disruptions in our supply chain and our ability to control costs;

the impact of severe weather events, such as hurricanes, floods and earthquakes;

the impact of a global health pandemic, such as COVID-19 and the government reaction in response thereof;

the impact of any systems failures, cybersecurity and/or security breaches, 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;

the impact of any systems failures, cybersecurity and/or security breaches of the company or its vendor partners, including any security breach that results in theft, transfer or unauthorized disclosure of customer, employee or company information or our compliance with information security and privacy laws and regulations in the event of such an incident;

successful execution of our information technology strategy;

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;

reduced demand for our products due to the implementation of more stringent fuel economy and greenhouse gas reduction requirements, or increasingly widespread adoption of electric vehicle technology;

future tobacco or e-cigarette legislation and any other efforts that make purchasing tobacco products more costly or difficult could hurt our revenues and impact gross margins;

efficient and proper allocation of our capital resources, including the timing, declaration, amount and payment of any future dividends or levels of the company's share repurchases, or management of operating cash;

the market price of the Company's stock prevailing from time to time, the nature of other investment opportunities presented to the Company from time to time, the Company's cash flows from operations, and general economic conditions;

compliance with debt covenants;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis