Item 1. Financial Statements
ITEM 1. FINANCIAL STATEMENTS
Murphy USA Inc.
Consolidated Balance Sheets
September 30, December 31,
(Millions of dollars, except share amounts) 2023 2022
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 124.8 $ 60.5
Marketable securities, current 8.5 17.9
Accounts receivable—trade, less allowance for doubtful accounts of $ 1.5 and $ 0.3 at 2023 and 2022, respectively
344.2 281.7
Inventories, at lower of cost or market 335.4 319.1
Prepaid expenses and other current assets 27.4 47.6
Total current assets 840.3 726.8
Marketable securities, non-current 7.4 4.4
Property, plant and equipment, at cost less accumulated depreciation and amortization of $ 1,694.2 and $ 1,553.1 at 2023 and 2022, respectively
2,520.1 2,459.3
Operating lease right of use assets, net 451.9 449.6
Intangible assets, net of amortization 139.9 140.4
Goodwill 328.0 328.0
Other assets 17.7 14.7
Total assets $ 4,305.3 $ 4,123.2
Liabilities and Stockholders' Equity
Current liabilities
Current maturities of long-term debt $ 15.0 $ 15.0
Trade accounts payable and accrued liabilities 800.6 839.2
Income taxes payable 11.6 —
Total current liabilities 827.2 854.2
Long-term debt, including capitalized lease obligations 1,786.4 1,791.9
Deferred income taxes 327.7 327.4
Asset retirement obligations 44.0 43.3
Non-current operating lease liabilities 449.8 444.2
Deferred credits and other liabilities 26.1 21.5
Total liabilities 3,461.2 3,482.5
Stockholders' Equity
Preferred Stock, par $ 0.01 (authorized 20,000,000 shares, none outstanding)
— —
Common Stock, par $ 0.01 (authorized 200,000,000 shares, 46,767,164 shares issued at 2023 and 2022, respectively)
0.5 0.5
Treasury stock ( 25,490,133 and 25,017,324 shares held at 2023 and 2022, respectively)
( 2,795.9 ) ( 2,633.3 )
Additional paid in capital (APIC) 502.7 518.9
Retained earnings 3,136.8 2,755.1
Accumulated other comprehensive income (loss) (AOCI) — ( 0.5 )
Total stockholders' equity 844.1 640.7
Total liabilities and stockholders' equity $ 4,305.3 $ 4,123.2
See notes to consolidated financial statements.
2
Murphy USA Inc.
Consolidated Statements of Income
(unaudited)
Three Months Ended
September 30, Nine Months Ended
September 30,
(Millions of dollars, except share and per share amounts) 2023 2022 2023 2022
Operating Revenues
Petroleum product sales 1
$ 4,658.8 $ 5,078.6 $ 13,103.6 $ 14,917.3
Merchandise sales 1,055.6 1,027.2 3,070.8 2,913.8
Other operating revenues 83.5 88.9 286.1 248.7
Total operating revenues 5,797.9 6,194.7 16,460.5 18,079.8
Operating Expenses
Petroleum product cost of goods sold 1
4,322.5 4,699.3 12,273.1 13,903.3
Merchandise cost of goods sold 843.8 821.5 2,465.1 2,335.7
Store and other operating expenses 265.6 254.5 760.6 729.4
Depreciation and amortization 57.5 54.4 171.7 164.5
Selling, general and administrative 60.0 52.4 178.4 150.8
Accretion of asset retirement obligations 0.7 0.6 2.2 2.0
Acquisition and integration related costs — 0.4 — 1.4
Total operating expenses 5,550.1 5,883.1 15,851.1 17,287.1
Gain (loss) on sale of assets ( 0.5 ) 0.3 ( 0.6 ) 2.2
Income (loss) from operations 247.3 311.9 608.8 794.9
Other income (expense)
Investment income 2.1 1.4 4.7 1.8
Interest expense ( 24.6 ) ( 21.8 ) ( 74.5 ) ( 61.6 )
Other nonoperating income (expense) ( 1.4 ) ( 0.8 ) ( 0.9 ) ( 2.7 )
Total other income (expense) ( 23.9 ) ( 21.2 ) ( 70.7 ) ( 62.5 )
Income before income taxes 223.4 290.7 538.1 732.4
Income tax expense (benefit) 55.7 71.2 131.3 177.2
Net Income $ 167.7 $ 219.5 $ 406.8 $ 555.2
Basic and Diluted Earnings Per Common Share
Basic $ 7.83 $ 9.46 $ 18.80 $ 23.17
Diluted $ 7.69 $ 9.28 $ 18.47 $ 22.76
Weighted-Average Common Shares Outstanding (in thousands):
Basic 21,401 23,206 21,635 23,963
Diluted 21,790 23,650 22,020 24,398
Supplemental information:
1 Includes excise taxes of:
$ 582.1 $ 569.7 $ 1,721.0 $ 1,638.4
See notes to consolidated financial statements.
3
Murphy USA Inc.
Consolidated Statements of Comprehensive Income (Loss)
(unaudited)
(Millions of dollars) Three Months Ended
September 30, Nine Months Ended
September 30,
2023 2022 2023 2022
Net income $ 167.7 $ 219.5 $ 406.8 $ 555.2
Other comprehensive income (loss), net of tax
Interest rate swap:
Reclassifications:
Amortization of unrealized (gain) loss to interest expense 0.1 0.2 0.6 0.7
0.1 0.2 0.6 0.7
Deferred income tax (benefit) expense — 0.1 0.1 0.2
Other comprehensive income (loss) 0.1 0.1 0.5 0.5
Comprehensive income $ 167.8 $ 219.6 $ 407.3 $ 555.7
See notes to consolidated financial statements.
4
Murphy USA Inc.
Consolidated Statements of Cash Flows
(unaudited)
(Millions of dollars)
Nine Months Ended
September 30,
2023 2022
Operating Activities
Net income $ 406.8 $ 555.2
Adjustments to reconcile net income (loss) to net cash provided by (required by) operating activities
Depreciation and amortization 171.7 164.5
Deferred and noncurrent income tax charges (benefits) 0.1 15.0
Accretion of asset retirement obligations 2.2 2.0
(Gains) losses from sale of assets 0.6 ( 2.2 )
Net (increase) decrease in noncash operating working capital ( 97.2 ) 18.8
Other operating activities - net 26.7 18.2
Net cash provided (required) by operating activities 510.9 771.5
Investing Activities
Property additions ( 224.6 ) ( 223.1 )
Proceeds from sale of assets 2.3 8.5
Investment in marketable securities ( 11.3 ) —
Redemptions of marketable securities 18.0 —
Other investing activities - net ( 1.4 ) ( 0.6 )
Net cash provided (required) by investing activities ( 217.0 ) ( 215.2 )
Financing Activities
Purchase of treasury stock ( 172.7 ) ( 566.9 )
Dividends paid ( 24.7 ) ( 22.1 )
Borrowings of debt 8.0 —
Repayments of debt ( 19.6 ) ( 11.4 )
Amounts related to share-based compensation ( 20.6 ) ( 19.6 )
Net cash provided (required) by financing activities ( 229.6 ) ( 620.0 )
Net increase (decrease) in cash, cash equivalents, and restricted cash 64.3 ( 63.7 )
Cash, cash equivalents, and restricted cash at beginning of period 60.5 256.4
Cash, cash equivalents, and restricted cash at end of period $ 124.8 $ 192.7
See notes to consolidated financial statements.
5
Murphy USA Inc.
Consolidated Statements of Changes in Equity
(unaudited)
Common Stock
(Millions of dollars, except share amounts) Shares Par Treasury Stock APIC Retained Earnings AOCI Total
Balance as of December 31, 2021 46,767,164 $ 0.5 $ ( 1,839.3 ) $ 534.8 $ 2,112.4 $ ( 1.2 ) $ 807.2
Net income — — — — 152.4 — 152.4
Amortization of unrealized loss on interest rate hedge, net of tax — — — — — 0.2 0.2
Cash dividends declared ($ 0.29 per share)
— — — — ( 7.2 ) — ( 7.2 )
Purchase of treasury stock — — ( 151.8 ) — — — ( 151.8 )
Issuance of treasury stock — — 8.8 ( 8.8 ) — — —
Amounts related to share-based compensation — — — ( 12.2 ) — — ( 12.2 )
Share-based compensation expense — — — 2.9 — — 2.9
Balance as of March 31, 2022 46,767,164 0.5 ( 1,982.3 ) 516.7 2,257.6 ( 1.0 ) 791.5
Net income — — — — 183.3 — 183.3
Amortization of unrealized loss on interest rate hedge, net of tax — — — — — 0.2 0.2
Cash dividends declared ($ 0.31 per share)
— — — — ( 7.4 ) — ( 7.4 )
Dividend equivalent units accrued — — — 0.2 ( 0.2 ) — —
Purchase of treasury stock — — ( 203.6 ) — — — ( 203.6 )
Issuance of treasury stock — — 2.5 ( 2.6 ) — — ( 0.1 )
Amounts related to share-based compensation — — — ( 5.3 ) — — ( 5.3 )
Share-based compensation expense — — — 4.1 — — 4.1
Balance as of June 30, 2022 46,767,164 $ 0.5 $ ( 2,183.4 ) $ 513.1 $ 2,433.3 $ ( 0.8 ) $ 762.7
Net income — — — — 219.5 — 219.5
Amortization of unrealized loss on interest rate hedge, net of tax — — — — — 0.1 0.1
Cash dividends declared ($ 0.32 per share)
— — — — ( 7.5 ) — ( 7.5 )
Purchase of treasury stock — — ( 211.5 ) — — — ( 211.5 )
Issuance of treasury stock — — 0.9 ( 0.8 ) — — 0.1
Amounts related to share-based compensation — — — ( 2.1 ) — — ( 2.1 )
Share-based compensation expense — — — 4.7 — — 4.7
Balance as of September 30, 2022 46,767,164 $ 0.5 $ ( 2,394.0 ) $ 514.9 $ 2,645.3 $ ( 0.7 ) $ 766.0
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Murphy USA Inc.
Consolidated Statements of Changes in Equity
(unaudited)
Common Stock
(Millions of dollars, except share amounts) Shares Par Treasury Stock APIC Retained Earnings AOCI Total
Balance as of December 31, 2022 46,767,164 $ 0.5 $ ( 2,633.3 ) $ 518.9 $ 2,755.1 $ ( 0.5 ) $ 640.7
Net income — — — — 106.3 — 106.3
Amortization of unrealized loss on interest rate hedge, net of tax — — — — — 0.2 0.2
Cash dividends declared ($ 0.37 per share)
— — — — ( 8.1 ) — ( 8.1 )
Dividend equivalent units accrued — — — 0.1 ( 0.1 ) — —
Purchase of treasury stock — — ( 13.7 ) — — — ( 13.7 )
Issuance of treasury stock — — 8.7 ( 8.7 ) — — —
Amounts related to share-based compensation — — — ( 13.5 ) — — ( 13.5 )
Share-based compensation expense — — — 4.9 — — 4.9
Balance as of March 31, 2023 46,767,164 0.5 ( 2,638.3 ) 501.7 2,853.2 ( 0.3 ) 716.8
Net income — — — — 132.8 — 132.8
Amortization of unrealized loss on interest rate hedge, net of tax — — — — — 0.2 0.2
Cash dividends declared ($ 0.38 per share)
— — — — ( 8.2 ) — ( 8.2 )
Dividend equivalent units accrued — — — 0.1 ( 0.1 ) — —
Purchase of treasury stock — — ( 95.1 ) — — — ( 95.1 )
Issuance of treasury stock — — 0.3 ( 0.4 ) — — ( 0.1 )
Amounts related to share-based compensation — — — ( 0.8 ) — — ( 0.8 )
Share-based compensation expense — — — 5.2 — — 5.2
Balance as of June 30, 2023 46,767,164 $ 0.5 $ ( 2,733.1 ) $ 505.8 $ 2,977.7 $ ( 0.1 ) $ 750.8
Net income — — — — 167.7 — 167.7
Amortization of unrealized loss on interest rate hedge, net of tax — — — — — 0.1 0.1
Cash dividends declared ($ 0.39 per share)
— — — — ( 8.4 ) — ( 8.4 )
Dividend equivalent units accrued — — — 0.2 ( 0.2 ) — —
Purchase of treasury stock — — ( 65.3 ) — — — ( 65.3 )
Issuance of treasury stock — — 2.5 ( 2.7 ) — — ( 0.2 )
Amounts related to share-based compensation — — — ( 6.3 ) — — ( 6.3 )
Share-based compensation expense — — — 5.7 — — 5.7
Balance as of September 30, 2023 46,767,164 $ 0.5 $ ( 2,795.9 ) $ 502.7 $ 3,136.8 $ — $ 844.1
See notes to consolidated financial statements.
7
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 — Description of Business and Basis of Presentation
Description of business — Murphy USA Inc. and its consolidated subsidiaries (“Murphy USA”, "we", "us", "our" or the “Company”) markets refined products through a network of retail gasoline stores and to unbranded wholesale customers. In addition, we operate non-fuel convenience stores in select markets. The Company owns and operates a chain of retail stores under the brand names of Murphy USA ® and Murphy Express, most of which are located in close proximity to Walmart stores, and also has a mix of convenience stores with and without retail gasoline that operate under the name of QuickChek ® . At September 30, 2023, the Company had a total of 1,724 Company stores of which 1,568 were branded as Murphy and 156 were the QuickChek brand. The Company also has certain product supply and wholesale assets, including product distribution terminals and pipeline positions.
Basis of Presentation — Murphy USA was incorporated in March 2013 and, in connection with its incorporation, Murphy USA issued 100 shares of common stock, par value $ 0.01 per share, to Murphy Oil Corporation (“Murphy Oil”) for $ 1.00 . On August 30, 2013, Murphy USA was separated from Murphy Oil through the distribution of 100 % of the common stock of Murphy USA to holders of Murphy Oil stock. Murphy USA Inc., Murphy Oil USA, Inc. and certain of its subsidiaries operate on a calendar year basis, while the QuickChek subsidiary uses a weekly retail calendar where each quarter has 13 weeks. For the three month period ended September 30, 2023, the QuickChek results cover the period July 1, 2023 to September 29, 2023 and the 2023 year-to-date period began December 31, 2022. For the three month period ended September 30, 2022, the QuickChek results cover the period July 2, 2022 to September 30, 2022 and the 2022 year-to-date period began January 1, 2022. The difference in timing of the period ends is immaterial to the overall consolidated results.
In preparing the financial statements of Murphy USA in conformity with accounting principles generally accepted in the United States, management has made a number of estimates and assumptions related to the reporting of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. Actual results may differ from these estimates.
Interim Financial Information — The interim period financial information presented in these consolidated financial statements is unaudited and includes all known accruals and adjustments, in the opinion of management, necessary for a fair presentation of the consolidated financial position of Murphy USA and its results of operations and cash flows for the periods presented. All such adjustments are of a normal and recurring nature.
These interim consolidated financial statements should be read together with our audited financial statements for the years ended December 31, 2022, 2021 and 2020, included in our Annual Report on Form 10-K (File No. 001-35914), as filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934 on February 15, 2023.
Recently Issued Accounting Standards —
In August 2021, the FASB issued ASU 2021-08, "Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 606)," which requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. Under Topic 606, the acquirer applies the revenue model as if it had originated the contracts. This is a departure from the current requirement to measure contract assets and contract liabilities at fair value. This ASU was effective for the Company for the year beginning January 1, 2023, with early adoption permitted. The Company has determined this did not have a material impact on the Company's consolidated financial statements.
Note 2 — Revenues
Revenue Recognition
Revenue is recognized when obligations under the terms of a contract with our customers are satisfied; generally, this occurs with the transfer of control of our petroleum products, convenience merchandise, Renewable
8
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Identification Numbers ("RINs") and other assets to our third-party customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Excise and sales tax that we collect where we have determined we are the principal in the transaction have been recorded as revenue on a jurisdiction-by-jurisdiction basis.
The Company enters into buy/sell and similar arrangements when petroleum products are held at one location but are needed at a different location. The Company often pays or receives funds related to the buy/sell arrangements based on location or quality differences. The Company continues to account for these transactions as non-monetary exchanges under existing accounting guidance and typically reports these on a net basis in the Consolidated Statements of Income.
The following tables disaggregate our revenues by major source for the three and nine months ended September 30, 2023 and 2022, respectively:
Three Months Ended September 30, 2023 Three Months Ended September 30, 2022
(Millions of dollars) Marketing Corporate and Other Assets Consolidated Marketing Corporate and Other Assets Consolidated
Petroleum product sales
(at retail) 1
$ 4,134.8 $ — $ 4,134.8 $ 4,550.4 $ — $ 4,550.4
Petroleum product sales
(at wholesale) 1
524.0 — 524.0 528.2 — 528.2
Total petroleum product sales 4,658.8 — 4,658.8 5,078.6 — 5,078.6
Merchandise sales 1,055.6 — 1,055.6 1,027.2 — 1,027.2
Other operating revenues:
RINs 81.7 — 81.7 87.6 — 87.6
Other revenues 2
1.7 0.1 1.8 1.0 0.3 1.3
Total revenues $ 5,797.8 $ 0.1 $ 5,797.9 $ 6,194.4 $ 0.3 $ 6,194.7
Nine Months Ended September 30, 2023 Nine Months Ended September 30, 2022
(Millions of dollars) Marketing Corporate and Other Assets Consolidated Marketing Corporate and Other Assets Consolidated
Petroleum product sales
(at retail) 1
$ 11,693.7 — $ 11,693.7 $ 13,361.7 $ — $ 13,361.7
Petroleum product sales
(at wholesale) 1
1,409.9 — 1,409.9 1,555.6 — 1,555.6
Total petroleum product sales 13,103.6 — 13,103.6 14,917.3 — 14,917.3
Merchandise sales 3,070.8 — 3,070.8 2,913.8 — 2,913.8
Other operating revenues:
RINs 281.2 — 281.2 243.6 — 243.6
Other revenues 2
4.7 0.2 4.9 4.7 0.4 5.1
Total revenues $ 16,460.3 $ 0.2 $ 16,460.5 $ 18,079.4 $ 0.4 $ 18,079.8
1 Includes excise and sales taxes that remain eligible for inclusion under Topic 606
2 Primarily includes collection allowance on excise and sales taxes and other miscellaneous items
Marketing segment
Petroleum product sales (at retail). For our retail store locations, the revenue related to petroleum product sales is recognized as the fuel is pumped to our customers. The transaction price at the pump typically includes some portion of sales or excise taxes as levied in the respective jurisdictions. Those taxes that are collected for remittance to governmental entities on a pass-through basis are not recognized as revenue and they are recorded
9
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
to a liability account until they are paid. Our customers typically use a mixture of cash, checks, credit cards and debit cards to pay for our products as they are received. We have accounts receivable from the various credit/debit card providers at any point in time related to product sales made on credit cards and debit cards. These receivables are typically collected in two to seven days , depending on the terms with the particular credit/debit card providers. Payment fees retained by the credit/debit card providers are recorded as Store and other operating expenses in the Consolidated Statements of Income.
Petroleum product sales (at wholesale). Our sales of petroleum products at wholesale are generally recorded as revenue when the deliveries have occurred and legal ownership of the product has transferred to the customer. Title transfer for bulk refined product sales typically occurs at pipeline custody points and upon trucks loading at product terminals. For bulk pipeline sales, we record receivables from customers that are generally collected within a week from custody transfer date. For our rack product sales, the majority of our customers' accounts are drafted by us within 10 days from product transfer.
Merchandise sales. For our retail store locations, the revenue related to merchandise sales is recognized as the customer completes their purchase at our locations. The transaction price typically includes some portion of sales tax as levied in the respective jurisdictions. Those taxes that are collected for remittance to governmental entities on a pass-through basis are not recognized as revenue and they are recorded to a liability account until they are paid. As noted above, a mixture of payment types are used for these revenues and the same terms for credit/debit card receivables are realized.
The most significant judgment with respect to merchandise sales revenue is determining whether we are the principal or agent for some categories of merchandise such as lottery tickets, lotto, newspapers and other small categories of merchandise. For scratch-off lottery tickets, we have determined we are the principal in the majority of the jurisdictions and therefore we record those sales on a gross basis. We have some categories of merchandise (such as lotto) where we are the agent and the revenues recorded for those transactions are our net commission only.
The Company offers loyalty programs through its Murphy USA, Murphy Express, and QuickChek branded retail locations. The customers earn rewards based on their spending or other promotional activities. These programs create a performance obligation which requires us to defer a portion of sales revenue to the loyalty program participants until they redeem their rewards. The rewards may be redeemed for free or discounted merchandise or cash discounts at all stores and on fuel purchases at Murphy USA and Murphy Express stores. Earned rewards expire after an account is inactive for a period of 90 days at Murphy USA and Murphy Express, while certain QuickChek rewards require use within the month. We recognize loyalty revenue when a customer redeems an earned reward. Deferred revenue associated with both rewards programs are included in Trade accounts payable and accrued liabilities in our Consolidated Balance Sheets. The deferred revenue balances at September 30, 2023 and December 31, 2022 were immaterial.
RINs sales. For the sale of RINs, we recognize revenue when the RIN is transferred to the counter-party and the sale is completed. Receivables from our counter-parties related to the RIN sales are typically collected within five days of the sale.
Other revenues. Items reported as other operating revenues include collection allowances for excise and sales tax and other miscellaneous items and are recognized as revenue when the transaction is completed.
Accounts receivable
Trade accounts receivable on the balance sheet represents both receivables related to contracts with customers and other trade receivables. At September 30, 2023 and December 31, 2022, we had $ 215.8 million and $ 164.1 million of receivables, respectively, related to contracts with customers recorded. All of the trade accounts receivable related to contracts with customers outstanding at the end of each period were collected during the succeeding quarter. These receivables were generally related to credit and debit card transactions along with short term bulk and wholesale sales to our customers, which have a very short settlement window.
10
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 3 — Inventories
Inventories consisted of the following:
(Millions of dollars) September 30,
2023 December 31,
2022
Petroleum products - FIFO basis $ 430.5 $ 367.0
Store merchandise for resale - FIFO basis 203.6 192.1
Less LIFO reserve ( 313.7 ) ( 250.7 )
Total petroleum products and store merchandise inventory 320.4 308.4
Materials and supplies 15.0 10.7
Total inventories $ 335.4 $ 319.1
Murphy USA and Murphy Express branded petroleum products are valued using the last-in, first-out (LIFO) method and certain QuickChek store merchandise for resale is valued using the LIFO method. At September 30, 2023 and December 31, 2022, the replacement cost (market value) of LIFO inventories exceeded the LIFO carrying value for petroleum products by $ 311.6 million and $ 249.1 million, respectively and for store merchandise for resale by $ 2.1 million and $ 1.6 million for September 30, 2023 and December 31, 2022, respectively.
Note 4 — Marketable Securities
The Company invests a portion of its excess operational cash in marketable securities. The goal of the Company's investment policy, in order of priority, are as follows: (1) preservation of principal, (2) maintaining a high degree of liquidity to meet cash flow requirements, and (3) deliver competitive returns subject to prevailing market conditions and the Company's stated objectives related to safety and liquidity. Nothing in the policy is intended to indicate that management must invest excess operational cash; it allows it to be subject to specific limitations.
Securities are generally required to have a final maturity of 24 months or less with a weighted average maturity for the portfolio of no longer than 12 months and must have an active secondary market. Investments may include U.S. Treasury bills, notes and bonds, U.S. Agency securities, repurchase agreements, certificates of deposit, institutional, government money market funds that maintain a stable $ 1.00 net asset value, domestic and foreign commercial paper, municipal securities, domestic and foreign debt issued by corporations or financial institutions with the primary objective of minimizing the potential risk of principal loss. The Company determines the classification of its marketable securities based on its investment strategy at the time of purchase. All marketable securities in the periods presented have been classified as available-for-sale.
The carrying values of marketable securities and the balance sheet location at September 30, 2023 and December 31, 2022 consisted of the following:
September 30, 2023
(Millions of dollars) Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair Value
Available-for-sale securities:
Marketable securities current
U.S. Government bonds $ 5.9 $ — — $ 5.9
U.S. Corporate bonds 2.5 — — 2.5
Investment income receivable 0.1 — — 0.1
8.5 — — 8.5
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Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
September 30, 2023
(Millions of dollars) Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair Value
Marketable securities non-current
U.S. Corporate bonds 5.9 — — 5.9
Non U.S. Corporate bonds 1.5 — — 1.5
7.4 — — 7.4
Total marketable securities $ 15.9 $ — $ — $ 15.9
December 31, 2022
(Millions of dollars) Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair Value
Available-for-sale securities:
Marketable securities current
U.S. Government bonds $ 8.8 $ — $ — $ 8.8
U.S. Corporate bonds 6.0 — — 6.0
Non U.S. Corporate bonds 3.0 — — 3.0
Investment income receivable 0.1 — — 0.1
17.9 — — 17.9
Marketable securities non-current
U.S. Corporate bonds 4.4 — — 4.4
Total marketable securities $ 22.3 $ — $ — $ 22.3
The amortized cost basis and fair value of the Company's available-for-sale marketable securities at September 30, 2023, by contractual maturity, are as follows:
(Millions of dollars )
Amortized Cost Fair Value
Less than 1 year $ 15.8 $ 15.8
1 to 2 years — —
Total $ 15.8 $ 15.8
There was no impairment on any available-for-sale marketable securities as of September 30, 2023 or December 31, 2022.
Note 5 — Goodwill and Intangible Assets
The Company's goodwill is assigned to its Marketing segment and no ne of the goodwill is deductible for tax purposes.
(Millions of dollars) September 30,
2023 December 31,
2022
Goodwill $ 328.0 $ 328.0
We amortize intangible assets subject to amortization on a straight-line basis based on the period for which the economic benefits of the asset or liability are expected to be realized. The intangible assets subject to amortization includes pipeline space, which is being amortized over a 40 -year life, and the intangible lease liability acquired from QuickChek which is being amortized over the remaining life of the underlying leases.
12
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Intangible assets subject to amortization at September 30, 2023 and December 31, 2022 consisted of the following:
Remaining Useful Life (in years) September 30, 2023 December 31, 2022
(Millions of dollars) Cost Net Cost Net
Intangible assets subject to amortization:
Pipeline space 31.9 $ 39.6 $ 31.9 $ 39.6 $ 32.7
Intangible lease liability 10.7 ( 9.1 ) ( 7.4 ) ( 9.1 ) ( 7.9 )
Total intangible assets subject to amortization 30.5 24.5 30.5 24.8
Intangible assets not subject to amortization, indefinite lives:
Trade name 115.4 115.4 115.4 115.4
Liquor licenses — — 0.2 0.2
Total intangible assets not subject to amortization 115.4 115.4 115.6 115.6
Intangible assets, net of amortization $ 145.9 $ 139.9 $ 146.1 $ 140.4
Note 6 — Long-Term Debt
Long-term debt consisted of the following:
(Millions of dollars) September 30,
2023 December 31,
2022
5.625 % senior notes due 2027 (net of unamortized discount of $ 1.3 at September 30, 2023 and $ 1.6 at December 31, 2022)
$ 298.7 $ 298.4
4.75 % senior notes due 2029 (net of unamortized discount of $ 3.7 at September 30, 2023 and $ 4.2 at December 31, 2022)
496.3 495.8
3.75 % senior notes due 2031 (net of unamortized discount of $ 4.6 at September 30, 2023 and $ 5.1 at December 31, 2022)
495.4 494.9
Term loan due 2028 (effective interest rate of 7.22 % at September 30, 2023 and 5.95 % at December 31, 2022 and net of unamortized discount of $ 0.6 at September 30, 2023 and $ 0.7 at December 31, 2022)
390.4 393.3
Capitalized lease obligations, autos and equipment, due through 2026 2.9 2.3
Capitalized lease obligations, buildings, due through 2059 125.4 131.3
Less unamortized debt issuance costs ( 7.7 ) ( 9.1 )
Total long-term debt 1,801.4 1,806.9
Less current maturities 15.0 15.0
Total long-term debt, net of current $ 1,786.4 $ 1,791.9
Senior Notes
On April 25, 2017, Murphy Oil USA, Inc., our primary operating subsidiary, issued $ 300 million of 5.625 % Senior Notes due 2027 (the "2027 Senior Notes"). The 2027 Senior Notes are fully and unconditionally guaranteed by Murphy USA, and are guaranteed by certain 100% owned subsidiaries that guarantee our Credit Facilities, as defined herein. The indenture governing the 2027 Senior Notes contains restrictive covenants that limit, among other things, the ability of Murphy USA, Murphy Oil USA, Inc. and the restricted subsidiaries to incur additional indebtedness or liens, dispose of assets, make certain restricted payments or investments, enter into transactions with affiliates or merge with or into other entities.
13
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
On September 13, 2019, Murphy Oil USA, Inc., issued $ 500 million of 4.75 % Senior Notes due 2029 (the “2029 Senior Notes”). The net proceeds from the issuance of the 2029 Senior Notes were used to fund, in part, the tender offer and redemption of a prior note issuance. The 2029 Senior Notes are fully and unconditionally guaranteed by Murphy USA, and are guaranteed by certain 100% owned subsidiaries that guarantee our Credit Facilities. The indenture governing the 2029 Senior Notes contains restrictive covenants that are substantially similar to the covenants for the 2027 Senior Notes.
On January 29, 2021, Murphy Oil USA, Inc., 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 of QuickChek 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 substantially similar to the covenants for the 2027 and 2029 Senior Notes.
The Senior Notes and the guarantees rank equally with all of our and the guarantors’ existing and future senior unsecured indebtedness and effectively junior to our and the guarantors’ existing and future secured indebtedness (including indebtedness with respect to the Credit Facilities) to the extent of the value of the assets securing such indebtedness. The 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 Senior Notes.
Revolving Credit Facility and Term Loan
Our credit agreement consists of both a cash flow revolving credit facility and a senior secured 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 $ 391 million at September 30, 2023 and $ 394 million at December 31, 2022. The term loan is due January 2028, and we are required to make quarterly principal payments of $ 1 million, which began on July 1, 2021. As of September 30, 2023, we had no outstanding borrowings under the Revolving Facility and had $ 6.2 million in outstanding letters of credit (which reduces the amount available to borrow under the Revolving Facility).
Interest payable on the Term Facility is based on either:
• the term overnight financing rate, plus the applicable Alternative Reference Rate Committee ("ARRC") recommended credit spread adjustment (the “Adjusted Term SOFR Rate”);
or
• 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 the federal funds effective rate and the overnight bank funding rate determined by the Federal Reserve Bank of New York from time to time plus 0.50 % per annum and (c) the one-month Adjusted Term SOFR Rate plus 1.00 % per annum,
plus, (A) in the case of Adjusted Term SOFR Rate borrowings, a spread of 1.75 % per annum and (B) in the case of Alternate Base Rate borrowings, a spread of 0.75 % per annum.
Interest payable on the Revolving Facility is based on either:
• the term secured overnight financing rate, plus 0.10 % credit spread adjustment for all interest periods (the "Adjusted SOFR Rate"), which is subject to a 0.0 % floor;
or
14
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
• 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 the federal funds effective rate and the overnight bank funding rate determined by the Federal Reserve Bank of New York from time to time plus 0.50 % per annum and (c) the one-month Adjusted SOFR Rate plus 1.00 % per annum,
plus, (A) in the case of Adjusted SOFR Rate borrowings, a spread of 1.75 % to 2.25 % per annum depending on a total debt to EBITDA ratio and (B) in the case of Alternate Base Rate borrowings, spreads of 0.75 % to 1.25 % per annum depending on a total debt to EBITDA ratio.
The Term Facility amortizes in quarterly installments, which commenced 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 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 Revolving Facility credit agreement also impose total leverage ratio and secured net leverage ratio financial maintenance covenants 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 September 30, 2023, our total leverage ratio was 1.75 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 the greater of $ 116.1 million or 4.50 % of consolidated net tangible assets over the life of the credit agreement.
All obligations under the credit agreement are guaranteed by Murphy USA and the subsidiary guarantors party thereto, and all obligations under the credit agreement, including the guarantees of those obligations, are secured by certain assets of Murphy USA, Murphy Oil USA, Inc. and the guarantors party to the guarantee and collateral agreement in respect thereof.
Note 7 — Asset Retirement Obligations (ARO)
The majority of the ARO recognized by the Company at September 30, 2023 and December 31, 2022 is related to the estimated costs to dismantle and abandon certain of its retail gasoline stores. The Company has not recorded an ARO for certain of its marketing assets because sufficient information is presently not available to estimate a range of potential settlement dates for the obligation. These assets are consistently being upgraded and are expected to be operational into the foreseeable future. In these cases, the obligation will be initially recognized in the period in which sufficient information exists to estimate the obligation.
15
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A reconciliation of the beginning and ending aggregate carrying amount of the ARO is shown in the following table.
(Millions of dollars) September 30,
2023 December 31,
2022
Balance at beginning of period $ 43.3 $ 39.2
Accretion expense 2.2 2.7
Settlements of liabilities ( 3.1 ) ( 2.3 )
Liabilities incurred 1.6 3.7
Balance at end of period $ 44.0 $ 43.3
The estimation of future ARO is based on a number of assumptions requiring professional judgment. The Company cannot predict the type of revisions to these assumptions that may be required in future periods due to the lack of availability of additional information.
Note 8 — Income Taxes
The effective tax rate is calculated as the amount of income tax expense (benefit) divided by income before income tax expense (benefit). For the three and nine month periods ended September 30, 2023 and 2022, the Company’s approximate effective tax rates were as follows:
2023 2022
Three months ended September 30, 24.9 % 24.5 %
Nine months ended September 30, 24.4 % 24.2 %
In the nine months ended September 30, 2023, the Company recognized approximately $ 2.5 million of excess tax benefits related to stock compensation for employees and $ 0.5 million in other discrete tax benefits. For the nine months ended September 30, 2022, the Company recognized approximately $ 2.5 million of excess tax benefits related to stock compensation for employees and $ 0.4 million in other discrete tax benefits.
As of September 30, 2023, the earliest year remaining open for Federal audits and/or settlement is 2019 and for state audits and/or settlement is 2018. Although the Company believes that recorded liabilities for unsettled issues are adequate, additional gains or losses could occur in future periods from resolution of outstanding unsettled matters.
Note 9 — Incentive Plans
2013 Long-Term Incentive Plan
Effective August 30, 2013, certain of our employees began to participate in the Murphy USA 2013 Long-Term Incentive Plan which was subsequently amended and restated effective as of February 8, 2017 (the “MUSA 2013 Plan”). The MUSA 2013 Plan authorizes the Executive Compensation Committee of our Board of Directors (“the Committee”) to grant non-qualified or incentive stock options, stock appreciation rights, stock awards (including restricted stock and restricted stock unit awards), dividend equivalent units, cash awards, and performance awards to our employees. No more than 5.5 million shares of MUSA common stock may be delivered under the MUSA 2013 Plan and no more than 1 million shares of common stock may be awarded to any one employee, subject to adjustment for changes in capitalization. The maximum cash amount payable pursuant to any “performance-based” award to any participant in any calendar year is $ 5.0 million. On May 4, 2023, the 2023 Omnibus Incentive Compensation Plan (the "MUSA 2023 Plan") was approved by shareholders and became effective for all future grants for both employees and directors, as described later in the footnote.
Beginning with its initial quarterly dividend in December 2020, the Company issues dividend equivalent units ("DEU") on all outstanding, unvested equity awards (except stock options) in an amount commensurate with regular quarterly dividends paid on common stock. The terms of the DEU mirror the underlying awards and will only vest if the related award vests. DEUs issued are included with grants in each respective table as applicable.
16
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
STOCK OPTIONS – The Committee fixes the option price of each option granted at no less than fair market value (FMV) on the date of the grant and fixes the option term at no more than 7 years from such date. In February 2023, the Committee granted nonqualified stock options to certain employees of the Company. The Black-Scholes valuation for these awards was $ 88.53 per option.
Assumptions used to value awards:
Dividend yield 0.53 %
Expected volatility 33.1 %
Risk-free interest rate 3.8 %
Expected life (years) 4.9
Stock price at valuation date $ 263.48
Changes in options outstanding for Company employees during the period from December 31, 2022 to September 30, 2023 are presented in the following table:
2013 Plan — Options Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (Millions of Dollars)
Outstanding at December 31, 2022 313,950 $ 112.06
Granted 38,100 $ 263.48
Exercised ( 54,450 ) $ 76.08
Outstanding at September 30, 2023 297,600 $ 138.02 4.1 $ 60.6
Exercisable at September 30, 2023 167,100 $ 97.47 3.1 $ 40.8
RESTRICTED STOCK UNITS (MUSA 2013 Plan) – The Committee has granted time-based restricted stock units (RSUs) as part of the compensation plan for its executives and certain other employees since its inception. The awards granted in the current year were under the MUSA 2013 Plan, are valued at the grant date fair value, and vest over three years .
Changes in restricted stock units outstanding for Company employees during the period from December 31, 2022 to September 30, 2023 are presented in the following table:
2013 Plan — Employee RSUs Number of units Weighted Average Grant Date Fair Value Total Fair Value (Millions of Dollars)
Outstanding at December 31, 2022 149,366 $ 125.51
Granted 34,600 $ 256.84
Vested and issued ( 60,735 ) $ 80.07 $ 16.0
Forfeited ( 2,642 ) $ 176.19
Outstanding at September 30, 2023 120,589 $ 198.08 $ 41.2
PERFORMANCE-BASED RESTRICTED STOCK UNITS (MUSA 2013 Plan) – In February 2023, the Committee awarded performance-based restricted stock units (performance units or PSU) to certain employees. Half of the performance units vest based on a three-year return on average capital employed ("ROACE") calculation and the other half vest based on a three-year total shareholder return ("TSR") calculation that compares MUSA to a group of 17 peer companies. The portion of the awards that vest based on TSR qualify as a market condition and must be valued using a Monte Carlo valuation model. For the TSR portion of the awards, the fair value was determined to be $ 330.18 per unit. For the ROACE portion of the awards, the valuation will be based on the grant date fair value of $ 263.48 per unit and the number of awards will be periodically assessed to determine the probability of vesting.
17
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Changes in performance-based restricted stock units outstanding for Company employees during the period from December 31, 2022 to September 30, 2023 are presented in the following table:
2013 Plan — Employee PSUs Number of Units Weighted Average Grant Date Fair Value Total Fair Value (Millions of Dollars)
Outstanding at December 31, 2022 106,001 $ 160.03
Granted 62,275 $ 292.52
Vested and issued ( 72,799 ) $ 121.83 $ 19.0
Outstanding at September 30, 2023 95,477 $ 218.97 $ 32.6
2013 Stock Plan for Non-employee Directors
Effective August 8, 2013, Murphy USA adopted the 2013 Murphy USA Stock Plan for Non-employee Directors (the “2013 Directors Plan”). The directors for Murphy USA are compensated with a mixture of cash payments and equity-based awards. Awards under the Directors Plan may be in the form of restricted stock, restricted stock units, stock options, or a combination thereof. An aggregate of 500,000 shares of common stock was reserved for issuance of grants under the Directors Plan. With approval of the 2023 Omnibus Plan, all future director grants will be granted under that plan.
RESTRICTED STOCK UNITS (2013 Directors Plan) – The Committee has also granted time based RSUs to the non-employee directors of the Company as part of their overall compensation package for being a member of the Board of Directors. Awards prior to 2023 vest at the end of three years and those granted in 2023 vest at the end of one year .
DEFERRED STOCK UNITS (2013 Directors Plan) — Effective January 1, 2023, non-employee directors can elect to receive their annual cash retainers in the form of Deferred Stock Units ("DSUs"). The DSUs are recognized at their fair value on the date of the grant. Director fees which are deferred into DSUs are calculated and expensed each quarter by taking fees earned during the quarter and dividing by the closing price of our common stock on the last trading day of the quarter. Each DSU represents the right to receive one share of common stock following the completion of a director's service. In addition, beginning with the 2023 annual equity grants to non-employee directors, the directors may elect to defer receipt of their vested RSUs until their service ends. These RSUs are included in the Director RSU table below, will vest in one year , and will thereafter become deferred stock units.
Changes in restricted stock units outstanding for Company non-employee directors during the period from December 31, 2022 to September 30, 2023 are presented in the following table:
2013 Plan — Director RSUs and DSUs Number of Units Weighted Average Grant Date Fair Value Total Fair Value (Millions of Dollars)
Outstanding at December 31, 2022 26,923 $ 132.38
Granted 6,584 $ 258.35
Vested and issued ( 9,880 ) $ 110.19 $ 2.7
Outstanding at September 30, 2023, including DSUs
23,627 $ 177.98 $ 8.1
During the three-month period ended March 31, 2023, we granted 421 DSUs and recorded director expense of $ 0.1 million related to the grants under the 2013 Plan. One DEU share was granted and vested on these DSUs during the third quarter period. At September 30, 2023 there were 422 Director DSUs outstanding with an average grant date fair value of $ 258.05 under the 2013 Plan.
18
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
2023 Omnibus Incentive Compensation Plan
On May 4, 2023, the MUSA 2023 Plan became effective upon the approval of the Company's stockholders. The MUSA 2023 Plan has been established to replace, on a prospective basis, the MUSA 2013 Plan and the 2013 Directors Plan, each of which expired on August 8, 2023. The MUSA 2023 Plan authorizes the Executive Compensation Committee of our Board of Directors (“the Committee”) to grant to non-employee directors, employees, and consultants of the Company, or any of its subsidiaries, stock options (incentive stock options ("ISOs") and nonqualified stock options ("NQSO")), stock appreciation rights ("SARs"), restricted stock, restricted stock units ("RSUs"), performance awards or other cash-based awards and other stock-based awards. The maximum number of shares available for issuance under the MUSA 2023 Plan shall not exceed in the aggregate 1,725,000 shares (subject to certain adjustments). As of September 30, 2023, other than the deferred stock units described below, no other grants have been made under the MUSA 2023 Plan.
DEFERRED STOCK UNITS — Non-employee directors can elect to receive their annual cash retainers in the form of DSUs. The DSUs are recognized at their fair value on the date of the grant. Director fees which are deferred into DSUs are calculated and expensed each quarter by taking fees earned during the quarter and dividing by the closing price of our common stock on the last trading day of the quarter. Each DSU represents the right to receive one share of common stock following the completion of a director's service.
Changes in restricted stock units outstanding for Company 2023 Plan during the period from December 31, 2022 to September 30, 2023 are presented in the following table:
2023 Plan — RSUs and Director DSUs Number of Units Weighted Average Grant Date Fair Value Total Fair Value (Millions of Dollars)
Outstanding at December 31, 2022 — $ —
Granted 692
$ 325.32
Vested and issued 0
$ — $ —
Outstanding at September 30, 2023, including DSUs
692 $ 325.32 $ 0.2
During the three-month period ended September 30, 2023, we granted 692 DSUs and recorded director expense of $ 0.2 million related to the grants. At September 30, 2023, there were 692 Director DSUs vested and outstanding with an average grant date fair value of $ 325.32 under the MUSA 2023 Plan.
Share-based compensation for the nine months ended September 30, 2023 and 2022, was $ 15.8 million and $ 11.7 million, respectively. There were $ 0.4 million in income tax benefits realized for the tax deductions from options exercised for the nine months ended September 30, 2023 and there were $ 1.1 million for the nine months ended September 30, 2022.
Note 10 — Financial Instruments and Risk Management
DERIVATIVE INSTRUMENTS — The Company makes limited use of derivative instruments to manage certain risks related to commodity prices and interest rates. The use of derivative instruments for risk management is covered by operating policies and is closely monitored by the Company’s senior management. The Company does not hold any derivatives for speculative purposes and it does not use derivatives with leveraged or complex features. Derivative instruments are traded primarily with credit worthy major financial institutions or over national exchanges such as the New York Mercantile Exchange (“NYMEX”). For accounting purposes, the Company has not designated commodity derivative contracts as hedges, and therefore, it recognizes all gains and losses on these derivative contracts in its Consolidated Statements of Income. Certain interest rate derivative contracts were accounted for as hedges and gain or loss associated with recording the fair value of these contracts was deferred in AOCI until the anticipated transactions occurred. As of September 30, 2023, all current commodity derivative activity is immaterial.
19
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
There were $ 0.3 million in cash deposits at September 30, 2023 and none at December 31, 2022 related to commodity derivative contracts reported in Prepaid expenses and other current assets in the Consolidated Balance Sheets. These cash deposits have not been used to increase the reported net assets or reduce the reported net liabilities on the derivative contracts at September 30, 2023 or December 31, 2022.
Interest Rate Risks
An interest rate derivative that the Company used to effect the hedge entered into in August 2019 matured during the quarter ended September 30, 2023. The amount of pre-tax gains in accumulated other comprehensive loss that was reclassified into interest expense was $ 0.1 million and $ 0.6 million for the three and nine months ended September 30, 2023, respectively. The amount of pre-tax gains in accumulated other comprehensive loss that was reclassified into interest expense was $ 0.2 million and $ 0.7 million for the three and nine months ended September 30, 2022, respectively.
Note 11 — Earnings Per Share
Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted average of common shares outstanding during the period. Diluted earnings per common share adjusts basic earnings per common share for the effects of stock options and restricted stock in the periods where such items are dilutive.
On December 1, 2021, our Board of Directors approved a share repurchase authorization of up to $ 1 billion that expires December 31, 2026, and excludes excise tax. As of September 30, 2023, approximately $ 41.0 million remained under the 2021 authorization. In addition, on May 2, 2023, we announced that our Board of Directors approved a new share repurchase authorization of up to $ 1.5 billion to begin upon completion of the current $ 1 billion authorization and to be executed by December 31, 2028. For the nine months ended September 30, 2023, the Company repurchased 584,086 shares of common stock for an average price of $ 298.12 per share including brokerage fees and excise tax. For the nine months ended September 30, 2022, 2,482,804 shares were repurchased for an average price of $ 228.33 per share.
The following tables provide a reconciliation of basic and diluted earnings per share computations for the three and nine months ended September 30, 2023 and 2022:
Three Months Ended
September 30, Nine Months Ended
September 30,
(Millions of dollars, except share and per share amounts) 2023 2022 2023 2022
Earnings per common share:
Net income per share - basic
Net income attributable to common stockholders $ 167.7 $ 219.5 $ 406.8 $ 555.2
Weighted average common shares outstanding (in thousands) 21,401 23,206 21,635 23,963
Earnings per common share $ 7.83 $ 9.46 $ 18.80 $ 23.17
20
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Three Months Ended
March 31, Nine Months Ended
September 30,
(Millions of dollars, except share and per share amounts) 2023 2022 2023 2022
Earnings per common share - assuming dilution:
Net income per share - diluted
Net income attributable to common stockholders $ 167.7 $ 219.5 $ 406.8 $ 555.2
Weighted average common shares outstanding (in thousands) 21,401 23,206 21,635 23,963
Common equivalent shares:
Dilutive share-based awards 389 444 385 435
Weighted average common shares outstanding - assuming dilution
(in thousands) 21,790 23,650 22,020 24,398
Earnings per common share assuming dilution $ 7.69 $ 9.28 $ 18.47 $ 22.76
We have excluded from the earnings-per-share calculation certain stock options and shares that are considered to be anti-dilutive under the treasury stock method and are reported in the table below.
Three Months Ended
September 30, Nine Months Ended
September 30,
Potentially dilutive shares excluded from the calculation as their inclusion would be anti-dilutive 2023 2022 2023 2022
Stock Options 38,100 — 38,100 3,250
PSUs — — 12,800 1,353
Total anti-dilutive shares 38,100 — 50,900 4,603
Note 12 — Other Financial Information
CASH FLOW DISCLOSURES — Cash income tax payments, net of refunds, were $ 94.5 million and $ 141.5 million for the nine-month periods ended September 30, 2023 and 2022, respectively. Interest paid, net of amounts capitalized, was $ 75.3 million and $ 66.2 million for the nine-month periods ended September 30, 2023 and 2022, respectively.
CHANGES IN WORKING CAPITAL:
Nine Months Ended
September 30,
(Millions of dollars) 2023 2022
Accounts receivable $ ( 63.8 ) $ ( 60.3 )
Inventories ( 16.3 ) 11.8
Prepaid expenses and other current assets 21.0 ( 8.5 )
Accounts payable and accrued liabilities ( 49.7 ) 60.5
Income taxes payable 11.6 15.3
Net (increase) decrease in noncash operating working capital $ ( 97.2 ) $ 18.8
21
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 13 — Assets and Liabilities Measured at Fair Value
The Company carries certain assets and liabilities at fair value in its Consolidated Balance Sheets. The fair value hierarchy is based on the quality of inputs used to measure fair value, with Level 1 being the highest quality and Level 3 being the lowest quality. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included within Level 1. Level 3 inputs are unobservable inputs which reflect assumptions about pricing by market participants.
The Company's available-for-sale marketable securities consist of high quality, investment grade securities from diverse issuers. We value these securities at the closing price in the principal active markets as of the last business day of the reporting period. The fair values of the Company's marketable securities by asset class are described in Note 4 "Marketable Securities" in these consolidated financial statements for the period ended September 30, 2023. We value the deferred compensation plan assets, which consist of money market and mutual funds, based on quoted prices in active markets at the measurement date. For additional information on deferred compensation plans see also Note 14 "Employee and Retirement Benefit Plans" in the audited consolidated financial statements for the year ended December 31, 2022 included in our Annual Report on Form 10-K for more information.
At the balance sheet date, the fair value of commodity derivatives contracts was determined using NYMEX quoted values and the value of the Interest rate swap derivative was derived by using level 3 inputs. The tables below exclude Cash and cash equivalents, Accounts receivable-trade, and Trade accounts payable and accrued liabilities, all of which had fair values approximating carrying amounts. See also Note 10 "Financial Instruments and Risk Management" in these consolidated financial statements for the period ended September 30, 2023, for more information.
Financial assets and liabilities measured at fair value on a recurring basis
The following tables present the Company's financial assets and liabilities measured at fair value on a recurring basis, as of September 30, 2023 and December 31, 2022:
September 30, 2023
(Millions of dollars) Level 1 Level 2 Level 3 Fair Value
Financial assets
Marketable securities, current
U.S. Government bonds $ — $ 5.9 $ — $ 5.9
U.S. Corporate bonds — 2.6 — 2.6
Prepaid expenses and other current assets:
Fuel derivative — — 0.2 0.2
Marketable securities, non-current
U.S. Corporate bonds — 5.9 — 5.9
Non U.S. Corporate bonds — 1.5 — 1.5
Other assets
Deferred compensation plan assets 11.5 — — 11.5
Financial liabilities
Deferred credits and other liabilities
Deferred compensation plan liabilities ( 18.7 ) — — ( 18.7 )
$ ( 7.2 ) $ 15.9 $ 0.2 $ 8.9
22
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
December 31, 2022
(Millions of dollars) Level 1 Level 2 Level 3 Fair Value
Financial assets
Marketable securities, current
U.S. Government bonds $ — $ 8.8 $ — $ 8.8
U.S. Corporate bonds — 6.1 — 6.1
Non U.S. Corporate bonds — 3.0 — 3.0
Accounts receivable - trade
Interest rate swap derivative — — 1.3 1.3
Marketable securities, non-current
U.S. Corporate bonds — 4.4 — 4.4
Other assets
Deferred compensation plan assets 9.5 — — 9.5
Financial liabilities
Deferred credits and other liabilities
Deferred compensation plan liabilities ( 14.7 ) — — ( 14.7 )
$ ( 5.2 ) $ 22.3 $ 1.3 $ 18.4
Fair value of financial instruments not recognized at fair value
The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The fair value of Current and Long-term debt was estimated based on rates offered to the Company at that time for debt of the same maturities. The Company has off-balance sheet exposures relating to certain financial guarantees and letters of credit. The fair value of these, which represents fees associated with obtaining the instruments, was nominal.
The following table presents the carrying amounts and estimated fair values of financial instruments held by the Company at September 30, 2023 and December 31, 2022.
At September 30, 2023 At December 31, 2022
Carrying Carrying
(Millions of dollars) Amount Fair Value Amount Fair Value
Financial liabilities
Current and long-term debt, excluding finance leases $ ( 1,673.1 ) $ ( 1,644.8 ) $ ( 1,673.3 ) $ ( 1,643.0 )
Note 14 — Contingencies
The Company’s operations and earnings have been and may be affected by various forms of governmental action. Examples of such governmental action include, but are by no means limited to: tax increases and retroactive tax claims; import and export controls; price controls; allocation of supplies of crude oil and petroleum products and other goods; laws and regulations intended for the promotion of safety and the protection and/or remediation of the environment; governmental support for other forms of energy; and laws and regulations affecting the Company’s relationships with employees, suppliers, customers, stockholders and others. Because governmental actions are often motivated by political considerations, may be taken without full consideration of their consequences, and may be taken in response to actions of other governments, it is not practical to attempt to predict the likelihood of such actions, the form the actions may take or the effect such actions may have on the Company.
23
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
ENVIRONMENTAL MATTERS AND LEGAL MATTERS — Murphy USA is subject to numerous federal, state and local laws and regulations dealing with the environment. Violation of such environmental laws, regulations and permits can result in the imposition of significant civil and criminal penalties, injunctions and other sanctions. A discharge of hazardous substances into the environment could, to the extent such event is not insured, subject the Company to substantial expense, including both the cost to comply with applicable regulations and claims by neighboring landowners and other third parties for any personal injury, property damage and other losses that might result.
The Company currently owns or leases, and has in the past owned or leased, properties at which hazardous substances have been or are being handled. Although the Company believes it has used operating and disposal practices that were standard in the industry at the time, hazardous substances may have been disposed of or released on or under the properties owned or leased by the Company or on or under other locations where they have been taken for disposal. In addition, many of these properties have been operated by third parties whose management of hazardous substances was not under the Company’s control. Under existing laws, the Company could be required to remediate contaminated property (including contaminated groundwater) or to perform remedial actions to prevent future contamination. Certain of these contaminated properties are in various stages of negotiation, investigation, and/or cleanup, and the Company is investigating the extent of any related liability and the availability of applicable defenses. With the sale of the U.S. refineries in 2011, Murphy Oil retained certain liabilities related to environmental matters. Murphy Oil also obtained insurance covering certain levels of environmental exposures. With respect to any remaining potential liabilities, the Company believes costs related to these properties will not have a material adverse effect on Murphy USA’s net income, financial condition or liquidity in a future period.
Certain environmental expenditures are likely to be recovered by the Company from other sources, primarily environmental funds maintained by certain states. Since no assurance can be given that future recoveries from other sources will occur, the Company has not recorded a benefit for likely recoveries at September 30, 2023, however certain jurisdictions provide reimbursement for these expenses which have been considered in recording the net exposure. The U.S. Environmental Protection Agency (EPA) currently considers the Company a Potentially Responsible Party (PRP) at one Superfund site. As to the site, the potential total cost to all parties to perform necessary remedial work at this site may be substantial. However, based on current negotiations and available information, the Company believes that it is a de minimis party as to ultimate responsibility at the Superfund site. Accordingly, the Company has not recorded a liability for remedial costs at the Superfund site at September 30, 2023. The Company could be required to bear a pro rata share of costs attributable to nonparticipating PRPs or could be assigned additional responsibility for remediation at this site or other Superfund sites. The Company believes that its share of the ultimate costs to clean-up this site will be immaterial and will not have a material adverse effect on its net income, financial condition or liquidity in a future period.
Based on information currently available to the Company, the amount of future remediation costs to be incurred to address known contamination sites is not expected to have a material adverse effect on the Company’s future net income, cash flows or liquidity. However, there is the possibility that additional environmental expenditures could be required to address contamination, including as a result of discovering additional contamination or the imposition of new or revised requirements applicable to known contamination.
Murphy USA is engaged in a number of other legal proceedings, all of which the Company considers routine and incidental to its business. Currently, the City of Charleston, South Carolina, and the State of Delaware have filed lawsuits against energy companies, including the Company. These lawsuits allege damages as a result of climate change and the plaintiffs are seeking unspecified damages and abatement under various tort theories. At this early stage, the ultimate outcome of these matters remain uncertain, and neither the likelihood of an unfavorable outcome nor the ultimate liability, if any, can be determined. Murphy USA believes that it has valid defenses, and it intends to vigorously defend against these claims. Based on information currently available to the Company, the ultimate resolution of these other legal matters is not expected to have a material adverse effect on the Company’s net income, financial condition or liquidity in a future period.
24
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
INSURANCE — The Company maintains insurance coverage at levels that are customary and consistent with industry standards for companies of similar size. Murphy USA maintains statutory workers compensation insurance with a deductible of $ 1.0 million per occurrence, general liability insurance with a self-insured retention of $ 3.0 million per occurrence, and auto liability insurance with a deductible of $ 0.3 million per occurrence. As of September 30, 2023, there were a number of outstanding claims that are of a routine nature. The estimated incurred but unpaid liabilities relating to these claims are included in Trade account payables and accrued liabilities on the Consolidated Balance Sheets. While the ultimate outcome of these claims cannot presently be determined, management believes that the accrued liability of $ 49.6 million will be sufficient to cover the related liability for all insurance claims and that the ultimate disposition of these claims will have no material effect on the Company’s financial position and results of operations.
The Company has obtained insurance coverage as appropriate for the business in which it is engaged, but may incur losses that are not covered by insurance or reserves, in whole or in part, and such losses could adversely affect our results of operations and financial position.
TAX MATTERS — Murphy USA is 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 in the future. Many of these liabilities are subject to periodic audits by the respective taxing authority. Subsequent changes to our tax liabilities because of these audits may subject us to interest and penalties.
OTHER MATTERS — In the normal course of its business, the Company is required under certain contracts with various governmental authorities and others to provide financial guarantees or letters of credit that may be drawn upon if the Company fails to perform under those contracts. At September 30, 2023, the Company had contingent liabilities of $ 10.2 million on outstanding letters of credit. The Company has not accrued a liability in its balance sheet related to these financial guarantees and letters of credit because it is believed that the likelihood of having these drawn is remote.
Note 15 — Lease Accounting
The Company determines if an arrangement is a lease or contains a lease at inception. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. The Company's leases have remaining lease terms of 2 year or less to 36 years, which may include the option to extend the lease when it is reasonably certain the Company will exercise the option. Most leases include one or more options to renew, with renewal terms that can extend the lease term from 5 to 20 years or more. The exercise of lease renewal options is at the Company's sole discretion. Due to the uncertainties of future markets, economic factors, technology changes, demographic shifts and behavior, environmental regulatory requirements and other information that impacts decisions as to store location, management has determined that it was not reasonably certain to exercise contract options and they are not included in the lease term. Additionally, short-term leases and leases with variable lease costs are immaterial. The Company reviews all options to extend, terminate, or otherwise modify its lease agreements to determine if changes are required to the right-of-use assets and liabilities.
As the implicit interest rate is not readily determinable in most of the Company's lease agreements, the Company uses its estimated secured incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.
Lessor — We have various arrangements for certain spaces for food service and vending equipment as well as subleases under which we are the lessor. These leases meet the criteria for operating lease classification. Lease income associated with these leases is immaterial.
Lessee — We lease land for 435 stores and store sites, one terminal, a hangar and various equipment. Our lease agreements do not contain any material residual value guarantees. Included in our leased land are 102
25
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
properties leased from Walmart which contain restrictive covenants, though the restrictions are deemed to have an immaterial impact.
Leases are reflected in the following balance sheet accounts:
(Millions of dollars) Classification September 30,
2023 December 31,
2022
Assets
Operating (Right-of-use) Operating lease right-of-use assets, net $ 451.9 $ 449.6
Finance Property, plant, and equipment, at cost, less accumulated depreciation of $ 38.9 at September 30, 2023 and $ 30.5 at December 31, 2022
116.3 124.6
Total leased assets $ 568.2 $ 574.2
Liabilities
Current
Operating Trade accounts payable and accrued liabilities $ 21.6 $ 20.5
Finance Current maturities of long-term debt 11.0 11.0
Noncurrent
Operating Non-current operating lease liabilities 449.8 444.2
Finance Long-term debt, including capitalized lease obligations 117.3 122.6
Total lease liabilities $ 599.7 $ 598.3
Lease Cost:
Three Months Ended
September 30, Nine Months Ended
September 30,
(Millions of dollars) Classification 2023 2022 2023 2022
Operating lease cost Store and other operating expenses $ 14.2 $ 13.6 $ 40.8 $ 38.1
Finance lease cost
Amortization of leased assets Depreciation and amortization 3.8 4.0 11.4 11.9
Interest on lease liabilities Interest expense 2.1 2.2 6.7 6.8
Net lease costs $ 20.1 $ 19.8 $ 58.9 $ 56.8
Cash flow information:
Nine Months Ended
September 30,
(Millions of dollars) 2023 2022
Cash paid for amounts included in the measurement of liabilities
Operating cash flows from operating leases $ 37.6 $ 33.8
Operating cash flows from finance leases $ 6.7 $ 6.8
Financing cash flows from finance leases $ 8.6 $ 8.4
26
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Maturity of Lease Liabilities at September 30, 2023:
(Millions of dollars) Operating leases Finance
leases
2023 $ 12.9 $ 4.9
2024 52.2 18.8
2025 51.1 17.7
2026 50.4 16.5
2027 49.6 15.8
After 2027
568.4 122.2
Total lease payments 784.6 195.9
less: interest 313.2 67.6
Present value of lease liabilities $ 471.4 $ 128.3
Lease Term and Discount Rate:
Nine Months Ended
September 30,
2023
Weighted average remaining lease term (years)
Finance leases 12.4
Operating leases 15.2
Weighted average discount rate
Finance leases 6.7 %
Operating leases 6.5 %
Note 16 — Business Segments
Our operations include the sale of retail motor fuel products and convenience merchandise along with the wholesale and bulk sale capabilities of our product supply and wholesale group. As the primary purpose of the product supply and wholesale group is to support our retail operations and provide fuel for their daily operation, the bulk and wholesale fuel sales are secondary to the group's support functions to our retail operations. As such, they are all treated as one segment for reporting purposes as they sell the same products and have similar economic characteristics. This Marketing segment contains essentially all of the revenue generating activities of the Company. Results not included in the reportable segment include Corporate and Other Assets. The reportable segment was determined based on information reviewed by the Chief Operating Decision Maker.
Three Months Ended
September 30, 2023 September 30, 2022
(Millions of dollars) Total Assets at September 30, 2023 External Revenues Income (Loss) External Revenues Income (Loss)
Marketing $ 4,042.0 $ 5,797.8 $ 187.2 $ 6,194.4 $ 236.8
Corporate and other assets 263.3 0.1 ( 19.5 ) 0.3 ( 17.3 )
Total $ 4,305.3 $ 5,797.9 $ 167.7 $ 6,194.7 $ 219.5
27
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Nine Months Ended
September 30, 2023 September 30, 2022
External Revenues Income (Loss) External Revenues Income (Loss)
(Millions of dollars)
Marketing $ 16,460.3 $ 464.8 $ 18,079.4 $ 605.0
Corporate and other assets 0.2 ( 58.0 ) 0.4 ( 49.8 )
Total $ 16,460.5 $ 406.8 $ 18,079.8 $ 555.2
28
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.