Murphy USA Inc. - Quarter Report: 2018 March (Form 10-Q)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number 001-35914
![logousedforfiling.jpg](https://www.sec.gov/Archives/edgar/data/0001573516/000157351618000017/logousedforfiling.jpg)
MURPHY USA INC.
(Exact name of registrant as specified in its charter)
Delaware | 46-2279221 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
200 Peach Street | |
El Dorado, Arkansas | 71730-5836 |
(Address of principal executive offices) | (Zip Code) |
(870) 875-7600
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes __ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þ Yes __ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer __ Non-accelerated filer __ Smaller reporting company __ Emerging growth company __
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. __
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
__Yes þ No
Number of shares of Common Stock, $0.01 par value, outstanding at March 31, 2018 was 33,231,981.
MURPHY USA INC. |
TABLE OF CONTENTS |
1
ITEM 1. FINANCIAL STATEMENTS
Murphy USA Inc.
Consolidated Balance Sheets
March 31, | December 31, | ||||||
(Millions of dollars, except share amounts) | 2018 | 2017 | |||||
(unaudited) | |||||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | $ | 144.1 | $ | 170.0 | |||
Accounts receivable—trade, less allowance for doubtful accounts of $1.1 in 2018 and in 2017 | 198.0 | 225.2 | |||||
Inventories, at lower of cost or market | 148.5 | 182.5 | |||||
Prepaid expenses and other current assets | 27.6 | 36.5 | |||||
Total current assets | 518.2 | 614.2 | |||||
Property, plant and equipment, at cost less accumulated depreciation and amortization of $905.7 in 2018 and $874.7 in 2017 | 1,691.1 | 1,679.5 | |||||
Restricted cash | 1.1 | — | |||||
Other assets | 42.1 | 37.3 | |||||
Total assets | $ | 2,252.5 | $ | 2,331.0 | |||
Liabilities and Stockholders' Equity | |||||||
Current liabilities | |||||||
Current maturities of long-term debt | $ | 19.9 | $ | 19.9 | |||
Trade accounts payable and accrued liabilities | 475.0 | 513.4 | |||||
Income taxes payable | 1.2 | — | |||||
Total current liabilities | 496.1 | 533.3 | |||||
Long-term debt, including capitalized lease obligations | 856.4 | 860.9 | |||||
Deferred income taxes | 155.3 | 154.2 | |||||
Asset retirement obligations | 28.5 | 28.2 | |||||
Deferred credits and other liabilities | 10.9 | 16.0 | |||||
Total liabilities | 1,547.2 | 1,592.6 | |||||
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 2018 and 2017, respectively) | 0.5 | 0.5 | |||||
Treasury stock (13,535,183 and 12,675,630 shares held at | |||||||
2018 and 2017, respectively) | (873.8 | ) | (806.5 | ) | |||
Additional paid in capital (APIC) | 544.8 | 549.9 | |||||
Retained earnings | 1,033.8 | 994.5 | |||||
Total stockholders' equity | 705.3 | 738.4 | |||||
Total liabilities and stockholders' equity | $ | 2,252.5 | $ | 2,331.0 |
See notes to consolidated financial statements.
2
Murphy USA Inc.
Consolidated Statements of Income
(unaudited)
Three Months Ended March 31, | ||||||||
(Millions of dollars, except per share amounts) | 2018 | 2017 | ||||||
Operating Revenues | ||||||||
Petroleum product sales (a) | $ | 2,637.6 | $ | 2,402.2 | ||||
Merchandise sales | 567.7 | 565.8 | ||||||
Other operating revenues | 38.9 | 31.6 | ||||||
Total operating revenues | 3,244.2 | 2,999.6 | ||||||
Operating Expenses | ||||||||
Petroleum product cost of goods sold (a) | 2,561.1 | 2,329.3 | ||||||
Merchandise cost of goods sold | 476.2 | 477.0 | ||||||
Station and other operating expenses | 127.4 | 124.8 | ||||||
Depreciation and amortization | 31.8 | 27.0 | ||||||
Selling, general and administrative | 34.5 | 38.2 | ||||||
Accretion of asset retirement obligations | 0.5 | 0.4 | ||||||
Total operating expenses | 3,231.5 | 2,996.7 | ||||||
Net settlement proceeds | 47.0 | — | ||||||
Gain (loss) on sale of assets | 0.3 | (3.5 | ) | |||||
Income (loss) from operations | 60.0 | (0.6 | ) | |||||
Other income (expense) | ||||||||
Interest income | 0.3 | — | ||||||
Interest expense | (13.0 | ) | (9.4 | ) | ||||
Other nonoperating income | — | 0.2 | ||||||
Total other income (expense) | (12.7 | ) | (9.2 | ) | ||||
Income (loss) before income taxes | 47.3 | (9.8 | ) | |||||
Income tax expense (benefit) | 8.0 | (6.8 | ) | |||||
Net Income (Loss) | $ | 39.3 | $ | (3.0 | ) | |||
Basic and Diluted Earnings Per Common Share | ||||||||
Basic | $ | 1.17 | $ | (0.08 | ) | |||
Diluted | 1.16 | (0.08 | ) | |||||
Weighted-Average Common Shares Outstanding (in thousands): | ||||||||
Basic | 33,698 | 36,880 | ||||||
Diluted | 34,062 | 36,880 | ||||||
Supplemental information: | ||||||||
(a) Includes excise taxes of: | $ | 434.4 | $ | 480.1 |
See notes to consolidated financial statements.
3
Murphy USA Inc.
Consolidated Statements of Cash Flows
(unaudited)
(Millions of dollars) | Three Months Ended March 31, | ||||||
2018 | 2017 | ||||||
Operating Activities | |||||||
Net income (loss) | $ | 39.3 | $ | (3.0 | ) | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities | |||||||
Depreciation and amortization | 31.8 | 27.0 | |||||
Deferred and noncurrent income tax charges | 1.1 | 5.6 | |||||
Accretion of asset retirement obligations | 0.5 | 0.4 | |||||
Pretax (gains) losses from sale of assets | (0.3 | ) | 3.5 | ||||
Net (increase) decrease in noncash operating working capital | 36.0 | (80.4 | ) | ||||
Other operating activities - net | (1.0 | ) | 1.0 | ||||
Net cash provided by (required by) operating activities | 107.4 | (45.9 | ) | ||||
Investing Activities | |||||||
Property additions | (48.7 | ) | (65.9 | ) | |||
Proceeds from sale of assets | 1.1 | 0.5 | |||||
Other investing activities - net | (4.7 | ) | — | ||||
Net cash provided by (required by) investing activities | (52.3 | ) | (65.4 | ) | |||
Financing Activities | |||||||
Purchase of treasury stock | (71.7 | ) | (17.4 | ) | |||
Borrowings of debt | — | 42.5 | |||||
Repayments of debt | (5.3 | ) | (26.2 | ) | |||
Amounts related to share-based compensation | (2.9 | ) | (5.1 | ) | |||
Net cash provided by (required by) financing activities | (79.9 | ) | (6.2 | ) | |||
Net increase (decrease) in cash and cash equivalents | (24.8 | ) | (117.5 | ) | |||
Cash, cash equivalents, and restricted cash at January 1 | 170.0 | 153.8 | |||||
Cash, cash equivalents, and restricted cash at March 31 | $ | 145.2 | $ | 36.3 | |||
Reconciliation of Cash, Cash Equivalents and Restricted Cash | |||||||
Cash and cash equivalents at beginning of period | $ | 170.0 | $ | 153.8 | |||
Restricted cash at beginning of period | — | — | |||||
Cash, cash equivalents, and restricted cash at beginning of period | $ | 170.0 | $ | 153.8 | |||
Cash and cash equivalents at end of period | $ | 144.1 | $ | 36.3 | |||
Restricted cash at end of period | 1.1 | — | |||||
Cash, cash equivalents, and restricted cash at end of period | $ | 145.2 | $ | 36.3 |
See notes to consolidated financial statements.
4
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 | Total | ||||||||||||||||
Balance as of December 31, 2016 | 46,767,164 | $ | 0.5 | $ | (608.0 | ) | $ | 555.3 | $ | 749.3 | $ | 697.1 | ||||||||||
Net income (loss) | — | — | — | — | (3.0 | ) | (3.0 | ) | ||||||||||||||
Purchase of treasury stock | — | — | (17.4 | ) | — | — | (17.4 | ) | ||||||||||||||
Issuance of treasury stock | — | — | 6.7 | (6.7 | ) | — | — | |||||||||||||||
Amounts related to share-based compensation | — | — | — | (5.0 | ) | — | (5.0 | ) | ||||||||||||||
Share-based compensation expense | — | — | — | 1.2 | — | 1.2 | ||||||||||||||||
Balance as of March 31, 2017 | 46,767,164 | $ | 0.5 | $ | (618.7 | ) | $ | 544.8 | $ | 746.3 | $ | 672.9 |
Common Stock | ||||||||||||||||||||||
(Millions of dollars, except share amounts) | Shares | Par | Treasury Stock | APIC | Retained Earnings | Total | ||||||||||||||||
Balance as of December 31, 2017 | 46,767,164 | $ | 0.5 | $ | (806.5 | ) | $ | 549.9 | $ | 994.5 | $ | 738.4 | ||||||||||
Net income (loss) | — | — | — | — | 39.3 | 39.3 | ||||||||||||||||
Purchase of treasury stock | — | — | (71.7 | ) | — | — | (71.7 | ) | ||||||||||||||
Issuance of treasury stock | — | — | 4.4 | (4.4 | ) | — | — | |||||||||||||||
Amounts related to share-based compensation | — | — | — | (2.9 | ) | — | (2.9 | ) | ||||||||||||||
Share-based compensation expense | — | — | — | 2.2 | — | 2.2 | ||||||||||||||||
Balance as of March 31, 2018 | 46,767,164 | $ | 0.5 | $ | (873.8 | ) | $ | 544.8 | $ | 1,033.8 | $ | 705.3 |
See notes to consolidated financial statements.
5
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Description of Business and Basis of Presentation
Description of business — Murphy USA Inc. (“Murphy USA” or the “Company”) markets refined products through a network of retail gasoline stations and to unbranded wholesale customers. Murphy USA’s owned retail stations are almost all located in close proximity to Walmart stores in 26 states and use the brand name Murphy USA®. Murphy USA also markets gasoline and other products at standalone stations under the Murphy Express brand. At March 31, 2018, Murphy USA had a total of 1,448 Company stations of which 1,158 were Murphy USA and 290 were Murphy Express.
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.
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, 2017, 2016 and 2015, 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 20, 2018.
Recently Issued Accounting Standards—
In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (Topic 606) "Revenue from Contracts with Customers". Topic 606 supersedes the revenue recognition requirements Topic 605, "Revenue Recognition" (Topic 605), and requires entities to recognize revenue when control of the promised goods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. We adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method. See Note 2 "Revenues" for further details.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)" (“ASU 2016-02”). ASU 2016-02 amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets. Lessor accounting will remain similar to lessor accounting under previous GAAP, while aligning with the FASB’s new revenue recognition guidance. ASU 2016-02 is effective for the Company beginning January 1, 2019. Early adoption of ASU 2016-02 is permitted. The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. While this ASU will have an impact on the Company's internal processes and controls and result in a change to the Company's accounting, we are still in the evaluation and information gathering stage of implementing the guidance and can not yet estimate the potential impact.
6
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In November 2016, the FASB issued ASU 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash". This ASU requires that a Statement of Cash Flows explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning of period and end of period balances on the Statement of Cash Flows upon adoption of this standard. The standard was effective for the Company on January 1, 2018 and was applied retrospectively to the Statement of Cash Flows. Accordingly, the Consolidated Statement of Cash Flows presents a reconciliation of the changes in cash, cash equivalents and restricted cash. Restricted cash consists of funds held by third party intermediaries for like-kind property exchanges and reported as a long-term asset in the Company's Balance Sheet.
Note 2 — Revenues
Adoption of ASC Topic 606, "Revenue from Contracts with Customers"
On January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to those contracts which were not completed as of January 2, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting policies under Topic 605.
There was no material impact to opening retained earnings as a result of adoption of Topic 606 that resulted in a cumulative effect adjustment.
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 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 Income Statement.
The following table disaggregates our revenue by major source for the quarters ended March 31, 2018 and 2017, respectively:
7
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Period Ended March 31, 2018 | Period Ended March 31, 2017 | |||||||||||||||||||
(Millions of dollars) | Marketing | Corporate and Other Assets | Consolidated | Marketing | Corporate and Other Assets | Consolidated | ||||||||||||||
Petroleum product sales (at retail) 1 | $ | 2,339.7 | $ | — | $ | 2,339.7 | $ | 2,133.9 | $ | — | $ | 2,133.9 | ||||||||
Petroleum product sales (at wholesale) 1 | 297.9 | — | 297.9 | 268.3 | — | 268.3 | ||||||||||||||
Total petroleum product sales | 2,637.6 | — | 2,637.6 | 2,402.2 | — | 2,402.2 | ||||||||||||||
Merchandise sales | 567.7 | — | 567.7 | 565.8 | — | 565.8 | ||||||||||||||
Other operating revenues: | ||||||||||||||||||||
RINs | 37.4 | — | 37.4 | 29.0 | — | 29.0 | ||||||||||||||
Other revenues 2 | 1.1 | 0.4 | 1.5 | 2.4 | 0.2 | 2.6 | ||||||||||||||
Total revenues | $ | 3,243.8 | $ | 0.4 | $ | 3,244.2 | $ | 2,999.4 | $ | 0.2 | $ | 2,999.6 |
1 Includes excise and sales tax that remain eligible for inclusion under Topic 606
2 Primarily includes collection allowance on excise and sales taxes and other miscellaneous items
The Company adopted ASC Topic 606 as of January 1, 2018 using the modified retrospective method. The impact of the excise and sales taxes collected and remitted to government authorities included in petroleum product sales that would have been recognized under previous revenue recognition guidance would have increased first quarter 2018 petroleum product sales (at retail) by $5.5 million and petroleum product sales (at wholesale) by $35.3 million for a total increase in petroleum product sales of $40.8 million.
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 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 station and other operating expenses.
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 or 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.
8
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 tickets, 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 tickets) where we are the agent and the revenues recorded for those transactions are our net commission only.
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 March 31, 2018 and December 31, 2017, we had $144.3 million and $145.6 million of receivables, respectively, related to contracts with customers recorded. All of the trade accounts receivable related to contracts with customers outstanding at December 31, 2017 were collected during the first quarter of 2018. These receivables were generally related to credit and debit card transactions along with short term bulk and wholesales from our customers, which have a very short settlement window.
Note 3 — Inventories
Inventories consisted of the following:
(Millions of dollars) | March 31, 2018 | December 31, 2017 | ||||||
Finished products - First-In, First-Out ("FIFO") basis | $ | 218.9 | $ | 231.9 | ||||
Less Last-In, First-Out ("LIFO") reserve - finished products | (181.5 | ) | (167.2 | ) | ||||
Finished products - LIFO basis | 37.4 | 64.7 | ||||||
Store merchandise for resale | 97.6 | 104.8 | ||||||
Materials and supplies | 13.5 | 13.0 | ||||||
Total inventories | $ | 148.5 | $ | 182.5 |
At March 31, 2018 and December 31, 2017, the replacement cost (market value) of LIFO inventories exceeded the LIFO carrying value by $181.5 million and $167.2 million, respectively.
9
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4 — Long-Term Debt
Long-term debt consisted of the following:
(Millions of dollars) | March 31, 2018 | December 31, 2017 | ||||||
6.00% senior notes due 2023 (net of unamortized discount of $4.7 at March 31, 2018 and $5.0 at December 2017) | $ | 495.3 | $ | 495.0 | ||||
5.625% senior notes due 2027 (net of unamortized discount of $3.4 at March 31, 2018 and $3.5 at December 2017) | 296.6 | 296.5 | ||||||
Term loan due 2020 (effective interest rate of 4.73% at March 31, 2018) | 87.0 | 92.0 | ||||||
Capitalized lease obligations, vehicles, due through 2021 | 2.2 | 2.5 | ||||||
Less unamortized debt issuance costs | (4.8 | ) | (5.2 | ) | ||||
Total long-term debt | 876.3 | 880.8 | ||||||
Less current maturities | 19.9 | 19.9 | ||||||
Total long-term debt, net of current | $ | 856.4 | $ | 860.9 |
Senior Notes
On August 14, 2013, Murphy Oil USA, Inc., our primary operating subsidiary, issued 6.00% Senior Notes due 2023 (the “2023 Senior Notes”) in an aggregate principal amount of $500 million. The 2023 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 2023 Senior Notes contains restrictive covenants that limit, among other things, the ability of Murphy USA, Murphy Oil USA, Inc. and the restricted subsidiaries to incur additional indebtedness or liens, dispose of assets, make certain restricted payments or investments, enter into transactions with affiliates or merge with or into other entities.
On April 25, 2017, Murphy Oil USA, Inc., issued $300 million of 5.625% Senior Notes due 2027 (the "2027 Senior Notes") under its existing shelf registration statement. The 2027 Senior Notes are fully and unconditionally guaranteed by Murphy USA, and are guaranteed by certain 100% owned subsidiaries that guarantee our credit facilities. The indenture governing the 2027 Senior Notes contains restrictive covenants that are essentially identical to the covenants for the 2023 Senior Notes.
The 2023 and 2027 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 2023 and 2027 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
In March 2016, we amended and extended our existing credit agreement. The credit agreement provides for a committed $450 million asset-based loan (ABL) facility (with availability subject to the borrowing base described below) and a $200 million term loan facility. It also provides for a $150 million uncommitted incremental facility. On March 10, 2016, Murphy Oil USA, Inc. borrowed $200 million under the term loan facility that has a four-year term with a current outstanding principal of $87 million. As of March 31, 2018, we have zero outstanding under our ABL facility.
The borrowing base is, at any time of determination, the amount (net of reserves) equal to the sum of:
• 100% of eligible cash at such time, plus
• 90% of eligible credit card receivables at such time, plus
• 90% of eligible investment grade accounts, plus
• 85% of eligible other accounts, plus
• 80% of eligible product supply/wholesale refined products inventory at such time, plus
10
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
• 75% of eligible retail refined products inventory at such time, plus
the lesser of (i) 70% of the average cost of eligible retail merchandise inventory at such time and (ii) 85% of the net orderly liquidation value of eligible retail merchandise inventory at such time.
The ABL facility includes a $200 million sublimit for the issuance of letters of credit. Letters of credit issued under the ABL facility reduce availability under the ABL facility.
Interest payable on the credit facilities is based on either:
• | the London interbank offered rate, adjusted for statutory reserve requirements (the “Adjusted LIBO Rate”); |
or
• | the Alternate Base Rate, which is defined as the highest of (a) the prime rate, (b) the federal funds effective rate from time to time plus 0.50% per annum and (c) the one-month Adjusted LIBO Rate plus 1.00% per annum, |
plus, (A) in the case of Adjusted LIBO Rate borrowings, (i) with respect to the ABL facility, spreads ranging from 1.50% to 2.00% per annum depending on a total debt to EBITDA ratio under the ABL facility or (ii) with respect to the term loan facility, spreads ranging from 2.50% to 2.75% per annum depending on a total debt to EBITDA ratio and (B) in the case of Alternate Base Rate borrowings, (i) with respect to the ABL facility, spreads ranging from 0.50% to 1.00% per annum depending on a total debt to EBITDA ratio or (ii) with respect to the term loan facility, spreads ranging from 1.50% to 1.75% per annum depending on a total debt to EBITDA ratio.
The interest rate period with respect to the Adjusted LIBO Rate interest rate option can be set at one, two, three, or six months as selected by us in accordance with the terms of the credit agreement.
The credit agreement contains certain covenants that limit, among other things, the ability of us and our subsidiaries to incur additional indebtedness or liens, to make certain investments, to enter into sale-leaseback transactions, to make certain restricted payments, to enter into consolidations, mergers or sales of material assets and other fundamental changes, to transact with affiliates, to enter into agreements restricting the ability of subsidiaries to incur liens or pay dividends, or to make certain accounting changes. In addition, the credit agreement requires us to maintain a minimum fixed charge coverage ratio of 1.0 to 1.0 when availability for at least three consecutive business days is less than the greater of (a) 17.5% of the lesser of the aggregate ABL facility commitments and the borrowing base and (b) $70 million (including as of the most recent fiscal quarter end on the first date when availability is less than such amount), as well as a maximum secured total debt to EBITDA ratio of 4.5 to 1.0 at any time when term facility commitments or term loans are outstanding. As of March 31, 2018, our fixed charge coverage ratio was 0.72; however, we had more than $100 million of availability under the ABL facility at that date so the fixed charge coverage ratio currently has no impact on our operations or liquidity. Our secured debt to EBITDA ratio as of March 31, 2018 was 0.19 to 1.0.
The credit agreement contains restrictions on certain payments, including dividends, when availability under the credit agreement is less than or equal to the greater of $100 million and 25% of the lesser of the revolving commitments and the borrowing base and our fixed charge coverage ratio is less than 1.0 to 1.0 (unless availability under the credit agreement is greater than $100 million and 40% of the lesser of the revolving commitments and the borrowing base). As of March 31, 2018, our ability to make restricted payments was not limited as our availability under the borrowing base was more than $100 million, while our fixed charge coverage ratio under our credit agreement was less than 1.0 to 1.0. As of December 31, 2017, we had a shortfall of approximately $206.9 million of our net income and retained earnings subject to such restrictions before the fixed charge coverage ratio under our credit agreement would exceed 1.0 to 1.0.
All obligations under the credit agreement are guaranteed by Murphy USA and the subsidiary guarantors party thereto, and all obligations under the credit agreement, including the guarantees of those obligations, are secured by certain assets of Murphy USA, Murphy Oil USA, Inc. and the guarantors party thereto.
11
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5 — Asset Retirement Obligations (ARO)
The majority of the ARO recognized by the Company at March 31, 2018 and December 31, 2017 related to the estimated costs to dismantle and abandon certain of its retail gasoline stations. 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.
A reconciliation of the beginning and ending aggregate carrying amount of the ARO is shown in the following table.
(Millions of dollars) | March 31, 2018 | December 31, 2017 | ||||||
Balance at beginning of period | $ | 28.2 | $ | 26.2 | ||||
Accretion expense | 0.5 | 1.8 | ||||||
Settlements of liabilities | (0.2 | ) | (0.3 | ) | ||||
Liabilities incurred | — | 0.5 | ||||||
Balance at end of period | $ | 28.5 | $ | 28.2 |
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 6 — 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 month periods ended March 31, 2018 and 2017, the Company’s approximate effective tax rates were as follows:
2018 | 2017 | |||
Three months ended March 31, | 16.8% | (69.2)% |
The effective tax rate for the three months ended March 31, 2018 was lower than the U.S. Federal tax rate of 21% primarily due to a discrete state income tax benefit recorded in the quarter. The Company recognized a tax benefit of approximately $3.1 million related to the settlement of prior year state uncertain tax positions and approximately $0.7 million of excess tax benefits related to stock compensation for employees. For the three months ended March 31, 2017, the Company recorded benefits from two discrete tax events, which were approximately $1.8 million of excess tax benefits related to stock compensation and a tax benefit of approximately $1.5 million related to the settlement of prior year uncertain tax positions.
The Company was included in Murphy Oil’s tax returns for the periods prior to the separation. The statute of several jurisdictions remains subject to audit by taxing authorities. As of March 31, 2018, the earliest year remaining open for Federal examination is 2014 and for the states it ranges from 2012-2016. In addition to the pre-separation returns being open under statute, the federal and state tax returns post separation are also open under statute for examination. Although the Company believes that recorded liabilities for uncertain tax positions are adequate, additional gains or losses could occur in future periods from resolution of outstanding unsettled matters.
12
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7 — Incentive Plans
2013 Long-Term Incentive Plan
Effective August 30, 2013, certain of our employees 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), 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 million.
On February 7, 2018, the Committee granted nonqualified stock options for 93,600 shares at an exercise price of $71.00 per share under the terms of the MUSA 2013 Plan. The Black-Scholes valuation for these awards is $17.32 per option. The Committee also awarded time-based restricted stock units and performance-based restricted stock units (performance units) to certain employees on the same date. There were 22,350 time-based restricted units granted at a grant date fair value of $71.00 along with 44,700 performance units. Half of the performance units vest based on a 3-year return on average capital employed (ROACE) calculation and the other half vest based on a 3-year total shareholder return (TSR) calculation that compares MUSA to a group of 16 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 $87.60 per unit. For the ROACE portion of the awards, the valuation will be based on the grant date fair value of $71.00 per unit and the number of awards will be periodically assessed to determine the probability of vesting.
On March 27, 2018, the Committee also granted 43,905 time-based restricted stock units granted to certain employees with a grant date fair value of $72.88 per unit.
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 “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 shall be available for issuance of grants under the Directors Plan.
During the first quarter of 2018, the Company issued 10,800 restricted stock units to its non-employee directors at a grant date fair value of $69.42 per share. These shares vest in three years from the grant date.
For the three months ended March 31, 2018 and 2017, share-based compensation was $2.2 million and $1.2 million, respectively. The income tax benefit realized for the tax deductions from options exercised for the three months ended March 31, 2018 and 2017 was $0.1 million and $0.1 million, respectively.
Note 8— Financial Instruments and Risk Management
DERIVATIVE INSTRUMENTS — The Company makes limited use of derivative instruments to manage certain risks related to commodity prices. 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 creditworthy major financial institutions or over national exchanges such as the New York Mercantile Exchange (“NYMEX”). As of March 31, 2018, all current derivative activity is immaterial.
At March 31, 2018 and December 31, 2017, cash deposits of $2.0 million and $2.7 million related to commodity derivative contracts were reported in Prepaid expenses and other current assets in the Consolidated Balance Sheets, respectively. These cash deposits have not been used to increase the reported net assets or reduce the reported net liabilities on the derivative contracts at March 31, 2018 or December 31, 2017, respectively.
13
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9 – 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.
Upon the completion of the most recent repurchase plan authorized by the Murphy USA Inc. Board of Directors in December 2017, the Company expects to continue to conduct share repurchases under quarterly allocations in line with its past practice. For the three months ended March 31, 2018, the Company acquired 928,934 shares of common stock for an average price of $77.18 per share including brokerage fees.
The following table provides a reconciliation of basic and diluted earnings per share computations for the three months ended March 31, 2018 and 2017:
Three Months Ended March 31, | |||||||
(Millions of dollars, except share amounts) | 2018 | 2017 | |||||
Earnings per common share: | |||||||
Net income (loss) per share - basic | |||||||
Net income (loss) attributable to common stockholders | $ | 39.3 | $ | (3.0 | ) | ||
Weighted average common shares outstanding (in thousands) | 33,698 | 36,880 | |||||
Earnings per common share | $ | 1.17 | $ | (0.08 | ) | ||
Earnings per common share - assuming dilution: | ||||||||
Net income (loss) per share - diluted | ||||||||
Net income (loss) attributable to common stockholders | $ | 39.3 | $ | (3.0 | ) | |||
Weighted average common shares outstanding (in thousands) | 33,698 | 36,880 | ||||||
Common equivalent shares: | ||||||||
Share-based awards | 364 | — | ||||||
Weighted average common shares outstanding - assuming dilution (in thousands) | 34,062 | 36,880 | ||||||
Earnings per common share assuming dilution | $ | 1.16 | $ | (0.08 | ) |
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. For the reported periods, the number of time-based restricted stock units, performance based units and non-qualified stock options that are excluded due to their anti-dilutive nature is immaterial.
Note 10 — Other Financial Information
CASH FLOW DISCLOSURES — Cash income taxes paid (collected), net of refunds, were $2.6 million and $(0.3) million for the three month periods ended March 31, 2018 and 2017, respectively. Interest paid, net of amounts
14
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
capitalized, was $15.7 million and $16.5 million for the three month periods ended March 31, 2018 and 2017, respectively.
Three Months Ended March 31, | |||||||
(Millions of dollars) | 2018 | 2017 | |||||
Accounts receivable | $ | 27.2 | $ | 27.1 | |||
Inventories | 33.9 | (13.1 | ) | ||||
Prepaid expenses and other current assets | 8.9 | (12.9 | ) | ||||
Accounts payable and accrued liabilities | (35.2 | ) | (80.9 | ) | |||
Income taxes payable | 1.2 | (0.6 | ) | ||||
Net decrease (increase) in noncash operating working capital | $ | 36.0 | $ | (80.4 | ) |
Note 11 — 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.
At the balance sheet date, the fair value of derivative contracts was determined using NYMEX quoted values but was immaterial.
The following table presents the carrying amounts and estimated fair values of financial instruments held by the Company at March 31, 2018 and December 31, 2017. 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 table excludes Cash and cash equivalents, Accounts receivable-trade, Restricted cash, and Trade accounts payable and accrued liabilities, all of which had fair values approximating carrying amounts. 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.
At March 31, 2018 | At December 31, 2017 | |||||||||||||||
Carrying | Carrying | |||||||||||||||
(Millions of dollars) | Amount | Fair Value | Amount | Fair Value | ||||||||||||
Financial liabilities | ||||||||||||||||
Current and long-term debt | $ | (876.3 | ) | $ | (893.1 | ) | $ | (880.8 | ) | $ | (904.9 | ) |
Note 12 — 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.
15
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. The Company believes costs related to these sites 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 March 31, 2018, 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. 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 March 31, 2018. 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.
Other than as noted above, Murphy USA is engaged in a number of other legal proceedings, all of which the Company considers routine and incidental to its business. Based on information currently available to the Company, the ultimate resolution of those 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.
The Company was contacted by the State of Mississippi to settle alleged violations of the state's Petroleum Underground Storage Tank system requirements at several of the Company's facilities. Based on discussions to date, the civil penalty is anticipated to be approximately $0.1 million. We are negotiating this matter with the state's Department of Environmental Quality in order to establish a consent agreement and resolve any allegations of non-compliance. We do not anticipate that the resolution of this matter will have a material impact on our results of operations of financial condition.
16
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 deductible of $3.0 million per occurrence, and auto liability insurance with a deductible of $0.3 million per occurrence. As of March 31, 2018, 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 $20.0 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 March 31, 2018, the Company had contingent liabilities of $15.4 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 13 — Business Segment
The Company's operations have one operating segment which is Marketing. The 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 ("PS&W") group. As the primary purpose of the PS&W group is to support our retail operations and provide fuel for their daily operation, the bulk and wholesale fuel sales are secondary to the support functions performed by these groups. As such, they are all treated as one segment for reporting purposes as they sell the same products. This Marketing segment contains essentially all of the revenue generating functions of the Company. Results not included in the reportable segment include Corporate and Other Assets. Net settlement proceeds from litigation are included in Corporate and other assets operating income. The reportable segment was determined based on information reviewed by the Chief Operating Decision Maker (CODM).
Three Months Ended | ||||||||||||||||||||
March 31, 2018 | March 31, 2017 | |||||||||||||||||||
Total Assets at | External | Income | External | Income | ||||||||||||||||
(Millions of dollars) | March 31, | Revenues | (Loss) | Revenues | (Loss) | |||||||||||||||
Marketing | $ | 1,966.1 | $ | 3,243.8 | $ | 10.7 | $ | 2,999.4 | $ | 0.6 | ||||||||||
Corporate and other assets | 286.4 | 0.4 | 28.6 | 0.2 | (3.6 | ) | ||||||||||||||
Total | $ | 2,252.5 | $ | 3,244.2 | $ | 39.3 | $ | 2,999.6 | $ | (3.0 | ) |
17
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 14 – Guarantor Subsidiaries
Certain of the Company’s 100% owned, domestic subsidiaries (the “Guarantor Subsidiaries”) fully and unconditionally guarantee, on a joint and several basis, certain of the outstanding indebtedness of the Company, including the 6.00% senior notes due 2023 and the 5.625% senior notes due 2027. The following consolidating
schedules present financial information on a consolidated basis in conformity with the SEC’s Regulation S-X Rule 3-10(d):
CONSOLIDATING BALANCE SHEET
(unaudited)
(Millions of dollars, except share amounts) | March 31, 2018 | ||||||||||||||||||||||
Assets | Parent Company | Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
Current assets | |||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 143.8 | $ | 0.3 | $ | — | $ | — | $ | 144.1 | |||||||||||
Accounts receivable—trade, less allowance for doubtful accounts of $1.1 in 2018 | — | 198.0 | — | — | — | 198.0 | |||||||||||||||||
Inventories, at lower of cost or market | — | 148.5 | — | — | — | 148.5 | |||||||||||||||||
Prepaid expenses and other current assets | — | 27.6 | — | — | — | 27.6 | |||||||||||||||||
Total current assets | — | 517.9 | 0.3 | — | — | 518.2 | |||||||||||||||||
Property, plant and equipment, at cost less accumulated depreciation and amortization of $905.7 in 2018 | — | 1,689.6 | 1.5 | — | — | 1,691.1 | |||||||||||||||||
Restricted cash | — | 1.1 | — | — | — | 1.1 | |||||||||||||||||
Investments in subsidiaries | 2,262.7 | 144.9 | — | — | (2,407.6 | ) | — | ||||||||||||||||
Other assets | — | 42.1 | — | — | — | 42.1 | |||||||||||||||||
Total assets | $ | 2,262.7 | $ | 2,395.6 | $ | 1.8 | $ | — | $ | (2,407.6 | ) | $ | 2,252.5 | ||||||||||
Liabilities and Stockholders' Equity | |||||||||||||||||||||||
Current liabilities | |||||||||||||||||||||||
Current maturities of long-term debt | $ | — | $ | 19.9 | $ | — | $ | — | $ | — | $ | 19.9 | |||||||||||
Inter-company accounts payable | 900.9 | (696.3 | ) | (50.3 | ) | (154.3 | ) | — | — | ||||||||||||||
Trade accounts payable and accrued liabilities | — | 475.0 | — | — | — | 475.0 | |||||||||||||||||
Income taxes payable | — | 1.2 | — | — | — | 1.2 | |||||||||||||||||
Total current liabilities | 900.9 | (200.2 | ) | (50.3 | ) | (154.3 | ) | — | 496.1 | ||||||||||||||
Long-term debt, including capitalized lease obligations | — | 856.4 | — | — | — | 856.4 | |||||||||||||||||
Deferred income taxes | — | 155.3 | — | — | 155.3 | ||||||||||||||||||
Asset retirement obligations | — | 28.5 | — | — | — | 28.5 | |||||||||||||||||
Deferred credits and other liabilities | — | 10.9 | — | — | — | 10.9 | |||||||||||||||||
Total liabilities | 900.9 | 850.9 | (50.3 | ) | (154.3 | ) | — | 1,547.2 | |||||||||||||||
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 March 31, 2018) | 0.5 | — | 0.1 | — | (0.1 | ) | 0.5 | ||||||||||||||||
Treasury Stock (13,535,183 shares held at March 31, 2018) | (873.8 | ) | — | — | — | — | (873.8 | ) | |||||||||||||||
Additional paid in capital (APIC) | 1,201.3 | 572.4 | 52.0 | 87.5 | (1,368.4 | ) | 544.8 | ||||||||||||||||
Retained earnings | 1,033.8 | 972.3 | — | 66.8 | (1,039.1 | ) | 1,033.8 | ||||||||||||||||
Total stockholders' equity | 1,361.8 | 1,544.7 | 52.1 | 154.3 | (2,407.6 | ) | 705.3 | ||||||||||||||||
Total liabilities and stockholders' equity | $ | 2,262.7 | $ | 2,395.6 | $ | 1.8 | $ | — | $ | (2,407.6 | ) | $ | 2,252.5 |
18
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEET
(Millions of dollars, except share amounts) | December 31, 2017 | ||||||||||||||||||||||
Assets | Parent Company | Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
Current assets | |||||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | 169.9 | $ | 0.1 | $ | — | $ | — | $ | 170.0 | |||||||||||
Accounts receivable—trade, less allowance for doubtful accounts of $1.1 in 2017 | — | 225.2 | — | — | — | 225.2 | |||||||||||||||||
Inventories, at lower of cost or market | — | 182.5 | — | — | — | 182.5 | |||||||||||||||||
Prepaid expenses and other current assets | — | 36.5 | — | — | — | 36.5 | |||||||||||||||||
Total current assets | — | 614.1 | 0.1 | — | — | 614.2 | |||||||||||||||||
Property, plant and equipment, at cost less accumulated depreciation and amortization of $874.7 in 2017 | — | 1,678.3 | 1.2 | — | — | 1,679.5 | |||||||||||||||||
Investments in subsidiaries | 2,223.4 | 144.9 | — | — | (2,368.3 | ) | — | ||||||||||||||||
Other assets | — | 37.3 | — | — | — | 37.3 | |||||||||||||||||
Total assets | $ | 2,223.4 | $ | 2,474.6 | $ | 1.3 | $ | — | $ | (2,368.3 | ) | $ | 2,331.0 | ||||||||||
Liabilities and Stockholders' Equity | |||||||||||||||||||||||
Current liabilities | |||||||||||||||||||||||
Current maturities of long-term debt | $ | — | $ | 19.9 | $ | — | $ | — | $ | — | $ | 19.9 | |||||||||||
Inter-company accounts payable | 829.2 | (624.1 | ) | (50.8 | ) | (154.3 | ) | — | — | ||||||||||||||
Trade accounts payable and accrued liabilities | — | 513.4 | — | — | — | 513.4 | |||||||||||||||||
Income taxes payable | — | — | — | — | — | — | |||||||||||||||||
Total current liabilities | 829.2 | (90.8 | ) | (50.8 | ) | (154.3 | ) | — | 533.3 | ||||||||||||||
Long-term debt, including capitalized lease obligations | — | 860.9 | — | — | — | 860.9 | |||||||||||||||||
Deferred income taxes | — | 154.2 | — | — | — | 154.2 | |||||||||||||||||
Asset retirement obligations | — | 28.2 | — | — | — | 28.2 | |||||||||||||||||
Deferred credits and other liabilities | — | 16.0 | — | — | — | 16.0 | |||||||||||||||||
Total liabilities | 829.2 | 968.5 | (50.8 | ) | (154.3 | ) | — | 1,592.6 | |||||||||||||||
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 December 31, 2017) | 0.5 | — | 0.1 | — | (0.1 | ) | 0.5 | ||||||||||||||||
Treasury Stock (12,675,630 shares held at December 31, 2017) | (806.5 | ) | — | — | — | — | (806.5 | ) | |||||||||||||||
Additional paid in capital (APIC) | 1,205.7 | 573.1 | 52.0 | 87.5 | (1,368.4 | ) | 549.9 | ||||||||||||||||
Retained earnings | 994.5 | 933.0 | — | 66.8 | (999.8 | ) | 994.5 | ||||||||||||||||
Total stockholders' equity | 1,394.2 | 1,506.1 | 52.1 | 154.3 | (2,368.3 | ) | 738.4 | ||||||||||||||||
Total liabilities and stockholders' equity | $ | 2,223.4 | $ | 2,474.6 | $ | 1.3 | $ | — | $ | (2,368.3 | ) | $ | 2,331.0 |
19
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING INCOME STATEMENT
(unaudited)
(Millions of dollars) | Three Months Ended March 31, 2018 | ||||||||||||||||||||||
Operating Revenues | Parent Company | Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
Petroleum product sales | $ | — | $ | 2,637.6 | $ | — | $ | — | $ | — | $ | 2,637.6 | |||||||||||
Merchandise sales | — | 567.7 | — | — | — | 567.7 | |||||||||||||||||
Other operating revenues | — | 38.9 | — | — | — | 38.9 | |||||||||||||||||
Total operating revenues | — | 3,244.2 | — | — | — | 3,244.2 | |||||||||||||||||
Operating Expenses | |||||||||||||||||||||||
Petroleum product cost of goods sold | — | 2,561.1 | — | — | — | 2,561.1 | |||||||||||||||||
Merchandise cost of goods sold | — | 476.2 | — | — | — | 476.2 | |||||||||||||||||
Station and other operating expenses | — | 127.4 | — | — | — | 127.4 | |||||||||||||||||
Depreciation and amortization | — | 31.8 | — | — | — | 31.8 | |||||||||||||||||
Selling, general and administrative | — | 34.5 | — | — | — | 34.5 | |||||||||||||||||
Accretion of asset retirement obligations | — | 0.5 | — | — | — | 0.5 | |||||||||||||||||
Total operating expenses | — | 3,231.5 | — | — | — | 3,231.5 | |||||||||||||||||
Net settlement proceeds | — | 47.0 | — | — | — | 47.0 | |||||||||||||||||
Gain (loss) on sale of assets | — | 0.3 | — | — | — | 0.3 | |||||||||||||||||
Income (loss) from operations | — | 60.0 | — | — | — | 60.0 | |||||||||||||||||
Other income (expense) | |||||||||||||||||||||||
Interest income | — | 0.3 | — | — | — | 0.3 | |||||||||||||||||
Interest expense | — | (13.0 | ) | — | — | — | (13.0 | ) | |||||||||||||||
Other nonoperating income | — | — | — | — | — | — | |||||||||||||||||
Total other income (expense) | — | (12.7 | ) | — | — | — | (12.7 | ) | |||||||||||||||
Income (loss) before income taxes | — | 47.3 | — | — | — | 47.3 | |||||||||||||||||
Income tax expense | — | 8.0 | — | — | — | 8.0 | |||||||||||||||||
Income (loss) | — | 39.3 | — | — | — | 39.3 | |||||||||||||||||
Equity earnings in affiliates, net of tax | 39.3 | — | — | — | (39.3 | ) | — | ||||||||||||||||
Net Income (Loss) | $ | 39.3 | $ | 39.3 | $ | — | $ | — | $ | (39.3 | ) | $ | 39.3 |
20
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING INCOME STATEMENT
(unaudited)
(Millions of dollars) | Three Months Ended March 31, 2017 | ||||||||||||||||||||||
Operating Revenues | Parent Company | Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
Petroleum product sales | $ | — | $ | 2,402.2 | $ | — | $ | — | $ | — | $ | 2,402.2 | |||||||||||
Merchandise sales | — | 565.8 | — | — | — | 565.8 | |||||||||||||||||
Other operating revenues | — | 31.6 | — | — | — | 31.6 | |||||||||||||||||
Total operating revenues | — | 2,999.6 | — | — | — | 2,999.6 | |||||||||||||||||
Operating Expenses | |||||||||||||||||||||||
Petroleum product cost of goods sold | — | 2,329.3 | — | — | — | 2,329.3 | |||||||||||||||||
Merchandise cost of goods sold | — | 477.0 | — | — | — | 477.0 | |||||||||||||||||
Station and other operating expenses | — | 124.8 | — | — | — | 124.8 | |||||||||||||||||
Depreciation and amortization | — | 27.0 | — | — | — | 27.0 | |||||||||||||||||
Selling, general and administrative | — | 38.2 | — | — | — | 38.2 | |||||||||||||||||
Accretion of asset retirement obligations | — | 0.4 | — | — | — | 0.4 | |||||||||||||||||
Total operating expenses | — | 2,996.7 | — | — | — | 2,996.7 | |||||||||||||||||
Net settlement proceeds | — | — | — | — | — | — | |||||||||||||||||
Gain (loss) on sale of assets | — | (3.5 | ) | — | — | — | (3.5 | ) | |||||||||||||||
Income (loss) from operations | — | (0.6 | ) | — | — | — | (0.6 | ) | |||||||||||||||
Other income (expense) | |||||||||||||||||||||||
Interest income | — | — | — | — | — | — | |||||||||||||||||
Interest expense | — | (9.4 | ) | — | — | — | (9.4 | ) | |||||||||||||||
Other nonoperating income | — | 0.2 | — | — | — | 0.2 | |||||||||||||||||
Total other income (expense) | — | (9.2 | ) | — | — | — | (9.2 | ) | |||||||||||||||
Income (loss) before income taxes | — | (9.8 | ) | — | — | — | (9.8 | ) | |||||||||||||||
Income tax expense | — | (6.8 | ) | — | — | — | (6.8 | ) | |||||||||||||||
Income (loss) | — | (3.0 | ) | — | — | — | (3.0 | ) | |||||||||||||||
Equity earnings in affiliates, net of tax | (3.0 | ) | — | — | — | 3.0 | — | ||||||||||||||||
Net Income (Loss) | $ | (3.0 | ) | $ | (3.0 | ) | $ | — | $ | — | $ | 3.0 | $ | (3.0 | ) |
21
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENT OF CASH FLOW
(unaudited)
(Millions of dollars) | Three Months Ended March 31, 2018 | ||||||||||||||||||||||
Operating Activities | Parent Company | Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
Net income (loss) | $ | 39.3 | $ | 39.3 | $ | — | $ | — | $ | (39.3 | ) | $ | 39.3 | ||||||||||
Adjustments to reconcile net income (loss) to net cash provided by (required by) operating activities | |||||||||||||||||||||||
Depreciation and amortization | — | 31.8 | — | — | — | 31.8 | |||||||||||||||||
Deferred and noncurrent income tax charges (credits) | — | 1.1 | — | — | — | 1.1 | |||||||||||||||||
Accretion of asset retirement obligations | — | 0.5 | — | — | — | 0.5 | |||||||||||||||||
(Gain) loss on sale of assets | — | (0.3 | ) | — | — | — | (0.3 | ) | |||||||||||||||
Net decrease in noncash operating working capital | — | 36.0 | — | — | — | 36.0 | |||||||||||||||||
Equity in earnings of affiliates | (39.3 | ) | — | — | — | 39.3 | — | ||||||||||||||||
Other operating activities - net | — | (1.0 | ) | — | — | — | (1.0 | ) | |||||||||||||||
Net cash provided by (required by) operating activities | — | 107.4 | — | — | — | 107.4 | |||||||||||||||||
Investing Activities | |||||||||||||||||||||||
Property additions | — | (48.3 | ) | (0.4 | ) | — | — | (48.7 | ) | ||||||||||||||
Proceeds from sale of assets | — | 1.1 | — | — | — | 1.1 | |||||||||||||||||
Other investing activities - net | — | (4.7 | ) | — | — | — | (4.7 | ) | |||||||||||||||
Net cash provided by (required by) investing activities | — | (51.9 | ) | (0.4 | ) | — | — | (52.3 | ) | ||||||||||||||
Financing Activities | |||||||||||||||||||||||
Purchase of treasury stock | (71.7 | ) | — | — | — | — | (71.7 | ) | |||||||||||||||
Borrowings of debt | — | — | — | — | — | — | |||||||||||||||||
Repayments of debt | — | (5.3 | ) | — | — | — | (5.3 | ) | |||||||||||||||
Debt issuance costs | — | — | — | — | — | — | |||||||||||||||||
Amounts related to share-based compensation | — | (2.9 | ) | — | — | — | (2.9 | ) | |||||||||||||||
Net distributions to parent | 71.7 | (72.3 | ) | 0.6 | — | — | — | ||||||||||||||||
Net cash provided by (required by) financing activities | — | (80.5 | ) | 0.6 | — | — | (79.9 | ) | |||||||||||||||
Net increase (decrease) in cash and cash equivalents | — | (25.0 | ) | 0.2 | — | — | (24.8 | ) | |||||||||||||||
Cash, cash equivalents, and restricted cash at January 1 | — | 169.9 | 0.1 | — | — | 170.0 | |||||||||||||||||
Cash, cash equivalents, and restricted cash at March 31 | $ | — | $ | 144.9 | $ | 0.3 | $ | — | $ | — | $ | 145.2 | |||||||||||
Reconciliation of Cash, Cash Equivalents and Restricted Cash | |||||||||||||||||||||||
Cash and cash equivalents at beginning of period | $ | — | $ | 169.9 | $ | 0.1 | $ | — | $ | — | $ | 170.0 | |||||||||||
Restricted cash at beginning of period | — | — | — | — | — | — | |||||||||||||||||
Cash, cash equivalents, and restricted cash at beginning of period | $ | — | $ | 169.9 | $ | 0.1 | $ | — | $ | — | $ | 170.0 | |||||||||||
Cash and cash equivalents at end of period | $ | — | $ | 143.8 | $ | 0.3 | $ | — | $ | — | $ | 144.1 | |||||||||||
Restricted cash at end of period | — | 1.1 | — | — | — | 1.1 | |||||||||||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | — | $ | 144.9 | $ | 0.3 | $ | — | $ | — | $ | 145.2 |
22
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENT OF CASH FLOW
(unaudited)
(Millions of dollars) | Three Months Ended March 31, 2017 | ||||||||||||||||||||||
Operating Activities | Parent Company | Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
Net income (loss) | $ | (3.0 | ) | $ | (3.0 | ) | $ | — | $ | — | $ | 3.0 | $ | (3.0 | ) | ||||||||
Adjustments to reconcile net income (loss) to net cash provided by (required by)operating activities | |||||||||||||||||||||||
Depreciation and amortization | — | 27.0 | — | — | — | 27.0 | |||||||||||||||||
Deferred and noncurrent income tax charges (credits) | — | 5.6 | — | — | — | 5.6 | |||||||||||||||||
Accretion of asset retirement obligations | — | 0.4 | — | — | — | 0.4 | |||||||||||||||||
Pretax (gains) losses from sale of assets | — | 3.5 | — | — | — | 3.5 | |||||||||||||||||
Net decrease in noncash operating working capital | — | (80.4 | ) | — | — | — | (80.4 | ) | |||||||||||||||
Equity in earnings of affiliates | 3.0 | — | — | — | (3.0 | ) | — | ||||||||||||||||
Other operating activities - net | — | 1.0 | — | — | — | 1.0 | |||||||||||||||||
Net cash provided by (required by) operating activities | — | (45.9 | ) | — | — | — | (45.9 | ) | |||||||||||||||
Investing Activities | |||||||||||||||||||||||
Property additions | — | (65.1 | ) | — | (0.8 | ) | — | (65.9 | ) | ||||||||||||||
Proceeds from sale of assets | — | 0.5 | — | — | — | 0.5 | |||||||||||||||||
Changes in restricted cash | — | — | — | — | — | — | |||||||||||||||||
Other investing activities - net | — | — | — | — | — | — | |||||||||||||||||
Net cash provided by (required by) investing activities | — | (64.6 | ) | — | (0.8 | ) | — | (65.4 | ) | ||||||||||||||
Financing Activities | |||||||||||||||||||||||
Purchase of treasury stock | (17.4 | ) | — | — | — | — | (17.4 | ) | |||||||||||||||
Borrowings of debt | — | 42.5 | — | — | — | 42.5 | |||||||||||||||||
Repayments of debt | — | (26.2 | ) | — | — | — | (26.2 | ) | |||||||||||||||
Debt issuance costs | — | — | — | — | — | — | |||||||||||||||||
Amounts related to share-based compensation | — | (5.1 | ) | — | — | — | (5.1 | ) | |||||||||||||||
Net distributions to parent | 17.4 | (18.2 | ) | — | 0.8 | — | — | ||||||||||||||||
Net cash provided by (required) by financing activities | — | (7.0 | ) | — | 0.8 | — | (6.2 | ) | |||||||||||||||
Net increase (decrease) in cash and cash equivalents | — | (117.5 | ) | — | — | — | (117.5 | ) | |||||||||||||||
Cash, cash equivalents, and restricted cash at January 1 | — | 153.8 | — | — | — | 153.8 | |||||||||||||||||
Cash, cash equivalents, and restricted cash at March 31 | $ | — | $ | 36.3 | $ | — | $ | — | $ | — | $ | 36.3 | |||||||||||
Reconciliation of Cash, Cash Equivalents and Restricted Cash | |||||||||||||||||||||||
Cash and cash equivalents at beginning of period | $ | — | $ | 153.8 | $ | — | $ | — | $ | — | $ | 153.8 | |||||||||||
Restricted cash at beginning of period | — | — | — | — | — | — | |||||||||||||||||
Cash, cash equivalents, and restricted cash at beginning of period | $ | — | $ | 153.8 | $ | — | $ | — | $ | — | $ | 153.8 | |||||||||||
Cash and cash equivalents at end of period | $ | — | $ | 36.3 | $ | — | $ | — | $ | — | $ | 36.3 | |||||||||||
Restricted cash at end of period | — | — | — | — | — | — | |||||||||||||||||
Cash, cash equivalents, and restricted cash at end of period | $ | — | $ | 36.3 | $ | — | $ | — | $ | — | $ | 36.3 |
23
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENT OF CHANGES IN EQUITY
(unaudited)
(Millions of dollars) | Three Months Ended March 31, 2018 | ||||||||||||||||||||||
Statement of Stockholders' Equity | Parent Company | Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
Common Stock | |||||||||||||||||||||||
Balance as of December 31, 2017 | $ | 0.5 | $ | — | $ | 0.1 | $ | — | $ | (0.1 | ) | $ | 0.5 | ||||||||||
Issuance of common stock | — | — | — | — | — | — | |||||||||||||||||
Balance as of March 31, 2018 | $ | 0.5 | $ | — | $ | 0.1 | $ | — | $ | (0.1 | ) | $ | 0.5 | ||||||||||
Treasury Stock | |||||||||||||||||||||||
Balance as of December 31, 2017 | $ | (806.5 | ) | $ | — | $ | — | $ | — | $ | — | $ | (806.5 | ) | |||||||||
Issuance of treasury stock | 4.4 | — | — | — | — | 4.4 | |||||||||||||||||
Repurchase of treasury stock | (71.7 | ) | — | — | — | — | (71.7 | ) | |||||||||||||||
Balance as of March 31, 2018 | $ | (873.8 | ) | $ | — | $ | — | $ | — | $ | — | $ | (873.8 | ) | |||||||||
APIC | |||||||||||||||||||||||
Balance as of December 31, 2017 | $ | 1,205.7 | $ | 573.1 | $ | 52.0 | $ | 87.5 | $ | (1,368.4 | ) | $ | 549.9 | ||||||||||
Issuance of treasury stock | (4.4 | ) | — | — | — | — | (4.4 | ) | |||||||||||||||
Amounts related to share-based compensation | — | (2.9 | ) | — | — | — | (2.9 | ) | |||||||||||||||
Share-based compensation expense | — | 2.2 | — | — | — | 2.2 | |||||||||||||||||
Balance as of March 31, 2018 | $ | 1,201.3 | $ | 572.4 | $ | 52.0 | $ | 87.5 | $ | (1,368.4 | ) | $ | 544.8 | ||||||||||
Retained Earnings | |||||||||||||||||||||||
Balance as of December 31, 2017 | $ | 994.5 | $ | 933.0 | $ | — | $ | 66.8 | $ | (999.8 | ) | $ | 994.5 | ||||||||||
Net income (loss) | 39.3 | 39.3 | — | — | (39.3 | ) | 39.3 | ||||||||||||||||
Balance as of March 31, 2018 | $ | 1,033.8 | $ | 972.3 | $ | — | $ | 66.8 | $ | (1,039.1 | ) | $ | 1,033.8 |
24
Murphy USA Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING STATEMENT OF CHANGES IN EQUITY
(unaudited)
(Millions of dollars) | Three Months Ended March 31, 2017 | ||||||||||||||||||||||
Statement of Stockholders' Equity | Parent Company | Issuer | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminations | Consolidated | |||||||||||||||||
Common Stock | |||||||||||||||||||||||
Balance as of December 31, 2016 | $ | 0.5 | $ | — | $ | 0.1 | $ | — | $ | (0.1 | ) | $ | 0.5 | ||||||||||
Issuance of common stock | — | — | — | — | — | — | |||||||||||||||||
Balance as of March 31, 2017 | $ | 0.5 | $ | — | $ | 0.1 | $ | — | $ | (0.1 | ) | $ | 0.5 | ||||||||||
Treasury Stock | |||||||||||||||||||||||
Balance as of December 31, 2016 | $ | (608.0 | ) | $ | — | $ | — | $ | — | $ | — | $ | (608.0 | ) | |||||||||
Issuance of treasury stock | 6.7 | — | — | — | — | 6.7 | |||||||||||||||||
Repurchase of treasury stock | (17.4 | ) | — | — | — | — | (17.4 | ) | |||||||||||||||
Balance as of March 31, 2017 | $ | (618.7 | ) | $ | — | $ | — | $ | — | $ | — | $ | (618.7 | ) | |||||||||
APIC | |||||||||||||||||||||||
Balance as of December 31, 2016 | $ | 1,213.1 | $ | 571.1 | $ | 52.0 | $ | 87.5 | $ | (1,368.4 | ) | $ | 555.3 | ||||||||||
Issuance of treasury stock | (6.7 | ) | — | — | — | — | (6.7 | ) | |||||||||||||||
Amounts related to share-based compensation | — | (5.0 | ) | — | — | — | (5.0 | ) | |||||||||||||||
Share-based compensation expense | — | 1.2 | — | — | — | 1.2 | |||||||||||||||||
Balance as of March 31, 2017 | $ | 1,206.4 | $ | 567.3 | $ | 52.0 | $ | 87.5 | $ | (1,368.4 | ) | $ | 544.8 | ||||||||||
Retained Earnings | |||||||||||||||||||||||
Balance as of December 31, 2016 | $ | 749.3 | $ | 687.8 | $ | — | $ | 66.8 | $ | (754.6 | ) | $ | 749.3 | ||||||||||
Net income (loss) | (3.0 | ) | (3.0 | ) | — | — | 3.0 | (3.0 | ) | ||||||||||||||
Balance as of March 31, 2017 | $ | 746.3 | $ | 684.8 | $ | — | $ | 66.8 | $ | (751.6 | ) | $ | 746.3 |
25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“Management’s Discussion and Analysis” or "MD&A") is the Company’s analysis of its financial performance and of significant trends that may affect future performance. It should be read in conjunction with the consolidated financial statements and notes included in this Quarterly Report on Form 10-Q. It contains forward-looking statements including, without limitation, statements relating to the Company’s plans, strategies, objectives, expectations and intentions. The words “anticipate,” “estimate,” “believe,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “expect,” “objective,” “projection,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target” and similar expressions identify forward-looking statements. The Company does not undertake to update, revise or correct any of the forward-looking information unless required to do so under the federal securities laws. Readers are cautioned that such forward-looking statements should be read in conjunction with the Company’s disclosures under “Forward-Looking Statements” and “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q.
For purposes of this Management’s Discussion and Analysis, references to “Murphy USA”, the “Company”, “we”, “us” and “our” refer to Murphy USA Inc. and its subsidiaries on a consolidated basis.
Management’s Discussion and Analysis is organized as follows:
• | Executive Overview—This section provides an overview of our business and the results of operations and financial condition for the periods presented. It includes information on the basis of presentation with respect to the amounts presented in the Management’s Discussion and Analysis and a discussion of the trends affecting our business. |
• | Results of Operations—This section provides an analysis of our results of operations, including the results of our operating segment for the three months ended March 31, 2018 and 2017. |
• | Capital Resources and Liquidity—This section provides a discussion of our financial condition and cash flows as of and for the three months ended March 31, 2018 and 2017. It also includes a discussion of our capital structure and available sources of liquidity. |
• | Critical Accounting Policies—This section describes the accounting policies and estimates that we consider most important for our business and that require significant judgment. |
Executive Overview
The following MD&A is intended to help the reader understand our results of operations and financial condition. This section is provided to supplement, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to these financial statements contained elsewhere in this Quarterly Report on Form 10-Q, this MD&A section and the consolidated financial statements in our Annual Report on Form 10-K. Our Form 10-K contains a discussion of matters not included within this document, such as disclosures regarding critical accounting policies and estimates, and contractual obligations.
Our Business
We market refined products through a network of retail gasoline stations and to unbranded wholesale customers. Our owned retail stations are almost all located in close proximity to Walmart stores and use the brand name Murphy USA®. We also market gasoline and other products at standalone stations under the Murphy Express brand. At March 31, 2018, we had a total of 1,448 Company stations in 26 states, principally in the Southeast, Southwest and Midwest United States.
Basis of Presentation
Murphy USA was incorporated in March 2013, and until the separation from Murphy Oil Corporation was completed on August 30, 2013, it had not commenced operations and had no material assets, liabilities or commitments. The financial information presented in this Management’s Discussion and Analysis is derived from the consolidated financial statements of Murphy USA Inc. and its subsidiaries for all periods presented.
26
Trends Affecting Our Business
Our operations are significantly impacted by the gross margins we receive on our fuel sales. These gross margins are commodity-based, change daily and are volatile. While we expect our total fuel sales volumes to grow and the gross margins we realize on those sales to remain strong, 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, severe refinery mechanical failures for an extended period of time, and competition in the local markets in which we operate.
The cost of our main sales products, gasoline and diesel, is greatly impacted by the cost of crude oil in the United States. Generally, rising prices for crude oil increase the Company’s cost for wholesale fuel products purchased. When wholesale fuel costs rise, the Company is not always able to immediately pass these cost increases on to its retail customers at the pump, which in turn reduces the Company’s sales margin. Also, rising prices tend to cause our customers to reduce discretionary fuel consumption, which generally reduces our fuel sales volumes. Crude oil prices have continued to strengthen through the first quarter of 2018 and closed the quarter at approximately $65 per barrel, up from the $60 per barrel at the end of 2017. Total fuel contribution (retail fuel margin plus product supply and wholesale ("PS&W") results including Renewable Identification Numbers ("RINs")) for the first quarter of 2018 was 11.4 cents per gallon, a 12.8% improvement when compared to the 2017 first quarter total fuel contribution of 10.1 cents per gallon.
In addition, our revenues are impacted by our ability to leverage our diverse supply infrastructure in pursuit of obtaining the lowest cost fuel supply available; for example, activities such as blending bulk fuel with ethanol and bio-diesel to capture and subsequently sell RINs. Under the Energy Policy Act of 2005, the Environmental Protection Agency (“EPA”) is authorized to set annual quotas establishing the percentage of motor fuels consumed in the United States that must be attributable to renewable fuels. Obligated parties are required to demonstrate that they have met any applicable quotas by submitting a certain amount of RINs to the EPA. RINs in excess of the set quota can be sold in a market for RINs at then-prevailing prices. The market price for RINs fluctuates based on a variety of factors, including but not limited to governmental and regulatory action. There are other market related factors that can impact the net benefit we receive from RINs on a company-wide basis either favorably or unfavorably. Revenue from the sales of RINs is included in “Other operating revenues” in the Consolidated Statements of Income. During the first quarter of 2018, RIN prices declined from the $0.60 range to the upper $0.30 range due to political and regulatory uncertainty around the Renewable Fuel Standard ("RFS") program.
As of March 31, 2018, we have $800 million of Senior Notes and $87 million of term loan outstanding. We believe that we will generate sufficient cash from operations to fund our ongoing operating requirements. 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. At March 31, 2018, we have additional available capacity under the committed $450 million credit facilities (subject to the borrowing base), together with capacity under a $150 million incremental uncommitted facility. 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.
The Company currently anticipates total capital expenditures (including land for future developments) for the full year 2018 to range from approximately $225 million to $275 million depending on how many new sites are completed. We intend to fund the remainder of our capital program in 2018 primarily using operating cash flow but will supplement funding where necessary using borrowings available under credit facilities.
We believe that our business will continue to grow in the future as we expect to build additional locations chosen by our real estate development team that have the characteristics we look for in a strong site. The pace of this growth is continually monitored by our management, and these plans can be altered based on operating cash flows generated and the availability of credit facilities.
We currently estimate our ongoing effective tax rate to be approximately 25.0% for the remainder of the year.
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Seasonality
Our business has inherent seasonality due to the concentration of our retail sites in certain geographic areas, as well as customer activity behaviors during different seasons. In general, sales volumes and operating incomes are typically highest in the second and third quarters during the summer activity months and lowest during the winter months. As a result, operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018.
Business Segment
The Company has one operating segment which is Marketing. This segment includes our retail marketing sites and product supply and wholesale assets.
For additional operating segment information, see Note 19 “Business Segments” in the audited combined financial statements for the year ended December 31, 2017 included with our Annual Report on Form 10-K and Note 13 “Business Segment” in the accompanying unaudited consolidated financial statements for the three months ended March 31, 2018.
Results of Operations
Consolidated Results
For the three month period ended March 31, 2018, the Company reported net income of $39.3 million, or $1.16 per diluted share, on revenue of $3.2 billion. A net loss of $3.0 million for the same period in 2017, or $(0.08) per diluted share, on $3.0 billion in revenue. The increase in quarterly net income was primarily driven by net settlement proceeds of $35.3 million (after tax), recognized in the first quarter of 2018 from the settlement of damages incurred in connection with the 2010 Deepwater Horizon oil spill.
Three Months Ended March 31, 2018 versus Three Months Ended March 31, 2017
Quarterly revenues for 2018 increased $244.6 million, or 8.2%, compared to the same quarter in 2017. The higher revenues were caused by higher retail prices and increased store count in 2018, partially offset by a decrease in retail fuel volumes.
Total cost of sales increased $231.0 million, or 8.2%, compared to 2017. In the current year quarter, higher fuel purchase costs in all areas were driven by higher wholesale prices and increased store count.
Station and other operating expenses increased $2.6 million, or 2.1%, from 2017. Increased store count and higher retail fuel prices generated greater total payment fees during the 2018 quarter, which primarily contributed to the increase in station and operating expenses.
Selling, general and administrative ("SG&A") expenses for 2018 decreased $3.7 million, or 9.7%, from 2017. The decrease in SG&A costs is primarily due to lower labor and employee related costs driven by restructuring expenses incurred in the prior-year quarter, combined with the timing-related lower costs for IT enhancements and other corporate projects.
Net settlement proceeds for the first quarter of 2018 were $47.0 million (before tax), which represented the net settlement of damages incurred in connection with the 2010 Deepwater Horizon oil spill.
The effective income tax rate was approximately 16.8% for the 2018 quarter and a benefit of 69.2% for the 2017 quarter. The effective tax rate for the current quarter is lower than the U.S. Federal Corporate tax rate of 21% due primarily to the settlement of prior year state uncertain tax positions during the quarter. The Company is estimating an effective tax rate of 25% for the remainder of 2018. The higher effective tax rate for the first quarter of 2017 was an overall tax benefit driven by a net operating loss, compounded by discrete tax items and the adoption of ASU 2016-09.
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Segment Results
A summary of the Company’s earnings by business segment follows:
Three Months Ended March 31, | ||||||||
(Millions of dollars) | 2018 | 2017 | ||||||
Marketing | $ | 10.7 | $ | 0.6 | ||||
Corporate and other assets | 28.6 | (3.6 | ) | |||||
Net Income | $ | 39.3 | $ | (3.0 | ) |
Three Months Ended March 31, 2018 versus Three Months Ended March 31, 2017
Net income for the three months ended March 31, 2018 increased compared to the same period in 2017 primarily due to:
• | Net settlement proceeds of $35.3 million (after tax) from the 2010 Deepwater Horizon oil spill recorded in Corporate and other assets |
• | Higher merchandise margins |
• | Increased RINs sales volumes |
The items below partially offset the increase in earnings in the current period:
• | Increased depreciation expense due to higher store count |
• | Higher interest expense related to the issuance of the 2027 Senior Notes in April 2017 |
• | Higher station and other operating expenses |
• | Lower retail fuel volumes and margins |
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(Millions of dollars, except volume per store month and margins) | Three Months Ended March 31, | |||||||
Marketing Segment | 2018 | 2017 | ||||||
Operating Revenues | ||||||||
Petroleum product sales | $ | 2,637.6 | $ | 2,402.2 | ||||
Merchandise sales | 567.7 | 565.8 | ||||||
Other operating revenues | 38.5 | 31.4 | ||||||
Total operating revenues | 3,243.8 | 2,999.4 | ||||||
Operating expenses | ||||||||
Petroleum products cost of goods sold | 2,561.1 | 2,329.3 | ||||||
Merchandise cost of goods sold | 476.2 | 477.0 | ||||||
Station and other operating expenses | 127.4 | 124.8 | ||||||
Depreciation and amortization | 30.2 | 25.4 | ||||||
Selling, general and administrative | 34.5 | 38.2 | ||||||
Accretion of asset retirement obligations | 0.5 | 0.4 | ||||||
Total operating expenses | 3,229.9 | 2,995.1 | ||||||
Gain (loss) on sale of assets | 0.3 | (3.5 | ) | |||||
Income (loss) from operations | 14.2 | 0.8 | ||||||
Other income (expense) | ||||||||
Interest expense | — | — | ||||||
Other nonoperating income (expense) | 0.1 | 0.2 | ||||||
Total other income (expense) | 0.1 | 0.2 | ||||||
Income (loss) before income taxes | 14.3 | 1.0 | ||||||
Income tax expense (benefit) | 3.6 | 0.4 | ||||||
Net Income (loss) | $ | 10.7 | $ | 0.6 | ||||
Gallons sold same store sales | 232.7 | 242.5 | ||||||
Fuel margin (cpg) | 8.4 | 10.1 | ||||||
Fuel margin $ per store month | $ | 19.4 | $ | 24.5 | ||||
Total tobacco sales revenue same store sales | $ | 95.4 | $ | 99.9 | ||||
Total non-tobacco sales revenue same store sales | $ | 37.1 | $ | 35.7 | ||||
Total merchandise sales revenue same store sales | $ | 132.5 | $ | 135.6 | ||||
Merchandise margin $ same store sales | $ | 21.4 | $ | 21.3 |
Merchandise margin as a percentage of merchandise sales | 16.1 | % | 15.7 | % |
Store count at end of period | 1,448 | 1,406 | ||||
Total store months during the period | 4,324 | 4,169 |
Three Months Ended March 31, 2018 versus Three Months Ended March 31, 2017
Net income in the Marketing segment for 2018 increased $10.1 million compared to the 2017 period. The primary driver was the 12.9% increase in total fuel contribution to 11.4 cpg in 2018. Additionally, merchandise gross margin increased 3.0% to $91.5 million.
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Total revenues for the Marketing segment were approximately $3.2 billion for 2018 and $3.0 billion for 2017. The primary cause of the increase in revenues was a $0.23 per gallon increase in retail fuel price in the 2018 quarter. Revenues included excise taxes collected and remitted to government authorities of $434.4 million in 2018 and $480.1 million in 2017. On January 1, 2018, the Company adopted ASU 2014-09 using the modified retrospective method. Under previous revenue recognition guidance, the revenues related to excise and sales tax collected and remitted to government authorities would have been $475.2 million.
Total fuel sales volumes on a same store sales ("SSS") basis were down 4.0% to 232,669 gallons per store in the 2018 period from 242,453 gallons per store in 2017. This decline was primarily due to the impacts of winter storms throughout the Company's operating areas during the current-year quarter. Retail fuel margin decreased 16.8% in the 2018 quarter to 8.4 cpg compared to 10.1 cpg in the prior year quarter. Retail fuel margins decreased in first quarter 2018 as rising wholesale product prices throughout the period created an environment less favorable to retail than in first quarter 2017.
Total PS&W margin dollars, excluding RINs, were negative $6.6 million in the 2018 period compared to negative $28.5 million in 2017. The improvement in the current period was largely attributable to timing and inventory benefits due to rising wholesale prices, and to a lesser extent, modest improvement in the spot-to-rack differential.
The 2018 period includes the sale of RINs of $37.4 million compared to $29.0 million in 2017. During the 2018 quarter, 64 million RINs were sold at an average selling price of $0.59 per RIN while the prior year quarter had sales of 53 million RINs at an average price of $0.55 per RIN.
Merchandise total sales increased 0.3% to $567.7 million in 2018 from $565.8 million in 2017 and was primarily due to an increase in non-tobacco sales of 3.7% SSS, offset by a decrease in tobacco products revenue of 4.4% SSS. Quarterly merchandise margins in 2018 were higher than 2017. The increase in gross margin dollars of 3.0% in the current period was due primarily to continual turnover to new, high-demand products and enhanced tobacco programs and initiatives. As a result, total unit margins were up by 40 basis points from 15.7% in the prior period to 16.1% in the current quarter.
Station and other operating expenses increased $2.6 million in the current period compared to 2017 levels. Total operating expenses in 2018 were higher, reflecting increased payment fees and new store additions. On an APSM basis, expenses applicable to retail declined 1.4%, primarily because of lower labor costs in the period combined with lower maintenance per store due to timing of work performed.
Depreciation expense increased $4.8 million in the 2018 period, an increase of 18.9% over the prior period. This increase was primarily caused by more stores operating in the 2018 period compared to the prior year period.
Selling, general and administrative (SG&A) expenses decreased $3.7 million, or 9.7%, in 2018. This decrease was due to lower labor and employee related costs driven by restructuring expenses incurred in the prior year quarter, combined with timing-related lower costs for IT enhancements and other corporate projects.
Same store sales comparison
Variance from prior year | ||||||
Three months ended | ||||||
March 31, 2018 | ||||||
SSS | APSM | |||||
Fuel gallons per month | (4.0 | )% | (4.6 | )% | ||
Merchandise sales | (2.3 | )% | (3.3 | )% | ||
Tobacco sales | (4.4 | )% | (5.9 | )% | ||
Non-tobacco sales | 3.7 | % | 4.2 | % | ||
Merchandise margin | 0.5 | % | (0.7 | )% | ||
Tobacco margin | 1.5 | % | (0.9 | )% | ||
Non-tobacco margin | (1.2 | )% | (0.4 | )% |
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Historically, the Company has used the APSM metric to represent certain data on a per site basis. The APSM metric includes all stores open through the date of the calculation. Other retailers have used SSS as their metric. The table above shows the comparison of APSM to SSS for 3 specific items. In most cases, the SSS metric is more favorable than the APSM metric. The primary reason for this is that SSS does not include new stores that have been opened a short time and are still developing their customer base. The difference between the APSM and SSS results highlights the impact of our growing mix of small store formats (e.g. 1200 sq. ft.) which have a higher mix of non-tobacco sales and a ramp up period on tobacco sales.
The same store sales comparison includes aggregated individual store results for all stores open throughout both periods presented. For all periods presented, the store must have been open for the entire calendar year to be included in the comparison. Remodeled stores that remained open or were closed for just a very brief time (less than a month) during the period being compared remain in the same store sales calculation. If a store is replaced, either at the same location (raze and rebuild) or relocated to a new location, it will typically be excluded from the calculation. Newly constructed sites, including raze-and-rebuilds do not enter the calculation until they are open for each full calendar year for the periods being compared (open by January 1, 2017 for the sites being compared in the 2018 versus 2017 calculations).
Corporate and other assets
Three Months Ended March 31, 2018 versus Three Months Ended March 31, 2017
After-tax results for Corporate and other assets improved in the recently completed quarter, experiencing a profit of $28.6 million compared to a loss of $3.6 million in the first quarter of 2017. The improvement was due to recording net settlement proceeds of $35.3 million (after tax) from the 2010 Deepwater Horizon oil spill. Interest expense was higher in the current quarter by $3.6 million due primarily to the addition of the $300 million senior notes in the second quarter of 2017 partially offset by lower interest cost related to the term loan.
Non-GAAP Measures
The following table sets forth the Company’s Adjusted EBITDA for the three months ended March 31, 2018 and 2017. 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 and other non-operating expense (income). EBITDA and Adjusted EBITDA are not measures that are prepared in accordance with U.S. generally accepted accounting principles (GAAP).
We use this Adjusted EBITDA in our operational and financial decision-making, believing that such measure is useful to eliminate certain items in order to focus on what we deem to be a more reliable indicator of ongoing operating performance and our ability to generate cash flow from operations. Adjusted EBITDA is also used by many of our investors, research analysts, investment bankers, and lenders to assess our operating performance. We believe that the presentation of Adjusted EBITDA provides useful information to investors because it allows understanding of a key measure that we evaluate internally when making operating and strategic decisions, preparing our annual plan, and evaluating our overall performance. However, non-GAAP measures are not a substitute for GAAP disclosures, and Adjusted EBITDA may be prepared differently by us than by other companies using similarly titled non-GAAP measures.
The reconciliation of net income (loss) to EBITDA and Adjusted EBITDA follows:
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Three Months Ended March 31, | ||||||||
(Millions of dollars) | 2018 | 2017 | ||||||
Net income (loss) | $ | 39.3 | $ | (3.0 | ) | |||
Income tax expense (benefit) | 8.0 | (6.8 | ) | |||||
Interest expense, net of interest income | 12.7 | 9.4 | ||||||
Depreciation and amortization | 31.8 | 27.0 | ||||||
EBITDA | 91.8 | 26.6 |
Net settlement proceeds | (47.0 | ) | — | |||||
Accretion of asset retirement obligations | 0.5 | 0.4 | ||||||
(Gain) loss on sale of assets | (0.3 | ) | 3.5 | |||||
Other nonoperating (income) expense | — | (0.2 | ) | |||||
Adjusted EBITDA | $ | 45.0 | $ | 30.3 |
Capital Resources and Liquidity
Significant Sources of Capital
We continue to have a committed $450 million asset based loan facility (the “ABL facility”), which is subject to the remaining borrowing capacity of $225 million at March 31, 2018 (which can be utilized for working capital and other general corporate purposes, including supporting our operating model as described herein) and a $200 million term loan facility, as well as a $150 million incremental uncommitted facility. As of March 31, 2018, we had $87 million outstanding under our term loan and no amounts outstanding under our ABL. See “Debt – Credit Facilities” below for the calculation of our borrowing base.
We believe our short-term and long-term liquidity is adequate to fund not only our operations, but also our anticipated near-term and long-term funding requirements, including capital spending programs, execution of announced share repurchase programs, potential dividend payments, repayment of debt maturities and other amounts that may ultimately be paid in connection with contingencies.
Operating Activities
Net cash provided by operating activities was $107.4 million for the three months ended March 31, 2018 and required by operating activities was $45.9 million for the comparable period in 2017. The increase was due primarily to an increase in accounts receivable and inventories combined with a decrease in accounts payable. Net income increased $42.3 million in 2018 compared to the corresponding period in 2017 due primarily to net settlement proceeds received in the current period.
Investing Activities
For the three months ended March 31, 2018, cash required by investing activities was $52.3 million compared to $65.4 million in 2017. The lower investing cash use in the current period was primarily due to lower capital expenditure spending in the current period for both new and raze-and-rebuild retail locations, as well as sales proceeds from our current period like-kind exchange transaction. Other investing activities required $4.7 million, which was primarily the purchase of tax credits.
Financing Activities
Financing activities in the three months ended March 31, 2018 required cash of $79.9 million compared to $6.2 million in the three months ended March 31, 2017. The current period included the repurchase of common shares of $71.7 million, which was an increase of $54.3 million from the prior-year quarter. The Company had net repayments of borrowing of $5.3 million in the current year compared to net borrowings of $16.3 million in the first quarter of 2017.
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Share Repurchase Program
Upon the completion of the most recent repurchase plan authorized by the Murphy USA Inc. Board of Directors in December 2017, the Company publicly stated in the fourth quarter 2017 Earnings Release that it expected to continue to conduct share repurchases under quarterly allocations in line with our past practice.
Debt
Our long-term debt at March 31, 2018 and December 31, 2017 are as set forth below:
(Millions of dollars) | March 31, 2018 | December 31, 2017 | ||||||
6.00% senior notes due 2023 (net of unamortized discount of $4.7 at March 31, 2018 and $5.0 at December 2017) | $ | 495.3 | $ | 495.0 | ||||
5.625% senior notes due 2027 (net of unamortized discount of $3.4 at March 31, 2018 and $3.5 at December 2017) | 296.6 | 296.5 | ||||||
Term loan due 2020 (effective interest rate of 4.73% at March 31, 2018) | 87.0 | 92.0 | ||||||
Capitalized lease obligations, vehicles, due through 2021 | 2.2 | 2.5 | ||||||
Less unamortized debt issuance costs | (4.8 | ) | (5.2 | ) | ||||
Total notes payable, net | 876.3 | 880.8 | ||||||
Less current maturities | 19.9 | 19.9 | ||||||
Total long-term debt | $ | 856.4 | $ | 860.9 |
Senior Notes
On August 14, 2013, Murphy Oil USA, Inc., our primary operating subsidiary, issued 6.00% Senior Notes due 2023 (the “2023 Senior Notes”) in an aggregate principal amount of $500 million. The 2023 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 2023 Senior Notes contains restrictive covenants that limit, among other things, the ability of Murphy USA, Murphy Oil USA, Inc. and the restricted subsidiaries to incur additional indebtedness or liens, dispose of assets, make certain restricted payments or investments, enter into transactions with affiliates or merge with or into other entities.
On April 25, 2017, Murphy Oil USA, Inc., our primary operating subsidiary, issued $300 million of 5.625% Senior Notes due 2027 (the "2027 Senior Notes") under its existing shelf registration statement. The 2027 Senior Notes are fully and unconditionally guaranteed by Murphy USA, and are guaranteed by certain 100% owned subsidiaries that guarantee our credit facilities. The indenture governing the 2027 Senior Notes contains restrictive covenants that are essentially identical to the covenants for the 2023 Senior Notes.
The 2023 and 2027 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 2023 and 2027 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
In March 2016, we amended and extended our existing credit agreement. The credit agreement provides for a committed $450 million ABL facility (with availability subject to the borrowing base described below) and a $200 million term loan facility. It also provides for a $150 million uncommitted incremental facility. On March 10, 2016, Murphy Oil USA, Inc. borrowed $200 million under the term loan facility that has a four-year term with a current outstanding principal of $87 million. As of March 31, 2018, we have zero outstanding under our ABL facility.
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The borrowing base is, at any time of determination, the amount (net of reserves) equal to the sum of:
• 100% of eligible cash at such time, plus
• 90% of eligible credit card receivables at such time, plus
• 90% of eligible investment grade accounts, plus
• 85% of eligible other accounts, plus
• 80% of eligible product supply/wholesale refined products inventory at such time, plus
• 75% of eligible retail refined products inventory at such time, plus
the lesser of (i) 70% of the average cost of eligible retail merchandise inventory at such time and (ii) 85% of the net orderly liquidation value of eligible retail merchandise inventory at such time.
The ABL facility includes a $200 million sublimit for the issuance of letters of credit. Letters of credit issued under the ABL facility reduce availability under the ABL facility.
Interest payable on the credit facilities is based on either:
• | the London interbank offered rate, adjusted for statutory reserve requirements (the “Adjusted LIBO Rate”); |
or
• | the Alternate Base Rate, which is defined as the highest of (a) the prime rate, (b) the federal funds effective rate from time to time plus 0.50% per annum and (c) the one-month Adjusted LIBO Rate plus 1.00% per annum, |
plus, (A) in the case of Adjusted LIBO Rate borrowings, (i) with respect to the ABL facility, spreads ranging from 1.50% to 2.00% per annum depending on a total debt to EBITDA ratio under the ABL facility or (ii) with respect to the term loan facility, spreads ranging from 2.50% to 2.75% per annum depending on a total debt to EBITDA ratio and (B) in the case of Alternate Base Rate borrowings, (i) with respect to the ABL facility, spreads ranging from 0.50% to 1.00% per annum depending on a total debt to EBITDA ratio or (ii) with respect to the term loan facility, spreads ranging from 1.50% to 1.75% per annum depending on a total debt to EBITDA ratio.
The interest rate period with respect to the Adjusted LIBO Rate interest rate option can be set at one, two, three, or six months as selected by us in accordance with the terms of the credit agreement.
The credit agreement contains certain covenants that limit, among other things, the ability of us and our subsidiaries to incur additional indebtedness or liens, to make certain investments, to enter into sale-leaseback transactions, to make certain restricted payments, to enter into consolidations, mergers or sales of material assets and other fundamental changes, to transact with affiliates, to enter into agreements restricting the ability of subsidiaries to incur liens or pay dividends, or to make certain accounting changes. In addition, the credit agreement requires us to maintain a minimum fixed charge coverage ratio of a minimum of 1.0 to 1.0 when availability for at least three consecutive business days is less than the greater of (a) 17.5% of the lesser of the aggregate ABL facility commitments and the borrowing base and (b) $70 million (including as of the most recent fiscal quarter end on the first date when availability is less than such amount), as well as a maximum secured total debt to EBITDA ratio of 4.5 to 1.0 at any time when the term loans are outstanding. As of March 31, 2018, our fixed charge coverage ratio was 0.72; however, we had more than $100 million of availability under the ABL facility at that date so the fixed charge coverage ratio currently has no impact on our operations or liquidity. Our secured debt to EBITDA ratio as of March 31, 2018 was 0.19 to 1.0.
The credit agreement contains restrictions on certain payments, including dividends, when availability under the credit agreement is less than or equal to the greater of $100 million and 25% of the lesser of the revolving commitments and the borrowing base and our fixed charge coverage ratio is less than 1.0 to 1.0 (unless availability under the credit agreement is greater than $100 million and 40% of the lesser of the revolving commitments and the borrowing base). As of March 31, 2018, our ability to make restricted payments was not limited as our availability under the borrowing base was more than $100 million, while our fixed charge coverage ratio under our credit agreement was less than 1.0 to 1.0. As of December 31, 2017, we had a shortfall of approximately $206.9 million of our net income and retained earnings subject to such restrictions before the fixed charge coverage ratio under our credit agreement would exceed 1.0 to 1.0.
All obligations under the credit agreement are guaranteed by Murphy USA and the subsidiary guarantors party thereto, and all obligations under the credit agreement, including the guarantees of those obligations, are secured by certain assets of Murphy USA, Murphy Oil USA, Inc. and the guarantors party thereto.
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Capital Spending
Capital spending and investments in our Marketing segment relate primarily to the acquisition of land and the construction of new Company stations. Our Marketing capital is also deployed to improve our existing sites, which we refer to as sustaining capital. We also use sustaining capital in this business as needed to ensure reliability and continued performance of our sites. We also invest in our Corporate and other assets segment. The following table outlines our capital spending and investments by segment for the three month periods ended March 31, 2018 and 2017:
Three Months Ended March 31, | ||||||||
(Millions of dollars) | 2018 | 2017 | ||||||
Marketing: | ||||||||
Company stores | $ | 26.3 | $ | 47.9 | ||||
Terminals | — | 0.3 | ||||||
Sustaining capital | 9.0 | 7.5 | ||||||
Corporate and other assets | 8.6 | 7.4 | ||||||
Total | $ | 43.9 | $ | 63.1 |
We currently expect capital expenditures for the full year 2018 to range from approximately $225 million to $275 million, including $175 million for retail growth, approximately $40 million for maintenance capital, with the remaining funds earmarked for other corporate investments, including various corporate initiatives, and completion of our home office remodel. See Note 16 “Commitments” in the audited consolidated financial statements for the year ended December 31, 2017 included in our Annual Report on Form 10-K for more information.
Critical Accounting Policies
There has been no material update to our critical accounting policies since our Annual Report on Form 10-K for the year ended December 31, 2017. For more information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies” in the Form 10-K.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain statements or may suggest “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995) that involve risk and uncertainties, including, but not limited to anticipated store openings, fuel margins, merchandise margins, sales of RINs and trends in our operations. Such statements are based upon the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties. Actual future results may differ materially from historical results or current expectations depending upon factors including, but not limited to: our ability to continue to maintain a good business relationship with Walmart; successful execution of our growth strategy, including our ability to realize the anticipated benefits from such growth initiatives, and the timely completion of construction associated with our newly planned stores which may be impacted by the financial health of third parties; our ability to effectively manage our inventory, disruptions in our supply chain and our ability to control costs; the impact of severe weather events, such as hurricanes, floods and earthquakes; the impact of any systems failures, cybersecurity and/or security breaches, including any security breach that results in theft, transfer or unauthorized disclosure of customer, employee or company information or our compliance with information security and privacy laws and regulations in the event of such an incident; successful execution of our information technology strategy; future tobacco or e-cigarette legislation and any other efforts that make purchasing tobacco products more costly or difficult could hurt our revenues and impact gross margins; efficient and proper allocation of our capital resources; compliance with debt covenants; availability and cost of credit; and changes in interest rates. Our public filings, including our Annual Report on our Form 10-K for the year ended December 31, 2017 contains other information on these and other factors that could affect our financial results and cause actual results to differ materially from any forward-looking information we may provide. The Company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events, new information or future circumstances.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Price Risk
We are exposed to market risks related to the volatility in the price of crude oil and refined products (primarily gasoline and diesel) used in our operations. These fluctuations can affect our revenues and purchases, as well as the cost of operating, investing and financing activities. We make limited use of derivative instruments to manage certain risks related to commodity prices. The use of derivative instruments for risk management is covered by operating policies and is closely monitored by our middle-office function and the Company’s senior management.
As described in Note 7 “Financial Instruments and Risk Management” in the accompanying unaudited consolidated financial statements, there were short-term commodity derivative contracts in place at March 31, 2018 to hedge the purchase price of refined products. A 10% increase or decrease in the respective benchmark price of the commodities underlying these derivative contracts would have been immaterial to the Company. Changes in the fair value of these derivative contracts generally offset the changes in the value for an equivalent volume of these products.
For additional information about our use of derivative instruments, see Note 12 “Financial Instruments and Risk Management” in our audited combined financial statements for the year ended December 31, 2017 included in the Form 10-K and Note 7 “Financial Instruments and Risk Management” in the accompanying unaudited consolidated financial statements for the three months ended March 31, 2018.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
Our management has evaluated, with the participation of our principal executive and financial officers, the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934) as of the end of the period covered by this report, and has concluded that our disclosure controls and procedures were effective and appropriately allowed for timely decisions regarding required disclosures as of March 31, 2018.
Internal Control over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As of March 31, 2018, the Company was engaged in a number of legal proceedings, all of which the Company considers routine and incidental to its business. See Note 12 ”Contingencies” in the accompanying consolidated financial statements. Based on information currently available to the Company, the ultimate resolution of environmental and legal matters referred to in this Item is not expected to have a material adverse effect on the Company’s net income, financial condition or liquidity in a future period.
ITEM 1A. RISK FACTORS
Our business, results of operations, cash flows and financial condition involve various risks and uncertainties. These risk factors are discussed under the caption “Risk Factors” in our Annual Report on Form 10-K. We have not identified any additional risk factors not previously disclosed in the Form 10-K.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Below is detail of the Company’s purchases of its own equity securities during the period:
Issuer Purchases of Equity Securities | ||||||||||||||
Total Number | Approximate | |||||||||||||
of Shares | Dollar Value of | |||||||||||||
Purchased as | Shares That May | |||||||||||||
Total Number | Average | Part of Publicly | Yet Be Purchased | |||||||||||
of Shares | Price Paid | Announced Plans | Under the Plans | |||||||||||
Period Duration | Purchased | Per Share | or Programs | or Programs 1 | ||||||||||
January 1, 2018 to January 31, 2018 | 227,592 | $ | 85.15 | 227,592 | $ | — | ||||||||
February 1, 2018 to February 28, 2018 | 349,127 | 74.58 | 349,127 | — | ||||||||||
March 1, 2018 to March 31, 2018 | 352,215 | 74.61 | 352,215 | — | ||||||||||
Three Months Ended March 31, 2018 | 928,934 | $ | 77.18 | 928,934 | $ | — |
1 Upon the completion of the most recent repurchase plan authorized by the Murphy USA Inc. Board of Directors (January 2016), the Company publicly stated in the fourth quarter 2017 Earnings Release that it expected to continue to conduct share repurchases under quarterly allocations in line with our past practice.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
The Exhibit Index on page 40 of this Form 10-Q report lists the exhibits that are filed herewith or incorporated herein by reference.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MURPHY USA INC.
(Registrant)
By /s/ Donald R. Smith Jr. __________
Donald R. Smith Jr., Vice President
and Controller (Chief Accounting Officer
and Duly Authorized Officer)
May 3, 2018
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EXHIBIT INDEX | |
Exhibit Number | Description |
4.1 | |
10.1* | |
12* | |
31.1* | |
31.2* | |
32.1* | |
32.2* | |
101. INS* | XBRL Instance Document |
101. SCH* | XBRL Taxonomy Extension Schema Document |
101. CAL* | XBRL Taxonomy Extension Calculation Linkbase Document |
101. DEF* | XBRL Taxonomy Extension Definition Linkbase Document |
101. LAB* | XBRL Taxonomy Extension Labels Linkbase Document |
101. PRE* | XBRL Taxonomy Extension Presentation Linkbase |
* Filed herewith.
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