SEC Info - Murphy USA Inc. - ‘10-Q’ for 3/31/23

Petroleum products - FIFO basis

i 368.3

i 367.0

Store merchandise for resale - FIFO basis

i 202.4

i 192.1

Less LIFO reserve

( i 278.9)

( i 250.7)

Total petroleum products and store merchandise inventory

i 291.8

i 308.4

Materials and supplies

i 11.8

i 10.7

Total inventories

i 303.6

i 319.1

Murphy USA and Murphy Express branded petroleum products are valued using the last-in, first-out (LIFO) method and certain QuickChek store merchandise for resale is valued using the LIFO method. At March 31, 2023 and December 31, 2022, the replacement cost (market value) of LIFO inventories exceeded the LIFO carrying value for petroleum products by $ i 277.3 million and $ i 249.1 million, respectively and for store merchandise for resale by $ i i 1.6 / million for both March 31, 2023 and December 31, 2022.

Note 4 — i Marketable Securities

The Company invests a portion of its excess operational cash in marketable securities. The goal of the Company's investment policy, in order of priority, are as follows: (1) preservation of principal, (2) maintaining a high degree of liquidity to meet cash flow requirements, and (3) deliver competitive returns subject to prevailing market conditions and the Company's stated objectives related to safety and liquidity. Nothing in the policy is intended to indicate that management must invest excess operational cash; it merely allows it subject to specific limitations.

Securities are generally required to have a final maturity of i 24 months or less with a weighted average maturity for the portfolio of no longer than i 12 months and must have an active secondary market. Investments may include U.S. Treasury bills, notes and bonds, U.S. Agency securities, repurchase agreements, certificates of deposit, institutional, government money market funds that maintain a stable $ i 1.00 net asset value, domestic and foreign commercial paper, municipal securities, domestic and foreign debt issued by corporations or financial institutions with the primary objective of minimizing the potential risk of principal loss. The Company determines the classification of its marketable securities based on its investment strategy at the time of purchase. All marketable securities in the periods presented have been classified as available-for-sale.

T i he carrying values of marketable securities and the balance sheet location at March 31, 2023 and December 31, 2022 consisted of the following:

(Millions of dollars)

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value

Available-for-sale debt securities:

Marketable securities current

U.S. Government Bonds

i 5.9

i —

i 5.9

Corporate bonds

i 4.5

i —

i 4.5

Non U.S. Corporate bonds

i 3.0

i —

i 3.0

Investment income receivable

i 0.1

i —

i 0.1

i 13.5

i —

i 13.5

Marketable securities non-current

Corporate bonds

i 4.4

i —

i 4.4

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(Millions of dollars)

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value

Total marketable securities

i 17.9

i —

i 17.9

December 31, 2022

(Millions of dollars)

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value

Available-for-sale debt securities:

Marketable securities current

U.S. Government Bonds

i 8.8

i —

i 8.8

Corporate bonds

i 6.0

i —

i 6.0

Non U.S. Corporate bonds

i 3.0

i —

i 3.0

Investment income receivable

i 0.1

i —

i 0.1

i 17.9

i —

i 17.9

Marketable securities non-current

Corporate bonds

i 4.4

i —

i 4.4

Total marketable securities

i 22.3

i —

i 22.3

The amortized cost basis and fair value of the Company's available-for-sale marketable securities at March 31, 2023, by contractual maturity, are as follows:

(Millions of dollars)

Amortized Cost

Fair Value

Less than 1 year

i 16.4

1 to 2 years

i 1.5

Total

i 17.9

There was no impairment on any available-for-sale marketable securities as of March 31, 2023 or December 31, 2022.

Note 5 — i Goodwill and Intangible Assets

The Company's goodwill is assigned to its Marketing segment and i none of the goodwill is deductible for tax purposes.

(Millions of dollars)

Goodwill

i 328.0

We amortize intangible assets subject to amortization on a straight-line basis based on the period for which the economic benefits of the asset or liability are expected to be realized. The intangible assets subject to amortization includes pipeline space, which is being amortized over a i 40 year life and the intangible lease liability acquired from QuickChek that is being amortized over the remaining life of the underlying leases.

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Intangible assets subject to amortization at March 31, 2023 and December 31, 2022 consisted of the following:

Remaining Useful Life (in years)

December 31, 2022

(Millions of dollars)

Cost

Net

Cost

Net

Intangible assets subject to amortization:

Pipeline space

i 32.4

i 39.6

i 32.5

i 39.6

i 32.7

Intangible lease liability

i 11.2

( i 9.1)

( i 7.8)

( i 9.1)

( i 7.9)

Total intangible assets subject to amortization

i 30.5

i 24.7

i 30.5

i 24.8

Intangible assets not subject to amortization, indefinite lives:

Trade name

i 115.4

Liquor licenses

i 0.2

Total intangible assets not subject to amortization

i 115.6

Intangible assets, net of amortization

i 146.1

i 140.3

i 146.1

i 140.4

Note 6 — i Long-Term Debt

i Long-term debt consisted of the following:

(Millions of dollars)

i 5.625% senior notes due 2027 (net of unamortized discount of $ i 1.5 at March 31, 2023 and $ i 1.6 at December 31, 2022)

i 298.5

i 298.4

i 4.75% senior notes due 2029 (net of unamortized discount of $ i 4.0 at March 31, 2023 and $ i 4.2 at December 31, 2022)

i 496.0

i 495.8

i 3.75% senior notes due 2031 (net of unamortized discount of $ i 4.9 at March 31, 2023 and $ i 5.1 at December 31, 2022)

i 495.1

i 494.9

Term loan due 2028 (effective interest rate of i 6.45% at March 31, 2023 and i 5.95% at December 31, 2022 and net of unamortized discount of $ i i 0.7 / at March 31, 2023 and December 31, 2022, respectively)

i 392.3

i 393.3

Capitalized lease obligations, autos and equipment, due through 2026

i 2.0

i 2.3

Capitalized lease obligations, buildings, due through 2059

i 128.9

i 131.3

Less unamortized debt issuance costs

( i 8.7)

( i 9.1)

Total long-term debt

i 1,804.1

i 1,806.9

Less current maturities

i 14.7

i 15.0

Total long-term debt, net of current

i 1,789.4

i 1,791.9

Senior Notes

On April 25, 2017, Murphy Oil USA, Inc., our primary operating subsidiary, issued $ i 300 million of i 5.625% Senior Notes due 2027 (the "2027 Senior Notes"). The 2027 Senior Notes are fully and unconditionally guaranteed by Murphy USA, and are guaranteed by certain 100% owned subsidiaries that guarantee our Credit Facilities, as defined herein. The indenture governing the 2027 Senior Notes contains restrictive covenants that limit, among other things, the ability of Murphy USA, Murphy Oil USA, Inc. and the restricted subsidiaries to incur additional indebtedness or liens, dispose of assets, make certain restricted payments or investments, enter into transactions with affiliates or merge with or into other entities.

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

On September 13, 2019, Murphy Oil USA, Inc., issued $ i 500 million of i 4.75% Senior Notes due 2029 (the “2029 Senior Notes”). The net proceeds from the issuance of the 2029 Senior Notes were used to fund, in part, the tender offer and redemption of a prior note issuance. The 2029 Senior Notes are fully and unconditionally guaranteed by Murphy USA, and are guaranteed by certain 100% owned subsidiaries that guarantee our Credit Facilities. The indenture governing the 2029 Senior Notes contains restrictive covenants that are substantially similar to the covenants for the 2027 Senior Notes.

On January 29, 2021, Murphy Oil USA, Inc., issued $ i 500 million of i 3.75% Senior Notes due 2031 (the “2031 Senior Notes” and, together with the 2027 Senior Notes and the 2029 Senior Notes, the "Senior Notes"). The net proceeds from the issuance of the 2031 Senior Notes were used, in part, to fund the acquisition of QuickChek and other obligations related to that transaction. The 2031 Senior Notes are fully and unconditionally guaranteed by the Company and by the Company's subsidiaries that guarantee our Credit Facilities. The indenture governing the 2031 Senior Notes contains restrictive covenants that are substantially similar to the covenants for the 2027 and 2029 Senior Notes.

The Senior Notes and the guarantees rank equally with all of our and the guarantors’ existing and future senior unsecured indebtedness and effectively junior to our and the guarantors’ existing and future secured indebtedness (including indebtedness with respect to the Credit Facilities) to the extent of the value of the assets securing such indebtedness. The Senior Notes are structurally subordinated to all of the existing and future third-party liabilities, including trade payables, of our existing and future subsidiaries that do not guarantee the Senior Notes.

Revolving Credit Facility and Term Loan

On January 29, 2021, the Company entered into a new credit agreement that consists of both a cash flow revolving credit facility and a senior secured term loan that replaced the Company's prior ABL facility and term loan.

The credit agreement provides for a senior secured term loan in an aggregate principal amount of $ i 400 million (the "Term Facility") (which was borrowed in full on January 29, 2021) and revolving credit commitments in an aggregate amount equal to $ i 350 million (the "Revolving Facility", and together with the Term Facility, the "Credit Facilities"). The outstanding balance of the term loan was $ i 393 million at March 31, 2023 and $ i 394 million at December 31, 2022. The term loan is due January 2028 and we are required to make quarterly principal payments of $ i 1 million, which began on July 1, 2021. As of March 31, 2023, we had i no outstanding borrowings under the Revolving Facility and had $ i 4.7 million in outstanding letters of credit (which reduces the amount available to borrow under the Revolving Facility).

Interest payable on the Term Facility is based on either:

•the London interbank offered rate, adjusted for statutory reserve requirements (the “Adjusted LIBO Rate”);

•the Alternate Base Rate, which is defined as the highest of (a) the rate of interest last quoted by The Wall Street Journal as the "Prime Rate", (b) the greater of the federal funds effective rate and the overnight bank funding rate determined by the Federal Reserve Bank of New York from time to time plus i 0.50% per annum and (c) the one-month Adjusted LIBO Rate plus i 1.00% per annum,

plus, (A) in the case of Adjusted LIBO Rate borrowings, a spread of i 1.75% per annum and (B) in the case of Alternate Base Rate borrowings, a spread of i 0.75% per annum.

Interest payable on the Revolving Facility is based on either:

•the term secured overnight financing rate, plus i 0.10% credit spread adjustment for all interest periods (the "Adjusted SOFR Rate"), which is subject to a i 0.0% floor;

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

plus, (A) in the case of Adjusted SOFR Rate borrowings, a spread of i 1.75% to i 2.25% per annum depending on a total debt to EBITDA ratio and (B) in the case of Alternate Base Rate borrowings, spreads of i 0.75% to i 1.25% per annum depending on a total debt to EBITDA ratio.

The Term Facility amortizes in quarterly installments starting with the first amortization payment being due on July 1, 2021 at a rate of i 1.00% per annum. Murphy USA is also required to prepay the Term Facility with a portion of its excess cash flow, a portion of the net cash proceeds of certain asset sales and casualty events (subject to certain reinvestment rights) and the net cash proceeds of issuances of indebtedness not permitted under the Credit Agreement. The credit agreement allows Murphy USA to prepay, in whole or in part, the Term Facility outstanding thereunder, together with any accrued and unpaid interest, with prior notice but without premium or penalty other than breakage and redeployment costs.

The credit agreement contains certain covenants that limit, among other things, the ability of the Company and certain of its subsidiaries to incur additional indebtedness or liens, to make certain investments, to enter into sale-leaseback transactions, to make certain restricted payments, to enter into consolidations, mergers or sales of material assets and other fundamental changes, to transact with affiliates, to enter into agreements restricting the ability of subsidiaries to incur liens or pay dividends, or to make certain accounting changes. The Revolving Facility credit agreement also impose total leverage ratio and secured net leverage ratio financial maintenance covenants which are tested quarterly. Pursuant to the total leverage ratio financial maintenance covenant, the Company must maintain a total leverage ratio of not more than i 5.0 to 1.0 with an ability in certain circumstances to temporarily increase that limit to i 5.5 to 1.0 and a maximum secured net leverage ratio of not more than i 3.75 to 1.0 with an ability in certain circumstances to temporarily increase that limit to i 4.25 to 1.0. The Credit Agreement also contains customary events of default.

Pursuant to the credit agreement's covenant limiting certain restricted payments, certain payments in respect of our equity interests, including dividends, when the total leverage ratio, calculated on a pro forma basis, is greater than i 3.0 to 1.0 could be limited. At March 31, 2023, our total leverage ratio was i 1.58 to 1.0 which meant our ability at that date to make restricted payments was not limited. If our total leverage ratio, on a pro forma basis, exceeds i 3.0 to 1.0, any restricted payments made following that time until the ratio is once again, on a pro forma basis, below i 3.0 to 1.0 would be limited by the covenant, which contains certain exceptions, including an ability to make restricted payments in cash in an aggregate amount not to exceed the greater of $ i 110.5 million or i 4.50% of consolidated net tangible assets over the life of the credit agreement.

All obligations under the credit agreement are guaranteed by Murphy USA and the subsidiary guarantors party thereto, and all obligations under the credit agreement, including the guarantees of those obligations, are secured by certain assets of Murphy USA, Murphy Oil USA, Inc. and the guarantors party to the guarantee and collateral agreement in respect thereof.

Note 7 — i Asset Retirement Obligations (ARO)

The majority of the ARO recognized by the Company at March 31, 2023 and December 31, 2022 is related to the estimated costs to dismantle and abandon certain of its retail gasoline stores. The Company has not recorded an ARO for certain of its marketing assets because sufficient information is presently not available to estimate a range of potential settlement dates for the obligation. These assets are consistently being upgraded and are expected to be operational into the foreseeable future. In these cases, the obligation will be initially recognized in the period in which sufficient information exists to estimate the obligation.

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

A reconciliation of the beginning and ending aggregate carrying amount of the ARO is shown in the following table.

(Millions of dollars)

Balance at beginning of period

i 43.3

i 39.2

Accretion expense

i 0.8

i 2.7

Settlements of liabilities

( i 0.4)

( i 2.3)

Liabilities incurred

i 0.2

i 3.7

Balance at end of period

i 43.9

i 43.3

The estimation of future ARO is based on a number of assumptions requiring professional judgment. The Company cannot predict the type of revisions to these assumptions that may be required in future periods due to the lack of availability of additional information.

Note 8 — i Income Taxes

The effective tax rate is calculated as the amount of income tax expense (benefit) divided by income before income tax expense (benefit). i For the three month periods ended March 31, 2023 and 2022, the Company’s approximate effective tax rates were as follows:


	2023	2022
Three months ended March 31,	i 23.5%	i 24.0%

In the three months ended March 31, 2023, the Company recognized approximately $ i 2.1 million of excess tax benefits related to stock compensation for employees and $ i 0.2 million in other discrete tax benefits. For the three months ended March 31, 2022, the Company recognized approximately $ i 1.5 million of excess tax benefits related to stock compensation for employees.

As of March 31, 2023, the earliest year remaining open for Federal audits and/or settlement is 2019 and for state audits and/or settlement is 2018. Although the Company believes that recorded liabilities for unsettled issues are adequate, additional gains or losses could occur in future periods from resolution of outstanding unsettled matters.

Note 9 — i Incentive Plans

2013 Long-Term Incentive Plan

Effective August 30, 2013, certain of our employees began to participate in the Murphy USA 2013 Long-Term Incentive Plan which was subsequently amended and restated effective as of February 8, 2017 (the “MUSA 2013 Plan”). The MUSA 2013 Plan authorizes the Executive Compensation Committee of our Board of Directors (“the Committee”) to grant non-qualified or incentive stock options, stock appreciation rights, stock awards (including restricted stock and restricted stock unit awards), dividend equivalent units, cash awards, and performance awards to our employees. No more than i 5.5 million shares of MUSA common stock may be delivered under the MUSA 2013 Plan and no more than i 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 $ i 5.0 million.

Beginning with its initial quarterly dividend in December 2020, the Company issues dividend equivalent units ("DEU") on all outstanding, unvested equity awards (except stock options) in an amount commensurate with regular quarterly dividends paid on common stock. The terms of the DEU mirror the underlying awards and will only vest if the related award vests. DEUs issued are included with grants in each respective table as applicable.

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

STOCK OPTIONS – The Committee fixes the option price of each option granted at no less than fair market value (FMV) on the date of the grant and fixes the option term at no more than i 7 years from such date. In February 2023, the Committee granted nonqualified stock options to certain employees of the Company. The Black-Scholes valuation for these awards was $ i 88.53 per option.


Assumptions used to value awards:
Dividend yield	i 0.53		%
Expected volatility	i 33.1		%
Risk-free interest rate	i 3.8		%
Expected life (years)	i 4.9
Stock price at valuation date	$	i 263.48

Changes in options outstanding for Company employees during the period from December 31, 2022 to March 31, 2023 are presented in the following table:

Options

Number of Shares

Weighted Average Exercise Price

Weighted Average Remaining Contractual Term (Years)

Aggregate Intrinsic Value (Millions of Dollars)

Outstanding at December 31, 2022

i 313,950

i 112.06

Granted

i 38,100

i 263.48

Exercised

( i 3,400)

i 110.69

Outstanding at March 31, 2023

i 348,650

i 128.62

i 4.2

i 45.1

Exercisable at March 31, 2023

i 217,700

i 91.81

i 3.2

i 36.2

RESTRICTED STOCK UNITS (MUSA 2013 Plan) – The Committee has granted time-based restricted stock units (RSUs) as part of the compensation plan for its executives and certain other employees since its inception. The awards granted in the current year were under the MUSA 2013 Plan, are valued at the grant date fair value, and vest over i three years.

Changes in restricted stock units outstanding for Company employees during the period from December 31, 2022 to March 31, 2023 are presented in the following table:

Employee RSUs

Number of units

Weighted Average Grant Date Fair Value

Total Fair Value (Millions of Dollars)

Outstanding at December 31, 2022

i 149,366

i 125.51

Granted

i 12,948

i 259.45

Vested and issued

( i i 47,386 / )

i i 89.38 /

i i 11.8 /

Forfeited

( i 796)

i 167.30

Outstanding at March 31, 2023

i 114,132

i 155.41

i 29.5

PERFORMANCE-BASED RESTRICTED STOCK UNITS (MUSA 2013 Plan) – In February 2023, the Committee awarded performance-based restricted stock units (performance units or PSU) to certain employees. Half of the performance units vest based on a i three-year return on average capital employed ("ROACE") calculation and the other half vest based on a i three-year total shareholder return ("TSR") calculation that compares MUSA to a group of i 17 peer companies. The portion of the awards that vest based on TSR qualify as a market condition and must be valued using a Monte Carlo valuation model. For the TSR portion of the awards, the fair value was determined to be $ i 330.18 per unit. For the ROACE portion of the awards, the valuation will be based on the grant date fair value of $ i 263.48 per unit and the number of awards will be periodically assessed to determine the probability of vesting.

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Changes in performance-based restricted stock units outstanding for Company employees during the period from December 31, 2022 to March 31, 2023 are presented in the following table:

Employee PSU's

Number of Units

Weighted Average Grant Date Fair Value

Total Fair Value (Millions of Dollars)

Outstanding at December 31, 2022

i 106,001

i 160.03

Granted

i 62,029

i 295.32

Vested and issued

( i i 72,799 / )

i i 121.83 /

i i 19.0 /

Outstanding at March 31, 2023

i 95,231

i 211.04

i 24.6

2013 Stock Plan for Non-employee Directors

Effective August 8, 2013, Murphy USA adopted the 2013 Murphy USA Stock Plan for Non-employee Directors (the “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 i 500,000 shares of common stock was reserved for issuance of grants under the Directors Plan.

RESTRICTED STOCK UNITS (Directors Plan) – The Committee has also granted time based RSUs to the non-employee directors of the Company as part of their overall compensation package for being a member of the Board of Directors. Awards prior to 2023 vest at the end of i three years and those granted in 2023 vest at the end of i one year.

Changes in restricted stock units outstanding for Company non-employee directors during the period from December 31, 2022 to March 31, 2023 are presented in the following table:

Director RSU's

Number of Units

Weighted Average Grant Date Fair Value

Total Fair Value (Millions of Dollars)

Outstanding at December 31, 2022

i 26,923

i 132.38

Granted

i 6,523

i 260.76

Vested and issued

( i i 9,880 / )

i i 103.89 /

i i 2.6 /

Outstanding at March 31, 2023

i 23,566

i 179.87

i 6.1

DEFERRED STOCK UNITS (Directors Plan) — Effective January 1, 2023, non-employee directors can elect to receive their annual retainers in the form of Deferred Stock Units ("DSUs"). The DSUs are recognized at their fair value on the date of the grant. Director fees which are deferred into stock units are calculated and expensed each quarter by taking fees earned during the quarter and dividing by the closing price of our common stock on the last trading day of the quarter. Each DSU represents the right to receive i one share of common stock following the completion of a director's service. In addition, beginning with the 2023 equity grants, members may elect to defer receipt of their vested equity shares until their service ends. These unvested equity grants are included in the Director RSU table above, will vest in i one year and become deferred stock units.

During the three-month period ended March 31, 2023, we granted i 421 DSUs and recorded director expense of $ i 0.1 million related to the grants. At March 31, 2023 there were i 421 Director DSUs outstanding with an average grant date fair value of $ i 258.05.

For the three months ended March 31, 2023 and 2022, share-based compensation was $ i 4.9 million and $ i 2.9 million, respectively. There were $ i 0.1 million in income tax benefits realized for the tax deductions from options exercised for the three months ended March 31, 2023 and there were i none for the three months ended March 31, 2022.

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 10 — i Financial Instruments and Risk Management

i DERIVATIVE INSTRUMENTS — The Company makes limited use of derivative instruments to manage certain risks related to commodity prices and interest rates. The use of derivative instruments for risk management is covered by operating policies and is closely monitored by the Company’s senior management. The Company does not hold any derivatives for speculative purposes and it does not use derivatives with leveraged or complex features. Derivative instruments are traded primarily with credit worthy major financial institutions or over national exchanges such as the New York Mercantile Exchange (“NYMEX”). For accounting purposes, the Company has not designated commodity derivative contracts as hedges, and therefore, it recognizes all gains and losses on these derivative contracts in its Consolidated Statements of Income. Certain interest rate derivative contracts were accounted for as hedges and gain or loss associated with recording the fair value of these contracts was deferred in AOCI until the anticipated transactions occur. As of March 31, 2023, all current commodity derivative activity is immaterial.

There were $ i 0.4 million in cash deposits at March 31, 2023 and i none at December 31, 2022 related to commodity derivative contracts reported in Prepaid expenses and other current assets in the Consolidated Balance Sheets. These cash deposits have not been used to increase the reported net assets or reduce the reported net liabilities on the derivative contracts at March 31, 2023 or December 31, 2022.

Interest Rate Risks

Under hedge accounting rules, the Company deferred the net charge or benefit associated with the interest rate swap entered into to manage the variability in interest payments for the variable-rate debt in association with $ i 150.0 million of our outstanding term loan dated August 27, 2019 until the debt was repaid on January 29, 2021. At that time the hedge was de-designated and therefore hedge accounting is no longer applicable and mark-to-market gains and losses are recognized in the period in which the change occurs in the Consolidated Statements of Income in interest expense. The current loan balance subject to the hedge is $ i 60.0 million. The Company is reclassifying the accumulated other comprehensive loss on the previous interest rate swap, $ i 2.4 million as of the de-designation date, into interest expense using a straight-line approach over the remaining life of the originally designated hedging relationship. The amount of pre-tax gains in accumulated other comprehensive loss that was reclassified into interest expense was $ i i 0.2 / million for the three months ended March 31, 2023 and 2022, respectively. The remaining balance at March 31, 2023 was $ i 0.4 million. Prior to the de-designation, changes in the fair values of the interest rate swaps were recorded as a component of other comprehensive loss.

Note 11 — i Earnings Per Share

Basic earnings per common share is computed by dividing net income available to common stockholders by the weighted average of common shares outstanding during the period. Diluted earnings per common share adjusts basic earnings per common share for the effects of stock options and restricted stock in the periods where such items are dilutive.

On December 1, 2021, our Board of Directors approved a share repurchase authorization of up to $ i 1 billion that expires December 31, 2026. As of March 31, 2023, approximately $ i 200.0 million remained under the 2021 authorization. For the three months ended March 31, 2023, the Company repurchased i 48,848 shares of common stock for an average price of $ i 279.67 per share including brokerage fees. For the three months ended March 31, 2022, i 836,953 shares were repurchased for an average price of $ i 181.36 per share.

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

The following tables provide a reconciliation of basic and diluted earnings per share computations for the three months ended March 31, 2023 and 2022:

Three Months Ended
March 31,

(Millions of dollars, except share and per share amounts)

2023

2022

Earnings per common share:

Net income per share - basic

Net income attributable to common stockholders

i 106.3

i 152.4

Weighted average common shares outstanding (in thousands)

i 21,739

i 24,655

Earnings per common share

i 4.89

i 6.18

Three Months Ended
March 31,

(Millions of dollars, except share and per share amounts)

2023

2022

Earnings per common share - assuming dilution:

Net income per share - diluted

Net income attributable to common stockholders

i 106.3

i 152.4

Weighted average common shares outstanding (in thousands)

i 21,739

i 24,655

Common equivalent shares:

Dilutive share-based awards

i 394

i 419

Weighted average common shares outstanding - assuming dilution
(in thousands)

i 22,133

i 25,074

Earnings per common share assuming dilution

i 4.80

i 6.08

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 and are reported in the table below.

Three Months Ended
March 31,

Potentially dilutive shares excluded from the calculation as their inclusion would be anti-dilutive

2023

2022

Stock Options

i 38,100

i 51,900

PSUs

i 12,767

i 14,673

Total anti-dilutive shares

i 50,867

i 66,573

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 12 — i Other Financial Information

CASH FLOW DISCLOSURES — Cash income tax was a refund of $ i 0.3 million for the three month period ended March 31, 2023 and there were i no cash income taxes paid or refunds received for the three month period ended March 31, 2022. Interest paid, net of amounts capitalized, was $ i 29.2 million and $ i 26.2 million for the three month periods ended March 31, 2023 and 2022, respectively.

i CHANGES IN WORKING CAPITAL:

Three Months Ended
March 31,

(Millions of dollars)

2023

2022

Accounts receivable

i 16.5

( i 64.6)

Inventories

i 15.5

i 26.4

Prepaid expenses and other current assets

i 20.4

( i 4.8)

Accounts payable and accrued liabilities

( i 85.9)

i 126.8

Income taxes payable

i 3.1

i 35.1

Net (increase) decrease in noncash operating working capital

( i 30.4)

i 118.9

Note 13 — i Assets and Liabilities Measured at Fair Value

The Company carries certain assets and liabilities at fair value in its Consolidated Balance Sheets. The fair value hierarchy is based on the quality of inputs used to measure fair value, with Level 1 being the highest quality and Level 3 being the lowest quality. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs are observable inputs other than quoted prices included within Level 1. Level 3 inputs are unobservable inputs which reflect assumptions about pricing by market participants.

The Company's available-for-sale marketable securities consist of high quality, investment grade securities from diverse issuers. We value these securities at the closing price in the principal active markets as of the last business day of the reporting period. The fair values of the Company's marketable securities by asset class are described in Note 4 "Marketable Securities" in these consolidated financial statements for the period ended March 31, 2023. We value the deferred compensation plan assets, which consist of money market and mutual funds, based on quoted prices in active markets at the measurement date. For additional information on deferred compensation plans see also Note 14 "Employee and Retirement Benefit Plans" in the audited consolidated financial statements for the year ended December 31, 2022 included in our Annual Report on Form 10-K for more information.

At the balance sheet date, the fair value of commodity derivatives contracts was determined using NYMEX quoted values and the value of the Interest rate swap derivative was derived by using level 3 inputs. The tables below excludes Cash and cash equivalents, Accounts receivable-trade, and Trade accounts payable and accrued liabilities, all of which had fair values approximating carrying amounts. See also Note 10 "Financial Instruments and Risk Management" in these consolidated financial statements for the period ended March 31, 2023, for more information.

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Financial assets and liabilities measured at fair value on a recurring basis

The following tables present the Company's financial assets and liabilities measured at fair value on a recurring basis, as of March 31, 2023 and December 31, 2022:

(Millions of dollars)

Level 1

Level 2

Level 3

Fair Value

Financial assets

Marketable securities, current

U.S. Government Bonds

i —

i 5.9

i —

i 5.9

Corporate bonds

i —

i 4.6

i —

i 4.6

Non U.S. Corporate Bonds

i —

i 3.0

i —

i 3.0

Accounts receivable - trade

Interest rate swap derivative

i —

i 0.8

Prepaid expenses and other current assets:

Fuel derivative

i —

i 0.5

Marketable securities, non-current

Corporate bonds

i —

i 4.4

i —

i 4.4

Other assets

Deferred compensation plan assets

i 10.8

i —

i 10.8

Financial liabilities

Deferred credits and other liabilities

Deferred compensation plan liabilities

( i 15.7)

i —

( i 15.7)

( i 4.9)

i 17.9

i 1.3

i 14.3

December 31, 2022

(Millions of dollars)

Level 1

Level 2

Level 3

Fair Value

Financial assets

Marketable securities, current

U. S. Government Bonds

i —

i 8.8

i —

i 8.8

Corporate bonds

i —

i 6.1

i —

i 6.1

Non U.S. Corporate Bonds

i —

i 3.0

i —

i 3.0

Accounts receivable - trade

Interest rate swap derivative

i —

i 1.3

Marketable securities, non-current

Corporate bonds

i —

i 4.4

i —

i 4.4

Other assets

Deferred compensation plan assets

i 9.5

i —

i 9.5

Financial liabilities

Deferred credits and other liabilities

Deferred compensation plan liabilities

( i 14.7)

i —

( i 14.7)

( i 5.2)

i 22.3

i 1.3

i 18.4

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Fair value of financial instruments not recognized at fair value

The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties. The fair value of Current and Long-term debt was estimated based on rates offered to the Company at that time for debt of the same maturities. The Company has off-balance sheet exposures relating to certain financial guarantees and letters of credit. The fair value of these, which represents fees associated with obtaining the instruments, was nominal.

The following table presents the carrying amounts and estimated fair values of financial instruments held by the Company at March 31, 2023 and December 31, 2022.

At March 31, 2023

At December 31, 2022

Carrying

(Millions of dollars)

Amount

Fair Value

Amount

Fair Value

Financial liabilities

Current and long-term debt, excluding finance leases

( i 1,673.2)

( i 1,646.8)

( i 1,673.3)

( i 1,643.0)

Note 14 — i 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.

ENVIRONMENTAL MATTERS AND LEGAL MATTERS — Murphy USA is subject to numerous federal, state and local laws and regulations dealing with the environment. Violation of such environmental laws, regulations and permits can result in the imposition of significant civil and criminal penalties, injunctions and other sanctions. A discharge of hazardous substances into the environment could, to the extent such event is not insured, subject the Company to substantial expense, including both the cost to comply with applicable regulations and claims by neighboring landowners and other third parties for any personal injury, property damage and other losses that might result.

The Company currently owns or leases, and has in the past owned or leased, properties at which hazardous substances have been or are being handled. Although the Company believes it has used operating and disposal practices that were standard in the industry at the time, hazardous substances may have been disposed of or released on or under the properties owned or leased by the Company or on or under other locations where they have been taken for disposal. In addition, many of these properties have been operated by third parties whose management of hazardous substances was not under the Company’s control. Under existing laws, the Company could be required to remediate contaminated property (including contaminated groundwater) or to perform remedial actions to prevent future contamination. Certain of these contaminated properties are in various stages of negotiation, investigation, and/or cleanup, and the Company is investigating the extent of any related liability and the availability of applicable defenses. With the sale of the U.S. refineries in 2011, Murphy Oil retained certain liabilities related to environmental matters. Murphy Oil also obtained insurance covering certain levels of environmental exposures. With respect to any remaining potential liabilities, the Company believes costs related to these properties will not have a material adverse effect on Murphy USA’s net income, financial condition or liquidity in a future period.

Certain environmental expenditures are likely to be recovered by the Company from other sources, primarily environmental funds maintained by certain states. Since no assurance can be given that future recoveries from

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

other sources will occur, the Company has not recorded a benefit for likely recoveries at March 31, 2023, however certain jurisdictions provide reimbursement for these expenses which have been considered in recording the net exposure. The U.S. Environmental Protection Agency (EPA) currently considers the Company a Potentially Responsible Party (PRP) at i one Superfund site. As to the site, the potential total cost to all parties to perform necessary remedial work at this site may be substantial. However, based on current negotiations and available information, the Company believes that it is a de minimis party as to ultimate responsibility at the Superfund site. Accordingly, the Company has not recorded a liability for remedial costs at the Superfund site at March 31, 2023. The Company could be required to bear a pro rata share of costs attributable to nonparticipating PRPs or could be assigned additional responsibility for remediation at this site or other Superfund sites. The Company believes that its share of the ultimate costs to clean-up this site will be immaterial and will not have a material adverse effect on its net income, financial condition or liquidity in a future period.

Based on information currently available to the Company, the amount of future remediation costs to be incurred to address known contamination sites is not expected to have a material adverse effect on the Company’s future net income, cash flows or liquidity. However, there is the possibility that additional environmental expenditures could be required to address contamination, including as a result of discovering additional contamination or the imposition of new or revised requirements applicable to known contamination.

Murphy USA is engaged in a number of other legal proceedings, all of which the Company considers routine and incidental to its business. Currently, the City of Charleston, South Carolina, and the State of Delaware have filed lawsuits against energy companies, including the Company. These lawsuits allege damages as a result of climate change and the plaintiffs are seeking unspecified damages and abatement under various tort theories. At this early stage, the ultimate outcome of these matters remain uncertain, and neither the likelihood of an unfavorable outcome nor the ultimate liability, if any, can be determined. Murphy USA believes that it has valid defenses, and it intends to vigorously defend against these claims. Based on information currently available to the Company, the ultimate resolution of these other legal matters is not expected to have a material adverse effect on the Company’s net income, financial condition or liquidity in a future period.

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 $ i 1.0 million per occurrence, general liability insurance with a self-insured retention of $ i 3.0 million per occurrence, and auto liability insurance with a deductible of $ i 0.3 million per occurrence. As of March 31, 2023, there were a number of outstanding claims that are of a routine nature. The estimated incurred but unpaid liabilities relating to these claims are included in Trade account payables and accrued liabilities on the Consolidated Balance Sheets. While the ultimate outcome of these claims cannot presently be determined, management believes that the accrued liability of $ i 45.6 million will be sufficient to cover the related liability for all insurance claims and that the ultimate disposition of these claims will have no material effect on the Company’s financial position and results of operations.

The Company has obtained insurance coverage as appropriate for the business in which it is engaged, but may incur losses that are not covered by insurance or reserves, in whole or in part, and such losses could adversely affect our results of operations and financial position.

TAX MATTERS — Murphy USA is subject to extensive tax liabilities imposed by multiple jurisdictions, including income taxes, indirect taxes (excise/duty, sales/use and gross receipts taxes), payroll taxes, franchise taxes, withholding taxes and ad valorem taxes. New tax laws and regulations and changes in existing tax laws and regulations are continuously being enacted or proposed that could result in increased expenditures for tax liabilities in the future. Many of these liabilities are subject to periodic audits by the respective taxing authority. Subsequent changes to our tax liabilities because of these audits may subject us to interest and penalties.

OTHER MATTERS — In the normal course of its business, the Company is required under certain contracts with various governmental authorities and others to provide financial guarantees or letters of credit that may be drawn upon if the Company fails to perform under those contracts. At March 31, 2023, the Company had contingent liabilities of $ i 9.8 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.

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 15 — i i Lease Accounting /

The Company determines if an arrangement is a lease or contains a lease at inception. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. The Company's leases have remaining lease terms of i 1 year or less to i 35 years, which may include the option to extend the lease when it is reasonably certain the Company will exercise the option. Most leases include i one or more options to renew, with renewal terms that can extend the lease term from i 5 to i 20 years or more. The exercise of lease renewal options is at the Company's sole discretion. Due to the uncertainties of future markets, economic factors, technology changes, demographic shifts and behavior, environmental regulatory requirements and other information that impacts decisions as to store location, management has determined that it was not reasonably certain to exercise contract options and they are not included in the lease term. Additionally, short-term leases and leases with variable lease costs are immaterial. The Company reviews all options to extend, terminate, or otherwise modify its lease agreements to determine if changes are required to the right-of-use assets and liabilities.

As the implicit interest rate is not readily determinable in most of the Company's lease agreements, the Company uses its estimated secured incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

Lessor — We have various arrangements for certain spaces for food service and vending equipment as well as subleases under which we are the lessor. These leases meet the criteria for operating lease classification. Lease income associated with these leases is immaterial.

Lessee — We lease land for i 435 stores, i one terminal, a hangar and various equipment. Our lease agreements do not contain any material residual value guarantees. Included in our leased land are i 102 properties leased from Walmart which contain restrictive covenants, though the restrictions are deemed to have an immaterial impact.

Leases are reflected in the following balance sheet accounts:

(Millions of dollars)

Classification

Assets

Operating (Right-of-use)

Operating lease right-of-use assets, net

i 443.5

i 449.6

Finance

Property, plant, and equipment, at cost, less accumulated depreciation of $ i 31.9 at March 31, 2023 and $ i 30.5 at December 31, 2022

i 120.7

i 124.6

Total leased assets

i 564.2

i 574.2

Liabilities

Current

Operating

Trade accounts payable and accrued liabilities

i 20.9

i 20.5

Finance

Current maturities of long-term debt

i 10.7

i 11.0

Noncurrent

Operating

Non-current operating lease liabilities

i 439.2

i 444.2

Finance

Long-term debt, including capitalized lease obligations

i 120.2

i 122.6

Total lease liabilities

i 591.0

i 598.3

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Lease Cost:

Three Months Ended
March 31,

(Millions of dollars)

Classification

2023

2022

Operating lease cost

Store and other operating expenses

i 13.4

i 12.0

Finance lease cost

Amortization of leased assets

Depreciation and amortization

i 3.8

i 4.0

Interest on lease liabilities

Interest expense

i 2.4

i 2.3

Net lease costs

i 19.6

i 18.3

Cash flow information:


	Three Months Ended March 31,
(Millions of dollars)	2023		2022
Cash paid for amounts included in the measurement of liabilities
Operating cash flows from operating leases	$	i 12.3	$	i 11.0
Operating cash flows from finance leases	$	i 2.4	$	i 2.3
Financing cash flows from finance leases	$	i 2.8	$	i 2.8

i i

Maturity of Lease Liabilities at March 31, 2023:

(Millions of dollars)

Operating leases

Finance
leases

2023

i 37.6

i 14.4

2024

i 49.7

i 17.8

2025

i 48.6

i 16.7

2026

i 47.9

i 15.8

2027

i 47.2

i 15.5

After 2027

i 530.6

i 122.0

Total lease payments

i 761.6

i 202.2

less: interest

i 301.5

i 71.3

Present value of lease liabilities

i 460.1

i 130.9

/ /

Lease Term and Discount Rate:


	Three Months Ended March 31,
	2023
Weighted average remaining lease term (years)
Finance leases	i 12.8
Operating leases	i 15.5
Weighted average discount rate
Finance leases	i 6.7	%
Operating leases	i 6.4	%

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

Note 16 — i Business Segment

Our operations include the sale of retail motor fuel products and convenience merchandise along with the wholesale and bulk sale capabilities of our product supply and wholesale group. As the primary purpose of the product supply and wholesale group is to support our retail operations and provide fuel for their daily operation, the bulk and wholesale fuel sales are secondary to the group's support functions to our retail operations. As such, they are all treated as i one segment for reporting purposes as they sell the same products and have similar economic characteristics. This Marketing segment contains essentially all of the revenue generating activities of the Company. Results not included in the reportable segment include Corporate and Other Assets. The reportable segment was determined based on information reviewed by the Chief Operating Decision Maker.

Three Months Ended