MURPHY USA INC., 10-Q filed on 7/30/2020
Quarterly Report
v3.20.2
Cover Page
6 Months Ended
Jun. 30, 2020
shares
Cover [Abstract]  
Document Type 10-Q
Document Quarterly Report true
Document Period End Date Jun. 30, 2020
Document Transition Report false
Entity File Number 001-35914
Entity Registrant Name MURPHY USA INC.
Entity Incorporation, State or Country Code DE
Entity Tax Identification Number 46-2279221
Entity Address, Address Line One 200 Peach Street
Entity Address, City or Town El Dorado,
Entity Address, State or Province AR
Entity Address, Postal Zip Code 71730-5836
City Area Code 870
Local Phone Number 875-7600
Title of 12(b) Security Common Stock, $0.01 Par Value
Trading Symbol MUSA
Security Exchange Name NYSE
Entity Current Reporting Status Yes
Entity Interactive Data Current Yes
Entity Filer Category Large Accelerated Filer
Entity Small Business false
Entity Emerging Growth Company false
Entity Shell Company false
Entity Common Stock, Shares Outstanding 29,177,631
Amendment Flag false
Entity Central Index Key 0001573516
Current Fiscal Year End Date --12-31
Document Fiscal Year Focus 2020
Document Fiscal Period Focus Q2
v3.20.2
Consolidated Balance Sheets - USD ($)
$ in Millions
Jun. 30, 2020
Mar. 31, 2020
Dec. 31, 2019
Jun. 30, 2019
Mar. 31, 2019
Dec. 31, 2018
Jun. 30, 2013
Current assets              
Cash and cash equivalents $ 403.6   $ 280.3        
Accounts receivable—trade, less allowance for doubtful accounts 161.3   172.9        
Inventories, at lower of cost or market 257.7   227.6        
Prepaid expenses and other current assets 17.7   30.0        
Total current assets 840.3   710.8        
Property, Plant and Equipment, Net 1,834.3   1,807.3        
Other assets 186.1   169.1        
Total assets 2,860.7   2,687.2        
Current liabilities              
Current maturities of long-term debt 51.2   38.8        
Trade accounts payable and accrued liabilities 461.7   466.2        
Income taxes payable 40.8   0.0        
Total current liabilities 553.7   505.0        
Long-term debt, including capitalized lease obligations 975.3   999.3        
Deferred income taxes 225.2   216.7        
Asset retirement obligations 33.7   32.8        
Deferred credits and other liabilities 154.8   130.4        
Total liabilities 1,942.7   1,884.2        
Stockholders' Equity              
Preferred Stock, par $0.01, (authorized 20,000,000 shares, none outstanding) 0.0   0.0        
Common Stock, par $0.01, (authorized 200,000,000 shares, 46,767,164 shares issued at 2019 and 2018, respectively) 0.5   0.5        
Treasury stock (17,589,526 and 16,307,048 shares held at 2020 and 2019, respectively) (1,235.2)   (1,099.8)        
Additional paid in capital (APIC) 533.0   538.7        
Retained earnings 1,622.2   1,362.9        
Accumulated other comprehensive income (loss) (AOCI) (2.5)   0.7        
Total stockholders' equity 918.0 $ 746.8 803.0 $ 816.3 $ 797.8 $ 807.3  
Total liabilities and stockholders' equity $ 2,860.7   $ 2,687.2        
Preferred stock par value (in dollars per share) $ 0.01   $ 0.01        
Preferred stock shares authorized (in shares) 20,000,000   20,000,000        
Preferred stock shares outstanding (in shares) 0   0        
Common stock par value (in dollars per share) $ 0.01   $ 0.01       $ 0.01
Common stock shares authorized (in shares) 200,000,000   200,000,000        
Common stock shares issued (in shares) 46,767,164   46,767,164        
v3.20.2
Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Millions
Jun. 30, 2020
Dec. 31, 2019
Jun. 30, 2013
Statement of Financial Position [Abstract]      
Allowance for doubtful accounts $ 0.1 $ 1.2  
Property, plant and equipment, accumulated depreciation and amortization $ 1,143.6 $ 1,079.2  
Preferred stock par value (in dollars per share) $ 0.01 $ 0.01  
Preferred stock shares authorized (in shares) 20,000,000 20,000,000  
Preferred stock shares outstanding (in shares) 0 0  
Common stock par value (in dollars per share) $ 0.01 $ 0.01 $ 0.01
Common stock shares authorized (in shares) 200,000,000 200,000,000  
Common stock shares issued (in shares) 46,767,164 46,767,164  
Treasury stock, shares held (in shares) 17,589,533 16,307,048  
v3.20.2
Consolidated Statements of Income - USD ($)
shares in Thousands, $ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Operating Revenues        
Total operating revenues $ 2,379.6 $ 3,800.4 $ 5,564.4 $ 6,916.8
Operating Expenses        
Depreciation and amortization 39.5 36.5 78.9 76.2
Selling, general and administrative 37.1 35.1 76.3 69.7
Accretion of asset retirement obligations 0.5 0.5 1.1 1.0
Total operating expenses 2,145.4 3,744.7 5,199.5 6,842.5
Net settlement proceeds 0.0 0.0 0.0 0.1
Gain (loss) on sale of assets 1.3 0.0 1.4 (0.1)
Income (loss) from operations 235.5 55.7 366.3 74.3
Other income (expense)        
Interest income 0.2 0.9 1.0 1.6
Interest expense (13.0) (13.2) (26.3) (26.8)
Other nonoperating income (expense) 0.3 (0.1) (0.7) 0.1
Total other income (expense) (12.5) (12.4) (26.0) (25.1)
Income (loss) before income taxes 223.0 43.3 340.3 49.2
Income tax expense (benefit) 54.1 10.6 82.1 11.2
Net Income $ 168.9 $ 32.7 $ 258.2 $ 38.0
Basic and Diluted Earnings Per Common Share        
Basic (in dollars per share) $ 5.79 $ 1.02 $ 8.69 $ 1.18
Diluted (in dollars per share) $ 5.73 $ 1.01 $ 8.60 $ 1.18
Weighted-Average Common Shares Outstanding (in thousands):        
Basic (in shares) 29,181 32,112 29,708 32,159
Diluted (in shares) 29,495 32,328 30,018 32,372
Supplemental information:        
Excise taxes $ 380.3 $ 498.3 $ 853.7 $ 953.6
Product        
Operating Revenues        
Total operating revenues [1] 1,588.9 3,129.7 4,069.1 5,629.5
Operating Expenses        
Operating expenses [1] 1,287.8 2,973.7 3,547.6 5,355.2
Merchandise sales        
Operating Revenues        
Total operating revenues 767.1 658.8 1,454.6 1,265.0
Operating Expenses        
Operating expenses 648.7 553.3 1,228.7 1,062.0
Other operating revenues        
Operating Revenues        
Total operating revenues 23.6 11.9 40.7 22.3
Operating Expenses        
Operating expenses $ 131.8 $ 145.6 $ 266.9 $ 278.4
[1] Includes excise taxes of $853.7 million for the three months ended June 30, 2020, $498.3 million for the three months ended June 30, 2019, $473.5 million for the six months ended June 30, 2020 and $953.6 million the six months ended June 30, 2019.
v3.20.2
Consolidated Statements of Comprehensive Income (Loss) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2020
Jun. 30, 2019
Jun. 30, 2020
Jun. 30, 2019
Statement of Comprehensive Income [Abstract]        
Net income $ 168.9 $ 32.7 $ 258.2 $ 38.0
Interest rate swap:        
Realized gain (loss) (0.2) 0.0 (0.1) 0.0
Unrealized gain (loss) (0.6) 0.0 (4.2) 0.0
Reclassified to interest expense 0.2 0.0 0.1 0.0
Total (0.6) 0.0 (4.2) 0.0
Deferred income tax (benefit) expense (0.1) 0.0 (1.0) 0.0
Other comprehensive income (loss) (0.5) 0.0 (3.2) 0.0
Comprehensive income $ 168.4 $ 32.7 $ 255.0 $ 38.0
v3.20.2
Consolidated Statements of Cash Flows - USD ($)
$ in Millions
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2020
Mar. 31, 2020
Jun. 30, 2019
Mar. 31, 2019
Jun. 30, 2020
Jun. 30, 2019
Dec. 31, 2019
Operating Activities              
Net income $ 168.9 $ 89.3 $ 32.7 $ 5.3 $ 258.2 $ 38.0  
Adjustments to reconcile net income (loss) to net cash provided by (required by) operating activities              
Depreciation and amortization 39.5   36.5   78.9 76.2  
Deferred and noncurrent income tax charges (credits)         9.4 2.7  
Accretion of asset retirement obligations 0.5   0.5   1.1 1.0 $ 2.1
Pretax (gains) losses from sale of assets (1.3)   0.0   (1.4) 0.1  
Net (increase) decrease in noncash operating working capital         23.2 (0.5)  
Other operating activities - net         12.5 7.4  
Net cash provided by (required by) operating activities         381.9 124.9  
Investing Activities              
Property additions         (105.7) (86.6)  
Proceeds from sale of assets         7.6 1.4  
Other investing activities - net         (1.1) (0.5)  
Net cash provided by (required by) investing activities         (99.2) (85.7)  
Financing Activities              
Purchase of treasury stock         (140.6) (30.1)  
Repayments of debt         (13.2) (10.7)  
Amounts related to share-based compensation         (5.6) (4.3)  
Net cash provided by (required by) financing activities         (159.4) (45.1)  
Net increase (decrease) in cash, cash equivalents, and restricted cash         123.3 (5.9)  
Cash, cash equivalents, and restricted cash at beginning of period   $ 280.3   $ 184.5 280.3 184.5 184.5
Cash, cash equivalents, and restricted cash at end of period $ 403.6   $ 178.6   $ 403.6 $ 178.6 $ 280.3
v3.20.2
Consolidated Statements of Changes in Equity - USD ($)
$ in Millions
Total
Cumulative Effect, Period of Adoption, Adjustment
Common Stock
Treasury Stock
APIC
Retained Earnings
Retained Earnings
Cumulative Effect, Period of Adoption, Adjustment
AOCI
Beginning balance (in shares) at Dec. 31, 2018     46,767,164          
Beginning balance at Dec. 31, 2018 $ 807.3   $ 0.5 $ (940.3) $ 539.0 $ 1,208.1   $ 0.0
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 5.3         5.3    
Loss on interest rate hedge, net of tax 0.0              
Purchase of treasury stock (13.3)     (13.3)        
Issuance of treasury stock 0.0     5.6 (5.6)      
Amounts related to share-based compensation (4.1)       (4.1)      
Share-based compensation expense 2.6       2.6      
Ending balance (in shares) at Mar. 31, 2019     46,767,164          
Ending balance at Mar. 31, 2019 797.8   $ 0.5 (948.0) 531.9 1,213.4   0.0
Beginning balance (in shares) at Dec. 31, 2018     46,767,164          
Beginning balance at Dec. 31, 2018 807.3   $ 0.5 (940.3) 539.0 1,208.1   0.0
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 38.0              
Ending balance (in shares) at Jun. 30, 2019     46,767,164          
Ending balance at Jun. 30, 2019 816.3   $ 0.5 (964.7) 534.4 1,246.1   0.0
Beginning balance (in shares) at Mar. 31, 2019     46,767,164          
Beginning balance at Mar. 31, 2019 797.8   $ 0.5 (948.0) 531.9 1,213.4   0.0
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 32.7         32.7    
Loss on interest rate hedge, net of tax 0.0              
Purchase of treasury stock (16.8)     (16.8)        
Issuance of treasury stock 0.0     0.1 (0.1)      
Amounts related to share-based compensation (0.2)       (0.2)      
Share-based compensation expense 2.8       2.8      
Ending balance (in shares) at Jun. 30, 2019     46,767,164          
Ending balance at Jun. 30, 2019 816.3   $ 0.5 (964.7) 534.4 1,246.1   0.0
Beginning balance (in shares) at Dec. 31, 2019     46,767,164          
Beginning balance at Dec. 31, 2019 803.0 $ 1.1 $ 0.5 (1,099.8) 538.7 1,362.9 $ 1.1 0.7
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 89.3         89.3    
Loss on interest rate hedge, net of tax (2.7)             (2.7)
Purchase of treasury stock (140.6)     (140.6)        
Issuance of treasury stock (0.5)     5.2 (5.7)      
Amounts related to share-based compensation (5.6)       (5.6)      
Share-based compensation expense 2.8       2.8      
Ending balance (in shares) at Mar. 31, 2020     46,767,164          
Ending balance at Mar. 31, 2020 746.8   $ 0.5 (1,235.2) 530.2 1,453.3   (2.0)
Beginning balance (in shares) at Dec. 31, 2019     46,767,164          
Beginning balance at Dec. 31, 2019 803.0 $ 1.1 $ 0.5 (1,099.8) 538.7 1,362.9 $ 1.1 0.7
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 258.2              
Ending balance (in shares) at Jun. 30, 2020     46,767,164          
Ending balance at Jun. 30, 2020 918.0   $ 0.5 (1,235.2) 533.0 1,622.2   (2.5)
Beginning balance (in shares) at Mar. 31, 2020     46,767,164          
Beginning balance at Mar. 31, 2020 746.8   $ 0.5 (1,235.2) 530.2 1,453.3   (2.0)
Increase (Decrease) in Stockholders' Equity [Roll Forward]                
Net income 168.9         168.9   (0.5)
Loss on interest rate hedge, net of tax (0.5)             (0.5)
Purchase of treasury stock 0.0     0.0        
Issuance of treasury stock       0.0        
Amounts related to share-based compensation 0.0       0.0      
Share-based compensation expense 2.8       2.8      
Ending balance (in shares) at Jun. 30, 2020     46,767,164          
Ending balance at Jun. 30, 2020 $ 918.0   $ 0.5 $ (1,235.2) $ 533.0 $ 1,622.2   $ (2.5)
v3.20.2
Description of Business and Basis of Presentation
6 Months Ended
Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Description of Business and Basis of Presentation Description of Business and Basis of Presentation
 
Description of business — Murphy USA Inc. and its consolidated subsidiaries (“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 25 states and use the brand name Murphy USA®. During the current quarter, the Company exited Minnesota with the sale of its nine stores to a private company. Murphy USA also markets gasoline and other products at standalone stations under the Murphy Express brand. At June 30, 2020, Murphy USA had a total of 1,485 Company stations of which 1,152 were Murphy USA and 333 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, 2019, 2018 and 2017, 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 18, 2020.
 
Recently Issued Accounting Standards 

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting". This standard included optional guidance for a limited period of time to help ease the burden in accounting for the effects of reference rate reform. The new standard is effective for all entities through December 31, 2022. The Company does not expect the adoption of this standard to have a material impact on the Company's consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract". This ASU aligns the accounting treatment for capitalizing implementation costs incurred by customers in cloud computing arrangements in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This guidance was effective for the Company on January 1, 2020. The amendments in this update were applied prospectively to all implementation costs incurred after the date of adoption. The Company assessed the effect that this ASU had on our financial position, results of operations, and disclosures and determined that this update did not have a material impact on the Company's consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." ASU 2016-13 was subsequently modified by ASU 2018-19, ASU 2019-04, ASU 2019-05, and ASU 2019-11. This ASU changes the way entities recognize impairment of many financial assets by requiring immediate recognition of estimated credit losses expected to occur over their remaining life, which will result in timelier recognition of losses. ASU 2016-13 and the associated modifications were effective for the Company on January 1, 2020. ASC 326 requires a modified retrospective approach with an adjustment at the beginning of the year for any adjustment due to its adoption.
In applying ASC 326 at January 1, 2020, the Company calculated an adjustment to its estimated credit loss allowance and lowered the allowance by $1.1 million, which was credited to retained earnings under the modified retrospective approach. The adjustment reflects the Company's changes in credit practices since its spin-off in 2013 which includes tighter applied credit terms and faster turnover of receivable balances resulting in a decrease to its estimated credit loss allowance as of January 1, 2020. A review was conducted for the quarter ended June 30, 2020, and no change in the estimated credit loss allowance was required.
v3.20.2
Revenues
6 Months Ended
Jun. 30, 2020
Revenue from Contract with Customer [Abstract]  
Revenues Revenues
Revenue Recognition

Revenue is recognized when obligations under the terms of a contract with our customers are satisfied; generally, this occurs with the transfer of control of our petroleum products, convenience merchandise, Renewable Identification Numbers ("RINs") and other assets to our third-party customers. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Excise and sales tax that we collect where we have determined we are the principal in the transaction have been recorded as revenue on a jurisdiction-by-jurisdiction basis.

The Company enters into buy/sell and similar arrangements when petroleum products are held at one location but are needed at a different location. The Company often pays or receives funds related to the buy/sell arrangements based on location or quality differences. The Company continues to account for these transactions as non-monetary exchanges under existing accounting guidance and typically reports these on a net basis in the Consolidated Statements of Income.

The following tables disaggregates our revenue by major source for the three and six months ended June 30, 2020 and 2019, respectively:

Three Months Ended June 30, 2020Three Months Ended June 30, 2019
(Millions of dollars)MarketingCorporate and Other AssetsConsolidatedMarketingCorporate and Other AssetsConsolidated
Petroleum product sales (at retail) 1
$1,444.8  $—  $1,444.8  $2,818.2  $—  $2,818.2  
Petroleum product sales (at wholesale) 144.1  —  144.1  311.5  —  311.5  
Total petroleum product sales1,588.9  —  1,588.9  3,129.7  —  3,129.7  
Merchandise sales767.1  —  767.1  658.8  —  658.8  
Other operating revenues:
RINs22.6  —  22.6  10.9  —  10.9  
Other revenues 2
1.0  —  1.0  1.0  —  1.0  
Total revenues$2,379.6  $—  $2,379.6  $3,800.4  $—  $3,800.4  

1 Includes excise and sales taxes that remain eligible for inclusion under Topic 606
2 Primarily includes collection allowance on excise and sales taxes and other miscellaneous items
Six Months Ended June 30, 2020Six Months Ended June 30, 2019
(Millions of dollars)MarketingCorporate and Other AssetsConsolidatedMarketingCorporate and Other AssetsConsolidated
Petroleum product sales (at retail) 1
$3,691.0  —  $3,691.0  $5,056.9  $—  $5,056.9  
Petroleum product sales (at wholesale)378.1  —  378.1  572.6  —  572.6  
Total petroleum product sales4,069.1  —  4,069.1  5,629.5  —  5,629.5  
Merchandise sales1,454.6  —  1,454.6  1,265.0  —  1,265.0  
Other operating revenues:
RINs38.1  —  38.1  20.0  —  20.0  
Other revenues 2
2.5  0.1  2.6  2.2  0.1  2.3  
Total revenues$5,564.3  $0.1  $5,564.4  $6,916.7  $0.1  $6,916.8  


1 Includes excise and sales taxes that remain eligible for inclusion under Topic 606
2 Primarily includes collection allowance on excise and sales taxes and other miscellaneous items


Marketing segment

Petroleum product sales (at retail). For our retail store locations, the revenue related to petroleum product sales is recognized as the fuel is pumped to our customers. The transaction price at the pump typically includes some portion of sales or excise taxes as levied in the respective jurisdictions. Those taxes that are collected for remittance to governmental entities on a pass through basis are not recognized as revenue and they are recorded 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 and upon trucks loading at product terminals. For bulk pipeline sales, we record receivables from customers that are generally collected within a week from custody transfer date. For our rack product sales, the majority of our customers' accounts are drafted by us within 10 days from product transfer.

Merchandise sales. For our retail store locations, the revenue related to merchandise sales is recognized as the customer completes their purchase at our locations. The transaction price typically includes some portion of sales tax as levied in the respective jurisdictions. Those taxes that are collected for remittance to governmental entities on a pass through basis are not recognized as revenue and they are recorded to a liability account until they are paid. As noted above, a mixture of payment types are used for these revenues and the same terms for credit/debit card receivables are realized.
The most significant judgment with respect to merchandise sales revenue is determining whether we are the principal or agent for some categories of merchandise such as lottery tickets, lotto 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.

In June 2018, the Company initiated a loyalty pilot program through a limited number of its retail locations. The customers earn rewards based on their spending or other promotional activities. This program creates a performance obligation which requires us to defer a portion of sales revenue to the loyalty program participants until they redeem their rewards or the rewards expire. The rewards may be redeemed for merchandise or cash discounts on fuel purchases. The program was rolled out chain-wide in March 2019. The deferred revenue balances at June 30, 2020 and December 31, 2019 were immaterial.

RINs sales. For the sale of RINs, we recognize revenue when the RIN is transferred to the counter-party and the sale is completed. Receivables from our counter-parties related to the RIN sales are typically collected within five days of the sale.

Other revenues. Items reported as other operating revenues include collection allowances for excise and sales tax and other miscellaneous items and are recognized as revenue when the transaction is completed.

Accounts receivable
Trade accounts receivable on the balance sheet represents both receivables related to contracts with customers and other trade receivables. At June 30, 2020 and December 31, 2019, we had $81.5 million and $96.0 million of receivables, respectively, related to contracts with customers recorded. All of the trade accounts receivable related to contracts with customers outstanding at the end of each period were collected during the succeeding quarter. These receivables were generally related to credit and debit card transactions along with short term bulk and wholesale sales to our customers, which have a very short settlement window.
v3.20.2
Inventories
6 Months Ended
Jun. 30, 2020
Inventory Disclosure [Abstract]  
Inventories Inventories
 
Inventories consisted of the following:
(Millions of dollars)June 30,
2020
December 31,
2019
Finished products - First-In, First-Out ("FIFO") basis$188.8  $259.2  
Less: Last-In, First-Out ("LIFO") reserve - finished products(80.1) (160.8) 
Finished products - LIFO basis108.7  98.4  
Store merchandise for resale142.7  123.0  
Materials and supplies6.3  6.2  
Total inventories$257.7  $227.6  
 
At June 30, 2020 and December 31, 2019, the replacement cost (market value) of LIFO inventories exceeded the LIFO carrying value by $80.1 million and $160.8 million, respectively.
v3.20.2
Long-Term Debt
6 Months Ended
Jun. 30, 2020
Debt Disclosure [Abstract]  
Long-Term Debt Long-Term Debt
 
Long-term debt consisted of the following:
(Millions of dollars)June 30,
2020
December 31,
2019
5.625% senior notes due 2027 (net of unamortized discount of $2.6 at June 30, 2020 and $2.7 at December 2019)
$297.4  $297.3  
4.75% senior notes due 2029 (net of unamortized discount of $5.8 at June 30, 2020 and $6.1 at December 31, 2019)
494.2  493.9  
Term loan due 2023 (effective interest rate of 3.35% at June 30, 2020 and 4.31% at December 31, 2019)
237.5  250.0  
Capitalized lease obligations, vehicles, due through 20232.4  2.4  
Less unamortized debt issuance costs(5.0) (5.5) 
Total long-term debt1,026.5  1,038.1  
Less current maturities51.2  38.8  
Total long-term debt, net of current$975.3  $999.3  

Senior Notes

On April 25, 2017, Murphy Oil USA, Inc., our primary operating subsidiary, issued $300 million of 5.625% Senior Notes due 2027 (the "2027 Senior Notes") 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 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 September 13, 2019, Murphy Oil USA, Inc., issued $500 million of 4.75% Senior Notes due 2029 (the “2029 Senior Notes”). The net proceeds from the issuance of the 2029 Senior Notes were used to fund, in part, the tender offer and redemption of the $500 million aggregate principal amount of its senior notes due 2023. 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 essentially identical to the covenants for the 2027 Senior Notes.

The 2027 and 2029 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 2027 and 2029 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 August 2019, we amended and extended our existing credit agreement. The effective date of the agreement was extended to August 2024.  The credit agreement provides for a committed $325 million asset-based loan (ABL) facility (with availability subject to the borrowing base described below) and a  $250.0 million term loan facility.  It also provides for a $150 million uncommitted incremental facility. On August 27, 2019, Murphy Oil USA, Inc. borrowed $200 million under the term loan facility that has a four-year term and prepaid the remaining balance of the prior term loan of $57 million, and on December 31, 2019, we borrowed the additional $50 million term loan. At June 30, 2020 and December 31, 2019, the current outstanding principal balance was $237.5 million and$250.0 million, respectively. The term loan is due August 2023 and requires quarterly principal payments of $12.5 million which began April 1, 2020. As of June 30, 2020, 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 midstream 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 $100 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 greater of the federal funds effective rate and the overnight bank funding rate determined by the Federal Reserve Bank of New York from time to time plus 0.50% per annum and (c) the one-month Adjusted 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 onetwothree, 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 June 30, 2020, our fixed charge coverage ratio was 1.21, and we had $168.3 million of availability under the ABL facility at that date. Our secured debt to EBITDA ratio as of June 30, 2020 was 0.33 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 June 30, 2020, our ability to make restricted payments was not limited as our fixed charge coverage ratio was greater than 1.0 to 1.0, at 1.21.  
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.
v3.20.2
Asset Retirement Obligations (ARO)
6 Months Ended
Jun. 30, 2020
Asset Retirement Obligation Disclosure [Abstract]  
Asset Retirement Obligations (ARO) Asset Retirement Obligations (ARO)
The majority of the ARO recognized by the Company at June 30, 2020 and December 31, 2019 is 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)June 30,
2020
December 31,
2019
Balance at beginning of period$32.8  $30.7  
Accretion expense1.1  2.1  
Settlements of liabilities(0.3) (0.4) 
Liabilities incurred0.1  0.4  
Balance at end of period$33.7  $32.8  
 
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.
v3.20.2
Income Taxes
6 Months Ended
Jun. 30, 2020
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
 
The effective tax rate is calculated as the amount of income tax expense (benefit) divided by income before income tax expense (benefit). For the three and six month periods ended June 30, 2020 and 2019, the Company’s approximate effective tax rates were as follows:
 
 20202019
Three months ended June 30,24.3%24.5%
Six months ended June 30,24.1%22.8%

In the six months ended June 30, 2020, the Company recognized approximately $0.6 million of excess tax benefits related to stock compensation for employees and $1.8 million for other discrete tax items. For the six months ended June 30, 2019, the Company recognized a tax benefit of approximately $0.9 million of excess tax benefits related to stock compensation.
 
As of June 30, 2020, the earliest year remaining open for federal examination is 2016 and for certain states it ranges from 2014 to 2018.  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.
v3.20.2
Incentive Plans
6 Months Ended
Jun. 30, 2020
Share-based Payment Arrangement [Abstract]  
Incentive Plans 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 $5.0 million.
 
STOCK OPTIONS – The Committee fixes the option price of each option granted at no less than fair market value (FMV) on the date of the grant and fixes the option term at no more than 7 years from such date. In February 2020, the Committee granted nonqualified stock options to certain employees of the Company. The Black-Scholes valuation for these awards was $28.28 per option.

Assumptions used to value awards:
Dividend yield— %
Expected volatility28.1 %
Risk-free interest rate1.5 %
Expected life (years)4.7
Stock price at valuation date$106.72  

Changes in options outstanding for Company employees during the period from December 31, 2019 to June 30, 2020 are presented in the following table:
OptionsNumber of SharesWeighted Average Exercise PriceWeighted Average Remaining Contractual Term (Years)Aggregate Intrinsic Value (Millions of Dollars)
Outstanding at 12/31/2019392,300  $68.52  
Granted79,200  105.57  
Outstanding at 6/30/2020471,500  $74.75  4.3$17.8  
Exercisable at 6/30/2020259,500  $65.36  3.0$12.3  



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 3 years. 

Changes in restricted stock units outstanding for Company employees during the period from December 31, 2019 to June 30, 2020 are presented in the following table:

Employee RSUsNumber of unitsWeighted Average Grant Date Fair ValueTotal Fair Value (Millions of Dollars)
Outstanding at 12/31/2019198,915  $70.58  
Granted55,395  $90.64  
Vested and issued(55,875) $65.86  $5.9  
Forfeited(6,530) $79.01  
Outstanding at 6/30/2020191,905  $77.46  $21.6  
 
PERFORMANCE-BASED RESTRICTED STOCK UNITS (MUSA 2013 Plan) – In February 2020, the Committee awarded performance-based restricted stock units (performance units) to certain employees.  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 18 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 $142.07 per unit.  For the ROACE portion of the awards, the valuation will be based on the grant date fair value of $106.72 per unit and the number of awards will be periodically assessed to determine the probability of vesting. 

Changes in performance-based restricted stock units outstanding for Company employees during the period from December 31, 2019 to June 30, 2020 are presented in the following table:
Employee PSU'sNumber of UnitsWeighted Average Grant Date Fair ValueTotal Fair Value (Millions of Dollars)
Outstanding at 12/31/2019131,200  $82.98  
Granted64,050  $123.65  
Vested and issued(65,745) $85.04  $7.0  
Forfeited(405) $65.75  
Outstanding at 6/30/2020129,100  $97.19  $14.5  


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. 
 
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.  These awards typically vest at the end of three years.

Changes in restricted stock units outstanding for Company non-employee directors during the period from December 31, 2019 to June 30, 2020 are presented in the following table:

Director RSU'sNumber of UnitsWeighted Average Grant Date Fair ValueTotal Fair Value (Millions of Dollars)
Outstanding at 12/31/201933,607  $70.68  
Granted9,744  $105.33  
Vested and issued(12,404) $66.01  $1.3  
Outstanding at 6/30/202030,947  $83.46  $3.5  

 
For the six months ended June 30, 2020 and 2019, share-based compensation was $5.6 million and $5.4 million, respectively.  The was no income tax benefit realized for the tax deductions from options exercised for the six months ended June 30, 2020 and was $0.1 million for the six months ended 2019.
v3.20.2
Financial Instruments and Risk Management
6 Months Ended
Jun. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Financial Instruments and Risk Management Financial Instruments and Risk Management
 
DERIVATIVE INSTRUMENTS — The Company makes limited use of derivative instruments to manage certain risks related to commodity prices and interest rates. The use of derivative instruments for risk management is covered by operating policies and is closely monitored by the Company’s senior management. The Company does not hold any derivatives for speculative purposes and it does not use derivatives with leveraged or complex features. Derivative instruments are traded primarily with credit worthy major financial institutions or over national exchanges such as the New York Mercantile Exchange (“NYMEX”). For accounting purposes, the Company has not designated commodity derivative contracts as hedges, and therefore, it recognizes all gains and losses on these derivative contracts in its Consolidated Statement 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 June 30, 2020, all current commodity derivative activity is immaterial.
 
At June 30, 2020 and December 31, 2019, cash deposits of $1.5 million and $1.0 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 June 30, 2020 or December 31, 2019.

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 $150.0 million of our outstanding term loan dated August 27, 2019. The effective date of the hedge was September 27, 2019, and under the swap the Company pays fixed rate interest and receives one month LIBOR to hedge the floating interest rate of the outstanding debt. The notional amount is reduced by $7.5 million each quarter beginning March 27, 2020, and at June 30, 2020 was $135.0 million. During the three and six months ended June 30, 2020, the realized loss on the interest rate swap was $0.2 million and $0.1 million, respectively and was reported as interest expense in the Consolidated Statements of Income. The pre-tax losses deferred on these contracts in the three and six months ended June 30, 2020 were $0.6 million and $4.2 million, respectively, which were recorded in the Consolidated Statements of Comprehensive Income. Deferred income taxes of $0.1 million and $1.0 million were recorded in the Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2020, respectively.
v3.20.2
Earnings Per Share
6 Months Ended
Jun. 30, 2020
Earnings Per Share [Abstract]  
Earnings Per Share 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 July 24, 2019, the Board of Directors approved an up to $400 million share repurchase program to be executed over the two-year period ending July 2021. Prior to the July authorization, the Company had continued to conduct share repurchases in 2019 under quarterly allocations in line with its past practice, subject to market conditions and cash availability. For the six months ended June 30, 2020, the Company repurchased 1,362,400 shares of common stock for an average price of $103.17 per share including brokerage fees and for the six months ended June 30, 2019, 379,754 shares were repurchased for an average price of $79.32 per share.
 
The following table provides a reconciliation of basic and diluted earnings per share computations for the three and six months ended June 30, 2020 and 2019:

 Three Months Ended
June 30,
Six Months Ended
June 30,
(Millions of dollars, except share and per share amounts)2020201920202019
Earnings per common share:  
Net income per share - basic
Net income attributable to common stockholders$168.9  $32.7  $258.2  $38.0  
Weighted average common shares outstanding (in thousands)29,181  32,112  29,708  32,159  
Earnings per common share$5.79  $1.02  $8.69  $1.18  
 
Earnings per common share - assuming dilution:  
Net income per share - diluted
Net income attributable to common stockholders$168.9  $32.7  $258.2  $38.0  
Weighted average common shares outstanding (in thousands)29,181  32,112  29,708  32,159  
Common equivalent shares:  
Dilutive share-based awards314  216  310  213  
Weighted average common shares outstanding - assuming dilution (in thousands)29,495  32,328  30,018  32,372  
Earnings per common share assuming dilution$5.73  $1.01  $8.60  $1.18  

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.
v3.20.2
Other Financial Information
6 Months Ended
Jun. 30, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Other Financial Information Other Financial Information
  
CASH FLOW DISCLOSURES — Cash income taxes paid (collected), net of refunds, were $15.5 million and $6.5 million for the six month periods ended June 30, 2020 and 2019, respectively. Interest paid, net of amounts capitalized, was $25.4 million and $25.5 million for the six month periods ended June 30, 2020 and 2019, respectively.  

CHANGES IN WORKING CAPITAL:
 Six Months Ended
June 30,
(Millions of dollars)20202019
Accounts receivable$12.4  $(97.5) 
Inventories(30.3) 10.2  
Prepaid expenses and other current assets12.4  (4.6) 
Accounts payable and accrued liabilities(12.1) 91.4  
Income taxes payable40.8  —  
Net (increase) decrease in noncash operating working capital$23.2  $(0.5) 
v3.20.2
Assets and Liabilities Measured at Fair Value
6 Months Ended
Jun. 30, 2020
Fair Value Disclosures [Abstract]  
Assets and Liabilities Measure at Fair Value 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 June 30, 2020 and December 31, 2019. 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 June 30, 2020At December 31, 2019
 Carrying Carrying 
(Millions of dollars)AmountFair ValueAmountFair Value
Financial liabilities    
Current and long-term debt$(1,026.5) $(1,044.4) $(1,038.1) $(1,069.4) 
v3.20.2
Contingencies
6 Months Ended
Jun. 30, 2020
Commitments and Contingencies Disclosure [Abstract]  
Contingencies 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. 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 June 30, 2020, 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 June 30, 2020. 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.

INSURANCE — The Company maintains insurance coverage at levels that are customary and consistent with industry standards for companies of similar size. Murphy USA maintains statutory workers compensation insurance with a deductible of $1.0 million per occurrence, general liability insurance with a self-insured retention of $3.0 million per occurrence, and auto liability insurance with a deductible of $0.3 million per occurrence. As of June 30, 2020, 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 $24.7 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 June 30, 2020, the Company had contingent liabilities of $17.0 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.
v3.20.2
Lease Accounting
6 Months Ended
Jun. 30, 2020
Leases [Abstract]  
Lease Accounting 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 approximately 1 year to 20 years, which may include the option to extend the lease when it is reasonably certain the Company will exercise the option. Most leases include one or more options to renew, with renewal terms that can extend the lease term from five to 20 years or more. The exercise of lease renewal options is at the Company's sole discretion. Due to the uncertainties of future markets, economic factors, technology changes, demographic shifts and behavior, environmental regulatory requirements and other information that impacts decisions as to station 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 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 217 stations, one terminal, a hangar and various equipment. Our lease agreements do not contain any material residual value guarantees and approximately 102 sites leased from Walmart 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)ClassificationJune 30,
2020
December 31,
2019
Assets
Operating (Right-of-use)Other Assets$142.1  $124.2  
Finance
Property, plant, and equipment, at cost, less accumulated depreciation of $2.5 at June 30, 2020 and $2.2 at December 31, 2019
2.9  3.0  
Total leased assets$145.0  $127.2  
Liabilities
Current
     OperatingTrade accounts payable and accrued liabilities$7.5  $6.8  
     FinanceCurrent maturities of long-term debt 1.2  1.2  
Noncurrent
     OperatingDeferred credits and other liabilities136.3  118.5  
     FinanceLong-term debt, including capitalized lease obligations1.2  1.2  
Total lease liabilities$146.2  $127.7  
Lease Cost:
Three Months Ended
June 30,
Six Months Ended
June 30,
(Millions of dollars)Classification2020201920202019
Operating lease costStation and other operating expenses$4.1  $3.6  $8.1  $7.1  
Finance lease cost
Amortization of leased assetsDepreciation & amortization expense0.3  0.3  0.6  0.6  
Interest on lease liabilitiesInterest expense—  —  0.1  0.1  
Net lease costs$4.4  $3.9  $8.8  $7.8  


Cash flow information:
Six Months Ended
June 30,
(Millions of dollars)20202019
Cash paid for amounts included in the measurement of liabilities
   Operating cash flows from operating leases$7.5  $6.7  
   Operating cash flows from finance leases$0.1  $0.1  
   Financing cash flows from finance leases$0.7  $0.7  


Maturity of Lease Liabilities at June 30, 2020:
(Millions of dollars)Operating leasesFinance leases
2020$8.0  $0.7  
202116.0  1.1  
202215.1  0.6  
202314.6  0.1  
202414.0  —  
After 2024169.2  —  
Total lease payments236.9  2.5  
 less: interest93.1  0.1  
Present value of lease liabilities$143.8  $2.4  
Lease Term and Discount Rate:
Six Months Ended
June 30,
2020
Weighted average remaining lease term (years)
   Finance leases2.0
   Operating leases15.8
Weighted average discount rate
    Finance leases4.6 %
   Operating leases5.8 %
Lease Accounting 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 approximately 1 year to 20 years, which may include the option to extend the lease when it is reasonably certain the Company will exercise the option. Most leases include one or more options to renew, with renewal terms that can extend the lease term from five to 20 years or more. The exercise of lease renewal options is at the Company's sole discretion. Due to the uncertainties of future markets, economic factors, technology changes, demographic shifts and behavior, environmental regulatory requirements and other information that impacts decisions as to station 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 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 217 stations, one terminal, a hangar and various equipment. Our lease agreements do not contain any material residual value guarantees and approximately 102 sites leased from Walmart 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)ClassificationJune 30,
2020
December 31,
2019
Assets
Operating (Right-of-use)Other Assets$142.1  $124.2  
Finance
Property, plant, and equipment, at cost, less accumulated depreciation of $2.5 at June 30, 2020 and $2.2 at December 31, 2019
2.9  3.0  
Total leased assets$145.0  $127.2  
Liabilities
Current
     OperatingTrade accounts payable and accrued liabilities$7.5  $6.8  
     FinanceCurrent maturities of long-term debt 1.2  1.2  
Noncurrent
     OperatingDeferred credits and other liabilities136.3  118.5  
     FinanceLong-term debt, including capitalized lease obligations1.2  1.2  
Total lease liabilities$146.2  $127.7  
Lease Cost:
Three Months Ended
June 30,
Six Months Ended
June 30,
(Millions of dollars)Classification2020201920202019
Operating lease costStation and other operating expenses$4.1  $3.6  $8.1  $7.1  
Finance lease cost
Amortization of leased assetsDepreciation & amortization expense0.3  0.3  0.6  0.6  
Interest on lease liabilitiesInterest expense—  —  0.1  0.1  
Net lease costs$4.4  $3.9  $8.8  $7.8  


Cash flow information:
Six Months Ended
June 30,
(Millions of dollars)20202019
Cash paid for amounts included in the measurement of liabilities
   Operating cash flows from operating leases$7.5  $6.7  
   Operating cash flows from finance leases$0.1  $0.1  
   Financing cash flows from finance leases$0.7  $0.7  


Maturity of Lease Liabilities at June 30, 2020:
(Millions of dollars)Operating leasesFinance leases
2020$8.0  $0.7  
202116.0  1.1  
202215.1  0.6  
202314.6  0.1  
202414.0  —  
After 2024169.2  —  
Total lease payments236.9  2.5  
 less: interest93.1  0.1  
Present value of lease liabilities$143.8  $2.4  
Lease Term and Discount Rate:
Six Months Ended
June 30,
2020
Weighted average remaining lease term (years)
   Finance leases2.0
   Operating leases15.8
Weighted average discount rate
    Finance leases4.6 %
   Operating leases5.8 %
v3.20.2
Business Segment
6 Months Ended
Jun. 30, 2020
Segment Reporting [Abstract]  
Business Segment Business Segment
 
The Company's operations have one reportable 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
  June 30, 2020June 30, 2019
 Total Assets atExternal RevenuesIncome (Loss)External RevenuesIncome (Loss)
(Millions of dollars)June 30, 2020
Marketing$2,353.2  $2,379.6  $179.6  $3,800.4  $44.5  
Corporate and other assets507.5  —  (10.7) —  (11.8) 
Total$2,860.7  $2,379.6  $168.9  $3,800.4  $32.7  


Six Months Ended
June 30, 2020June 30, 2019
External RevenuesIncome (Loss)External RevenuesIncome (Loss)
(Millions of dollars)
Marketing$5,564.3  $280.5  $6,916.7  $60.7  
Corporate and other assets0.1  (22.3) 0.1  (22.7) 
Total$5,564.4  $258.2  $6,916.8  $38.0  
v3.20.2
Guarantor Subsidiaries
6 Months Ended
Jun. 30, 2020
Guarantor Subsidiaries [Abstract]  
Guarantor Subsidiaries Guarantor Subsidiaries
Murphy USA Inc. ("Parent Company") and 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 Murphy Oil USA, Inc. (the "Issuer"), including the 5.625% senior notes due 2027 and the 4.75% senior notes due 2029.  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

(Millions of dollars, except share amounts)June 30, 2020
AssetsParent CompanyIssuerGuarantor SubsidiariesNon-Guarantor SubsidiariesEliminationsConsolidated
Current assets