20150630 Q2 10Q

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

                        (Mark one)

[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2015

 

OR

[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR

15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________ to _______________

 

Commission File Number 001-35914

 

MURPHY USA INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

Delaware

46-2279221

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

 

 

 

 

200 Peach Street

 

El Dorado, Arkansas

71730-5836

(Address of principal executive offices)

(Zip Code)

 

(870) 875-7600

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes     No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes   No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  Accelerated filer     Non-accelerated filer     Smaller reporting company __

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

    Yes  No

Number of shares of Common Stock, $0.01 par value, outstanding at June 30, 2015 was 46,767,164.

 

1

 

 

 

 


 

 

 

 

 

MURPHY USA INC.

 

TABLE OF CONTENTS

 

 

 

 

 

Page

Part I – Financial Information 

 

 

 

 

Item 1.  Financial Statements (Unaudited) 

 

 

 

 

 

 

 

Consolidated  Balance Sheets as of June 30, 2015 (unaudited) and December 31, 2014

2

 

Consolidated Statements of Income for the three months and six months ended June 30, 2015 and 2014 (unaudited)

3

 

Consolidated Statements of Cash Flows for the three months and six months ended June 30, 2015 and 2014 (unaudited)

4

 

Consolidated Statements of Changes in Equity for the three months and six months ended June 30, 2015 and 2014 (unaudited)

5

 

Notes to Consolidated Financial Statements

6

 

 

   Results of Operations and Financial Condition

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations 

31

Item 3.  Quantitative and Qualitative Disclosures About Market Risk 

46

Item 4.  Controls and Procedures 

46

 

 

Part II – Other Information 

 

Item 1.  Legal Proceedings 

47

Item 1A.  Risk Factors 

47

Item 2.  Unregistered sales of equity securities and use of proceeds 

47

Item 6.  Exhibits 

48

Signatures 

49

 

 

1

 


 

 

ITEM 1.  FINANCIAL STATEMENTS

Murphy USA Inc.

Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

(Thousands of dollars)

 

2015

 

2014

 

 

(unaudited)

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

121,445 

 

$

328,105 

Accounts receivable—trade, less allowance for doubtful accounts of $4,456 in 2015 and $4,456 in 2014

 

 

174,149 

 

 

140,091 

Inventories, at lower of cost or market

 

 

207,558 

 

 

182,914 

Prepaid expenses and other current assets

 

 

25,872 

 

 

14,772 

Total current assets

 

 

529,024 

 

 

665,882 

Property, plant and equipment, at cost less accumulated depreciation and amortization of $760,916 in 2015 and $730,202 in 2014

 

 

1,299,206 

 

 

1,253,124 

Other assets

 

 

13,804 

 

 

11,058 

Total assets

 

$

1,842,034 

 

$

1,930,064 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Current maturities of long-term debt

 

$

122 

 

$

 —

Trade accounts payable and accrued liabilities

 

 

456,763 

 

 

386,999 

Income taxes payable

 

 

6,024 

 

 

25,600 

Deferred income taxes

 

 

9,118 

 

 

481 

Total current liabilities

 

 

472,027 

 

 

413,080 

 

 

 

 

 

 

 

Long-term debt, including capitalized lease obligations

 

 

489,281 

 

 

488,250 

Deferred income taxes

 

 

109,213 

 

 

118,609 

Asset retirement obligations

 

 

23,241 

 

 

22,245 

Deferred credits and other liabilities

 

 

28,955 

 

 

29,175 

Total liabilities

 

 

1,122,717 

 

 

1,071,359 

Stockholders' Equity

 

 

 

 

 

 

  Preferred Stock, par $0.01 (authorized 20,000,000 shares,

 

 

 

 

 

 

none outstanding)

 

 

 —

 

 

 —

  Common Stock, par $0.01 (authorized 200,000,000 shares,

 

 

 

 

 

 

46,767,164 and 46,767,164 shares issued at

 

 

 

 

 

 

2015 and 2014, respectively)

 

 

468 

 

 

468 

Treasury stock (3,920,613 and 1,056,689 shares held at

 

 

 

 

 

 

June 30, 2015 and December 31, 2014, respectively)

 

 

(235,390)

 

 

(51,073)

Additional paid in capital (APIC)

 

 

553,677 

 

 

557,871 

Retained earnings

 

 

400,562 

 

 

351,439 

Total stockholders' equity

 

 

719,317 

 

 

858,705 

Total liabilities and stockholders' equity

 

$

1,842,034 

 

$

1,930,064 

 

 

See notes to consolidated financial statements.

2

 


 

 

 

Murphy USA Inc.

Consolidated Statements of Income

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30,

 

June 30,

(Thousands of dollars except per share amounts)

 

2015

 

2014

 

2015

 

2014

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

Petroleum product sales (a)

 

$

2,858,910 

 

$

4,121,694 

 

$

5,216,989 

 

$

7,716,041 

Merchandise sales

 

 

572,164 

 

 

548,260 

 

 

1,096,301 

 

 

1,050,982 

Ethanol sales and other

 

 

86,147 

 

 

87,995 

 

 

166,446 

 

 

155,260 

Total revenues

 

 

3,517,221 

 

 

4,757,949 

 

 

6,479,736 

 

 

8,922,283 

Costs and Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Petroleum product cost of goods sold (a)

 

 

2,750,602 

 

 

3,943,134 

 

 

5,011,688 

 

 

7,443,480 

Merchandise cost of goods sold

 

 

488,540 

 

 

472,909 

 

 

939,093 

 

 

905,371 

Ethanol cost of goods sold

 

 

38,440 

 

 

41,767 

 

 

73,020 

 

 

79,537 

Station and other operating expenses

 

 

130,472 

 

 

133,223 

 

 

252,647 

 

 

255,700 

Depreciation and amortization

 

 

21,317 

 

 

19,685 

 

 

42,495 

 

 

39,346 

Selling, general and administrative

 

 

33,249 

 

 

29,698 

 

 

64,705 

 

 

57,769 

Accretion of asset retirement obligations

 

 

379 

 

 

300 

 

 

757 

 

 

597 

Total costs and operating expenses

 

 

3,462,999 

 

 

4,640,716 

 

 

6,384,405 

 

 

8,781,800 

Income from operations

 

 

54,222 

 

 

117,233 

 

 

95,331 

 

 

140,483 

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

15 

 

 

13 

 

 

1,888 

 

 

28 

Interest expense

 

 

(8,329)

 

 

(10,527)

 

 

(16,658)

 

 

(19,622)

Gain (loss) on sale of assets

 

 

(23)

 

 

 —

 

 

(19)

 

 

170 

Other nonoperating income (expense)

 

 

(4,854)

 

 

894 

 

 

510 

 

 

1,006 

Total other income (expense)

 

 

(13,191)

 

 

(9,620)

 

 

(14,279)

 

 

(18,418)

Income before income taxes

 

 

41,031 

 

 

107,613 

 

 

81,052 

 

 

122,065 

Income tax expense

 

 

14,840 

 

 

34,381 

 

 

31,929 

 

 

39,981 

Income from continuing operations

 

 

26,191 

 

 

73,232 

 

 

49,123 

 

 

82,084 

Income from discontinued operations, net of taxes

 

 

 —

 

 

 —

 

 

 —

 

 

781 

Net Income

 

$

26,191 

 

$

73,232 

 

$

49,123 

 

$

82,865 

Earnings per share - basic:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.59 

 

$

1.58 

 

$

1.09 

 

$

1.76 

Income from discontinued operations

 

 

 —

 

 

 —

 

 

 —

 

 

0.02 

Net Income - basic

 

$

0.59 

 

$

1.58 

 

$

1.09 

 

$

1.78 

Earnings per share - diluted:

 

 

 

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

0.59 

 

$

1.57 

 

$

1.09 

 

$

1.75 

Income from discontinued operations

 

 

 —

 

 

 —

 

 

 —

 

 

0.02 

Net Income - diluted

 

$

0.59 

 

$

1.57 

 

$

1.09 

 

$

1.77 

Weighted-average shares outstanding (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

44,078 

 

 

46,233 

 

 

44,851 

 

 

46,490 

Diluted

 

 

44,409 

 

 

46,527 

 

 

45,218 

 

 

46,708 

Supplemental information:

 

 

 

 

 

 

 

 

 

 

 

 

(a) Includes excise taxes of:

 

$

483,470 

 

$

483,082 

 

$

946,444 

 

$

928,487 

 

 

See notes to consolidated financial statements.

3

 


 

 

 

Murphy USA Inc.

Consolidated Statements of Cash Flows

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30,

(Thousands of dollars)

 

2015

 

2014

Operating Activities

 

 

 

 

 

 

Net income

 

$

49,123 

 

$

82,865 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

 

Income from discontinued operations, net of taxes

 

 

 —

 

 

(781)

Depreciation and amortization

 

 

42,495 

 

 

39,346 

Amortization of deferred major repair costs

 

 

701 

 

 

433 

Deferred and noncurrent income tax credits

 

 

(9,397)

 

 

(10,938)

Accretion on discounted liabilities

 

 

757 

 

 

597 

Pretax (gains) losses from sale of assets

 

 

19 

 

 

(170)

Net (increase) decrease in noncash operating working capital

 

 

(13,892)

 

 

18,866 

Other operating activities - net

 

 

8,010 

 

 

8,211 

Net cash provided by continuing operations

 

 

77,816 

 

 

138,429 

Net cash provided by discontinued operations

 

 

 —

 

 

134 

Net cash provided by operating activities

 

 

77,816 

 

 

138,563 

Investing Activities

 

 

 

 

 

 

Property additions

 

 

(90,967)

 

 

(53,054)

Proceeds from sale of assets

 

 

91 

 

 

279 

Expenditures for major repairs

 

 

(690)

 

 

(728)

Investing activities of discontinued operations

 

 

 

 

 

 

Sales proceeds

 

 

 —

 

 

1,097 

Net cash required by investing activities

 

 

(91,566)

 

 

(52,406)

Financing Activities

 

 

 

 

 

 

Purchase of treasury stock

 

 

(189,834)

 

 

(50,021)

Repayments of long-term debt

 

 

(46)

 

 

(70,000)

Debt issuance costs

 

 

 —

 

 

(99)

Amounts related to share-based compensation

 

 

(3,030)

 

 

(541)

Net cash required by financing activities

 

 

(192,910)

 

 

(120,661)

Net increase (decrease) in cash and cash equivalents

 

 

(206,660)

 

 

(34,504)

Cash and cash equivalents at January 1

 

 

328,105 

 

 

294,741 

Cash and cash equivalents at June 30

 

$

121,445 

 

$

260,237 

 

See notes to consolidated financial statements.

4

 


 

 

 

Murphy USA Inc.

Consolidated Statements of Changes in Equity

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

(Thousands of dollars, except share amounts)

 

Shares

 

Par

 

Treasury Stock

 

APIC

 

Retained Earnings

 

Total

Balance as of December 31, 2013

 

46,743,633 

$

467 

$

 —

$

548,293 

$

107,576 

$

656,336 

Net income

 

 —

 

 —

 

 —

 

 —

 

82,865 

 

82,865 

Purchase of treasury stock

 

 —

 

 —

 

(50,021)

 

 —

 

 —

 

(50,021)

Issuance of common stock

 

21,588 

 

 

 —

 

 —

 

 —

 

Amounts related to share-based compensation

 

 —

 

 —

 

 —

 

(542)

 

 —

 

(542)

Share-based compensation expense

 

 —

 

 —

 

 —

 

4,849 

 

 —

 

4,849 

Balance as of June 30, 2014

 

46,765,221 

$

468 

$

(50,021)

$

552,600 

$

190,441 

$

693,488 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

(Thousands of dollars, except share amounts)

 

Shares

 

Par

 

Treasury Stock

 

APIC

 

Retained Earnings

 

Total

Balance as of December 31, 2014

 

46,767,164 

$

468 

$

(51,073)

$

557,871 

$

351,439 

$

858,705 

Net income

 

 —

 

 —

 

 —

 

 —

 

49,123 

 

49,123 

Purchase of treasury stock

 

 —

 

 —

 

(189,834)

 

 —

 

 —

 

(189,834)

Issuance of common stock

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

Issuance of treasury stock

 

 —

 

 —

 

5,517 

 

(5,517)

 

 —

 

 —

Amounts related to share-based compensation

 

 —

 

 —

 

 —

 

(3,030)

 

 —

 

(3,030)

Share-based compensation expense

 

 —

 

 —

 

 —

 

4,353 

 

 —

 

4,353 

Balance as of June 30, 2015

 

46,767,164 

$

468 

$

(235,390)

$

553,677 

$

400,562 

$

719,317 

 

 

See notes to consolidated financial statements.

 

5

 


 

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 1 — Description of Business and Basis of Presentation

 

Description of business — Murphy USA Inc. (“Murphy USA” or the “Company”) markets refined products through a network of retail gasoline stations and to unbranded wholesale customers. Murphy USA’s owned retail stations are almost all located in close proximity to Walmart stores in 23 states and use the brand name Murphy USA®. Murphy USA also markets gasoline and other products at standalone stations under the Murphy Express brand. At June 30, 2015, Murphy USA had a total of 1,277 Company stations. The Company acquired a partially constructed ethanol production facility in Hereford, Texas, in late 2010. The Hereford facility is designed to produce 105 million gallons of corn-based ethanol per year, and it began operations near the end of the first quarter of 2011.

 

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” or “Parent”) 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, 2014, 2013 and 2012, 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 27, 2015.

 

Recently Issued Accounting Standards In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs,” which changes the presentation of debt issuance costs to more closely align with the presentation of debt discounts or premiums.  The debt issuance costs will continue to be amortized in the same way as before but presentation will reduce net debt at each financial statement date. The new standard is effective for all fiscal years beginning after December 15, 2015 and interim periods with those fiscal years.  Early adoption of this standard is permitted and the Company has elected to adopt this standard in its Quarterly Report on Form 10Q for the period ended March 31, 2015.  See Note 4 for additional disclosures required by the adoption of this change in accounting principle. 

 

In April 2015, the FASB issued ASU No. 2015-05, “Customer's Accounting for Fees Paid in a Cloud Computing Arrangement,” which states if a cloud computing arrangement includes a software license, the customer should account for the license consistent with its accounting for other software licenses.  If the arrangement does not include a software license, the customer should account for the arrangement as a service contract.  The new guidance is effective for fiscal years, including interim periods within those years, beginning after December 15, 2015.  Companies may adopt the new guidance either prospectively for all arrangements entered into (or materially modified) after the effective date, or retrospectively.  Early adoption is permitted.  The Company is still evaluating the impact this standard will have on its cloud computing arrangements but no material changes are expected as a result of adoption of this standard. 

 

 

 

 

6

 


 

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

Note 2 — Related Party Transactions

 

Transition Services Agreement

 

In conjunction with the separation, we entered into a Transition Services Agreement (“Agreement”) with Murphy Oil on August 30, 2013.  This Agreement sets forth the terms on which Murphy Oil provides to us, and we provide to Murphy Oil, on a temporary basis, certain services or functions that the companies have historically shared.  Transition services include administrative, payroll, human resources, information technology and network transition services, tax, treasury and other support and corporate services.  The Agreement provides for the provision of specified transition services generally for a period of up to eighteen months, with a possible extension of six months, on a cost basis. Certain areas of the Agreement have been extended for the six month period.  We record the fee Murphy Oil charges us for these services as a component of general and administrative expenses.

 

Note 3 – Discontinued Operations

 

In November 2013, the Company announced that it had entered into negotiations to sell its Hankinson, North Dakota ethanol production facility as part of management’s strategic plan to exit non-core businesses. On December 19, 2013, the Company sold its wholly-owned subsidiary Hankinson Renewable Energy, LLC which owned and operated an ethanol manufacturing facility in Hankinson, North Dakota, and its related assets for $170,000,000 plus working capital adjustments of approximately $3,118,000. During January 2014, the final adjustments to working capital were made and the Company received an additional $1.1 million in sales proceeds which has been included in discontinued operations for the first quarter of 2014.  The Company has accounted for all operations related to Hankinson Renewable, LLC as discontinued operations for all periods presented. The after-tax gain from disposal of the subsidiary (including associated inventories) was $52,542,000 in 2013 with an additional $781,000 in 2014 related to the final working capital adjustment.  

 

The results of operations associated with the Hankinson discontinued operations for the 2014 period are presented in the following table.

 

 

 

 

 

 

 

 

 

 

 

(Thousands of dollars)

 

Six Months Ended June 30, 2014

Revenues

 

$

 —

Income from operations before income taxes

 

 

 —

Gain on sale before income taxes

 

 

1,202 

Total income from discontinued operations before taxes

 

 

1,202 

Provision for income taxes

 

 

421 

Income from discontinued operations

 

$

781 

 

 

 

 

Note 4 – Change in Accounting Principle

 

During the first quarter of 2015, the Company elected to early adopt the provisions of ASU 2015-03 “Simplifying the Presentation of Debt Issuance Costs”.  In accordance with provisions of the FASB ASU topic on “Accounting Changes and Error Corrections” all prior periods presented have been retrospectively adjusted to apply the change in accounting principle.  For a summary of the adjustments, see below:

 

 

 

 

 

 

 

 

 

 

7

 


 

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Previous Accounting Method

Effect of Change In

As Reported

(thousands of dollars)

 

June 30, 2015

Accounting Principle

June 30, 2015

Other assets

 

$

17,642 
(3,838)
13,804 

 

 

 

 

 

 

Long-term debt

 

$

493,119 
(3,838)
489,281 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As Originally Reported

Effect of Change In

As Currently Reported

 

 

December 31, 2014

Accounting Principle

December 31, 2014

Other assets

 

$

15,251 
(4,193)
11,058 

 

 

 

 

 

 

Long-term debt

 

$

492,443 
(4,193)
488,250 

 

 

Note 5 — Inventories

 

Inventories consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

(Thousands of dollars)

 

2015

 

2014

Finished products - FIFO basis

 

$

291,986 

 

$

205,213 

Less LIFO reserve - finished products

 

 

(195,891)

 

 

(144,283)

Finished products - LIFO basis

 

 

96,095 

 

 

60,930 

Store merchandise for resale

 

 

98,814 

 

 

98,712 

Corn based products

 

 

7,373 

 

 

17,873 

Materials and supplies

 

 

5,276 

 

 

5,399 

Total inventories

 

$

207,558 

 

$

182,914 

 

At June 30, 2015 and December 31, 2014, the replacement cost (market value) of last-in, first-out (LIFO) inventories exceeded the LIFO carrying value by $195,891,000 and $144,283,000, respectively. Corn based products consisted primarily of corn and wet distillers’ grains with solubles (WDGS), and were all valued on a first-in, first-out (FIFO) basis. 

 

In the first quarter of 2014, the Company recognized a benefit of $17,781,000 related to a LIFO decrement that existed at that date that was not expected to be restored at year-end.  

 

Note 6 — Long-Term Debt

 

Long-term debt consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

(Thousands of dollars)

 

2015

 

2014

6% senior notes due 2023 (net of unamortized discount of $7,125 at June 2015 and $7,557 at December 2014)

 

$

492,875 

 

$

492,443 

Less unamortized debt issuance costs

 

 

(3,838)

 

 

(4,193)

Total notes payable, net

 

 

489,037 

 

 

488,250 

Capitalized lease obligations, vehicles, due through 2018

 

 

366 

 

 

 —

 

 

 

 

 

 

 

Less current maturities

 

 

(122)

 

 

 —

Total long-term debt

 

$

489,281 

 

$

488,250 

8

 


 

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Senior Notes

 

On August 14, 2013, Murphy Oil USA, Inc., our primary operating subsidiary, issued 6.00% Senior Notes due 2023 (the “Senior Notes”) in an aggregate principal amount of $500 million. The 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 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.

 

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 notes.

 

We used the net proceeds of the Senior Notes, together with borrowings under the credit facilities, to finance a cash dividend of $650 million from Murphy Oil USA, Inc. to Murphy Oil paid in connection with the separation.

 

On June 17, 2014, we closed an exchange offer for our Senior Notes to make them eligible for public resale, as required by a registration rights agreement entered into in connection with the issuance of the Senior Notes.  All of the Senior Notes were tendered for exchange. 

 

Credit Facilities


On August 30, 2013, we entered into a credit agreement in connection with the separation from Murphy Oil. The credit agreement provides for a committed $450 million asset-based loan (ABL) facility (with availability subject to the borrowing base described below) and provided for a $150 million term facility. It also provides for a $200 million uncommitted incremental facility. On August 30, 2013, Murphy Oil USA, Inc. borrowed $150 million under the term facility, the proceeds of which were used, together with the net proceeds of the offering of the Senior Notes, to finance a $650 million cash dividend from Murphy Oil USA, Inc. to Murphy Oil. The term facility was repaid in full in May 2014.  On September 2, 2014, we amended the credit agreement to extend the maturity date to September 2, 2019 and amend the terms of various covenants. 

 

The borrowing base is expected, at any time of determination, to be an amount (net of reserves) equal to the sum of:

 

      100% of eligible cash at such time, plus

      90% of eligible credit card receivables at such time, plus

      90% of eligible investment grade accounts, plus

      85% of eligible other accounts, plus

      80% of eligible product supply/wholesale refined products inventory at such time, plus

      75% of eligible retail refined products inventory at such time, plus

 

the lesser of (i) 70% of the average cost of eligible retail merchandise inventory at such time and (ii) 85% of the net orderly liquidation value of eligible retail merchandise inventory at such time.

 

The ABL facility includes a $75 million sublimit on swingline loans and a $200 million sublimit for the issuance of letters of credit. Swingline loans and letters of credit issued under the ABL facility reduce availability under the ABL facility.

 

 

9

 


 

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Interest payable on the credit facilities is based on either:

 

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

 

the Alternate Base Rate, which is defined as the highest of (a) the prime rate, (b) the federal funds effective rate from time to time plus 0.50% per annum and (c) the one-month Adjusted LIBO Rate plus 1.00% per annum,

 

plus, (A) in the case of Adjusted LIBO Rate borrowings, (i) with respect to the ABL facility, spreads ranging from 1.50% to 2.00% per annum depending on the average availability under the ABL facility or (ii) with respect to the term facility, spreads ranging from 2.75% to 3.00% per annum depending on a secured 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 the average availability under the ABL facility or (ii) with respect to the term facility, spreads ranging from 1.75% to 2.00% per annum depending on a secured debt to EBITDA ratio.

 

The interest rate period with respect to the Adjusted LIBO Rate interest rate option can be set at one,  two,  three, or six months as selected by us in accordance with the terms of the credit agreement.

 

We were obligated to make quarterly principal payments on the outstanding principal amount of the term facility beginning on the first anniversary of the effective date of the credit agreement in amounts equal to 10% of the term loans made on such effective date, with the remaining balance payable on the scheduled maturity date of the term facility. Borrowings under the credit facilities are prepayable at our option without premium or penalty. We were also required to prepay the term facility with the net cash proceeds of certain asset sales or casualty events, subject to certain exceptions. The credit agreement also includes certain customary mandatory prepayment provisions with respect to the ABL facility.

 

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 fixed charge coverage ratio of a minimum of 1.0 to 1.0 when availability for at least three consecutive business days is less than the greater of (a) 17.5% of the lesser of the aggregate ABL facility commitments and the borrowing base and (b) $70,000,000 (including as of the most recent fiscal quarter end on the first date when availability is less than such amount).  As of June 30, 2015, our fixed charge coverage ratio was 0.82; however, we had no debt outstanding under the facility at that date so the fixed charge coverage ratio currently has no impact on our operations or liquidity.         

 

After giving effect to the applicable restrictions on certain payments, which could include dividends under the credit agreement (which restrictions are only applicable when availability under the credit agreement does not exceed the greater of 25% of the lesser of the revolving commitments and the borrowing base and $100 million (and if availability under the credit agreement does not exceed the greater of 40% of the lesser of the revolving commitments and the borrowing base and $150 million, then our fixed charge coverage ratio must be at least 1.0 to 1.0) and the indenture, and subject to compliance with applicable law.  As of December 31, 2014, the Company had approximately $107.5 million of its net income and retained earnings free of such restrictions.

 

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.

10

 


 

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

Note 7 — Asset Retirement Obligations (ARO)

The majority of the ARO recognized by the Company at June 30, 2015 and December 31, 2014 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30,

 

December 31,

(Thousands of dollars)

 

2015

 

2014

Balance at beginning of period

 

$

22,245 

 

$

17,130 

Accretion expense

 

 

757 

 

 

1,200 

Liabilities incurred

 

 

239 

 

 

3,915 

Balance at end of period

 

$

23,241 

 

$

22,245 

 

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

 

Note 8— Income Taxes

 

The effective tax rate is calculated as the amount of income tax expense divided by income before income tax expense. For the three month and six month periods ended June 30, 2015 and 2014, the Company’s effective tax rates were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

2014

 

Three months ended June 30

 

36.2% 

 

 

31.9% 

 

Six months ended June 30

 

39.4% 

 

 

32.8% 

 

 

The effective tax rate for the three months ended June 30, 2015 was higher than the U.S. Federal tax rate of 35% primarily due to U.S. state tax expense which was partially offset by certain state refunds received.  The effective tax rate for the six months ended June 30, 2015 was higher than the U.S. Federal tax rate of 35% due primarily to U.S. state tax expense.  The effective tax rate for the three months and six months ended June 30, 2014 was below the U.S. Federal tax rate of 35% primarily due to a tax benefit recorded in the period that lowered the effective state tax rate.  This adjustment to a lower state tax rate generated a benefit of $6.8 million that was recorded during the second quarter of 2014.          

 

The Company was included in Murphy Oil’s tax returns for the periods prior to the separation in multiple jurisdictions that remain subject to audit by taxing authorities. These audits often take years to complete and settle. As of June 30, 2015, the earliest year remaining open for Federal audit and/or settlement is 2011 and for the states it ranges from 2008-2011.  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.

 

 

 

 

11

 


 

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

Note 9 — 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 12, 2014 (the “MUSA 2013 Plan”). The MUSA 2013 Plan authorizes the Executive Compensation Committee of our Board of Directors (“the Committee”) to grant non-qualified or incentive stock options, stock appreciation rights, stock awards (including restricted stock and restricted stock unit awards), cash awards, and performance awards to our employees. No more than 5.5 million shares of MUSA common stock may be delivered under the MUSA 2013 Plan and no more than 1 million shares of common stock may be awarded to any one employee, subject to adjustment for changes in capitalization. The maximum cash amount payable pursuant to any “performance-based” award to any participant in any calendar year is $5 million.

 

On February 10, 2015, the Committee granted nonqualified stock options for 72,350 shares at an exercise price of $70.57 per share under the terms of the MUSA 2013 Plan.  The Black-Scholes valuation for these awards is $20.18 per option.  The Committee also awarded time-based restricted stock units and performance-based restricted stock units (performance units) to certain employees on the same date.   There were 20,200 time-based restricted units granted at a grant date fair value of $70.57 along with 40,400 performance units.  Half of the performance units vest based on a 3-year return on average capital employed (ROACE) calculation and the other half vest based on a 3-year total shareholder return (TSR) calculation that compares MUSA to a group of 16 peer companies.  The portion of the awards that vest based on TSR qualify as a market condition and must be valued using a Monte Carlo valuation model.  For the TSR portion of the awards, the fair value was determined to be $100.33 per unit.  For the ROACE portion of the awards, the valuation will be based on the grant date fair value of $70.57 per unit and the number of awards will be periodically assessed to determine the probability of vesting. 

 

On February 11, 2015, the Committee also granted 35,250 time-based restricted stock units granted to certain employees with a grant date fair value of $70.57 per unit. 

 

2013 Stock Plan for Non-employee Directors

 

Effective August 8, 2013, Murphy USA adopted the 2013 Murphy USA Stock Plan for Non-employee Directors (the “Directors Plan”).  The directors for Murphy USA are compensated with a mixture of cash payments and equity-based awards.  Awards under the Directors Plan may be in the form of restricted stock, restricted stock units, stock options, or a combination thereof.  An aggregate of 500,000 shares of common stock shall be available for issuance of grants under the Directors Plan. 

 

During the first quarter of 2015, the Company issued 12,924 restricted stock units to its non-employee directors at a weighted average grant date fair value of $71.51 per share.  These shares vest in three years from the grant date. 

 

For the six months ended June 30, 2015 and 2014, share based compensation was $4.4 million and $4.8 million, respectively.  The income tax benefit realized for the tax deductions from options exercised for the six months ended June 30, 2015 was $3.4 million

 

Note 10— Financial Instruments and Risk Management

 

DERIVATIVE INSTRUMENTS — The Company makes limited use of derivative instruments to manage certain risks related to commodity prices. The use of derivative instruments for risk management is covered by operating policies and is closely monitored by the Company’s senior management. The Company does not hold any derivatives for speculative purposes and it does not use derivatives with leveraged or complex features. Derivative instruments are traded primarily with creditworthy major financial institutions or over national exchanges such as the New York Mercantile Exchange (“NYMEX”).

12

 


 

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

To qualify for hedge accounting, the changes in the market value of a derivative instrument must historically have been, and would be expected to continue to be, highly effective at offsetting changes in the prices of the hedged item. To the extent that the change in fair value of a derivative instrument has less than perfect correlation with the change in the fair value of the hedged item, a portion of the change in fair value of the derivative instrument is considered ineffective and would normally be recorded in earnings during the affected period.

 

The Company is subject to commodity price risk related to corn that it will purchase in the future for feedstock and WDGS that it will sell in the future at its remaining ethanol production facility.   At June 30, 2015 and 2014, the Company had open physical delivery commitment contracts for purchase of approximately 6.6 million and 4.9 million bushels of corn, respectively, for processing at its ethanol plant. At June 30, 2015 and 2014, the Company had open physical delivery commitment contracts for sale of approximately 0.6 million and 0.8 million equivalent bushels, respectively, of WDGS. To manage the price risk associated with certain of these physical delivery commitments which have fixed prices, at June 30, 2015 and 2014, the Company had outstanding derivative contracts with a net short volume of 2.5 million and 2.3 million bushels, respectively, that mature at future prices in effect on the expected date of delivery under the physical delivery commitment contracts.   Additionally, at June 30, 2015 and 2014, the Company had outstanding derivative contracts with net short volumes of 1.5 million and 1.7 million bushels of corn, respectively, to buy back when certain corn inventories are expected to be processed. The impact of marking to market these commodity derivative contracts decreased income before taxes by $1.1 million and increased income before taxes by $0.9 million for the six months ended June 30, 2015 and 2014, respectively.

 

At June 30, 2015 and December 31, 2014, the fair value of derivative instruments not designated as hedging instruments are presented in the following table.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2015

 

December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Thousands of dollars)

 

Balance Sheet Location

 

Fair Value

 

Balance Sheet Location

 

Fair Value

 

Balance Sheet Location

 

Fair Value

 

Balance Sheet Location

 

Fair Value

Commodity derivative contracts

 

Accounts Receivable

 

$

1,593 

 

Accounts Payable

 

$

2,649 

 

Accounts Receivable

 

$

74 

 

Accounts Payable

 

$

2,204 

 

For the three month periods ended June 30, 2015 and 2014, the gains and losses recognized in the consolidated Statements of Income for derivative instruments not designated as hedging instruments are presented in the following table.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss)

(Thousands of dollars)

 

Statement of Income

 

Three Months Ended June 30,

 

Six Months Ended June 30,

Type of Derivative Contract

 

Location

 

2015

 

2014

 

2015

 

2014

Commodity

 

Fuel and ethanol costs of goods sold

 

$

(482)

 

$

2,084 

 

$

1,714 

 

$

619 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company offsets certain assets and liabilities related to derivative contracts when the legal right of offset exists. Derivative assets and liabilities which have offsetting positions at June 30, 2015 and December 31, 2014 are presented in the following tables:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

 


 

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

Gross Amounts

 

Net Amounts of

 

 

Gross Amounts

 

Offset in the

 

Assets Presented in

 

 

of Recognized

 

Consolidated

 

the Consolidated

(Thousands of dollars)

 

Assets

 

Balance Sheet

 

Balance Sheet

At June 30, 2015

 

 

 

 

 

 

 

 

 

Commodity derivatives

 

$

4,330 

 

$

(2,737)

 

$

1,593 

At December 31, 2014

 

 

 

 

 

 

 

 

 

Commodity derivatives

 

$

93 

 

$

(19)

 

$

74 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Amounts

 

Net Amounts of

 

 

Gross Amounts

 

Offset in the

 

Liabilities Presented

 

 

of Recognized

 

Consolidated

 

in the Consolidated

 

 

Liabilities

 

Balance Sheet

 

Balance Sheet

At June 30, 2015

 

 

 

 

 

 

 

 

 

Commodity derivatives

 

$

5,386 

 

$

(2,737)

 

$

2,649 

At December 31, 2014

 

 

 

 

 

 

 

 

 

Commodity derivatives

 

$

2,223 

 

$

(19)

 

$

2,204 

 

All commodity derivatives above are corn-based contracts associated with the Company’s Hereford plant. Net derivative assets are included in Accounts Receivable presented in the table on the prior page and are included in Accounts Receivable on the Consolidated Balance Sheets; likewise, net derivative liabilities in the above table are included in Accounts Payable in the table above and are included in Accounts Payable and Accrued Liabilities on the Consolidated Balance Sheets. These contracts permit net settlement and the Company generally avails itself of this right to settle net. At June 30, 2015 and December 31, 2014, cash deposits of $2.2 million and $2.8 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 corn-based derivative contracts at June 30, 2015 or December 31, 2014, respectively.

 

Note 11 – Earnings Per Share

 

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

 

During May 2014, the Company executed a share repurchase program that was approved by the Board of Directors for approximately $50 million worth of common stock of the Company.   At the completion of this plan, the Company had acquired 1,040,636 shares of common stock for an average price of $48.07 per share including brokerage fees.  The Company is currently executing the previously announced share repurchase program of $250 million that is expected to be completed by the end of 2015.  As of June 30, 2015, 2,999,616 shares have been acquired under the $250 million repurchase authorization. 

 

The following table provides a reconciliation of basic and diluted earnings per share computations for the three and six months ended June 30, 2015 and 2014 (in thousands, except per share amounts):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

 

$

26,191 

 

$

73,232 

 

$

49,123 

 

$

82,865 

Weighted average common shares outstanding (in thousands)

 

 

44,078 

 

 

46,233 

 

 

44,851 

 

 

46,490 

Total earnings per share

 

$

0.59 

 

$

1.58 

 

$

1.09 

 

$

1.78 

 

 

 

 

 

 

 

 

 

 

 

 

 

14

 


 

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share - assuming dilution:

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders

 

$

26,191 

 

$

73,232 

 

$

49,123 

 

$

82,865 

Weighted average common shares outstanding (in thousands)

 

 

44,078 

 

 

46,233 

 

 

44,851 

 

 

46,490 

Common equivalent shares:

 

 

 

 

 

 

 

 

 

 

 

 

Dilutive options

 

 

331 

 

 

294 

 

 

367 

 

 

218 

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

 

 

44,409 

 

 

46,527 

 

 

45,218 

 

 

46,708 

Earnings per share - assuming dilution

 

$

0.59 

 

$

1.57 

 

$

1.09 

 

$

1.77 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note 12 — Other Financial Information

 

ETHANOL SALES AND OTHER – Ethanol sales and other revenue in the Consolidated Income Statements include the following items: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

Six Months Ended June 30,

(Thousands of dollars)

 

2015

 

2014

 

2015

 

2014

Sales of ethanol and related plant products

 

$

49,190 

 

$

64,088 

 

$

90,938 

 

$

112,876 

Renewable Identification Numbers (RINs) sales

 

 

36,248 

 

 

23,261 

 

 

73,847 

 

 

40,854 

Other

 

 

709 

 

 

646 

 

 

1,661 

 

 

1,530 

Total ethanol sales and other revenue

 

$

86,147 

 

$

87,995 

 

$

166,446 

 

$

155,260 

 

CASH FLOW DISCLOSURES — Cash income taxes paid, net of refunds, were $59,098,000 and $71,469,000 for the six month periods ended June 30, 2015 and 2014, respectively. Interest paid was $15,869,000 and $17,070,000 for the six month periods ended June 30, 2015 and 2014, respectively.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

(Thousands of dollars)

 

2015

 

2014

Accounts receivable

 

$

(34,058)

 

$

(63,984)

Inventories

 

 

(24,671)

 

 

13,019 

Prepaid expenses

 

 

(11,099)

 

 

(1,063)

Accounts payable and accrued liabilities

 

 

66,909 

 

 

91,480 

Income taxes payable

 

 

(19,575)

 

 

(22,103)

Current deferred income tax liabilities

 

 

8,602 

 

 

1,517 

Net decrease (increase) in noncash operating working capital

 

$

(13,892)

 

$

18,866 

 

Note 13 — Assets and Liabilities Measured at Fair Value

 

The Company carries certain assets and liabilities at fair value in its Consolidated Balance Sheets. The fair value hierarchy is based on the quality of inputs used to measure fair value, with Level 1 being the highest quality and Level 3 being the lowest quality. Level 1 inputs are quoted prices in active markets for

15

 


 

Murphy USA Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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 carries certain assets and liabilities at fair value in its Consolidated Balance Sheets. The fair value measurements for these assets and liabilities at June 30, 2015 and December 31, 2014 are presented in the following table.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements

 

 

at Reporting Date Using

 

 

 

 

 

Quoted Prices

 

Significant

 

 

 

 

 

 

 

In Active Markets

 

Other

 

Significant

 

 

Fair Value

 

for Identical

 

Observable

 

Unobservable

 

 

June 30,

 

Assets/(Liabilities)

 

Inputs

 

Inputs

(Thousands of dollars)

 

2015

 

(Level 1)

 

(Level 2)

 

(Level 3)

Assets

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

 

$

1,593 

 

 

 —

 

$

1,593 

 

 

 —

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Commodity derivative contracts

 

<