Attached files
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| 8-K - 8-K Q2 2016 EARNINGS RELEASE - Murphy USA Inc. | form8-kq22016earningsrelea.htm |
Exhibit 99.1
Murphy USA Inc. Reports Second Quarter 2016 Results
El Dorado, Arkansas, August 3, 2016 – Murphy USA Inc. (NYSE: MUSA), a leading marketer of retail motor fuel products and convenience merchandise, today announced financial results for the three and six months ended June 30, 2016.
Key Highlights:
• | Net income was $46.3 million, or $1.17 per diluted share in Q2 2016 |
• | Retail fuel contribution grew 22.5% as higher unit margins of 10.8 cpg offset a 1.3% decline in same store fuel gallons; total gallons grew 2.2% to 1.03 billion gallons for the network |
• | Product supply and wholesale (PS&W) contribution, including RIN income, was $61.2 million in Q2, or a combined 5.9 cpg on a retail gallon equivalent basis |
• | Merchandise contribution dollars grew 10.8% year over year to $92.7 million at average unit margins of 15.7%, which is a second consecutive quarterly record |
• | Common shares repurchased totaled 244,000 for $17 million at an average price of roughly $70.00 per share under the previously announced program of up to $500 million |
• | 15 stores opened during the quarter, including seven raze and rebuilds, with construction in progress at 40 new sites and three raze and rebuilds, most of which will be placed into service during the third quarter |
"Second quarter results showcased the benefits of our differentiated fuel-driven business model,” said President and CEO Andrew Clyde. “We continue to demonstrate tangible progress among the core elements of our formula for value creation as we accelerate new store additions, generate record merchandise margins, and diligently focus on cost control initiatives, all of which result in strong improvement to our fuel breakeven metric,” Clyde went on to say. "On top of strong organic earnings growth and other corporate initiatives, we continue to allocate capital in a manner consistent with maximizing shareholder returns through high-quality organic growth opportunities and share repurchases," Mr. Clyde concluded.
Consolidated Results
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
Key Operating Metrics | 2016 | 2015 | 2016 | 2015 | |||||||||||
Net income ($ Millions) | $46.3 | $26.2 | $132.2 | $49.1 | |||||||||||
Earnings per share (diluted) | $1.17 | $0.59 | $3.26 | $1.09 | |||||||||||
Net income from continuing operations ($ Millions) | $46.3 | $24.8 | $132.2 | $48.3 | |||||||||||
EPS from continuing operations (diluted) | $1.17 | $0.56 | $3.26 | $1.07 | |||||||||||
Adjusted EBITDA ($ Millions) | $108.6 | $73.6 | $191.6 | $137.1 | |||||||||||
Income from continuing operations, Adjusted EBITDA and earnings per share improved significantly in the Q2 2016 period due to higher retail fuel margins, higher network fuel volumes, increased merchandise margins, and higher RIN sales.
Fuel
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
Key Operating Metrics | 2016 | 2015 | 2016 | 2015 | |||||||||||
Retail fuel volume - chain (Million gal) | 1,033.3 | 1,011.4 | 2,040.5 | 1,974.2 | |||||||||||
Retail fuel volume - per site (K gal APSM) | 258.6 | 265.2 | 255.3 | 259.4 | |||||||||||
Retail fuel margin (cpg excl credit card fees) | 10.8 | 9.0 | 11.0 | 9.5 | |||||||||||
Total retail fuel contribution ($ Millions) | $112.0 | $91.4 | $224.0 | $187.3 | |||||||||||
Retail fuel contribution ($K APSM) | $28.0 | $24.0 | $28.0 | $24.6 | |||||||||||
PS&W contribution ($ Millions excl RINs) | $17.4 | $14.4 | $8.2 | $13.4 | |||||||||||
RIN sales ($ Millions) | $43.9 | $36.2 | $82.6 | $73.8 | |||||||||||
Total retail fuel contribution dollars increased 22.5% in Q2 2016 due to higher volumes from new stores and stronger margins. Total network retail gallons sold in the quarter increased 2.2%, while same store gallons declined by 1.3%. Per store volumes declined 2.5% on an APSM basis, reflecting the impact of the high number of new stores opened in Q4 2015 that are still ramping up operations which include a higher mix of Midwest locations that historically perform below the chain average. In addition, high volume stores closed for raze and rebuild also impacted the APSM metric.
Product Supply & Wholesale margins totaled $17.4 million in the second quarter, reflecting an upward trend in product prices, creating positive timing and inventory variances. Results were also positively impacted due to periods of tighter market conditions driven by pipeline maintenance and high demand.
In the current quarter, 57.0 million RINs were sold at an average price of $0.77 per RIN, or $43.9 million. For the prior year quarter, RINs added $36.2 million to income as 58.4 million RINs were sold at an average price of $0.62 per RIN. On a combined basis, PS&W and RINs
effectively contributed an additional 5.9 cpg to the retail fuel margin (e.g. dividing by retail gallons sold) in Q2 2016 compared to 5.0 cpg in Q2 2015.
Merchandise
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
Key Operating Metrics | 2016 | 2015 | 2016 | 2015 | |||||||||||
Total merchandise sales ($ Millions) | $589.5 | $572.2 | $1,151.2 | $1,096.3 | |||||||||||
Total merchandise contribution ($ Millions) | $92.7 | $83.6 | $178.6 | $157.2 | |||||||||||
Total merchandise sales ($K APSM) | $147.5 | $150.0 | $144.0 | $144.1 | |||||||||||
Merchandise unit margin (%) | 15.7 | % | 14.6 | % | 15.5 | % | 14.3 | % | |||||||
Tobacco contribution ($K APSM) | $13.7 | $12.9 | $13.3 | $12.3 | |||||||||||
Non-tobacco contribution ($K APSM) | $9.5 | $9.0 | $9.1 | $8.4 | |||||||||||
Total merchandise contribution ($K APSM) | $23.2 | $21.9 | $22.4 | $20.7 | |||||||||||
Total merchandise sales increased 3.0% in Q2, driven primarily by new store additions and partially offset by a 1.7% decrease in APSM sales. Due to the aforementioned higher mix of new stores in the Midwest region, same store sales were down only 0.1% year-over-year. Total margin contribution, however, increased 10.8% for the quarter, attributable to new store additions, Core-Mark supply contract benefits, as well as per store improvements from pricing and promotional effectiveness. As a result, total unit margins were up by 110 basis points from 14.6% in the prior period, setting a second consecutive quarterly record of 15.7%.
Tobacco contribution margin per store was up 5.9% to $13,651 due primarily to the Core-Mark supply advantage, price increases, and to a lesser extent, higher rebates, while sales were down 3.6% on an APSM basis, concentrated in a few states with large tax/minimum markup changes.
Non-tobacco sales were up 9.7% versus the prior period, generating 5.6% growth in non-tobacco contribution per store of $9,536, driven by a robust lotto/lottery category, snacks and beverages. The overall product mix continues to benefit from larger store formats, refresh initiatives, super-cooler installations and promotional activity.
Other areas
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
Key Operating Metrics | 2016 | 2015 | 2016 | 2015 | |||||||||||
Total station and other operating expense ($ Millions) | $125.1 | $122.4 | $241.9 | $236.9 | |||||||||||
Station OPEX excl credit card fees ($K APSM) | $21.8 | $21.9 | $21.3 | $21.6 | |||||||||||
Total SG&A cost ($ Millions) | $32.3 | $32.9 | $63.8 | $64.0 | |||||||||||
Total station and other operating expenses increased $2.8 million for the quarter, reflecting new store additions. However, on a per store basis, operating expenses excluding credit card fees declined 0.9% with labor costs down 2.8%, offset by accelerated maintenance refresh costs.
Station Openings
Murphy USA opened eight retail locations in Q2 2016 (not including seven raze and rebuilds), bringing the quarter end store count to 1,344, consisting of 1,118 Murphy USA sites and 226 Murphy Express sites. A total of 40 stores are currently under construction along with three kiosks undergoing a raze and rebuild which will return to operation as 1,200 sq foot stores during third quarter.
Cash Flow and Financial Resources
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
Key Metrics (Millions except average shares) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Cash flow from continuing operations | $91.7 | $34.9 | $168.6 | $65.1 | |||||||||||
Capital expenditures | ($69.3 | ) | ($56.3 | ) | ($116.6 | ) | ($87.9 | ) | |||||||
Free cash flow (non-GAAP) | $22.4 | ($21.4 | ) | $52.0 | ($22.8 | ) | |||||||||
Cash and cash equivalents | $254.2 | $ | 120.5 | $254.2 | $ | 120.5 | |||||||||
Long-term debt | $648.3 | $ | 489.3 | $648.3 | $ | 489.3 | |||||||||
Average shares outstanding, thousands (diluted) | 39,720 | 44,409 | 40,505 | 45,218 | |||||||||||
Cash balances on June 30, 2016 totaled $254.2 million, not including restricted cash of $53.9 million related to unspent sales proceeds from the CAM pipeline held by a third party trustee in order for the Company to effect like-kind exchange transactions to defer tax gains. This amount is included in non-current assets on the balance sheet as of June 30, 2016.
Long-term debt consisted of approximately $488 million in carrying value of 6% senior notes due in 2023, and $190 million of term debt less $30 million of expected amortization, which is reflected in Current Liabilities. The Company's asset-based loan facility remains undrawn with a borrowing base of $183.1 million as of July 2016.
Approximately 244,000 shares were repurchased during the current quarter for $17 million. At June 30, 2016, the Company had common shares outstanding of 39,163,458.
* * * * *
Earnings Call Information
The Company will host a conference call on August 4, 2016, at 10:00 a.m. Central time to discuss second quarter 2016 results. The conference call number is 1 (877) 291-1367 and the conference number is 44236696. A live audio webcast of the conference call and the earnings and investor related materials, including reconciliations of any non-GAAP financial measures to GAAP financial measures and any other applicable disclosures, will be available on that same
day on the investor section of the Murphy USA website (http://ir.corporate.murphyusa.com). Online replays of the earnings call will be available through Murphy USA’s web site and a recording of the call will be available through August 5, 2016, by dialing 1(855) 859-2056 and referencing conference number 44236696. In addition, a transcript of the event will be made available on the website shortly following the conference call.
Forward-Looking Statements
Certain statements in this news release contain or may suggest “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995) that involve risk and uncertainties, including, but not limited to anticipated store openings, fuel margins, merchandise margins, sales of RINs and trends in our operations. Such statements are based upon the current beliefs and expectations of the company’s management and are subject to significant risks and uncertainties. Actual future results may differ materially from historical results or current expectations depending upon factors including, but not limited to: our ability to continue to maintain a good business relationship with Walmart; successful execution of our growth strategy, including our ability to realize the anticipated benefits from such growth initiatives, and the timely completion of construction associated with our newly planned stores which may be impacted by the financial health of third parties; our ability to effectively manage our inventory, disruptions in our supply chain and our ability to control costs; the impact of any systems failures, cybersecurity and/or security breaches, including any security breach that results in theft, transfer or unauthorized disclosure of customer, employee or company information or our compliance with information security and privacy laws and regulations in the event of such an incident; successful execution of our information technology strategy; future tobacco or e-cigarette legislation and any other efforts that make purchasing tobacco products more costly or difficult could hurt our revenues and impact gross margins; efficient and proper allocation of our capital resources; compliance with debt covenants; availability and cost of credit; and changes in interest rates. Our SEC report, including our Annual Report on our Form 10-K for the year ended December 31, 2015 contains other information on these and other factors that could affect our financial results and cause actual results to differ materially from any forward-looking information we may provide. The company undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events, new information or future circumstances.
Investor Contact: Christian Pikul (870) 875-7683 Director, Investor Relations christian.pikul@murphyusa.com Cell 870-677-0278 | Media/ Public Relations Contact: Jerianne Thomas (870) 875-7770 Director, Corporate Communications jerianne.thomas@murphyusa.com Cell - 870-866-6321 |
Murphy USA Inc.
Consolidated Statements of Income
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
(Thousands of dollars except per share amounts) | 2016 | 2015 | 2016 | 2015 | |||||||||
Revenues | |||||||||||||
Petroleum product sales (a) | $ | 2,371,735 | $ | 2,858,910 | $ | 4,260,019 | $ | 5,216,989 | |||||
Merchandise sales | 589,457 | 572,164 | 1,151,194 | 1,096,301 | |||||||||
Other operating revenues | 44,570 | 36,912 | 84,811 | 75,460 | |||||||||
Total revenues | 3,005,762 | 3,467,986 | 5,496,024 | 6,388,750 | |||||||||
Costs and Operating Expenses | |||||||||||||
Petroleum product cost of goods sold (a) | 2,242,936 | 2,750,602 | 4,026,065 | 5,011,688 | |||||||||
Merchandise cost of goods sold | 496,801 | 488,540 | 972,603 | 939,093 | |||||||||
Station and other operating expenses | 125,145 | 122,377 | 241,919 | 236,912 | |||||||||
Depreciation and amortization | 23,685 | 21,215 | 47,171 | 42,318 | |||||||||
Selling, general and administrative | 32,320 | 32,886 | 63,823 | 63,979 | |||||||||
Accretion of asset retirement obligations | 412 | 379 | 825 | 757 | |||||||||
Total costs and operating expenses | 2,921,299 | 3,415,999 | 5,352,406 | 6,294,747 | |||||||||
Income from operations | 84,463 | 51,987 | 143,618 | 94,003 | |||||||||
Other income (expense) | |||||||||||||
Interest income | 250 | 15 | 330 | 1,888 | |||||||||
Interest expense | (10,210 | ) | (8,329 | ) | (19,598 | ) | (16,658 | ) | |||||
Gain (loss) on sale of assets | (490 | ) | (23 | ) | 88,975 | (19 | ) | ||||||
Other nonoperating income (expense) | 85 | (4,854 | ) | 118 | 510 | ||||||||
Total other income (expense) | (10,365 | ) | (13,191 | ) | 69,825 | (14,279 | ) | ||||||
Income before income taxes | 74,098 | 38,796 | 213,443 | 79,724 | |||||||||
Income tax expense | 27,788 | 13,976 | 81,259 | 31,387 | |||||||||
Income from continuing operations | 46,310 | 24,820 | 132,184 | 48,337 | |||||||||
Income (loss) from discontinued operations, net of taxes | — | 1,371 | — | 786 | |||||||||
Net Income | $ | 46,310 | $ | 26,191 | $ | 132,184 | $ | 49,123 | |||||
Earnings per share - basic: | |||||||||||||
Income from continuing operations | $ | 1.18 | $ | 0.56 | $ | 3.29 | $ | 1.07 | |||||
Income (loss) from discontinued operations | — | 0.03 | — | 0.02 | |||||||||
Net Income - basic | $ | 1.18 | $ | 0.59 | $ | 3.29 | $ | 1.09 | |||||
Earnings per share - diluted: | |||||||||||||
Income from continuing operations | $ | 1.17 | $ | 0.56 | $ | 3.26 | $ | 1.07 | |||||
Income (loss) from discontinued operations | — | 0.03 | — | 0.02 | |||||||||
Net Income - diluted | $ | 1.17 | $ | 0.59 | $ | 3.26 | $ | 1.09 | |||||
Weighted-average shares outstanding (in thousands): | |||||||||||||
Basic | 39,360 | 44,078 | 40,134 | 44,851 | |||||||||
Diluted | 39,720 | 44,409 | 40,505 | 45,218 | |||||||||
Supplemental information: | |||||||||||||
(a) Includes excise taxes of: | $ | 487,923 | $ | 483,470 | $ | 960,533 | $ | 946,444 | |||||
Murphy USA Inc.
Segment Operating Results
(Unaudited)
(Thousands of dollars, except volume per store month, margins and store counts) | Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||
Marketing Segment | 2016 | 2015 | 2016 | 2015 | ||||||||||
Revenues | ||||||||||||||
Petroleum product sales | $ | 2,371,735 | $ | 2,858,910 | $ | 4,260,019 | $ | 5,216,989 | ||||||
Merchandise sales | 589,457 | 572,164 | 1,151,194 | 1,096,301 | ||||||||||
Other operating revenues | 44,558 | 36,911 | 84,595 | 75,199 | ||||||||||
Total revenues | 3,005,750 | 3,467,985 | 5,495,808 | 6,388,489 | ||||||||||
Costs and operating expenses | ||||||||||||||
Petroleum products cost of goods sold | 2,242,936 | 2,750,602 | 4,026,065 | 5,011,688 | ||||||||||
Merchandise cost of goods sold | 496,801 | 488,540 | 972,603 | 939,093 | ||||||||||
Station and other operating expenses | 125,145 | 122,377 | 241,919 | 236,911 | ||||||||||
Depreciation and amortization | 22,118 | 19,975 | 44,033 | 39,878 | ||||||||||
Selling, general and administrative | 32,319 | 32,885 | 63,822 | 63,979 | ||||||||||
Accretion of asset retirement obligations | 412 | 379 | 825 | 757 | ||||||||||
Total costs and operating expenses | 2,919,731 | 3,414,758 | 5,349,267 | 6,292,306 | ||||||||||
Income from operations | 86,019 | 53,227 | 146,541 | 96,183 | ||||||||||
Other income | ||||||||||||||
Interest expense | (12 | ) | (5 | ) | (21 | ) | (7 | ) | ||||||
Gain (loss) on sale of assets | (489 | ) | (23 | ) | 88,976 | (19 | ) | |||||||
Other nonoperating income | 13 | 146 | 41 | 225 | ||||||||||
Total other income | (488 | ) | 118 | 88,996 | 199 | |||||||||
Income from continuing operations | ||||||||||||||
before income taxes | 85,531 | 53,345 | 235,537 | 96,382 | ||||||||||
Income tax expense | 32,089 | 19,877 | 89,670 | 38,159 | ||||||||||
Income from continuing operations | $ | 53,442 | $ | 33,468 | $ | 145,867 | $ | 58,223 | ||||||
Total tobacco sales revenue per store month | $ | 110,309 | $ | 114,470 | $ | 108,173 | $ | 110,575 | ||||||
Total non-tobacco sales revenue per store month | 37,203 | 35,528 | 35,874 | 33,488 | ||||||||||
Total merchandise sales revenue per store month | $ | 147,512 | $ | 149,998 | $ | 144,047 | $ | 144,063 | ||||||
Store count at end of period | 1,344 | 1,277 | 1,344 | 1,277 | ||||||||||
Total store months during the period | 3,996 | 3,814 | 7,992 | 7,610 | ||||||||||
Same store sales information (compared to APSM metrics)
Variance from prior year quarter | ||||
SSS | APSM | |||
Three months ended | ||||
June 30, 2016 | ||||
Fuel gallons per month | (1.3 | )% | (2.5 | )% |
Merchandise sales | (0.1 | )% | (1.7 | )% |
Tobacco sales | (1.4 | )% | (3.6 | )% |
Non tobacco sales | 4.3 | % | 4.7 | % |
Merchandise margin | 7.0 | % | 5.8 | % |
Tobacco margin | 8.5 | % | 5.9 | % |
Non tobacco margin | 4.9 | % | 5.6 | % |
Murphy USA Inc.
Consolidated Balance Sheets
(Thousands of dollars) | June 30, 2016 | December 31, 2015 | ||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 254,210 | $ | 102,335 | ||||
Accounts receivable—trade, less allowance for doubtful accounts of $1,988 in 2016 and $1,963 in 2015 | 148,211 | 136,253 | ||||||
Inventories, at lower of cost or market | 152,494 | 155,906 | ||||||
Prepaid expenses and other current assets | 17,066 | 41,173 | ||||||
Total current assets | 571,981 | 435,667 | ||||||
Property, plant and equipment, at cost less accumulated depreciation and amortization of $732,114 in 2016 and $724,486 in 2015 | 1,430,816 | 1,369,318 | ||||||
Restricted cash | 53,853 | 68,571 | ||||||
Other assets | 27,196 | 12,685 | ||||||
Total assets | $ | 2,083,846 | $ | 1,886,241 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current liabilities | ||||||||
Current maturities of long-term debt | $ | 30,372 | $ | 222 | ||||
Trade accounts payable and accrued liabilities | 401,141 | 390,341 | ||||||
Income taxes payable | 24,184 | — | ||||||
Deferred income taxes | — | 1,729 | ||||||
Total current liabilities | 455,697 | 392,292 | ||||||
Long-term debt, including capitalized lease obligations | 648,266 | 490,160 | ||||||
Deferred income taxes | 177,570 | 161,236 | ||||||
Asset retirement obligations | 25,012 | 24,345 | ||||||
Deferred credits and other liabilities | 19,389 | 25,918 | ||||||
Total liabilities | 1,325,934 | 1,093,951 | ||||||
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 | ||||||||
2016 and 2015, respectively) | 468 | 468 | ||||||
Treasury stock (7,603,706 and 5,088,434 shares held at | ||||||||
June 30, 2016 and December 31, 2015, respectively) | (454,496 | ) | (294,139 | ) | ||||
Additional paid in capital (APIC) | 551,977 | 558,182 | ||||||
Retained earnings | 659,963 | 527,779 | ||||||
Total stockholders' equity | 757,912 | 792,290 | ||||||
Total liabilities and stockholders' equity | $ | 2,083,846 | $ | 1,886,241 | ||||
Murphy USA Inc.
Consolidated Statement of Cash Flows
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
(Thousands of dollars) | 2016 | 2015 | 2016 | 2015 | ||||||||
Operating Activities | ||||||||||||
Net income | $ | 46,310 | $ | 26,191 | $ | 132,184 | $ | 49,123 | ||||
Adjustments to reconcile net income to net cash provided by operating activities | ||||||||||||
(Income) loss from discontinued operations, net of taxes | — | (1,371 | ) | — | (786 | ) | ||||||
Depreciation and amortization | 23,685 | 21,215 | 47,171 | 42,318 | ||||||||
Deferred and noncurrent income tax charges (credits) | (14,250 | ) | (4,395 | ) | 14,605 | (9,468 | ) | |||||
Accretion of asset retirement obligations | 412 | 379 | 825 | 757 | ||||||||
Pretax (gains) losses from sale of assets | 490 | 23 | (88,975 | ) | 19 | |||||||
Net (increase) decrease in noncash operating working capital | 32,580 | (12,597 | ) | 57,427 | (24,910 | ) | ||||||
Other operating activities - net | 2,461 | 5,491 | 5,365 | 8,010 | ||||||||
Net cash provided by continuing operations | 91,688 | 34,936 | 168,602 | 65,063 | ||||||||
Net cash provided by discontinued operations | — | 8,462 | — | 12,753 | ||||||||
Net cash provided by operating activities | 91,688 | 43,398 | 168,602 | 77,816 | ||||||||
Investing Activities | ||||||||||||
Property additions | (69,286 | ) | (56,273 | ) | (116,569 | ) | (87,895 | ) | ||||
Proceeds from sale of assets | 287 | 9 | 86,298 | 91 | ||||||||
Changes in restricted cash | 77,079 | — | 13,429 | — | ||||||||
Other investing activities - net | (13,838 | ) | — | (15,138 | ) | — | ||||||
Investing activities of discontinued operations | ||||||||||||
Sales proceeds | — | — | — | — | ||||||||
Other | — | (2,807 | ) | — | (3,762 | ) | ||||||
Net cash required by investing activities | (5,758 | ) | (59,071 | ) | (31,980 | ) | (91,566 | ) | ||||
Financing Activities | ||||||||||||
Purchase of treasury stock | (17,095 | ) | (150,399 | ) | (167,105 | ) | (189,834 | ) | ||||
Borrowings of debt | — | — | 200,000 | — | ||||||||
Repayments of debt | (10,092 | ) | (31 | ) | (10,165 | ) | (46 | ) | ||||
Debt issuance costs | (126 | ) | — | (3,240 | ) | — | ||||||
Amounts related to share-based compensation | (108 | ) | (123 | ) | (4,237 | ) | (3,030 | ) | ||||
Net cash provided by (required by) financing activities | (27,421 | ) | (150,553 | ) | 15,253 | (192,910 | ) | |||||
Net increase (decrease) in cash and cash equivalents | 58,509 | (166,226 | ) | 151,875 | (206,660 | ) | ||||||
Cash and cash equivalents at beginning of period | 195,701 | 287,671 | 102,335 | 328,105 | ||||||||
Cash and cash equivalents at end of period | 254,210 | 121,445 | 254,210 | 121,445 | ||||||||
Less: Cash and cash equivalents held for sale | — | 976 | — | 976 | ||||||||
Cash and cash equivalents of continuing operations at end of period | $ | 254,210 | $ | 120,469 | $ | 254,210 | $ | 120,469 | ||||
Supplemental Disclosure Regarding Non-GAAP Financial Information
The following table sets forth the Company’s Adjusted EBITDA for the three and six months ended June 30, 2016 and 2015. EBITDA means net income (loss) plus net interest expense, plus income tax expense, depreciation and amortization, and Adjusted EBITDA adds back (i) other non-cash items (e.g., impairment of properties and accretion of asset retirement obligations) and (ii) other items that management does not consider to be meaningful in assessing our operating performance (e.g., (income) from discontinued operations, gain (loss) on sale of assets and other non-operating expense (income)). EBITDA and Adjusted EBITDA are not measures that are prepared in accordance with U.S. generally accepted accounting principles (GAAP).
We use this Adjusted EBITDA in our operational and financial decision-making, believing that such measure is useful to eliminate certain items in order to focus on what we deem to be a more reliable indicator of ongoing operating performance and our ability to generate cash flow from operations. Adjusted EBITDA is also used by many of our investors, research analysts, investment bankers, and lenders to assess our operating performance. However, non-GAAP measures are not a substitute for GAAP disclosures, and Adjusted EBITDA may be prepared differently by us than by other companies using similarly titled non-GAAP measures.
The reconciliation of net income to EBITDA and Adjusted EBITDA is as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
(Thousands of dollars) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
Net income | $ | 46,310 | $ | 26,191 | $ | 132,184 | $ | 49,123 | ||||||||
Income taxes | 27,788 | 13,976 | 81,259 | 31,387 | ||||||||||||
Interest expense, net of interest income | 9,960 | 8,314 | 19,268 | 14,770 | ||||||||||||
Depreciation and amortization | 23,685 | 21,215 | 47,171 | 42,318 | ||||||||||||
EBITDA | $ | 107,743 | $ | 69,696 | $ | 279,882 | $ | 137,598 | ||||||||
(Income) loss from discontinued operations, net of tax | — | (1,371 | ) | — | (786 | ) | ||||||||||
Accretion of asset retirement obligations | 412 | 379 | 825 | 757 | ||||||||||||
(Gain) loss on sale of assets | 490 | 23 | (88,975 | ) | 19 | |||||||||||
Other nonoperating (income) expense | (85 | ) | 4,854 | (118 | ) | (510 | ) | |||||||||
Adjusted EBITDA | $ | 108,560 | $ | 73,581 | $ | 191,614 | $ | 137,078 | ||||||||
The Company also considers Free Cash Flow in the operation of its business. Free cash flow is defined as net cash provided by operating activities in a period minus payments for property and equipment made in that period. Free cash flow is also considered a non-GAAP financial measure. Management believes, however, that free cash flow, which measures our ability to generate additional cash from our business operations, is an important financial measure for us in evaluating the Company’s performance. Free cash
flow should be considered in addition to, rather than as a substitute for consolidated net income as a measure of our performance and net cash provided by operating activities as a measure of our liquidity.
Numerous methods may exist to calculate a company’s free cash flow. As a result, the method used by our management to calculate our free cash flow may differ from the methods other companies use to calculate their free cash flow. The following table provides a reconciliation of free cash flow, a non-GAAP financial measure, to net cash provided by operating activities, which we believe to be the GAAP financial measure most directly comparable to free cash flow:
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
(Thousands of dollars) | 2016 | 2015 | 2016 | 2015 | |||||||||||
Net cash provided by continuing operations | $ | 91,688 | $ | 34,936 | $ | 168,602 | $ | 65,063 | |||||||
Payments for property and equipment | (69,286 | ) | (56,273 | ) | (116,569 | ) | (87,895 | ) | |||||||
Free cash flow | $ | 22,402 | $ | (21,337 | ) | $ | 52,033 | $ | (22,832 | ) | |||||