|HRG GROUP, INC. filed this Form 8-K on 08/29/2016|
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HRG GROUP, INC.
Unaudited Pro Forma Condensed Consolidated Financial Information
On August 23, 2016, subsidiaries of HRG Group, Inc. (the “Company”) completed the previously announced sale of Compass Production Partners (the “Compass Sale”) to an affiliate of Mountain Capital Management, a newly formed Houston based energy private equity firm (“Mountain Capital”). More specifically, on August 23, 2016, pursuant to the Purchase and Sale Agreement, dated July 1, 2016, HGI Energy Holdings, LLC and HGI Energy (Compass) Holding Corporation, each wholly owned subsidiaries of the Company (together, “HGI Energy”), sold to Mountain Capital all of their interests in Compass Production GP, LLC, Compass Production Partners, LP and their respective subsidiaries (collectively, “Compass”) for a cash purchase price (the “Purchase Price”) of $145.0 million. The proceeds received by HGI Energy from the Compass Sale were reduced by the outstanding balance of Compass’ existing credit facility of $125.2 million. Following the completion of the Compass Sale, the Company no longer owns, directly or indirectly, any oil and gas properties.
Simultaneously with the completion of the Compass Sale, HGI Energy’s $100.0 million notional aggregate amount of notes held by two of the Company’s affiliates were canceled and replaced with $92.0 million notional aggregate amount of new notes of HGI Energy (the “Energy Notes Exchange”), HGI Energy was recapitalized with an equity contribution of $110.0 million to satisfy its future obligations, and a portion of the new notes of HGI Energy were transferred from one Company affiliate to the other as further described below (the “Energy Notes Transfer” and together with the Energy Notes Exchange, the “Energy Notes Exchange and Transfer”).
Earlier in the fiscal year, on December 1, 2015, Compass completed the sale of its oil and gas interests located in the Holly, Waskom and Danville Fields in East Texas and North Louisiana (the “HWD Asset Sale” and together with the Compass Sale and the Energy Notes Exchange and Transfer, the “Energy Transactions”) for a total amount of $153.4 million. The Company accounted for the HWD Asset Sale in accordance with Accounting Standard Codification (“ASC”) Topic 932, Extractive Activities - Oil and Gas and recorded a gain on sale of oil and natural gas assets of $105.6 million for the nine months ended June 30, 2016. The Holly, Waskom and Danville Fields did not represent all or substantially all of Compass’ full-cost method assets at the time and, as a result, the operations associated with these assets were historically presented as continuing operations in the Company’s condensed consolidated statements of operations.
The disposal resulting from the Compass Sale represents all of the remaining oil and gas properties that were accounted for using the full-cost method as of June 30, 2016. The Company’s interest in Compass met all of the held for sale criteria required by ASC Topic 360, Property, Plant and Equipment (“ASC 360”) on July 1, 2016, subsequent to the end of the Company’s third fiscal quarter of 2016.
Because the Compass Sale was not reflected as discontinued operations in the Company’s historical financial statements for the fiscal years ended September 30, 2015, 2014 and 2013 in the Company’s Annual Report on Form 10-K for the year ended September 30, 2015 and for the nine months ended June 30, 2016 in the Company’s Form 10-Q. Provided in this report are unaudited pro forma results of operations for the respective periods that present the effect of discontinued operations in those periods.
The unaudited pro forma condensed consolidated balance sheet as of June 30, 2016 is presented as if the Energy Transactions had occurred on June 30, 2016. The unaudited pro forma condensed consolidated statements of operations for the years ended September 30, 2015, 2014 and 2013 and the nine months ended June 30, 2016 are presented as if the Energy Transactions had occurred on October 1, 2012.
The estimated net gain resulting from the consummation of the Compass Sale is included as an adjustment to retained earnings on the unaudited pro forma condensed consolidated balance sheet as of June 30, 2016 and is not reflected as an adjustment in the unaudited pro forma condensed consolidated statements of operations.
This unaudited pro forma condensed consolidated financial information should be read in conjunction with the Company’s Annual Report on Form 10–K for the year ended September 30, 2015 and our Form 10–Q for the nine months ended June 30, 2016, as filed with the Securities and Exchange Commission (the “SEC”).
The following unaudited pro forma condensed consolidated financial information is derived from the Company’s historical consolidated financial statements. The unaudited pro forma condensed consolidated financial statements are based upon available information and certain assumptions considered reasonable by management.
This unaudited pro forma condensed consolidated financial information is provided for illustrative purposes only and is not necessarily indicative of the results of operations that would have occurred had the disposition been effected on the assumed dates, nor is it necessarily indicative of our future operating results.
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