HKN » Topics » Investment in Global

This excerpt taken from the HKN 10-Q filed Aug 7, 2008.

INVESTMENT IN GLOBAL

 

At June 30, 2008 and December 31, 2007, respectively, we owned approximately 34% of Global’s ordinary shares. Our investment in Global was equal to the market value of our 11.9 million shares of Global’s common stock as follows:

 

 

 

June 30,
2008

 

December 31,
2007

 

 

 

 

 

 

 

Shares of Global Stock held by HKN

 

11,893,463

 

11,893,463

 

Closing Price of Global Stock

 

£

1.22

 

£

0.84

 

Foreign Currency Exchange Rate

 

1.9906

 

1.9843

 

Market Value of Investments in Global

 

$

28,883,655

 

$

19,824,167

 

 

The foreign currency translation adjustment of $78 thousand and the unrealized gain on investment of $9.0 million for these changes in market value between the two periods are recorded to other comprehensive income in stockholders’ equity at June 30, 2008.

 

This excerpt taken from the HKN 10-Q filed May 6, 2008.

INVESTMENT IN GLOBAL

 

At March 31, 2008 and December 31, 2007, respectively, we owned approximately 34% of Global’s ordinary shares. Our investment in Global was equal to the market value of our 11.9 million shares of Global’s common stock as follows:

 

 

 

March 31, 
2008

 

December 31, 
2007

 

 

 

 

 

 

 

Shares of Global Stock held by HKN

 

11,893,463

 

11,893,463

 

Closing Price of Global Stock

 

£

0.66

 

£

0.84

 

Foreign Currency Exchange Rate

 

1,9855

 

1.9843

 

Market Value of Investments in Global

 

$

15,585,551

 

$

19,824,167

 

 

The foreign currency translation adjustment of $13 thousand and the unrealized loss on investment of $4.3 million for these changes in market value between the two periods are recorded to other comprehensive income in stockholders’ equity at March 31, 2008.

 

This excerpt taken from the HKN 10-K filed Feb 21, 2008.
Investment in Global – Our non-current available-for-sale investment consists of our ownership of approximately 34% of Global’s outstanding ordinary shares.  At December 31, 2007 and December 31, 2006, our investment in Global was equal to the market value of our 11.9 million shares of Global’s ordinary shares as follows:

 

 

 

December 31,
2007

 

December 31,
2006

 

 

 

 

 

 

 

Shares of Global Stock held by HKN

 

11,893,463

 

11,893,463

 

Closing Price of Global Stock

 

£

0.84

 

£

1.21

 

Foreign Currency Exchange Rate

 

 

1.9843

 

 

 

1.9586

 

Market Value of Investment in Global

 

$

19,824,167

 

 

$

28,186,389

 

 

48



 

The foreign currency translation adjustment of $107 thousand and the unrealized loss on investment of $8.5 million for these changes in market value between the two periods were recorded to other comprehensive income in stockholders’ equity during the year ending December 31, 2007.  At December 31, 2007, we have total unrealized gains of $10.1 million included in other comprehensive income.

 

This excerpt taken from the HKN 10-Q filed Nov 6, 2007.
Investment in Global - At September 30, 2007 and December 31, 2006, we owned approximately 34% of Global’s ordinary shares. At September 30, 2007 and December 31, 2006, our investment in Global was equal to the market value of our 11.9 million shares of Global’s common stock as follows:

 

 

 

September 30,
2007

 

December 31,
2006

 

 

 

 

 

 

 

Shares of Global Stock held by HKN

 

11,893,463

 

11,893,463

 

Closing Price of Global Stock

 

£

1.17

 

£

1.21

 

Foreign Currency Exchange Rate

 

2.0389

 

1.9586

 

Market Value of Investments in Global

 

$

28,372,011

 

$

28,186,389

 

 

The foreign currency translation adjustment of $801 thousand and the unrealized loss on investment of $615 thousand for these changes in market value between the two periods are recorded to other comprehensive income in stockholders’ equity at September 30, 2007.

 

In September 2007, Global announced that it had received several unsolicited expressions of interest from separate parties which may or may not lead to an offer or offers being made for the company. Global also indicated that its Board is currently evaluating these expressions of interest.

 

This excerpt taken from the HKN 10-Q filed Aug 7, 2007.

INVESTMENT IN GLOBAL

Deconsolidation of Global - At June 30, 2007 and December 31, 2006, we owned approximately 34% of Global’s ordinary shares. We deconsolidated Global from our consolidated condensed financial statements during the second quarter of 2006. At June 30, 2007 and December 31, 2006, our investment in Global was equal to the market value of our 11.9 million shares of Global’s common stock as follows:

22




 

 

June 30,

 

December 31,

 

 

 

2007

 

2006

 

 

 

 

 

 

 

Shares of Global Stock held by HKN

 

11,893,463

 

11,893,463

 

Closing Price of Global Stock

 

£

0.85

 

£

1.21

 

Foreign Currency Exchange Rate

 

2.0063

 

1.9586

 

Market Value of Investments in Global

 

$

20,282,577

 

$

28,186,389

 

 

The foreign currency translation adjustment of $497 thousand and the unrealized loss on investment of $8.4 million for these changes in market value between the two periods are recorded to other comprehensive income in stockholders’ equity at June 30, 2007.

In June 2007, Global announced they signed a new contract covering 691,500 acres located offshore for the exploration and exploitation of hydrocarbons in the Garachine area of eastern Panama.  The contract is the first operations contract the government of Panama has signed since 1990.

Pro Forma Information – The following unaudited pro forma combined condensed statement of operations for the six months ended June 30, 2006 gives effect to the deconsolidation of Global’s operations as if it had been effective for this period. The combined condensed statement of operations for the six months ended June 30, 2007 is presented as reported. The results of operations for the three months ended June 30, 2007 and 2006 do not contain any results of operations for Global. The unaudited pro forma data is presented for illustrative purposes only and is not necessarily indicative of future operating results. To arrive at our pro forma combined condensed statement of operations for the period presented, we removed Global’s historical results of operations at their previously-reported values and adjusted the amounts which would have been reported if Global was a cost-method investment at the time.

23




HKN, INC.

This excerpt taken from the HKN 10-Q filed May 8, 2007.

INVESTMENT IN GLOBAL

Deconsolidation of Global - At March 31, 2007 and December 31, 2006, we owned approximately 34% of Global’s ordinary shares. We deconsolidated Global from our consolidated condensed financial statements during the second quarter of 2006. Under U.S. GAAP, we were required to reflect this deconsolidation prospectively. As a result of this treatment, Global’s operations for the quarter ended March 31, 2006 are included in our consolidated financial statements in 2006. We account for our Global shares as an available-for-sale cost method investment. We recognize dividend income and our investment in Global is adjusted to fair value every quarterly period with an offset to other comprehensive income in stockholders’ equity.

At March 31, 2007 and December 31, 2006, our investment in Global was equal to the market value of our 11.9 million shares of Global’s common stock as follows:

 

March 31,
2007

 

December 31,
2006

 

 

 

 

 

 

 

Shares of Global Stock held by Harken

 

11,893,463

 

11,893,463

 

Closing Price of Global Stock

 

£

0.881

 

£

1.21

 

Foreign Currency Exchange Rate

 

1.9685

 

1.9586

 

Market Value of Investments in Global

 

$

20,626,220

 

$

28,186,389

 

 

22




The foreign currency translation adjustment of $142 thousand and the unrealized loss on investment of $7.7 million for these changes in market value are recorded to other comprehensive income in stockholders’ equity at March 31, 2007.

Pro Forma Information — The following unaudited pro forma combined condensed statement of operations for the three months ended March 31, 2006 gives effect to the deconsolidation of Global’s operations as if it had been effective for this period. The combined condensed statement of operations at March 31, 2007 is presented as reported.  The unaudited pro forma data is presented for illustrative purposes only and is not necessarily indicative of future operating results. To arrive at our pro forma combined condensed statement of operations for the period presented, we removed Global’s historical results of operations at their previously-reported values and adjusted the amounts which would have been reported if Global was a cost-method investment at the time.

This excerpt taken from the HKN 10-K filed Feb 28, 2006.

Our Investment in Global

In March 2002, Global completed a private placement equity offering of approximately 2 million shares of common stock and then proceeded to list its common shares on the AIM Market of the London Stock Exchange (“AIM”). This offering in 2002 reduced our interest in Global from 100% to approximately 92.77%. Since that time, we have strategically reduced our percentage interest in Global by private placements as opportunities have become available coincident with the increase of the trading price of Global’s common shares on AIM. During 2005, we sold common shares of Global in the market to a variety of purchasers throughout the year in exchange for total cash consideration, net of fees, of approximately $40 million and recorded total net gains on the sale of these shares of approximately $32.5 million. These sales of shares, along with the exercise of Global stock options and warrants during 2005, decreased our direct equity interest in Global from approximately 85% at December 31, 2004 to approximately 34% at December 31, 2005. Our equity interest in Global may be subject to further reduction due to a number of reasons including further option exercises, but we do not expect to recognize similar gains in the future due to our current intention not to sell large positions of our equity interest in Global. See Changes in Our Ownership of Global Shares below for detail of the changes in our ownership in Global during this year.

Possible Deconsolidation of Global

As discussed in Note 8 – “Changes in Harken’s Ownership in Global” in our Consolidated Financial Statements, in 2002 we issued to Lyford Investments Enterprises Ltd. (“Lyford”) warrants to purchase up to 7,000,000 shares of Global held by us at a price of 50 UK pence per share. Lyford’s representative, Alan Quasha, became a member of our board of directors and our Chairman in March 2003. In September 2005, Lyford exercised its warrants in exchange for cash proceeds to us of $6.4 million.

As of December 31, 2005, Lyford owned approximately 20% of the common shares of Global as a result of exercising its Global warrants. Also at December 31, 2005, Lyford beneficially owned approximately 30% of the combined voting power of our common stock. Therefore, our direct equity interest of approximately 34%, combined with Lyford’s approximate 20% equity interest in Global (which totals to a combined ownership percentage of 54%), was deemed to provide us with the legal power to control the operating policies and procedures of Global. As a result, we continued to consolidate the operations of Global as of December 31, 2005.

Lyford has informed us that it may liquidate a portion of its equity interest in Global through strategic sales under certain conditions. If Lyford reduces its equity ownership interest in Global, such that the combined equity interest in Global is less than 50%, we may no longer be deemed to hold the legal power to control the operating policies and procedures of Global. As a result, we would no longer report Global’s operating results in our consolidated financial statements, but we would account for our investment in Global on the equity method of accounting. Under the equity method of accounting, our investment in Global will be presented on a single line in the consolidated balance sheet. Likewise, our share of Global’s earnings will be reflected on a single line in the consolidated statement of operations.

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