Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
LNCO > SEC Filings for LNCO > Form 10-K on 3-Mar-2014All Recent SEC Filings

Show all filings for LINNCO, LLC

Form 10-K for LINNCO, LLC


3-Mar-2014

Annual Report


Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the financial statements and notes to the financial statements, which are included in this Annual Report on Form 10-K in Item 8. "Financial Statements and Supplementary Data." The following discussion contains forward-looking statements that reflect the Company's future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside the Company's control. The Company's actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those factors discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Item 1A. "Risk Factors." In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur.
The reference to a "Note" herein refers to the accompanying Notes to Financial Statements contained in Item 8. "Financial Statements and Supplementary Data." General
LinnCo, LLC ("LinnCo" or the "Company") is a Delaware limited liability company formed on April 30, 2012, under the Delaware Limited Liability Company Act, that has elected to be treated as a corporation for U.S. federal income tax purposes. Linn Energy, LLC ("LINN Energy"), an independent oil and natural gas company that trades on the NASDAQ Global Select Market under the symbol "LINE," owns LinnCo's sole voting share.
LinnCo's success is dependent upon the operation and management of LINN Energy and its resulting performance. Therefore, LINN Energy's Annual Report on Form 10-K for the year ended December 31, 2013, has been included in this filing as Exhibit 99.1 and incorporated herein by reference. Business
At no time after LinnCo's formation and prior to the initial public offering ("IPO") did LinnCo have any operations or own any interest in LINN Energy. After the IPO, LinnCo's initial sole purpose was to own units representing limited liability company interests ("units") in its affiliate, LINN Energy. In connection with the acquisition of Berry Petroleum Company ("Berry") (see Note 2), LinnCo amended its limited liability company agreement to permit, among other things, the acquisition and subsequent transfer of assets to LINN Energy for consideration received. As of December 31, 2013, LinnCo had no significant assets or operations other than those related to its interest in LINN Energy. Berry Acquisition
On December 16, 2013, the Company completed the previously-announced transactions contemplated by the merger agreement between the Company, LINN Energy and Berry under which LinnCo acquired all of the outstanding common shares of Berry and the contribution agreement between the Company and LINN Energy, under which the Company transferred Berry to LINN Energy in exchange for LINN Energy units. Under the merger agreement, as amended, Berry's shareholders received 1.68 LinnCo common shares for each Berry common share they owned, totaling 93,756,674 LinnCo common shares valued at approximately $2.7 billion. Under the contribution agreement, LinnCo transferred Berry to LINN Energy after which Berry became an indirect wholly owned subsidiary of LINN Energy. As consideration for the transfer of Berry to LINN Energy, the Company acquired 93,756,674 newly issued LINN Energy units, valued at approximately $2.8 billion and equal to the number of LinnCo shares issued as consideration for Berry. Results of Operations
Equity Income (Loss) from Investment in Linn Energy, LLC The Company's equity income (loss) primarily consists of its share of income (losses) of LINN Energy attributed to the units the Company owns. As a result of acquiring additional LINN Energy units in exchange for the transfer of Berry, the Company increased its ownership of LINN Energy's outstanding units from approximately 15% to approximately 39% (see Berry Acquisition above). The percentage ownership of LINN Energy could continue to change due to the Company's ownership of additional units or other issuances or repurchases of units by LINN Energy. The Company uses the equity method of accounting for its investment in LINN Energy.


Table of Contents
Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations - Continued



Following is summarized statements of operations information for LINN Energy.
Additional information on LINN Energy's results of operations and financial
position are contained in its Annual Report on Form 10-K for the year ended
December 31, 2013, included in this filing as Exhibit 99.1 and incorporated
herein by reference.
                                Linn Energy, LLC
                                                               October 17, 2012
                                                               To December 31,
                             Year Ended December 31, 2013            2012
                                               (in thousands)

Revenues and other          $                 2,331,655       $        604,701
Expenses                                     (2,590,273 )             (578,170 )
Other income and (expenses)                    (434,918 )              (85,464 )
Income tax benefit                                2,199                  1,697
Net loss                    $                  (691,337 )     $        (57,236 )

General and Administrative Expenses
The Company's general and administrative expenses are associated with managing the business and affairs of LinnCo. For the year ended December 31, 2013, LinnCo incurred total general and administrative expenses of approximately $42 million, of which approximately $22 million had been paid by LINN Energy on LinnCo's behalf as of December 31, 2013. The expenses for the year ended December 31, 2013, include approximately $40 million of transaction costs related to the Berry acquisition (see Note 2), including approximately $9 million of noncash share-based compensation expense. The expenses for the year ended December 31, 2013, also include approximately $2 million related to services provided by LINN Energy necessary for the conduct of LinnCo's business, such as accounting, legal, tax, information technology and other expenses. For the period from April 30, 2012 (inception) to December 31, 2012, LinnCo incurred total general and administrative expenses of approximately $1 million. Because all general and administrative expenses requiring cash payments are actually paid by LINN Energy on LinnCo's behalf, no cash is disbursed by LinnCo. Loss on Transfer of Berry
The loss on transfer of Berry for the year ended December 31, 2013, reflects the difference between the fair value of the assets acquired and liabilities assumed from Berry and the fair value of the LINN Energy units received in connection with the transfer. The loss is primarily due to deferred income taxes assumed by LinnCo in the Berry acquisition that were not transferred to LINN Energy. Components of the loss are as follows (in millions):

Deferred income taxes, net                              $ 835
Consideration difference between LinnCo and LINN Energy  (113 )
Other taxes                                                (4 )
                                                        $ 718

The loss due to deferred income taxes assumed by LinnCo in the Berry acquisition was partially offset by a gain related to the difference between the value of consideration exchanged between LinnCo and Berry and LINN Energy and LinnCo. LINN Energy's unit price of $29.47 per unit exceeded LinnCo's share price of $28.36 per share on the date of acquisition and both companies issued an equal number of shares or units in the acquisition and subsequent transfer. In addition, the loss was partially offset by a gain of approximately $4 million which consisted of an income taxes receivable of approximately $13 million and an income taxes liability of approximately $9 million, both also assumed by LinnCo in the Berry acquisition but not transferred to LINN Energy. Income Tax (Expense) Benefit
Income tax benefit of approximately $92 million and income tax expense of approximately $13 million for the year ended December 31, 2013, and the period from April 30, 2012 (inception) to December 31, 2012, respectively, are based on the


Table of Contents
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued

Company's net income (loss) for the periods, primarily associated with its equity income (loss) from its investment in LINN Energy, and includes amounts recorded in connection with the Berry acquisition. Liquidity and Capital Resources
The Company's authorized capital structure consists of two classes of interests:
(1) shares with limited voting rights, which were issued in the IPO and in connection with the Berry acquisition and (2) voting shares, 100% of which are held by LINN Energy. At December 31, 2013, LinnCo's issued capitalization consisted of $3.9 billion in common shares representing limited liability company interests ("shares") and $1,000 contributed by LINN Energy in connection with LinnCo's formation and in exchange for its voting share. Additional classes of equity interests may be created upon approval by the Board of Directors ("Board") and the holders of a majority of the outstanding shares and voting shares, voting as separate classes. LINN Energy has agreed to provide to LinnCo, or to pay on LinnCo's behalf, any legal, accounting, tax advisory, financial advisory and engineering fees, printing costs or other administrative and out-of-pocket expenses incurred by LinnCo, along with any other expenses incurred in connection with any public offering of LinnCo shares or incurred as a result of being a publicly traded entity. These expenses include costs associated with annual, quarterly and other reports to holders of LinnCo shares, tax return and Form 1099 preparation and distribution, NASDAQ listing fees, printing costs, independent auditor fees and expenses, legal counsel fees and expenses, limited liability company governance and compliance expenses and registrar and transfer agent fees. The Company expects neither to generate nor to require significant cash in its ongoing business. Any cash received from the sale of additional shares will be immediately used to purchase additional LINN Energy units. Accordingly, the Company does not anticipate any other sources or needs for additional liquidity. Distributions and Dividends
Within five (5) business days after receiving a cash distribution related to its interest in LINN Energy units, LinnCo is required to pay the cash received, net of reserves for its income tax liability ("tax reserve"), if any, as dividends to its shareholders. The following provides a summary of dividends paid by the Company during the year ended December 31, 2013:

  Date Paid          Dividends Per Share         Total Dividends
                                                  (in millions)

December 2013    $       0.2416                 $              8
November 2013    $       0.2416                 $              8
October 2013     $       0.2416                 $              8
September 2013   $       0.2416                 $              8
August 2013      $       0.2416                 $              8
July 2013        $       0.2416                 $              8
May 2013         $        0.725                 $             25
February 2013    $         0.71          (1)    $             25

(1) This amount is net of the tax reserve of $0.015 per common share.

In April 2013, LINN Energy's and LinnCo's Boards approved a change in the distribution and dividend policies that provides a distribution and dividend with respect to any quarter may be made, at the discretion of the Boards,
(i) within 45 days following the end of each quarter or (ii) in three equal installments within 15, 45 and 75 days following the end of each quarter. The first monthly distributions and dividends were paid in July 2013. On January 2, 2014, LINN Energy's Board declared a cash distribution of $0.725 per unit with respect to the fourth quarter of 2013, to be paid in three equal monthly installments of $0.2416 per unit. The first monthly distribution attributable to LinnCo's interest in LINN Energy, totaling approximately $31 million, was paid to LinnCo on January 16, 2014, and the second monthly distribution, totaling approximately $31 million, was paid to LinnCo on February 13, 2014.


Table of Contents
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued

On January 2, 2014, the Company's Board declared a cash dividend of $0.725 per common share with respect to the fourth quarter of 2013, to be paid in three equal monthly installments of $0.2416 per common share pending the receipt of the applicable cash distribution from LINN Energy. Company management has determined that no income tax reserve is required to be deducted from the cash dividend declared on January 2, 2014. The first monthly dividend, totaling approximately $31 million, was paid on January 17, 2014, to shareholders of record as of the close of business on January 13, 2014, and the second monthly dividend, totaling approximately $31 million, was paid on February 14, 2014, to shareholders of record as of the close of business on February 10, 2014. Contingencies
See Item 3. "Legal Proceedings" for information regarding legal proceedings that the Company is party to and any contingencies related to these legal proceedings.
Critical Accounting Policies and Estimates The discussion and analysis of the Company's financial condition and results of operations is based upon the financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management of the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, expenses and related disclosures of contingent assets and liabilities. These estimates and assumptions are based on management's best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors that are believed to be reasonable under the circumstances. Such estimates and assumptions are adjusted when facts and circumstances dictate. Actual results may differ from these estimates and assumptions used in the preparation of the financial statements.
Accounting for Investment in Linn Energy, LLC The Company uses the equity method of accounting related to its ownership interest in LINN Energy's net income (losses). The Company records its share of LINN Energy's net income (losses) in the period in which it is earned. At December 31, 2013, the Company owned approximately 39% of LINN Energy's outstanding units. The Company's ownership percentage could change as LINN Energy issues or repurchases additional units. Changes in the Company's ownership percentage affect its net income (losses).
At December 31, 2013, the carrying amount of the Company's investment in LINN Energy exceeded the Company's ownership interest in LINN Energy's underlying net assets by approximately $1.3 billion. The difference is attributable to proved and unproved oil and natural gas properties, senior notes and equity method goodwill. These amounts are included in "investment in Linn Energy, LLC" on the balance sheet and are amortized over the lives of the related assets and liabilities. Such amortization is included in the equity income from the Company's investment in LINN Energy. Equity method goodwill is not amortized; however, the investment is reviewed for impairment. Impairment testing is performed when events or circumstances warrant such testing and considers whether there is an inability to recover the carrying value of an investment that is other than temporary. As of December 31, 2013, no impairment had occurred with respect to the Company's investment in LINN Energy. Income Taxes
The Company is a limited liability company that has elected to be treated as a corporation for U.S. federal income tax purposes. Deferred income tax assets and liabilities are recognized for temporary differences between the basis of the Company's assets and liabilities for financial and tax reporting purposes. At December 31, 2013, the majority of the Company's temporary difference and associated deferred tax expense resulted from the Berry acquisition and its investment in LINN Energy and at December 31, 2012, the majority of the Company's temporary difference and associated deferred tax expense resulted from its investment in LINN Energy.
The Company routinely assesses the realizability of the deferred tax assets by considering whether it is more likely than not that some portion or all of the deferred tax assets will not be realized and records a valuation allowance against the deferred tax assets that will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making an assessment. The Company recognizes only the impact of income tax positions that, based on their merits, are more likely


Table of Contents
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Continued

than not to be sustained upon audit by a taxing authority. At December 31, 2013, the Company's established valuation allowance and unrecognized income tax benefits resulted from the Berry acquisition. At December 31, 2012, the Company had no valuation allowance or unrecognized income tax benefits. Item 7A. Quantitative and Qualitative Disclosures About Market Risk

The nature of the Company's business and operations is such that no activities or transactions are conducted or entered into by the Company that would require it to have a discussion under this item.
For a discussion of these matters as they pertain to LINN Energy, please read Part II, Item 7A. "Quantitative and Qualitative Disclosures About Market Risk" of LINN Energy's Annual Report on Form 10-K, which is included in this filing as Exhibit 99.1 and incorporated herein by reference as activities of LINN Energy have an impact on the Company's results of operations and financial position.


Table of Contents

  Add LNCO to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for LNCO - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.