Harbinger Group Inc.
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SEC Filings

10-Q
HRG GROUP, INC. filed this Form 10-Q on 08/09/2016
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the high volatility in oil and natural gas prices between each of the periods. The ultimate settlement amount of the unrealized portion of the derivative financial instruments is dependent on future commodity prices.
Compass’ production is generally sold at prevailing market prices. However, Compass periodically enters into derivative financial instruments for a portion of its production when market conditions are deemed favorable and oil and natural gas prices exceed Compass’ minimum internal price targets.
Compass’ objective in entering into derivative financial instruments is to mitigate the impact of price fluctuations and achieve a more predictable cash flow associated with Compass’ operations. These transactions limit Compass’ exposure to declines in prices, but also limit the benefits Compass would realize if commodity prices increase.
Compass’ total cash settlements for the Fiscal 2016 Quarter were $0.5 million, or $0.13 per Mcfe, compared to $6.2 million, or $0.79 per Mcfe for the Fiscal 2015 Quarter. Compass’ total cash settlements for the Fiscal 2016 Nine Months were $9.5 million, or $0.63 per Mcfe, compared to $14.1 million, or $0.59 per Mcfe for the Fiscal 2015 Nine Months. As noted above, the significant fluctuations between settlements on Compass’ derivative financial instruments demonstrate the volatility in commodity prices.
The following table presents Compass’ natural gas equivalent prices, before and after the impact of the cash settlements (payments) of its derivative financial instruments:
 
 
Fiscal Quarter
 
Fiscal Nine Months
Average realized pricing:
 
2016
 
2015
 
2016
 
2015
Natural gas equivalent, per Mcfe
 
$
2.35

 
$
3.07

 
$
2.39

 
$
3.56

Cash settlements on derivative financial instruments, per Mcfe
 
0.13

 
0.79

 
0.63

 
0.59

Net price per Mcfe, including derivative financial instruments
 
$
2.48

 
$
3.86

 
$
3.02

 
$
4.15

Compass’ derivative financial instruments are comprised of swap and three-way collar contracts. Swap contracts allow it to receive a fixed price and pay a floating market price to the counterparty for the hedged commodity. Collar contracts allows Compass to receive a market price if the market price settles within the call/put spread portion of the contract, to receive the put price if the market settles below the purchased put or a market price plus the difference between the purchased and sold puts, should the settlement price be below the sold put threshold. See Note 6, Derivative Financial Instruments, to our Condensed Consolidated Financial Statements included in Part I - Item 1. Financial Statements for the volumes and prices of Compass’ derivative financial instruments in place as of June 30, 2016.

Discussion of Consolidated Cash Flows
Summary of Consolidated Cash Flows
Presented below is a table that summarizes the cash provided or used in our activities and the amount of the respective increases or decreases in cash provided or used from those continuing activities between the fiscal periods (in millions):
 
 
Fiscal Nine Months
Cash provided by (used in) continuing activities:
 
2016
 
2015
 
Increase / (Decrease)
Operating activities
 
$
98.9

 
$
(270.1
)
 
$
369.0

Investing activities
 
313.1

 
(1,045.2
)
 
1,358.3

Financing activities
 
(618.0
)
 
1,225.0

 
(1,843.0
)
Effect of exchange rate changes on cash and cash equivalents
 
(1.7
)
 
(13.0
)
 
11.3

Net change in cash and cash equivalents in continuing operations
 
$
(207.7
)
 
$
(103.3
)
 
$
(104.4
)
Operating Activities
Cash provided by operating activities totaled $98.9 million for the Fiscal 2016 Nine Months as compared to cash used of $270.1 million for the Fiscal 2015 Nine Months. The $369.0 million increase in cash provided was the result of (i) a $276.6 million increase in cash provided by the Consumer Products segment; and (ii) a $46.2 million decrease in cash used by the Insurance segment (which also reflects an increase in cash used for net withdrawals from contractholder accounts related to the cession between Front Street and FGL, which is reflected in operating cash for the Insurance segment), offset by (i) $27.9 million increase in cash used by the Energy segment; (ii) a $8.2 million increase in cash used by the Asset Management segment; and (iii) $6.8 million increase in cash used by the Corporate and Other segment.
The $276.6 million increase in cash provided by operating activities in the Consumer Products segment was primarily due to the (i) cash generated from higher Adjusted EBITDA of $144.7 million; (ii) a $85.0 million decrease in the use of cash for working capital driven by lower inventory and receivables; (iii) a decrease in cash paid for interest of $49.5 million, (iv) a decrease in cash

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