Item 8.01 Other Events.
On
August 15, 2016, the Company filed with the Securities and Exchange Commission (the
SEC
) a preliminary prospectus supplement pursuant to Rule 424(b) of the Securities Act and issued a press release announcing the
commencement of an underwritten public offering of 9,000,000 shares of its common stock, par value $0.001 per share (the
Offering
).
The preliminary prospectus supplement for the public offering contains updated Company risk factor disclosure. Accordingly, the Company is
filing information for the purpose of supplementing and updating the risk factor disclosure contained in its prior public filings, including those discussed under the heading Item 1A. Risk Factors in its Annual Report on Form 10-K for
the year ended December 31, 2015, filed with the SEC on February 25, 2016, and in its subsequent Quarterly Reports on Form 10-Q. The updated risk factor is as follows:
Risks Related to our Business
Our ability to use our net operating loss carryforwards or other tax attributes could be limited.
Concho anticipates it could generate a net operating loss (NOL) in 2016. Utilization of this NOL depends on many factors, including
our ability to generate future taxable income, which cannot be assured. In addition, Section 382 of the Internal Revenue Code of 1986, as amended (Section 382), generally imposes an annual limitation on the amount of NOLs that may
be used to offset taxable income when a corporation has undergone an ownership change (as determined under Section 382). An ownership change generally occurs if one or more stockholders (or groups of stockholders) who are each
deemed to own at least five percent of our stock change their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. In the event that an ownership change has occurred, or were to
occur, utilization of our NOLs would be subject to an annual limitation under Section 382, determined by multiplying the value of our equity at the time of the ownership change by the applicable long-term tax-exempt rate as defined in
Section 382, and potentially increased for certain gains recognized within five years after the ownership change if we have a net built-in gain in our assets at the time of the ownership change. Any unused annual limitation may be carried over
to later years. We cannot assure you that we will not have an ownership change as a result of this offering, which would result in an annual limitation under Section 382. However, even if we did have an ownership change as a result of this
offering, we do not believe that such limitation would prevent our utilization of our anticipated 2016 NOL or any other tax attribute prior to their expiration. Future ownership changes or future regulatory changes could limit our ability to utilize
our NOLs. To the extent we are not able to offset our future income with our NOLs, this would adversely affect our operating results and cash flows if we attain profitability.
Risks Related to the Acquisition
The completion of
the Acquisition is subject to a number of conditions, and we may not be able to consummate it if such conditions are not met. Failure to complete the Acquisition could negatively affect our future business and financial results.
The completion of the Acquisition is subject to a number of conditions, and we may not be able to consummate it if such conditions are not met.
Furthermore, the closing of this offering is not conditioned upon the closing of the Acquisition. Accordingly, we cannot assure you that even if we consummate this offering that we will consummate the Acquisition. We expect to close the Acquisition
in the second half of 2016, but if the Acquisition is not completed, our future business and financial results could be negatively affected. Even if the Acquisition is consummated, achieving the targeted benefits of the Acquisition will depend in
part upon whether we can integrate the Acquisitions businesses in an efficient and effective manner. We may not be able to accomplish this integration process smoothly or successfully. Any acquisition, including the Acquisition, involves
potential risks, including, among other things:
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the validity of our assumptions about, among other things, revenues and costs;
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a decrease in our liquidity by using a significant portion of our available cash or borrowing capacity to finance acquisitions;
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a significant increase in our interest expense or financial leverage if we incur additional debt to finance acquisitions;
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the assumption of environmental and other unknown liabilities, losses or costs for which we are not indemnified or for which our indemnity is inadequate;
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the diversion of managements attention from other business concerns;
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an inability to hire, train or retain qualified personnel to manage and operate our growing business and assets;
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the incurrence of other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges;
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increased cost of transportation of production to markets;
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significant costs associated with the Acquisition and subsequent integration efforts; and
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a failure to attain or maintain compliance with environmental and other governmental regulations.
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Additionally, if we are unable to consummate the transaction, we may be required to forfeit the $81.25 million deposit we made upon execution
of the purchase agreement governing the Acquisition.
In addition to the proceeds from this offering, we may seek to fund a portion of the purchase
price for the Acquisition through additional debt financing.
In addition to the proceeds from this offering, we may seek to fund a
portion of the purchase price for the Acquisition through additional debt financing, including through borrowings under our revolving credit facility. If we incur additional debt, the risks associated with our leverage may be exacerbated.