Harbinger Group Inc.
    Print Page | Close Window

SEC Filings

10-K
HRG GROUP, INC. filed this Form 10-K on 03/28/2002
Entire Document
 << Previous Page | Next Page >>
<PAGE>
 
     Realized loss on non-investment grade securities.  Realized loss on
non-investment grade securities for 2000 consisted mainly of the write-down to
market value of the non-investment grade debt held in the Company's available
for sale portfolio. The impairment for that portion of the unrealized loss of an
individual security is required to be recognized as a realized loss in the
accounting period when the holder determines that such portion of the decline in
the market value is "other than temporary." Temporary declines in the market
value of Zapata's debt securities held to maturity do not affect Zapata's
carrying value of such securities, since Zapata has the ability and the intent
to hold these investments to maturity, at which time their full face value is
expected to be received at no loss to Zapata. Temporary fluctuations in the
market value of available for sale securities are reflected in stockholders'
equity as unrealized appreciation or depreciation net of applicable deferred
federal income taxes; however, any decline in the value of the security below
its cost considered to be "other than temporary" is reflected as a realized loss
in Zapata's income statement. Once an investment is written down to reflect an
"other than temporary" decline, the write-down establishes a new cost basis for
the security.
 
     For 2000, Zapata had "other than temporary" write-downs related to the debt
instruments of Davel Communications, Inc. and Decora Industries, Inc. The
Company sold its Davel Communications debt instruments on February 6, 2001 at an
amount significantly below its carrying value. As a result of the sale, this
investment was deemed impaired as of December 31, 2000 resulting in an
impairment charge of approximately $3.7 million. Management deemed the decline
in the fair value of the Company's investment in Decora Industries to be "other
than temporary" following Decora's announcement that it had filed for protection
under Chapter 11 of the U.S. Bankruptcy Code. In Connection with this
impairment, the Company recognized a loss of approximately $9.5 million
resulting in a remaining book value of approximately $1.2 million.
 
     Other (expense) income, net.  Other expense decreased to $906,000 in 2000
from $3.2 million in 1999. This decrease was primarily the result of recording a
$3.3 million expense in 1999 to reserve against potential costs associated with
a judgment against the Company on a claim for breach of employment contract make
by a former Zapata employee. See "Part I Item 3. Legal Proceedings."
 
     Income taxes.  The Company recorded a tax benefit of $12.5 million
representing an effective tax rate of 28% as compared to a benefit of $5.8
million and an effective rate of 18% in the prior year. The current year benefit
was primarily the result of net operating losses incurred by Omega Protein and
Zapata. This net benefit includes a downward adjustment to deferred tax assets.
Adjustments are mainly attributable to assets that management believes, more
likely than not, will not be realized.
 
     Minority Interest.  Minority interest reflects the outside equity ownership
of Zapata's subsidiaries of approximately 39% in Omega Protein and approximately
2% in Zap.Com. In 2000, minority interest was a $6.6 million reduction of
Zapata's share of the net losses incurred by Omega Protein and Zap.Com. Minority
interest was recorded for Zap.Com's results since the November 12, 1999
distribution of Zap.Com shares by Zapata to Zapata stockholders. In 1999,
minority interest represented $5.8 million reduction of Zapata's share of Omega
Protein's net income for the period.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     Prior to Omega Protein's 1998 initial public offering, Zapata, as the sole
stockholder of Omega Protein, caused cash to be moved between it and Omega
Protein as each company had cash needs. As a result of the offering, Zapata and
Omega Protein are now separate public companies. Similarly, since Zapata's
distribution of Zap.Com shares to Zapata stockholders in November 1999, Zapata
and Zap.Com are separate public companies. Accordingly, the capital resources
and liquidity of Omega Protein and Zap.Com are legally independent of Zapata.
The working capital and other assets of Omega Protein and Zap.Com are dedicated
to their respective operations and are not expected to be readily available for
the general corporate purposes of Zapata, except for any dividends that may be
declared and paid to their respective stockholders. For the foreseeable future,
Zapata does not expect to receive cash dividends on its Omega Protein or Zap.Com
shares.
 
     Zapata's current source of liquidity is its cash, cash equivalents and
short-term investments and the interest income it earns on its investments.
Zapata expects this to continue to be a source of liquidity until it
                                        16

 << Previous Page | Next Page >>