(11) Income Taxes
For the three months ended December 31, 2015, the Company’s effective tax rate of 4.3% differed from the expected U.S. statutory tax rate of 35% and was impacted by the expected utilization of a portion of Spectrum Brand’s U.S. net operating losses that were previously recorded with valuation allowance against Spectrum Brand’s current year earnings and recognition of tax benefits on current year losses from the Energy and Corporate and Other segments in the U.S. The Company determined that a portion of the current year losses related to the Energy and Corporate and Other segments are more likely than not to be realized based on the expected taxable gain from the FGL merger.
For the three months ended December 31, 2014, the Company’s effective tax rate of (5.1)% differed from the expected U.S. statutory tax rate of 35% and was impacted by pretax losses including significant impairment losses in our Energy and Asset Management segments in the U.S. and certain pretax losses from foreign jurisdictions for which the Company concluded that the tax benefits are not more-likely-than-not to be realized, resulting in the recording of valuation allowances. The three months ended December 31, 2014 included recognition of a nonrecurring net income tax benefit of $12.3 attributable to tax impact related to the impairment of certain Frederick’s of Hollywood Inc. (“FOH”) indefinite lived intangible assets. Due to the indefinite life of these assets for book purposes, the related deferred tax liability was not regarded as a source of taxable income to support the realization of deferred tax assets. Consequently, the impairment recorded resulted in a reduction to the deferred tax liability previously recorded.
The majority of net operating loss (“NOL”), capital loss and tax credit carryforwards of HRG and Spectrum Brands have historically been subject to valuation allowances, as the Company concluded that all or a portion of the related tax benefits are not more-likely-than-not to be realized. Utilization of a portion of the NOL, capital loss and tax credit carryforwards of HRG and Spectrum Brands are subject to limitations under Internal Revenue Code (“IRC”) Sections 382 and 383. Such limitations resulted from ownership changes of more than 50 percentage points over a three-year period. The consummation of the FGL Merger is expected to result in the reversal of a significant portion of the Company’s valuation allowance previously recorded against tax attribute carryforwards that are expected to be realized against the taxable gain.
(12) Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per share (“EPS”) (share amounts in thousands):
|
| | | | | | | |
| Three months ended December 31, |
| 2015 | | 2014 |
Net income (loss) from continuing operations attributable to controlling interest | $ | 11.1 |
| | $ | (123.5 | ) |
Net (loss) income from discontinued operations attributable to controlling interest | (45.0 | ) | | 13.7 |
|
Net loss attributable to controlling interest | $ | (33.9 | ) | | $ | (109.8 | ) |
| | | |
Participating common shares at end of period | 198,521 |
| | 196,879 |
|
| | | |
Net loss attributable to common shares - basic and diluted | $ | (33.9 | ) | | $ | (109.8 | ) |
| | | |
Weighted-average common shares outstanding - basic | 197,507 |
| | 196,997 |
|
Dilutive effect of unvested restricted stock and restricted stock units | 2,822 |
| | — |
|
Dilutive effect of stock options | 1,303 |
| | — |
|
Weighted-average shares outstanding - diluted | 201,632 |
| | 196,997 |
|
| | | |
Net loss per common share attributable to controlling interest: | | | |
Basic income (loss) from continuing operations | $ | 0.06 |
| | $ | (0.63 | ) |
Basic (loss) income from discontinued operations | (0.23 | ) | | 0.07 |
|
Basic | $ | (0.17 | ) | | $ | (0.56 | ) |
| | | |
Diluted income (loss) from continuing operations | $ | 0.06 |
| | $ | (0.63 | ) |
Diluted (loss) income from discontinued operations | (0.23 | ) | | 0.07 |
|
Diluted | $ | (0.17 | ) | | $ | (0.56 | ) |
The number of shares of common stock outstanding used in calculating the weighted average thereof reflects the actual number of HRG common stock outstanding, excluding unvested restricted stock.
