SEC Filings
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| 10-Q | |
| HRG GROUP, INC. filed this Form 10-Q on 05/09/2016 | |
| Entire Document | |
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intangibles due to a change in view of the strategic direction of Frederick’s of Hollywood Inc. (“FOH”) recognized in the Fiscal 2015 Six Months. Interest Expense. Interest expense increased $14.7 million to $95.8 million for the Fiscal 2016 Quarter from $81.1 million for the Fiscal 2015 Quarter. Interest expense increased $35.8 million to $193.3 million for the Fiscal 2016 Six Months from $157.5 million for the Fiscal 2015 Six Months. The increases were primarily due to higher overall debt levels in the Consumer Products segment and Corporate and Other segment. Gain on sale of oil and gas properties. The Compass Asset Sale resulted in a gain on sale of oil and gas properties of $105.6 million for the Fiscal 2016 Six Months. Other income, net. Other income decreased $13.6 million to $0.5 million for the Fiscal 2016 Quarter from $14.1 million for the Fiscal 2015 Quarter. Other income decreased $45.3 million to $1.6 million for the Fiscal 2016 Six Months from $46.9 million for the Fiscal 2015 Six Months. The decrease was primarily due to a decrease in gains on oil and natural gas derivatives as a result of lower volume of oil production hedged coupled with unrealized gains on the investment in HC2 Holdings Inc. and gain on contingent purchase price reduction of $5.5 million that was recorded during the Fiscal 2015 Quarter and Fiscal 2015 Six Months, partially offset by lower foreign exchange losses for the Fiscal 2016 Quarter and Fiscal 2016 Six Months. Income Taxes. For the Fiscal 2016 Quarter and the Fiscal 2016 Six Months, our effective tax rate of 43.4% and 16.6%, respectively, differed from the expected U.S. statutory tax rate of 35% and was impacted by change in judgement in the realizability on a portion of Spectrum Brand’s U.S. net operating loss carryforwards that were previously recorded with valuation allowance and recognition of tax benefits on a portion of current year losses from our Energy and Corporate and Other segments in the U.S. The Company determined that a portion of the current year losses related to our Energy and Corporate and Other segments are more-likely-than-not to be realized based on the expected taxable gain from the FGL Merger. The increase in tax expense for the Fiscal 2016 Quarter was principally due to an increase in current year losses from our Corporate and Other segments in the U.S. that are not more likely than not to be realized. In December 2015, Spectrum Brands received a ruling from the Internal Revenue Service which resulted in approximately $88.0 million of U.S. net operating losses being restored. The ruling created additional U.S. deferred tax assets and valuation allowance during the Fiscal 2016 Quarter and the Fiscal 2016 Six Months. During the Fiscal 2016 Quarter, Spectrum Brands determined it is more likely than not its U.S. deferred tax assets will be used to reduce taxable income, except for tax attributes subject to ownership change limitations, capital losses, and certain state operating losses and credits that will expire unused. Spectrum Brands estimates the total unused tax benefits are approximately $209.0 million and has projected to release approximately $84.0 million of valuation allowance during the fiscal year ending September 30, 2016. Since the release is expected to be realized as a result of ordinary income in the fiscal year ending September 30, 2016, the entire $84.0 million is included in the calculation of the estimated annual effective tax rate for the current year. For the Fiscal 2015 Quarter and the Fiscal 2015 Six Months, our effective tax rate of 0.3% and (1.4)%, respectively, differed from the expected U.S. statutory tax rate of 35% and was impacted by pretax losses including book revaluation impairments and bad debt expense 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 Fiscal 2015 Six Months included recognition of a nonrecurring net income tax benefit of $12.3 million attributable to the tax impact related to the impairment of certain FOH’s 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 we 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 our valuation allowance previously recorded against tax attribute carryforwards that are expected to be realized against the taxable gain. (Loss) income from discontinued operations, net of tax. Discontinued operations include FGL’s results from operations that were previously reported in the Insurance segment. Net loss from discontinued operations, net of tax for the Fiscal 2016 Quarter was $13.1 million, a decrease from a net income of $5.8 million for the Fiscal 2015 Quarter. The $18.9 million decrease in net income from discontinued operations was primarily driven by a $23.5 million write down of the asset held for sale to its fair value less cost to sell. Net loss from discontinued operations, net of tax for the Fiscal 2016 Six Months was $48.7 million, a decrease from a net income of $22.8 million for the Fiscal 2015 Six Months. The $71.5 million decrease in net income from discontinued operations was driven primarily by a $90.9 million net income tax expense related to the establishment of a deferred tax liability of $328.6 million 45 | |
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