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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did not have an impact on net equity as the incremental deferred tax assets were fully offset by a corresponding increase in the deferred tax asset valuation allowance as of September 30, 2015.
For the three months ended December 31, 2015, there was an additional $4.3 of unrecognized deferred tax assets attributable to excess tax benefits that were not previously recognized. The Company did not record an adjustment for the adoption of ASU 2016-09 as the incremental deferred tax assets were also fully offset by a corresponding increase in the deferred tax asset valuation allowance as of December 31, 2015.
The impact of the adoption of ASU 2016-09 to the Company’s previously reported quarterly results for the three and six months ended March 31, 2016 was as follows:
 
Three months ended March 31, 2016
 
Six months ended March 31, 2016
 
Reported
 
Adjustment
 
As Revised
 
Reported
 
Adjustment
 
As Revised
Income tax expense (benefit)
$
8.9

 
$
(17.4
)
 
$
(8.5
)
 
$
10.8

 
$
(17.4
)
 
$
(6.6
)
Net income from continuing operations
11.6

 
17.4

 
29.0

 
54.2

 
17.4

 
71.6

Net (loss) income
(1.5
)
 
17.4

 
15.9

 
5.5

 
17.4

 
22.9

Net income attributable to noncontrolling interest
33.3

 
7.3

 
40.6

 
74.2

 
7.3

 
81.5

Net (loss) income attributable to controlling interest
(34.8
)
 
10.1

 
(24.7
)
 
(68.7
)
 
10.1

 
(58.6
)
Earnings Per Share
 
 
 
 
 
 
 
 
 
 
 
Basic (loss) income from continuing operations
$
(0.10
)
 
$
0.09

 
$
(0.01
)
 
$
(0.05
)
 
$
0.09

 
$
0.04

Basic earnings per share
(0.18
)
 
0.05

 
(0.12
)
 
(0.35
)
 
0.05

 
(0.30
)
Diluted (loss) income from continuing operations
$
(0.10
)
 
$
0.09

 
$
(0.01
)
 
$
(0.05
)
 
$
0.09

 
$
0.04

Diluted earnings per share
(0.18
)
 
0.05

 
(0.12
)
 
(0.35
)
 
0.05

 
(0.30
)
Further, as part of the adoption, the Company elected to account for forfeitures in compensation cost as they occur. The cumulative impact for the change in election was not material and was recognized in the three months ended June 30, 2016.
Oil and Natural Gas Properties
Ceiling Test
Pursuant to Rule 4-10(c)(4) of Regulation S-X, Compass is required to compute its ceiling test using the simple average first day of the month spot price for the trailing 12 month period for oil and natural gas at the end of each fiscal quarter. The ceiling test involves comparing the net book value of the full cost pool, after taxes, to the full cost ceiling limitation defined below. In the event the full cost ceiling limitation is less than the full cost pool, Compass is required to record a ceiling test impairment of its oil and natural gas properties. The full cost ceiling limitation is computed as the sum of the present value of estimated future net revenues from Compass’ proved reserves by applying the average price as prescribed by the SEC Release No. 33-8995, less estimated future expenditures (based on current costs) to develop and produce the proved reserves, discounted at 10%, plus the cost of properties not being amortized and the lower of cost or estimated fair value of unproved properties included in the costs being amortized, net of income tax effects.
The ceiling test is computed using the simple average first day of the month spot price for the trailing 12 month period using the first day of each month. As of June 30, 2016, the trailing 12 month period month reference prices were $2.24 per Million British Thermal Units (“Mmbtu”) for natural gas at Henry Hub (“HH”), and $43.12 per barrel (“Bbl”) of oil for West Texas Intermediate (“WTI”) at Cushing, Oklahoma. Each of the reference prices for oil and natural gas are further adjusted for quality factors and regional differentials to derive estimated future net revenues. The price used for natural gas liquids was $16.72 per Bbl and was based on the trailing 12 month period month average of realized prices. Under full cost accounting rules, any ceiling test impairments of oil and natural gas properties may not be reversed in subsequent periods. Since Compass does not designate its derivative financial instruments as hedging instruments, Compass is not allowed to use the impacts of the derivative financial instruments in the ceiling test computations.
During the three and nine months ended June 30, 2016, Compass recognized impairments of $17.6 and $93.2, respectively, to its proved oil and natural gas properties due to the continued decline in oil and natural gas prices.
For the three months ended June 30, 2015, Compass recognized impairments to its proved oil and natural gas properties of $102.8 primarily due to a decline in oil and natural gas prices. During the nine months ended June 30, 2015, Compass recognized impairments of $439.4 to its proved oil and natural gas properties due to the sharp decline in oil and natural gas prices, as well as the acquisition by HGI Energy of EXCO Resources, Inc.’s (“EXCO”) interest in Compass, which triggered the remeasurement of the Company’s initial basis in Compass at fair value which increased Compass’ full cost pool. The purchase price for the acquisition was based on both the income and market approach models which incorporate, among other things, market prices based on the New York Mercantile Exchange (“NYMEX”) futures as of the acquisition date, which the Company believes reflects an independent proxy point for determining fair value. The ceiling test, however, requires companies using the full cost accounting method to

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