Harbinger Group Inc. -SEC Filings

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SEC Filings

10-Q

HRG GROUP, INC. filed this Form 10-Q on 08/09/2016

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During the three and nine months ended June 30, 2016 and 2015, the Company recognized the following gains and losses on its derivatives:



		Three months ended June 30,						Nine months ended June 30,
Classification	Derivatives Not Designated as Hedging Instruments	2016			2015			2016		2015
Revenues:
Net investment gains (losses)	Call options	$	0.2		$	(0.3	)	$	0.7	$	1.9
Other income and expense:
Benefits and other changes in policy reserves	Embedded derivatives in Front Street's assumed FIA business	$	3.0		$	6.9		$	8.8	$	1.8
Other (expense) income, net	Oil and natural gas commodity contracts	(2.2		)	(2.7		)	0.3		21.3
	Foreign exchange contracts	0.8			5.0			1.6		(2.4		)

Additional Disclosures

Call options. Derivative financial instruments included within or outside of the funds withheld receivables at fair value in the accompanying Condensed Consolidated Balance Sheets are in the form of call options receivable to Front Street. Front Street hedges exposure to product related equity market risk by entering into derivative transactions. These options hedge Front Street’s share of the FIA index credit. The change in fair value is recognized within “Net investment gains (losses)” in the accompanying Condensed Consolidated Statements of Operations.

Embedded derivatives in Front Street’s assumed FIA business. Front Street has assumed FIA contracts that permit the holder to elect an interest rate return or an equity index linked component, where interest credited to the contracts is linked to the performance of various equity indices, primarily the Standard & Poor’s Ratings Services (“S&P”) 500 Index. This feature represents an embedded derivative under U.S. GAAP. The FIA embedded derivative is valued at fair value and included in the “Insurance reserves” in the accompanying Condensed Consolidated Balance Sheets with changes in fair value included as a component of “Benefits and other changes in policy reserves” in the accompanying Condensed Consolidated Statements of Operations.

Interest Rate Swaps. When it deems appropriate, Spectrum Brands has used interest rate swaps to manage its interest rate risk. The swaps are designated as cash flow hedges with the changes in fair value recorded in Accumulated other comprehensive income (loss) (“AOCI”) and as a derivative hedge asset or liability, as applicable. The swaps settle periodically in arrears with the related amounts for the current settlement period payable to, or receivable from, the counterparties included in accrued liabilities or receivables, respectively, and recognized in earnings as an adjustment to interest from the underlying debt to which the swap is designated. As of June 30, 2016 and September 30, 2015, Spectrum Brands had a series of U.S. dollar denominated interest rate swaps outstanding which effectively fix the interest on floating rate debt, exclusive of lender spreads, at 1.36% for a notional principal amount of $300.0 through April 2017. The derivative net losses estimated to be reclassified from AOCI into earnings over the next 12 months is $0.8, net of tax. Spectrum Brands’ interest rate swap derivative financial instruments at June 30, 2016 and September 30, 2015 were as follows:



	June 30, 2016			September 30, 2015
	Notional		Remaining Years	Notional		Remaining Years
Interest rate swaps - fixed	$	300.0	0.8	$	300.0	1.5

Foreign exchange contracts - cash flow hedges. Spectrum Brands periodically enters into forward foreign exchange contracts to hedge the risk from forecasted foreign currency denominated third party and intercompany sales or payments. These obligations generally require Spectrum Brands to exchange foreign currencies for U.S. Dollars, Euros, Pounds Sterling, Australian Dollars, Brazilian Reals, Mexican Pesos, Canadian Dollars or Japanese Yen. These foreign exchange contracts are cash flow hedges of fluctuating foreign exchange related to sales of product or raw material purchases. Until the sale or purchase is recognized, the fair value of the related hedge is recorded in AOCI and as a derivative hedge asset or liability, as applicable. At the time the sale or purchase is recognized, the fair value of the related hedge is reclassified as an adjustment to “Net consumer and other product sales” or “Cost of consumer products and other goods sold”, respectively, in the accompanying Condensed Consolidated Statements of Operations. At June 30, 2016, Spectrum Brands had a series of foreign exchange derivative contracts outstanding through September 2017. The derivative net gains estimated to be reclassified from AOCI into earnings over the next 12 months is $2.4, net of tax. At June 30, 2016 and September 30, 2015, Spectrum Brands had foreign exchange derivative contracts designated as cash flow hedges with a notional value of $224.7 and $300.6, respectively.

Commodity swaps - cash flow hedges. Spectrum Brands is exposed to risk from fluctuating prices for raw materials, specifically zinc and brass used in its manufacturing processes. Spectrum Brands hedges a portion of the risk associated with the purchase of these materials through the use of commodity swaps. The hedge contracts are designated as cash flow hedges with the fair value

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