SEC Filings
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| 10-Q | |
| HRG GROUP, INC. filed this Form 10-Q on 08/09/2016 | |
| Entire Document | |
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In December 2015, Spectrum Brands received a ruling from the Internal Revenue Service which resulted in approximately $88.0 million of U.S. NOL being restored. The ruling created additional U.S. deferred tax assets and valuation allowance during the Fiscal 2016 Nine Months. During the Fiscal 2016 Nine Months, 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 $211.0 million and has projected to release approximately $109.0 million of valuation allowance during the fiscal year ending September 30, 2016. Approximately $25.0 million of the valuation allowance release results from additional deferred tax assets created by the adoption of ASU 2016-09. For the Fiscal 2016 Nine Months, Spectrum Brands included $95.0 million of the valuation allowance release in the calculation of the estimated annual effective tax rate for the current fiscal year, and $14.0 million as a discrete income tax benefit. For the Fiscal 2015 Quarter and the Fiscal 2015 Nine Months, our effective tax rates of 20.8% and 6.0%, respectively, differed from the expected U.S. statutory tax rate of 35.0% and were impacted by pretax losses including significant impairment 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 Nine 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. In addition, for the Fiscal 2015 Quarter and the Fiscal 2015 Nine Months, the Company recognized a $31.0 million income tax benefit from the reversal of a portion of Spectrum Brands’ U.S. valuation allowance on deferred tax assets in connection with the purchase of AAG. As a result of the business combination, Spectrum Brands determined that a portion of its pre-existing deferred tax assets are more likely than not to be realized by the combined entity and a portion of the valuation allowance should be eliminated. The discrete tax benefits related to the reversal of Spectrum Brands’ valuation allowance and impairments at FOH reduced the Company’s income tax expense for the Fiscal 2015 Quarter and the Fiscal 2015 Nine Months. The majority of NOLs, 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 $208.4 million, a decrease from a net income of $102.9 million for the Fiscal 2015 Quarter. The $311.3 million decrease in net income from discontinued operations was primarily driven by a $217.2 million write-down of the asset held for sale to its fair value less cost to sell, coupled with a decrease in net income from FGL of $94.1 million. Net loss from discontinued operations, net of tax for the Fiscal 2016 Nine Months was $257.1 million, a decrease from a net income of $125.7 million for the Fiscal 2015 Nine Months. The $382.8 million decrease in net income from discontinued operations was driven primarily by (i) $240.7 million write-down of the asset held for sale to its fair value less cost to sell; (ii) $90.9 million net income tax expense related to the establishment of a deferred tax liability of $253.0 million as a result of classifying our ownership interest in FGL as held for sale, partially offset by a $162.1 million reduction of valuation allowance on HRG’s net operating and capital loss carryforwards expected to offset the FGL taxable gain; and (iii) a decrease in net income from FGL of $51.2 million. The decreases in FGL’s net income were primarily driven by the effects that the fluctuations in equity markets and the changes the risk free rates had on the valuation of derivative instruments and fixed indexed annuity present value future credits and guarantee liability changes in each respective period; partially offset by lower amortization of intangibles and higher net investment income. Noncontrolling Interest. The net income attributable to noncontrolling interest reflects the share of the net income of our subsidiaries, which are not wholly-owned, attributable to the noncontrolling interest. Such amount varies in relation to such subsidiary’s net income or loss for the period and the percentage interest not owned by HRG. 49 | |
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