Harbinger Group Inc.
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SEC Filings

10-K
HRG GROUP, INC. filed this Form 10-K on 11/23/2016
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The following table summarizes the components of “(Loss) income from discontinued operations, net of tax” in the accompanying Consolidated Statements of Operations for Fiscal 2016, 2015 and 2014:
 
 
Fiscal
 
 
2016
 
2015
 
2014
Revenues:
 
 
 
 
 
 
Insurance premiums
 
$
69.9

 
$
58.5

 
$
55.6

Net investment income (a)
 
922.7

 
850.8

 
760.2

Net investment gains (losses) (b)
 
27.6

 
(2.0
)
 
306.7

Insurance and investment product fees and other
 
126.8

 
89.2

 
68.3

Total revenues
 
1,147.0

 
996.5

 
1,190.8

Operating costs and expenses:
 
 
 
 
 
 
Benefits and other changes in policy reserves
 
790.9

 
578.4

 
787.5

Selling, acquisition, operating and general expenses
 
118.3

 
112.8

 
102.3

Amortization of intangibles
 
78.6

 
41.8

 
97.5

Total operating costs and expenses
 
987.8

 
733.0

 
987.3

Operating income
 
159.2

 
263.5

 
203.5

Interest expense
 
(22.0
)
 
(23.6
)
 
(22.5
)
Other income (expense), net
 
4.8

 
(5.0
)
 
(4.0
)
Write-down of assets of business held for sale to fair value less cost to sell (c)
 
(362.8
)
 

 

Net (loss) income before income taxes
 
(220.8
)
 
234.9

 
177.0

Income tax expense (d)
 
44.3

 
87.8

 
22.0

Net (loss) income
 
(265.1
)
 
147.1

 
155.0

Less: net income attributable to noncontrolling interest
 
19.0

 
23.1

 
12.9

Net (loss) income - attributable to controlling interest
 
$
(284.1
)
 
$
124.0

 
$
142.1

(a) Included in the net investment income attributable to FGL is interest income of $4.1, $4.5 and $4.5 for Fiscal 2016, 2015 and 2014, respectively, on debt instruments issued by entities consolidated by HRG as they will continue to exist following the closing of the FGL Merger. The corresponding interest expense is recorded in continuing operations in the accompanying Consolidated Statements of Operations.
(b) Included in “Net investment gains (losses)” are charges related to the change in expected recovery rates of asset-based loans. Such charges are presented asImpairments and bad debt expense” on the Company’s accompanying Consolidated Statements of Operations.
(c) FGL’s net income during Fiscal 2016 and the increase in unrealized gains on FGL’s investment portfolio resulted in an increase of the Company’s carrying value in FGL that was above the fair value that the Company expects to receive as part of the sale which write-down of carrying value of the assets of business held for sale to fair value less cost to sell of $362.8. Such write-down could be partially reversed if the carrying value of FGL decreases in future reporting periods. Upon completion of the FGL Merger, the amount of AOCI related to FGL will be recognized through (loss) income from discontinued operations on the statement of operations and could result in a gain from discontinued operations.
(d) Included in the income tax expense for Fiscal 2016 was $15.2 of income tax expense primarily related to the establishment of a deferred tax liability of $367.9 at September 30, 2016 as a result of classifying HRG’s ownership interest in FGL as held for sale, partially offset by the recognition of a $94.7 deferred tax asset related to realized capital losses primarily from the Compass Sale and $258.0 reduction of valuation allowances on HRG’s net operating and capital loss carryforwards expected to offset the tax effects of the FGL Merger. The excess deferred tax liability of $15.2 was mainly related to the Company’s estimated alternative minimum taxes.
Compass Asset Sale and Compass Sale
Compass was formed on February 14, 2013 through transactions between subsidiaries of EXCO Resources, Inc.’s (“EXCO”) and HRG, resulting in the formation of the Compass general partner and the partnership. Under the terms of the respective agreements, Compass acquired certain oil and natural gas assets from EXCO. Immediately after the closing and the consummation of the transactions, the ownership in the Compass partnership was 73.5% by HRG and 24.5% by EXCO and 2.0% by the Compass general partner. In addition, HRG and EXCO each own a 50.0% member interest in the Compass general partner and each have equal representation on the general partner’s board of directors. As of September 30, 2014, the ownership of the Partnership and General Partnership translated into an economic ownership of Compass of 74.4%.
On October 6, 2014, HGI Energy entered into an agreement to buy from EXCO their remaining 25.5% economic interest in Compass for $118.8 (the “25.5% Compass Acquisition”). The transaction closed on October 31, 2014 resulting in HGI Energy owning an economic interest of 99.8% in Compass and 100.0% of the ownership interests in the general partner of Compass. As a result of this transaction, Compass became a consolidated subsidiary of the Company.
As discussed in Note 1, Basis of Presentation and Nature of Operations, on December 1, 2015, Compass completed the sale of its oil and gas interests located in the Holly, Waskom and Danville Fields in East Texas and North Louisiana. The Company accounted for the sale in accordance with ASC Topic 932, Property, Plant and Equipment: Extractive Activities - Oil and Gas.

F-34

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