Harbinger Group Inc.
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10-K
HRG GROUP, INC. filed this Form 10-K on 11/23/2016
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impairments and bad debt expense in the Company’s Insurance and Corporate and Other segments in the U.S. for which we concluded that a majority of the tax benefits are not more-likely-than-not to be realized, resulting in the recording of valuation allowances. Partially offsetting these items in Fiscal 2015 were: (i) income earned outside the U.S. that is subject to statutory tax rates lower than 35.0%; and (ii) recognition of a $22.8 income tax benefit from the reversal of a portion of Spectrum Brands’ U.S. valuation allowance on deferred tax assets in connection with the acquisition of AAG. As a result, 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 historical valuation allowance was no longer required. In addition, the Company recognized a non-recurring net income tax benefit of $12.3 attributable to the tax impact related to the impairment of certain FOH indefinite lived intangible assets for which a deferred tax liability was previously recorded. 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.
For Fiscal 2014, the Company’s effective tax rate of 86.2% differed from the expected U.S. statutory tax rate of 35.0%. This difference was primarily driven by pretax losses in the U.S. and some foreign jurisdictions for which the Company concluded that the tax benefits are not more-likely-than-not realizable, resulting in valuation allowances, that were partially offset by income earned outside the U.S. that is subject to statutory rates lower than 35.0%.
The following table summarizes the components of deferred income tax assets and liabilities:
 
 
September 30,
 
 
2016
 
2015
Deferred tax assets:
 
 
 
 
Employee benefits
 
$
101.6

 
$
84.2

Property, plant and equipment
 
8.9

 
4.1

Inventories and receivables
 
32.6

 
35.3

Marketing and promotional accruals
 
17.6

 
14.4

Net operating loss, credit and capital loss carry forwards
 
992.3

 
871.4

Prepaid royalty
 
6.0

 
6.3

Unrealized losses on mark-to-market securities
 
16.4

 
19.9

Insurance reserves and claim related adjustments
 
23.3

 
43.3

Insurance receivables
 

 
21.2

Outside basis difference
 
51.1

 
217.3

Intangibles
 
3.7

 
6.1

Investments
 

 
13.1

Other
 
57.3

 
106.2

Total deferred tax assets
 
1,310.8

 
1,442.8

Less: Valuation allowance
 
512.1

 
894.2

Net deferred tax assets
 
798.7

 
548.6

 
 
 
 
 
Deferred tax liabilities:
 
 
 
 
Property, plant and equipment
 
(20.1
)
 
(15.1
)
Outside basis differences on held for sale assets
 
(367.8
)
 
(23.8
)
Intangibles
 
(813.4
)
 
(841.1
)
Investments
 
(39.3
)
 
(87.4
)
Insurance reserves and claim related adjustments
 
(5.0
)
 
(14.9
)
Redemption of long term debt
 
(10.2
)
 
(11.8
)
Other
 
(46.3
)
 
(72.3
)
Total deferred tax liabilities
 
(1,302.1
)
 
(1,066.4
)
Net deferred tax liability
 
$
(503.4
)
 
$
(517.8
)
In accordance with ASC Topic 740, the Company establishes valuation allowances for deferred tax assets that, in its judgment, are not more-likely-than-not realizable. These judgments are based on projections of future income, including tax-planning strategies, by individual tax jurisdiction. Changes in industry and economic conditions and the competitive environment may impact the accuracy of these projections. In accordance with ASC Topic 740, during each reporting period, the Company assesses the likelihood that its deferred tax assets will be realized and determines if adjustments to its valuation allowances are appropriate. As a result of this assessment, for Fiscal 2016, 2015 and 2014, the Company had a net charge (release) of valuation allowance to earnings totaling $(42.3), $190.8 and $(31.8), respectively, as more fully described below.
HRG
At September 30, 2016, a partial valuation allowance was reversed on certain deferred tax assets related to NOLs and capital loss carryforwards that are expected to be realized to offset the deferred tax liability recognized as a result of classifying HRG’s ownership interest in FGL as held for sale. See Note 4, Divestitures, for additional information. Management concluded that the remaining net deferred tax asset balance primarily related to NOLs was not more-likely-than-not to be realized and a valuation

F-66

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