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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The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities as of September 30, 2016 and 2015 are as follows: 
 
 
SBH
 
SB/RH
(in millions)
 
2016
 
2015
 
2016
 
2015
Deferred tax assets
 
 
 
 
 
 
 
 
Employee benefits
 
$
86.3

 
$
63.2

 
$
83.5

 
$
60.9

Restructuring
 
2.2

 
4.1

 
2.2

 
4.1

Inventories and receivables
 
32.6

 
35.2

 
32.6

 
35.2

Marketing and promotional accruals
 
17.6

 
14.4

 
17.6

 
14.4

Prepaid royalty
 
6.0

 
6.3

 
6.0

 
6.3

Property, plant and equipment
 
8.4

 
11.6

 
8.4

 
11.6

Unrealized losses
 
4.2

 
2.7

 
4.2

 
2.7

Intangibles
 
3.7

 
6.1

 
3.7

 
6.1

Investment in non-US subsidiaries
 
—

 
23.3

 
—

 
23.3

Net operating loss and credit carry forwards
 
402.8

 
447.7

 
394.9

 
441.6

Other
 
24.1

 
32.8

 
23.8

 
32.6

Total deferred tax assets
 
587.9

 
647.4

 
576.9

 
638.8

Deferred tax liabilities
 
 
 
 
 
 
 
 
Property, plant and equipment
 
20.1

 
27.1

 
20.1

 
27.1

Unrealized gains
 
5.1

 
18.6

 
5.1

 
18.6

Intangibles
 
813.4

 
840.8

 
813.4

 
840.8

Taxes on unremitted foreign earnings
 
2.7

 
2.4

 
2.7

 
2.4

Other
 
15.3

 
16.3

 
15.3

 
16.3

Total deferred tax liabilities
 
856.6

 
905.2

 
856.6

 
905.2

Net deferred tax liabilities
 
(268.7
)
 
(257.8
)
 
(279.7
)
 
(266.4
)
Valuation allowance
 
(245.7
)
 
(305.4
)
 
(245.7
)
 
(296.8
)
Net deferred tax liabilities, net valuation allowance
 
$
(514.4
)
 
$
(563.2
)
 
$
(525.4
)
 
$
(563.2
)
Reported as:
 
 
 
 
 
 
 
 
Deferred charges and other
 
$
18.3

 
$
9.3

 
$
7.3

 
$
9.3

Deferred taxes (noncurrent liability)
 
(532.7
)
 
(572.5
)
 
(532.7
)
 
(572.5
)
During the fourth quarter of the year ended September 30, 2015, the Company recognized $23.3 million of deferred tax assets related to its investment in one of its foreign subsidiaries because it was expected to reverse in the foreseeable future. The deferred tax asset reversed during the year ended September 30, 2016. The Company also recorded a $14.4 million reduction in its net operating loss deferred tax assets, with a corresponding reduction in the valuation allowance, to reflect losses used as a result of prior year adjustments.
To the extent necessary, the Company intends to utilize earnings of foreign subsidiaries in order to support management's plans to voluntarily accelerate pay down of U.S. debt, fund distributions to shareholders, fund U.S. acquisitions and satisfy ongoing U.S. operational cash flow requirements. As a result, current and certain prior period earnings of the Company's non-U.S. subsidiaries are generally not considered to be permanently reinvested, except in jurisdictions where repatriation is either precluded or restricted by law. The Company annually estimates the available earnings, permanent reinvestment classification and the availability of and management’s intent to use alternative mechanisms for repatriation for each jurisdiction in which the Company does business. Accordingly, the Company is providing residual U.S. and foreign deferred taxes on these earnings to the extent they cannot be repatriated in a tax-free manner.
The Company has provided residual taxes on $102.0 million of distributions from foreign earnings for the year ended September 30, 2016 with $93.6 million of earnings not yet taxed in the U.S. resulting in an increase in income tax expense of $36.7 million. The residual domestic taxes from foreign earnings are recognized as a reduction to net operating loss and credit carryforwards deferred tax assets and taxes on unremitted foreign earnings are recognized as a deferred tax liability. The Company has provided residual taxes on $37.5 million of distributions from foreign earnings for the year ended September 30, 2015 with no earnings not yet taxed in the U.S. resulting in a decrease in income tax expense of $0.3 million. Remaining undistributed earnings of the Company’s foreign operations are $219.4 million at September 30, 2016, and are intended to remain permanently invested. Accordingly, no residual income taxes have been provided on those earnings. If at some future date these earnings cease to be permanently invested, the Company may be subject to U.S. income taxes and foreign withholding and other taxes on such amounts, which cannot be reasonably estimated at this time.
As of September 30, 2016, the Company has U.S. federal net operating loss carryforwards (“NOLs”) of $758.9 million with a federal tax benefit of $265.6 million and tax benefits related to state NOLs of $60.6 million and capital loss carryforwards of $19.8 million with a federal and state tax benefit of $7.6 million. The Company has an additional $4.3 million of federal and state NOLs for which benefits will be recorded to Additional Paid-in Capital when these carryforwards are used. These NOLs expire through years ending in 2036. As of September 30, 2016, the Company has foreign NOLs of $136.3 million and tax benefits of $38.4 million, which will expire beginning

S-42
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