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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(d) The Company recognized a deferred tax liability of $367.9 at September 30, 2016 as a result of classifying the Company’s ownership in FGL as held for sale. Of this amount, $222.9 was recognized to income tax expense and $145.0 was recognized in accumulated other comprehensive income.

(5) Derivative Financial Instruments
The fair value of outstanding derivatives recorded in the accompanying Consolidated Balance Sheets were as follows:
 
 
 
 
September 30,
Derivatives not designated as hedging instruments:
 
Classification
 
2016
 
2015
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
Call option receivable from FGL
 
Funds withheld receivables
 
$
11.3

 
$
5.4

Call options
 
Other assets
 
5.9

 
1.0

 
 
 
 
$
17.2

 
$
6.4

Liabilities:
 
 
 
 
 
 
Embedded derivatives in Front Street's assumed FIA business
 
Insurance reserves
 
$
131.2

 
$
142.3

Foreign exchange contracts
 
Other liabilities
 
—

 
11.0

 
 
 
 
$
131.2

 
$
153.3

During Fiscal 2016, 2015 and 2014, the Company recognized the following gains and losses on its derivatives:
 
 
 
 
Fiscal
Classification
 
Derivatives Not Designated as Hedging Instruments
 
2016
 
2015
 
2014
 
 
 
 
 
 
 
Revenues:
 
 
 
 
 
 
 
 
Net investment gains (losses)
 
Call options
 
$
3.8

 
$
(7.6
)
 
$
25.7

Operating costs and expenses:
 
 
 
 
 
 
 
 
Benefits and other changes in policy reserves
 
Embedded derivatives in Front Street's assumed FIA business
 
$
11.1

 
$
8.5

 
$
(10.3
)
Other income (expense), net
 
Foreign exchange contracts
 
2.4

 
(11.0
)
 
—

Additional Disclosures
Call options. Derivative financial instruments included within the funds withheld receivables at fair value in the accompanying Consolidated Balance Sheets are in the form of call options receivable by 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 Consolidated Statements of Operations.
Call option receivable from FGL. Under the terms of the modified coinsurance arrangement between Front Street and FGL, FGL is required to pay Front Street a portion of the net cost of equity option purchases and the proceeds from expirations related to the equity options which hedge the index credit feature of the reinsured FIA contracts. Accordingly, the receivable from FGL is reflected in “Funds withheld receivables” as of the balance sheet date with changes in fair value reflected in the Company’s accompanying Consolidated Statements of Operations.
Embedded derivatives in Front Street’s assumed FIA business from FGL. 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 Consolidated Balance Sheets with changes in fair value included as a component of “Benefits and other changes in policy reserves” in the accompanying Consolidated Statements of Operations.
Foreign exchange contracts - not designated as hedges for accounting purposes- Salus. During Fiscal 2015, Salus executed a CAD swap agreement with FGL Insurance, to convert the CAD cash flows into U.S. Dollars cash flows. Under this swap agreement, Salus would reimburse FGL Insurance for certain realized foreign exchange losses related to cash flows on these loan participations from origination date through maturity date. The cumulative foreign exchange losses related to such cash flows at September 30, 2015 were $11.0 included in “Other liabilities” with an equal and offsetting asset included in “Assets of business held for sale” on the accompanying Consolidated Balance Sheets. The swap agreements were settled and terminated during Fiscal 2016. During Fiscal 2016 and 2015, the Company recognized $2.4 and $(11.0), respectively of other income (expense) associated with the CAD swap agreements and a corresponding (loss) income from discontinued operations on the accompanying Consolidated Statements of Operations.

S-75
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