Harbinger Group Inc.
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SEC Filings

10-Q
HRG GROUP, INC. filed this Form 10-Q on 02/07/2017
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is recognized in earnings in the period of change. The Company recognizes all derivative instruments as assets or liabilities in the accompanying Condensed Consolidated Balance Sheets at fair value.
The following tables summarize the impact of the effective portion of designated hedges and the gain recognized in the accompanying Condensed Consolidated Statements of Operations for the three months ended December 31, 2016 and 2015:
Three months ended December 31, 2016
 
Classification
 
Effective portion
 
 
 
 
Gain in AOCI
 
Gain (Loss) reclassified to Earnings
Interest rate swaps
 
Interest expense
 
$
0.1

 
$
(0.3
)
Commodity swaps
 
Cost of consumer products and other goods sold
 
0.1

 
0.8

Net investment hedge
 
Other income (expense), net
 
32.5

 
—

Foreign exchange contracts
 
Net consumer and other product sales
 
0.2

 
—

Foreign exchange contracts
 
Cost of consumer products and other goods sold
 
10.3

 
4.3

 
 
 
 
$
43.2

 
$
4.8

Three months ended December 31, 2015
 
Classification
 
Effective portion
 
 
 
 
Gain (Loss) in AOCI
 
Gain (Loss) reclassified to Earnings
Interest rate swaps
 
Interest expense
 
$
0.3

 
$
(0.5
)
Commodity swaps
 
Cost of consumer products and other goods sold
 
(1.0
)
 
(1.4
)
Foreign exchange contracts
 
Net consumer and other product sales
 
(0.1
)
 
—

Foreign exchange contracts
 
Cost of consumer products and other goods sold
 
5.4

 
2.1

 
 
 
 
$
4.6

 
$
0.2

During the three months ended December 31, 2016 and 2015, the Company recognized the following gains and losses on its derivatives:
 
 
 
 
Three months ended December 31,
Classification
 
Derivatives Not Designated as Hedging Instruments
 
2016
 
2015
Revenues:
 
 
 
 
 
 
Net investment losses
 
Call options
 
$
3.1

 
$
1.9

Operating costs and expenses:
 
 
 
 
 
 
Cost of consumer products and other goods sold
 
Commodity swaps
 
$
0.1

 
$
—

Benefits and other changes in policy reserves
 
Embedded derivatives in Front Street's assumed FIA business
 
(10.0
)
 
(2.4
)
Other income (expense), net
 
Foreign exchange contracts
 
0.7

 
(2.1
)
Additional Disclosures
Call options. Derivative financial instruments included within the funds withheld receivables at fair value in the accompanying Condensed 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 losses” in the accompanying Condensed 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 recognized within “Net investment losses” in the accompanying Condensed 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 Condensed Consolidated Balance Sheets with changes in fair value included as a component of “Benefits and other changes in policy reserves” in the accompanying Condensed Consolidated Statements of Operations.

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