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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recorded with valuation allowance against Spectrum Brand’s earnings during the fiscal year 2016 and recognition of tax benefits on a portion of current year losses from our Corporate and Other segment in the U.S. during the fiscal year 2016. The Company determined that a portion of the fiscal year 2016 losses related to our Corporate and Other segment are more-likely-than-not to be realized based on the expected taxable gain from the FGL Merger.
The majority of NOL, capital loss and tax credit carryforwards at HRG and a portion of Spectrum Brands have historically been subject to valuation allowances, as the Company concluded that all or a portion of the related tax benefits are not more-likely-than-not to be realized. Utilization of a portion of the NOL, capital loss and tax credit carryforwards of HRG and Spectrum Brands are subject to limitations under Internal Revenue Code (“IRC”) Sections 382 and 383. Such limitations resulted from ownership changes of more than 50 percentage points over a three-year period. The consummation of the FGL Merger is expected to result in significant utilization of tax attribute carryforwards against the taxable gain.
Income (loss) from discontinued operations, net of tax. Income from discontinued operations, net of tax for the Fiscal 2017 Quarter was $258.8 million and was entirely attributable to FGL. Loss from discontinued operations, net of tax for the Fiscal 2016 Quarter was $2.5 million due to a $35.6 million loss attributable to FGL, partially offset by $33.1 million of income related to Compass’ operations.
The increase in income of $294.4 million attributable to FGL was driven by a write-up of the carrying value of the assets of business held for sale to fair value less cost to sell of $144.5 million; the non-recurrence of $90.9 million income tax expense recorded in the Fiscal 2016 Quarter; and an increase in net income attributable to FGL’s operations of $56.7 million.
At December 31, 2016, the carrying value of the Company’s interest in FGL was $218.3 million higher than the fair value less cost to sell based on the sales price at December 31, 2016 and as a result, the Company partially reversed the previously recorded $362.8 million write-down of assets of business held for sale by $144.5 million. The decrease in the carrying value of the Company’s interest was primarily as a result of a decrease in unrealized gains on FGL’s investment portfolio during the Fiscal 2017 Quarter due to the increase in market yields.
The increase in net income attributable to FGL’s operations of $56.7 million was driven primarily by the change in the fixed indexed annuity present value of future credits and guarantee liability change that substantially decreased during the Fiscal 2017 Quarter. This increase was a result of the increase in longer duration risk free rates and higher net investment income as a result of higher assets under management and higher portfolio yield. These increases were partially offset by the effects of the amortization of deferred acquisition costs and tax.
Also attributing to the increase in FGL’s net income was the non-recurrence of $90.9 million income tax expense recorded in the Fiscal 2016 Quarter related to the establishment of a deferred tax liability of $338.6 million at December 31, 2015 as a result of classifying HRG’s ownership interest in FGL as held for sale, partially offset by a $247.7 million reduction of valuation allowance on HRG’s net operating and capital loss carryforwards expected to offset the tax effects of the FGL Merger.
The $33.1 million of income from discontinued operations, net of tax attributable to Compass in the Fiscal 2016 Quarter was primarily due to a gain on sale of oil and gas properties of $105.6 million, partially offset by a ceiling test impairment of $54.4 million.
Noncontrolling Interest. The net income attributable to noncontrolling interest reflects the share of the net income of our subsidiaries, which are not wholly-owned, attributable to the noncontrolling interest. Such amount varies in relation to such subsidiary’s net income or loss for the period and the percentage interest not owned by HRG.

Consumer Products Segment
Presented below is a table that summarizes the results of operations of our Consumer Products segment and compares the amount of the change between the periods (in millions):
 
Fiscal Quarter

2017
 
2016
 
Increase / (Decrease)
Net consumer and other product sales
$
1,211.8

 
$
1,218.8

 
$
(7.0
)
Cost of consumer products and other goods sold
761.8

 
778.1

 
(16.3
)
Consumer products segment gross profit
450.0

 
440.7

 
9.3

Selling, acquisition, operating and general expenses
299.0

 
298.2

 
0.8

Operating income - Consumer Products segment
$
151.0

 
$
142.5

 
$
8.5

Net consumer and other product sales. Net consumer and other product sales for the Fiscal 2017 Quarter decreased $7.0 million, or 0.6%, to $1,211.8 million from $1,218.8 million for the Fiscal 2016 Quarter. The decrease in net consumer and other product sales in the Fiscal 2017 Quarter was primarily due to the negative impact of foreign exchange rates of $18.8 million and a decline

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