SEC Filings
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| 10-Q | |
| HRG GROUP, INC. filed this Form 10-Q on 05/05/2017 | |
| Entire Document | |
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Interest Expense. Interest expense decreased $6.1 million to $88.3 million for the Fiscal 2017 Quarter from $94.4 million for the Fiscal 2016 Quarter and decreased $9.6 million to $180.0 million for the Fiscal 2017 Six Months from $189.6 million for the Fiscal 2016 Six Months. The decreases were primarily due to the effect of refinancing activities to lower interest rates at our Consumer Products segment, partially offset by interest expense on the 2017 Loan. Other expense, net. Other expense increased $2.0 million for the Fiscal 2017 Quarter as compared to the Fiscal 2016 Quarter primarily driven by foreign exchange losses. Other expense remained flat at $0.6 million for the Fiscal 2017 Six Months compared to $0.7 million for the Fiscal 2016 Six Months. Income Taxes. For the Fiscal 2017 Quarter and the Fiscal 2017 Six Months, our effective tax rate of 94.4% and 93.8%, respectively, differed from the expected U.S. statutory tax rate of 35.0% and was primarily impacted by U.S. pretax losses in our Corporate and Other and Insurance segments in the U.S. where the tax benefits were not more-likely-than-not to be realized, resulting in the recording of valuation allowance. Additionally, the Company determined that the deferred tax assets of the Insurance segment at the beginning of the fiscal year were no longer more-likely-than-not to be realized and established a full valuation allowance against its deferred tax assets in the Fiscal 2017 Quarter and the Fiscal 2017 Six Months. The increase in income tax expense for the Fiscal 2017 Quarter and the Fiscal 2017 Six Months, was principally due to current year losses from our Corporate and Other and Insurance segments in the U.S. that were not more-likely-than-not to be realized. For the Fiscal 2016 Quarter and the Fiscal 2016 Six Months, our effective tax rate of (32.0)% and (40.4)%, respectively, differed from the expected U.S. statutory tax rate of 35.0% and was impacted by the expected utilization of a portion of Spectrum Brands’ U.S. net operating losses (“NOL”) that were previously recorded with valuation allowance against Spectrum Brands’ earnings during the fiscal year 2016, the effects of the adoption of Accounting Standards Update 2016-09 that resulted in the recognition of excess tax benefits in the Company’s provision for income taxes rather than paid-in capital 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 were more-likely-than-not to be realized based on the expected taxable gain from the completion of any disposition resulting from the FGL Strategic Evaluation Process. In addition, for the Fiscal 2016 Six Months, the effective tax rate was also reduced by $5.9 million for non-recurring items related to the impact of tax law changes in state deferred tax rates on Spectrum Brands’ net deferred tax liabilities. 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 were 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 completion of any disposition resulting from the FGL Strategic Evaluation Process is expected to result in significant utilization of tax attribute carryforwards against the taxable gain. (Loss) income from discontinued operations, net of tax. Loss from discontinued operations, net of tax for the Fiscal 2017 Quarter was $54.4 million and was entirely attributable to FGL. Loss from discontinued operations, net of tax for the Fiscal 2016 Quarter was $47.6 million due to a $34.5 million loss related to Compass’ operations and a $13.1 million loss attributable to FGL. The increase in loss of $41.3 million attributable to FGL was driven by a $72.8 million write-down of the carrying value of the assets of business held for sale to fair value less cost to sell for the Fiscal 2017 Quarter compared to $23.5 million for the Fiscal 2016 Quarter; partially offset by an increase in net income attributable to FGL’s operations of $9.1 million. The increase in net income attributable to FGL’s operations of $9.1 million was driven primarily by the change in the fixed indexed annuity present value of future credits and guarantee liability that increased $12.2 million during the Fiscal 2017 Quarter compared to a $77.2 million increase for the Fiscal 2016 Quarter. The change was a result of the greater decrease in longer duration risk free rates in the Fiscal 2016 Quarter compared to the Fiscal 2017 Quarter. Also contributing to the increase in net income attributable to FGL was higher net investment income driven by higher assets under management. These increases were partially offset by credit-related impairment losses of $20.0 million on available-for-sale debt securities; and higher amortization of intangibles and income tax expense. Income from discontinued operations, net of tax for the Fiscal 2017 Six Months was $204.4 million and was entirely attributable to FGL. Loss from discontinued operations, net of tax for the Fiscal 2016 Six Months was $50.1 million due to a $48.7 million loss attributable to FGL and a $1.4 million loss related to Compass’ operations. The increase in income of $253.1 million attributable to FGL was driven by the non-recurrence of $90.9 million income tax expense recorded in the Fiscal 2016 Six Months; a write-up of the carrying value of the assets of business held for sale to fair value less cost to sell of $71.7 million for the Fiscal 2017 Six Months compared to a write-down of $23.5 million for the Fiscal 2016 Six Months and an increase in net income attributable to FGL’s operations of $65.8 million. The non-recurrence of $90.9 million income tax expense recorded in the Fiscal 2016 Six Months was related to the establishment of a deferred tax liability of $328.6 million at March 31, 2016 as a result of classifying HRG’s ownership interest in FGL as held 43 | |
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