Harbinger Group Inc.
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SEC Filings

10-Q
HRG GROUP, INC. filed this Form 10-Q on 05/05/2017
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sales, inventory management initiatives at retailers and higher demand in prior period discussed above; partially offset by an increase in household insect control products of $2.5 million driven by stronger POS at major retailers.
Cost of consumer products and other goods sold / Consumer products segment gross profit. Consumer products segment gross profit, representing net consumer products sales minus consumer products cost of goods sold, for the Fiscal 2017 Quarter was $455.2 million compared to $462.8 million for the Fiscal 2016 Quarter. The decrease in gross profit was mainly attributable to a reduction in net sales offset by gross margin improvement. Gross profit margin for the Fiscal 2017 Quarter increased to 38.9% compared to 38.3% for the Fiscal 2016 Quarter. The increase in gross profit margin was primarily due to a shift to higher margin product sales, the exit of low-margin product sales and continuing cost improvements initiatives.
Consumer products segment gross profit, representing net consumer products sales minus consumer products cost of goods sold, for the Fiscal 2017 Six Months was $905.2 million compared to $903.5 million for the Fiscal 2016 Six Months. The increase in gross profit was mainly attributable to an increase in gross profit margin. Gross profit margin for the Fiscal 2017 Six Months increased to 38.0% compared to 37.2% for the Fiscal 2016 Six Months. The increase in gross profit margin was primarily due to a shift to higher margin product sales, the exit of low-margin product sales and continuing cost improvements initiatives.
Selling, acquisition, operating and general expenses. Selling, acquisition, operating and general expenses decreased by $3.3 million, or 1.0%, to $311.0 million for the Fiscal 2017 Quarter, from $314.3 million for the Fiscal 2016 Quarter mainly due to a decrease in acquisition and integration related charges of $8.3 million from lower integration activity offset by increased restructuring and related charges of $2.7 million for restructuring initiatives.
Selling, acquisition, operating and general expenses decreased by $2.5 million, or 0.4%, to $610.0 million for the Fiscal 2017 Six Months, from $612.5 million for the Fiscal 2016 Six Months mainly due to a decrease in acquisition and integration related charges of $14.0 million due to lower integration activity, partially offset by an increase in general and administrative expenses of $6.0 million and an increase in restructuring and related charges of $3.7 million for restructuring initiatives.

Insurance Segment
Presented below is a table that summarizes the results of operations of our Insurance segment and compares the amount of the change between the fiscal periods (in millions):
 
Fiscal Quarter
 
Fiscal Six Months
 
2017
 
2016
 
Increase / (Decrease)
 
2017
 
2016
 
Increase / (Decrease)
Insurance segment revenues
$
41.0

 
$
40.1

 
$
0.9

 
$
12.3

 
$
30.1

 
$
(17.8
)
 
 
 
 
 
 
 
 
 
 
 
 
Benefits and other changes in policy reserves
42.0

 
38.5

 
3.5

 
26.3

 
26.1

 
0.2

Selling, acquisition, operating and general expenses
3.1

 
3.0

 
0.1

 
5.5

 
5.4

 
0.1

Total Insurance segment operating costs and expenses
45.1

 
41.5

 
3.6

 
31.8

 
31.5

 
0.3

 Operating loss - Insurance segment
$
(4.1
)
 
$
(1.4
)
 
$
(2.7
)
 
$
(19.5
)
 
$
(1.4
)
 
$
(18.1
)
For segment reporting purposes, at the inception date of the reinsurance transactions, Front Street elected to apply the fair value option to account for its funds withheld receivables, non-funds withheld assets and future policyholder benefits reserves related to its assumed reinsurance. For consolidated reporting, the results from Front Street’s assumed reinsurance business with FGL is reported on FGL’s historical basis. Upon the completion of any disposition resulting from the FGL Strategic Evaluation Process, our consolidated results will reflect all reinsurance business on the fair value option.
Insurance segment revenues. Insurance segment revenues remained relatively flat for the Fiscal 2017 Quarter as compared to the Fiscal 2016 Quarter. For the Fiscal 2017 Six Months, Insurance segment revenues decreased $17.8 million to $12.3 million from $30.1 million for the Fiscal 2016 Six Months. The decrease in Insurance segment revenues was primarily driven by a decrease in the fair value of the underlying fixed maturity debt securities included in the funds withheld receivables during the Fiscal 2017 Six Months due to market conditions with increasing risk-free rates and widening credit spreads resulting in generally lower valuations of fixed maturity debt securities; the non-recurrence of realized gains on securities included in Front Street’s capital account portfolio for the Fiscal 2016 Six Months; and credit impairment losses due to intercompany investments for the Fiscal 2017 Six Months.
Benefits and other changes in policy reserves. For the Fiscal 2017 Quarter, benefits and other changes in policy reserves were $42.0 million as compared to $38.5 million for the Fiscal 2016 Quarter. The change was primarily due to a decrease in the insurance liability discount rate.
For the Fiscal 2017 Six Months, benefits and other changes in policy reserves remained relatively flat at $26.3 million as compared to $26.1 million for the Fiscal 2016 Six Months.

47
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