Divestitures

FGL Merger Agreement

On November 8, 2015, FGL, Anbang, AB Infinity, and Merger Sub entered into the FGL Merger Agreement. Pursuant to the FGL Merger Agreement and subject to the terms and conditions set forth therein, Merger Sub will merge with and into FGL, with FGL continuing as the surviving entity, which will become a direct, wholly-owned subsidiary of AB Infinity and an indirect, wholly-owned subsidiary of Anbang. Pursuant to the FGL Merger Agreement, at the effective time of the FGL Merger, each issued and outstanding share of FGL common stock will be canceled and converted automatically into the right to receive $26.80 per share in cash, without interest, other than any shares of common stock owned by FGL as treasury stock or otherwise or owned by Anbang, AB Infinity or Merger Sub (which will be canceled and no payment will be made with respect thereto), shares of common stock granted pursuant to FGL’s equity plans and those shares of common stock with respect to appraisal rights under Delaware law are properly exercised and not withdrawn. The completion of the FGL Merger is subject to the satisfaction of a number of closing conditions, including the receipt of regulatory approvals from the Iowa Insurance Division, New York Department of Financial Services, Vermont Department of Financial Regulation, China Insurance Regulatory Commission, and the Committee on Foreign Investment in the United States (“CFIUS”). On November 25, 2015, FGL obtained the requisite approval for the FGL Merger from the Vermont Department of Financial Regulation. On March 14, 2016, FGL received notification from CFIUS that it had concluded all action under Section 721 of the Defense Production Act of 1950, as amended, and determined that there are no unresolved national security concerns with respect to the FGL Merger. In the event that the FGL Merger Agreement is terminated, under specified circumstances, FGL may be required to pay a termination fee to Anbang and its subsidiaries of $51.5.

At March 31, 2016, the Company determined that as a result of the FGL Merger Agreement, the Company’s ownership interest in FGL met the criteria established by ASC 360 to classify it as held for sale. The following table summarizes the major categories of assets and liabilities classified as held for sale in the accompanying Condensed Consolidated Balance Sheets at March 31, 2016 and September 30, 2015:



	March 31, 2016			September 30, 2015
Assets
Investments, including loans and receivables from affiliates	$	19,697.1		$	19,206.7
Cash and cash equivalents	496.4			501.8
Accrued investment income	208.5			191.2
Reinsurance recoverable	3,511.7			3,578.7
Deferred tax assets	191.0			194.7
Properties	15.9			14.4
Deferred acquisition costs and value of business acquired, net	1,234.3			1,048.6
Other assets	212.6			248.4
Write-down of assets of business held for sale to fair value less cost to sell	(23.5		)	—
Total assets held for sale	$	25,544.0		$	24,984.5
Liabilities
Insurance reserves	$	23,018.8		$	22,560.1
Debt	300.0			298.3
Accounts payable and other current liabilities	46.4			43.7
Other liabilities	622.9			518.8
Total liabilities held for sale	$	23,988.1		$	23,420.9

The balances included in the accompanying Condensed Consolidated Balance Sheets and in the table above reflect transactions between the businesses held for sale and businesses held for use that are expected to continue to exist after the closing of the FGL Merger. Such transactions are not eliminated to appropriately reflect the continuing operations and balances held for sale. As a result, adjustments to the carrying value of certain intercompany assets recorded by FGL, were reversed upon consolidation in the Company’s Condensed Consolidated Financial Statements.

Below is a summary of the impact of such intercompany balances in the accompanying Condensed Consolidated Balance Sheets:



	March 31, 2016		September 30, 2015
Assets
Funds withheld receivable	$	993.0	$	1,058.0
Other assets	15.6		15.9
Assets of business held for sale	1,618.7		1,769.8
Total assets	$	2,627.3	$	2,843.7
Liabilities
Insurance reserves	$	1,170.8	$	1,226.8
Debt	217.5		330.7
Accounts payable and other current liabilities	1.1		1.6
Other liabilities	12.7		11.0
Liabilities of business held for sale	1,225.2		1,273.6
Total liabilities	$	2,627.3	$	2,843.7

The carrying value of the Company’s interest in FGL was higher than the fair value less cost to sell based on the sales price at March 31, 2016 and as a result, the Company recorded a write-down of assets of business held for sale of $23.5 for the three and six months ended March 31, 2016.

In accordance with ASU 2014-08, the Company has determined that the FGL Merger Agreement represented a strategic shift for the Company and, accordingly, has presented the results of operations for FGL as discontinued operations in the accompanying Condensed Consolidated Statements of Operations.

The following table summarizes the components of Net (loss) income from discontinued operations in the accompanying Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2016 and 2015:



	Three months ended March 31,						Six months ended March 31,
	2016			2015			2016			2015
Revenues:
Insurance premiums	$	16.2		$	14.2		$	31.6		$	25.8
Net investment income (a)	226.7			207.6			448.9			416.0
Net investment (losses) gains	(41.7		)	(33.4		)	24.5			25.1
Insurance and investment product fees and other	31.7			22.1			60.5			41.9
Total revenues	232.9			210.5			565.5			508.8
Operating costs and expenses:
Benefits and other changes in policy reserves	188.1			171.9			369.0			395.6
Selling, acquisition, operating and general expenses	27.1			28.3			55.3			57.5
Impairments and bad debt expense	1.3			(0.4		)	1.3			0.1
Amortization of intangibles	0.4			(3.0		)	33.9			8.3
Total operating costs and expenses	216.9			196.8			459.5			461.5
Operating income	16.0			13.7			106.0			47.3
Interest expense	(5.9		)	(5.9		)	(11.8		)	(11.8		)
Other income (expense), net	2.5			(5.0		)	2.5			(5.0		)
Write-down of assets of business held for sale to fair value less cost to sell	(23.5		)	—			(23.5		)	—
Net (loss) income before income taxes	(10.9		)	2.8			73.2			30.5
Income tax expense (benefit) (b)	2.2			(3.0		)	121.9			7.7
Net (loss) income	(13.1		)	5.8			(48.7		)	22.8
Less: net income (loss) attributable to noncontrolling interest	1.8			(2.8		)	11.2			0.5
Net (loss) income - attributable to controlling interest	$	(14.9	)	$	8.6		$	(59.9	)	$	22.3

(a) Included in the net investment income attributable to FGL is interest income of $1.2 and $0.6 for the three months ended March 31, 2016 and 2015, respectively and $2.3 and $2.3 for the six months ended March 31, 2016 and 2015, respectively, on debt instruments issued by entities consolidated by HRG as they will continue to exist following the closing of the FGL Merger. The corresponding interest expense is recorded in continuing operations in the accompanying Condensed Consolidated Statements of Operations.

(b) Included in the income tax expense for the six months ended March 31, 2016 was a $90.9 of net income tax expense related to the establishment of a deferred tax liability of $328.6 at March 31, 2016 as a result of classifying the Company’s ownership interest in FGL as held for sale. The deferred tax liability was partially offset by a $237.7 reduction of valuation allowance on HRG’s net operating and capital loss carryforwards expected to offset the FGL taxable gain at March 31, 2016. The remaining liability is expected to be offset by current year losses recognized in Continuing Operations except for $13.0 of estimated alternative minimum taxes.

Compass Asset Sale

As discussed in Note 1, Description of Business, on December 1, 2015, Compass completed the sale of its oil and gas interests located in the Holly, Waskom and Danville Fields in East Texas and North Louisiana. At closing, proceeds from the transaction, approximately $147.5, less estimated expenses of $1.9, were used primarily to reduce borrowings under the Compass Credit Agreement. Following the closing, pursuant to terms of the transaction agreement, Compass received an additional $4.5 in connection with resolving certain title and consent matters during the six months ended March 31, 2016. The Company accounted for the sale in accordance with ASC Topic 932, Property, Plant and Equipment: Extractive Activities - Oil and Gas and recorded a gain on sale of oil and natural gas assets of $105.6 for the six months ended March 31, 2016. The Holly, Waskom and Danville Fields did not represent all or substantially all of Compass full-cost method assets and, as a result, the operations associated with these assets were presented as continuing operations in the accompanying Condensed Consolidated Statements of Operations.