(29) Subsequent Events

ASC Topic 855, “Subsequent Events” (“ASC 855”), establishes general standards of accounting and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC 855 requires the Company to evaluate events that occur after the balance sheet date through the date the Company’s financial statements are issued and to determine whether adjustments to or additional disclosures in the financial statements are necessary. The Company has evaluated subsequent events through the date these financial statements were issued. The following are the significant events which occurred subsequent to September 30, 2015 but before these financial statements were issued:

Compass Asset Sale

In October 2015, subsequent to the Company’s fiscal year end, Compass signed a definitive agreement to sell its Holly, Waskom, and Danville assets (the “Sold Properties) to a third party for $160.0 in cash, subject to adjustments for title and environmental defects and revenues and expenses attributable to periods after July 1, 2015. Proceeds are expected to be used to reduce the borrowings outstanding under the Compass Credit Agreement. The transaction is subject to satisfactory completion of title and environmental due diligence, as well as the satisfaction of customary closing conditions and receipt of applicable approvals and consents.

The transaction is expected to close in the first fiscal quarter of 2016 (the “Compass Asset Sale Close Date”) with an effective date of July 1, 2015. The Company will account for the sale in accordance with ASC Topic 932, Property, Plant and Equipment: Extractive Activities - Oil and Gas. The Company is in the process of completing the calculation of the purchase price adjustments as well as the gain resulting from the sale of the assets.

Compass Credit Agreement Amendment

On November 13, 2015, Compass entered into an amendment to the terms of the Compass Credit Agreement that included a modification of the Compass’ Consolidated Leverage Ratio (as defined in the Compass Credit Agreement) whereby the permitted ratio limit was increased to 6.00 to 1.0 for the end of each fiscal quarter through September 30, 2016. Additionally, a provision was added to allow HGI Funding to cure, at its option, defaults under the Consolidated Leverage Ratio by means of an equity contribution or increase in the amount of the guarantee (the “Optional Guarantee”) of the Compass Credit Agreement. Such amount would be applied to reduce the amount of indebtedness that Compass is deemed to have outstanding as of the relevant Consolidated Leverage Ratio test date. The amendment also provided for the reduction of the borrowing base to $320.0.

Concurrently with such amendment, HGI Funding, continued to provide a guarantee (the “Initial Guarantee”) of a limited portion of the debt under the Compass Credit Agreement until the date of Compass’ next borrowing base redetermination (which is scheduled to occur in the third fiscal quarter of calendar 2016) and committed to make a debt or equity contribution to Compass on such date in an amount to be determined (subject to the cap described below) based on the amount of the borrowing base at such time (the “Initial Secured Amount”). The guarantee was also amended to provide that HGI Funding is required to make a debt or equity contribution to Compass in the amount (if any) of the Optional Guarantee (the “Optional Secured Amount” and together with the Initial Secured Amount, the “Secured Amount”) within eleven business days of the delivery of Compass’s compliance certificate under the Compass Credit Agreement for the period ending September 30, 2016 (the “Optional Guarantee Payment Date”). The Secured Amount is secured by a pledge of assets chosen by the Company that may consist of a combination of cash and marketable securities with a determined value equal to the maximum Secured Amount then applicable. In measuring the determined value of the pledged assets, cash is valued at 100% and marketable securities are valued at 50.0% of fair market value through January 3, 2016 and 33.3% of fair market value thereafter (measured as the 20 day average close price of such marketable securities). Through December 15, 2015 (or the Compass Asset Sale close date, whichever occurs first), HGI Funding’s aggregate obligations in connection with the Initial Guarantee and related contributions are not to exceed $110.0. HGI Funding’s aggregate obligations in connection with the Initial Guarantee subsequent to December 15, 2015 and through the June 2016 borrowing base redetermination date are (i) not to exceed $30.0 upon closing the Compass Asset Sale and the corresponding reduction of the borrowing base under the Compass Credit Agreement by $145.0; or (ii) not to exceed $65.0, prior to the closing of the Compass Asset Sale in conjunction with a reduction of the borrowing base under the Compass Credit Agreement by $45.0 if the Compass Asset Sale has not closed by December 15, 2015.

Subsequent to the amendments to the Compass Credit Agreement, Compass continued to be in good standing under the covenants specified in the Compass Credit Agreement, as amended. The expiration date of the Initial Guarantee occurs upon the closing of Compass’ scheduled borrowing base redetermination in June 2016. The expiration date of the Optional Guarantee occurs upon the making of all required payments on the Optional Guarantee Payment Date. Compass is presently current on all obligations related to the Compass Credit Agreement. The Compass Credit Agreement matures on February 14, 2018.

FGL Merger

We report a business as held for sale when management has approved or received approval to sell the business and is committed to a formal plan, the business is available for immediate sale, the business is being actively marketed, the sale is anticipated to occur during the next twelve months and certain other specified criteria are met, in accordance with ASC Topic 360, Property, Plant and Equipment (“ASC 360”). A business classified as held for sale is recorded at the lower of its carrying amount or estimated fair value less cost to sell. If the carrying amount of the business exceeds its estimated fair value, a loss is recognized. Assets and liabilities related to a business classified as held for sale are segregated in the Consolidated Balance Sheets in the period in which the business is classified as held for sale. If a business is classified as held for sale after the balance sheet date but before the financial statements are issued or are available to be issued, the business continues to be classified as held and used in those financial statements when issued or when available to be issued.

As discussed in Note 1, Basis of Presentation, on November 8, 2015, Anbang entered into a definitive merger agreement to acquire FGL. Pursuant to the agreement, Anbang will acquire all of the outstanding shares of FGL. Stockholders of FGL will receive $26.80 per share in cash at closing. At the date of the transaction, the Company owned 47 million shares, or 80.5% of FGL. FGL is part of the Company’s Insurance reportable business segment. The Merger is subject to the satisfaction of a number of closing conditions, including the receipt of regulatory approvals from the Iowa Insurance Division, NYDFS, Vermont Department of Financial Regulation, China Insurance Regulatory Commission and the Committee on Foreign Investment in the United States. Upon termination of the Merger Agreement, under specified circumstances, FGL may be required to pay a termination fee to Anbang and its subsidiaries of $51.5.

The following table summarizes the components of FGL’s assets and liabilities included in the Consolidated Balance Sheets at September 30, 2015 and 2014:



	September 30,
	2015		2014
Assets
Investments:
Fixed maturities	$	17,745.5	$	17,434.6
Equity securities	620.0		697.7
Derivatives	81.9		296.3
Asset-based loans	109.2		212.9
Commercial mortgage loans	489.2		136.2
Other invested assets	45.1		22.0
Total investments	19,090.9		18,799.7
Related party loans	78.4		112.7
Cash and cash equivalents	501.8		576.4
Accrued investment income	191.2		181.8
Reinsurance recoverable	3,578.7		3,664.8
Deferred tax assets	207.9		125.6
Properties	14.4		11.4
DAC and VOBA, net	1,048.5		550.6
Other assets	250.0		151.7
Total assets	24,961.8		24,174.7
Liabilities
Insurance reserves:
Contractholder funds	17,769.8		16,463.5
Future policy benefits	3,467.5		3,504.3
Liability for policy and contract claims	55.3		58.1
Funds withheld from reinsurers (a)	1,267.5		1,330.8
Total insurance reserves	22,560.1		21,356.7
Debt	300.0		300.0
Accounts payable and other current liabilities	43.7		67.4
Other liabilities	518.8		769.4
Total liabilities	23,422.6		22,493.5
Net FGL assets included in HRG’s consolidated balance sheet	1,539.2		1,681.2
Less: noncontrolling interest	292.9		325.2
Total carrying value of HRG’s interest in FGL’s net assets	$	1,246.3	$	1,356.0

(a) Primarily related to Front Street which is eliminated upon consolidation

At September 30, 2015, the carrying value of the Company’s interest in FGL was $13.3 lower than the fair value less cost to sell based on the sales price.

We report the results of operations of a business as discontinued operations if a disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the business is classified as held for sale, in accordance with ASC 360 and ASU 2014-08. The results of discontinued operations are reported in Discontinued Operations in the Consolidated Statements of Income for current and prior periods commencing in the period in which the business meets the criteria of a discontinued operation, and include any gain or loss recognized on closing or adjustment of the carrying amount to fair value less cost to sell.

The results of operations for FGL were not presented as discontinued operations in the Consolidated Statements of Operations since FGL did not meet the held for sale criteria as of September 30, 2015, as discussed above.

The following table summarizes the components of income attributable to FGL included in the Consolidated Statements of Operations for Fiscal 2015, 2014 and 2013:



	Fiscal
	2015			2014		2013
Revenues:
Insurance premiums	$	58.5		$	55.6	$	58.7
Net investment income	850.8			760.2		707.6
Net investment (losses) gains	(2.0		)	306.7		517.7
Insurance and investment product fees and other	89.2			68.3		61.5
Total revenues	996.5			1,190.8		1,345.5
Operating costs and expenses:
Benefits and other changes in policy reserves	578.4			787.5		532.9
Selling, acquisition, operating and general expenses	113.2			101.7		109.8
Impairments and bad debt expense	(0.4		)	0.6		1.2
Amortization of intangibles	41.8			97.5		182.3
Total operating costs and expenses	733.0			987.3		826.2
Operating income	263.5			203.5		519.3
Interest expense	23.6			22.5		11.5
Net income before income taxes	239.9			181.0		507.8
Income tax expense	84.1			23.4		159.9
Net income	155.8			157.6		347.9
Less: net income attributable to noncontrolling interest	30.4			26.2		—
Net income - attributable to common and participating preferred stockholders	$	125.4		$	131.4	$	347.9