NEW YORK, May 8, 2015
/PRNewswire/ -- HRG Group, Inc. ("HRG" or the "Company"; NYSE:
HRG), a diversified holding company focused on owning and acquiring
businesses that it believes can, in the long term, generate
sustainable free cash flow or attractive returns on investment,
today announced its consolidated results for the second quarter of
Fiscal 2015 ended on March 31, 2015 (the "Fiscal 2015
Quarter"). The results include HRG's four segments:
- Consumer Products, which consists of Spectrum Brands Holdings,
Inc. ("Spectrum Brands"; NYSE: SPB);
- Insurance, which includes Fidelity & Guaranty Life ("FGL";
NYSE: FGL) and Front Street Re, Ltd. ("Front Street");
- Energy, which consists of Compass Production Partners, LP
("Compass"), a subsidiary of HGI Energy Holdings, LLC ("HGI
Energy") engaged in the operation, acquisition and development of
conventional oil and natural gas assets in the U.S.; and
- Asset Management, which includes Salus Capital Partners, LLC
("Salus"), Energy & Infrastructure Capital ("EIC") and
CorAmerica Capital, LLC ("CorAmerica").
"This quarter, we posted solid overall revenue growth on a
currency-consistent basis and our operating results were in-line
with our expectations despite the ongoing impact of certain limited
headwinds that have affected our performance this year," said
Omar Asali, President and Chief
Executive Officer of HRG. "We continue to expect record
revenue and cash flow from Consumer Products in Fiscal 2015 and
couldn't be more enthusiastic over Spectrum Brands' recently
announced agreement to purchase Armored AutoGroup, which
demonstrates our ongoing appetite for accretive deals. Our
M&A strategy will continue to complement the multiple organic
growth opportunities that exist in further expanding this
segment.
"Turning to Insurance, strong sales of FGL's core fixed
annuities demonstrate the market's continued receptivity for our
products, and the $341 million of
annuity sales generated from new products that were launched within
the last year spotlights FGL's ability to create products that
resonate well in the market," continued Asali. "FGL recently
began a process to consider strategic alternatives; we believe that
shareholders could benefit from FGL participating in this robust
M&A environment.
"Lastly, we have taken actions this quarter to improve the
strategic and competitive positioning of our businesses. For
instance, we simplified our priorities in Asset Management, and in
Energy, where severe reductions in oil and gas prices have
continued to affect that segment's financial results, we remain
vigilant with our cost structure and are exploring opportunities to
transact and enhance long-term equity value."
Second Quarter Fiscal 2015 Consolidated Highlights:
- HRG recorded total Revenues of $1.4
billion for the Fiscal 2015 Quarter, an increase of
$30.3 million, or 2.3%, as compared
to the second quarter of fiscal 2014 (the "Fiscal 2014 Quarter").
Revenue excluding the impact of $54.8
million of unfavorable foreign exchange in Consumer Products
increased 6.3%. The increase was driven primarily by higher
Consumer Products revenues as compared to the Fiscal 2014 Quarter,
which more than offset lower Energy revenues.
- Consolidated Operating loss of $174.0
million in the Fiscal 2015 Quarter compared to the
$16.2 million of Operating income
reported in the Fiscal 2014 Quarter, a decrease of $190.2 million. The decrease was due primarily to
the recognition of impairments in the Insurance, Energy and Asset
Management segments, as described below in the Additional Items
section.
- Over the six month period ending March
31, 2015 (the "Fiscal 2015 Six Months"), HRG received
dividends of $37.0 million from its
subsidiaries, which excludes $4.5
million of interest payments made by HRG on behalf of HGI
Energy with respect to certain intercompany notes issued by HGI
Energy to other HRG subsidiaries. In Fiscal 2015, the Company
expects to receive approximately $77
million in dividends from its subsidiaries, which includes
the $37.0 million already received
and excludes $9.0 million of interest
payments made and expected to be made by HRG on behalf of HGI
Energy in Fiscal 2015.
- HRG ended the Fiscal 2015 Six Months with corporate cash and
investments of approximately $252.6
million (primarily held at HRG and HGI Funding LLC), a
decrease of $40.4 million from the
comparable balance of $293.0 million
held as of December 31, 2014 due
primarily to the scheduled payment of semi-annual interest on the
Company's notes.
- Net loss attributable to common and participating preferred
stockholders of $228.3 million, or
$1.16 per common share attributable
to controlling interest during the Fiscal 2015 Quarter, compared to
a Net loss attributable to common and participating preferred
stockholders of $87.6 million, or
$0.63 per common share attributable
to controlling interest during the Fiscal 2014 Quarter. The loss
increased due primarily to the lower Operating income in the
current period, as described herein.
Additional Items:
Non-Cash Impairments
Energy
Pursuant to SEC reporting requirements, Compass performed a
ceiling test at the end of the quarter utilizing simple average
spot prices for the trailing twelve month period for proved
reserves, which may not be indicative of actual market values or
forward strip prices for those reserves. As a result of this
test, Compass recorded a non-cash impairment of $146.6 million to its proved oil and natural gas
properties during the quarter, due primarily to the decline in oil
and natural gas prices. This impairment is reflected in the
Operating income of the Energy segment for the Fiscal 2015
Quarter.
Over the first six months of Fiscal 2015, Compass has recorded
$336.6 million in non-cash
impairments to its oil and natural gas properties and expects to
incur additional, non-cash impairments to its properties in Fiscal
2015 if oil and gas prices do not increase.
Insurance and Asset Management
In 2013, Salus originated a $250
million term loan to RadioShack Corp. ("RadioShack"), which
resulted in a net exposure to HRG's Insurance and Asset Management
segments of $150.0 million after
taking into account $100.0 million in
non-qualifying participation by a third party. During the
Fiscal 2015 Quarter, RadioShack filed for Chapter 11 bankruptcy
protection. The full amount of the Salus loan was outstanding
at the time of this filing, and the extent of Salus' eventual
recovery is dependent on the proceeds that are realized through
both the sale of RadioShack's assets as well as the litigation of
certain matters.
As of the close of the quarter, the expected recovery on the
term loan, excluding any additional proceeds realized, resulted in
an impairment to HRG of $105.0
million, which is reflected in the consolidated financial
statements under Impairments and Bad Debt Expense. Within the
segments, $65.0 million of this
amount was recorded in Asset Management and $40 million, after eliminations, was recorded in
Insurance. In accordance with US GAAP and our Insurance
segment's accounting policies, the impairment is reflected in
Insurance, in part, as a Net Investment Loss and a reduction to
revenue and then reclassified to Impairments and Bad Debt Expense
in the presentation of the Company's consolidated financial
statements.
Debt
As of March 31, 2015, the Company had approximately
$604.4 million in aggregate principal
amount of its 7.875% Senior Secured Notes due 2019 (the "Senior
Secured Notes") outstanding and approximately $750.0 million in aggregate principal amount of
the 7.75% Senior Notes due 2022 (the "Senior Notes")
outstanding. These amounts do not include the debt that has
been issued at the Company's subsidiaries.
Following the close of the quarter, the Company issued an
additional $100.0 million in
aggregate principal amount of new Senior Secured Notes priced at
104.5%. The newly issued notes were incremental to, and will
vote together with, the $604.4
million in aggregate principal amount of Senior Secured
Notes that existed prior to the offering.
Frederick's of Hollywood
("FOH")
Three of the Company's consolidated subsidiaries are lenders to
FOH in an aggregate amount of $59.6
million. In the presentation of HRG's consolidated
results for the Fiscal 2015 Quarter, this intercompany indebtedness
is eliminated. Shortly after the close of the quarter, FOH
filed for bankruptcy protection and the Company will deconsolidate
FOH's results from HRG's consolidated financial statements
beginning with the third quarter of Fiscal 2015 and the
subsidiaries' loans to FOH will no longer be eliminated.
Recovery on this debt will be dependent on the outcome of the
bankruptcy proceedings, and the Company is evaluating potential
impairments to the loans held by the subsidiaries.
Common Stock Buyback Program
As part of its previously announced $100
million share repurchase program, the Company purchased 0.2
million shares at an average price of $13.49 for an aggregate $3.2 million during the Fiscal 2015
Quarter. Since the program's inception in May 2014, the Company has purchased 6.9 million
shares at an average price of $12.71
as of March 31, 2015 for an aggregate $87.7 million.
Under this repurchase program, an additional $12.3 million was available, as of March 31,
2015, for subsequent repurchases, subject to the discretion of
HRG's management or Board. Subject to certain conditions, the
program authorizes purchases to be made from time to time in one or
more open market or private transactions and does not require HRG
to purchase any specific number of shares. The program may be
suspended or terminated at any time.
HRG's consolidated results in the Fiscal 2015 Quarter also
reflect an $8.3 million increase in
interest expense relative to the Fiscal 2014 Quarter, as higher
overall debt levels were only partially offset by refinancing
activities to lower interest rate debt at HRG and its
subsidiaries.
Additionally, HRG incurred a tax benefit of $4.0 million in the Fiscal 2015 Quarter and a
1.7% effective tax rate as compared to a $13.3 million benefit in the Fiscal 2014 Quarter
and a 19.2% effective tax rate. The decrease in tax benefit
in the current quarter was due to a nonrecurring tax benefit in the
Fiscal 2014 Quarter related to the recognition of certain deferred
tax assets.
Quarterly Segment Highlights:
Consumer Products
- Consumer Products Revenues increased $45.3 million, or 4.4%, to $1.1 billion in the Fiscal 2015 Quarter, as the
impact of newly acquired businesses more than offset the negative
impact of $54.8 million in
unfavorable foreign exchange. Excluding the impact of foreign
exchange, revenue increased $100.1
million, or 9.8%. The segment's Operating income
decreased 4.4% to $88.4 million, as
compared to $92.5 million for the
Fiscal 2014 Quarter, due primarily to the impact of costs related
to acquisition of new businesses and their integration.
- During the quarter, Spectrum Brands completed the acquisitions
of both Proctor & Gamble's European pet food brands, IAMS and
Eukanuba, for $116.0 million, as well
as Salix, the world's leading distributor of premium, natural
rawhide dog treats and chews, for $148.0
million. Both transactions are expected to be
complementary to Spectrum's existing assets in pet supplies.
- On April 28, 2015, Spectrum
Brands announced that its Board of Directors approved a
$0.33 per share quarterly common
stock dividend, a 10% increase from the $0.30 dividend declared in the Fiscal 2014
Quarter. Over the past two years, the quarterly
dividend paid to Spectrum Brands common stockholders has increased
32%.
Insurance
- Sales of fixed indexed annuities increased 89%, or $282 million, over the Fiscal 2014 Quarter to
$600 million; new products introduced
in 2014 contributed $341 million of
fixed indexed annuity sales in the current period.
- Insurance Revenues decreased 41.3%, from $274.1 million to $161.0
million due to lower net investment gains as compared to the
Fiscal 2014 Quarter, driven by the credit impairment losses related
to the Insurance segment's investments in RadioShack as discussed
above.
- Operating loss for the Insurance segment increased $88.7 million to $62.4
million from the Fiscal 2014 Quarter due primarily to the
impairment that negatively affected segment revenues.
Energy
- The Energy segment reported Revenue of $26.0 million, a decrease of $13.2 million, or 33.7%, from the Fiscal 2014
Quarter, as lower commodity prices were only partially offset by
the impact of the acquisition of the full interest in Compass in
the first fiscal quarter of 2015.
Asset Management
- The Asset Management segment contributed $5.1 million to consolidated revenues for the
Fiscal 2015 Quarter, a decrease of $4.7
million over the Fiscal 2014 Quarter due principally to a
lower amount of realized interest income at Salus.
Detail on Second Quarter Segment Results:
Consumer Products:
Note: Adjusted EBITDA-Consumer
Products, as described below, is a non-U.S. GAAP measure that
excludes interest, income tax expense, certain purchase accounting
fair value adjustments, restructuring and related charges,
acquisition and integration related charges, depreciation and
amortization expenses and stock-based compensation - see "Non-U.S.
GAAP Measures" and the reconciliation of Adjusted EBITDA-Consumer
Products to the Consumer Product segment's net income or loss in
the tables accompanying this release.
Consumer Products reported consolidated net sales of
$1,067.0 million for the Fiscal 2015
Quarter, an increase of $45.3
million, or 4.4%, as compared to $1,021.7 million in the Fiscal 2014
Quarter. The increase was due primarily to the impact of
newly acquired pet supply businesses, which more than offset a
$54.8 million negative impact from
unfavorable foreign exchange as the Euro continued to weaken
relative to the US dollar as compared to the Fiscal 2014
Quarter. Excluding the net impact of foreign exchange, sales
increased $100.1 million, or 9.8%, as
compared to the Fiscal 2014 Quarter, with increased sales in all
product categories except consumer batteries, which declined due
primarily to ongoing competitor discounting.
Gross profit, representing net Consumer Products sales minus
Consumer Products cost of goods sold, increased $15.1 million, or 4.2%, to $374.7 million in the Fiscal 2015 Quarter.
The increase was driven by the same factors that affected
revenue. Gross profit margin, representing gross profit as a
percentage of Consumer Products net sales, decreased immaterially
to 35.1% in the Fiscal 2014 Quarter.
Operating income decreased $4.1
million, or 4.4%, to $88.4
million in the Fiscal 2015 Quarter, as compared to
$92.5 million in the Fiscal 2014
Quarter, due primarily to the impact of unfavorable foreign
exchange as well as increased selling, general and administrative
costs related to acquisitions as well as costs related to their
integration.
Consumer Products adjusted earnings before interest, taxes,
depreciation and amortization ("Adjusted EBITDA-Consumer Products")
was $159.1 million for the Fiscal
2015 Quarter, an increase of $2.6
million, or 1.7%, as compared to the Fiscal 2014
Quarter. Excluding the net unfavorable impact of $22.2 million in foreign exchange, Adjusted
EBITDA-Consumer Products increased $24.8
million, or 15.8%.
After the close of the Fiscal 2015 Quarter, on April 28, 2015, Spectrum Brands announced that
its Board of Directors declared a quarterly dividend of
$0.33 per share on Spectrum Brands'
common stock. This is a 10% increase in the quarterly
dividend declared for Fiscal 2015 as compared to the $0.30 quarterly dividend paid per share in
connection with Fiscal 2014. The newly-declared dividend, which is
a regular taxable cash dividend, is payable on June 16, 2015 to all Spectrum Brands stockholders
of record as of the close of business on May
19, 2015.
For more information on HRG's Consumer Products segment,
interested parties should read Spectrum Brands' announcements and
public filings with the Securities and Exchange Commission,
including Spectrum Brands' most recent quarterly earnings
announcement, which may be accessed at www.spectrumbrands.com.
Insurance:
Note: Insurance AOI, as described
below, is a non-U.S. GAAP insurance industry measure that
eliminates the impact of realized investment gains (losses), the
effect of interest rate changes on the fixed indexed annuities
("FIA") embedded derivative liability, impairments and bad debt
expense in subsidiaries and effect of class action litigation
reserves, and the effects of acquisition-related reinsurance
transactions - see "Non-U.S. GAAP Measures" and a reconciliation of
Insurance AOI to the Insurance segment's reported income in the
tables accompanying this release. In the second quarter of
2014, the Insurance AOI definition was revised from a pre-tax basis
to an after-tax basis. Insurance AOI now includes interest expense
and an effective tax rate of 35% is now applied to reconciling
items made to net income.
The Insurance segment recorded annuity sales, which are recorded
as deposit liabilities (i.e. contract holder funds) in accordance
with the accounting principles that are generally accepted in
the United States, of $610.0 million for the Fiscal 2015 Quarter.
This was a decrease of $118.0
million, or 16.2%, as compared to the $728.0 million of sales recorded in the Fiscal
2014 Quarter, which included over $400
million of opportunistic multi-year guaranteed annuity sales
generated from a program that was not offered again in the current
period. During the Fiscal 2015 Quarter, FGL grew fixed
indexed annuities by 89% over the Fiscal 2014 Quarter, due to
ongoing marketing initiatives with existing distribution partners
as well as the launch of new products introduced in the last year,
which contributed $341 million of new
sales to the current period.
Net investment income increased $24.4
million, or 12.2%, to $224.6
million for the Fiscal 2015 Quarter from $200.2 million for the Fiscal 2014 Quarter, as
the yield on average invested assets at FGL increased 20 basis
points to 4.72%. Operating loss increased $88.7 million, or 337.3%, to $62.4 million for the Fiscal 2015 Quarter from an
operating income of $26.3 million for
the Fiscal 2014 Quarter, due primarily to the non-cash impairment
described in the Additional Items section as well as an increase in
FGL's insurance reserves made in connection with lower risk free
market rates observed in the Fiscal 2015 Quarter.
The segment recorded an Insurance AOI of $17.0 million for the Fiscal 2015 Quarter, a
decrease of $34.4 million, or 67%,
from $51.4 million for the Fiscal
2014 Quarter. The decrease was primarily due to a
$35.0 million benefit from a tax
planning strategy implemented in the Fiscal 2014 Quarter, which
reduced a tax valuation allowance.
The Insurance segment had approximately $19.3 billion of assets under management as of
March 31, 2015. The investment portfolio continues to be
conservatively positioned in its credit and duration profile and
well matched against its liabilities.
As of March 31, 2015, HRG's Insurance segment had a net
U.S. GAAP book value of $1.1 billion
(excluding Accumulated Other Comprehensive Income ("AOCI") of
$661.3 million). As of
March 31, 2015, the Insurance segment's available for sale
investment portfolio had $925.2
million in net unrealized gains on a U.S. GAAP
basis.
Recently, FGL commenced a review of its strategic alternatives,
which may result in a sale of the company. No assurance can
be provided that this exploration will result in a transaction, or
that any transaction, if pursued, will be consummated. The
exploration of strategic alternatives may be terminated at any time
and without notice, and neither the Company nor any of its
affiliates intend to disclose developments with respect to this
process unless and until determined otherwise.
For more information on HRG's Insurance segment, interested
parties should read Fidelity & Guaranty Life's
announcements and public filings with the Securities & Exchange
Commission, including Fidelity & Guaranty Life's most recent
quarterly earnings announcement, available at www.fglife.com.
Energy:
Note: Adjusted EBITDA-Energy is a non-U.S.
GAAP measure that excludes interest expense, depreciation,
amortization and depletion, accretion of discount on asset
retirement obligations, non-cash write-downs of assets, gain on
remeasurement of investment to fair value, non-recurring other
operating items, non-cash changes in the fair value of derivatives,
cash settlements on derivative financial instruments and
stock-based compensation - see "Non-U.S. GAAP Measures" and a
reconciliation of Adjusted EBITDA-Energy to the Energy segment's
operating income below.
Oil and natural gas revenues were $26.0
million for the Fiscal 2015 Quarter, a decrease of
$13.2 million, or 33.7%, from the
Fiscal 2014 Quarter. The decline in revenues was due
primarily to lower prices for oil, natural gas and natural gas
liquids as well as expected decreases in natural gas production,
offset by the additional revenue earned through the acquisition of
a full ownership interest in Compass. Average sales prices
for oil and natural gas liquids declined by 53% and 55%,
respectively, in the current quarter as compared to the Fiscal 2014
Quarter.
Operating loss for the Fiscal 2015 Quarter was $161.3 million, a decrease of $89.5 million from the Fiscal 2014 Quarter
Operating loss of $71.8 million, due
primarily to the impairment previously discussed in the "Additional
Items" section. Excluding impairments, the Operating loss of
$13.9 million for the Fiscal 2015
Quarter was a decrease of $12.4
million from the Fiscal 2014 Quarter due to the impact of
the lower revenues, as well as higher operating and general expense
related to the incurrence of certain costs as Compass continues its
transition from its former joint venture structure.
Energy segment adjusted earnings before interest, taxes,
depreciation and amortization ("Adjusted EBITDA-Energy") was
$5.5 million for the Fiscal 2015
Quarter, a decrease of $10.9 million,
or 66.5%, from the Fiscal 2014 Quarter, due to the same factors
that affected revenue.
For the Fiscal 2015 Quarter, the Energy segment's production was
126 Mbbl of oil, 151 Mbbl of natural gas liquids and 6,404 Mmcf of
natural gas. In the current period, average daily production
at Compass was 90 Mmcfe as compared to 71 Mmcfe in the Fiscal 2014
Quarter, with the increase due primarily to the acquisition of the
full interest in Compass, as the prior period reflects only the
Company's proportional interest in Compass' production, which more
than offset the impact of natural production declines.
Asset Management:
The Asset Management segment reported revenues of $5.1 million for the Fiscal 2015 Quarter, a
decrease of $4.7 million, or 48.0%,
from the $9.8 million reported in the
Fiscal 2014 Quarter. The decrease is due primarily to a lower
amount of interest income generated at Salus. Additionally,
the revenue decline reflects the wind down of operations at Five
Island after Front Street terminated its asset management agreement
with that firm during the quarter.
During the Fiscal 2015 Quarter, Salus originated $2.0 million of new asset-based loan commitments
in the Fiscal 2015 Quarter, and together with its affiliated
co-lenders FGL and FSR, had $660.2
million of loans outstanding as of March 31, 2015, net
of allowance for credit losses of $33.8
million.
The Asset Management segment reported an Operating loss of
$67.4 million for the Fiscal 2015
Quarter, a decline of $71.4 million
as compared to the operating income of $4.0
million generated during the Fiscal 2014 Quarter, due
primarily to the $62.6 million
impairment and bad debt expense described in the Additional Items
section. Excluding this item, the operating loss of
$4.8 million reflected costs incurred
to support the expansion of the segment into infrastructure
investing and commercial and residential real estate.
Conference Call
HRG Group, Inc. will host a live conference call to discuss its
results on Friday, May 8, 2015 at
10 a.m. Eastern Daylight Time.
To join the event, participants may call 1.844.856.8663 (U.S.
callers) or 1.779.232.4737 (international callers), using
conference ID number 79310305. Alternatively, a live webcast
of the conference call can be accessed by interested parties
through the Investor Relations section of the HRG Website,
www.HRGgroup.com.
For those unable to listen to the live broadcast of the
conference call, a telephonic replay of the call will be available
through midnight May 11, 2015 by
dialing 1.855.859.2056 (U.S. callers) or 1.404.537.3406
(international callers), ID number 79310305. A replay will
also be available on the company's website.
About HRG Group, Inc.
HRG Group, Inc. (formerly "Harbinger Group Inc.") is a
diversified holding company focused on owning and acquiring
businesses that the Company believes can, in the longer term,
generate sustainable free cash flow or attractive returns on
investment. HRG's principal operations are conducted through
businesses that: offer branded consumer products (such as consumer
batteries, residential locksets, residential builders' hardware,
faucets, shaving and grooming products, personal care products,
small household appliances, specialty pet supplies, lawn, garden
and home pest control products, and personal insect repellents);
offer life insurance and annuity products; provide
asset-backed loans; and own energy assets. Although HRG
intends to own or seek to acquire controlling equity interests, the
Company may also make investments in debt instruments and hold
minority equity interests in companies. HRG is headquartered
in New York and traded on the New
York Stock Exchange under the symbol HRG. For more information on
HRG, visit: www.HRGgroup.com.
Forward Looking Statements
"Safe Harbor" Statement Under the Private Securities
Litigation Reform Act of 1995: This document contains, and
certain oral statements made by our representatives from time to
time may contain, forward-looking statements, including those
statements regarding the completion of the Armored AutoGroup
acquisition, the completion of any related financings (including
HRG's participation therein), any transaction involving FGL, and
the achievement of any expected benefits of such transactions,
expected dividends from our subsidiaries, our or our subsidiaries'
capital needs and potential acquisitions, dispositions or other
transactions by us or our subsidiaries, expectations with respect
to foreign exchange rates and commodity prices and expectations
regarding our common stock buyback program, for which the manner of
purchase, the number of shares to be purchased and the timing of
purchases will be based on the price of HRG's common stock, general
business and market conditions and applicable legal requirements,
and is subject to the discretion of HRG's management.
Generally, forward-looking statements include information
concerning possible or assumed future distributions from
subsidiaries, other actions, events, results, strategies and
expectations and are generally identifiable by use of the words
"believes," "expects," "intends," "anticipates," "plans," "seeks,"
"estimates," "projects," "may," "will" "could," "might," or
"continues" or similar expressions. Such forward-looking statements
are subject to risks and uncertainties that could cause actual
results, events and developments to differ materially from those
set forth in or implied by such statements. These statements are
based on the beliefs and assumptions of HRG's management and the
management of HRG's subsidiaries (including target
businesses). Factors that could cause actual results, events
and developments to differ include, without limitation: the
completion of the Armored AutoGroup acquisition, the completion of
any related financings (including HRG's participation therein), or
the ability to reach a transaction agreement involving FGL, and the
achievement of any expected benefits of such transactions; the
ability of HRG's subsidiaries (including, target businesses
following their acquisition) to generate sufficient net income and
cash flows to make upstream cash distributions; the decision of HRG
subsidiaries' boards to make upstream cash distributions, which is
subject to numerous factors such as restrictions contained in
applicable financing agreements, state and regulatory restrictions
and other relevant consideration as determined by the applicable
board; HRG's liquidity, which may be impacted by a variety of
factors, including the capital needs of HRG's current and future
subsidiaries; capital market conditions; commodity market
conditions; foreign exchange rates; HRG's and its subsidiaries'
ability to identify any suitable future acquisition or disposition
opportunities, including realizing such transaction's expected
benefits, efficiencies/cost avoidance or savings, income and
margins, growth, economies of scale, streamlined/combined
operations, economic performance and conditions to, and the
timetable for, completing applicable financial reporting
requirements; litigation; potential and contingent liabilities;
management's plans; changes in regulations; taxes; and the risks
that may affect the performance of the operating subsidiaries of
HRG and those factors listed under the caption "Risk Factors" in
HRG's most recent Annual Report on Form 10-K and Quarterly Report
on Form 10-Q, filed with the Securities and Exchange Commission.
All forward-looking statements described herein are qualified by
these cautionary statements and there can be no assurance that the
actual results, events or developments referenced herein will occur
or be realized. HRG does not undertake any obligation to update or
revise forward-looking statements to reflect changed assumptions,
the occurrence of unanticipated events or changes to future
operation results, except as required by law.
Non-U.S. GAAP Measures
Management believes that certain non-U.S. GAAP financial
measures may be useful in certain instances to provide additional
meaningful comparisons between current results and results in prior
operating periods. Reconciliations of such measures to the most
comparable U.S. GAAP measures are included herein.
We exclude the impact of foreign currency losses of $54.8 million on the measure of revenue growth of
the quarter, which is based on a non-GAAP financial measure.
While such adjustments are an integral part of the overall
performance of the business, macroeconomic factors can overshadow
the underlying performance. We believe this measure assists
in understanding the trends in our business.
Adjusted EBITDA is a non-GAAP financial measure used in our
Consumer Products ("Adjusted EBITDA - Consumer Products") and
Energy ("Adjusted EBITDA - Energy") segments and one of the
measures used for determining Spectrum Brands and Compass' debt
covenant compliance. "Insurance AOI" is a non-US GAAP
financial measure frequently used throughout the insurance industry
and is an economic measure the Insurance segment uses to evaluate
financial performance each period. Earnings before interest, taxes,
depreciation and amortization ("EBITDA") represent net income
adjusted to exclude interest expense, income taxes and
depreciation, depletion and amortization. Adjusted EBITDA excludes
certain items that are unusual in nature or not comparable from
period to period and other non-recurring operating items, accretion
of discount on asset retirement obligations, non-cash changes in
the fair value of derivatives, non-cash write-downs of assets, and
stock-based compensation. Adjusted EBITDA is a metric used by
management and frequently used by the financial community and
provides insight into an organization's operating trends and
facilitates comparisons between peer companies, since interest,
taxes, depreciation and amortization can differ greatly between
organizations as a result of differing capital structures and tax
strategies. Adjusted EBITDA can also be a useful measure of a
company's ability to service debt. Computations of EBITDA and
Adjusted EBITDA may differ from computations of similarly titled
measures of other companies due to differences in the inclusion or
exclusion of items in our computations as compared to those of
others. Insurance AOI is calculated by adjusting the Insurance
segment's net income to eliminate (i) the impact of net
investment gains, including other-than-temporary impairment losses
recognized in operations, but excluding gains and losses on
derivatives; (ii) the effect of changes in the rates used to
discount the FIA embedded derivative liability; (iii) the impact of
certain litigation reserves and (iv) impairments and bad debt
expense from subsidiaries. All adjustments to Insurance AOI are net
of the corresponding value of business acquired, deferred
acquisition costs and income tax impact related to these
adjustments as appropriate. While these adjustments are an integral
part of the overall performance of the Insurance segment, market
conditions impacting these items can overshadow the underlying
performance of the business. Accordingly, we believe using a
measure which excludes their impact is effective in analyzing the
trends of our operations and together with net income, we believe
Insurance AOI provides meaningful financial metric that helps
investors understand our underlying results and profitability.
While management believes that non-U.S. GAAP measurements are
useful supplemental information, such adjusted results are not
intended to replace U.S. GAAP financial results and should be read
in conjunction with those U.S. GAAP results.
For further information contact:
HRG Group,
Inc.
James Hart, SVP
Communications
Tel:
212.906.8542
Email:
jhart@HRGgroup.com
|
|
|
(Tables Follow)
HRG GROUP, INC.
AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(In
millions)
|
|
|
March 31,
2015
|
|
September 30,
2014
|
|
(Unaudited)
|
|
(Audited)
|
ASSETS
|
|
|
|
Investments:
|
|
|
|
Fixed
maturities
|
$
|
17,810.6
|
|
|
$
|
17,211.5
|
|
Equity
securities
|
671.7
|
|
|
768.1
|
|
Derivatives
|
268.3
|
|
|
296.3
|
|
Asset-based
loans
|
660.2
|
|
|
811.6
|
|
Other invested
assets
|
341.8
|
|
|
165.0
|
|
Total
investments
|
19,752.6
|
|
|
19,252.5
|
|
Cash and cash
equivalents
|
1,279.6
|
|
|
1,319.2
|
|
Receivables,
net
|
670.0
|
|
|
585.1
|
|
Inventories,
net
|
819.0
|
|
|
635.2
|
|
Accrued investment
income
|
181.2
|
|
|
184.9
|
|
Reinsurance
recoverable
|
2,402.7
|
|
|
2,397.6
|
|
Deferred tax
assets
|
173.6
|
|
|
186.7
|
|
Properties, including
oil and natural gas properties, net
|
943.9
|
|
|
908.6
|
|
Goodwill
|
1,543.0
|
|
|
1,524.8
|
|
Intangibles,
including deferred acquisition costs and value of business
acquired, net
|
2,767.3
|
|
|
2,683.7
|
|
Other
assets
|
922.1
|
|
|
421.9
|
|
Total
assets
|
$
|
31,455.0
|
|
|
$
|
30,100.2
|
|
|
|
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
|
|
Insurance
reserves:
|
|
|
|
Contractholder
funds
|
$
|
17,521.0
|
|
|
$
|
16,463.5
|
|
Future policy
benefits
|
4,065.5
|
|
|
3,655.5
|
|
Liability for policy
and contract claims
|
59.6
|
|
|
58.1
|
|
Funds withheld from
reinsurers
|
37.7
|
|
|
38.0
|
|
Total insurance
reserves
|
21,683.8
|
|
|
20,215.1
|
|
Debt
|
5,623.7
|
|
|
5,157.8
|
|
Accounts payable and
other current liabilities
|
871.3
|
|
|
1,033.0
|
|
Employee benefit
obligations
|
75.9
|
|
|
86.2
|
|
Deferred tax
liabilities
|
524.4
|
|
|
533.3
|
|
Other
liabilities
|
811.8
|
|
|
817.8
|
|
Total
liabilities
|
29,590.9
|
|
|
27,843.2
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
HRG Group,
Inc. stockholders' equity:
|
|
|
|
Common
stock
|
2.0
|
|
|
2.0
|
|
Additional paid-in
capital
|
1,429.5
|
|
|
1,472.3
|
|
Accumulated
deficit
|
(614.4)
|
|
|
(276.3)
|
|
Accumulated other
comprehensive income
|
251.8
|
|
|
243.6
|
|
Total HRG Group, Inc.
stockholders' equity
|
1,068.9
|
|
|
1,441.6
|
|
Noncontrolling interest:
|
795.2
|
|
|
815.4
|
|
Total permanent
equity
|
1,864.1
|
|
|
2,257.0
|
|
Total liabilities and
equity
|
$
|
31,455.0
|
|
|
$
|
30,100.2
|
|
HRG GROUP, INC.
AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(In millions,
except per share data)
|
|
|
|
Fiscal
Quarter
|
|
Fiscal Six
Months
|
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Revenues:
|
|
|
|
|
|
|
|
|
Net consumer and
other product sales
|
|
$
|
1,086.5
|
|
|
$
|
1,021.7
|
|
|
$
|
2,175.3
|
|
|
$
|
2,122.3
|
|
Oil and natural
gas
|
|
26.0
|
|
|
39.2
|
|
|
60.3
|
|
|
74.7
|
|
Insurance
premiums
|
|
14.5
|
|
|
14.8
|
|
|
26.2
|
|
|
28.7
|
|
Net investment
income
|
|
225.0
|
|
|
206.4
|
|
|
455.8
|
|
|
407.6
|
|
Net investment
(losses) gains
|
|
(3.9)
|
|
|
40.9
|
|
|
48.1
|
|
|
182.8
|
|
Insurance and
investment product fees and other
|
|
23.4
|
|
|
18.2
|
|
|
44.2
|
|
|
35.1
|
|
Total
revenues
|
|
1,371.5
|
|
|
1,341.2
|
|
|
2,809.9
|
|
|
2,851.2
|
|
Operating costs
and expenses:
|
|
|
|
|
|
|
|
|
Cost of consumer
products and other goods sold
|
|
707.0
|
|
|
662.1
|
|
|
1,419.0
|
|
|
1,381.5
|
|
Oil and natural gas
direct operating costs
|
|
23.3
|
|
|
17.1
|
|
|
43.8
|
|
|
33.2
|
|
Benefits and other
changes in policy reserves
|
|
195.2
|
|
|
196.5
|
|
|
436.7
|
|
|
431.2
|
|
Selling, acquisition,
operating and general expenses
|
|
352.5
|
|
|
330.9
|
|
|
717.9
|
|
|
646.2
|
|
Impairments and bad
debt expense
|
|
249.3
|
|
|
81.0
|
|
|
499.5
|
|
|
82.8
|
|
Amortization of
intangibles
|
|
18.2
|
|
|
37.4
|
|
|
50.0
|
|
|
80.8
|
|
Total operating costs
and expenses
|
|
1,545.5
|
|
|
1,325.0
|
|
|
3,166.9
|
|
|
2,655.7
|
|
Operating (loss)
income
|
|
(174.0)
|
|
|
16.2
|
|
|
(357.0)
|
|
|
195.5
|
|
Interest
expense
|
|
(85.5)
|
|
|
(77.2)
|
|
|
(166.1)
|
|
|
(161.2)
|
|
Loss from the change
in the fair value of the equity conversion feature of preferred
stock
|
|
—
|
|
|
(3.5)
|
|
|
—
|
|
|
(50.7)
|
|
Gain on contingent
purchase price reduction
|
|
5.5
|
|
|
—
|
|
|
5.5
|
|
|
0.5
|
|
Other income
(expense), net
|
|
12.5
|
|
|
(4.6)
|
|
|
186.5
|
|
|
(16.5)
|
|
Loss from continuing
operations before income taxes
|
|
(241.5)
|
|
|
(69.1)
|
|
|
(331.1)
|
|
|
(32.4)
|
|
Income tax (benefit)
expense
|
|
(4.0)
|
|
|
(13.3)
|
|
|
12.8
|
|
|
25.0
|
|
Net loss
|
|
(237.5)
|
|
|
(55.8)
|
|
|
(343.9)
|
|
|
(57.4)
|
|
Less: Net (loss)
income attributable to noncontrolling interest
|
|
(9.2)
|
|
|
19.7
|
|
|
(5.8)
|
|
|
44.9
|
|
Net loss attributable
to controlling interest
|
|
(228.3)
|
|
|
(75.5)
|
|
|
(338.1)
|
|
|
(102.3)
|
|
Less: Preferred stock
dividends and accretion
|
|
—
|
|
|
12.1
|
|
|
—
|
|
|
24.3
|
|
Net loss attributable
to common and participating preferred stockholders
|
|
$
|
(228.3)
|
|
|
$
|
(87.6)
|
|
|
$
|
(338.1)
|
|
|
$
|
(126.6)
|
|
|
|
|
|
|
|
|
|
|
Net loss per common
share attributable to controlling interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(1.16)
|
|
|
$
|
(0.63)
|
|
|
$
|
(1.71)
|
|
|
$
|
(0.91)
|
|
Diluted
|
|
$
|
(1.16)
|
|
|
$
|
(0.63)
|
|
|
$
|
(1.71)
|
|
|
$
|
(0.91)
|
|
HRG GROUP, INC.
AND SUBSIDIARIES
|
RESULTS OF
OPERATIONS BY SEGMENT
|
(In
millions)
|
|
|
|
Fiscal
Quarter
|
|
Fiscal Six
Months
|
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Consumer
Products
|
|
$
|
1,067.0
|
|
|
$
|
1,021.7
|
|
|
$
|
2,134.8
|
|
|
$
|
2,122.3
|
|
Insurance
|
|
161.0
|
|
|
274.1
|
|
|
471.8
|
|
|
647.2
|
|
Energy
|
|
26.0
|
|
|
39.2
|
|
|
60.3
|
|
|
74.7
|
|
Asset
Management
|
|
5.1
|
|
|
9.8
|
|
|
13.1
|
|
|
14.3
|
|
Intersegment
elimination (a)
|
|
92.9
|
|
|
(3.6)
|
|
|
89.4
|
|
|
(7.3)
|
|
Consolidated segment
revenues
|
|
1,352.0
|
|
|
1,341.2
|
|
|
2,769.4
|
|
|
2,851.2
|
|
Corporate and
Other
|
|
19.5
|
|
|
—
|
|
|
40.5
|
|
|
—
|
|
Total
revenues
|
|
$
|
1,371.5
|
|
|
$
|
1,341.2
|
|
|
$
|
2,809.9
|
|
|
$
|
2,851.2
|
|
|
|
|
|
|
|
|
|
|
Operating (loss)
income:
|
|
|
|
|
|
|
|
|
Consumer
Products
|
|
$
|
88.4
|
|
|
$
|
92.5
|
|
|
$
|
204.0
|
|
|
$
|
217.6
|
|
Insurance
|
|
(62.4)
|
|
|
26.3
|
|
|
(37.2)
|
|
|
111.6
|
|
Energy
|
|
(161.3)
|
|
|
(71.8)
|
|
|
(356.3)
|
|
|
(65.8)
|
|
Asset
Management
|
|
(67.4)
|
|
|
4.0
|
|
|
(68.5)
|
|
|
0.1
|
|
Intersegment
elimination (a)
|
|
53.3
|
|
|
(4.0)
|
|
|
49.3
|
|
|
(7.7)
|
|
Total segment
operating (loss) income
|
|
(149.4)
|
|
|
47.0
|
|
|
(208.7)
|
|
|
255.8
|
|
Corporate and Other
and eliminations
|
|
(24.6)
|
|
|
(30.8)
|
|
|
(148.3)
|
|
|
(60.3)
|
|
Consolidated
operating (loss) income
|
|
(174.0)
|
|
|
16.2
|
|
|
(357.0)
|
|
|
195.5
|
|
Interest
expense
|
|
(85.5)
|
|
|
(77.2)
|
|
|
(166.1)
|
|
|
(161.2)
|
|
Loss from the change
in the fair value of the equity conversion feature of preferred
stock
|
|
—
|
|
|
(3.5)
|
|
|
—
|
|
|
(50.7)
|
|
Gain on contingent
purchase price reduction
|
|
5.5
|
|
|
—
|
|
|
5.5
|
|
|
0.5
|
|
Other income
(expense), net
|
|
12.5
|
|
|
(4.6)
|
|
|
186.5
|
|
|
(16.5)
|
|
Loss from continuing
operations before income taxes
|
|
$
|
(241.5)
|
|
|
$
|
(69.1)
|
|
|
$
|
(331.1)
|
|
|
$
|
(32.4)
|
|
|
|
(a) The Intersegment
eliminations represent the reversal and reclassification of
impairments recorded in our Insurance Segment, as well as normal
intercompany transactions for the period. The Insurance segment
eliminations include the reversal of intercompany asset impairments
of $42.4, a reclassification of $40.0 of impairments resulting from
the RadioShack bankruptcy from Net investment losses to Bad debt
expense and the reversal of impairments of $24.8 already reflected
in the Asset Management segment.
|
|
HRG GROUP, INC.
AND SUBSIDIARIES
|
ADJUSTED EBITDA
AND ADJUSTED OPERATING INCOME RECONCILIATIONS
|
(In
millions)
|
|
The table below shows
the adjustments made to the reported net income of the Consumer
Products segment to calculate its Adjusted EBITDA
(unaudited):
|
|
|
|
Fiscal
Quarter
|
|
Fiscal Six
Months
|
|
Reconciliation to
reported net income:
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
|
Reported net income -
Consumer Products segment
|
|
$
|
27.9
|
|
|
$
|
33.9
|
|
|
$
|
77.9
|
|
|
$
|
88.3
|
|
Add back:
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
49.2
|
|
|
47.4
|
|
|
93.6
|
|
|
104.4
|
|
Income tax
expense
|
|
8.1
|
|
|
10.5
|
|
|
28.6
|
|
|
23.3
|
|
Purchase accounting
fair value adjustment
|
|
2.2
|
|
|
—
|
|
|
3.0
|
|
|
—
|
|
Restructuring and
related charges
|
|
4.4
|
|
|
7.9
|
|
|
11.8
|
|
|
12.3
|
|
Acquisition and
integration related charges
|
|
11.9
|
|
|
6.3
|
|
|
20.0
|
|
|
11.8
|
|
Other
|
|
1.7
|
|
|
—
|
|
|
1.8
|
|
|
—
|
|
Adjusted EBIT -
Consumer Products segment
|
|
105.4
|
|
|
106.0
|
|
|
236.7
|
|
|
240.1
|
|
Depreciation and
amortization, net of accelerated depreciation
|
|
|
|
|
|
|
|
|
Depreciation of
properties
|
|
18.7
|
|
|
18.7
|
|
|
37.1
|
|
|
36.5
|
|
Amortization of
intangibles
|
|
21.2
|
|
|
20.5
|
|
|
41.7
|
|
|
40.7
|
|
Stock-based
compensation
|
|
13.8
|
|
|
11.3
|
|
|
19.4
|
|
|
17.9
|
|
Adjusted EBITDA -
Consumer Products segment
|
|
$
|
159.1
|
|
|
$
|
156.5
|
|
|
$
|
334.9
|
|
|
$
|
335.2
|
|
|
|
|
|
The table below shows
the adjustments made to the reported net loss of the Energy segment
to calculate its Adjusted EBITDA (unaudited):
|
|
|
|
Fiscal
Quarter
|
|
Fiscal Six
Months
|
Reconciliation to
reported net loss:
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
Reported net loss -
Energy segment
|
|
$
|
(160.5)
|
|
|
$
|
(82.5)
|
|
|
$
|
(200.0)
|
|
|
$
|
(84.6)
|
|
Interest
expense
|
|
4.4
|
|
|
3.9
|
|
|
8.9
|
|
|
8.6
|
|
Depreciation,
amortization and depletion
|
|
12.5
|
|
|
10.2
|
|
|
26.0
|
|
|
21.4
|
|
EBITDA - Energy
segment
|
|
(143.6)
|
|
|
(68.4)
|
|
|
(165.1)
|
|
|
(54.6)
|
|
Accretion of discount
on asset retirement obligations
|
|
0.7
|
|
|
0.5
|
|
|
1.3
|
|
|
1.0
|
|
Impairments and bad
debt expense
|
|
146.6
|
|
|
81.0
|
|
|
336.6
|
|
|
81.0
|
|
Gain on remeasurement
of investment to fair value
|
|
—
|
|
|
—
|
|
|
(141.2)
|
|
|
—
|
|
Non-recurring other
operating items
|
|
1.3
|
|
|
—
|
|
|
2.3
|
|
|
—
|
|
(Gain) loss on
derivative financial instruments
|
|
(5.3)
|
|
|
6.8
|
|
|
(24.0)
|
|
|
10.2
|
|
Cash settlements on
derivative financial instruments
|
|
5.5
|
|
|
(3.5)
|
|
|
7.9
|
|
|
(3.3)
|
|
Stock based
compensation expense
|
|
0.3
|
|
|
—
|
|
|
0.6
|
|
|
0.1
|
|
Adjusted EBITDA -
Energy segment
|
|
$
|
5.5
|
|
|
$
|
16.4
|
|
|
$
|
18.4
|
|
|
$
|
34.4
|
|
The table below shows
the adjustments made to the reported net (loss) income of the
Insurance segment to calculate its adjusted operating income
(unaudited):
|
|
|
|
Fiscal
Quarter
|
|
Fiscal Six
Months
|
Reconciliation to
reported net (loss) income :
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
Reported net (loss)
income - Insurance segment:
|
|
$
|
(112.7)
|
|
|
$
|
43.1
|
|
|
$
|
(104.0)
|
|
|
$
|
96.3
|
|
Effect of investment
losses (gains), net of offsets
|
|
50.4
|
|
|
(4.6)
|
|
|
50.5
|
|
|
(8.6)
|
|
Effect of change in
FIA embedded derivative discount rate, net of offsets
|
|
16.7
|
|
|
11.8
|
|
|
38.7
|
|
|
(4.1)
|
|
Impairments and bad
debt expense from subsidiary
|
|
62.6
|
|
|
—
|
|
|
62.6
|
|
|
—
|
|
Effect of class
action litigation reserves, net of offsets
|
|
—
|
|
|
1.1
|
|
|
(0.5)
|
|
|
1.1
|
|
Adjusted operating
income - Insurance segment
|
|
$
|
17.0
|
|
|
$
|
51.4
|
|
|
$
|
47.3
|
|
|
$
|
84.7
|
|
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/hrg-group-inc-reports-second-quarter-results-300080133.html
SOURCE HRG Group, Inc.