NEW YORK, Aug. 6, 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 third quarter of
Fiscal 2015 ended on June 30, 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, our consolidated performance was very solid, as
our two largest segments - Consumer Products and Insurance -
continued to grow from a combination of organic sources and from
the integration of our recent acquisitions," said Omar Asali, President and Chief Executive
Officer of HRG. "Our companies also continue to invest in
innovative new products that are performing very well with our
customers, and we continue to execute on our strategies in the core
businesses.
"In Consumer Products, revenue grew 10.5%, with record results
in key product categories and strong volume growth in Europe.
We continue to expect record revenue and cash flow from Spectrum
Brands in Fiscal 2015, and with Spectrum's track record of
successful M&A integration, we believe the recent acquisition
of Armored AutoGroup provides an attractive new business line and
an important source of growth in the future.
"In Energy, Adjusted EBITDA remained positive despite the impact
of the severe reductions in oil and gas prices. During the
quarter, Compass reached an agreement to sell certain of its
properties in Northern Louisiana,
providing an infusion of capital to Compass' balance sheet and
reducing our exposure to the sector. We remain committed to
preserving value in this area by focusing on the leverage and
liquidity at Compass.
"Finally, at FGL, we remain focused on the core business and the
ongoing strategic review process. We are pleased with the
results this quarter, as book value excluding AOCI appreciated to
$1.38 billion and the trend in robust
annuity sales continued, particularly from products introduced in
the last year, which should provide a solid pipeline for future
growth."
Third Quarter Fiscal 2015 Consolidated Highlights:
- HRG recorded total Revenues of $1.6
billion for the Fiscal 2015 Quarter, a decrease of
$45.9 million, or 2.9%, as compared
to the third quarter of fiscal 2014 (the "Fiscal 2014 Quarter"),
driven primarily by lower net investment gains in Insurance as
compared to the Fiscal 2014 Quarter as well as the impact of
unfavorable foreign exchange in Consumer Products. Revenue
excluding the impact of both items increased 13.9% and was driven
primarily by higher Consumer Products revenues.
- Consolidated Operating income of $74.5
million in the Fiscal 2015 Quarter declined $154.6 million as compared to the $229.1 million of Operating income reported in
the Fiscal 2014 Quarter. The decrease was due primarily to the
recognition of $112.4 million of
impairments in the Energy and Asset Management segments, in the
amounts of $102.8 million and
$9.6 million, respectively, as
described below in the Additional Items section.
- Over the nine month period ending June
30, 2015 (the "Fiscal 2015 Nine Months"), HRG received
dividends of $51.4 million from its
subsidiaries, which excludes $9.0
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 $66.7
million in dividends from its subsidiaries, which includes
the $51.4 million already
received.
- HRG ended the Fiscal 2015 Nine Months with corporate cash and
investments of approximately $393.7
million (primarily held at HRG and HGI Funding LLC), an
increase of $141.1 million from the
comparable balance of $252.6 million
held as of March 31, 2015 due
primarily to the proceeds from the Company's recent debt issuances
as well as the receipt of a receivable related to a purchase price
reduction claim, both of which are described below in the
Additional Items section.
- Net loss attributable to common and participating preferred
stockholders of $75.6 million, or
$0.38 per common share attributable
to controlling interest during the Fiscal 2015 Quarter, compared to
a Net income attributable to common and participating preferred
stockholders of $49.0 million, or
$0.28 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.
Additional Items:
Armored AutoGroup Acquisition
In May, Spectrum acquired Armored
AutoGroup, the leader in the US automotive aftermarket appearance
category, for $1.4 billion. The
transaction was financed by Spectrum, in part, through a registered
offering of $575 million of Spectrum
common stock. HRG acquired 3,045,945 shares of Spectrum
common stock, or 49% of the offering, for $281.8 million.
Debt
In transactions completed during
the quarter, the Company issued $260.0
million in aggregate principal amount of new 7.875% Senior
Secured Notes due 2019 (which, taken together with the existing
notes issued under the same indenture, the "Senior Secured Notes")
and $140.0 million in aggregate
principal amount of new 7.75% Senior Notes (which, taken together
with the existing notes issued under the same indenture, the
"Senior Notes"). The proceeds were used, in part, to fund the
Company's acquisition of the newly issued Spectrum common
stock. The newly issued notes are incremental to, and will
vote together with, the Senior Secured Notes and Senior Notes,
respectively, in existence prior to the offering.
As of June 30, 2015, the
Company had approximately $864.4
million in aggregate principal amount of Senior Secured
Notes outstanding and approximately $890.0
million in aggregate principal amount Senior Notes
outstanding. These amounts do not include the debt that has
been issued at the Company's subsidiaries.
Receipt of Contingent Purchase Price Reduction
During the quarter, HRG received
$61.6 million from OM Group (UK)
Limited, reflecting a settlement by the parties with respect to a
$50.0 million purchase price
adjustment claim made by the Company in connection with its
acquisition of FGL in 2011, as well as interest and attorney's
fees, net of counter-claims. In the Fiscal 2015 Quarter, a
$3.0 million Gain on contingent
purchase price reduction was recorded to earnings.
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 $102.8 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 nine months of
Fiscal 2015, Compass has recorded $439.4
million in non-cash impairments to its oil and natural gas
properties and, if oil and gas prices do not increase, additional,
non-cash impairments to properties may be required in Fiscal
2015.
Asset Management
During the Fiscal 2015 Quarter,
$9.6 million of impairments were
recorded to asset-backed loans originated by Salus where the
underlying collateral was under-performing. Over the first
nine months of Fiscal 2015, the Asset Management segment recorded a
total of $72.2 million in
impairments, which includes the amounts previously-disclosed with
respect to the term loan that was originated to RadioShack
Corp. No additional impairments were necessary on the
RadioShack Corp. loan this quarter.
Frederick's of Hollywood
During the quarter, Frederick's of
Hollywood, LLC ("FOH") and its
subsidiaries (collectively "FOHG") filed for bankruptcy protection,
which resulted in the deconsolidation of the FOH results from the
Company's Corporate and Other segment. In the Fiscal 2015
Quarter, the Company recorded a non-cash gain of $38.5 million, net of loan amounts not expected
to be recovered by HGI Global, mainly due to the elimination of
FOH's cumulative historical losses. Additionally,
$16.3 million of impairments were
recorded in the Fiscal 2015 Quarter for loans made to FOH by HRG
subsidiaries that have been determined to be
unrecoverable.
HRG's consolidated results in the Fiscal 2015 Quarter also
reflect a $76.1 million increase in
interest expense relative to the Fiscal 2014 Quarter, as the
current period includes $41.7 million
and $12.7 million, respectively, in
costs related to debt refinancing and amortization of deferred debt
issue costs related to refinancing activities. Excluding
those items, interest expense increased $21.7 million in the Fiscal 2015 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 expense of $1.7 million in the Fiscal 2015 Quarter and a
(4.3)% effective tax rate as compared to a $53.7 million expense in the Fiscal 2014 Quarter
and a 27.5% effective tax rate. The decrease in tax expense
in the current quarter was due to the reversal of a portion of
Spectrum Brands' deferred tax valuation allowance.
Quarterly Segment Highlights:
Consumer Products
- Consumer Products Revenues increased $119.0 million, or 10.5%, to $1.3 billion in the Fiscal 2015 Quarter, as the
impact of newly acquired businesses more than offset the negative
impact of $63.6 million in
unfavorable foreign exchange. Excluding the impact of foreign
exchange, revenue increased $182.6
million, or 16.2%. Excluding the impacts of foreign exchange
and newly acquired businesses, revenue increased $42.1 million, or 3.7%. The segment's Operating
income decreased 8.7% to $135.7
million, as compared to $148.7
million for the Fiscal 2014 Quarter, due primarily to the
impact of costs related to acquisition of new businesses and their
integration.
- On July 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, and authorized a new
three-year, $300 million common stock
repurchase program to replace the program that is expiring in
August 2015.
Insurance
- Sales of fixed indexed annuities increased 34%, or $128 million, over the Fiscal 2014 Quarter to
$507 million; new products introduced
over the last few quarters contributed $264
million, or 52%, of fixed indexed annuity sales in the
current period.
- Insurance Revenues decreased 39.6%, from $419.5 million to $253.3
million due to the net investment gains recorded in the
Fiscal 2014 Quarter. Excluding the net investment (losses) gains
from both periods, Insurance Revenues increased 14.2%.
Energy
- The Energy segment reported Revenue of $24.3 million, a decrease of $13.3 million, or 35.4%, from the Fiscal 2014
Quarter, as lower commodity prices and natural production declines
were only partially offset by the impact of the acquisition of the
full interest in Compass in the first fiscal quarter of 2015.
- In June 2015, Compass completed
the $19.2 million sale of certain oil
and natural gas properties in Northern
Louisiana.
Asset Management
- The Asset Management segment contributed $7.2 million to consolidated revenues for the
Fiscal 2015 Quarter, a decrease of $4.1
million over the Fiscal 2014 Quarter due principally to a
lower amount of realized interest income at Salus.
Detail on Third 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
$1,247.5 million for the Fiscal 2015
Quarter, an increase of $119.0
million, or 10.5%, as compared to $1,128.5 million in the Fiscal 2014
Quarter. The increase was due primarily to the impact of
newly acquired businesses, which more than offset a $63.6 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 $182.6 million, or 16.2%, 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 and the bankruptcy of a retail distribution
partner.
Gross profit, representing net Consumer Products sales minus
Consumer Products cost of goods sold, increased $41 million, or 9.8%, to $458.0 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 36.7% in the Fiscal 2014 Quarter.
Operating income decreased $13.0
million, or 8.7%, to $135.7
million in the Fiscal 2015 Quarter, as compared to
$148.7 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 $236.2 million for the Fiscal
2015 Quarter, an increase of $33.9
million, or 16.8%, as compared to the Fiscal 2014
Quarter.
After the close of the Fiscal 2015 Quarter, on July 27, 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. Over the past two years, the
quarterly dividend paid to Spectrum Brands common stockholders has
increased 32%. The newly-declared dividend, which is a
regular taxable cash dividend, is payable on September 15, 2015 to all Spectrum Brands
stockholders of record as of the close of business on August 18, 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 the effect of class action litigation reserves -
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 US GAAP, of $519 million for the
Fiscal 2015 Quarter. This was an increase of $127 million, or 32%, as compared to the
$392 million of sales recorded in the
Fiscal 2014 Quarter. During the Fiscal 2015 Quarter,
FGL grew fixed indexed annuities by 34% over the Fiscal 2014
Quarter, due primarily to the launch of new products introduced in
the last few quarters, which contributed $264 million of new sales to the current
period.
Net investment income increased $24.5
million, or 12.1%, to $226.8
million for the Fiscal 2015 Quarter from $202.3 million for the Fiscal 2014 Quarter, as
the yield on average invested assets at FGL increased 11 basis
points to 4.73% over the same period.
Operating income decreased $17.7
million, or 16.3%, to $90.9
million for the Fiscal 2015 Quarter from an operating income
of $108.6 million for the Fiscal 2014
Quarter, due primarily to higher intangible amortization expense
and lower net investment gains, which was only partially offset by
an increase in net investment income.
The segment recorded an Insurance AOI of $27.3 million for the Fiscal 2015 Quarter, a
decrease of $11.2 million, or 29%,
from $38.5 million for the Fiscal
2014 Quarter. The decrease was primarily due to an
unfavorable increase in mortality experience on immediate annuity
products and an increase in intangible amortization expense, as
well as the incurrence of certain costs in connection with the
strategic review process that is underway.
Earlier this year, FGL commenced a review of its strategic
alternatives, which may result in a company sale. 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.
The Insurance segment had average invested assets (on an
amortized cost basis) of approximately $19.1
billion as of June 30, 2015. The investment
portfolio continues to be conservatively positioned in its credit
and duration profile and well matched against its liabilities.
As of June 30, 2015, HRG's Insurance segment had a net U.S.
GAAP book value of $1.3 billion
(excluding Accumulated Other Comprehensive Income ("AOCI") of
$287.0 million). As of
June 30, 2015, the Insurance segment's available for sale
investment portfolio had $353.6
million in net unrealized gains on a U.S. GAAP
basis.
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 $24.3
million for the Fiscal 2015 Quarter, a decrease of
$13.3 million, or 35.4%, from the
Fiscal 2014 Quarter. The decline in revenues was due
primarily to lower prices for oil, natural gas and natural gas
liquids, as the average sales price per barrel for oil and natural
gas liquids declined by 45% and 57%, respectively, in the current
quarter as compared to the Fiscal 2014 Quarter. Revenue was
further affected by expected decreases in natural gas production,
which was offset by the additional revenue earned through the
acquisition of a full ownership interest in Compass.
Operating loss for the Fiscal 2015 Quarter was $114.3 million, a decrease of $122.9 million from the Fiscal 2014 Quarter
Operating income of $8.6 million, due
primarily to the ceiling test impairment previously discussed in
the "Additional Items" section. Excluding impairments, the
Operating loss of $11.5 million for
the Fiscal 2015 Quarter was a decrease of $20.1 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 acquisition of the full interest in
Compass.
Energy segment adjusted earnings before interest, taxes,
depreciation and amortization ("Adjusted EBITDA-Energy") was
$5.8 million for the Fiscal 2015
Quarter, a decrease of $9.5 million,
or 62.1%, from the Fiscal 2014 Quarter, due to the same factors
that affected revenue.
For the Fiscal 2015 Quarter, the Energy segment's production was
116 Mbbl of oil, 151 Mbbl of natural gas liquids and 6,293 Mmcf of
natural gas. In the current period, average daily production
at Compass was 87 Mmcfe as compared to 73 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 $7.2 million for the Fiscal 2015 Quarter, a
decrease of $4.1 million, or 36.3%,
from the $11.3 million reported in
the Fiscal 2014 Quarter. The decrease is due primarily to a
lower amount of interest income generated at Salus, which
originated no new asset-based loan commitments in the Fiscal 2015
Quarter as the strategic focus of its operations has shifted to the
recovery of its capital from the existing loan portfolio. As
of June 30, 2015, Salus, together with its affiliated
co-lenders FGL and FSR, had $490.0
million of loans outstanding, net of allowance for credit
losses of $44.4 million.
The Asset Management segment reported an Operating loss of
$14.2 million for the Fiscal 2015
Quarter, a decline of $17.3 million
as compared to the operating income of $3.1
million generated during the Fiscal 2014 Quarter, due
primarily to the $9.6 million
impairment and bad debt expense previously described in the
Additional Items section. Excluding this item, the operating
loss of $4.5 million reflects legal
and consulting fees.
Conference Call
HRG Group, Inc. will host a live conference call to discuss its
results on Thursday, August 6, 2015
at 4:30 p.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 79310306. 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 August 10, 2015 by
dialing 1.855.859.2056 (U.S. callers) or 1.404.537.3406
(international callers), ID number 79310306. 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, personal insect repellents, and
auto care products); 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 integration and any other benefits of the
Armored AutoGroup acquisition, any transaction involving FGL, and
the achievement of any expected benefits of such transaction,
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
integration and any other benefits of the Armored AutoGroup
acquisition; the ability to reach a transaction agreement involving
FGL, and the achievement of any expected benefits of such
transaction; 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 subsequent Quarterly Reports 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. Neither
HRG nor any of its affiliates 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 $63.6 million and the net investment gains 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)
|
|
|
June 30,
2015
|
|
September 30,
2014
|
|
(Unaudited)
|
|
(Audited)
|
ASSETS
|
|
|
|
Investments:
|
|
|
|
Fixed
maturities
|
$
|
17,723.6
|
|
|
$
|
17,211.5
|
|
Equity
securities
|
621.5
|
|
|
768.1
|
|
Derivatives
|
220.4
|
|
|
296.3
|
|
Asset-based
loans
|
490.0
|
|
|
811.6
|
|
Other invested
assets
|
442.4
|
|
|
165.0
|
|
Total
investments
|
19,497.9
|
|
|
19,252.5
|
|
Cash and cash
equivalents
|
1,293.2
|
|
|
1,319.2
|
|
Receivables,
net
|
754.7
|
|
|
585.1
|
|
Inventories,
net
|
903.7
|
|
|
635.2
|
|
Accrued investment
income
|
165.8
|
|
|
184.9
|
|
Reinsurance
recoverable
|
2,382.2
|
|
|
2,397.6
|
|
Deferred tax
assets
|
275.9
|
|
|
186.7
|
|
Properties, including
oil and natural gas properties, net
|
855.8
|
|
|
908.6
|
|
Goodwill
|
2,498.7
|
|
|
1,524.8
|
|
Intangibles,
including deferred acquisition costs and value of business
acquired, net
|
3,386.0
|
|
|
2,683.7
|
|
Other
assets
|
956.1
|
|
|
421.9
|
|
Total
assets
|
$
|
32,970.0
|
|
|
$
|
30,100.2
|
|
|
|
|
|
LIABILITIES AND
EQUITY
|
|
|
|
|
|
|
|
Insurance
reserves:
|
|
|
|
Contractholder
funds
|
$
|
17,703.9
|
|
|
$
|
16,463.5
|
|
Future policy
benefits
|
4,059.2
|
|
|
3,655.5
|
|
Liability for policy
and contract claims
|
60.3
|
|
|
58.1
|
|
Funds withheld from
reinsurers
|
37.7
|
|
|
38.0
|
|
Total insurance
reserves
|
21,861.1
|
|
|
20,215.1
|
|
Debt
|
6,832.7
|
|
|
5,157.8
|
|
Accounts payable and
other current liabilities
|
927.2
|
|
|
1,033.0
|
|
Employee benefit
obligations
|
78.5
|
|
|
86.2
|
|
Deferred tax
liabilities
|
611.7
|
|
|
533.3
|
|
Other
liabilities
|
787.0
|
|
|
817.8
|
|
Total
liabilities
|
31,098.2
|
|
|
27,843.2
|
|
|
|
|
|
Commitments and
contingencies
|
|
|
|
|
|
|
|
HRG Group,
Inc. stockholders' equity:
|
|
|
|
Common
stock
|
2.0
|
|
|
2.0
|
|
Additional paid-in
capital
|
1,463.5
|
|
|
1,472.3
|
|
Accumulated
deficit
|
(690.0)
|
|
|
(276.3)
|
|
Accumulated other
comprehensive income
|
64.2
|
|
|
243.6
|
|
Total HRG Group, Inc.
stockholders' equity
|
839.7
|
|
|
1,441.6
|
|
Noncontrolling interest:
|
1,032.1
|
|
|
815.4
|
|
Total permanent
equity
|
1,871.8
|
|
|
2,257.0
|
|
Total liabilities and
equity
|
$
|
32,970.0
|
|
|
$
|
30,100.2
|
|
HRG GROUP, INC.
AND SUBSIDIARIES
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
(In millions,
except per share data)
|
|
|
|
Fiscal
Quarter
|
|
Fiscal Nine
Months
|
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Revenues:
|
|
|
|
|
|
|
|
|
Net consumer and
other product sales
|
|
$
|
1,249.7
|
|
|
$
|
1,133.2
|
|
|
$
|
3,425.0
|
|
|
$
|
3,255.5
|
|
Oil and natural
gas
|
|
24.3
|
|
|
37.6
|
|
|
84.6
|
|
|
112.3
|
|
Insurance
premiums
|
|
17.8
|
|
|
13.3
|
|
|
44.0
|
|
|
42.0
|
|
Net investment
income
|
|
231.6
|
|
|
210.9
|
|
|
687.4
|
|
|
618.5
|
|
Net investment
gains
|
|
5.7
|
|
|
184.6
|
|
|
53.8
|
|
|
367.4
|
|
Insurance and
investment product fees and other
|
|
24.4
|
|
|
19.8
|
|
|
68.6
|
|
|
54.9
|
|
Total
revenues
|
|
1,553.5
|
|
|
1,599.4
|
|
|
4,363.4
|
|
|
4,450.6
|
|
Operating costs
and expenses:
|
|
|
|
|
|
|
|
|
Cost of consumer
products and other goods sold
|
|
791.3
|
|
|
714.9
|
|
|
2,210.3
|
|
|
2,096.4
|
|
Oil and natural gas
direct operating costs
|
|
22.3
|
|
|
17.7
|
|
|
66.1
|
|
|
50.9
|
|
Benefits and other
changes in policy reserves
|
|
56.3
|
|
|
265.1
|
|
|
493.0
|
|
|
696.3
|
|
Selling, acquisition,
operating and general expenses
|
|
395.6
|
|
|
332.2
|
|
|
1,113.5
|
|
|
978.4
|
|
Impairments and bad
debt expense
|
|
113.9
|
|
|
(0.3)
|
|
|
613.4
|
|
|
82.5
|
|
Amortization of
intangibles
|
|
99.6
|
|
|
40.7
|
|
|
149.6
|
|
|
121.5
|
|
Total operating costs
and expenses
|
|
1,479.0
|
|
|
1,370.3
|
|
|
4,645.9
|
|
|
4,026.0
|
|
Operating income
(loss)
|
|
74.5
|
|
|
229.1
|
|
|
(282.5)
|
|
|
424.6
|
|
Interest
expense
|
|
(154.0)
|
|
|
(77.9)
|
|
|
(320.1)
|
|
|
(239.1)
|
|
Gain (loss) from the
change in the fair value of the equity conversion feature of
preferred stock
|
|
—
|
|
|
38.0
|
|
|
—
|
|
|
(12.7)
|
|
Gain on contingent
purchase price reduction
|
|
3.0
|
|
|
—
|
|
|
8.5
|
|
|
0.5
|
|
Other income
(expense), net
|
|
36.8
|
|
|
6.0
|
|
|
223.3
|
|
|
(10.5)
|
|
(Loss) income from
continuing operations before income taxes
|
|
(39.7)
|
|
|
195.2
|
|
|
(370.8)
|
|
|
162.8
|
|
Income tax
expense
|
|
1.7
|
|
|
53.7
|
|
|
14.5
|
|
|
78.7
|
|
Net (loss)
income
|
|
(41.4)
|
|
|
141.5
|
|
|
(385.3)
|
|
|
84.1
|
|
Less: Net income
attributable to noncontrolling interest
|
|
34.2
|
|
|
43.2
|
|
|
28.4
|
|
|
88.1
|
|
Net (loss) income
attributable to controlling interest
|
|
(75.6)
|
|
|
98.3
|
|
|
(413.7)
|
|
|
(4.0)
|
|
Less: Preferred stock
dividends and accretion
|
|
—
|
|
|
49.3
|
|
|
—
|
|
|
73.6
|
|
Net (loss) income
attributable to common and participating preferred
stockholders
|
|
$
|
(75.6)
|
|
|
$
|
49.0
|
|
|
$
|
(413.7)
|
|
|
$
|
(77.6)
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per
common share attributable to controlling interest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.38)
|
|
|
$
|
0.28
|
|
|
$
|
(2.09)
|
|
|
$
|
(0.52)
|
|
Diluted
|
|
$
|
(0.38)
|
|
|
$
|
0.28
|
|
|
$
|
(2.09)
|
|
|
$
|
(0.52)
|
|
HRG GROUP, INC.
AND SUBSIDIARIES
|
RESULTS OF
OPERATIONS BY SEGMENT
|
(In
millions)
|
|
|
|
Fiscal
Quarter
|
|
Fiscal Nine
Months
|
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Revenues:
|
|
|
|
|
|
|
|
|
Consumer
Products
|
|
$
|
1,247.5
|
|
|
$
|
1,128.5
|
|
|
$
|
3,382.3
|
|
|
$
|
3,250.8
|
|
Insurance
|
|
253.3
|
|
|
419.5
|
|
|
725.1
|
|
|
1,066.7
|
|
Energy
|
|
24.3
|
|
|
37.6
|
|
|
84.6
|
|
|
112.3
|
|
Asset
Management
|
|
7.2
|
|
|
11.3
|
|
|
20.3
|
|
|
25.6
|
|
Intersegment
elimination (a)
|
|
19.0
|
|
|
(2.2)
|
|
|
108.4
|
|
|
(9.5)
|
|
Consolidated segment
revenues
|
|
1,551.3
|
|
|
1,594.7
|
|
|
4,320.7
|
|
|
4,445.9
|
|
Corporate and
Other
|
|
2.2
|
|
|
4.7
|
|
|
42.7
|
|
|
4.7
|
|
Total
revenues
|
|
$
|
1,553.5
|
|
|
$
|
1,599.4
|
|
|
$
|
4,363.4
|
|
|
$
|
4,450.6
|
|
|
|
|
|
|
|
|
|
|
Operating income
(loss):
|
|
|
|
|
|
|
|
|
Consumer
Products
|
|
$
|
135.7
|
|
|
$
|
148.7
|
|
|
$
|
339.7
|
|
|
$
|
366.3
|
|
Insurance
|
|
90.9
|
|
|
108.6
|
|
|
53.7
|
|
|
220.2
|
|
Energy
|
|
(114.3)
|
|
|
8.6
|
|
|
(470.6)
|
|
|
(57.2)
|
|
Asset
Management
|
|
(14.2)
|
|
|
3.1
|
|
|
(82.7)
|
|
|
3.2
|
|
Intersegment
elimination (a)
|
|
17.5
|
|
|
(2.0)
|
|
|
66.8
|
|
|
(9.7)
|
|
Total segment
operating income (loss)
|
|
115.6
|
|
|
267.0
|
|
|
(93.1)
|
|
|
522.8
|
|
Corporate and Other
and eliminations
|
|
(41.1)
|
|
|
(37.9)
|
|
|
(189.4)
|
|
|
(98.2)
|
|
Consolidated
operating income (loss)
|
|
74.5
|
|
|
229.1
|
|
|
(282.5)
|
|
|
424.6
|
|
Interest
expense
|
|
(154.0)
|
|
|
(77.9)
|
|
|
(320.1)
|
|
|
(239.1)
|
|
Gain (loss) from the
change in the fair value of the equity conversion
feature of preferred stock
|
|
—
|
|
|
38.0
|
|
|
—
|
|
|
(12.7)
|
|
Gain on contingent
purchase price reduction
|
|
3.0
|
|
|
—
|
|
|
8.5
|
|
|
0.5
|
|
Other income
(expense), net
|
|
36.8
|
|
|
6.0
|
|
|
223.3
|
|
|
(10.5)
|
|
(Loss) income from
continuing operations before income taxes
|
|
$
|
(39.7)
|
|
|
$
|
195.2
|
|
|
$
|
(370.8)
|
|
|
$
|
162.8
|
|
|
|
(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. For the three and nine
months ended June 30, 2015, the Insurance segment eliminations
include the reversal of intercompany asset impairments of
$16.2 and $58.6, respectively. For the nine months ended June 30,
2015, the Insurance segment eliminations also include 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 Nine
Months
|
Reconciliation to
reported net income:
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
Reported net income -
Consumer Products segment
|
|
$
|
44.9
|
|
|
$
|
78.0
|
|
|
$
|
122.8
|
|
|
$
|
166.4
|
|
Add back:
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
112.9
|
|
|
47.3
|
|
|
206.5
|
|
|
151.7
|
|
Income tax
expense
|
|
(23.8)
|
|
|
20.6
|
|
|
4.8
|
|
|
43.8
|
|
Purchase accounting
fair value adjustment
|
|
4.7
|
|
|
—
|
|
|
7.7
|
|
|
—
|
|
Restructuring and
related charges
|
|
10.5
|
|
|
3.7
|
|
|
22.3
|
|
|
16.0
|
|
Acquisition and
integration related charges
|
|
24.2
|
|
|
2.7
|
|
|
44.2
|
|
|
14.5
|
|
Other
|
|
2.1
|
|
|
—
|
|
|
3.9
|
|
|
—
|
|
Adjusted EBIT -
Consumer Products segment
|
|
175.5
|
|
|
152.3
|
|
|
412.2
|
|
|
392.4
|
|
Depreciation and
amortization, net of accelerated depreciation
|
|
|
|
|
|
|
|
|
Depreciation of
properties
|
|
21.6
|
|
|
19.9
|
|
|
58.7
|
|
|
56.4
|
|
Amortization of
intangibles
|
|
22.3
|
|
|
20.5
|
|
|
64.0
|
|
|
61.2
|
|
Stock-based
compensation
|
|
16.8
|
|
|
9.6
|
|
|
36.3
|
|
|
27.5
|
|
Adjusted EBITDA -
Consumer Products segment
|
|
$
|
236.2
|
|
|
$
|
202.3
|
|
|
$
|
571.2
|
|
|
$
|
537.5
|
|
The table below shows
the adjustments made to the reported net (loss) income of the
Energy segment to calculate its Adjusted EBITDA
(unaudited):
|
|
|
|
Fiscal
Quarter
|
|
Fiscal Nine
Months
|
Reconciliation to
reported net loss:
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
Reported net (loss)
income - Energy segment
|
|
$
|
(121.9)
|
|
|
$
|
2.3
|
|
|
$
|
(321.9)
|
|
|
$
|
(82.3)
|
|
Interest
expense
|
|
5.2
|
|
|
4.1
|
|
|
14.1
|
|
|
12.7
|
|
Depreciation,
amortization and depletion
|
|
9.7
|
|
|
9.1
|
|
|
35.7
|
|
|
30.5
|
|
EBITDA - Energy
segment
|
|
(107.0)
|
|
|
15.5
|
|
|
(272.1)
|
|
|
(39.1)
|
|
Accretion of discount
on asset retirement obligations
|
|
0.8
|
|
|
0.5
|
|
|
2.1
|
|
|
1.5
|
|
Impairments and bad
debt expense
|
|
102.8
|
|
|
—
|
|
|
439.4
|
|
|
81.0
|
|
Gain on remeasurement
of investment to fair value
|
|
—
|
|
|
—
|
|
|
(141.2)
|
|
|
—
|
|
Non-recurring other
operating items
|
|
0.3
|
|
|
—
|
|
|
2.6
|
|
|
—
|
|
Loss (gain) on
derivative financial instruments
|
|
2.7
|
|
|
2.2
|
|
|
(21.3)
|
|
|
12.4
|
|
Cash settlements on
derivative financial instruments
|
|
6.2
|
|
|
(2.9)
|
|
|
14.1
|
|
|
(6.2)
|
|
Stock based
compensation expense
|
|
—
|
|
|
—
|
|
|
0.6
|
|
|
0.1
|
|
Adjusted EBITDA -
Energy segment
|
|
$
|
5.8
|
|
|
$
|
15.3
|
|
|
$
|
24.2
|
|
|
$
|
49.7
|
|
The table below shows
the adjustments made to the reported net income (loss) of the
Insurance segment to calculate its adjusted operating income
(unaudited):
|
|
|
|
Fiscal
Quarter
|
|
Fiscal Nine
Months
|
Reconciliation to
reported net income :
|
|
2015
|
|
2014
|
|
2015
|
|
2014
|
Reported net income
(loss) - Insurance segment:
|
|
$
|
43.9
|
|
|
$
|
70.2
|
|
|
$
|
(60.1)
|
|
|
$
|
166.5
|
|
Effect of investment
(gains) losses, net of offsets
|
|
(2.1)
|
|
|
(40.7)
|
|
|
48.4
|
|
|
(49.3)
|
|
Effect of change in
FIA embedded derivative discount rate, net of
offsets
|
|
(24.1)
|
|
|
9.1
|
|
|
14.6
|
|
|
5.0
|
|
Impairments and bad
debt expense from subsidiary
|
|
9.6
|
|
|
—
|
|
|
72.2
|
|
|
—
|
|
Effect of class
action litigation reserves, net of offsets
|
|
—
|
|
|
(0.1)
|
|
|
(0.5)
|
|
|
1.0
|
|
Adjusted operating
income - Insurance segment
|
|
$
|
27.3
|
|
|
$
|
38.5
|
|
|
$
|
74.6
|
|
|
$
|
123.2
|
|
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/hrg-group-inc-reports-third-quarter-results-300125178.html
SOURCE HRG Group, Inc.