UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 21, 2014
HARBINGER GROUP INC.
(Exact name of registrant as specified in its charter)
Delaware | 1-4219 | 74-1339132 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (IRS Employer Identification No.) | ||
450 Park Avenue, 29th Floor, New York, New York | 10022 | |||
(Address of principal executive offices) | (Zip Code) | |||
Registrant's telephone number, including area code: (212) 906-8555
Former name or former address, if changed since last report.
450 Park Avenue, 30th Floor, 10022
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
q | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
q | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
q | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
q | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. | Results of Operations and Financial Condition. |
The following information, including the Exhibits referenced in this Item 2.02, to the extent the Exhibit discusses financial results of Harbinger Group Inc. (the “Company”) for the fourth quarter ended September 30, 2014, are being furnished pursuant to this Item 2.02 and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
On November 21, 2014, the Company issued a press release (the “Press Release”) discussing, among other things, its financial results for its annual period ended September 30, 2014. A copy of the Press Release is furnished as Exhibit 99.1 to this Report.
As previously announced, the Company will host a conference call on November 21, 2014 to discuss its financial results for its quarterly period ended September 30, 2014. A copy of the presentation (the "Company Presentation") to be used during the conference call is attached hereto as Exhibit 99.2 to this Report.
Item 9.01 | Financial Statements and Exhibits. |
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Exhibits
Exhibit No. | Description | |
99.1 | Press Release | |
99.2 | Company Presentation | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HARBINGER GROUP INC. | |||
/s/ Thomas A. Williams | |||
Name: Thomas A. Williams | |||
Title: Executive Vice President and Chief Financial Officer | |||
Dated: November 21, 2014
Harbinger Group Inc. Reports Fourth Quarter and Fiscal Year 2014 Results Achieves Record Annual Results for Consolidated Revenue All Lines of Business Report Revenue Growth Over Fiscal 2013 |
NEW YORK - November 21, 2014 -- Harbinger Group Inc. (“HGI” or the “Company”; NYSE: HRG), a diversified holding company seeking to acquire and grow attractive businesses that can, in the long term, generate sustainable free cash flow, today announced its consolidated results for the fourth quarter of Fiscal 2014 ended on September 30, 2014 (the "Fiscal 2014 Quarter") as well as the results for the full fiscal year ended on September 30, 2014 (the "Fiscal 2014"). The results include HGI'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 includes the Company's interest in Compass Production Partners, LP ("Compass"), an oil and gas joint venture that was owned, as of September 30, 2014, by HGI Energy Holdings, LLC, a wholly owned subsidiary ("HGI Energy"), and EXCO Resources, Inc., the joint venture partner (refer to the "Additional Items" section for information pertaining to changes in the ownership of Compass subsequent to the close of the quarter); and |
• | Asset Management, formerly called Financial Services, which includes Salus Capital Partners, LLC (“Salus”), Five Island Asset Management, LLC (“Five Island”), Energy & Infrastructure Capital ("EIC") and CorAmerica Capital, LLC ("CorAmerica"). |
“Looking back at Fiscal 2014, we accomplished a great deal at Harbinger Group, including the expansion and diversification of our business, both organically and through the acquisition of highly-attractive assets that align well with our existing segments, and the purchase of more than five million shares of HGI common stock via our buyback program," said Philip Falcone, HGI's Chairman and Chief Executive Officer. "As we enter 2015, our mission remains the same: acquire and own cash flow positive businesses where we can build book value over the long-term. With the strength of our balance sheet and the improvements we've made to our capital structure, we have considerable flexibility in pursuing our vision and we continue to believe we are very well positioned for growth and value creation over the foreseeable future."
“In Fiscal 2014, each of our subsidiary businesses successfully executed its strategic and growth initiatives, and has created the foundation to continue growing," said Omar Asali, President of HGI. "The Consumer Products segment reported record net fiscal year sales with an 8.4% increase in revenue driven by continued growth in its three largest product lines, as well as its sixteenth consecutive quarter of year-over-year growth in Adjusted EBITDA, its primary measure of profitability; FGL, our Insurance segment, more than doubled its annuity sales in both the quarter and the year, and continues to increase its GAAP book value, which grew 45% over the course of the year; with Compass, we made a decision to increase our ownership in the business because we see meaningful opportunities to drive growth in book value and increase cash flow generation; and finally, in Asset Management, our newest businesses, EIC and CorAmerica, have diversified our lending platform into important, attractive new areas and are poised to begin contributing to our growth in 2015 and beyond.”
Fiscal 2014 Results Highlights:
• | HGI recorded total Revenues of $6.0 billion for Fiscal 2014, the highest level of annual revenue recorded by the Company and an increase of $419.6 million, or 7.6%, from the year ended September 30, 2013 ("Fiscal 2013"), driven by increases in all operating segments as compared to Fiscal 2013. |
• | Consolidated Operating income of $569.5 million in Fiscal 2014 decreased $167.9 million, or (22.8)%, as compared to the $737.4 million reported in Fiscal 2013, driven primarily by lower operating income in Insurance, as a portfolio repositioning undertaken in the year ago period resulted in higher realized investment gains in Fiscal 2013, which were not expected to recur in Fiscal 2014. |
1
• | Net loss attributable to common and participating preferred stockholders was $(83.9) million, or $0.51 per common share attributable to controlling interest, as compared to a net loss attributable to common and participating preferred stockholders of $(94.2) million, or $0.67 per common share attributable to controlling interest, in Fiscal 2013. |
• | HGI ended Fiscal 2014 with corporate cash and investments of approximately $516.6 million (primarily held at HGI and HGI Funding LLC), an increase of $99.5 million from the comparable balance of $417.1 million held as of June 30, 2014 due primarily to the proceeds from the Company's issuance of additional Senior Notes (as described further in the "Additional Items" section below), partially offset by the acquisition of HGI's common stock under its existing buyback authorization (also described further in the "Additional Items" section below). |
• | In Fiscal 2014, HGI received dividends of $118.0 million from its subsidiaries, which amount does not give effect to the net impact from $9 million of interest payments made by HGI on behalf of HGI Energy with respect to certain intercompany notes issued by HGI Energy to other HGI subsidiaries. |
• | The $118.0 million reflects $52.2 million from FGL (which includes a special dividend of $43.0 million paid from the proceeds received in FGL's initial public offering), $35.5 million from Spectrum Brands, $17.1 million from Compass (which does not give effect to the interest payments discussed above), $7.2 million from Salus, $5.0 million from Front Street, and $1.0 million from Five Island. |
Fourth Quarter Fiscal 2014 Highlights:
• | HGI recorded total Revenues of $1.5 billion for the Fiscal 2014 Quarter, an increase of $11.6 million, or 0.8%, as compared to the fourth quarter of fiscal 2013 (the "Fiscal 2013 Quarter"), as increased revenues from the Consumer Products, Asset Management and Corporate and Other segments more than offset declines in Insurance segment revenues, driven primarily by lower investment gains as compared to the Fiscal 2013 Quarter, and modestly lower Energy revenues. |
• | Consolidated Operating income of $144.9 million in the Fiscal 2014 Quarter decreased $60.5 million, or 29.5%, as compared to the $205.4 million of Operating income reported in the Fiscal 2013 Quarter, due primarily to the impact of the lower investment gains affecting Insurance revenues. |
• | Net loss attributable to common and participating preferred stockholders improved to $6.3 million, or $0.03 per common share attributable to controlling interest during the Fiscal 2014 Quarter, as compared to Net loss attributable to common and participating preferred stockholders of $202.3 million, or $1.45 per common share attributable to controlling interest during the Fiscal 2013 Quarter, as the current period benefited by the non-recurrence of a loss reported in the year ago period associated with the preferred stock equity conversion feature, as well as reduced interest expense and the elimination of the preferred stock dividend. |
Additional Items:
Senior Notes Offering
In September 2014, the Company issued an additional $200.0 million in aggregate principal amount of new 7.75% Senior Notes due 2022 at par. The newly issued notes were incremental to, and will vote together with, the $550.0 million in aggregate principal amount of Senior Notes that existed prior to the offering. At the conclusion of the offering, the Company had approximately $604.4 million in aggregate principal amount of its 7.875% Senior Secured Notes due 2019 outstanding and approximately $750.0 million in aggregate principal amount of the Senior Notes due 2022 outstanding.
Common Stock Buyback Program
As part of its previously announced $100 million share repurchase program, the Company purchased 4.2 million shares at an average price of $12.73 for an aggregate $53.4 million during the Fiscal 2014 Quarter. Since the program's inception in May 2014, the Company has purchased 5.2 million shares at an average price of $12.61 as of September 30, 2014 for an aggregate $65.6 million.
2
Under this repurchase program, an additional $34.4 million was available, as of September 30, 2014, for subsequent repurchases, subject to the discretion of HGI's management. 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 HGI to purchase any specific number of shares.
Compass Transaction
Following the close of the quarter, the Company completed the acquisition of EXCO Resources, Inc.'s approximately 25.5% interest in Compass Production Partners, LP in exchange for $118.75 million in cash. Accordingly, effective October 31, 2014, the Company became the sole owner of all interests in Compass and the Company's financial statements will, as of November 1, 2014, reflect 100% of Compass revenues, expenses, assets and liabilities.
HGI’s results in the Fiscal 2014 Quarter reflect a $126.4 million decrease in interest expense due primarily to refinancing costs at Spectrum Brands to lower interest rate debt in Fiscal 2014, which was partially offset by higher overall debt levels. In Fiscal 2014, full year interest expense decreased $190.0 million due primarily to a decrease in acquisition and other financing costs as compared to Fiscal 2013, associated with the refinancing to lower interest rate debt.
Additionally, HGI incurred a tax expense of $32.8 million in the Fiscal 2014 Quarter with a 65.1% effective tax rate as compared to a $20.1 million expense in the Fiscal 2013 Quarter with a (10.9)% effective tax rate. The increase in tax expense in the current quarter was due primarily to higher income from continuing operations. In Fiscal 2014, full year tax expense of $111.5 million, or a 52.3% effective tax rate, compared favorably to a $187.3 million expense in Fiscal 2013 with a 158.3% effective tax rate.
Quarterly Segment Highlights:
• | Consumer Products Revenues increased 3.6% to $1.2 billion in the Fiscal 2014 Quarter, driven by increases in all lines of business except pet supplies as compared to the Fiscal 2013 Quarter. The segment's Operating income for the Fiscal 2014 Quarter increased 0.4% to $115.6 million as compared to $115.1 million for the Fiscal 2013 Quarter, due primarily due to the increase in Revenues. |
• | On November 17, 2014, Spectrum Brands announced that its Board of Directors approved a $0.30 per share quarterly common stock dividend, a 20% increase from the $0.25 dividend declared in the Fiscal 2013 Quarter. |
• | The Insurance segment's Revenues decreased 12.3%, from $322.8 million to $283.0 million, in the Fiscal 2014 Quarter due to lower net investment gains driven by the segment's portfolio repositioning activity in Fiscal 2013, as FGL successfully implemented a tax planning strategy to utilize certain Net operating losses which resulted in certain non-recurring capital gains. |
• | Operating income for the Insurance segment in the Fiscal 2014 Quarter decreased by $103.4 million, or (61.5)%, to $64.6 million from $168.0 million for the Fiscal 2013 Quarter due to the same factors that affected revenue. The segment’s adjusted operating income (“Insurance AOI”) decreased by $(58.0) million, or (65)%, to $31.3 million versus $89.3 million in income for the Fiscal 2013 Quarter. |
• | In August 2014, Fidelity & Guaranty Life Holdings, Inc., a wholly owned subsidiary of FGL, entered into, as borrower and with FGL as guarantor, a three-year $150.0 million unsecured revolving credit facility. |
• | The Energy segment reported Operating income of $3.5 million, an increase of $54.0 million from the Fiscal 2013 Quarter, due primarily to the absence in 2014 of a previously disclosed write-down reported in the year ago quarter. |
• | The Asset Management segment contributed approximately $8.6 million to consolidated revenues for the Fiscal 2014 Quarter, an increase of $0.5 million over the Fiscal 2013 Quarter. |
• | Salus originated $134.0 million of new asset-based loan commitments in the Fiscal 2014 Quarter, and together with its affiliated co-lenders FGL and FSR, had $811.6 million of loans outstanding as of September 30, 2014, net of allowance for credit losses of $7.2 million. |
3
Detail on Fourth Quarter and Fiscal Year 2014 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, restructuring and related charges, acquisition and integration related charges, intangible asset impairment and depreciation and amortization expenses - 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 record consolidated net sales of $1,178.3 million for the Fiscal 2014 Quarter, an increase of $40.5 million, or 3.6%, as compared to $1,137.8 million in the Fiscal 2013 Quarter. Net sales of $4,429.1 million in Fiscal 2014 increased $343.5 million, or 8.4%, from the $4,085.6 million reported in Fiscal 2013. The increase in sales in both periods was primarily due to higher sales of hardware and home improvement products, consumer batteries and home and garden control products, which more than offset a decrease in small appliances in Fiscal 2014 as well as declines in the pet supplies product line in both the Fiscal 2014 Quarter as well as Fiscal 2014.
Gross profit, representing net consumer products sales minus consumer products cost of goods sold, was $410.9 million for the Fiscal 2014 Quarter as compared to $396.5 million for the Fiscal 2013 Quarter, representing a $14.4 million, or 3.6%, increase. For Fiscal 2014, gross profit of $1,568.8 million increased $178.5 million, or 12.8%, from the $1,390.3 million reported for Fiscal 2013. The increase in gross profit in both periods was driven primarily by the increase in revenues, a shift toward higher margin products and continuing cost improvements. Gross profit margin, representing gross profit as a percentage of consumer products net sales, increased to 34.9% as compared to 34.8% in the Fiscal 2013 Quarter, and increased to 35.4% in Fiscal 2014 as compared to 34.0% in Fiscal 2013. The increase in margin in the full year was driven by a favorable product mix and increased productivity.
Operating income increased $0.5 million to $115.6 million in the Fiscal 2014 Quarter, compared to $115.1 million in the Fiscal 2013 Quarter. In Fiscal 2014, Operating income increased $130.7 million, or 37.2%, to $481.9 million as compared to $351.2 million in Fiscal 2013, driven by the same factors that benefited gross profit.
Consumer Products delivered adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA-Consumer Products”) of $186.9 million for the Fiscal 2014 Quarter, up $2.2 million, or 1.2%, as compared to the Fiscal 2013 Quarter. For Fiscal 2014, Adjusted EBITDA of $724.4 million increased $47.3 million, or 7.0%, as compared to Fiscal 2013. This is the sixteenth consecutive quarter and seventh consecutive fiscal year of year-over-year growth in Adjusted EBITDA-Consumer Products. The performance in both the quarter and the year is primarily due to a more favorable mix shift driven by higher sales of hardware and home improvement products, home and garden control products and batteries, as well as ongoing initiatives to manage operating and product costs.
After the close of the Fiscal 2014 Quarter, on November 18, 2014, Spectrum Brands announced that its Board of Directors declared a quarterly dividend of $0.30 per share on Spectrum Brands’ common stock. Earlier in the year, the Spectrum Board had approved a 20% increase in its quarterly dividends declared for Fiscal 2014 as compared to the $0.25 quarterly dividend paid per share in connection with Fiscal 2013. The newly-declared dividend, which is a regular taxable cash dividend, is payable on December 18, 2014 to all Spectrum Brands' stockholders of record as of the close of business on December 2, 2014.
For more information on HGI's Consumer Products segment, interested parties should read Spectrum Brands' announcements and public filings with the Securities and Exchange Commission, including Spectrum Brands' fourth quarter and Fiscal 2014 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, 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 now includes interest expense and an effective tax rate of 35% is now applied to reconciling items made to net income.
4
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 $501.6 million for the Fiscal 2014 Quarter as compared to $246.9 million in the Fiscal 2013 Quarter, an increase of $254.9 million, or 103%. Annuity sales increased 114% in Fiscal 2014, to $2,161.2 million. Additionally, during the Fiscal 2014 Quarter, FGL grew fixed indexed annuities by 91% over the Fiscal 2013 Quarter and 20% on a sequential basis. The increase in annuity sales and fixed indexed annuities in both periods is attributable to ongoing marketing initiatives with existing distribution partners as well as the launch of new products.
Net investment income increased $28.9 million, or 15.0%, for the Fiscal 2014 Quarter to $221.6 million from $192.7 million for the Fiscal 2013 Quarter, and increased $109.0 million, or 15.2%, in Fiscal 2014 to $824.5 million from $715.5 million. The increase in both periods was due to the previously-disclosed portfolio repositioning during the first half of 2013 and execution of a reinvestment strategy in 2014. Operating income decreased $103.4 million, or 61.5%, to $64.6 million for the Fiscal 2014 Quarter from $168.0 million for the Fiscal 2013 Quarter, and decreased $238.1 million, or 45.5%, to $284.8 million Fiscal 2014 from $522.9 million, due primarily due to the reduction in net investment gains that negatively affected revenues in both periods as compared to 2013.
The segment recorded an Insurance AOI of $31.3 million for the Fiscal 2014 Quarter, a decrease of $(58.0) million, or (65)%, from $89.3 million for the Fiscal 2013 Quarter. Insurance AOI of $154.5 million in Fiscal 2014 increased immaterially from the year ago period. While both the Fiscal 2014 Quarter and Fiscal 2014 were negatively affected by the reduced operating income, the full year benefited from a $70.9 million increase in after-tax net investment income as well as a valuation allowance release in Fiscal 2014.
The Insurance segment had approximately $18.8 billion of assets under management as of September 30, 2014. The investment portfolio continues to be conservatively positioned in its credit and duration profile and well matched against its liabilities.
As of September 30, 2014, HGI's Insurance segment had a net U.S. GAAP book value of $1.3 billion (excluding Accumulated Other Comprehensive Income (“AOCI”) of $564.2 million), up 20% from the value at September 30, 2013. As of September 30, 2014, the Insurance segment's available for sale investment portfolio had $760.7 million in net unrealized gains on a U.S. GAAP basis.
For more information on HGI's Insurance segment, interested parties should read Fidelity & Guarantee Life’s announcements and public filings with the Securities & Exchange Commission, including Fidelity & Guarantee Life’s second quarter earnings announcement, available at www.fglife.com.
Energy:
Note: Adjusted EBITDA-Energy is a non-U.S. GAAP measure that excludes non-recurring other 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 - 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 $34.7 million for the Fiscal 2014 Quarter, a decrease of $1.0 million, or 2.8%, from the Fiscal 2013 Quarter. The decline in revenues in the quarter was due primarily to expected decreases in natural gas production offset slightly by increased liquids production from the segment's drilling and completion program as compared to the Fiscal 2013 Quarter. Revenue in Fiscal 2014 increased $56.8 million, or 63%, from $90.2 million recorded in Fiscal 2013, as the year ago period reflects results only from the February 14, 2013 inception of the Compass venture.
Operating income for the Fiscal 2014 Quarter was $3.5 million, an increase of $54.0 million, or 106.9%, from the Fiscal 2013 Quarter, due primarily to the absence in 2014 of a previously disclosed impairment reported in the year ago period. For Fiscal 2014, the Operating loss increased $8.5 million, or (18.8%), to $(53.7) million as the factors that benefited full year revenue were offset by higher impairment charges in Fiscal 2014 as compared to Fiscal 2013.
5
Energy segment adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA-Energy") was $13.6 million for the Fiscal 2014 Quarter, a decrease of $2.8 million, or 17.1%, from the Fiscal 2013 Quarter, due to natural declines in production and lower realized prices for oil and natural gas liquids as well as the incurrence of certain costs to prepare Compass for its transition from its joint venture structure. Adjusted EBITDA-Energy increased $23.7 million, or 59.8%, to $63.3 million in Fiscal 2014 as the year ago period reflects results only from the February 14, 2013 inception of the Compass venture.
For the Fiscal 2014 Quarter, the Energy segment's production was 112 Mbbl of oil, 131 Mbbl of natural gas liquids and 5,177 Mmcf of natural gas. For the same period, the segment’s developmental activities in the Permian basin included no wells turned-to-sales. The production during the quarter consisted of 5.2 Bcfe from the East Texas/North Louisiana region and 1.5 Bcfe from the Permian basin.
For Fiscal 2014, the Energy segment's production was 414 Mbbl of oil, 521 Mbbl of natural gas liquids and 20,882 Mmcf of natural gas. For the same period, the segment’s developmental activities in the Permian basin included 7 wells completed and turned-to-sales. The production during the period consisted of 20.6 Bcfe from the East Texas/North Louisiana region and 5.9 Bcfe from the Permian basin.
Asset Management:
Asset Management segment revenues of $8.6 million for the Fiscal 2014 Quarter increased $0.5 million, or 6.2%, from $8.1 million in the Fiscal 2013 Quarter, and increased $5.3 million, or 18.3%, to $34.2 million in Fiscal 2014. The growth in both periods is primarily the result of an increase in the asset-based loans originated and serviced by the operations of Salus to $818.8 million as of September 30, 2014 from $565.6 million as of September 30, 2013, as well as an increase in asset management fees earned from affiliates by the operations of Five Island, a wholly-owned asset management company.
The Asset Management segment reported an Operating loss of $2.5 million for the Fiscal 2014 Quarter, a decrease of $2.7 million as compared to operating income of $0.2 million generated during the Fiscal 2013 Quarter, and Operating income of $0.7 million for Fiscal 2014, a decrease of $9.7 million from the $10.4 million generated during Fiscal 2013. The decrease in both periods was due to increased overhead to support the ongoing expansion of the segment into new lines of business, such as energy and infrastructure investing and commercial and residential real estate.
During the Fiscal 2014 Quarter, Salus closed on 4 transactions, representing approximately $134.0 million in total new commitment.
Conference Call
Harbinger Group Inc. will host a live conference call to discuss its results on Friday, November 21, 2014 at 10 a.m. Eastern Standard 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 79310303. Alternatively, a live webcast of the conference call can be accessed by interested parties through the Investor Relations section of the HGI Website, http://harbingergroupinc.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 November 24, 2014 by dialing 1.855.859.2056 (U.S. callers) or 1.404.537.3406 (international callers), ID number 79310303. A replay will also be available on the company's website.
About Harbinger Group Inc.
Harbinger Group Inc. is a diversified holding company. HGI's principal operations are conducted through companies that: offer life insurance and annuity products; 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); provide asset management services, including asset-based loans, high-yield investing, infrastructure lending and real estate investing; and own energy assets. HGI is principally focused on acquiring controlling and other
6
equity stakes in businesses across a diversified range of industries and growing its existing businesses. In addition to HGI's intention to acquire controlling equity interests, HGI may also make investments in debt instruments and acquire minority equity interests in companies. HGI is headquartered in New York and traded on the New York Stock Exchange under the symbol HRG. For more information on HGI, visit: www.harbingergroupinc.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 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 HGI's common stock, general business and market conditions and applicable legal requirements, and is subject to the discretion of HGI's management. 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 HGI's management and the management of HGI's subsidiaries (including target businesses). 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. Factors that could cause actual results, events and developments to differ include, without limitation: the ability of HGI's subsidiaries (including, target businesses following their acquisition) to generate sufficient net income and cash flows to make upstream cash distributions, capital market conditions, HGI and its subsidiaries ability to identify any suitable future acquisition opportunities, efficiencies/cost avoidance, cost savings, income and margins, growth, economies of scale, combined operations, future economic performance, conditions to, and the timetable for, completing the integration of financial reporting of acquired or target businesses with HGI or HGI subsidiaries, completing future acquisitions and dispositions, litigation, potential and contingent liabilities, management's plans, changes in regulations, taxes and the those forward looking statements included under the caption “Risk Factors” in HGI's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q. 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. HGI 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.
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.
Our Consumer Products segment uses Adjusted EBITDA-Consumer Products, a non-U.S. GAAP financial measure. Management believes that Adjusted EBITDA-Consumer Products is significant to gaining an understanding of Spectrum Brands' results as it is frequently used by the financial community to provide 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-Consumer Products can also be a useful measure of our Consumer Product segment's ability to service debt and is one of the measures used for determining Spectrum Brand's debt covenant compliance. Adjusted EBITDA-Consumer Products excludes certain items that are unusual in nature or not comparable from period to period.
Our Insurance segment uses Insurance AOI, a non-U.S. GAAP financial measure frequently used throughout the insurance industry. Adjusted Operating Income is calculated by adjusting the reported insurance segment operating income to eliminate the impact of net investment gains, excluding gains and losses on derivatives and including net other-than-temporary impairment losses recognized in operations, the effect of changes in the rates used to discount the FIA embedded derivative liability and the impact of certain litigation reserves. While these adjustments are an integral part of the overall performance of our 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 Insurance segment's operations.
7
Our Energy segment uses Adjusted EBITDA-Energy, a non-U.S. GAAP financial measure. Management believes that Adjusted EBITDA-Energy is significant to gaining an understanding of the Compass'/HGI Partnership's results as it is frequently used by the financial community and management to provide 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-Energy excludes certain items that are unusual in nature or not comparable from period to period such as 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.
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:
Harbinger Group Inc. James Hart, SVP Communications Tel: 212.906.8542 Email: jhart@harbingergroupinc.com | ||
Source: Harbinger Group Inc.
(Tables Follow)
8
HARBINGER GROUP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions)
September 30, | |||||||
2014 | 2013 | ||||||
ASSETS | |||||||
Investments: | |||||||
Fixed maturities | $ | 17,211.5 | $ | 15,300.0 | |||
Equity securities | 768.1 | 352.5 | |||||
Derivatives | 296.3 | 221.8 | |||||
Asset-based loans | 811.6 | 560.4 | |||||
Other invested assets | 165.0 | 31.2 | |||||
Total investments | 19,252.5 | 16,465.9 | |||||
Cash and cash equivalents | 1,319.2 | 1,899.7 | |||||
Receivables, net | 585.1 | 611.3 | |||||
Inventories, net | 635.2 | 632.9 | |||||
Accrued investment income | 184.9 | 161.2 | |||||
Reinsurance recoverable | 2,397.6 | 2,363.7 | |||||
Deferred tax assets | 186.7 | 293.4 | |||||
Properties, including oil and natural gas properties, net | 908.6 | 993.3 | |||||
Goodwill | 1,524.8 | 1,476.7 | |||||
Intangibles, including deferred acquisition costs and value of business acquired, net | 2,683.7 | 2,729.1 | |||||
Other assets | 421.9 | 281.6 | |||||
Total assets | $ | 30,100.2 | $ | 27,908.8 | |||
LIABILITIES AND EQUITY | |||||||
Insurance reserves: | |||||||
Contractholder funds | $ | 16,463.5 | $ | 15,248.2 | |||
Future policy benefits | 3,655.5 | 3,556.8 | |||||
Liability for policy and contract claims | 58.1 | 51.5 | |||||
Funds withheld from reinsurers | 38.0 | 39.4 | |||||
Total insurance reserves | 20,215.1 | 18,895.9 | |||||
Debt | 5,157.8 | 4,896.1 | |||||
Accounts payable and other current liabilities | 1,033.0 | 1,012.7 | |||||
Equity conversion feature of preferred stock | — | 330.8 | |||||
Employee benefit obligations | 86.2 | 99.6 | |||||
Deferred tax liabilities | 533.3 | 492.8 | |||||
Other liabilities | 817.8 | 718.0 | |||||
Total liabilities | 27,843.2 | 26,445.9 | |||||
Commitments and contingencies | |||||||
Temporary equity: | |||||||
Redeemable preferred stock | — | 329.4 | |||||
Harbinger Group Inc. stockholders' equity: | |||||||
Common stock | 2.0 | 1.4 | |||||
Additional paid-in capital | 1,472.3 | 828.0 | |||||
Accumulated deficit | (276.3 | ) | (192.4 | ) | |||
Accumulated other comprehensive income | 243.6 | 87.7 | |||||
Total Harbinger Group Inc. stockholders' equity | 1,441.6 | 724.7 | |||||
Noncontrolling interest: | 815.4 | 408.8 | |||||
Total permanent equity | 2,257.0 | 1,133.5 | |||||
Total liabilities and equity | $ | 30,100.2 | $ | 27,908.8 | |||
9
HARBINGER GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
Three months ended September 30, | Year ended September 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
(Unaudited) | |||||||||||||||
Revenues: | |||||||||||||||
Net consumer and other product sales | $ | 1,193.7 | $ | 1,137.8 | $ | 4,449.2 | $ | 4,085.6 | |||||||
Oil and natural gas | 34.7 | 35.7 | 147.0 | 90.2 | |||||||||||
Insurance premiums | 14.6 | 11.9 | 56.6 | 58.8 | |||||||||||
Net investment income | 223.7 | 197.2 | 842.2 | 734.7 | |||||||||||
Net investment gains | 27.9 | 100.1 | 395.3 | 511.6 | |||||||||||
Insurance and investment product fees and other | 17.8 | 18.1 | 72.7 | 62.5 | |||||||||||
Total revenues | 1,512.4 | 1,500.8 | 5,963.0 | 5,543.4 | |||||||||||
Operating costs and expenses: | |||||||||||||||
Cost of consumer products and other goods sold | 779.2 | 741.3 | 2,875.6 | 2,695.3 | |||||||||||
Oil and natural gas direct operating costs | 18.7 | 17.1 | 69.6 | 44.0 | |||||||||||
Benefits and other changes in policy reserves | 156.4 | 100.1 | 852.7 | 531.8 | |||||||||||
Selling, acquisition, operating and general expenses | 355.5 | 343.1 | 1,335.4 | 1,220.5 | |||||||||||
Impairment of oil and natural gas properties | — | 54.3 | 81.0 | 54.3 | |||||||||||
Amortization of intangibles | 57.7 | 39.5 | 179.2 | 260.1 | |||||||||||
Total operating costs and expenses | 1,367.5 | 1,295.4 | 5,393.5 | 4,806.0 | |||||||||||
Operating income | 144.9 | 205.4 | 569.5 | 737.4 | |||||||||||
Interest expense | (82.8 | ) | (209.2 | ) | (321.9 | ) | (511.9 | ) | |||||||
Loss from the change in the fair value of the equity conversion feature of preferred stock | — | (183.5 | ) | (12.7 | ) | (101.6 | ) | ||||||||
Gain on contingent purchase price reduction | — | — | 0.5 | — | |||||||||||
Other (expense) income, net | (11.7 | ) | 2.1 | (22.2 | ) | (5.6 | ) | ||||||||
Income (loss) from continuing operations before income taxes | 50.4 | (185.2 | ) | 213.2 | 118.3 | ||||||||||
Income tax expense | 32.8 | 20.1 | 111.5 | 187.3 | |||||||||||
Net income (loss) | 17.6 | (205.3 | ) | 101.7 | (69.0 | ) | |||||||||
Less: Net income (loss) attributable to noncontrolling interest | 23.9 | (15.1 | ) | 112.0 | (23.2 | ) | |||||||||
Net loss attributable to controlling interest | (6.3 | ) | (190.2 | ) | (10.3 | ) | (45.8 | ) | |||||||
Less: Preferred stock dividends, accretion and loss on conversion | — | 12.1 | 73.6 | 48.4 | |||||||||||
Net loss attributable to common and participating preferred stockholders | $ | (6.3 | ) | $ | (202.3 | ) | $ | (83.9 | ) | $ | (94.2 | ) | |||
Net loss per common share attributable to controlling interest: | |||||||||||||||
Basic | $ | (0.03 | ) | $ | (1.45 | ) | $ | (0.51 | ) | $ | (0.67 | ) | |||
Diluted | $ | (0.03 | ) | $ | (1.45 | ) | $ | (0.51 | ) | $ | (0.67 | ) | |||
10
HARBINGER GROUP INC. AND SUBSIDIARIES
RESULTS OF OPERATIONS BY SEGMENT
(In millions)
Three months ended September 30, | Year ended September 30, | ||||||||||||||
2014 | 2013 | 2014 | 2013 | ||||||||||||
Revenues: | |||||||||||||||
Consumer Products | $ | 1,178.3 | $ | 1,137.8 | $ | 4,429.1 | $ | 4,085.6 | |||||||
Insurance | 283.0 | 322.8 | 1,349.7 | 1,348.4 | |||||||||||
Energy | 34.7 | 35.7 | 147.0 | 90.2 | |||||||||||
Asset Management | 8.6 | 8.1 | 34.2 | 28.9 | |||||||||||
Intersegment elimination | (7.6 | ) | (3.6 | ) | (17.1 | ) | (9.7 | ) | |||||||
Consolidated segment revenues | 1,497.0 | 1,500.8 | 5,942.9 | 5,543.4 | |||||||||||
Corporate and Other | 15.4 | — | 20.1 | — | |||||||||||
Total revenues | $ | 1,512.4 | $ | 1,500.8 | $ | 5,963.0 | $ | 5,543.4 | |||||||
Operating income (loss): | |||||||||||||||
Consumer Products | $ | 115.6 | $ | 115.1 | $ | 481.9 | $ | 351.2 | |||||||
Insurance | 64.6 | 168.0 | 284.8 | 522.9 | |||||||||||
Energy | 3.5 | (50.5 | ) | (53.7 | ) | (45.2 | ) | ||||||||
Asset Management | (2.5 | ) | 0.2 | 0.7 | 10.4 | ||||||||||
Intersegment elimination | (8.0 | ) | (4.8 | ) | (17.7 | ) | (10.9 | ) | |||||||
Total segments | 173.2 | 228.0 | 696.0 | 828.4 | |||||||||||
Corporate and eliminations | (28.3 | ) | (22.6 | ) | (126.5 | ) | (91.0 | ) | |||||||
Consolidated operating income | 144.9 | 205.4 | 569.5 | 737.4 | |||||||||||
Interest expense | (82.8 | ) | (209.2 | ) | (321.9 | ) | (511.9 | ) | |||||||
Loss from the change in the fair value of the equity conversion feature of preferred stock | — | (183.5 | ) | (12.7 | ) | (101.6 | ) | ||||||||
Gain on contingent purchase price reduction | — | — | 0.5 | — | |||||||||||
Other (expense) income, net | (11.7 | ) | 2.1 | (22.2 | ) | (5.6 | ) | ||||||||
Consolidated income (loss) from continuing operations before income taxes | $ | 50.4 | $ | (185.2 | ) | $ | 213.2 | $ | 118.3 | ||||||
11
HARBINGER 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 (loss) of the Consumer Products segment to calculate its Adjusted EBITDA (unaudited):
Fiscal Quarter | Fiscal | |||||||||||||||
Reconciliation to reported net income (loss): | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Reported net income (loss) - Consumer Products segment | $ | 48.1 | $ | (36.8 | ) | $ | 214.5 | $ | (55.3 | ) | ||||||
Add back: | ||||||||||||||||
Interest expense | 50.4 | 183.8 | 202.1 | 375.6 | ||||||||||||
Income tax expense | 15.2 | (27.5 | ) | 59.0 | 27.4 | |||||||||||
HHI Business inventory fair value adjustment | — | — | — | 31.0 | ||||||||||||
Pre-acquisition earnings of HHI Business | — | — | — | 30.3 | ||||||||||||
Restructuring and related charges | 6.9 | 6.3 | 22.9 | 34.0 | ||||||||||||
Acquisition and integration related charges | 5.6 | 7.9 | 20.1 | 48.4 | ||||||||||||
Venezuela devaluation | — | — | — | 2.0 | ||||||||||||
Other | 1.3 | — | 1.3 | — | ||||||||||||
Adjusted EBIT - Consumer Products segment | 127.5 | 133.7 | 519.9 | 493.4 | ||||||||||||
Depreciation and amortization, net of accelerated depreciation | ||||||||||||||||
Depreciation of properties | 19.6 | 19.4 | 76.0 | 62.0 | ||||||||||||
Amortization of intangibles | 20.5 | 20.3 | 81.7 | 77.8 | ||||||||||||
Stock-based compensation | 19.3 | 11.3 | 46.8 | 43.9 | ||||||||||||
Adjusted EBITDA - Consumer Products segment | $ | 186.9 | $ | 184.7 | $ | 724.4 | $ | 677.1 | ||||||||
The table below shows the adjustments made to the reported net income (loss) of the Energy segment to calculate its Adjusted EBITDA (unaudited):
Fiscal Quarter | Fiscal | |||||||||||||||
Reconciliation to reported net loss: | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Reported net income (loss) - Energy segment | $ | 5.4 | $ | (56.7 | ) | $ | (76.9 | ) | $ | (56.8 | ) | |||||
Interest expense | 4.0 | 4.1 | 16.7 | 10.3 | ||||||||||||
Depreciation, amortization and depletion | 9.4 | 12.5 | 39.9 | 31.0 | ||||||||||||
EBITDA - Energy segment | 18.8 | (40.1 | ) | (20.3 | ) | (15.5 | ) | |||||||||
Accretion of discount on asset retirement obligations | 0.5 | 0.5 | 2.0 | 1.2 | ||||||||||||
Impairment of oil and natural gas properties | — | 54.3 | 81.0 | 54.3 | ||||||||||||
Non-recurring other operating items | 0.1 | 0.1 | 0.2 | 0.1 | ||||||||||||
Loss on derivative financial instruments | (5.8 | ) | 2.1 | 6.6 | 1.3 | |||||||||||
Cash settlements on derivative financial instruments | — | (0.5 | ) | (6.2 | ) | (1.8 | ) | |||||||||
Adjusted EBITDA - Energy segment | $ | 13.6 | $ | 16.4 | $ | 63.3 | $ | 39.6 | ||||||||
The table below shows the adjustments made to the reported net income of the Insurance segment to calculate its adjusted operating income (unaudited):
Fiscal Quarter | Fiscal | |||||||||||||||
Reconciliation to reported net income : | 2014 | 2013 | 2014 | 2013 | ||||||||||||
Reported net income - Insurance segment: | $ | 35.8 | $ | 113.1 | $ | 202.3 | $ | 350.2 | ||||||||
Effect of investment gains, net of offsets | (5.2 | ) | (27.2 | ) | (54.5 | ) | (161.2 | ) | ||||||||
Effect of change in FIA embedded derivative discount rate, net of offsets | 0.7 | 3.4 | 5.7 | (34.8 | ) | |||||||||||
Effect of class action litigation reserves, net of offsets | — | — | 1.0 | — | ||||||||||||
Adjusted operating income - Insurance segment | $ | 31.3 | $ | 89.3 | $ | 154.5 | $ | 154.2 | ||||||||
12
4th Quarter Conference Call November 21st, 2014
Agenda Quarterly Overview Philip Falcone, Chairman and Chief Executive Officer Operating Highlights Omar Asali, President and Director Financial Highlights Tom Williams, Executive Vice President and CFO (NYSE: HRG) 2
Safe Harbor Disclaimer 3 Limitations on the Use of Information. This company overview has been prepared by Harbinger Group Inc. (the “Company” or “HGI”) solely for informational purposes, and not for the purpose of updating any information or forecast with respect to the Company or any of its affiliates or any other purpose. This information is subject to change without notice and should not be relied upon for any purpose. Neither the Company nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein and no such party shall have any liability for such information. In furnishing this information and making any oral statements, neither the Company nor any of its affiliates undertakes any obligation to provide the recipient with access to any additional information or to update or correct such information. The information herein or in any oral statements (if any) are prepared as of the date hereof or as of such earlier dates as presented herein; neither the delivery of this document nor any other oral statements regarding the affairs of Company or its affiliates shall create any implication that the information contained herein or the affairs of the Company or its affiliates have not changed since the date hereof or after the dates presented herein (as applicable); that such information is correct as of any time subsequent to its date; or that such information is an indication regarding the performance of the Company or any of its affiliates since the time of the Company’s or such affiliates latest public filings or disclosure. These materials and any related oral statements are not all- inclusive and shall not be construed as legal, tax, investment or any other advice. You should consult your own counsel, accountant or business advisors. Special Note Regarding Forward-Looking Statements. This document contains, and oral statements made by our representatives from time to time may contain, forward-looking statements. Such 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 HGI’s management and the management of HGI’s subsidiaries (including target businesses). Generally, forward-looking statements include information concerning possible or assumed future distributions from subsidiaries, future 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. Factors that could cause actual results, events and developments to differ include, without limitation: the ability of HGI’s subsidiaries (including, target businesses following their acquisition) to generate sufficient net income and cash flows to make upstream cash distributions, capital market conditions, HGI’s and its subsidiaries’ ability to identify any suitable future acquisition opportunities, efficiencies/cost avoidance, cost savings, income and margins, growth, economies of scale, combined operations, future economic performance, conditions to, and the timetable for, completing the integration of financial reporting of acquired or target businesses with HGI or HGI subsidiaries, completing future acquisitions and dispositions, litigation, potential and contingent liabilities, management’s plans, changes in regulations, taxes and those factors included under the caption “Risk Factors” in HGI’s 2014 Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q. 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 the Company nor any its affiliates undertakes any duty or responsibility to update any of these forward looking statements to reflect events or circumstances after such dates or to reflect actual outcomes. 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. Spectrum Brands uses the non-U.S. GAAP financial measures of pro forma net sales, free cash flow and adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”). Management believes pro forma net sales provides investors useful information regarding the underlying performance of the post-acquisition business operations when compared to the pre- acquisition results of Spectrum Brands and any significant acquired company. Management believes that adjusted EBITDA is significant to gaining an understanding of Spectrum Brands’ results as it is frequently used by the financial community to provide 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 and is one of the measures used for determining Spectrum Brands’ debt covenant compliance. Adjusted EBITDA excludes certain items that are unusual in nature or not comparable from period to period. Management believes that free cash flow is useful to both management and investors in their analysis of the Company’s ability to service and repay its debt and meet its working capital requirements. Free cash flow should not be considered in isolation or as a substitute for pretax income (loss), net income (loss), cash provided by (used in) operating activities or other statement of operations or cash flow statement data prepared in accordance with GAAP or as a measure of profitability or liquidity. In addition, the calculation of free cash flow does not reflect cash used to service debt and therefore, does not reflect funds available for investment or discretionary uses. Insurance AOI is a non-US GAAP financial measure frequently used throughout the insurance industry and an economic measure the Insurance Segment uses to evaluate financial performance for each period. Insurance AOI eliminates (i) the impact of net investment gains, excluding gains and losses on derivatives and including net of other-than-temporary impairment losses recognized in operations, (ii) the net effect of changes in the rates used to discount the FIA embedded derivative liability and (iii) the impact of certain litigation reserves. Insurance AOI should not be used as a substitute for reported net income. However, management believes the adjustments made to net income in order to derive AOI are significant to gaining an understanding of the Insurance Segment’s overall results of operations. Adjusted EBITDA-Energy is a non-US GAAP measure that is widely used by investors, analysts and rating agencies for valuations, peer comparisons and investment recommendations. In addition, these measures are used in covenant calculations required under the Compass Production credit agreement. EBITDA energy represents net income adjusted to exclude interest expense, income taxes and depreciation, depletion and amortization. Adjusted EBITDA-Energy represents EBITDA energy adjusted to exclude non-recurring other 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. Management provides the aforementioned information to investors to assist in comparisons of past, present and future operating results and to assist in highlighting the results of on-going operations. 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. By accepting this document, each recipient agrees to and acknowledges the foregoing terms and conditions.
Quarterly Overview Philip Falcone
4th Quarter and Fiscal Year 2014 Summary Another strong quarter and fiscal year for Harbinger Group Inc. Record 4th quarter and full year consolidated revenues —Growth in all segments of the business in 2014 as compared to Fiscal 2013 Completed a number of actions in support of our long-term growth strategy We remain well-positioned to continue delivering growth in free cash flow and book value for the foreseeable future Strong 4th quarter financial performance accompanied by various actions to strengthen the capital structure at Harbinger Group Inc. 5
Snapshot of Our Long-Term Progress We have accomplished a great deal since our recapitalization, creating substantial value for shareholders over the past 4 years 6 $2.6 billion $6.0 billion $120 million $2.7 billion(2) $140 million $30.1 billion $0 $118 million(3) $0 $200+ million $1.3 billion(4)(5) $4.6 billion(6) 10.625% 7.8% 2010 20141 Market Capitalization Consolidated Assets LTM Dividends Dividend Capacity HGI Asset Value Blended Cost of Debt (HGI) Businesses 1. As of September 30, 2014, unless otherwise indicated 2. Market capitalization based on common stock price per share of $13.12 on September 30, 2014. 3. Calculated on an LTM basis, as of September 30, 2014; does not give effect to the net impact from interest payments made by HGI on behalf of HGI Energy with respect to certain intercompany notes issued by HGI Energy. 4. As of October 29, 2010, pro forma for the Spectrum Brands share exchange completed January 7, 2011. 5. Consists of ~$787mn market value of HGI’s interest in Spectrum Brands as of January 7, 2011 and ~$468mn of cash pro forma for the deal. 6. Reflects market value of Spectrum Brands and FGL based on 20-day VWAP for the period ending September 30, 2014, cash, cash equivalents and investments held at HGI Funding as of September 30, 2014, and the book value of Front Street Re, HGI Energy Holding, LLC, and HGI Asset Management Holdings LLC as of September 30, 2014 Annual Revenues
Stock Buyback Program We believe HGI’s shares provide an attractive return opportunity — Currently trade at a discount to the sum-of-the-parts valuation We seek to deploy our cash to the highest and best available returns The buyback program is providing incremental value to shareholders beyond the strong appreciation in the price of HRG shares in Fiscal 2014 We have sufficient flexibility under the program to opportunistically support the stock In May, we initiated a $100 million Common Stock buyback program, subject to the discretion of management 7
M&A Multiples continue to be high, mitigating value creation opportunities We will maintain our discipline in this environment and not transact at an uneconomic price Have seen select opportunities to transact; optimistic for more in Fiscal 2015 Recently increased our ownership interest in Compass to 100% Consumer Products tuck-ins, tack-ons HGI is an acquisitive company, pursuing businesses that are either fairly valued or where opportunities for value creation exist 8
Our Corporate Structure 9 Majority-owned senior secured asset based lender Consumer Products Asset Management Energy Other & Minority Investments Own 24.7%3 Majority-owned global energy & infrastructure lender Insurance All Other Harbinger Group Inc. (HGI) is a NYSE-listed diversified holding company seeking to acquire and grow attractive businesses that generate sustainable free cash flow. NYSE-listed consumer products company (ticker: “SPB”) ~59% ownership3 NYSE-listed primary life insurance and fixed annuity company (ticker: “FGL”) ~80% ownership3 1. Market capitalization based on common stock price per share of $13.10 on November 19th, 2014. 2. Enterprise value calculated as market capitalization as of September 30, 2014 plus face value of debt and carrying value of minority interest, net of corporate cash as of September 30, 2014. 3. As of September 30, 2014. 4. As of September 30, 2014, corporate cash, cash equivalents and investments held at HGI. 5. As of October 31, 2014, following the close of the acquisition of EXCO Resources’ ~25.5% interest in Compass. Bermuda- based life and annuity reinsurance company Wholly- owned Conventional oil & gas “private MLP” 100% ownership5 Controlling- interest in commercial real estate investor Wholly-owned high yield asset manager Retailer of women’s apparel 62% ownership Newly added or expanded asset during Fiscal 2014 (or shortly thereafter) Consolidated Assets3: ~$30.1BN Cash and Investments4: $516.6MM Market Cap1: ~$2.7BN Enterprise Value2: ~$4.4BN
Operational Highlights Omar Asali
4th Quarter and FY 2014 Highlights Record consolidated revenues this fiscal year, with increases from all lines of the business over Fiscal 2013 Consumer Products: 16th consecutive quarter of year-over-year growth in Adjusted EBITDA; record fiscal year revenue and Adjusted EBITDA Insurance: 4th quarter annuity sales at FGL more than doubled to $501.6 million Energy: laid the foundation for a successful transition away from JV structure Asset Management: 18% revenue growth in fiscal year; investments in new capabilities add to lending platform, diversify our business mix Record topline performance this year, with very strong operating performance and solid progress on strategic initiatives across all lines of the business 11
Consumer Products Business fundamentals remain strong Consistent performance across key metrics Capital structure actions taken in Fiscal 2014 will support long-term value creation Successful track record of achieving M&A synergy targets —Newly closed transaction for Tell Manufacturing, adding commercial locksets to existing consumer business —Announced acquisition of P&G’s European pet food business, including well-known IAMS and Eukanuba brands Spectrum’s share price increased 37.5% in Fiscal 2014, more than double the performance of the S&P 500 in the twelve months prior to September 2014 12
Consumer Products Record fiscal year results, with across-the-board increases in: —Revenue —Adjusted EBITDA —Free Cash Flow —EPS 16th consecutive quarter of year-over-year growth in Adjusted EBITDA Continuous cost improvement initiatives will continue to enhance competitiveness, fuel future value Expect another record fiscal year for revenue, Adjusted EBITDA, free cash flow and EPS in 2015 as well 4th Quarter and Fiscal 2014 results for Consumer Products Segment were exceptional and the business is poised to continue building book value for the foreseeable future 13
Insurance Products Fixed annuity sales at FGL increased 91% vs. 4Q14 and 20% vs. 3Q14 —Sales of products launched this past year contributed approximately 35% to total fixed indexed annuity sales this quarter GAAP book value (for FGL) up 46% to $1.7 billion Book value excluding AOCI (for FGL) up 28% to $1.3 billion FGL’s investment portfolio continues to perform very well: —Average yield on assets purchased: 4.92% —Average yield on portfolio: 4.78%, up 20 bps from 4Q13 Key fundamentals in the Insurance Segment remain very healthy and well-positioned for future growth 14
Energy Products Increases in revenue and Adjusted EBITDA compared to Fiscal 2013 4th quarter production levels consistent with last quarter Orienting investments toward higher return re-completions is yielding production benefits Increasing appetite for targeted acquisitions on a cash-flow accretive basis —Valuations may become more attractive as commodity pricing remains low —Certain operators may be looking exit non-core properties or lines of business Operating efficiencies continue under strong leadership Simplified governance and improvements made to operations have set the stage for a strong performance in 2015 Our Energy Segment is comprised of long- lived, lower-decline rate and lower geologic-risk conventional oil and gas assets 15
Asset Management Diversified lending platform that is synergistic with our FGL and FSR operations Limited contributions from the businesses in “start-up” mode in Fiscal 2014: —EIC and CorAmerica have closed on their initial investments —Our initial funding of these businesses completes the 3rd and 4th legs of the stool and will enhance long-term value Salus has originated and serviced more than $800 million in loans to date — Increasing opportunities to provide liquidity to middle-market operators in retail, other attractive verticals —Continues expansion with minimum impairments / full preservation of capital Five Island focused on capital preservation and diversification —Remains well-positioned to capitalize on market opportunities and volatility Revenue in the Asset Management segment increased 18% in Fiscal 2014 as compared to Fiscal 2013 16
Opportunities for Additional Growth A key tenet of our strategy is to expand our business through the acquisition of assets that can, over the long-term, contribute positively to free cash flow and build book value 17 Consumer Products Asset Management Energy New Verticals Insurance & Reinsurance Synergistic M&A New platforms (i.e. expanded capabilities in Asset Management) Accretive tack-ons Tuck-ins with manageable integration risks Agriculture (non-US durables) Other cash- flow positive sectors
Financial Highlights Tom Williams
4Q Revenue Highlights Consolidated revenues of $1.51 billion, the highest ever 4th quarter for HGI Strong revenue growth in Consumer Products and Asset Management as compared to Fiscal 2013 Quarter Consolidated revenues increased $11.6 million from 4Q13 19 REVENUES1 (in millions) $1,138 $1,178 4Q13 4Q14 +3.6% 4Q13 4Q14 +3.4% Note: each segment is presented on its own scale and is not intended to offer a comparison to any other segment Consumer Products Insurance (12.3%) $36 $35 4Q13 4Q14 (2.8%) $8 $9 4Q13 4Q14 Energy1 Asset Management +6.2% Record fourth quarter results Strong organic growth in hardware and home improvement, consumer batteries and home and garden products Strong net investment gains in year ago quarter suppressed revenue growth $502 million in annuity sales this quarter, providing pipeline for future growth Natural production declines from 4Q13 and lower oil and natural gas commodity prices Production consistent with expectations Increases in loans originated, serviced by Salus and management fees at Five Island Newest businesses expected to contribute beginning in FY15 Presents a consolidated view of all holdings in each segment except Energy, which reflects Harbinger Group Inc.’s 74.4% proportional interest in Compass Production GP, LLC, an oil and gas joint venture with EXCO Resources, Inc. 2. Presents Insurance Segment revenue excluding $100.1 and $29.0 of net investment gains in 4Q13 and 4Q14, respectively 4Q13 4Q14 As reported Excluding net Investment gains2 $223 $254 14.1% $323 $283
4Q Profitability Highlights Continued growth in Consumer Products profitability, but unfavorable comparisons to 4Q13 in Insurance Asset Management results reflect our effort to invest in building capabilities of our lending platform 20 PROFITABILITY MEASURES1,2 (in millions) $185 $187 4Q13 4Q14 $89 $31 4Q13 4Q14 Consumer Products (Adjusted EBITDA) Insurance (Adjusted Operating Income) $16 $14 4Q13 4Q14 $0 ($3) 4Q13 4Q14 Energy (Adjusted EBITDA)2 Asset Management (Operating Profit) 16th consecutive quarter of year-over- year growth in Adjusted EBITDA Favorable mix shift and ongoing cost initiatives 4Q13 reflects favorable non- recurring net investment gains Underlying trends remain strong & healthy Lower realized commodity prices for oil and natural gas Incurrence of certain costs to prepare for transition from JV structure Note: each segment is presented on its own scale and is not intended to offer a comparison to any other segment 1. Review appendix for reconciliations to appropriate GAAP measures. 2. Presents a consolidated view of all holdings in each segment except Energy, which reflects Harbinger Group Inc.’s 74.4% proportional interest in Compass Production GP, LLC, an oil and gas joint venture with EXCO Resources, Inc. +1.2% (17.1%) (64.9%) Increased overhead to support the expansion of lending platform into new verticals (infra- structure, real estate) Transactions closing at EIC and CorAmerica
PROFITABILITY METRICS 2014 Highlights Record consolidated revenues at HGI in FY14 Increasing profitability in all areas of the business, except Asset Management, where we’ve made recent investments to expand the capabilities of our lending platform 21 CONSOLIDATED REVENUES $0 $1,300 $2,600 $3,900 $5,200 $6,500 2010 2011 2012 2013 2014 $Ms Consumer Products Adjusted EBITDA Energy Adjusted EBITDA $677 $724 2013 2014 +7.0% $40 $63 2013 2014 +59.8% $154 $155 2013 2014 +0.2% $10 $1 2013 2014 $Ms Insurance Adj. Operating Income Asset Management Operating Profit
Capital Structure Update Issued $200.0 million in aggregate principal of 7.75% Senior Notes due 2022 under the existing indenture —As with other recent transactions, this offer was heavily oversubscribed —Since year-end 2012, we have reduced our blended cost of debt from 10.625% to 7.805% —Provides sufficient flexibility to execute future strategic initiatives Corporate cash and investments: $516.6 million — Increase of $100 million from 3rd quarter balance due to proceeds from offering, offset by stock buyback program Acquired 4.2 million shares of HGI in the quarter under existing buyback authorization —Average price of $12.73, or approximately $53.4 million —5.2 million shares acquired at average price of $12.61 —$34.4 million remained available for use after September 30th We continue to strengthen our capital structure and position ourselves optimally for continued growth 22
4Q 2014 Sum of the Parts Valuation (Dilutive) without AOCI As of September 30, 2014, the estimated net value of our assets and liabilities was $15.74 per share of diluted common stock. The closing price of HGI’s shares of common stock on September 30, 2014 was $13.12, which represents a 16.6% discount vs. the estimated diluted net value of HGI. SUM OF THE PARTS VALUATION – ESTIMATED VALUE VS. COMMON STOCK PRICE ($) $11.97 $5.93 $0.50 $1.96 $0.34 $2.08 -$7.04 $15.74 $13.12 Difference of $2.62 or 16.6% Discount Spectrum Brands1 Insurance Segment2 Total Estimated Value8 Common Stock Price9 HGI Funding LLC4 HGI Asset Mgmt Holdings LLC5 Cash6 Debt & Other Liabilities7 HGI Energy Holdings LLC3 23 1. The valuation of HGI’s interest in Spectrum Brands (NYSE: SPB) is based on the volume weighted average closing price (“VWAP”) of SPB shares for the 20 day trading period of $87.21 through September 30, 2014 multiplied by the 27,756,905 SPB shares owned by HGI. 2. The valuation of HGI’s interest in the insurance segment reflects the sum of the per-share-value of its interests in (i) Fidelity & Guaranty Life (NYSE: FGL) based on the VWAP of FGL shares for the 20-day trading period of $21.81 through September 30, 2014 multiplied by the 47,000,000 shares owned by HGI (or $5.07 per share); and (ii) Of the $6.37 per share book value of the Insurance segment, Front Street Re (Holdings) Ltd. represents a net book value of $173.5 million, or $0.86 per share. 3. The valuation of HGI Energy Holdings LLC reflects its net book of value as of September 30, 2014. 4. The valuation of HGI Funding LLC reflects its net book value as of September 30, 2014 (which includes 3,186,281 SPB shares and the market value of other securities owned by HGI Funding). 5. The valuation of HGI Asset Management Holdings LLC, reflects its net book of value as of September 30, 2014. 6. Total cash consists of cash at HGI as of September 30, 2014. 7. Debt and other liabilities includes the face value of all liabilities at HGI as of September 30, 2014. 8. Per share amount for each of the above mentioned assets and liabilities is calculated by dividing the total valuation of such asset or liability by the 202,295,602 shares of HGI common stock (NYSE: HRG) outstanding as of September 30, 2014, which amount does gives effect to dilution for the vesting of all outstanding restricted shares (5,438,752). 9. The closing price for HGI’s shares of common stock September 30, 2014.
Conclusion Sustainable Free Cash Flow Generating Assets Strong Management Team Disciplined Acquisition Approach Commitment to Long-term Value Creation 24
Questions and Answers
4th Quarter Conference Call November 21st, 2014
Appendix
Reconciliation of Adjusted EBITDA of Consumer Products Segment to U.S. GAAP a. For the three months ended September 30, 2014 and September 30, 2013, respectively. RECONCILIATION OF ADJUSTED EBITDA OF CONSUMER PRODUCTS SEGMENT TO U.S. GAAP NET INCOME (UNAUDITED) 28 ($ in Millions) 2014 2013 2014 2013 Reported net income (loss) - Consumer Products segment 48.1$ (36.8)$ 214.5$ (55.3)$ Add back: Interest expense 50.4 183.8 202.1 375.6 Income tax expense 15.2 (27.5) 59.0 27.4 HHI Business inventory fair value adjustment - - - 31.0 Pre-acquisition earnings of HHI Business - - - 30.3 Restructuring and related charges 6.9 6.3 22.9 34.0 Acquisition and integration related charges 5.6 7.9 20.1 48.4 Venezuela d valuation - - - 2.0 Other 1.3 - 1.3 - Adjusted EBIT - Consumer Products segment 127.5 133.7 519.9 493.4 Depreciation and amortization, net of accelerated depreciation Depreciation of properties 19.6 19.4 76.0 62.0 Amortization of intangibles 20.5 20.3 81.7 77.8 Stock-based compensation 19.3 11.3 46.8 43.9 Adjusted EBITDA - Consumer Products segment 186.9$ 184.7$ 724.4$ 677.1$ Fiscal Quarter (a) Fiscal Year
Reconciliation of Adjusted EBITDA of Energy Segment to U.S. GAAP a. For the three months ended September 30, 2014 and September 30, 2013, respectively. RECONCILIATION OF ADJUSTED EBITDA OF ENERGY SEGMENT TO U.S. GAAP NET LOSS (UNAUDITED) 29 ($ in Millions) 2014 2013 2014 2013 Reported net income - Energy segment 5.4$ (56.7)$ (76.9)$ (56.8)$ Interest expense 4.0 4.1 16.7 10.3 Depreciation, amortization and depletion 9.4 12.5 39.9 31.0 EBITDA - Energy segment 18.8 (40.1) (20.3) (15.5) ccretion of discount on asset retirement obligations 0.5 0.5 2.0 1.2 Impairment of oil and natural gas properties - 54.3 81.0 54.3 Non-recurring other operating items 0.1 0.1 0.2 0.1 Loss on derivative financial instruments (5.8) 2.1 6.6 1.3 Cash settlements on derivative financial instruments - (0.5) (6.2) (1.8) Adjusted EBITDA - Energy segment 13.6$ 16.4$ 63.3$ 39.6$ Fiscal Quarter (a) Fiscal Year
Reconciliation of Adjusted Operating Income of Insurance Segment to U.S. GAAP a. For the three months ended June 30, 2014 and June 30, 2013, respectively. RECONCILIATION OF ADJUSTED OPERATING INCOME OF INSURANCE SEGMENT TO U.S. GAAP NET INCOME (UNAUDITED) 30 ($ in Millions) 2014 2013 2014 2013 Reported net income (loss) - Insurance segment 35.8$ 113.1$ 202.3$ 350.2$ Add back: Effect of investment gains, net of offsets (5.2) (27.2) (54.5) (161.2) Effect of change in FIA embedded derivative discount rate, net of offsets 0.7 3.4 5.7 (34.8) Effect of class action litigation reserves, net of offsets - - 1.0 - Adjusted operating income - Insurance segment 31.3$ 89.3$ 154.5$ 154.2$ Fiscal Quarter (a) Fiscal Year