1-4219
|
74-1339132
|
|
(Commission File Number)
|
(IRS Employer Identification No.)
|
|
450 Park Avenue, 30th Floor,
New York, NY
|
10022
|
|
(Address of Principal Executive Offices)
|
(Zip Code)
|
¨
|
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
|
¨
|
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
|
¨
|
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
|
¨
|
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
|
Item 7.01
|
Regulation FD Disclosure.
|
Item 9.01
|
Financial Statements and Exhibits.
|
Exhibit No.
|
|
Description
|
99.1
|
|
Press release dated September 8, 2014
|
99.2
|
|
Unaudited Pro Forma Condensed Combined Financial Statements of Harbinger Group Inc.
|
HARBINGER GROUP INC.
|
||||
Date: September 8, 2014
|
By:
|
/s/ Ehsan Zargar | ||
Name: |
Ehsan Zargar
|
|||
Title: |
Senior Vice President, Deputy General Counsel &
Corporate Secretary
|
|||
Exhibit No.
|
|
Description
|
|
||
|
|
●
|
HGI’s historical audited consolidated financial statements and notes thereto for the year ended September 30, 2013, and HGI's historical unaudited condensed consolidated financial statements and notes thereto for the nine months ended June 30, 2014;
|
|
●
|
Spectrum Brands' historical audited consolidated financial statements and notes thereto for the year ended September 30, 2013, and Spectrum Brands' historical unaudited condensed consolidated financial statements and notes thereto for the nine months ended June 29, 2014; and
|
|
●
|
FGL's historical audited condensed consolidated financial statements and notes thereto for the year ended September 30, 2013 and FGL's historical unaudited condensed consolidated financial statements and notes thereto for the nine months ended June 30, 2014.
|
Historical
|
Pro Forma Adjustments
|
||||||||||||||
Harbinger
Group Inc.
|
September 2014
Notes
|
Notes
|
Pro Forma
Combined
|
||||||||||||
ASSETS
|
|||||||||||||||
Investments:
|
|||||||||||||||
Fixed maturities
|
$ | 16,767.1 | $ | — | $ | 16,767.1 | |||||||||
Equity securities
|
760.7 | — | 760.7 | ||||||||||||
Derivatives
|
324.7 | — | 324.7 | ||||||||||||
Asset-backed loans
|
724.3 | — | 724.3 | ||||||||||||
Other invested assets
|
174.3 | — | 174.3 | ||||||||||||
Total investments
|
18,751.1 | — | 18,751.1 | ||||||||||||
Cash and cash equivalents
|
1,455.9 | 196.6 | 13(a) | 1,652.5 | |||||||||||
Receivables, net
|
664.9 | — | 664.9 | ||||||||||||
Inventories, net
|
746.7 | — | 746.7 | ||||||||||||
Accrued investment income
|
159.9 | — | 159.9 | ||||||||||||
Reinsurance recoverable
|
2,393.7 | — | 2,393.7 | ||||||||||||
Deferred tax assets
|
145.9 | — | 145.9 | ||||||||||||
Properties, including oil and gas natural properties, net
|
924.5 | — | 924.5 | ||||||||||||
Goodwill
|
1,539.1 | — | 1,539.1 | ||||||||||||
Intangibles, including deferred acquisition costs and value of business acquired, net
|
2,664.8 | — | 2,664.8 | ||||||||||||
Other assets
|
438.7 | 3.4 | 13(b) | 442.1 | |||||||||||
Total assets
|
$ | 29,885.2 | $ | 200.0 | $ | 30,085.2 | |||||||||
LIABILITIES AND EQUITY
|
|||||||||||||||
Insurance reserves:
|
|||||||||||||||
Contractholder funds
|
$ | 16,217.9 | $ | — | $ | 16,217.9 | |||||||||
Future policy benefits
|
3,671.0 | — | 3,671.0 | ||||||||||||
Liability for policy and contract claims
|
61.0 | — | 61.0 | ||||||||||||
Fund withheld from reinsurers
|
38.1 | — | 38.1 | ||||||||||||
Total insurance reserves
|
19,988.0 | — | 19,988.0 | ||||||||||||
Debt
|
5,303.4 | 200.0 | 13(d) | 5,503.4 | |||||||||||
Accounts payable and other current liabilities
|
899.9 | — | 899.9 | ||||||||||||
Employee benefit obligations
|
87.4 | — | 87.4 | ||||||||||||
Deferred tax liabilities
|
522.2 | — | 522.2 | ||||||||||||
Other liabilities
|
733.6 | — | 733.6 | ||||||||||||
Total liabilities
|
27,534.5 | 200.0 | 27,734.5 | ||||||||||||
Commitments and contingencies
|
|||||||||||||||
Harbinger Group Inc. stockholders' equity:
|
|||||||||||||||
Common stock
|
2.1 | — | 2.1 | ||||||||||||
Additional paid-in capital
|
1,500.9 | — | 1,500.9 | ||||||||||||
Accumulated deficit
|
(270.0 | ) | — | (270.0 | ) | ||||||||||
Accumulated other comprehensive income
|
301.3 | — | 301.3 | ||||||||||||
Total Harbinger Group Inc. stockholders' equity
|
1,534.3 | 1,534.3 | |||||||||||||
Noncontrolling interest
|
816.4 | 816.4 | |||||||||||||
Total permanent equity
|
2,350.7 | — | 2,350.7 | ||||||||||||
Total liabilities and equity
|
$ | 29,885.2 | $ | 200.0 | $ | 30,085.2 |
Historical | Pro Forma Adjustments | |||||||||||||||||||||||||||||||||||
Year Ended
|
||||||||||||||||||||||||||||||||||||
September 30,
2013
|
||||||||||||||||||||||||||||||||||||
Harbinger Group Inc. | HHI | Notes | Compass | Notes | Subsidiary Adjustments (1) | Notes |
HGI
Adjustments (2)
|
Notes | Pro Forma Combined | |||||||||||||||||||||||||||
Revenues:
|
||||||||||||||||||||||||||||||||||||
Net consumer product sales
|
$ | 4,085.6 | $ | 226.2 | 3 | (h) | $ | — | $ | — | $ | — | $ | 4,311.8 | ||||||||||||||||||||||
Oil and natural gas
|
90.2 | — | 53.7 | 4 | (g) | — | — | 143.9 | ||||||||||||||||||||||||||||
Insurance premiums
|
58.8 | — | — | — | — | 58.8 | ||||||||||||||||||||||||||||||
Net investment income
|
734.7 | — | — | — | — | 734.7 | ||||||||||||||||||||||||||||||
Net investment gains
|
511.6 | — | — | — | — | 511.6 | ||||||||||||||||||||||||||||||
Insurance and investment product fees and other
|
62.5 | — | — | — | — | 62.5 | ||||||||||||||||||||||||||||||
Total revenues
|
5,543.4 | 226.2 | 53.7 | — | — | 5,823.3 | ||||||||||||||||||||||||||||||
Operating costs and expenses:
|
||||||||||||||||||||||||||||||||||||
Consumer products cost of goods sold
|
2,695.3 | 123.0 | 3 | (a,h) | — | — | — | 2,818.3 | ||||||||||||||||||||||||||||
Oil and natural gas direct operating costs
|
44.0 | — | 27.0 | 4 | (g) | — | — | 71.0 | ||||||||||||||||||||||||||||
Benefits and other changes in policy reserves
|
531.8 | — | — | — | — | 531.8 | ||||||||||||||||||||||||||||||
Selling, acquisition, operating and general expenses
|
1,220.5 | 15.3 | 3 | (b,c,d,h) | 14.4 | 4 | (a,b,c,d) | 3.7 | 9 | (b) | — | 1,253.9 | ||||||||||||||||||||||||
Impairment of oil and natural gas properties
|
54.3 | — | — | — | — | 54.3 | ||||||||||||||||||||||||||||||
Amortization of intangibles
|
260.1 | — | — | — | — | 260.1 | ||||||||||||||||||||||||||||||
Total operating costs and expenses
|
4,806.0 | 138.3 | 41.4 | 3.7 | — | 4,989.4 | ||||||||||||||||||||||||||||||
Operating income
|
737.4 | 87.9 | 12.3 | (3.7 | ) | — | 833.9 | |||||||||||||||||||||||||||||
Interest expense
|
(511.9 | ) | (1.2 | ) | 3 | (e) | (3.2 | ) | 4 | (e) | 153.0 | 7 | (b),8(b) | 7.7 |
6
12
|
(b),11(b)
(a),13(c)
|
(355.6 | ) | ||||||||||||||||||
Loss from the change in the fair value of the equity conversion feature of preferred stock
|
(101.6 | ) | — | — | — | 101.6 | 10 | (a) | — | |||||||||||||||||||||||||||
Other (expense) income, net
|
(5.6 | ) | 0.4 | 3 | (h) | — | — | — | (5.2 | ) | ||||||||||||||||||||||||||
Income from continuing operations before income taxes
|
118.3 | 87.1 | 9.1 | 149.3 | 109.3 | 473.1 | ||||||||||||||||||||||||||||||
Income tax expense
|
187.3 | 8.7 | 3 | (f,h) | — | 4 | (f) | — |
7
9
|
(c),8(c)
(c)
|
— |
6
11
13
|
(b),10(b)
(c),12(c)
(e)
|
196.0 | ||||||||||||||||||||||
Net (loss) income
|
(69.0 | ) | 78.4 | 9.1 | 149.3 | 109.3 | 277.1 | |||||||||||||||||||||||||||||
Less: Net (loss) income attributable to noncontrolling interest
|
(23.2 | ) | 32.0 | 3 | (g) | — | 66.4 | 9 | (a) | — | 75.2 | |||||||||||||||||||||||||
Net (loss) income attributable to controlling interest
|
(45.8 | ) | 46.4 | 9.1 | 82.9 | 109.3 | 201.9 | |||||||||||||||||||||||||||||
Less: Preferred stock dividends and accretion
|
48.4 | — | — | — | (48.4 | ) | 10 | (b) | — | |||||||||||||||||||||||||||
Net (loss) income attributable to common and participating preferred stockholders
|
$ | (94.2 | ) | $ | 46.4 | $ | 9.1 | $ | 82.9 | $ | 157.7 | $ | 201.9 | |||||||||||||||||||||||
Net (loss) income per common share attributable to controlling interest:
|
||||||||||||||||||||||||||||||||||||
Basic
|
$ | (0.67 | ) | $ | 1.01 | |||||||||||||||||||||||||||||||
Diluted
|
$ | (0.67 | ) | $ | 1.00 | |||||||||||||||||||||||||||||||
Weighted-average common shares
|
||||||||||||||||||||||||||||||||||||
Basic
|
139.9 | 199.0 | ||||||||||||||||||||||||||||||||||
Diluted
|
139.9 | 202.1 |
Historical | Pro Forma Adjustments | |||||||||||||||||||||
Nine months
ended
|
||||||||||||||||||||||
June 30, 2014 | ||||||||||||||||||||||
Harbinger
Group Inc.
|
FGL IPO | Notes |
HGI
Adjustments (1)
|
Notes |
Pro Forma
Combined
|
|||||||||||||||||
Revenues:
|
||||||||||||||||||||||
Net consumer and other product sales
|
$ | 3,255.5 | $ | — | $ | — | $ | 3,255.5 | ||||||||||||||
Oil and natural gas
|
112.3 | — | — | 112.3 | ||||||||||||||||||
Insurance premiums
|
42.0 | — | — | 42.0 | ||||||||||||||||||
Net investment income
|
618.5 | — | — | 618.5 | ||||||||||||||||||
Net investment gains
|
367.4 | — | — | 367.4 | ||||||||||||||||||
Insurance and investment product fees and other
|
54.9 | — | — | 54.9 | ||||||||||||||||||
Total revenues
|
4,450.6 | — | — | 4,450.6 | ||||||||||||||||||
Operating costs and expenses:
|
||||||||||||||||||||||
Cost of consumer products and other goods sold
|
2,096.4 | — | — | 2,096.4 | ||||||||||||||||||
Oil and natural gas direct operating costs
|
50.9 | — | — | 50.9 | ||||||||||||||||||
Benefits and other changes in policy reserves
|
696.3 | — | — | 696.3 | ||||||||||||||||||
Selling, acquisition, operating and general expenses
|
979.9 | 0.8 | 9 | (b) | — | 980.7 | ||||||||||||||||
Impairment of oil and natural gas properties
|
81.0 | — | — | 81.0 | ||||||||||||||||||
Amortization of intangibles
|
121.5 | — | — | 121.5 | ||||||||||||||||||
Total operating costs and expenses
|
4,026.0 | 0.8 | — | 4,026.8 | ||||||||||||||||||
Operating income
|
424.6 | (0.8 | ) | — | 423.8 | |||||||||||||||||
Interest expense
|
(239.1 | ) | — | (20.4 | ) |
11
13
|
(b),12(a)
(c)
|
(259.5 | ) | |||||||||||||
Loss from the change in the fair value of the equity conversion feature of preferred stock
|
(12.7 | ) | — | 12.7 | 10 | (a) | — | |||||||||||||||
Gain on contingent purchase price reduction
|
0.5 | — | — | 0.5 | ||||||||||||||||||
Other expense, net
|
(10.5 | ) | — | 0.7 | 12 | (b) | (9.8 | ) | ||||||||||||||
Income from continuing operations before income taxes
|
162.8 | (0.8 | ) | (7.0 | ) | 155.0 | ||||||||||||||||
Income tax expense
|
78.7 | — | 9 | (c) | — |
10
12
|
(d),11(c)
(c),13(e)
|
78.7 | ||||||||||||||
Net income
|
84.1 | (0.8 | ) | (7.0 | ) | 76.3 | ||||||||||||||||
Less: Net income attributable to noncontrolling interest
|
88.1 | 4.8 | 9 | (a) | — | 92.9 | ||||||||||||||||
Net loss attributable to controlling interest
|
(4.0 | ) | (5.6 | ) | (7.0 | ) | (16.6 | ) | ||||||||||||||
Less: Preferred stock dividends, accretion and loss on conversion
|
73.6 | — | (73.6 | ) | 10 | (b,c) | — | |||||||||||||||
Net loss attributable to common and participating preferred stockholders
|
$ | (77.6 | ) | $ | (5.6 | ) | $ | 66.6 | (16.6 | ) | ||||||||||||
Net loss per common share attributable to controlling interest:
|
||||||||||||||||||||||
Basic
|
$ | (0.52 | ) | $ | (0.08 | ) | ||||||||||||||||
Diluted
|
$ | (0.52 | ) | $ | (0.08 | ) | ||||||||||||||||
Weighted-average common shares
|
||||||||||||||||||||||
Basic
|
150.7 | 201.7 | ||||||||||||||||||||
Diluted
|
150.7 | 201.7 |
(a)
|
HGI estimated that cost of sales increased during the first inventory turn subsequent to the acquisition date due to the sale of inventory that was adjusted to fair value in purchase accounting. For the year ended September 30, 2013, an increase of $31.0 to cost of sales that resulted from the sale of inventory adjusted to fair value in purchase accounting was eliminated from the historical results in the unaudited pro forma condensed combined statement of operations, as this amount is considered non-recurring.
|
(b)
|
Adjustment reflects increased depreciation expense of $0.4 for the period from October 1, 2012 to April 8, 2013 associated with the adjustment to record the HHI Group's property, plant and equipment at fair value.
|
(c)
|
Adjustment reflects increased amortization expense of $3.1 for the period from October 1, 2012 to April 8, 2013 associated with the adjustment to record the HHI Group's intangible assets at fair value.
|
(d)
|
HGI has incurred $36.9 for the year ended September 30, 2013 of transaction costs, primarily professional fees, in its historical financial results for the periods presented. These costs have been excluded from the unaudited pro forma condensed combined statements of operations, as these amounts are considered non-recurring.
|
(e)
|
The related financing from the HHI Group Acquisition resulted in substantial changes to HGI’s debt structure. The interest expense adjustments resulted in a net increase of approximately $1.2 for the year ended September 30, 2013. The pro forma adjustment to interest expense represents the expense for the period from October 1, 2012 to December 16, 2012, with the remaining related interest expense for the year ended September 30, 2013 reflected in our historical consolidated results of operations. The pro forma adjustment consists of the following:
|
Interest Rate
|
Year Ended
September 30, 2013
|
||||
Term Loan Facility - USD ($700.0)
|
4.750%
|
$
|
6.9
|
||
Term Loan Facility - CAD ($100.0)
|
5.000%
|
1.0
|
|||
Senior Secured Notes, due 2020 ($520.0)
|
6.375%
|
6.9
|
|||
Senior Secured Notes, due 2022 ($570.0)
|
6.625%
|
7.9
|
|||
Amortization of debt issuance costs
|
1.1
|
||||
Amortization of original issue discount
|
0.2
|
||||
Total pro forma interest expense
|
24.0
|
||||
Less: elimination of interest expense related to prior term loan facility
|
4.1
|
||||
Less: elimination of interest expense related to the financing (1)
|
18.7
|
||||
Pro forma adjustment to interest expense
|
$
|
1.2
|
(1)
|
The costs associated with the financing of the HHI Group Acquisition (which included the write-off of historical deferred financing costs, bridge financing fees and other financing costs) have been eliminated from the unaudited pro forma condensed combined statement of operations for the year ended September 30, 2013, as these amounts are considered non-recurring.
|
(f)
|
As a result of Spectrum Brands’ and the HHI Group’s existing income tax loss carry forwards in the U.S., for which full valuation allowances have been provided, no income tax has been provided related to the acquisition-related adjustments that impacted pretax income for the year ended September 30, 2013.
|
(g)
|
Adjustment reflects non-controlling interest in Spectrum Brands’ pro forma income from continuing operations resulting from the assumed HHI Group Acquisition and related debt transactions using a non-controlling interest factor of 40.8%.
|
(h)
|
The pro forma adjustments below relate to the results of the HHI Group's operations from October 1, 2012 to December 16, 2012 related to the First Closing and the results of the operations of the Second Closing from October 1, 2012 to April 8, 2013, both of which are not included within the historical results. The results of operations for the period from April 9, 2013 to September 30, 2013 are included in HGI's historical results.
|
First Closing
|
Second Closing
|
Total
|
||||||||||
Period from October 1, 2012 to December 16, 2012
|
Period from October 1, 2012 to April 8, 2013
|
Adjustments Related to the First Closing and Second Closing
|
||||||||||
Net sales
|
$
|
191.8
|
$
|
34.4
|
$
|
226.2
|
||||||
Cost of goods sold
|
123.3
|
30.7
|
154.0
|
|||||||||
Selling, general and administrative expenses
|
44.1
|
4.6
|
48.7
|
|||||||||
Other income
|
—
|
0.4
|
0.4
|
|||||||||
Tax expense (1)
|
8.9
|
(0.2
|
)
|
8.7
|
(1)
|
The tax adjustment for the period from October 1, 2012 to December 16, 2012 was computed using a combined federal and state effective tax rate of 36.5% based on the domestic effective tax rate reflected in HHI Group's results for the period ended September 29, 2012.
|
(a)
|
HGI has incurred $9.2 of transaction costs for the year ended September 30, 2013. These costs have been excluded from the unaudited pro forma condensed combined statement of operations as these costs are considered non-recurring.
|
(b)
|
Pro forma adjustment to provide depreciation, depletion and amortization of $19.8 for the period from October 1, 2012 to February 13, 2013, based on pro forma fair values attributable to the amortizable full cost pool and historical oil and natural gas production for such period.
|
(c)
|
Pro forma adjustment to reflect accretion of the discount of $0.6 attributable to asset retirement obligations for the period from October 1, 2012 to February 13, 2013, with respect to the asset retirement obligations attributable to Compass.
|
(d)
|
Pro forma adjustment of $3.2 to reflect general and administrative costs for the period from October 1, 2012 to February 13, 2013, for estimated contractual reimbursements to EXCO pursuant to an Administrative Services Agreement, or ASA, and other direct general and administrative expenses to Compass stipulated in the ASA.
|
(e)
|
Pro forma adjustment to reflect interest expense of $3.2 for the period from October 1, 2012 to February 13, 2013 as if the revolving credit facility and the initial borrowing under the facility had taken place on October 1, 2012 and was outstanding for the entire period, based on an interest rate of 2.7%. This amount includes amortization of deferred financing costs incurred in connection with the revolving credit facility of $0.4. An increase or decrease of 1/8% in the assumed interest rate of the credit facility for the period from October 1, 2012 to February 13, 2013 would impact pro forma interest expense by $0.3 for the year ended September 30, 2013.
|
(f)
|
Compass is not directly subject to federal income taxes. Instead, its taxable income or loss is allocated to its individual partners, and will not have an impact on HGI’s current and deferred tax position due to HGI’s existing income tax loss carry forwards in the U.S., for which full valuation allowances have been provided.
|
(g)
|
Pro forma adjustment to reflect the historical revenues and direct operating expenses for Compass for the period from October 1, 2012 to February 13, 2013.
|
(a)
|
In December 2012, HGI issued the 7.875% Notes and used part of the proceeds of the offering to accept for purchase $500.0 aggregate principal amount of its 10.625% Notes pursuant to a tender offer and subsequent redemption for the 10.625% Notes. Under the terms of the 10.625% Notes, HGI redeemed these Notes at 100% of the principal amount plus a breakage fee, plus accrued and unpaid interest. In connection with the 7.875% Notes in December 2012, HGI recorded $58.9 of charges to "Interest Expense” in the audited consolidated statements of operations for the year ended September 30, 2013, consisting of $45.7 of cash charges for fees and expenses related to the issuance of the 7.875% Notes, $0.2 of cash charges related to the remaining $2.0 aggregate principal amount of the Company's 10.625% Notes, and $13.0 of non-cash charges for the write down of debt issuance costs and net unamortized discount. These costs have been excluded from the unaudited pro forma condensed combined financial statements as these amounts are considered non-recurring.
|
|
In connection with the 7.875% offering, the Company recorded $20.0 of deferred financing fees during the year ended September 30, 2013.
|
|
In addition to the above, in July 2013, HGI issued an incremental $225.0 aggregate principal amount of the 7.875% Notes due 2019. The Tack-On Notes were issued at a premium of 101.5%. In connection with the Tack-On Notes offering, the Company recorded $5.1 of deferred financing fees during the year ended September 30, 2013.
|
|
The expected increase in the interest expense related to the issuance of the 7.875% Notes and the Tack-On Notes for the year ended September 30, 2013 was calculated as follows:
|
Year Ended
|
||||
September 30, 2013
|
||||
Estimated expense on 7.875% Notes
|
$
|
55.1
|
||
Amortization of original issue discount on 7.875% Notes
|
0.5
|
|||
Amortization of debt issuance costs on 7.875% Notes
|
2.4
|
|||
Estimated expense on Tack-On Notes
|
17.7
|
|||
Amortization of original issue premium on Tack-On Notes
|
(0.5
|
)
|
||
Amortization of debt issuance costs on Tack-On Notes
|
0.7
|
|||
Total pro forma annual interest expense
|
75.9
|
|||
Less: Elimination of historical interest expense
|
61.2
|
|||
Pro forma adjustment to interest expense
|
$
|
14.7
|
(b)
|
The increase in pro forma interest expense for the 7.875% Notes and New Notes will not have an impact on HGI’s current and deferred tax position due to HGI’s existing income tax loss carry forwards in the U.S., for which full valuation allowances have been provided.
|
(a)
|
The deferred financing fees associated with the Insurance Notes were $10.2. The pro forma adjustment related to the annual amortization of the deferred financing fees for the year ended September 30, 2013 was $3.0.
|
(b)
|
The expected increase in the interest expense related to the issuance of the Insurance Notes for the year ended September 30, 2013 was calculated as follows:
|
Year Ended
|
||||
September 30, 2013
|
||||
Estimated expense on Insurance Notes
|
$ | 19.1 | ||
Amortization of debt issuance costs on Insurance Notes
|
3.0 | |||
Total pro forma annual interest expense
|
22.1 | |||
Less: Elimination of historical interest expense
|
11.5 | |||
Pro forma adjustment to interest expense
|
$ | 10.6 |
(c)
|
The increase in pro forma interest expense for the Insurance Notes will not have an impact on HGI’s current and deferred tax position due to HGI’s existing income tax loss carry forwards in the U.S., for which full valuation allowances have been provided.
|
(a)
|
The deferred financing fees associated with the Spectrum Brands New Term Loans were $16.4. The pro forma adjustment related to the amortization of the deferred financing fees for the year ended September 30, 2013 was $3.4.
|
(b)
|
The interest expense adjustments for the period from October 1, 2012 to September 3, 2013 resulted in a net decrease of $163.6 for the fiscal year ended September 30, 2013. The adjustment consists of the following:
|
Year Ended
|
|||||
Interest Rate
|
September 30, 2013
|
||||
Spectrum Brands New Term Loans - Tranche A ($850.0)
|
3.0%
|
$
|
23.4
|
||
Spectrum Brands New Term Loans - Tranche C ($300.0)
|
3.625%
|
10.0
|
|||
Amortization of debt issuance costs
|
3.4
|
||||
Amortization of original issue discount
|
1.2
|
||||
Total pro forma interest expense
|
38.0
|
||||
Less: elimination of interest expense related to 9.5% Notes
|
79.4
|
||||
Less: elimination of one-time interest expense items related to the financing
|
122.2
|
||||
Pro forma adjustment to interest expense
|
$
|
(163.6
|
)
|
(c)
|
As a result of HGI and Spectrum Brands' existing income tax loss carryforwards in the U.S., for which valuation allowances have been established, no income tax adjustments have been provided related to the Spectrum Brands New Term Loans.
|
Shares Issued
|
|||||
Shares in millions
|
Percent
|
||||
Shares owned by HGI
|
47.0
|
80.7
|
%
|
||
New investors
|
11.2
|
19.3
|
%
|
||
Total
|
58.2
|
100.0
|
%
|
(a)
|
The adjustments to net income attributable to noncontrolling interest reflects the new investors' portion of FGL's net income for the year ended September 30, 2013 and the three months ended December 31, 2013, are calculated as follows:
|
Year ended
September 30, 2013
|
Three months ended December 31, 2013
|
|||||||
Net income from FGL (1)
|
$ | 347.7 | $ | 42.7 | ||||
Pro-forma adjustments to net income from FGL:
|
||||||||
Additional stock-based compensation
|
(3.7 | ) | (0.8 | ) | ||||
Pro-forma net income from FGL
|
344.0 | 41.9 | ||||||
New investors ownership in FGL
|
19.3 | % | 19.3 | % | ||||
Net income attributable to noncontrolling interest
|
66.4 | 8.1 | ||||||
Less: income attributable to noncontrolling interest for period subsequent to the FGL IPO
|
— | 3.3 | ||||||
Adjustment to net income attributable to noncontrolling interest
|
$ | 66.4 | $ | 4.8 |
(1)
|
The historical financial results for HGI is inclusive of net income from FGL for the year ended September 30, 2013, and the three months ended December 31, 2013.
|
(b)
|
In connection with this offering, 171,294 restricted stock awards, 249,240 non-qualified stock options and 468,975 performance-based restricted stock units were granted to certain members of management. These awards will each vest over a three year period. The restricted stock and restricted stock unit awards were fair valued based on the grant price. The non-qualified stock option value was estimated using the Black-Scholes option pricing model using the following assumptions:
|
|
●
|
Strike price of $17.00.
|
|
●
|
Volatility and expected term assumptions were 25% and 4.5 years, respectively.
|
|
●
|
Dividend rate of 1.5%.
|
|
●
|
Risk-free rate of 1.4%.
|
(c)
|
The proforma adjustments related to the FGL IPO will not have an impact on HGI’s current and deferred tax position due to HGI’s existing income tax loss carry forwards in the U.S., for which full valuation allowances have been provided.
|
(a)
|
Pro forma adjustments to reverse the losses due to the change in the fair value of the equity conversion feature of the preferred stock of $101.6 for the year ended September 30, 2013, and $12.7 for the nine months ended June 30, 2014, had the Company’s outstanding Preferred Stock been redeemed on October 1, 2012.
|
(b)
|
Total expense which was reversed in relation to preferred stock dividends and accretion as a result of Preferred Share Conversion was $48.4 for the year ended September 30, 2013 and $29.7 for the nine months ended June 30, 2014.
|
(c)
|
As of the date of the transaction, the company recorded a loss due to the difference in the carrying value of the preferred stock and the fair value of the common stock of $43.9. These costs have been excluded from the unaudited pro forma condensed combined statement of operations as these costs are considered non-recurring.
|
(d)
|
The reversal of losses, preferred stock dividends and accretion as a result of Preferred Share Conversion will not have an impact on HGI’s current and deferred tax position due to HGI’s existing income tax loss carry forwards in the U.S., for which full valuation allowances have been provided.
|
(a)
|
The pro forma adjustment related to the amortization of the deferred financing fees for the year ended September 30, 2013 and the nine months ended June 30, 2014 was $0.5 and $0.4, respectively.
|
(b)
|
The expected increase in the interest expense related to the issuance of the January 2014 Senior Notes for the year ended September 30, 2013, and the nine months ended June 30, 2014, was calculated as follows:
|
Year Ended
|
Nine Months Ended
|
|||||||
September 30, 2013
|
June 30, 2014
|
|||||||
Estimated expense on January 2014 Senior Notes
|
$ | 15.5 | $ | 11.6 | ||||
Less: Historical interest expense on January 2014 Senior Notes
|
— | (7.1 | ) | |||||
Amortization of debt issuance costs on the January 2014 Senior Notes
|
0.5 | 0.4 | ||||||
Total pro forma interest expense
|
$ | 16.0 | $ | 4.9 |
(c)
|
The increase in pro forma interest expense for the unsecured notes will not have an impact on HGI’s current and deferred tax position due to HGI’s existing income tax loss carry forwards in the U.S., for which full valuation allowances have been provided.
|
(a)
|
The expected increase in the interest expense related to the exchange of the Additional Senior Notes for the 7.875% Notes for the year ended September 30, 2013, and the nine months ended June 30, 2014 was calculated as follows:
|
Year Ended
|
Nine Months Ended
|
|||||||
September 30, 2013
|
June 30, 2014
|
|||||||
Estimated expense on the Additional Senior Notes
|
$ | 27.1 | $ | 20.3 | ||||
Less: Estimated expense on the 7.875% Notes exchanged
|
(25.2 | ) | (18.9 | ) | ||||
Amortization of debt issuance costs
|
2.9 | 2.4 | ||||||
Less: Amortization of original issue debt issuance costs on the 7.875% Notes exchanged
|
(3.1 | ) | (2.5 | ) | ||||
Amortization of original issue discount on the Additional Senior Notes
|
2.9 | 2.3 | ||||||
Total Pro forma interest expense
|
$ | 4.6 | $ | 3.6 |
(b)
|
In connection with the Additional Senior Notes, the company incurred $0.7 of debt issuance costs, which have been excluded from the unaudited pro forma condensed combined financial statements as these amounts are considered non-recurring.
|
(c)
|
The increase in pro forma interest expense for the Debt Exchange will not have an impact on HGI’s current and deferred tax position due to HGI’s existing income tax loss carry forwards in the U.S., for which full valuation allowances have been provided.
|
(a)
|
The $196.6 net adjustment to cash related to the September 2014 Notes is reflective of the following adjustments:
|
September 2014 Notes
|
||||
Issuance of September 2014 Notes
|
$ | 200.0 | ||
Deferred financing fees
|
(3.4 | ) | ||
Pro forma adjustment
|
$ | 196.6 |
(b)
|
The deferred financing fees associated with the September 2014 Notes are expected to be $3.0. The pro forma adjustment related to the annual amortization of the deferred financing fees for the year ended September 30, 2013 and the nine months ended June 30, 2014 was $0.3 and $0.3, respectively.
|
(c)
|
The expected increase in the interest expense related to the issuance of the September 2014 Notes for the year ended September 30, 2013 and the nine months ended June 30, 2014 was calculated as follows:
|
September 2014 Notes
|
||||||||
Year Ended September 30, 2013
|
Nine Months Ended
June 30, 2014
|
|||||||
Estimated expense on the September 2014 Notes
|
$ | 15.5 | $ | 11.6 | ||||
Amortization of debt issuance costs on the September 2014 Notes
|
0.4 | 0.3 | ||||||
Total pro forma interest expense
|
$ | 15.9 | $ | 11.9 |
(d)
|
Represents the pro forma impact on debt for the September 2014 Notes of $200.0.
|
(e)
|
The increase in pro forma interest expense for the September 2014 Notes will not have an impact on HGI’s current and deferred tax position due to HGI’s existing income tax loss carry forwards in the U.S., for which full valuation allowances have been provided.
|
Year ended September 30, 2013
|
Nine months ended
June 30, 2014
|
|||||||
Net income (loss) attributable to common stockholders
|
$ | 201.9 | $ | (16.6 | ) | |||
Net income (loss) attributable to common shares - basic
|
$ | 201.9 | $ | (16.6 | ) | |||
Historical weighted average common shares outstanding - basic
|
139.9 | 150.7 | ||||||
Pro forma effect of Preferred Share Conversion
|
59.1 | 51.0 | ||||||
Pro forma common shares outstanding - basic
|
199.0 | 201.7 | ||||||
Dilutive effect of unvested restricted stock and restricted stock units
|
2.5 | — | ||||||
Dilutive effect of stock options
|
0.6 | — | ||||||
Pro forma common shares outstanding - diluted
|
202.1 | 201.7 | ||||||
Net income per common share attributable to controlling interest:
|
||||||||
Pro forma Basic
|
$ | 1.01 | $ | (0.08 | ) | |||
Pro forma Diluted
|
$ | 1.00 | $ | (0.08 | ) |