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Basis of Preparation and Nature of Operations
12 Months Ended
Sep. 30, 2015
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis of Preparation and Nature of Operations
Basis of Preparation and Nature of Operations
HRG Group, Inc. (“HRG”, formerly Harbinger Group Inc., and collectively with its respective subsidiaries, the “Company”) is a diversified holding company focused on owning businesses that the Company believes can, in the long term, generate sustainable free cash flow or attractive returns on investment. HRG’s shares of common stock trade on the New York Stock Exchange (“NYSE”) under the symbol “HRG.”
As of September 30, 2015, HRG’s principal operations were conducted through subsidiaries that offer life insurance and annuity products (Fidelity & Guaranty Life, “FGL”, formerly Harbinger F&G LLC), reinsurance services (Front Street Re (Delaware) Ltd., “Front Street”), financing and asset management services (Salus Capital Partners, LLC, “Salus”, Energy & Infrastructure Capital, LLC (“EIC”), and CorAmerica Capital, LLC (“CorAmerica”)), and branded consumer products (Spectrum Brands Holdings, Inc., “Spectrum Brands”) and own and operate oil and natural gas properties (Compass Production GP, LLC and Compass Production Partners, LP (collectively, and together with their respective subsidiaries, “Compass”, and formerly referred to as “EXCO/HGI JV”)). HRG also owns 97.9% of Zap.Com Corporation (“Zap.Com”), a public shell company that may seek assets or businesses to acquire or may sell assets and/or liquidate. From time to time, the Company manages a portion of its available cash and engages in other activities through its wholly-owned subsidiary, HGI Funding, LLC (“HGI Funding”).
In December 2013, FGL, a then wholly-owned subsidiary of HRG, announced an initial public offering of 9.8 million shares of common stock at a price to the public of $17.00 per share. The shares began trading on the NYSE on December 13, 2013 under the ticker symbol “FGL”. FGL also granted the underwriters an option to purchase an additional 1.5 million shares of common stock that was subsequently exercised. HRG was not a selling shareholder in the offering. Subsequent to the offering HRG held 47.0 million shares of FGL's outstanding common stock, representing an 80.5% interest as of September 30, 2015.
Also in December 2013, Front Street Re (Cayman) Ltd. (“Front Street Cayman”), a wholly-owned subsidiary of HRG, closed a reinsurance treaty with Bankers Life Insurance Company. Under the terms of the treaty, Bankers Life Insurance Company ceded approximately $153.0 of its annuity business to Front Street Cayman on a funds withheld basis.
Furthermore in December 2013, Spectrum Brands amended a senior secured term loan, issuing two tranches maturing September 4, 2019 which provide for borrowings in aggregate principal amounts of $215.0 and €225.0. The proceeds from the amendment were used to refinance a portion of the term loan which was scheduled to mature December 17, 2019 and had an aggregate amount outstanding of $513.3 prior to refinancing.
In January 2014, Spectrum Brands completed the $35.8 acquisition of The Liquid Fence Company, Inc. (“Liquid Fence”), a producer of animal repellents. See Note 4, Acquisitions.
Also in January 2014, HRG issued $200.0 aggregate principal amount of 7.75% senior unsecured notes due 2022 at par (the “7.75% Notes”). See Note 14, Debt.
In May 2014, HRG exercised its option to convert all but one of its issued and outstanding shares of Series A Participating Convertible Preferred Stock (“Series A Preferred Shares”) and all of its outstanding Series A-2 Participating Convertible Preferred Stock (“Series A-2 Preferred Shares”, together with the Series A Preferred Shares, the “Preferred Stock”) into common stock of the Company, par value $0.01 per share. Upon converting the outstanding Preferred Stock, the Company recognized a loss of $43.9, representing the difference between the fair value of the common stock issued on the conversion date and the aggregate recorded value of the Preferred Stock and the fair value of the equity conversion option as of the conversion date.
Also in May 2014, HRG exchanged $320.6 of its outstanding 7.875% senior secured notes due 2019 (“7.875% Notes”) for $350.0 aggregate principal amount of new 7.75% Notes. See Note 14, Debt.
In addition, in May 2014, HGI Funding completed the $13.5 acquisition of Frederick's of Hollywood Group Inc. (“FOH”), a retailer of women's apparel and related products. See Note 4, Acquisitions.
In August 2014, Fidelity & Guaranty Life Holdings, Inc. (“FGH”), a wholly owned subsidiary of FGL, as borrower, and FGL as guarantor, entered into a three-year $150.0 unsecured revolving credit facility. See Note 14, Debt.
In September 2014, HRG issued additional $200.0 aggregate principal amount of 7.75% Notes at par. See Note 14, Debt.
On October 1, 2014, Spectrum Brands completed a $30.3 cash acquisition of Tell Manufacturing, Inc. (“Tell”), a manufacturer and distributor of commercial doors, locks and hardware. See Note 4, Acquisitions.
On October 31, 2014, HGI Energy Holdings, LLC (“HGI Energy”) acquired approximately 25.5% interests in Compass that it did not previously own from EXCO Resources, Inc. (“EXCO”) for $118.8 in cash. Prior to this acquisition, the HGI Energy’s ownership of Compass represented 74.4%. See Note 4, Acquisitions.
On November 4, 2014, Front Street Cayman purchased Ability Reinsurance (Bermuda) Limited (“Ability Re”) from Ability Reinsurance Holdings Limited (“Ability Re Holdings”) for $19.2 in cash. Upon the purchase, Ability Re was concurrently merged into Front Street Cayman, where Front Street Cayman was the surviving entity. See Note 4, Acquisitions.
On November 25, 2014, the Company’s then Chief Executive Officer (“Former CEO”) and Chairman of the board of directors (the “Board”) and the Company entered into a Separation and Release Agreement, pursuant to which on December 1, 2014, our Former CEO resigned from his positions with the Company. In connection with his departure, the Company paid Mr. Falcone the payments described in Note 25, Related Party Transactions. In addition, the warrants to acquire common stock of HRG that were previously awarded to Mr. Falcone will continue to vest in accordance with their existing vesting schedule.
In December 2014, Spectrum Brands issued $250.0 aggregate principal amount of 6.125% unsecured notes at par value, due December 15, 2024 (the “6.125% Notes”) and entered into a New Term Loan facility in an aggregate principal amount of €150.0 (the “Euro Term Loan Tranche B”). See Note 14, Debt.
On December 31, 2014, Spectrum Brands completed a $115.7 cash acquisition, net of working capital adjustments, of Proctor & Gamble’s European pet food business consisting of the IAMS and Eukanuba brands (“European IAMS and Eukanuba”), leading premium brands for dogs and cats. See Note 4, Acquisitions.
On January 16, 2015, Spectrum Brands completed a $146.8 cash acquisition, net of working capital adjustments, of Salix Animal Health LLC (“Salix”), a producer and distributor of premium, natural rawhide dog chews, treats and snacks. See Note 4, Acquisitions.
On March 6, 2015, the Company appointed Omar Asali, its then President, to the additional position of CEO.
In Fiscal 2015, FGL began a strategic review process for the Company. On November 8, 2015, Anbang Insurance Group Co., Ltd. (“Anbang”) entered into a definitive merger agreement to acquire FGL for $26.80 per share (the “FGL Merger”). See Note 29, Subsequent Events.
On April 14, 2015, the Company issued $100.0 aggregate principal amount of additional 7.875% Notes at 104.5% of par plus accrued interest from January 15, 2015. See Note 14, Debt.
On April 19, 2015, FOHG Holdings, LLC and its subsidiaries (together, “FOHG”) commenced Chapter 11 cases in the United States Bankruptcy Court for the District of Delaware. Prior to the bankruptcy, three of the Company’s consolidated subsidiaries were lenders to FOHG. Upon filing for bankruptcy, the Company deconsolidated FOHG from the Consolidated Financial Statements and such loans are no longer eliminated in consolidation. The Company recorded a $38.5 gain on the deconsolidation, reported in “Other income (expense), net,” on the accompanying Consolidated Statements of Operations and $16.3 of impairments related to the loans with FOHG. On June 3, 2015, following receipt of court approval, FOHG sold (the “ABG Sale”) its brand and inventory to Authentic Brands Group Inc. (“ABG”), a third party licensing company, with the majority of the proceeds used to repay a portion of the loans with the Company.
On May 19, 2015, the Company issued $160.0 aggregate principal amount of additional 7.875% Notes at 104.5% of par plus accrued interest from January 15, 2015 and $140.0 aggregate principal amount of additional 7.75% Notes at 98.51% of par plus accrued interest from January 15, 2015. See Note 14, Debt.
On May 21, 2015, Spectrum Brands completed its approximately $1,400.0 acquisition (the “AAG Acquisition”) of Armored AutoGroup Parent Inc. (“AAG”), a consumer products company consisting primarily of Armor All and STP products, two brands in the automotive aftermarket appearance products and performance chemicals categories, respectively, and the AC/PRO brand of do-it-yourself automotive air conditioner recharge products. Spectrum Brands funded the AAG Acquisition with the proceeds of its offering of an aggregate principal amount of $1,000.0 of 5.75% senior notes due 2025 (the “5.75% Notes”) and Spectrum Brands' registered offering of $575.0 of shares of Spectrum Brands’ common stock (the “Equity Offering”). See Note 14, Debt. In the Equity Offering, HRG acquired 49% of the common stock offered thereby. See Note 4, Acquisitions.
In June 2015, the Company received $61.6 from OM Group (UK) Limited (“OMGUK”) for the settlement of a $50.0 purchase price adjustment in connection with HRG’s acquisition of FGL’s subsidiaries on April 6, 2011, plus interest and attorney’s fees and net of $7.6 for the settlement of a counterclaim related to the financing of certain statutory reserves. In connection with the settlement of the litigation amongst the Company, FGH and OMGUK, certain security interests in the equity of FGH and FGH’s equity interest in Fidelity & Guaranty Life Insurance Company (“FGL Insurance”) for the benefit of OMGUK in the event that FGL failed to perform certain obligations under the F&G Stock Purchase Agreement was terminated, and the Company was released from its obligations thereunder. See Note 22, Commitments and Contingencies.
Also in June 2015, Compass completed the sale of certain oil and natural gas properties in Northern Louisiana for $19.2.
On June 23, 2015, Spectrum Brands refinanced all of its outstanding indebtedness under its existing term loans and asset based lending revolving credit facility (the “Existing Facilities”) with a new senior secured credit facility consisting of term loans in the amount of $1,450.0, €300.0 and Canadian Dollar (“CAD”) $75.0 and a $500.0 revolving credit facility (the “New Facilities”). The proceeds from the Term Loan and draws on the Revolver Facility were used to repay Spectrum Brands’ then-existing senior term credit facility (the “Prior Term Loan”), repay Spectrum Brands’ outstanding 6.75% senior unsecured notes due 2020 (the “6.75% Notes”), repay the Spectrum Brands’ then-existing asset based revolving loan facility (the “Prior Revolver Facility”), and to pay fees and expenses in connection with the refinancing and for general corporate purposes. See Note 14, Debt.
In October 2015, subsequent to the Company’s fiscal year end, Compass signed a definitive agreement to sell its Holly, Waskom, and Danville assets to a third party for $160.0 in cash (the “Compass Asset Sale”), subject to customary closing adjustments. The transaction is expected to close in first fiscal quarter of 2016 with an effective date of July 1, 2015.
The Company’s reportable business segments are organized in a manner that reflects how HRG’s management views those business activities. Accordingly, the Company currently operates its business in four reporting segments: (i) Consumer Products, (ii) Insurance, (iii) Energy, and (iv) Asset Management. For the results of operations by segment, and other segment data, see Note 26, Segment and Geographic Data.
The accompanying Consolidated Financial Statements of the Company included herein have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of such information. All such adjustments are of a normal recurring nature. Although the Company believes that the disclosures are adequate to make the information presented not misleading, certain information and footnote disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations. Certain prior amounts have been reclassified or combined to conform to the current year presentation.