Signature Group Holdings, Inc. Reports Fourth Quarter and Full Year 2012 Results

Signature Group Holdings, Inc. Reports Fourth Quarter and Full Year 2012 Results

Company Posts Operating Profit for 4Q12 of $0.9 Million and Net Income of $0.3 Million

Industrial Supply Continues Strong Sales and EBITDA Growth

SHERMAN OAKS, Calif.--(BUSINESS WIRE)-- Signature Group Holdings, Inc. (OTCQX: SGGH), a diversified enterprise with current principal activities in industrial supply and special situations finance, today announced financial results for the fourth quarter and full year ended December 31, 2012.

The Company's net income for the fourth quarter of 2012 was $0.3 million, or breakeven on a per share basis, an increase of $4.0 million from the $3.7 million net loss, or ($0.03) per share, reported for the fourth quarter of 2011, and a sequential improvement of $2.9 million from the $2.6 million net loss, or $(0.02) per share, reported in the third quarter of 2012. The Company's net loss for the full year 2012 was $7.5 million, or ($0.06) per share, an improvement of $5.3 million from 2011. The reduction in net loss and overall improvement in results for 2012 was due to the continued strong growth and financial performance of Industrial Supply, certain one-time gains generated in Special Situations, operating cost reductions, and the resolution of litigation and a proxy contest, which drove an increase in legal and other professional fees in prior periods.

"2012 ended on a positive note with a profitable fourth quarter thanks to continued strong performance in Industrial Supply and our ability to opportunistically realize gains in Special Situations. Importantly, our efforts to contain operating costs are also starting to have a measurable impact," stated Craig Noell, CEO of Signature Group Holdings. "While we made progress in 2012, our number one objective continues to be generating sustainable profitability and growth through value-enhancing acquisitions, as well as leveraging our unique tax assets. Along with this focus on acquisitions, we plan to continue to foster the ongoing growth of Industrial Supply in 2013."

Quarterly Results

Operating revenues from continuing operations rose 19.3% to $11.2 million in the fourth quarter of 2012, compared to $9.4 million in the fourth quarter of 2011, primarily due to a 13.1% increase in Industrial Supply operating revenues and $0.8 million of additional income realized from Special Situations. Operating profit in the fourth quarter was $0.9 million compared to a loss of $3.1 million in the previous year. The $4.0 million improvement was primarily driven by the 19.3% increase in operating revenues combined with a $2.3 million reduction in selling, general and administrative expenses resulting from management's efforts to restructure costs and lower legal and other professional expenses.

Earnings before income taxes from continuing operations was $1.3 million in the fourth quarter of 2012, compared to a loss of $2.5 million in the fourth quarter of 2011 and a loss of $2.2 million in the third quarter of 2012. Net earnings were $0.3 million for the fourth quarter, reflecting the strong performance of the Company's two principal operating segments during the period.

EBITDA and Adjusted EBITDA from continuing operations were $2.9 million and $2.9 million, respectively, for the fourth quarter of 2012, compared to a negative $0.5 million and a negative $1.0 million, respectively, for the fourth quarter of 2011. The Company reported improvements in EBITDA and Adjusted EBITDA in both principal operating segments in the fourth quarter of 2012, as compared to the fourth quarter of 2011, with Industrial Supply and Special Situations achieving 47.2% and 60.0% increases in Adjusted EBITDA. (See Non-GAAP Financial Measures below for more information about EBITDA and Adjusted EBITDA, and a reconciliation to the most comparable GAAP measures.)

At December 31, 2012, the Company had $53.7 million in cash and cash equivalents, and $62.1 million of working capital. Total debt was $48.1 million.

Full Year 2012 Results

Total operating revenues of $43.9 million were more than double the previous year, driven by Industrial Supply, which was included for the full year in 2012 compared to five months in 2011, and a 43.8% increase in operating revenues provided by Special Situations. Operating loss was $2.4 million in 2012, reflecting a $7.7 million improvement over 2011. The Company's net loss for the full year 2012 was $7.5 million, or ($0.06) per share, an improvement from the loss of $12.8 million, or ($0.11) per share, reported in 2011.

EBITDA and Adjusted EBITDA from continuing operations were $3.2 million and $4.6 million, respectively, for 2012, compared to a negative $0.8 million and a negative $6.5 million, respectively, for 2011. The year over year improvement of $11.1 million in Adjusted EBITDA from continuing operations is principally attributable to a full year of operations for Industrial Supply and a $4.6 million improvement in Adjusted EBITDA attributable to Corporate and Other.

Key Segment Developments

• Industrial Supply had a particularly strong quarter due to market share gains and a one-time surge in demand for circuit breakers following Hurricane Sandy.

• Special Situations took advantage of the improvement in market conditions for corporate bonds by exiting one position for a gain during the quarter and received full payment under a contingent obligation from a borrower related to a prior corporate debt restructuring.

• Cosmed, the Company's cosmetics subsidiary, was reclassified as a discontinued operation in the fourth quarter of 2012. The Company is seeking to exit this business in 2013. The financial impact of a sale or other disposition is not expected to be material.

Commenting on the key segment developments, Mr. Noell concluded, "Industrial Supply has been a solid performer since its acquisition in July of 2011. The management team has transitioned well from private ownership and continues to make significant contributions. They have identified two new markets to expand their warehouse footprint in 2013 to fuel continued long-term growth in revenues and profits."

About Signature Group Holdings, Inc.

Signature is a diversified enterprise with current principal activities in industrial supply and special situations finance. Signature has significant capital resources and is actively seeking additional acquisitions as well as growth opportunities for its existing businesses. Signature has federal net operating loss tax carryforwards of approximately $886.6 million. For more information about Signature, visit its corporate website at www.signaturegroupholdings.com.

Cautionary Statement Regarding Forward-Looking Statements

This earnings release contains forward-looking statements, which are based on our current expectations, estimates, and projections about our business and prospects, as well as management's beliefs, and certain assumptions made by us. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "may," "should," "will," and variations of these words are intended to identify forward-looking statements. Such statements speak only as of the date hereof and are subject to change. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. These statements include, but are not limited to, statements about the Company's expansion and business strategies and anticipated growth opportunities, as well as our future performance, growth, operating results, financial condition and prospects. Such statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict. Accordingly, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. Important factors that may cause such a difference include, but are not limited to the demand for our Industrial Supply products; our ability to successfully identify, consummate and integrate the acquisitions of other businesses; our ability to open warehouses in additional geographic regions; changes in business or other market conditions; the difficulty of keeping expense growth at modest levels while increasing revenues; and other risks detailed from time to time in the Company's Securities and Exchange Commission filings, including but not limited to the most recently filed Annual Report on Form 10-K and subsequent reports on Form 8-K.