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Harbinger Group Inc. Announces $1.1 Billion In Revenues And Continued Operational Progress At Operating Subsidiaries For Second Quarter Fiscal 2012

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 Holdings, Inc. (“Spectrum Brands”) uses adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”), a non-U.S. GAAP financial measure. 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. See Table 3 for a reconciliation of Adjusted EBITDA to the Consumer Products segment’s operating income. Fidelity & Guaranty Life (“FGL”) uses adjusted operating income, a non-U.S. GAAP financial measure frequently used throughout the insurance industry. Management believes the adjustments made to reported operating income (loss) of the insurance segment in order to derive adjusted operating income (loss) are significant to gaining an understanding of FGL’s results of operations. For example, FGL could have strong operating results in a given period, yet show operating income that is materially less, if during the period the fair value of its derivative assets hedging the Fixed Index Annuity (“FIA”) index credit obligations decrease due to general equity market conditions but the FIA liability related to the index credit obligation did not decrease in the same proportion as the derivative asset because of non-market factors related to the interest rate used to discount the FIA embedded derivative liability. Similarly, FGL could also have poor operating results yet show operating income that is materially greater, if during the period the fair value of the derivative assets increases but the FIA liability change is less than the fair value change of the derivative assets. FGL hedges its FIA index credits with a combination of static and dynamic strategies, which can result in earnings volatility. The management and board of directors of FGL review adjusted operating income (loss) and reported operating income (loss) as part of their examination of FGL’s overall financial results. However, these examples illustrate the significant impact derivative and embedded derivative movements can have on such operating income (loss). Accordingly, the management and board of directors of FGL perform an independent review and analysis of these items, as part of their review of FGL’s hedging results each period. See Table 4 for a reconciliation of adjusted operating income to the Insurance segment’s operating income. 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.

Table 1:

 
HARBINGER GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
               
Three Month Period Ended Six Month Period Ended
April 1, 2012 April 3, 2011 April 1, 2012 April 3, 2011
(Unaudited) (Unaudited)
Revenues:
Consumer Products and Other:
Net sales $ 746,285   $ 693,885   $ 1,595,056   $ 1,554,952  
Insurance and Financial Services:
Premiums 13,313 - 30,126 -
Net investment income 172,971 - 359,760 -
Net investment gains 163,578 - 267,522 -
Insurance and investment product fees and other   9,507     -     19,239     -  
  359,369     -     676,647     -  
Total revenues   1,105,654     693,885     2,271,703     1,554,952  
Operating costs and expenses:
Consumer Products and Other:
Cost of goods sold 486,254 438,446 1,050,999 1,000,274
Selling, general and administrative expenses   219,697     233,010     428,416     467,554  
  705,951     671,456     1,479,415     1,467,828  
Insurance and Financial Services:
Benefits and other changes in policy reserves 241,838 - 418,712 -
Acquisition and operating expenses, net of deferrals 18,955 - 80,753 -
Amortization of intangibles   43,017     -     85,099     -  
  303,810     -     584,564     -  
Total operating costs and expenses   1,009,761     671,456     2,063,979     1,467,828  
Operating income 95,893 22,429 207,724 87,124
Interest expense (84,065 ) (82,690 ) (139,970 ) (140,747 )
Other income (expense), net   4,884     616     34,029     (37 )
Income (loss) from continuing operations before income taxes 16,712 (59,645 ) 101,783 (53,660 )
Income tax expense   16,902     25,140     56,460     60,186  
Net income (loss) (190 ) (84,785 ) 45,323 (113,846 )
Less: Net loss attributable to noncontrolling interest   (12,210 )   (22,835 )   (6,160 )   (31,826 )
Net income (loss) attributable to controlling interest 12,020 (61,950 ) 51,483 (82,020 )
Less: Preferred stock dividends and accretion   15,875     -     31,579     -  
Net income (loss) attributable to common and
participating preferred stockholders $ (3,855 ) $ (61,950 ) $ 19,904   $ (82,020 )
 
Net income (loss) per common share attributable
to controlling interest:
Basic $ (0.02 ) $ (0.45 ) $ 0.10   $ (0.59 )
Diluted $ (0.02 ) $ (0.45 ) $ 0.10   $ (0.59 )
 
 

Table 2:

 
HARBINGER GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
        April 1,   September 30,
2012 2011
(Unaudited)
ASSETS
Consumer Products and Other:
Cash and cash equivalents $ 303,438 $ 321,352
Short-term investments 218,734 350,638
Receivables, net 456,367 394,283
Inventories, net 551,033 434,630
Prepaid expenses and other current assets   101,904     143,654  
Total current assets 1,631,476 1,644,557
Properties, net 208,204 206,799
Goodwill 696,770 610,338
Intangibles, net 1,755,004 1,683,909
Deferred charges and other assets   102,983     97,324  
  4,394,437     4,242,927  
Insurance and Financial Services:
Investments:
Fixed maturities, available-for-sale, at fair value 14,506,540 15,367,474
Equity securities, available-for-sale, at fair value 236,391 287,043
Derivative investments 186,547 52,335
Asset-backed loans and other invested assets   55,569     44,279  
Total investments 14,985,047 15,751,131
Cash and cash equivalents 2,016,230 816,007
Accrued investment income 195,474 212,848
Reinsurance recoverable 2,288,741 1,612,036
Intangibles, net 438,635 457,167
Deferred tax assets 154,380 207,729
Other assets   62,050     291,043  
  20,140,557     19,347,961  
Total assets $ 24,534,994   $ 23,590,888  
 
LIABILITIES AND EQUITY
 
Consumer Products and Other:
Current portion of long-term debt $ 33,906 $ 16,090
Accounts payable 272,230 328,635
Accrued and other current liabilities   274,064     317,629  
Total current liabilities 580,200 662,354
Long-term debt 2,345,610 2,032,690
Equity conversion feature of preferred stock 73,820 75,350
Employee benefit obligations 86,051 89,857
Deferred tax liabilities 378,698 338,679
Other liabilities   37,747     44,957  
  3,502,126     3,243,887  
Insurance and Financial Services:
Contractholder funds 15,172,168 14,549,970
Future policy benefits 3,589,912 3,598,208
Liability for policy and contract claims 54,311 56,650
Note payable - 95,000
Other liabilities   513,777     381,597  
  19,330,168     18,681,425  
Total liabilities   22,832,294     21,925,312  
 
Commitments and contingencies
 
Temporary equity:
Redeemable preferred stock   307,733     292,437  
 
Harbinger Group Inc. stockholders' equity:
Common stock 1,401 1,393
Additional paid-in capital 852,542 872,683
Accumulated deficit (108,179 ) (128,083 )
Accumulated other comprehensive income   229,828     149,448  
Total Harbinger Group Inc. stockholders' equity 975,592 895,441
Noncontrolling interest   419,375     477,698  
Total permanent equity   1,394,967     1,373,139  
Total liabilities and equity $ 24,534,994   $ 23,590,888  
 
 

Table 3:

Reconciliation of adjusted EBITDA of Consumer Products segment to U.S. GAAP operating income

        Three Months Ended   Six Months Ended
April 1, 2012   April 3, 2011 April 1, 2012  

April 3, 2011

Adjusted EBITDA - consumer products segment $ 102 $ 93 $ 227 $ 216
 

Reconciliation to reported operating income:

Reported operating income - consumer products segment $ 55 $ 47 $ 139 $ 116
Add: Other income (expense) not included above 2 - - -
Add back:
Restructuring and related charges 4 5 12 11
Acquisition and integration related charges 8 8 16 24
Depreciation and amortization, net of accelerated depreciation   33   33   61   65
Adjusted EBITDA - consumer products segment $ 102 $ 93 $ 228 $ 216
 
 

Table 4:

Reconciliation of adjusted operating income (pre-tax) of Insurance segment to U.S. GAAP operating income

           

Three Months Ended

   

Six Months Ended

April 1, 2012

April 1, 2012

Adjusted operating income of Insurance segment (pre-tax) $ 14   $ 38  
 

Reconciliation to reported operating income:

Reported operating income - insurance segment $ 56 $ 93
Effect of investment (gains) losses, net of offsets (36 ) (55 )
Effect of change in FIA embedded derivative discount rate, net of offsets (10 ) (7 )
Effects of acquisition-related reinsurance   4     7  
Adjusted operating income - pre-tax $ 14   $ 38  




Stock quotes in this article: HRG, SPB 

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