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

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