Harbinger Group Inc. Reports $1 Billion In Revenues For Third Quarter Fiscal 2012 On Continued Progress At Operating Subsidiaries

Non-U.S. GAAP Measures

Management believes that certain non-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 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. 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 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-equity market factors such as interest rate movements. 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 increase but the FIA liability increase 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 reporting 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												Nine Month Period Ended
							July 1, 2012						July 3, 2011 (a)						July 1, 2012						July 3, 2011 (a)
							(Unaudited)												(Unaudited)
Revenues:
Consumer Products and Other:
Net sales							$	824,803					$	804,635					$	2,419,859					$	2,359,586
Insurance and Financial Services:
Premiums								12,044						25,118						42,170						25,118
Net investment income								179,297						176,885						539,057						176,885
Net investment gains (losses)								(12,906	)					1,228						254,616						1,228
Insurance and investment product fees and other								8,922						26,424						28,161						26,424
								187,357						229,655						864,004						229,655
Total revenues								1,012,160						1,034,290						3,283,863						2,589,241
Operating costs and expenses:
Consumer Products and Other:
Cost of goods sold								533,107						510,941						1,584,106						1,511,215
Selling, general and administrative expenses								209,770						222,939						638,186						690,493
								742,877						733,880						2,222,292						2,201,708
Insurance and Financial Services:
Benefits and other changes in policy reserves								140,990						129,959						559,702						129,959
Acquisition and operating expenses, net of deferrals								20,010						28,595						100,763						28,595
Amortization of intangibles								26,880						21,340						111,979						21,340
								187,880						179,894						772,444						179,894
Total operating costs and expenses								930,757						913,774						2,994,736						2,381,602
Operating income								81,403						120,516						289,127						207,639
Interest expense								(54,447	)					(51,904	)					(194,417	)					(192,650	)
(Increase) decrease in fair value of equity conversion feature of preferred  stock								(125,540	)					5,960						(124,010	)					5,960
Bargain purchase gain from business acquisition								-						158,341						-						158,341
Gain on contingent purchase price reduction								-						-						41,000						-
Other income (expense), net								(17,446	)					1,126						(25,947	)					1,089
Income (loss) from continuing operations before income taxes								(116,030	)					234,039						(14,247	)					180,379
Income tax expense (benefit)								(5,855	)					3,720						50,605						63,906
Net income (loss)								(110,175	)					230,319						(64,852	)					116,473
Less: Net income (loss) attributable to noncontrolling interest								24,925						13,015						18,765						(18,811	)
Net income (loss) attributable to controlling interest								(135,100	)					217,304						(83,617	)					135,284
Less: Preferred stock dividends and accretion								13,980						5,963						45,559						5,963
Net income (loss) attributable to common and
participating preferred stockholders							$	(149,080	)				$	211,341					$	(129,176	)				$	129,321
Net income (loss) per common share attributable
to controlling interest:
Basic							$	(1.07	)				$	1.16					$	(0.93	)				$	0.71
Diluted							$	(1.07	)				$	1.16					$	(0.93	)				$	0.71
(a) Retrospectively adjusted for the finalization of provisional acquisition accounting balances.

Table 2:
HARBINGER GROUP INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
					July 1,						September 30,
					2012						2011 (a)
					(Unaudited)
ASSETS
Consumer Products and Other:
Cash and cash equivalents					$	262,261					$	321,352
Short-term investments						204,241						350,638
Receivables, net						428,440						394,283
Inventories, net						552,515						434,630
Prepaid expenses and other current assets						85,460						143,654
Total current assets						1,532,917						1,644,557
Properties, net						208,888						206,799
Goodwill						688,045						610,338
Intangibles, net						1,716,977						1,683,909
Deferred charges and other assets						94,454						97,324
						4,241,281						4,242,927
Insurance and Financial Services:
Investments:
Fixed maturities, available-for-sale, at fair value						15,069,952						15,367,474
Equity securities, available-for-sale, at fair value						242,264						287,043
Derivative investments						160,565						52,335
Asset-backed loans and other invested assets						92,424						44,279
Total investments						15,565,205						15,751,131
Cash and cash equivalents						1,570,565						816,007
Accrued investment income						183,453						212,848
Reinsurance recoverable						2,326,425						1,612,036
Intangibles, net						410,879						457,167
Deferred tax assets						131,937						207,729
Other assets						151,604						291,043
						20,340,068						19,347,961
Total assets					$	24,581,349					$	23,590,888
LIABILITIES AND EQUITY
Consumer Products and Other:
Current portion of long-term debt					$	28,251					$	16,090
Accounts payable						251,932						328,635
Accrued and other current liabilities						251,820						317,629
Total current liabilities						532,003						662,354
Long-term debt						2,296,404						2,032,690
Equity conversion feature of preferred stock						199,360						75,350
Employee benefit obligations						80,353						89,857
Deferred tax liabilities						369,444						338,679
Other liabilities						30,188						44,957
						3,507,752						3,243,887
Insurance and Financial Services:
Contractholder funds						15,285,816						14,549,970
Future policy benefits						3,602,729						3,598,208
Liability for policy and contract claims						113,192						56,650
Note payable						-						95,000
Other liabilities						474,245						381,597
						19,475,982						18,681,425
Total liabilities						22,983,734						21,925,312
Commitments and contingencies
Temporary equity:
Redeemable preferred stock						313,450						292,437
Harbinger Group Inc. stockholders' equity:
Common stock						1,402						1,393
Additional paid-in capital						854,776						872,683
Accumulated deficit						(257,259	)					(128,083	)
Accumulated other comprehensive income						253,812						149,448
Total Harbinger Group Inc. stockholders' equity						852,731						895,441
Noncontrolling interest						431,434						477,698
Total permanent equity						1,284,165						1,373,139
Total liabilities and equity					$	24,581,349					$	23,590,888
(a) Derived from the audited consolidated financial statements as of September 30, 2011 and retrospectively adjusted for the finalization of
provisional acquisition accounting balances.

Table 3:
Reconciliation of adjusted EBITDA of Consumer Products segment to U.S. GAAP operating income
												Three Months Ended										Nine Months Ended
												July 1, 2012					July 3, 2011					July 1, 2012					July 3, 2011
Adjusted EBITDA of Consumer Products segment												$	133				$	127				$	359				$	343
Reconciliation to reported operating income:
Reported operating income - consumer products segment												$	95				$	79				$	234				$	195
Add: Other income (expense) not included above													(1	)				(1	)				(2	)				(2	)
Add back:
Restructuring and related charges													4					7					16					18
Acquisition and integration related charges													5					8					20					31
Depreciation and amortization, net of accelerated depreciation													30					34					91					101
Adjusted EBITDA - consumer products segment												$	133				$	127				$	359				$	343

Table 4:
Reconciliation of adjusted operating income (pre-tax) of insurance segment to U.S. GAAP operating income
											Three Months Ended										Nine Months Ended
											July 1, 2012					July 3, 2011					July 1, 2012					July 3, 2011
Adjusted operating income of Insurance segment (pre-tax)											$	5				$	28				$	43				$	28
Reconciliation to reported operating income (loss):
Reported operating income (loss) - insurance segment											$	(1	)			$	50				$	92				$	50
Effect of investment (gains) losses, net of offsets												(17	)				(12	)				(72	)				(12	)
Effect of change in FIA embedded derivative discount rate, net of offsets												18					(14	)				11					(14	)
Effects of transaction-related reinsurance												5					4					12					4
Adjusted operating income - pre-tax											$	5				$	28				$	43				$	28

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