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Harbinger Group Inc. Reports Fiscal 2012 Results

Stocks in this article: HRG

Harbinger Group Inc. ("HGI"; NYSE: HRG), a diversified holding company focused on acquiring and growing attractive businesses, today announced its consolidated results for the fourth quarter and full year period ended on September 30, 2012 (“Fiscal 2012”). The results include HGI’s Consumer Products business, which consists of Spectrum Brands Holdings, Inc. (“Spectrum Brands”; NYSE: SPB), and HGI’s Insurance and Financial Services group, which includes HGI’s Fidelity & Guaranty Life Holdings, Inc. (“FGL”) and Salus Capital Partners, LLC (“Salus”) operating subsidiaries.

Fiscal 2012 Highlights:

  • Total revenues increased 29% from the year ended September 30, 2011 (“Fiscal 2011”), primarily driven by growth in the Insurance segment, including the benefit of a full year of operations of FGL, which was acquired in April 2011.
  • HGI received total dividends of approximately $71 million from its operating subsidiaries in Fiscal 2012. In September, Spectrum Brands paid a special one-time dividend of $1.00 per share, resulting in approximately $30 million to HGI; FGL paid cumulative dividends of $40 million, and Salus paid an inaugural dividend of $1 million in its first year of operation.
  • Upon completion of a recently announced joint venture with EXCO Resources, HGI expects dividends from all subsidiaries to exceed $100 million annually and to surpass HGI's existing interest and dividend payments.
  • For Fiscal 2012, the Consumer Products segment recorded record net sales of $3.25 billion, a 2% increase from Fiscal 2011; excluding negative foreign exchange impact, net sales grew 4% versus prior year.
  • Consumer Products segment operating income grew 32% and adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) increased 6% versus the prior year (or 10% excluding unfavorable foreign exchange impact) on higher sales, synergy benefits and cost reduction initiatives. Adjusted EBITDA margin on a full-year basis approximated 15% of sales.
  • Insurance segment products sales for Fiscal 2012 were $1.9 billion, led by the successful introduction of Prosperity Elite SM which resulted in FGL solidifying a top ten market position in the competitive fixed index annuity marketplace.
  • As of September 30, 2012, HGI’s Insurance segment had a net US GAAP book value of $1.2 billion (including accumulated other comprehensive income ("AOCI") of $434 million), almost double the book value of $667 million (including AOCI of $159 million) at the end of Fiscal 2011. Net unrealized gains on available for sale investments were $1.1 billion on a U.S. GAAP basis ($1.2 billion on a statutory basis). FGL's investment portfolio continues to be conservatively positioned, as it holds cash in excess of $1.0 billion, has shortened portfolio duration, and remains well matched against its liability profile.
  • Salus, in its first year of operation, originated $260 million of asset-based loan commitments, for which $181 million of loans were outstanding as of September 30, 2012, and contributed approximately $1 million to HGI's consolidated earnings for Fiscal 2012.
  • HGI stock price appreciation of 66% from $5.07 to $8.43 per share during Fiscal 2012 resulted in a $157 million liability increase related to the fair value of the preferred stock equity conversion feature, which represents a non-cash charge to HGI's net income.
  • Net income attributable to common and participating preferred stockholders increased 35% to $30 million, or $0.15 per common share attributable to controlling interest, from $22 million, or $0.11 per common share attributable to controlling interest, in Fiscal 2011.
  • The non-cash accretion rate on HGI’s preferred stock decreased from 2% for the third and fourth fiscal quarters to 0% commencing in the first quarter of fiscal 2013 due to a 163% increase in HGI’s net asset value since the issuance of its preferred stock in May 2011 as calculated in accordance with the terms of its Certificates of Designation.
  • HGI ended the year with corporate cash and short-term investments of approximately $433 million (cash primarily held at HGI and HGI Funding LLC), which supports its business strategy and growth of existing businesses.

Omar Asali, President of HGI said, “Fiscal 2012 was a year of important progress for HGI, both on the basis of financial performance, as well as significant growth at the holding company level and in our core operating businesses. Our results for the full year demonstrate the value created by investing in businesses with strong underlying fundamentals and supporting their growth and success by giving them access to long-term capital and partnering with high-quality, proven management teams.

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