As of September 30, 2012, FGL’s continued profitability since its acquisition has resulted in FGL management changing its view with respect to its judgment regarding the realization of certain deferred tax assets in future years. As a result of the change in judgment, FGL recorded a $198 million tax benefit due to a net release of its valuation allowance for Fiscal 2012, of which $186 million was in the fourth quarter.
Adjusted operating income was $62 million (pre-tax) for Fiscal 2012. Adjusted operating income is a non-U.S. GAAP insurance industry measure that eliminates the impact of realized investment gains (losses), the effect of interest rate changes on the FIA embedded derivative liability, and the effects of acquisition-related reinsurance transactions – see “Non-U.S. GAAP Measures” and Table 4 for a reconciliation of adjusted operating income to the Insurance segment’s operating income.
As of September, 30, 2012, the HGI’s Insurance segment had a net U.S. GAAP book value of $1.2 billion (including AOCI of $434 million), almost double the book value of $667 million at the end of Fiscal 2011. As of September 30, 2012, the Insurance segment’s available for sale investment portfolio had net unrealized gains on a U.S. GAAP basis of $1.1 billion compared to net unrealized gains of $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.
Recent Business Highlights:Following the end of Fiscal 2012, HGI made two significant announcements: On November 5, 2012, HGI announced a joint venture with EXCO Resources, Inc. (“EXCO”; NYSE: XCO) to create a private oil and gas limited partnership (the “Partnership”) that will purchase and operate EXCO’s producing U.S. conventional oil and gas assets for a total consideration of $725 million. The transaction further diversifies HGI by establishing a new Energy operating business to complement its Consumer Products and Insurance and Financial Services businesses. Following the closing of the transaction, which is expected to occur in early calendar-year 2013, HGI expects dividends from all subsidiaries to exceed $100 million annually and to surpass HGI's existing interest and dividend payments. The full press release announcing the transaction can be found at the Investor Relations section of HGI’s website at www.harbingergroupinc.com. On October 9, 2012, HGI’s Spectrum Brands operating subsidiary announced that it had signed a definitive agreement to acquire the Hardware & Home Improvement Group (“HHI”) of Stanley Black & Decker, Inc. (NYSE: SWK) for $1.4 billion in cash. The transaction will add a leading maker of residential locksets, residential builders' hardware and faucets with #1 positions in key North American markets and a portfolio of renowned brands to Spectrum Brands. It is expected that the transaction will increase Spectrum Brands’ top-line growth and margins and be significantly and immediately accretive to Spectrum Brands’ earnings per share, EBITDA and free cash flow. The transaction, which includes certain assets of Tong Lung Metal Industry Co. Ltd. (“Tong Lung”), a Taiwanese manufacturer of residential and commercial locksets, is expected to close in two stages: The financing and the acquisition of HHI are expected to close during Spectrum Brands’ first quarter of fiscal 2013 ending December 31, 2012. The acquisition of the Tong Lung assets is expected to occur during Spectrum Brands’ second quarter of fiscal 2013. Additional detail on the transaction can be found on Spectrum Brands’ website: www.spectrumbrands.com. Fourth Quarter 2012 Highlights:
- Total revenues for the fourth quarter of Fiscal 2012 were $1.2 billion, compared to $889 million in the same period last year, an increase of 35%.
- Net income attributable to common and participating preferred stockholders increased to $159 million, or $0.79 per common share attributable to controlling interest, compared to a net loss of $107 million, or ($0.77) per common share attributable to controlling interest, in the same quarter Fiscal 2011.
- Consumer Products segment recorded record net sales of $833 million in the fourth quarter of Fiscal 2012, compared to $827 million last year.
- Consumer Products segment operating income more than doubled to $68 million versus $33 million in the prior year driven primarily by the non-recurrence of asset impairment charges. Adjusted EBITDA increased 11% versus the prior year on higher sales, synergy benefits and cost reduction initiatives.
- Insurance segment reported operating income of $72 million for the fourth quarter of Fiscal 2012, compared to an operating loss of $68 million in the same period of Fiscal 2011. Adjusted operating income was $19 million (pre-tax) for the fourth quarter of Fiscal 2012, compared to $20 million for the same period last year. The $1 million decrease is primarily due to holding a higher level of excess cash in 2012.
- Insurance FIA product sales grew 55% from the fourth quarter of Fiscal 2011 to $260 million on market share gains by Prosperity Elite SM indexed annuities.
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