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Harbinger Group Inc. Reports Fiscal 2012 Results

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 (“Adjusted 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 increases 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 CONSOLIDATED BALANCE SHEETS (In thousands)

     

 

 

September 30,

2012

September 30,

2011

ASSETS

(Unaudited)

Consumer Products and Other:
Cash and cash equivalents $ 408,889 $ 321,352
Short-term investments 181,828 350,638
Receivables, net 414,417 394,283
Inventories, net 452,633 434,630
Prepaid expenses and other current assets   86,272   143,654
Total current assets 1,544,039 1,644,557
Properties, net 214,319 206,799
Goodwill 694,245 610,338
Intangibles, net 1,714,929 1,683,909
Deferred charges and other assets   82,141   97,324
  4,249,673   4,242,927
Insurance and Financial Services:
Investments:
Fixed maturities, available-for-sale, at fair value 16,088,913 15,367,474
Equity securities, available-for-sale, at fair value 248,087 287,043
Derivative investments 200,667 52,335
Asset-backed loans and other invested assets   198,868   44,279
Total investments 16,736,535 15,751,131
Cash and cash equivalents 1,061,822 816,007
Accrued investment income 191,577 212,848
Reinsurance recoverable 2,363,083 1,612,036
Intangibles, net 273,543 457,167
Deferred tax assets 279,636 207,729
Other assets   44,622   291,043
  20,950,818   19,347,961
Total assets $ 25,200,491 $ 23,590,888

 

LIABILITIES AND EQUITY

Consumer Products and Other:
Current portion of long-term debt $ 16,414 $ 16,090
Accounts payable 325,943 328,635
Accrued and other current liabilities   336,908   317,629
Total current liabilities 679,265 662,354
Long-term debt 2,150,625 2,032,690
Equity conversion feature of preferred stock 231,950 75,350
Employee benefit obligations 95,113 89,857
Deferred tax liabilities 382,390 338,679
Other liabilities   31,897   44,957
  3,571,240   3,243,887
Insurance and Financial Services:
Contractholder funds 15,290,475 14,549,970
Future policy benefits 3,614,788 3,598,208
Liability for policy and contract claims 91,082 56,650
Note payable - 95,000
Other liabilities   714,708   381,597
  19,711,053   18,681,425
Total liabilities   23,282,293   21,925,312
 
Commitments and contingencies
 
Temporary equity:
Redeemable preferred stock   319,225   292,437
 
Harbinger Group Inc. stockholders' equity:
Common stock 1,402 1,393
Additional paid-in capital 861,191 872,683
Accumulated deficit (98,168) (128,083)
Accumulated other comprehensive income   413,172   149,448
Total Harbinger Group Inc. stockholders' equity 1,177,597 895,441
Noncontrolling interest   421,376   477,698
Total permanent equity   1,598,973   1,373,139
Total liabilities and equity $ 25,200,491 $ 23,590,888
 
     

Table 2

 

HARBINGER GROUP INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)

 
Three Month Period Ended September 30, Year Ending September 30,
2012 2011 2012 2011

(Unaudited)

Revenues:
Consumer Products and Other:
Net sales $ 832,576 $ 827,330 $ 3,252,435 $ 3,186,916
Insurance and Financial Services:
Premiums 13,127 13,884 55,297 39,002
Net investment income 183,676 192,955 722,733 369,840
Net investment gains (losses) 155,384 (168,119) 410,000 (166,891)
Insurance and investment product fees and other   12,090   22,491   40,251   48,915
  364,277   61,211   1,228,281   290,866
Total revenues   1,196,853   888,541   4,480,716   3,477,782
Operating costs and expenses:
Consumer Products and Other:
Cost of goods sold 552,651 546,833 2,136,757 2,058,049
Selling, general and administrative expenses   232,569   256,648   870,755   947,140
  785,220   803,481   3,007,512   3,005,189
Insurance and Financial Services:
Benefits and other changes in policy reserves 217,670 117,673 777,372 247,632
Acquisition and operating expenses, net of deferrals 24,922 43,795 125,685 72,390
Amortization of intangibles   48,677   (32,455)   160,656   (11,115)
  291,269   129,013   1,063,713   308,907
Total operating costs and expenses   1,076,489   932,494   4,071,225   3,314,096
Operating income 120,364 (43,953) 409,491 163,686
Interest expense (56,615) (56,611) (251,032) (249,260)
(Increase) decrease in fair value of equity conversion feature of preferred stock (32,590) - (156,600) 27,910
Bargain purchase gain from business acquisition - - - 158,341
Gain on contingent purchase price reduction - - 41,000 -
Other income (expense), net   8,474   (21,881)   (17,473)   (42,743)
Income (loss) before income taxes 39,633 (122,445) 25,386 57,934
Income tax (benefit) expense   (135,887)   (13,351)   (85,282)   50,555
Net income (loss) 175,520 (109,094) 110,668 7,379
Less: Net income (loss) attributable to noncontrolling interest   2,347   (15,869)   21,112   (34,680)
Net income (loss) attributable to controlling interest 173,173 (93,225) 89,556 42,059
Less: Preferred stock dividends and accretion   14,082   13,870   59,641   19,833
Net income (loss) attributable to common and
participating preferred stockholders $ 159,091 $ (107,095) $ 29,915 $ 22,226
 
Net income (loss) per common share attributable
to controlling interest:
Basic $ 0.79 $ (0.77) $ 0.15 $ 0.11
Diluted $ 0.78 $ (0.77) $ 0.15 $ 0.09
 
             

Table 3

 

Reconciliation of Adjusted EBITDA of Consumer Products segment to U.S. GAAP operating income (in millions).

 
Three Months Ended September 30, Year Ended September 30,
2012   2011 2012   2011
Adjusted EBITDA of Consumer Products segment $ 126 $ 114 $ 485 $ 457
 

Reconciliation to reported operating income:

Reported operating income - consumer products segment $ 68 $ 33 $ 302 $ 228
Add: Other income (expense) not included above 1 (1) (1) (3)
Add back:
Intangible asset impairment - 32 - 32
Restructuring and related charges 3 11 19 29
Acquisition and integration related charges 11 6 31 37
Depreciation and amortization, net of accelerated depreciation   43   33   134   134
Adjusted EBITDA - consumer products segment $ 126 $ 114 $ 485 $ 457
 
           

Table 4

 

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

 
Three Months Ended September 30, Year Ended September 30,
2012   2011 2012   2011
Adjusted operating income of Insurance segment (pre-tax) $ 19 $ 20 $ 62 $ 48
 

Reconciliation to reported operating income (loss):

Reported operating income (loss) - insurance segment $ 72 $ (68) $ 164 $ (18)
Effect of investment gains, net of offsets (60) 11 (132) (1)
Effect of change in FIA embedded derivative discount rate, net of offsets 7 57 18 43
Effects of acquisition-related reinsurance   -   20   12   24
Adjusted operating income - pre-tax $ 19 $ 20 $ 62 $ 48
 




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