Harbinger Group Inc Reports Operating Results (10-Q)
Harbinger Group has a market cap of $681.4 million; its shares were traded at around $4.85 with and P/S ratio of 0.2.
Highlight of Business Operations:Global consumer battery sales decreased $4 million, or 2%, primarily driven by decreases in North America and Latin America sales of $3 million and $6 million, respectively, which were tempered by increased European sales of $8 million. Foreign exchange negatively impacted consumer battery sales by $3 million. The decreases within North America were driven by timing of holiday shipments which resulted in higher sales recognized during the fourth quarter of our fiscal year ended September 30, 2011, which was slightly offset by sales gains due to expanded product offerings in our specialty batteries category. Declines within Latin America were attributable to the non-recurrence of promotions which occurred in the Fiscal 2011 Quarter, while the strong European sales resulted from continued customer gains in the region. Although small appliances sales were relatively unchanged, sales in both North America and Latin America increased $2 million driven by the successful introduction of new products at a major customer. These increases were offset by decreased European sales of $2 million and negative foreign exchange impacts of $2 million. European sales decreased as a result of our efforts to exit lower margin brands. Pet supply sales decreased $2 million, or 1%, resulting from lower European aquatics and companion animal sales, which were partially offset by increases within North American aquatics sales. Electric shaving and grooming product sales decreased $2 million, or 2%. Although successful new product launches increased sales in North America and Europe, overall we experienced declines due to the elimination of lower margin North American promotions. Electric personal care sales were relatively unchanged, however North American and Latin American sales increased by $3 million and $2 million, respectively. These increases were offset by decreased European sales of $4 million and unfavorable foreign exchange impacts of $1 million. The increases in North America and Latin America were driven by successful new product launches and distribution gains whereas the decreases in Europe were a result of declines within the womens hair care category. Home and garden control product sales decreased $2 million, or 7% driven by our retail customers inventory management. Portable lighting product sales decreased $2 million, or 8%, driven by decreased European sales of $1 million resulting from the non-recurrence of successful promotions during the Fiscal 2011 Quarter, coupled with a slight decrease in Latin American sales.
Costs of Goods Sold/Gross Profit. Gross profit, representing net sales minus cost of goods sold, for the Fiscal 2012 Quarter was $284 million compared to $299 million for the Fiscal 2011 Quarter. Our gross profit margin, representing gross profit as a percentage of net sales, for the Fiscal 2012 Quarter decreased to 33.5% from 34.8% in the Fiscal 2011 Quarter. The decrease in gross profit is attributable to a $12 million decrease in sales coupled with a $4 million increase in restructuring and related charges included in cost of goods sold due to the announced closure of a battery manufacturing facility in Colombia.
Benefits and Other Changes in Policy Reserves. Benefits and other changes in policy reserves of $177 million for the Fiscal 2012 Quarter includes the change in the FIA embedded derivative liability which includes the market value option liability change and the present value of future credits and guarantee liability change. The market value option liability increased $38 million for the Fiscal 2012 Quarter primarily due to the increase in the equity markets during the period. The present value of future credits and guarantee liability decreased $5 million for the Fiscal 2012 Quarter primarily as due to the impact on future projected credits for new and existing policyholders, partially offset by the impact of slightly lower risk free rates. Fair value accounting for derivative instruments and the embedded derivatives in the FIA contracts creates differences in the recognition of revenues and expenses from derivative instruments including the embedded derivative liability in our FIA contracts. The change in fair value of the embedded derivatives will not correspond to the change in fair value of the derivatives (purchased call options and futures contracts) because the purchased derivatives cover the next annual index period while the embedded derivative liability covers estimated credits over the expected life of the FIA contracts. Additionally, there were index credits, interest credits and bonuses of $98 million and policy benefits and other reserve movements of $46 million during the period. Changes in index credits are attributable to changes in the underlying indices and the amount of funds allocated by policyholders to the respective index options. Benefits also include claims incurred during the period in excess of contractholder fund balances, traditional life benefits and the change in reserves for traditional life insurance products. Below is a summary of the major components included in benefits and other changes in policy reserves for the period (in millions):
Cash used in operating activities totaled $7 million for the Fiscal 2012 Quarter as compared to a use of $54 million for the Fiscal 2011 Quarter. The $47 million improvement was the result of an $89 million increase in cash provided by HGI corporate operating activities partially offset by a $38 million increase in cash used by Spectrum Brands and $4 million of cash used by FGL. The $89 million increase at HGI corporate was primarily due to a $67 million excess of sales over purchases of trading securities acquired for resale and the return to us of $49 million that had been posted as collateral for an FGL subsidiary, both partially offset by a $27 million semi-annual interest payment on our 10.625% Notes. The $38 million increase in cash used at Spectrum Brands was primarily due to a $34 million increased use of cash for working capital and other items driven by higher changes in inventories partially offset by higher changes in accounts payable.
Cash provided by investing activities was $893 million for the Fiscal 2012 Quarter. For the Fiscal 2011 Quarter, cash used in investing activities was $36 million. The $929 million increase in cash provided by investing activities is due to a $1,103 million increase in cash provided from sales, maturities and repayments, net of purchases, of fixed maturity securities and other investments principally by FGL, partially offset by an increase in the cash used for acquisitions of $173 million, related to the $139 million, net of cash acquired, acquisition of FURminator, Inc and the $44 million acquisition of Black Flag in the Fiscal 2012 Quarter, as compared to the $10 million acquisition of Seed Resources, Inc, net of cash acquired, in the Fiscal 2011 Quarter.
Read the The complete Report