Attached files
file | filename |
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8-K - FORM 8-K - Spectrum Brands Holdings, Inc. | y88640e8vk.htm |
EX-99.7 - EX-99.7 - Spectrum Brands Holdings, Inc. | y88640exv99w7.htm |
EX-99.4 - EX-99.4 - Spectrum Brands Holdings, Inc. | y88640exv99w4.htm |
EX-16.1 - EX-16.1 - Spectrum Brands Holdings, Inc. | y88640exv16w1.htm |
EX-99.2 - EX-99.2 - Spectrum Brands Holdings, Inc. | y88640exv99w2.htm |
EX-99.6 - EX-99.6 - Spectrum Brands Holdings, Inc. | y88640exv99w6.htm |
EX-99.5 - EX-99.5 - Spectrum Brands Holdings, Inc. | y88640exv99w5.htm |
EX-99.3 - EX-99.3 - Spectrum Brands Holdings, Inc. | y88640exv99w3.htm |
EX-99.1 - EX-99.1 - Spectrum Brands Holdings, Inc. | y88640exv99w1.htm |
EX-99.9 - EX-99.9 - Spectrum Brands Holdings, Inc. | y88640exv99w9.htm |
Exhibit 99.8
Unless
the context indicates otherwise, all
references in this Exhibit 99.8 to the
Company, HGI, we, our or us refer to Harbinger Group Inc.
Company, HGI, we, our or us refer to Harbinger Group Inc.
HARBINGER
GROUP INC. UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial statements for the year ended
December 31, 2009 and for the nine-month period ended September 30, 2010, the date of our latest
publicly available financial information, gives effect to
(i) our acquisition (the Spectrum Brands
Acquisition) of an aggregate of 27,756,905 shares of common stock, $0.01 per value per share, of Spectrum Brands Holdings, Inc., a Delaware corporation (SB Holdings)
as well as the effect of (ii) the combination of Spectrum
Brands, Inc. (Spectrum Brands) and Russell Hobbs, Inc,
(Russell Hobbs) (the SB/RH Merger) and related debt refinancing which was completed by
Spectrum Brands on June 16, 2010, (iii) the emergence of Spectrum Brands from
bankruptcy in August 2009 and the application of fresh-start accounting and (iv) HGIs issuance of
$350 million of 10.625% senior secured notes due 2015 (the HGI Notes Offering) on November 15, 2010.
The unaudited pro forma condensed combined financial statements shown below reflect historical
financial information and have been prepared on the basis that the Spectrum Brands Acquisition is
accounted for under Accounting Standards Codification Topic 805: Business Combinations (ASC 805)
as a transaction between entities under common control. In accordance with the guidance in ASC 805,
the assets and liabilities transferred between entities under common control should be recorded by
the receiving entity based on their carrying amounts (or at the historical cost basis of the
parent, if these amounts differ). Although we issued shares of our common stock to effect the
Spectrum Brands Acquisition, for accounting purposes Spectrum Brands will be treated as the
predecessor and receiving entity of HGI since Spectrum Brands was an operating business in prior
periods, whereas HGI was not. As Spectrum Brands was determined to be the accounting acquirer in
the SB/RH Merger, the financial statements of Spectrum Brands will be presented as our predecessor
entity for periods preceding the SB/RH Merger. After the issuance of the shares of our common stock
to Harbinger Capital Partners Master Fund I, Ltd., Harbinger Capital
Partners Special Situations Fund, L.P. and Global Opportunities
Breakaway Ltd. (collectively, the Harbinger Parties) to effect the Spectrum Brands Acquisition, our parent (the Harbinger
Parties) owns approximately 93% of our outstanding common stock. Spectrum Brands, as the predecessor
and under common ownership of the Harbinger Parties, will record HGIs assets and liabilities at
the Harbinger Parties basis as of the date that common control was first established (June 16,
2010). The carrying value of HGIs assets and liabilities approximated the Harbinger Parties basis
at that date.
The following unaudited pro forma condensed combined balance sheet at September 30, 2010 is
presented on a basis to reflect (i) the Spectrum Brands Acquisition, (ii) the issuance of our
common stock to effect the Spectrum Brands Acquisition and (iii) the HGI Notes Offering, as if each had
occurred on September 30, 2010. The unaudited pro forma condensed combined statement of operations
for the nine-month period ended September 30, 2010 is presented on a basis to reflect (i) the
Spectrum Brands Acquisition, (ii) the issuance of our common stock to effect the Spectrum Brands
Acquisition, (iii) the SB/RH Merger and (iv) the HGI Notes Offering, as if each had occurred on
January 1, 2009. The unaudited pro forma condensed combined statement of operations for the year
ended December 31, 2009 is presented on a basis to reflect (i) the Spectrum Brands Acquisition,
(ii) the issuance of our common stock to effect the Spectrum Brands Acquisition, (iii) the SB/RH
Merger and (iv) the HGI Notes Offering, as if each had occurred on January 1, 2009, and (v) the
emergence of Spectrum Brands from bankruptcy in August 2009 and the application of fresh-start
accounting, as if the emergence had occurred on October 1, 2008 (the beginning of Spectrum Brands
fiscal year). Because of different fiscal year-ends, and in order to present results for comparable
periods, the unaudited pro forma condensed combined statement of operations for the year ended
December 31, 2009 combines the historical consolidated statement of operations of HGI for the year
then ended with the derived historical results of operations of Russell Hobbs for the twelve months
ended December 31, 2009 and the historical consolidated statement of operations of Spectrum Brands
for its fiscal year ended September 30, 2009. The unaudited pro forma condensed combined statement
of operations for the nine-month period ended September 30, 2010 combines the historical condensed
consolidated statement of operations of HGI for the nine months then ended with the derived
historical results of operations of Russell Hobbs for the six months ended March 31, 2010, the last
quarter end reported by Russell Hobbs prior to the SB/RH Merger, and the derived historical results
of operations of SB Holdings for the nine-month period ended September 30, 2010 (which
include Russell Hobbs results of operations for the most recent three-month period ended September
30, 2010). Spectrum Brands historical consolidated statement of operations for the three-month
period ended January 3, 2010 has been excluded from the interim results
in order to present results comparable to HGIs
nine-month period ended September 30, 2010. The results of Russell Hobbs have been excluded for
the stub period from June 16, 2010, the date of the SB/RH Merger, to July 4, 2010 for pro forma
purposes, since comparable results are included in the derived historical results of operations of
Russell Hobbs for the six-month period ended March 31, 2010. Pro forma adjustments are made in
order to reflect the potential effect of the transactions on the unaudited pro
forma condensed combined statement of operations. As a result of the Spectrum Brands
Acquisition, the financial statements of Spectrum Brands, as predecessor, will replace those of HGI
for periods prior to the Spectrum Brands Acquisition. Those financial statements will reflect the
SB/RH Merger effective June 16, 2010. We do not present any pro forma annual periods prior to
January 1, 2009 since these would be the same as Spectrum Brands historical financial statements
as the predecessor to HGI.
1
The unaudited pro forma condensed combined financial statements and the notes to the unaudited
pro forma condensed combined financial statements were based on, and should be read in conjunction
with:
| our historical unaudited condensed consolidated financial statements and notes thereto for the three and nine months ended September 30, 2010 included in our Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission (the SEC) on November 9, 2010; | ||
| our historical audited consolidated financial statements and notes thereto for the fiscal year ended December 31, 2009 included as Annex F to our Definitive Information Statement on Schedule 14C filed with the SEC on November 5, 2010 (the November Information Statement) ; | ||
| SB Holdings historical audited consolidated financial statements and notes thereto for the fiscal year ended September 30, 2010 included as Exhibit 99.7 to this Current Report on Form 8-K (the Current Report); | ||
| Russell Hobbs historical unaudited consolidated financial statements and notes thereto for the nine months ended March 31, 2010 included in our November Information Statement; and | ||
| Russell Hobbs historical audited consolidated financial statements and notes thereto for the fiscal year ended June 30, 2009 included in our November Information Statement. |
Our historical consolidated financial information has been adjusted in the unaudited pro forma
condensed combined financial statements to give effect to pro forma events that are (1) directly
attributable to the Spectrum Brands Acquisition, the SB/RH Merger, the emergence of Spectrum
Brands from bankruptcy in August 2009 and the application of
fresh-start accounting, and the HGI
Notes Offering, (2) factually supportable, and (3) with respect to the unaudited pro forma condensed
combined statements of operations, expected to have a continuing impact on our results. The
unaudited pro forma condensed combined financial statements do not
reflect any of HGI or SB Holdings managements expectations for revenue enhancements, cost savings from the combined companys operating
efficiencies, synergies or other restructurings, or the costs and related liabilities that would be
incurred to achieve such revenue enhancements, cost savings from operating efficiencies, synergies
or restructurings, which could result from the SB/RH Merger.
The pro forma adjustments are based upon available information and assumptions that the
managements of HGI and SB Holdings believe reasonably reflect the Spectrum Brands Acquisition, the
SB/RH Merger, the emergence of Spectrum Brands from bankruptcy and the application of
fresh-start accounting, and the HGI Notes Offering. The unaudited pro forma condensed combined financial statements are
provided for illustrative purposes only and do not purport to represent what our actual
consolidated results of operations or the consolidated financial position would have been had the
Spectrum Brands Acquisition and other identified events occurred on the date assumed, nor are they
necessarily indicative of our future consolidated results of operations or financial position.
2
Harbinger Group Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Balance Sheet
As of September 30, 2010
Unaudited Pro Forma Condensed Combined Balance Sheet
As of September 30, 2010
Historical | ||||||||||||||||||||||||
Spectrum | Pro Forma | |||||||||||||||||||||||
Harbinger | Brands | Adjustments | ||||||||||||||||||||||
Group Inc. | Holdings | Spectrum | ||||||||||||||||||||||
September 30, | September 30, | Brands | HGI Notes | Pro Forma | ||||||||||||||||||||
2010 | 2010 | Acquisition | Note | Offering (9) | Combined | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
ASSETS |
||||||||||||||||||||||||
Current assets: |
||||||||||||||||||||||||
Cash and cash equivalents |
$ | 85,967 | $ | 170,614 | $ | | $ | 333,849 | $ | 590,430 | ||||||||||||||
Short-term investments |
53,965 | | | | 53,965 | |||||||||||||||||||
Trade and other accounts receivable,
net |
| 406,447 | | | 406,447 | |||||||||||||||||||
Inventories, net |
| 530,342 | | | 530,342 | |||||||||||||||||||
Deferred income taxes |
| 35,735 | | | 35,735 | |||||||||||||||||||
Assets held for sale |
| 12,452 | | | 12,452 | |||||||||||||||||||
Prepaid expenses and other current
assets |
1,740 | 44,122 | | | 45,862 | |||||||||||||||||||
Total current assets |
141,672 | 1,199,712 | | 333,849 | 1,675,233 | |||||||||||||||||||
Property, plant and equipment, net |
143 | 201,164 | | | 201,307 | |||||||||||||||||||
Deferred charges and other |
| 46,352 | | | 46,352 | |||||||||||||||||||
Goodwill |
| 600,055 | | | 600,055 | |||||||||||||||||||
Intangible assets, net |
| 1,769,360 | | | 1,769,360 | |||||||||||||||||||
Other assets |
497 | 56,961 | | 11,206 | 68,664 | |||||||||||||||||||
Total assets |
$ | 142,312 | $ | 3,873,604 | $ | | $ | 345,055 | $ | 4,360,971 | ||||||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||||||
Current portion of long-term debt |
$ | | $ | 20,710 | $ | | $ | | $ | 20,710 | ||||||||||||||
Accounts payable |
1,452 | 332,231 | | | 333,683 | |||||||||||||||||||
Accrued and other current
liabilities |
3,786 | 309,831 | | | 313,617 | |||||||||||||||||||
Total current liabilities |
5,238 | 662,772 | | | 668,010 | |||||||||||||||||||
Long-term debt |
| 1,723,057 | | 345,055 | 2,068,112 | |||||||||||||||||||
Pension liability |
3,423 | 92,725 | | | 96,148 | |||||||||||||||||||
Non-current deferred income taxes |
| 277,843 | | | 277,843 | |||||||||||||||||||
Other liabilities |
684 | 70,828 | | | 71,512 | |||||||||||||||||||
Total liabilities |
9,345 | 2,827,225 | | 345,055 | 3,181,625 | |||||||||||||||||||
Commitments and contingencies |
||||||||||||||||||||||||
Stockholders equity: |
||||||||||||||||||||||||
Common stock |
193 | 514 | 685 | (6c) | | 1,392 | ||||||||||||||||||
Additional paid in capital |
132,727 | 1,316,461 | (594,440 | ) | (6a,b,c) | | 854,748 | |||||||||||||||||
Retained earnings (accumulated
deficit) |
10,243 | (260,892 | ) | 100,757 | (6a,b) | | (149,892 | ) | ||||||||||||||||
Accumulated other comprehensive
loss |
(10,223 | ) | (7,497 | ) | 13,642 | (6a,b) | | (4,078 | ) | |||||||||||||||
Less treasury stock, at cost |
| (2,207 | ) | 2,207 | (6c) | | | |||||||||||||||||
Total stockholders equity |
132,940 | 1,046,379 | (477,149 | ) | | 702,170 | ||||||||||||||||||
Noncontrolling interest |
27 | | 477,149 | (6b) | | 477,176 | ||||||||||||||||||
Total equity |
132,967 | 1,046,379 | | | 1,179,346 | |||||||||||||||||||
Total liabilities and equity |
$ | 142,312 | $ | 3,873,604 | $ | | $ | 345,055 | $ | 4,360,971 | ||||||||||||||
3
Harbinger Group Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2009
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2009
Historical | |||||||||||||||||||||||||||||||||||||||||||||
Spectrum Brands Inc. | |||||||||||||||||||||||||||||||||||||||||||||
Harbinger | Russell Hobbs, | ||||||||||||||||||||||||||||||||||||||||||||
Group Inc. | Successor | Predecessor | Inc. | Pro Forma Adjustments | |||||||||||||||||||||||||||||||||||||||||
12 months | 1 month | 11 months | 12 months | 12 months | Spectrum | SB/RH | |||||||||||||||||||||||||||||||||||||||
ended | ended | ended | ended | ended | Brands | Merger | |||||||||||||||||||||||||||||||||||||||
December 31, | September 30, | August 30, | September 30, | December 31, | Fresh | Related & | HGI Notes | Pro Forma | |||||||||||||||||||||||||||||||||||||
2009 | 2009 | 2009 | 2009 | 2009 | Start | Note | Other | Note | Offering (9) | Combined | |||||||||||||||||||||||||||||||||||
(In thousands, except per share data) | |||||||||||||||||||||||||||||||||||||||||||||
Net sales |
$ | | $ | 219,888 | $ | 2,010,648 | $ | 2,230,536 | $ | 779,375 | $ | | $ | | $ | | $ | 3,009,911 | |||||||||||||||||||||||||||
Cost of goods sold |
| 155,310 | 1,245,640 | 1,400,950 | 549,220 | 4,187 | (5a,b) | | | 1,954,357 | |||||||||||||||||||||||||||||||||||
Restructuring and related
charges |
| 178 | 13,189 | 13,367 | | | | | 13,367 | ||||||||||||||||||||||||||||||||||||
Gross profit |
| 64,400 | 751,819 | 816,219 | 230,155 | (4,187 | ) | | | 1,042,187 | |||||||||||||||||||||||||||||||||||
Operating expenses: |
|||||||||||||||||||||||||||||||||||||||||||||
Selling |
| 39,136 | 363,106 | 402,242 | 117,406 | 335 | (5b) | | | 519,983 | |||||||||||||||||||||||||||||||||||
General and administrative |
6,290 | 20,578 | 145,235 | 165,813 | 39,531 | 19,743 | (5b,c) | 15,293 | (6a,e,f,h) | | 246,670 | ||||||||||||||||||||||||||||||||||
Research and development |
| 3,027 | 21,391 | 24,418 | 4,027 | 398 | (5b) | | | 28,843 | |||||||||||||||||||||||||||||||||||
Restructuring and related
charges |
| 1,551 | 30,891 | 32,442 | 3,813 | | | | 36,255 | ||||||||||||||||||||||||||||||||||||
Goodwill and intangibles
impairment |
| | 34,391 | 34,391 | | | | | 34,391 | ||||||||||||||||||||||||||||||||||||
Total operating expenses |
6,290 | 64,292 | 595,014 | 659,306 | 164,777 | 20,476 | 15,293 | | 866,142 | ||||||||||||||||||||||||||||||||||||
Operating income (loss) |
(6,290 | ) | 108 | 156,805 | 156,913 | 65,378 | (24,663 | ) | (15,293 | ) | | 176,045 | |||||||||||||||||||||||||||||||||
Interest (income) expense |
(229 | ) | 16,962 | 172,940 | 189,902 | 44,657 | | (55,534 | ) | (6d) | 40,206 | 219,002 | |||||||||||||||||||||||||||||||||
Other (income) expense, net |
(1,280 | ) | (816 | ) | 3,320 | 2,504 | 4,013 | | | | 5,237 | ||||||||||||||||||||||||||||||||||
(Loss) income from continuing
operations before
reorganization items and
income taxes |
(4,781 | ) | (16,038 | ) | (19,455 | ) | (35,493 | ) | 16,708 | (24,663 | ) | 40,241 | (40,206 | ) | (48,194 | ) | |||||||||||||||||||||||||||||
Reorganization items
(expense) income, net |
| (3,962 | ) | 1,142,809 | 1,138,847 | | (1,138,847 | ) | (5d) | | | | |||||||||||||||||||||||||||||||||
(Loss) income from continuing
operations before income
taxes |
(4,781 | ) | (20,000 | ) | 1,123,354 | 1,103,354 | 16,708 | (1,163,510 | ) | 40,241 | (40,206 | ) | (48,194 | ) | |||||||||||||||||||||||||||||||
Income tax expense (benefit) |
8,566 | 51,193 | 22,611 | 73,804 | 17,998 | (2,572 | ) | (5e) | (8,542 | ) | (6a,g) | | 89,254 | ||||||||||||||||||||||||||||||||
(Loss) income from continuing
operations |
$ | (13,347 | ) | $ | (71,193 | ) | $ | 1,100,743 | $ | 1,029,550 | $ | (1,290 | ) | $ | (1,160,938 | ) | $ | 48,783 | (40,206 | ) | $ | (137,448 | ) | ||||||||||||||||||||||
Less: Loss from continuing
operations attributable to
noncontrolling interest |
(3 | ) | | | | | | (42,553 | ) | (6b) | | (42,556 | ) | ||||||||||||||||||||||||||||||||
(Loss) income from
continuing
operations attributable to
controlling interest |
$ | (13,344 | ) | $ | (71,193 | ) | $ | 1,100,743 | $ | 1,029,550 | $ | (1,290 | ) | $ | (1,160,938 | ) | $ | 91,336 | $ | (40,206 | ) | $ | (94,892 | ) | |||||||||||||||||||||
Basic and diluted loss from
continuing operations per
share
attributable to controlling interest |
$ | (0.69 | ) | $ | (0.68 | ) | |||||||||||||||||||||||||||||||||||||||
Weighted average shares of
common stock outstanding |
19,280 | 119,910 | (6c) | 139,190 |
4
Harbinger Group Inc. and Subsidiaries
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Nine-Month Period Ended September 30, 2010
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Nine-Month Period Ended September 30, 2010
Historical | ||||||||||||||||||||||||||||||||
Russell | Pro Forma Adjustments | |||||||||||||||||||||||||||||||
Hobbs, Inc. | Elimination of | |||||||||||||||||||||||||||||||
6 Month | Russell Hobbs | SB/RH | ||||||||||||||||||||||||||||||
Spectrum | Period Ended | Duplicate | Merger | |||||||||||||||||||||||||||||
Harbinger | Brands | March 31, | Financial | Related & | HGI Notes | Pro Forma | ||||||||||||||||||||||||||
Group Inc. | Holdings, Inc. | 2010 | Information (7) | Other | Note | Offering (9) | Combined | |||||||||||||||||||||||||
(In thousands, except per share data) | ||||||||||||||||||||||||||||||||
Net sales |
$ | | $ | 1,975,071 | $ | 406,412 | $ | (35,755 | ) | $ | | $ | | $ | 2,345,728 | |||||||||||||||||
Cost of goods sold |
| 1,232,624 | 275,668 | (23,839 | ) | (2,164 | ) | (8b) | | 1,482,289 | ||||||||||||||||||||||
Restructuring and related charges |
| 5,499 | | | | | 5,499 | |||||||||||||||||||||||||
Gross profit |
| 736,948 | 130,744 | (11,916 | ) | 2,164 | | 857,940 | ||||||||||||||||||||||||
Operating expenses: |
||||||||||||||||||||||||||||||||
Selling |
| 355,524 | 60,906 | (5,962 | ) | | | 410,468 | ||||||||||||||||||||||||
General and administrative |
14,876 | 156,193 | 21,616 | (4,640 | ) | (168 | ) | (6a,e,f,h) | | 187,877 | ||||||||||||||||||||||
Research and development |
| 24,568 | 4,217 | (659 | ) | | | 28,126 | ||||||||||||||||||||||||
Acquisition and integration related charges |
| 38,452 | | | (34,675 | ) | (8a) | | 3,777 | |||||||||||||||||||||||
Restructuring and related charges |
| 12,192 | 3,908 | | | | 16,100 | |||||||||||||||||||||||||
Total operating expenses |
14,876 | 586,929 | 90,647 | (11,261 | ) | (34,843 | ) | | 646,348 | |||||||||||||||||||||||
Operating income (loss) |
(14,876 | ) | 150,019 | 40,097 | (655 | ) | 37,007 | | 211,592 | |||||||||||||||||||||||
Interest (income) expense |
(156 | ) | 227,533 | 11,556 | (3,866 | ) | (98,824 | ) | (6d) | 30,219 | 166,462 | |||||||||||||||||||||
Other (income) expense, net |
(351 | ) | 11,654 | 6,423 | 923 | | | 18,649 | ||||||||||||||||||||||||
(Loss) income from continuing
operations before income taxes |
(14,369 | ) | (89,168 | ) | 22,118 | 2,288 | 135,831 | (30,219 | ) | 26,481 | ||||||||||||||||||||||
Income tax expense (benefit) |
(761 | ) | 40,690 | 7,021 | (214 | ) | 767 | (6a,g) | | 47,503 | ||||||||||||||||||||||
(Loss) income from continuing
operations |
$ | (13,608 | ) | $ | (129,858 | ) | $ | 15,097 | $ | 2,502 | $ | 135,064 | $ | (30,219 | ) | $ | (21,022 | ) | ||||||||||||||
Less: (Loss) income from
continuing operations attributable
to
noncontrolling interest |
(3 | ) | | | | 10,435 | (6b) | | 10,432 | |||||||||||||||||||||||
(Loss) income from continuing
operations attributable to
controlling interest |
$ | (13,605 | ) | $ | (129,858 | ) | $ | 15,097 | $ | 2,502 | $ | 124,629 | $ | (30,219 | ) | $ | (31,454 | ) | ||||||||||||||
Basic and diluted loss from
continuing operations per share
attributable to controlling
interest |
$ | (0.70 | ) | $ | (0.23 | ) | ||||||||||||||||||||||||||
Weighted average shares of common
stock
outstanding |
19,286 | 119,910 | (6c) | 139,196 |
5
Harbinger Group Inc. and Subsidiaries
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
(Amounts in thousands, except per share amounts)
Notes to the Unaudited Pro Forma Condensed Combined Financial Statements
(Amounts in thousands, except per share amounts)
(1) CONFORMING PERIODS
HGIs fiscal year-end was December 31 while SB Holdings fiscal year-end is September 30 and
Russell Hobbs fiscal year-end was June 30. In order for the year end pro forma results to be
comparable, the Russell Hobbs 12-month period ended December 31, 2009 was calculated as follows:
Year | Six Months | Six Months | Twelve Months | |||||||||||||
Ended | Ended | Ended | Ended | |||||||||||||
June 30, | December 31, | December 31, | December 31, | |||||||||||||
2009 | 2009 | 2008 | 2009 | |||||||||||||
(A) | (B) | (C) | (D)=(A)+(B)-(C) | |||||||||||||
Net sales |
$ | 796,628 | $ | 459,521 | $ | 476,774 | $ | 779,375 | ||||||||
Cost of goods sold |
577,138 | 317,868 | 345,786 | 549,220 | ||||||||||||
Gross profit |
219,490 | 141,653 | 130,988 | 230,155 | ||||||||||||
Operating expenses: |
||||||||||||||||
Selling |
128,195 | 59,116 | 69,905 | 117,406 | ||||||||||||
General and administrative |
43,760 | 25,090 | 29,319 | 39,531 | ||||||||||||
Research and development |
4,813 | 4,659 | 5,445 | 4,027 | ||||||||||||
Restructuring and related charges |
9,700 | 1,769 | 7,656 | 3,813 | ||||||||||||
Total operating expenses |
186,468 | 90,634 | 112,325 | 164,777 | ||||||||||||
Operating income |
33,022 | 51,019 | 18,663 | 65,378 | ||||||||||||
Interest expense |
50,221 | 19,894 | 25,458 | 44,657 | ||||||||||||
Other expense, net |
4,622 | 3,224 | 3,833 | 4,013 | ||||||||||||
(Loss) income from continuing operations
before income taxes |
(21,821 | ) | 27,901 | (10,628 | ) | 16,708 | ||||||||||
Income tax expense |
14,042 | 8,872 | 4,916 | 17,998 | ||||||||||||
(Loss) income from continuing
operations |
$ | (35,863 | ) | $ | 19,029 | $ | (15,544 | ) | $ | (1,290 | ) | |||||
HGIS latest reporting period is the third quarter for the nine-month period ended
September 30, 2010, while Russell Hobbs last reporting period, prior to the SB/RH Merger, was its
third quarter results for the nine-month period ended March 31, 2010
6
and SB
Holdings latest reporting
period is its fiscal year ended September 30, 2010 (which
includes results of operations for Russell Hobbs for the three month-period ended
September 30, 2010). In order for the unaudited interim pro forma results to be comparable, results
of Russell Hobbs and SB
Holdings must reflect only nine months. Because Russell Hobbs results of
operations for the three months ended September 30, 2010 are included in SB
Holdings historical statement
of operations (post SB/RH Merger), Russell Hobbs historical financial information for
the statement of operations covering the three-month period ended September 30, 2009 has been
excluded, as follows:
Nine Months | Three Months | Six Months | ||||||||||
Ended | Ended | Ended | ||||||||||
March 31, | September 30, | March 31, | ||||||||||
2010 | 2009 | 2010 | ||||||||||
(A) | (B) | (C) = (A) - (B) | ||||||||||
Net sales |
$ | 617,281 | $ | 210,869 | $ | 406,412 | ||||||
Cost of goods sold |
422,652 | 146,984 | 275,668 | |||||||||
Gross profit |
194,629 | 63,885 | 130,744 | |||||||||
Operating expenses: |
||||||||||||
Selling |
87,539 | 26,633 | 60,906 | |||||||||
General and administrative |
35,715 | 14,099 | 21,616 | |||||||||
Research and development |
6,513 | 2,296 | 4,217 | |||||||||
Restructuring and related charges |
4,665 | 757 | 3,908 | |||||||||
Total operating expenses |
134,432 | 43,785 | 90,647 | |||||||||
Operating income |
60,197 | 20,100 | 40,097 | |||||||||
Interest expense |
24,112 | 12,556 | 11,556 | |||||||||
Other expense (income), net |
5,702 | (721 | ) | 6,423 | ||||||||
Income from continuing operations before
income taxes |
30,383 | 8,265 | 22,118 | |||||||||
Income tax expense |
11,375 | 4,354 | 7,021 | |||||||||
Income from continuing operations |
$ | 19,008 | $ | 3,911 | $ | 15,097 | ||||||
To derive SB Holdings results for the nine months ended September 30, 2010, Spectrum Brands
historical financial information for the statement of operations covering the three-month period
ended January 3, 2010 has been excluded, as follows:
SB Holdings | Spectrum Brands | SB Holdings | ||||||||||
Fiscal Year | Three Months | Nine Months | ||||||||||
Ended September | Ended January 3, | Ended September 30, | ||||||||||
30, 2010 | 2010 | 2010 | ||||||||||
(A) | (B) | (C) = (A) - (B) | ||||||||||
Net sales |
$ | 2,567,011 | $ | 591,940 | $ | 1,975,071 | ||||||
Cost of goods sold |
1,638,451 | 405,827 | 1,232,624 | |||||||||
Restructuring and related charges |
7,150 | 1,651 | 5,499 | |||||||||
Gross profit |
921,410 | 184,462 | 736,948 | |||||||||
Operating expenses: |
||||||||||||
Selling |
466,813 | 111,289 | 355,524 | |||||||||
General and administrative |
199,386 | 43,193 | 156,193 | |||||||||
Research and development |
31,013 | 6,445 | 24,568 | |||||||||
Acquisition and integration related
charges |
38,452 | | 38,452 | |||||||||
Restructuring and related charges |
16,968 | 4,776 | 12,192 | |||||||||
Total operating expenses |
752,632 | 165,703 | 586,929 | |||||||||
Operating income |
168,778 | 18,759 | 150,019 | |||||||||
Interest expense |
277,015 | 49,482 | 227,533 | |||||||||
Other expense, net |
12,300 | 646 | 11,654 | |||||||||
Loss from continuing operations before
reorganization items and income
taxes |
(120,537 | ) | (31,369 | ) | (89,168 | ) | ||||||
Reorganization items expense, net |
3,646 | 3,646 | | |||||||||
Loss from continuing operations before
income taxes |
(124,183 | ) | (35,015 | ) | (89,168 | ) | ||||||
Income tax expense |
63,189 | 22,499 | 40,690 | |||||||||
Loss from continuing operations |
$ | (187,372 | ) | $ | (57,514 | ) | $ | (129,858 | ) | |||
7
(2) BASIS OF PRO FORMA PRESENTATION
The unaudited pro forma condensed combined financial statements have been prepared using the
historical consolidated financial statements of HGI, Russell Hobbs, Spectrum Brands and SB
Holdings. To derive the financial statements for SB Holdings, Spectrum Brands historical financial
statements for the fourth calendar quarter of 2009 have been excluded. The historical financial
statements for Russell Hobbs includes the fourth calendar quarter of 2009 in both the annual 2009
and interim 2010 unaudited pro forma condensed combined financial
statements presented herein; the results of operations for Russell
Hobbs for the three-month period ended September 30,
2010 are included in SB
Holdings historical statement of operations for the nine-month period ended
September 30, 2010. The predecessor of the historical financial statements of SB Holdings is
Spectrum Brands. The Spectrum Brands Acquisition is accounted for as a merger among
entities under common control with SB Holdings/Spectrum Brands as the predecessor and receiving entity of HGI.
(3) SIGNIFICANT ACCOUNTING POLICIES
The unaudited pro forma condensed combined financial statements of HGI do not assume any
differences in accounting policies between HGI and SB Holdings. HGI will review the accounting policies of HGI and SB Holdings to ensure conformity of
HGIs accounting policies to those of SB Holdings (as predecessor) and, as a result of that review,
HGI may identify differences between the accounting policies of these companies that, when
conformed, could have a material impact on the combined financial statements. At this time, HGI is
not aware of any differences that would have a material impact on the unaudited pro forma condensed
combined financial statements.
(4) ACQUISITION OF RUSSELL HOBBS BY SPECTRUM BRANDS IN SB/RH MERGER
Russell Hobbs was acquired by SB Holdings as a result of the SB/RH Merger on June 16, 2010.
The consideration was in the form of newly-issued shares of common stock of SB Holdings exchanged
for all of the outstanding shares of common and preferred stock and certain debt of Russell Hobbs
held by the Harbinger Parties. Inasmuch as Russell Hobbs was a private company and its common stock
was not publicly traded, the closing market price of the Spectrum Brands common stock at June 15,
2010 was used to calculate the purchase price. The total purchase price of Russell Hobbs was
approximately $597,579 determined as follows:
Spectrum Brands closing price per share
on June 15, 2010 |
$ | 28.15 | ||
Purchase price Russell Hobbs
allocation
20,704 shares(1)(2) |
$ | 575,203 | ||
Cash payment to pay off Russell Hobbs
North American credit facility |
22,376 | |||
Total purchase price of Russell
Hobbs |
$ | 597,579 | ||
(1) | Number of shares calculated based upon conversion formula, as defined in the SB/RH Merger agreement, using balances as of June 16, 2010. | |
(2) | The fair value of 271 shares of unvested restricted stock units as they relate to post combination services will be recorded as operating expense over the remaining service period and were assumed to have no fair value for the purchase price. |
The total purchase price for Russell Hobbs was allocated to the preliminary net tangible and
intangible assets of Russell Hobbs by SB Holdings based upon their preliminary fair values at June
16, 2010 and is reflected in SB Holdings historical consolidated statement of financial position
as of September 30, 2010 as set forth below. The excess of the purchase price over the preliminary net tangible assets and intangible assets
was recorded as goodwill. The preliminary allocation of the purchase price was based upon a
valuation for which the estimates and assumptions are subject to change within the
measurement period (up to one year from the
8
acquisition date). The primary areas of the preliminary
purchase price allocation that are not yet finalized relate to certain legal matters, amounts for
income taxes including deferred tax accounts, amounts for uncertain tax positions, and net
operating loss carryforwards inclusive of associated limitations, and the final allocation of
goodwill. SB Holdings expects to continue to obtain information to assist it in determining the
fair values of the net assets acquired at the acquisition date during the measurement period. The
preliminary purchase price allocation for Russell Hobbs is as follows:
Current assets |
$ | 307,809 | ||
Property, plant and equipment |
15,150 | |||
Intangible assets |
363,327 | |||
Goodwill |
120,079 | |||
Other assets |
15,752 | |||
Total assets acquired |
822,117 | |||
Current liabilities |
142,046 | |||
Total debt |
18,970 | (1) | ||
Long-term liabilities |
63,522 | |||
Total liabilities assumed |
224,538 | |||
Net assets acquired |
$ | 597,579 | ||
(1) | Represents indebtedness of Russell Hobbs assumed in the SB/RH Merger. |
(5) PRO FORMA ADJUSTMENT FRESH-START REPORTING
Spectrum Brands emerged from bankruptcy on August 28, 2009 (the Effective Date) and, in
accordance with ASC 852, adopted fresh-start reporting since the reorganization value of the assets
of Spectrum Brands immediately prior to the Effective Date
(Predecessor Company) of the plan of reorganization was
less than the total of all post-petition liabilities and allowed claims, and the holders of the
Predecessor Companys voting shares immediately before the Effective Date received less than 50
percent of the voting shares of the emerging entity.
Spectrum Brands analyzed the transactions that occurred during the two-day period from August
29, 2009, the day after the Effective Date, and August 30, 2009, the fresh-start reporting date,
and concluded that such transactions were not material individually or in the aggregate as such
transactions represented less than one percent of the total net sales for the fiscal year ended
September 30, 2009. As a result, Spectrum Brands determined that August 30, 2009 would be an
appropriate fresh-start reporting date to coincide with Spectrum Brands normal financial period
close for the month of August 2009. Upon adoption of fresh-start reporting, periods ended prior to
August 30, 2009 are not comparable to those of Spectrum Brands
after the Effective Date (Successor Company).
These pro forma adjustments represent the fresh-start adjustments as if Spectrum Brands
fresh-start reporting had occurred on October 1, 2008, the beginning of its fiscal year. The
adjustments made are as follows:
a) An adjustment of $48,762 was recorded to adjust inventory to fair value. As a result of
this increase in inventory, $16,319 was recorded as cost of goods sold within the Spectrum
Brands consolidated statement of operations for the year ended September 30, 2009. This cost
has been excluded from the unaudited pro forma condensed combined statement of operations as
this amount is considered non-recurring.
b) Spectrum Brands recorded an increase of $34,699 to adjust the net book value of
property, plant and equipment to fair value giving consideration to their highest and best use.
Key assumptions used in the valuation of Spectrum Brands property, plant and equipment were a
combination of the cost and market approach, depending on whether market data was available.
The step up in depreciation expense associated with this increase in book value was $21,723 for
the period from October 1, 2008 to August 30, 2009. This is reflected in the statement of
operations as follows:
Eleven Month Period | ||||
Ended | ||||
August 30, 2009 | ||||
Step-up Adjustment | ||||
Cost of goods sold |
$ | 20,506 | ||
Selling |
335 | |||
General and administrative |
484 | |||
Research and development |
398 | |||
Total |
$ | 21,723 | ||
9
c) Certain indefinite-lived intangible assets, which include trade names, trademarks and
technology, were valued using a relief from royalty methodology. Customer relationships were
valued using a multi-period excess earnings method. Certain intangible assets are subject to
sensitive business factors of which only a portion are within control of Spectrum Brands
management. The total fair value of indefinite and definite lived intangibles was $1,459,500 as
of August 30, 2009. The incremental intangible amortization associated with the increase in
indefinite lived intangible assets was $19,260 for the period from October 1, 2008 to August
30, 2009.
d) In connection with its emergence from bankruptcy, Spectrum Brands incurred certain
expenses and recorded certain income, gains and losses as Reorganization items expense
(income), net. Since these items are directly attributable to Spectrum Brands emergence from
bankruptcy and are not expected to have a continuing impact on the combined entitys results,
they have been eliminated from these pro forma financial statements. Reorganization items
expense (income), net, for the eleven-month period ended August 30, 2009 and the one-month
period ended September 30, 2009 are summarized as follows:
Successor Company | Predecessor Company | |||||||
One Month | Eleven Months | |||||||
Ended | Ended | |||||||
September 30, 2009 | August 30, 2009 | |||||||
Legal and professional fees |
$ | 3,962 | $ | 74,624 | ||||
Deferred financing costs |
| 10,668 | ||||||
Provision for rejected leases |
| 6,020 | ||||||
Administrative related reorganization
items |
3,962 | 91,312 | ||||||
Gain on cancellation of debt |
| (146,555 | ) | |||||
Fresh-start reporting adjustments |
| (1,087,566 | ) | |||||
Reorganization items expense (income),
net |
$ | 3,962 | $ | (1,142,809 | ) | |||
e) Spectrum Brands recorded a decrease of $2,572 of net tax expense for non-U.S.
subsidiaries for the period from October 1, 2008 to August 30, 2009. During all periods
presented, Spectrum Brands had a full valuation allowance for all net U.S. deferred tax assets,
exclusive of indefinite-lived intangibles. Due to Spectrum Brands full valuation allowance
position, any tax effect of the fresh-start pro forma adjustments for the U.S. parent and U.S.
subsidiaries would be offset by an adjustment to the valuation allowance. As such, Spectrum
Brands has recorded a zero tax effect for the pro forma adjustments related to the U.S. parent
and U.S. subsidiaries.
(6) PRO FORMA ADJUSTMENTS OTHER
a)
To effect the Spectrum Brands Acquisition, HGI issued its common stock to the Harbinger
Parties in exchange for the controlling financial interest in SB Holdings. After this issuance of
shares, the Harbinger Parties own approximately 93% of HGIs outstanding common stock.
Spectrum Brands as the receiving and predecessor entity and under common control of the Harbinger
Parties will record HGIs assets and liabilities at the Harbinger Parties basis as of the date
common control was established. The carrying value of HGIs assets and liabilities approximated the
Harbinger Parties basis at the date that common control with SB Holdings was established (June 16,
2010). However, adjustments were made to income taxes and pension expense to reflect the effect of
rolling back the Harbinger Parties basis in HGI to the January 1, 2009 assumed transaction date
for purposes of the unaudited condensed combined pro forma statements of operations. This results
in a decrease in General and administrative expense for pension expense in the amount of $881 and
$689 for the year ended December 31, 2009 and the nine-month period ended September 30, 2010,
respectively. Similarly, the tax
adjustment is as shown in the unaudited pro forma condensed combined financial statements for
the year ended December 31, 2009 and the nine-month period ended September 30, 2010 included
herein.
The
financial statements of SB Holdings/Spectrum Brands, as predecessor, will replace those of HGI for periods
prior to the date common control with SB Holdings was established (June 16, 2010) and, as such,
these adjustments eliminate HGIs historical retained earnings and accumulated other comprehensive
loss prior to that date as well as the subsequent amortization through September
30, 2010 of accumulated other
comprehensive loss to retained earnings (through HGIs
historical net loss for the period).
10
b) Adjustment reflects the noncontrolling interest in SB Holdings upon the completion of the
Spectrum Brands Acquisition. HGI owns approximately 54.4% of the outstanding SB
Holdings common stock, subsequent to the Spectrum Brands
Acquisition. The allocation to noncontrolling interest from
the components of stockholders equity reflects 45.6% of SB Holdings stockholders equity at September 30, 2010.
c)
Adjustment reflects the 119,910 shares of HGI common stock issued as a result of the
Spectrum Brands Acquisition. The adjustment also reflects the elimination of SB Holdings historical
capital structure.
d) The SB/RH Merger resulted in a substantial change to the SB Holdings debt structure, as
further discussed in the notes to the SB Holdings historical
financial statements included as Exhibit 99.7 to this Current Report. The change in interest expense is $55,534 and $98,824 for
the year ended December 31, 2009 and the nine-month period ended September 30, 2010, respectively.
The adjustment consists of the following:
Nine Months | ||||||||||||
Assumed | Fiscal Year Ended | Ended | ||||||||||
Interest Rate | December 31, 2009 | September 30, 2010 | ||||||||||
$750,000 Term loan |
8.1 | % | $ | 60,750 | $ | 45,055 | ||||||
$750,000 Senior secured notes |
9.5 | % | 71,250 | 52,646 | ||||||||
$231,161 Senior subordinated notes |
12.0 | % | 27,739 | 20,804 | ||||||||
$22,000 ABL revolving credit
facility |
6.0 | % | 1,320 | 990 | ||||||||
Foreign debt, other obligations and
capital leases |
| 4,243 | 7,207 | |||||||||
Amortization of debt issuance costs |
| 13,723 | 9,697 | |||||||||
Total pro forma interest expense |
179,025 | 136,399 | ||||||||||
Less: elimination of historical interest expense |
234,559 | 235,223 | ||||||||||
Pro forma adjustment |
$ | (55,534 | ) | $ | (98,824 | ) | ||||||
An assumed increase or decrease of 1/8 percent in the interest rate assumed above with respect to the
$750,000 term loan and the $22,000 ABL revolving credit facility, which have variable interest rates,
would
impact total pro forma interest expense by $965 and $723 for the year ended December 31, 2009 and
the nine-month period ended September 30, 2010, respectively.
e) Adjustment reflects increased amortization expense associated with the fair value
adjustment of Russell Hobbs intangible assets of $9,535 and $4,806 for the year ended December 31,
2009 and the nine-month period ended September 30, 2010, respectively. The adjustment for the
nine-month period ended September 30, 2010 reflects an adjustment to the Russell Hobbs historical
six-month period ended March 31, 2010 only (the last reported period prior to the SB/RH Merger), as the Russell Hobbs
acquisition is already reflected in the last three months of SB Holdings nine-month period ended September 30, 2010.
f) Adjustment reflects an increase in equity awards amortization of $7,622 for the year ended
December 31, 2009 and a decrease in equity awards amortization of $3,534 for the nine-month period
ended September 30, 2010, respectively, to reflect equity awards issued in connection with the
SB/RH Merger which had vesting periods ranging from 1-12 months. As a result, assuming the
transaction was completed on January 1, 2009, these awards would be fully vested in the period
ended December 31, 2009. For purposes of this pro forma adjustment, fair value is assumed to be the
average of the high and low price of Spectrum Brands common stock at June 16, 2010 of $28.24 per
share, managements most reliable determination of fair value.
g) As a result of Russell Hobbs and Spectrum Brands existing income tax loss carryforwards
in the United States, for which full valuation allowances have been provided, no deferred income
taxes have been established and no income tax has been provided in the pro forma adjustments
related to the SB/RH Merger.
h) Adjustment reflects decreased depreciation expense associated with the fair value
adjustment of Russell Hobbs property, plant and equipment of $983 and $751 for the year ended
December 31, 2009 and the nine-month period ended September 30, 2010, respectively. The adjustment
for the nine-month period ended September 30, 2010 reflects an adjustment to the Russell Hobbs
historical six-month period ended March 31, 2010 only (the last reported period prior to the SB/RH
Merger), as the Russell Hobbs acquisition is already reflected in the last three months of SB Holdings nine-month period ended
September 30, 2010. The
11
adjustments have
been recorded to General and administrative expense. Pro forma impacts to Cost of goods sold for
depreciation associated with the fair value adjustment of Russell Hobbs equipment is considered
immaterial.
(7) PRO FORMA ADJUSTMENT ELIMINATION OF DUPLICATE FINANCIAL INFORMATION
This pro forma adjustment represents the elimination of the financial data from June 16, 2010
through July 4, 2010 of Russell Hobbs that is reflected in SB Holdings historical financial
statements. These are considered duplicative because a full nine months of financial results for
Russell Hobbs has been reflected in the unaudited condensed combined pro forma statement of
operations for the interim period consisting of the six-month Russell Hobbs historical period
ended March 31, 2010, prior to the SB/RH Merger, and the three month period ended September 30,
2010, subsequent to the SB/RH Merger, included in SB Holdings historical
statement of operations for the nine-month period ended September 30, 2010.
(8) NON-RECURRING COSTS
a) SB Holdings financial results for the nine months ended September 30, 2010 include $34,675
of expenses related to the SB/RH Merger. These costs include severance and fees for legal,
accounting, financial advisory, due diligence, tax, valuation, printing and other various services
necessary to complete this transaction and were expensed as incurred. These costs have been
excluded from the unaudited pro forma condensed combined statement of operations for the nine-month
period ended September 30, 2010 as these amounts are considered non-recurring.
b) SB Holdings increased
Russell Hobbs inventory by $2,504, to estimated fair value, upon
completion of the SB/RH Merger. Cost of sales increased by this amount during the first inventory
turn subsequent to the completion of the SB/RH Merger. $340 was recorded in the three months ended July 4, 2010 and has been eliminated as part of the Elimination of duplicate financial information adjustments discussed in Note (7) above. The remaining $2,164 was recorded in SB Holdings historical statement of operations for the nine-month period ended September 30, 2010 which amount has been eliminated as a pro forma adjustment related to
the SB/RH Merger. These costs have been excluded from the
unaudited pro forma condensed combined statement of operations for the nine-month period ended
September 30, 2010 as these amounts are considered non-recurring.
(9) PRO
FORMA ADJUSTMENTS RELATED TO THE HGI NOTES OFFERING
On
November 15, 2010, HGI issued $350 million of 10.625% senior secured
notes (the Notes) due 2015 in private placement to qualified institutional buyers pursuant to
Rule 144A and Regulation S under the Securities Act of 1933, as amended. The issue price of the Notes was 98.587% of
par. The pro forma cash adjustment of $333,849 reflects the $345,055
proceeds from the HGI Notes Offering (which is net of the original issue
discount of $4,945), less debt issuance costs of $11,206.
The
incremental interest expense related to the Notes was calculated as
follows
Year Ended | Nine Months Ended | |||||||
December 31, 2009 | September 30, 2010 | |||||||
Interest
expense on Notes at 10.625% |
$ | 37,187 | $ | 27,891 | ||||
Amortization
of original issue discount on Notes |
790 | 653 | ||||||
Amortization of debt issuance costs |
2,229 | 1,675 | ||||||
Pro forma adjustment |
$ | 40,206 | $ | 30,219 | ||||
As a result of HGIs existing income tax loss carryforwards,
for which valuation allowances have been provided, no income
tax benefit has been reflected in the pro forma adjustments related
to HGI.
12