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Acquisitions
 3 Months Ended
Jan. 01, 2012
Acquisitions [Abstract]  
Acquisitions

(14) Acquisitions

FGL Update

On April 6, 2011, the Company acquired all of the outstanding shares of capital stock of FGL and certain intercompany loan agreements between the seller, as lender, and FGL, as borrower, for cash consideration of $350,000 (including $5,000 re-characterized as an expense), which amount could be reduced by up to $50,000 post closing if certain regulatory approval is not received (as discussed further below).

Measurement Period Adjustments

During the measurement period (which is not to exceed one year from the acquisition date), the Company is required to retrospectively adjust the provisional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets or liabilities as of that date. During the three month period ended January 1, 2012, the Company did not record any adjustments to such provisional amounts which were disclosed in the Form 10-K as of September 30, 2011. Certain estimated amounts are not yet finalized and are subject to change, which could result in significant retrospective adjustments affecting those provisional amounts and the related bargain purchase gain recorded in the prior fiscal year. The more significant items which are provisional and subject to change during the measurement period include (i) the contingent purchase price reduction, as discussed further below, (ii) the valuation of assets and liabilities subject to reinsurance transactions contemplated in connection with the acquisition, as discussed further below, and (iii) deferred income taxes, particularly the related valuation allowance.

Contingent Purchase Price Reduction

As contemplated by the terms of the F&G Stock Purchase Agreement, Front Street Re, Ltd. (“Front Street”), a recently formed Bermuda-based reinsurer and wholly-owned subsidiary of the Company, subject to regulatory approval, is seeking to enter into a reinsurance agreement (the “Front Street Reinsurance Transaction”) with FGL whereby Front Street would reinsure up to $3,000,000 of insurance obligations under annuity contracts of FGL, and Harbinger Capital Partners II LP (“HCP II”), an affiliate of the Principal Stockholders, would be appointed the investment manager of up to $1,000,000 of assets securing Front Street’s reinsurance obligations under the reinsurance agreement. These assets would be deposited in a reinsurance trust account for the benefit of FGL.

Under the terms of the F&G Stock Purchase Agreement, the seller may be required to pay up to $50,000 as a post-closing reduction in purchase price if, among other things, the Front Street Reinsurance Transaction is not approved by the Maryland Insurance Administration or is approved subject to certain restrictions or conditions. FGL received written notice, dated January 10, 2012, from the Maryland Insurance Administration, rejecting the Front Street Reinsurance Transaction, as proposed by the respective parties. Under the terms of the agreement with the seller, in certain circumstances the Company would be required to negotiate with the seller an alternative transaction for up to 150 days before it could seek a purchase price adjustment on the grounds that the Front Street Reinsurance Transaction was not approved or was made subject to restrictions or conditions that the Company is not required to accept.

As of the date of this report, management is of the opinion that based on the information available at this time it is too early to conclude that the Front Street Reinsurance Transaction or a similar transaction will not be ultimately approved by the Maryland Insurance Administration. Therefore, it is not reasonably practicable to conclude at this time that the fair value for the contingent purchase price reduction would be other than an immaterial amount. Accordingly, no value was assigned to the contingent purchase price reduction as of the FGL Acquisition date or January 1, 2012.

 

Reinsurance Transactions

On January 26, 2011, HFG entered into the Commitment Agreement committing Wilton Re to enter into two amendments to an existing reinsurance agreement with FGL Insurance. FGL considered the effects of these amendments in the purchase price allocation. On April 8, 2011, FGL Insurance ceded significantly all of the remaining life insurance business that it had retained to Wilton Re under the first of the two amendments with Wilton and transferred assets with a fair value of $535,826, net of ceding commission, to Wilton Re. As discussed further in Note 9, effective April 26, 2011, HFG elected the second amendment (the Raven Springing Amendment) that committed FGL Insurance to cede to Wilton Re the Raven Block and on September 9, 2011, FGL Insurance and Wilton Re executed an amended and restated Raven Springing Amendment whereby the recapture of the business ceded to Raven Re by FGL Insurance and the re-cession to Wilton Re closed on October 17, 2011 with an effective date of October 1, 2011. Pursuant to the terms of the Raven Springing Amendment, the amount payable to Wilton at the closing of such amendment was adjusted to reflect the economic performance for the Raven Block from January 1, 2011 until the effective time of the closing of the Raven Springing Amendment. The estimated economic performance for the period from January 1, 2011 to April 6, 2011 was considered in the FGL opening balance sheet and purchase price allocation. The amounts transferred to Wilton Re are still under review and are subject to final adjustment, which could affect the provisional amounts of the related assets and liabilities determined as of the FGL Acquisition date.

Supplemental Pro Forma Information

The following table reflects the Company’s pro forma results as if the FGL Acquisition was completed on October 1, 2010 and the results of FGL had been included in the three month period ended January 2, 2011.

 

         
    Three Months
Ended
January 2, 2011		  
   

Revenues:

        

Reported revenues

   $ 861,066  

FGL adjustment (a)

     345,038  
   

 

 

  

Pro forma revenues

   $ 1,206,104  
   

 

 

  
   

Net income (loss):

        

Reported net loss

   $ (29,061 ) 

FGL adjustment (a)

     42,679  
   

 

 

  

Pro forma net income

   $ 13,618  
   

 

 

  
   

Basic and diluted net income (loss) per common share attributable to controlling interest:

        

Reported net loss per common share

   $ (0.14 ) 

FGL adjustment

     0.30  
   

 

 

  

Pro forma net income per common share

   $ 0.16  
   

 

 

  

 

(a)

The FGL adjustments primarily reflect the following pro forma adjustments applied to FGL’s historical results:

 

  •  

Reduction in net investment income to reflect amortization of the premium on fixed maturity securities — available-for-sale resulting from the fair value adjustment of these assets;

 

  •  

Reversal of amortization associated with the elimination of FGL’s historical DAC;

 

  •  

Amortization of VOBA associated with the establishment of VOBA arising from the acquisition;

 

  •  

Adjustments to reflect the impacts of the recapture of the life business from an affiliate of the seller and the retrocession of the majority of the recaptured business and the reinsurance of certain life business previously not reinsured to an unaffiliated third party reinsurer, including the amortization of a related $13,750 reserve credit facility structuring fee;

 

  •  

Adjustments to eliminate interest expense on notes payable to seller and add interest expense on a new $95,000 surplus note payable (which was subsequently settled in October 2011);

 

  •  

Adjustments to reflect the full-period effect of interest expense on the initial $350,000 of 10.625% Notes issued on November 15, 2010, the proceeds of which were used to fund the FGL Acquisition.

The FGL adjustments do not include the $151,077 non-recurring bargain purchase gain which was recorded as of the FGL Acquisition date.

Other Acquisitions

During the three month period ended January 1, 2012, Spectrum Brands completed the following acquisitions which were not considered significant individually or collectively:

Black Flag

On October 31, 2011, Spectrum Brands completed the $43,750 cash acquisition of the Black Flag and TAT trade names (“Black Flag”) from The Homax Group, Inc., a portfolio company of Olympus Partners. The Black Flag and TAT product lines consist of liquids, aerosols, baits and traps that control ants, spiders, wasps, bedbugs, fleas, flies, roaches, yellow jackets and other insects. In accordance with ASC Topic 805, Business Combinations (“ASC 805”), Spectrum Brands accounted for the acquisition by applying the acquisition method of accounting. The acquisition method of accounting requires that the consideration transferred in a business combination be measured at fair value as of the closing date of the acquisition.

The results of Black Flag’s operations since October 31, 2011 are included in the accompanying Condensed Consolidated Statements of Operations. The purchase price of $43,750, has been allocated to the acquired net assets, including $25,000 of identifiable intangible assets, $15,852 of goodwill, $2,509 of inventories, and $389 of properties and other assets, based upon a preliminary valuation. Spectrum Brands’ estimates and assumptions for this acquisition are subject to change as Spectrum Brands obtains additional information for its estimates during the respective measurement period. The primary areas of the purchase price allocation that are not yet finalized relate to certain legal matters and residual goodwill.

FURminator

On December 22, 2011, Spectrum Brands completed the $141,745 cash acquisition of FURminator, Inc. from HKW Capital Partners III, L.P. FURminator, Inc. is a leading worldwide provider of branded and patented deshedding products. In accordance with ASC 805, Spectrum Brands accounted for the acquisition by applying the acquisition method of accounting.

The results of FURminator operations since December 22, 2011 are included in the accompanying Condensed Consolidated Statements of Operations. The purchase price of $141,745 has been allocated to the acquired net assets, including $79,000 of identifiable intangible assets, $68,531 of goodwill, $9,240 of current assets, $648 of properties and $15,674 of current and long-term liabilities, based upon a preliminary valuation. Spectrum Brands’ estimates and assumptions for this acquisition are subject to change as Spectrum Brands obtains additional information for its estimates during the measurement period. The primary areas of the purchase price allocation that are not yet finalized relate to certain legal matters, income and non-income based taxes and residual goodwill.