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Acquisitions
 9 Months Ended
Jul. 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 (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. Effective April 1, 2012, the Company finalized such provisional amounts which were previously disclosed in the Form 10-K as of September 30, 2011.

The following table summarizes the provisional and final amounts recognized at fair value for each major class of assets acquired and liabilities assumed as of the FGL Acquisition date:

 

                         
    Provisional
Amounts		     Measurement
Period
Adjustments		     Final
Amounts		  

Investments, cash and accrued investment income, including cash acquired of $1,040,470

   $ 17,705,419     $ —       $ 17,705,419  

Reinsurance recoverable

     929,817       15,246       945,063  

Intangible assets (VOBA)

     577,163       —         577,163  

Deferred tax assets

     256,584       (3,912 )      252,672  

Other assets

     72,801       —         72,801  
   

 

 

    

 

 

    

 

 

  

Total assets acquired

     19,541,784       11,334       19,553,118  
   

 

 

    

 

 

    

 

 

  

Contractholder funds and future policy benefits

     18,415,022       —         18,415,022  

Liability for policy and contract claims

     60,400       —         60,400  

Note payable

     95,000       —         95,000  

Other liabilities

     475,285       4,070       479,355  
   

 

 

    

 

 

    

 

 

  

Total liabilities assumed

     19,045,707       4,070       19,049,777  
   

 

 

    

 

 

    

 

 

  

Net assets acquired

     496,077       7,264       503,341  

Cash consideration, net of $5,000 re-characterized as expense

     345,000       —         345,000  
   

 

 

    

 

 

    

 

 

  

Bargain purchase gain

   $ 151,077     $ 7,264     $ 158,341  
   

 

 

    

 

 

    

 

 

  

Reinsurance Transactions

On January 26, 2011, HFG entered into the Commitment Agreement committing Wilton Re to enter into one of 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. Of the ongoing settlement adjustments resolved with Wilton Re, as discussed in Note 9, it was determined that $11,176, less $3,912 of deferred income taxes, related to the pre-acquisition period, and were reflected as measurement period adjustments to the initial purchase price allocation.

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 sought 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.

The Front Street Reinsurance Transaction required the approval of the Maryland Insurance Administration (the “MIA”). The F&G Stock Purchase Agreement provides that, 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 MIA or is approved subject to certain restrictions or conditions. FGL received written notice, dated January 10, 2012, from the MIA, rejecting the Front Street Reinsurance Transaction, as proposed by the respective parties. HGI is pursuing all available options to recover the full purchase price reduction, including the commencement of litigation against the seller; however, the outcome of any such action is subject to risk and uncertainty and there can be no assurance that any or all of the $50,000 purchase price reduction will be obtained by HGI.

Prior to the receipt of the written rejection notice from the MIA, management believed, based on the facts and circumstances at that time, that the likelihood was remote that the purchase price would be required to be reduced. Therefore a fair value of zero had been assigned to the contingent purchase price reduction as of the FGL Acquisition date and at each subsequent quarterly remeasurement date through January 1, 2012. Management now believes that it is near certain that the purchase price will be required to be reduced by the full $50,000 amount and has estimated a fair value of $41,000 for the contingent receivable as of July 1, 2012 (essentially unchanged from April 1, 2012), reflecting appropriate discounts for potential litigation and regulatory action, length of time until expected payment is received and a credit insurance risk premium. Such $41,000 estimated fair value of the contingent receivable has been reflected in “Receivables, net” in the Condensed Consolidated Balance Sheet as of July 1, 2012 with a corresponding credit to “Gain on contingent purchase price reduction” in the Condensed Consolidated Statement of Operations for the nine months ended July 1, 2012.

 

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 full nine month period ended July 3, 2011 instead of only for the historical three months ended July 3, 2011.

 

         
    Nine Months
Ended
July 3, 2011		  

Revenues:

        

Reported revenues (a)

   $ 2,589,241  

FGL adjustment (b)

     685,767  
   

 

 

  

Pro forma revenues

   $ 3,275,008  
   

 

 

  

Net income:

        

Reported net income (a)

   $ 116,473  

FGL adjustment (b)

     84,912  
   

 

 

  

Pro forma net income

   $ 201,385  
   

 

 

  

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

        

Reported net income per common share

   $ 0.71  

FGL adjustment

     0.46  
   

 

 

  

Pro forma net income per common share

   $ 1.17  
   

 

 

  

 

(a)

Reported revenues and net income for the nine months ended July 3, 2011 include the actual results of FGL for the approximate three month period subsequent to April 6, 2011. Reported net income also includes the $158,341 non-recurring bargain purchase gain which was recorded as of the FGL Acquisition date, and reflects the retrospective measurement period adjustments disclosed above.

 

(b)

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 OMGUK 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); and

 

  •  

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.

 

Other Acquisitions

During the nine month period ended July 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 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 measurement period. The primary areas of the acquisition accounting 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. (“FURminator”) from HKW Capital Partners III, L.P. FURminator is a leading worldwide provider of branded and patented pet 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 acquisition accounting that are not yet finalized relate to certain legal matters, income and non-income based taxes and residual goodwill.

Acquisition and Integration Related Charges

Acquisition and integration related charges reflected in “Selling, general and administrative expenses” include, but are not limited to transaction costs such as banking, legal and accounting professional fees directly related to an acquisition or potential acquisition, termination and related costs for transitional and certain other employees, integration related professional fees and other post business combination related expenses. Such charges for the three and nine month periods ended July 1, 2012 relate primarily to the Spectrum Brands merger with Russell Hobbs, Inc. (the “SB/RH Merger”) and for the three and nine month periods ended July 3, 2011 relate primarily to the SB/RH Merger, the FGL Acquisition and the Spectrum Brands Acquisition.

 

The following table summarizes acquisition and integration related charges incurred by the Company for the three and nine month periods ended July 1, 2012 and July 3, 2011:

 

                                 
    Three Month Period Ended     Nine Month Period Ended  
    July 1, 2012     July 3, 2011     July 1, 2012     July 3, 2011  

SB/RH Merger

                                

Integration costs

   $ 1,573     $ 6,718     $ 6,766     $ 22,088  

Employee termination charges

     840       310       3,356       5,206  

Legal and professional fees

     587       360       1,508       3,949  
   

 

 

    

 

 

    

 

 

    

 

 

  
      3,000       7,388       11,630       31,243  

FGL

     —         1,945       —         22,738  

Spectrum Brands

     —         104       —         1,055  

FURminator

     1,738       —         6,337       —    

BlackFlag

     95       —         1,912       —    

Other

     657       880       3,056       2,484  
   

 

 

    

 

 

    

 

 

    

 

 

  

Total acquisition and integration related charges

   $ 5,490     $ 10,317     $ 22,935     $ 57,520