The Hartford 2008 Annual Report Download - page 471

Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
21. Investment by Allianz SE in The Hartford (continued)
Warrants
The Warrants, which have a term of seven years, are exercisable to purchase 69,115,324 shares of common stock at an
initial exercise price of $25.32 per share. The exercise price under the Warrants is subject to adjustment in certain
circumstances. Pending the receipt of specified regulatory approvals, the Warrants are immediately exercisable for the
Series B Preferred Stock, which are initially convertible, in the aggregate, into 34,806,452 shares of common stock. The
Warrants to purchase the Series B Preferred Stock are reported as equity and were allocated a relative fair value of $276 at
issuance.
In addition to the receipt of specified regulatory approvals, the conversion into 34,308,872 shares of common stock of the
Series C Preferred Stock underlying certain of the Warrants is subject to the approval of the Company’s stockholders in
accordance with applicable regulations of the New York Stock Exchange. Under the Investment Agreement, the Company is
obligated to pay Allianz $75 if such stockholder approval is not obtained at the first stockholder meeting to consider such
approval, and $50 if such stockholder approval is not obtained at a second such meeting. Because the conversion of the
Series C Preferred Stock is subject to stockholder approval and the related payment provision represents a form of net cash
settlement outside the Company’s control, the Warrants to purchase the Series C Preferred Stock and the stockholder
approval payment were recorded as a derivative liability at a relative fair value of $273 at issuance. As of December 31,
2008, the Warrants to purchase the Series C Preferred Stock had a fair value of $163. The Company recognized a gain of
$110, after-tax, for the year ended December 31, 2008, representing the change in fair value of the Warrants to purchase the
Series C Preferred Stock.
22. Quarterly Results For 2008 and 2007 (unaudited)
Three Months Ended
March 31, June 30, September 30, December 31,
2008 2007 2008 2007 2008 2007 2008 2007
Revenues [1] $ 1,544 $ 6,759 $ 7,503 $ 7,660 $ (393) $ 5,823 $ 565 $ 5,674
Benefits, losses and expenses $ 1,453 $ 5,547 $ 6,851 $ 6,823 $ 3,790 $ 4,648 $ 1,716 $ 4,893
Net income (loss) [2] $ 145 $ 876 $ 543 $ 627 $ (2,631) $ 851 $ (806) $ 595
Basic earnings (losses) per
share [3] $ 0.46 $ 2.74 $ 1.74 $ 1.98 $ (8.74) $ 2.70 $ (2.71) $ 1.90
Diluted earnings (losses) per
share [4] $ 0.46 $ 2.71 $ 1.73 $ 1.96 $ (8.74) $ 2.68 $ (2.71) $ 1.88
Weighted average common
shares outstanding 313.8 319.6 311.7 316.8 301.1 315.4 300.2 313.4
Weighted average common
shares outstanding and
dilutive potential common
shares 315.7 322.7 313.1 319.6 301.1 318.0 300.2 316.1
[1] Included in the three months ended September 30, 2008 and December 31, 2008 are net investment losses of
$3.4 billion and $4.5 billion, respectively, related to the mark-to-market effects of equity securities held for trading
supporting the International variable annuity business and net realized capital losses of $3.4 billion and $816,
respectively
[2] Included in the three months ended September 30, 2008 are net realized capital losses of $2.2 billion and a DAC
unlock charge of $932. Included in the three months ended December 31, 2008 is an after-tax charge of $597 related to
goodwill impairments and net realized capital losses of $610.
[3] Due to the net loss for the three months ended December 31, 2008, no allocation of the net loss was made to the
preferred shareholders under the two-class method in the calculation of basic earnings per share, as the preferred
shareholders had no contractual obligation to fund the net losses of the Company. In the absence of the net loss, any
such income would be allocated to the preferred shareholders based on the weighted average number of preferred
shares outstanding as of December 31, 2008.
[4] As a result of the net loss in the three months ended September 30, 2008 and December 31, 2008, SFAS 128 requires
the Company to use basic weighted average common shares outstanding in the calculation of the year ended
December 31, 2008 diluted loss per share, since the inclusion of shares for stock compensation plans of 1.0 million and
0.6 million, respectively, and the assumed conversion of the preferred shares to common of 0 and 20.1 million,
respectively, would have been antidilutive to the earnings per share calculation. In the absence of the net loss, weighted
average common shares outstanding and dilutive potential common shares would have totaled 302.1 million and 320.9
million, respectively.
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009