Investor Relations

Non-GAAP and Other Financial Measures

The Hartford includes in its public disclosures financial measures that are not calculated based on generally accepted accounting principles (“non-GAAP”). The Hartford uses non-GAAP and other financial measures to assist investors in analyzing the Company’s operating performance. Because The Hartford’s calculation of these measures may differ from similar measures used by other companies, investors should be careful when comparing The Hartford’s non-GAAP and other financial measures to those of other companies.

Many of the non-GAAP and other financial measures used by The Hartford are included in The Hartford’s quarterly Investor Financial Supplement. An explanation of those measures, including for each non-GAAP financial measure a reconciliation to the most directly comparable GAAP measure, is set forth in each Investor Financial Supplement.

The Hartford provides the non-GAAP financial measure core earnings (losses) and also provides this non-GAAP financial measure on a per diluted common share basis. The Hartford believes that these measures provide investors with a valuable measure of the performance of the company's ongoing businesses because it reveals trends in the company's insurance and financial services businesses that may be obscured by the net effect of certain realized capital gains and losses. Some realized capital gains and losses are primarily driven by investment decisions and external economic developments, the nature and timing of which are unrelated to the insurance and underwriting aspects of the company's business.

Accordingly, core earnings (losses) and core earnings (losses) per diluted common share exclude the effects of all realized capital gains and losses (net of tax and the effects of deferred policy acquisition costs) that tend to be highly variable from period to period based on capital market conditions. The Hartford believes, however, that some realized capital gains and losses are integrally related to the company's insurance operations, so core earnings (losses) and core earnings (losses) per diluted common share include net realized capital gains and losses such as net periodic settlements on credit derivatives and net periodic settlements on the Japan fixed annuity cross-currency swap. These net realized capital gains and losses are directly related to an offsetting item included in the statement of operations such as net investment income (loss). Core earnings (losses) and core earnings (losses) per diluted common share are also used by management to assess the company's operating performance and is one of the measures considered in determining incentive compensation for the company's managers.

Net income (loss) and net income (loss) per diluted common share are the most directly comparable GAAP measures. Core earnings (losses) and core earnings (losses) per diluted common share should not be considered as a substitute for net income (loss) and net income (loss) per diluted common share and does not reflect the overall profitability of the company's business. Therefore, The Hartford believes that it is useful for investors to evaluate both net income (loss) and net income (loss) per diluted common share and core earnings (losses) and core earnings (losses) per diluted common share when reviewing the company's performance.

A reconciliation of net income (loss) and net income (loss) per diluted common share to these non-GAAP financial measures described above, for the five-year period ended December 31, 2009 is set forth below.

  YEAR ENDED
DECEMBER 31,
(in millions, except for per share data) 2005 2006 2007 2008 2009
Net income (loss) $2,274 $2,745 $2,949 $(2,749) $(887)
   Less: Preferred Stock dividends - - - 8 127
Net income (loss) available to common shareholders 2,274 2,745 2,949 (2,757) (1,014)
   Less: Net realized capital gains (losses), net of tax and deffered policy acquisition cost ("DAC"), excluded from core earnings [1] 32 (120) (558) (3,607) (1,683)
   Add: Preferred Stock dividends - - - 8 -
Core earnings, as adjusted for the foregoing items $2,242 $2,865 $3,507 $858 $669
 
Weighted average common shares outstanding and dilutive potential common shares [2] 305.6 315.9 319.1 306.7 346.3
 
Diluted earnings (losses) per common share
Net income (loss) available to common shareholders $7.44 $8.69 $9.24 $(8.99) $(2.93)
   Less: Difference arising from shares used for the denominator between net loss and core earnings - - - (0.18) (0.13)
   Less: Net realized capital gains (losses), net of tax and DAC, excluded from core earnings 0.10 (0.38) (1.75) (11.52) (4.65)
   Add: Preferred Stock dividends - - - 0.03 -
Core earnings, as adjusted for the foregoing items [3] $7.34 $9.07 $10.99 $ 2.74 $1.85
[1] Components of net realized capital gains (losses), net of tax and DAC, excluded from core earnings (losses):  
Total net realized capital gains (losses), before-tax and DAC, excluded from core earnings (losses) $52 $(206) $(977) $(5,916) $(1,952)
Less: Impacts of DAC 2 41 (123) (337) 521
Less: Impacts of tax 18 (127) (296) (1,972) (790)
Total net realized capital gains (losses), net of tax and DAC, excluded from core earnings (losses) $32 $(120) $(558) $(3,607) $(1,683)

[2] As a result of the antidilutive impact from the net loss for the years ended December 31, 2008 and 2009, The Hartford is required by generally accepted accounting principles to use basic weighted average shares in the calculation of diluted earnings per common share. In the absence of the net loss, for the years ended December 31, 2008 and 2009, weighted average common shares outstanding and dilutive potential common shares of 313.0 and 361.8, respectively, would have been used in the calculation of net income (loss) per diluted common share. Weighted average common shares outstanding and dilutive potential common shares of 313.0 and 361.8, respectively, were used in the calculation of core earnings per diluted common share, due to core earnings for the years ended December 31, 2008 and 2009.

A reconciliation of net income (loss) and net income (loss) per diluted common share to these non-GAAP financial measures described above, for the three months ended December 31, 2008 and 2009 is set forth below.


  THREE MONTHS ENDED DECEMBER 31,
(in millions, except for per share data) 2008 2009
Net income (loss) $(806) $557
  Less: Preferred stock dividends and accretion of discount 8 62
Net income (loss) available to common shareholders (814) 495
  Less: Net realized capital losses, net of tax and deferred policy acquisition costs ("DAC"), excluded from core earnings (losses) [1] (598) (132)
Core earnings (losses) available to common shareholders $(216) $627
 
Weighted average common shares outstanding and dilutive potential common shares (diluted) [2] 300.2 416.2
 
Diluted earnings (losses) per common share [2]    
Net income (loss) available to common shareholders $(2.71) $1.19
  Less: Net realized capital losses, net of tax and DAC, excluded from core earnings (losses) (1.99) (0.32)
Core earnings (losses) available to common shareholders $(0.72) $1.51
 
[1] Components of net realized capital losses, net of tax and DAC, excluded from core earnings (losses):    
  Total net realized capital losses, before-tax and DAC, excluded from core earnings (losses) $(810) $(184)
    Less: Impacts of DAC 147 (3)
    Less: Impacts of tax (359) (49)
  Core earnings (losses) available to common shareholders $(598) $(132)
 
[2] As a result of the antidilutive impact from the net loss and core loss in the three months ended December 31, 2008, The Hartford is required by generally accepted accounting principles to use basic weighted average shares in the calculation of diluted earnings per share. In the absence of the losses, 320.9 weighted average common shares outstanding and dilutive potential common shares would have been used in the calculation of diluted earnings per share.