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EXHIBIT 99.4
BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
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BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
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PAGE
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Consolidated Balance Sheets as of June 30, 2000 and December 31, 1999............................... 2
Consolidated Statements of Operations for the three and six months ended
June 30, 2000 and June 30, 1999............................................................... 3
Consolidated Statement of Stockholder's Equity (Deficit) for the six months
ended June 30, 2000........................................................................... 4
Consolidated Statements of Cash Flows for the six months ended June 30,
2000 and June 30, 1999........................................................................ 5
Notes to Consolidated Financial Statements.......................................................... 6
</TABLE>
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BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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June 30, December 31,
2000 1999
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ASSETS
Current assets:
Cash and cash equivalents ............................ $ 2,276 $ 3,078
Accounts receivable - trade .......................... 11,743 11,648
Inventories .......................................... 21,226 18,086
Other current assets ................................. 2,784 1,066
--------- ---------
Total current assets .............................. 38,029 33,878
Property, plant and equipment, at cost, less
accumulated depreciation of $10,025 and $5,376 ... 122,004 116,169
Other .................................................. 2,820 3,272
--------- ---------
Total assets ...................................... $ 162,853 $ 153,319
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Credit facilities and current portion of notes payable $ 48,093 $ 39,982
Accounts payable - trade ............................. 40,974 32,412
Due to affiliates .................................... 970 394
Accrued taxes ........................................ 7,119 9,483
Accrued interest ..................................... 339 474
Other accrued liabilities ............................ 3,168 3,401
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Total current liabilities ......................... 100,663 86,146
Long-term portion of notes payable ..................... 10,022 12,578
Participating loan ..................................... 40,725 37,849
Other liabilities ...................................... 2,128 5,436
Commitments and contingencies...........................
Stockholder's equity:
Common stock, par value $1 per share, 701,000 shares
authorized, issued and outstanding ................ 701 701
Additional paid-in-capital ........................... 103,115 103,115
Deficit .............................................. (94,501) (92,506)
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Total stockholder's equity ........................ 9,315 11,310
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Total liabilities and stockholder's equity ........ $ 162,853 $ 153,319
========= =========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
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BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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Three Months Ended Six Months Ended
----------------------------------- -----------------------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
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Net sales* ........................... $ 49,068 $ 15,339 $ 89,329 $ 37,689
Cost of sales* ....................... 41,927 12,784 77,009 31,198
-------- -------- -------- --------
Gross profit ......................... 7,141 2,555 12,320 6,491
Operating, selling, administrative and
general expenses ................ 5,870 3,468 10,678 6,114
-------- -------- -------- --------
Operating income (loss) .............. 1,271 (913) 1,642 377
Other income (expense):
Interest expense .................. (3,774) (3,005) (7,311) (6,971)
Gain on sale of assets ............ 8,478
Gain on foreign currency exchange . 311 341 1,534 2,611
Other, net ........................ (164) 169 (193) 259
-------- -------- -------- --------
(Loss) income before income taxes .... (2,356) (3,408) (4,328) 4,754
Benefit for income taxes ............. (1,291) (164) (2,333) (1,880)
-------- -------- -------- --------
Net income ........................... $ (1,065) $ (3,244) $ (1,995) $ 6,634
======== ======== ======== ========
</TABLE>
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* Net sales and cost of sales include excise taxes of $5,951, $1,111, $10,611
and $2,596, respectively.
The accompanying notes are an integral part
of the consolidated financial statements.
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BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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COMMON STOCK ADDITIONAL
----------------------- PAID-IN
SHARES AMOUNT CAPITAL DEFICIT TOTAL
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Balance, December 31, 1999 701,000 $ 701 $103,115 $(92,506) $ 11,310
Net loss ................. (1,995) (1,995)
-------- -------- -------- -------- --------
Balance, June 30, 2000 ... 701,000 $ 701 $103,115 $(94,501) $ 9,315
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
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BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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SIX MONTHS ENDED
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JUNE 30, JUNE 30,
2000 1999
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Net cash provided by operating activities .... $ 2,978 $ 18,812
-------- --------
Cash flows from investing activities:
Capital expenditures ................... (10,505) (30,565)
-------- --------
Net cash used in investing activities ........ (10,505) (30,565)
-------- --------
Cash flows from financing activities:
Repayments of debt ..................... (155)
Borrowings under credit facilities ..... 26,000 10,959
Repayment under credit facilities ...... (19,142)
-------- --------
Net cash provided by financing activities .... 6,858 10,804
-------- --------
Effect of currency rate translation on cash .. (133) (631)
-------- --------
Net decrease in cash and cash equivalents .... (802) (1,580)
Cash and cash equivalents, beginning of period 3,078 2,722
-------- --------
Cash and cash equivalents, end of period ..... $ 2,276 $ 1,142
======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
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BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. ORGANIZATION
Brooke (Overseas) Ltd. ("the Company"), a Delaware corporation, is a
wholly-owned subsidiary of BGLS Inc. ("BGLS") and an indirect
subsidiary of Vector Group Ltd. ("Vector"). The consolidated financial
statements of the Company include Western Tobacco Investments LLC
("Western Tobacco Investments"), a Delaware limited liability company.
Prior to its sale in August 2000, Western Tobacco Investments held the
Company's 99.9% equity interest in Liggett-Ducat Ltd.
("Liggett-Ducat"), a Russian closed joint stock company engaged in the
manufacture and sale of cigarettes in Russia, and Liggett-Ducat Tobacco
Ltd., a wholly-owned subsidiary of Liggett-Ducat which recently
completed construction of a new cigarette factory. (Refer to Note 2.)
The interim consolidated financial statements of the Company are
unaudited and, in the opinion of management, reflect all adjustments
necessary (which are normal and recurring) to present fairly the
Company's consolidated financial position, results of operations and
cash flows. These consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements and
the notes thereto included as Exhibit 99.4 in Vector's and BGLS' Annual
Report on Form 10-K for the year ended December 31, 1999, as filed with
the Securities and Exchange Commission. The consolidated results of
operations for interim periods should not be regarded as necessarily
indicative of the results that may be expected for the entire year.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities and
the reported amounts of revenues and expenses. Actual results could
differ from those estimates.
Certain amounts in the 1999 consolidated financial statements have been
reclassified to conform to the 2000 presentation.
2. SALE OF WESTERN TOBACCO INVESTMENTS
On August 4, 2000, the Company completed the sale of Western Tobacco
Investments to Gallaher Overseas (Holdings) Ltd. The purchase price for
the sale consisted of $334,100 in cash and $64,400 in assumed debt and
capital commitments. The proceeds generated from the sale were divided
among the Company and Western Realty Development LLC ("Western Realty
Development"), a joint venture of New Valley Corporation ("New
Valley"), a 55.9%-owned subsidiary of Vector, and Apollo Real Estate
Investment Fund III, L.P. ("Apollo"), which provided financing. (Refer
to Note 7.) Of the cash proceeds from the transaction after estimated
closing expenses, the Company received approximately $200,000.
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BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)
(UNAUDITED)
3. SALE OF BROOKEMIL
In connection with the sale by the Company of its 99.1% of the
outstanding shares of BrookeMil Ltd. ("BrookeMil") to New Valley in
1997, a portion of the gain was deferred in recognition of the fact
that the Company's parent, BGLS, retained an interest in BrookeMil
through its then 42% equity ownership of New Valley and that a portion
of the property sold (the site of the third phase of the Ducat Place
real estate project being developed by BrookeMil) was subject to a put
option held by New Valley. The option expired when Liggett-Ducat ceased
factory operations at the site in March 1999. The Company recognized
that portion of the deferred gain, $8,478, in March 1999.
4. INVENTORIES
Inventories consist of:
JUNE 30, DECEMBER 31,
2000 1999
-------------- --------------
Leaf tobacco............................. $ 6,716 $ 6,727
Other raw materials...................... 7,321 4,582
Work-in-process.......................... 788 959
Finished goods........................... 2,504 3,201
Replacement parts and supplies........... 3,897 2,617
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$21,226 $18,086
======= =======
At June 30, 2000, the Company had leaf tobacco purchase commitments of
approximately $49,388.
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
JUNE 30, DECEMBER 31,
2000 1999
------------- --------------
Buildings................................ $ 47,524 $ 46,510
Factory machinery and equipment.......... 71,158 64,385
Computers and software................... 2,378 1,343
Office furniture and equipment........... 1,669 1,205
Vehicles................................. 4,182 3,839
Construction-in-progress................. 5,118 4,263
-------- --------
132,029 121,545
Less accumulated depreciation............ (10,025) (5,376)
-------- --------
$122,004 $116,169
======== ========
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BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)
(UNAUDITED)
6. CREDIT FACILITIES AND NOTES PAYABLE
Credit facilities and notes payable consist of the following:
JUNE 30, DECEMBER 31,
2000 1999
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Notes payable................................. $ 20,915 $ 23,090
Credit facilities............................. 37,200 29,470
-------- --------
Total notes payable and credit facilities..... 58,115 52,560
Less current portion.......................... (48,093) (39,982)
-------- --------
Amount due after one year..................... $ 10,022 $ 12,578
======== ========
At June 30, 2000, Liggett-Ducat had various credit facilities with
Russian banks under which $37,200 was outstanding. The facilities bear
interest at rates of 13% to 20% per annum and expire within the next
twelve months. The facilities are collateralized by the new factory
building, factory equipment and tobacco inventory.
Western Tobacco Investments has entered into several contracts for the
purchase of cigarette manufacturing equipment. Approximately 85% of the
amount of the contracts were financed with promissory notes generally
payable over a period of five years. The outstanding balance on these
notes, which are denominated in various European currencies, was
$15,892 at June 30, 2000. In addition, at June 30, 2000, the Company
had several short-term notes payable totaling approximately $5,023 for
additional equipment purchases. The terms of these notes ranged from
four to twelve months and carried interest rates of up to 16%. The
Company paid in full a promissory note for approximately $1,290 due
March 31, 2000.
In connection with the sale of Western Tobacco Investments on August 4,
2000, all of the credit facilities, notes payable and other obligations
of Western Tobacco Investments and Liggett-Ducat were assumed by the
purchaser.
7. PARTICIPATING LOAN
In February 1998, New Valley and Apollo organized Western Realty
Development to make real estate and other investments in Russia.
Western Realty Development made a $30,000 participating loan to Western
Tobacco Investments with the proceeds used by the Company to reduce
intercompany debt to BGLS and for payments on the new factory
construction contracts. As a result of the sale of Western Tobacco
Investments, Western Realty Development was entitled to receive the
return of all amounts advanced on the loan, together with a 15% annual
rate of return, and 30% of subsequent distributions. The Company
recognized net interest expense of $1,464 and $2,876 for the three and
six months ended June 30, 2000, which represented a 15% cumulative
adjustment to realizable value on the loan and 30% of any net expense
applicable to common interests in Western Tobacco Investments. The loan
was repaid and terminated in connection with the sale of Western
Tobacco Investments on August 4, 2000.
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BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)
(UNAUDITED)
8. INCOME TAXES
For the three and six months ended June 30, 2000, the tax benefit
consists of U.S. income tax benefit of $1,291 and $2,333, respectively,
in accordance with the Company's tax sharing agreement with Vector. In
connection with the construction of its new cigarette factory,
Liggett-Ducat received an exemption from Russian taxes on income from
certain production lines for the 2000 tax year. Such exemption resulted
in no provision for Russian taxes being recorded.
For the six months ended June 30, 1999, the tax benefit of $164 and
$1,880, respectively, consists of income tax expense pursuant to
Russian statutory requirements of $655 and $171, respectively, and U.S.
income tax benefit of $819 and $2,051, respectively, in accordance with
the Company's tax sharing agreement with Vector.
9. CONTINGENCIES
BGLS NOTES. BGLS has pledged its ownership interest in the Company's
common stock as collateral in connection with the issuance of BGLS'
15.75% Senior Secured Notes due 2001. In connection with the sale of
Western Tobacco Investments on August 4, 2000, BGLS repurchased a
portion of the notes and called the remaining notes for redemption on
September 5, 2000.
OPERATING ENVIRONMENT. The Russian Federation continues to experience
economic difficulties following the financial crisis of August 1998.
Consequently, the country's currency continues to devalue, there is
continued volatility in the debt and equity markets, hyperinflation
persists, confidence in the banking sector has yet to be restored and
there continues to be a general lack of liquidity in the economy. In
addition, laws and regulations affecting businesses operating within
the Russian Federation continue to evolve.
The Russian Federation's return to economic stability is dependent to a
large extent on the effectiveness of the measures taken by the
government, decisions of international lending organizations, and other
actions, including regulatory and political developments, which are
beyond the Company's control. No adjustments related to these
uncertainties have been included in these consolidated financial
statements.
TAXATION. Russian tax legislation is subject to varying interpretations
and changes occurring frequently. Further, the interpretation of tax
legislation by tax authorities as applied to the transactions and
activity of the Company may not coincide with that of management. As a
result, transactions may be challenged by tax authorities and the
Company may be assessed additional taxes, penalties and interest, which
can be significant.
Management regularly reviews the Company's taxation compliance with
applicable legislation, laws and decrees and current interpretations
and from time to time potential exposures are identified. At any point
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BROOKE (OVERSEAS) LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)
(UNAUDITED)
in time, a number of open matters may exist; however, management
believes that adequate provision has been made for all material
liabilities. The periods remain open to review by the tax and customs
authorities with respect to tax payments for three years.
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