Furthermore, as of June 30, 2018, the Company held a 51.0% ownership interest in Turning Point, which comprises a sizable portion of the Company’s consolidated financial results.
Revenues
For the three months ended June 30, 2018, the Company’s overall net sales increased 23.8% to $89.3 million as compared to $72.1 million for the three months ended June 30, 2017. The increase in net sales was primarily driven by $7.1 million of revenues from earned insurance premiums following the acquisition of Maidstone on January 2, 2018, along with an increase of $9.0 million driven by volume growth across all of the tobacco product segments in addition to Turning Point’s acquisition of Vapor Supply in the NewGen segment during the second quarter of 2018.
Operating Income
Operating income increased 7.3% to $14.1 million for the three months ended June 30, 2018 from $13.1 million in the prior year period. This increase is primarily due to growth in the tobacco segments and the inclusion of Vapor Supply and the insurance business in 2018 and was partially offset by corporate general and administrative expenses incurred by SDI, which were not included in the prior period.
Income Tax Expense
The Company’s income tax expense of $1.9 million was 19.1% of income before income taxes for the three months ended June 30, 2018, compared to $2.8 million for the three months ended June 30, 2017. SDI and Standard Outdoor contributed no income tax expense or benefit to the consolidated results for the three months ended June 30, 2018 because they had a net loss and a full valuation allowance. The decrease was primarily a result of the change in the federal tax rate from 35% to 21% and the change in the Kentucky (where Turning Point is headquartered) tax rate from 6% to 5%.
Net Income Attributable to SDI
For the three months ended June 30, 2018, net income attributable to SDI was $3.5 million, or $0.20 per diluted share based on 16.6 million weighted average Class A and Class B common shares outstanding, compared to $4.9 million, or $0.20 per diluted share based on 24.3 million weighted average Class A and Class B common shares outstanding for the three months ended June 30, 2017. This decrease is a result of the items discussed above, as well as the deduction of net income attributable to noncontrolling interests, which relates to the allocation of Turning Point net income to shareholders of Turning Point who are not SDI.
Balance Sheet / Available Liquidity
Standard Diversified had cash and cash equivalents totaling $4.6 million as of June 30, 2018. For the six months ended June 30, 2018, the Company had cash outflows from operating activities of $2.4 million primarily relating to payments of accrued liabilities and an increase in receivables.
Standard Diversified had a net cash outflow from investing activities of $19.9 million relating to acquisitions of Maidstone and two billboard sign businesses.
On February 2, 2018, Standard Diversified entered into a term loan agreement with Crystal Financial LLC (“Crystal Term Loan”). The Crystal Term Loan provides for an initial term loan of $10.0 million with an additional undrawn commitment of $15.0 million. Subject to the satisfaction of certain conditions, the Company may request an additional increase in the commitment of up to $25.0 million. The Crystal Term Loan bears interest at a rate equal to the three-month “Libor Rate” as published in The Wall Street Journal plus 7.25%. Interest under the Crystal Term Loan Agreement is payable monthly and is also subject to an initial commitment fee of $350,000 and an annual agency fee of $50,000. The principal balance is payable at maturity on February 2, 2023. The initial proceeds were used to finance a portion of the acquisition of certain billboard structures, certain fees and expenses, and provide working capital for the Company. In August 2018, the Company borrowed an additional $5.0 million under the Crystal Term loan. This additional borrowing is subject to the same terms as the initial borrowing.
