1
EXHIBIT 99.2
TABLE OF CONTENTS
FINANCIAL STATEMENTS - NEW VALLEY CORPORATION
Page
----
Consolidated Balance Sheets as of September 30, 1996 and
December 31, 1995......................................... 3
Consolidated Statements of Operations for the three months
and nine months ended September 30, 1996 and 1995......... 4
Consolidated Statement of Changes in Non-Redeemable
Preferred Shares, Common Shares and Other Capital
(Deficit) for the nine months ended September 30, 1996.... 5
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1996 and 1995......................... 6
Notes to the Quarterly Consolidated Financial Statements..... 7
2
NEW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
September 30, December 31,
1996 1995
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 38,559 $ 51,742
Investment securities 164,592 241,526
Restricted assets 1,469 22,919
Receivable from clearing brokers 22,671 13,752
Other current assets 6,874 3,546
--------- ---------
Total current assets 234,165 333,485
--------- ---------
Investment in real estate 182,125
Investment securities 517 517
Restricted assets 7,525 15,086
Long-term investments 12,876 29,512
Other assets 16,181 7,222
--------- ---------
Total assets $ 453,389 $ 385,822
========= =========
LIABILITIES AND CAPITAL (DEFICIT)
Current liabilities:
Margin loan payable $ 75,863 $ 75,119
Accounts payable and accrued liabilities 37,278 27,712
Prepetition claims and restructuring accruals 26,669 33,392
Income taxes 17,254 20,283
Securities sold, not yet purchased 22,804 13,047
Current portion of long-term liabilities 3,424 8,367
---------- ---------
Total current liabilities 183,292 177,920
---------- ---------
Notes payable 159,494
Other long-term liabilities 12,966 11,967
Redeemable preferred shares 201,318 226,396
Non-redeemable preferred shares, Common Shares and
capital (deficit):
Cumulative preferred shares; liquidation preference of
$69,769; dividends in arrears: $110,476 and $95,118 279 279
Common Shares, $.01 par value; 850,000,000 shares
authorized; 9,577,624 and 191,551,586 shares
outstanding 96 1,916
Additional paid-in capital 654,007 679,058
Accumulated deficit (736,454) (714,364)
Unrealized gain (loss) on investment
securities, net of taxes (21,609) 2,650
--------- ---------
Total non-redeemable preferred shares, Common
Shares and other capital (deficit) (103,681) (30,461)
--------- ---------
Total liabilities and capital (deficit) $ 453,389 $ 385,822
========= =========
See accompanying Notes to Quarterly Consolidated Financial Statements
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NEW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Ended Nine Months Ended
--------------------- ----------------------
September 30, September 30,
--------------------- ----------------------
1996 1995 1996 1995
---------- --------- ---------- ----------
Revenues:
Principal transactions, net $ 3,926 $ 7,864 $ 18,836 $ 10,465
Commissions 4,700 4,161 13,383 5,899
Real estate leasing 5,941 17,605
Computer sales and service 2,987 9,084
Interest and dividends 4,230 3,947 14,056 14,516
Other income 2,479 5,542 19,830 8,335
-------- -------- -------- --------
Total revenues 24,263 21,514 92,794 39,215
-------- -------- -------- --------
Cost and expenses:
Operating, general and administrative 28,373 18,194 96,757 27,864
Interest 4,627 242 13,890 369
Reversal of restructuring accruals (2,044)
-------- -------- -------- --------
Total costs and expenses 33,000 18,436 110,647 26,189
-------- -------- -------- --------
Income (loss) from continuing operations before income taxes
and minority interest (8,737) 3,078 (17,853) 13,026
Income tax benefit (expense) 233 (294) (67) (1,327)
-------- -------- -------- --------
Income (loss) from continuing operations
before minority interest (8,504) 2,784 (17,920) 11,699
Minority interest benefit 776 1,226
-------- -------- -------- --------
Income (loss) from continuing operations (7,728) 2,784 (16,694) 11,699
Discontinued operations:
Income (loss) from discontinued operations,
net of income taxes and minority interest (4,716) 235 (5,396) 4,315
-------- -------- -------- --------
Net income (loss) (12,444) 3,019 (22,090) 16,014
Dividends on preferred shares - undeclared (15,400) (17,597) (46,508) (56,656)
Excess of carrying value of redeemable preferred
shares over cost of shares purchased 6,718 4,279 40,342
-------- -------- -------- --------
Net loss applicable to Common Shares $(27,844) $ (7,860) $(64,319) $ (300)
======== ======== ======== ========
Income (loss) per common and equivalent share:
Continuing operations $ (2.42) $ (.84) $ (6.16) $ (.48)
Discontinued operations (.49) .02 (.56) .45
-------- -------- -------- --------
Net loss per Common Share $ (2.91) $ (.82) $ (6.72) $ (.03)
======== ======== ======== ========
Number of shares used in computation 9,578 9,578 9,578 9,543
======== ======== ======== ========
Supplemental information:
Additional interest absent Chapter 11 filing $ 2,314
========
See accompanying Notes to Quarterly Consolidated Financial Statements
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NEW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN NON-REDEEMABLE PREFERRED
SHARES, COMMON SHARES AND OTHER CAPITAL (DEFICIT)
(IN THOUSANDS)
(UNAUDITED)
$3.00 Class B
Preferred Shares Common Shares Additional
----------------- ------------- Paid-In Acumulated Unrealized
Shares Amount Shares Amount Capital Deficit Gain (Loss)
------ ------ --------- ------ ---------- ------- -----------
Balance, December 31, 1995 2,791 $279 191,551 $1,916 $679,058 $(714,364) $ 2,650
Net loss (22,090)
Undeclared dividends and accretion
on redeemable preferred shares (31,150)
Purchase of redeemable preferred
shares 4,279
Unrealized loss in marketable
securities (24,259)
Effect of 1-for-20 reverse stock split (181,974) (1,820) 1,820
Conversion of preferred shares 1
----- ---- --------- ------- -------- ---------- --------
Balance, September 30, 1996 2,791 $279 9,578 $96 $654,007 $(736,454) $(21,609)
===== ==== ========= ======= ======== ========== ========
See accompanying Notes to Quarterly Consolidated Financial Statements
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NEW VALLEY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
September 30,
1996 1995
---------- -----------
Cash flows from operating activities:
Net income (loss) $(22,090) $ 16,014
Adjustments to reconcile net income to net
cash used for operating activities:
(Income) loss from discontinued operations 5,396 (4,315)
Depreciation and amortization 3,507
Reversal of restructuring accruals (2,044)
Changes in assets and liabilities, net of effects from
acquisition:
Decrease (increase) in receivables and other assets (5,963) 1,925
Decrease in income taxes (3,029) (30,996)
Increase in accounts payable and accrued liabilities 8,786 8,197
-------- --------
Net cash used for operating activities (13,393) (11,219)
-------- --------
Cash flows from investing activities:
Purchase of real estate and related improvements (24,882)
Payment of prepetition claims (6,723) (571,841)
Collection of contract receivable 300,000
Decrease in restricted assets 29,011 325,718
Sale or maturity of investment securities 70,319 95,796
Purchase of investment securities (17,644) (293,518)
Sale or liquidation of long-term investments 14,500
Purchase of long-term investments (2,639) (65,550)
Payment for acquisition, net of cash acquired 1,915 (25,853)
-------- --------
Net cash provided from (used for) investing activities 63,857 (235,248)
-------- --------
Cash flows from financing activities:
Payment of preferred dividends (41,419) (132,162)
Purchase of redeemable preferred shares (10,530) (47,761)
Increase in margin loans payable 744 54,945
Repayment of long-term liabilities (8,888) (7,561)
Exercise of stock options 565
--------- --------
Net cash used for financing activities (60,093) (131,974)
-------- --------
Net cash (used for) provided from discontinued operations (3,554) 7,002
-------- --------
Net decrease in cash and cash equivalents (13,183) (371,439)
Cash and cash equivalents, beginning of period 51,742 376,170
-------- --------
Cash and cash equivalents, end of period $ 38,559 $ 4,731
======== ========
Supplemental Cash Flow Information:
Cash payments for income taxes $ 4,171 $ 33,025
======== ========
See accompanying Notes to Quarterly Consolidated Financial Statements
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NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. PRINCIPLES OF REPORTING
The consolidated financial statements include the accounts of New Valley
Corporation and Subsidiaries (the "Company"). The consolidated financial
statements as of September 30, 1996 presented herein have been prepared by
the Company without an audit. In the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the financial position as of September 30, 1996 and the results of operations
and cash flows for all periods presented have been made. Results for the
interim periods are not necessarily indicative of the results 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 disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
These financial statements should be read in conjunction with the
consolidated financial statements and the notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, as
filed with the Securities and Exchange Commission.
Reincorporation and Reverse Stock Split. On July 29, 1996, the Company
completed its reincorporation from the State of New York to the State of
Delaware and effected a one-for-twenty reverse stock split of the Company's
Common Shares. These changes were approved by the Company's shareholders at
the annual shareholders' meeting held on June 25, 1996. In connection with
the reverse stock split, all per share data have been restated to reflect
retroactively the reverse stock split and a total of $1,820 was reclassified
from the Company's Common Shares account to the Company's additional paid-in
capital account.
Real Estate Leasing Revenues. The real estate properties are being leased
to tenants under operating leases. Base rental revenue is generally
recognized on a straight-line basis over the term of the lease. The lease
agreements for certain properties generally contain provisions which provide
for reimbursement of real estate taxes and operating expenses over base year
amounts, and in certain cases as fixed increases in rent. In addition, the
lease agreements for certain tenants provide additional rentals based upon
revenues in excess of base amounts.
Revenue Recognition of Computer Sales and Services. Product revenues are
recognized when the equipment is shipped or, in certain circumstances, upon
product acceptance by the customer if it occurs prior to shipment. Contract
revenues are recognized as the related costs are incurred. Service revenues
are recognized over the period in which the services are provided.
2. ACQUISITIONS
On January 10 and January 11, 1996, the Company acquired four commercial
office buildings (the "Office Buildings") and eight shopping centers (the
"Shopping Centers") for an aggregate purchase price of $183,900, consisting
of $23,900 in cash and $160,000 in
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NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
non-recourse mortgage financing. In addition, the Company has capitalized
approximately $800 in costs related to the acquisitions. The Company paid
$11,400 in cash and executed four promissory notes aggregating $100,000 for
the Office Buildings. The Office Building notes bear interest at 7.5% and
have terms of ten to fifteen years. The Shopping Centers were acquired for
an aggregate purchase price of $72,500, consisting of $12,500 in cash and
$60,000 in eight promissory notes. Each Shopping Center note has a term of
five years, and bears interest at the rate of 8% for the first two and
one-half years and at the rate of 9% for the remainder of the term.
The components of the Company's investment in real estate at September 30,
1996 are as follows:
Land $ 38,921
Buildings 145,789
Construction-in-progress 114
--------
Total 184,824
Less: accumulated depreciation (2,699)
--------
Net investment in real estate $182,125
========
On January 11, 1996, the Company provided a $10,600 convertible bridge loan
to finance Thinking Machines Corporation ("TMC"), a developer and marketer
of software for high-end and networked computer systems. In February 1996,
the bridge loan was converted into a controlling interest in a partnership
which holds 3.3 million common shares of TMC which represent 61.4% of the
outstanding shares. The acquisition of TMC through the conversion of the
bridge loan was accounted for as a purchase for financial reporting
purposes, and accordingly, the operations of TMC subsequent to January 31,
1996 are included in the operations of the Company. The fair value of assets
acquired, including goodwill of $1,726, was $27,301 and liabilities assumed
totaled $7,613. In addition, minority interests in the amount of $9,088 was
recognized at the time of acquisition.
The following table presents unaudited pro forma and actual results of
continuing operations as if the acquisitions of Ladenburg, Thalmann & Co.,
Inc., TMC, and the Office Buildings and Shopping Centers, had occurred on
January 1, 1995. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of what would have occurred
had each of these acquisitions been consummated as of such date.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1996 1995 1996 1995
----------- ----------- ----------- ------------
Actual Pro Forma
----------- -------------------------------------
Revenues $ 24,263 $31,674 $ 93,922 $95,202
======== ======= ======== =======
Net (loss) income $ (7,728) $ 2,822 $(16,942) $12,214
======== ======= ======== =======
Net (loss) income applicable to
common shares $(23,128) $(8,057) $(59,171) $(4,100)
======== ======= ======== =======
Net (loss) income per common share $ (2.42) $ (.84) $ (6.18) $ (.43)
======== ======= ======== =======
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NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
3. DISCONTINUED OPERATIONS
In October 1996, TMC adopted a plan to terminate its parallel processing
computer segment. Consequently, the operating results of this segment have
been classified as discontinued operations. In September 1996, TMC
wrote-down certain assets, principally inventory, related to these
operations to their net realizable value by $6,100, which is included in the
loss on discontinued operations. No material gain or loss in the disposal
of the segment is anticipated as any gain from the sale of the segment would
offset the operating losses expected during the phase-out period.
Effective October 1, 1995, the Company sold its messaging services business.
Accordingly, the financial statements reflect the financial position and
the results of operations of the messaging services business as discontinued
operations for the periods prior to the sale.
Operating results of the discontinued operations are as follows:
Three Months Ended Nine Months Ended
---------------------- -------------------------
September 30, September 30,
---------------------- -------------------------
1996 1995 1996 1995
---------- ---------- --------- --------------
Parallel Processing Computer Business:
Revenues $ 331 $ 3,031
======= =======
Operating loss $(7,687) $(8,795)
Minority interest benefit 2,971 3,399
------- -------
Loss from discontinued operations $(4,716) $(5,396)
======= =======
Messaging Service Business:
Revenues $11,109 $37,771
======= =======
Operating income $ 260 $ 4,795
Income tax expense (25) (480)
------- -------
Income from discontinued operations $ 235 $ 4,315
======= =======
4. INCOME TAXES
At September 30, 1996, the Company had net operating loss carryforwards of
approximately $190,000 which expire at various dates through 2007. A
valuation allowance has been provided against the amount as it is deemed
more likely than not that the benefit of the tax asset will not be utilized.
The Company continues to evaluate the realizability of the deferred tax
assets. The income tax expense or benefit, which represented the effects of
state income taxes, for the three and nine months ended September 30, 1996
and 1995, does not bear a customary relationship with pre-tax accounting
income principally as a consequence of the change in the valuation allowance
relating to deferred tax assets.
5. INVESTMENT SECURITIES
Investment securities classified as available for sale are carried at fair
value, with a net unrealized loss of $21,609 ($22,839 of unrealized losses
and $1,230 of unrealized gains) as of September 30, 1996, included as a
separate component of stockholders' equity (deficit).
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NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
The Company had net realized losses on sales of investment securities
available for sale of $1,078 for the three months ended September 30, 1996
and net realized gains on sales of investment securities available for sale
of $2,114 for the nine months ended September 30, 1996.
As of September 30, 1996, the Company, through a wholly-owned subsidiary,
held approximately 4.95 million shares of RJR Nabisco Holdings Corp. ("RJR
Nabisco") common stock, par value $.01 per share (the "RJR Nabisco Common
Stock"), with a market value of $129,247 (cost of $151,650). The Company's
investment in RJR Nabisco collateralizes margin loan financing of $75,863 at
September 30, 1996. This margin loan bears interest at .25% below the
broker's call rate (6.0% at September 30, 1996). From the period October 1,
1996 to November 8, 1996, the Company sold approximately 1.78 million shares
of RJR Nabisco Common Stocks and recognized a loss of $3,648. As of
November 8, 1996, the Company held approximately 3.17 million shares of RJR
Nabisco Common Stock with a market value of $96,815 (cost of $97,302),
collateralizing margin loan financing of $23,158. The Company's unrealized
loss in its investment in RJR Nabisco Common Stock decreased from $22,403 at
September 30, 1996 to $487 at November 8, 1996.
For the three months and nine months ended September 30, 1996, the Company
expensed $791 and $11,158, respectively, for costs relating to the RJR
Nabisco investment. The Company has paid $2,361 to Brooke Group Ltd.
("Brooke"), an affiliate of the Company, pursuant to the December 27, 1995
agreement with Brooke in which the Company agreed, among other things, to pay
directly or reimburse Brooke and its subsidiaries for out-of-pocket expenses
in connection with Brooke's solicitation of consents and proxies from the
shareholders of RJR Nabisco, of which $942 was expensed during the nine
months ended September 30, 1996.
The details of the investment categories by type of security at September 30,
1996 are as follows:
Fair
Cost Value
--------- ---------
Available for sale:
Marketable equity securities:
RJR Nabisco Common Stock $151,650 $129,247
Other marketable securities 2,463 3,257
-------- --------
Total marketable securities 154,113 132,504
Marketable debt securities (long-term) 517 517
-------- --------
Total securities available for sale 154,630 133,021
-------- --------
Trading securities (Ladenburg):
Marketable equity securities 19,611 20,492
Equity and index options 7,803 8,548
Other securities 3,647 3,048
-------- --------
Total trading securities 31,061 32,088
-------- --------
Total investment securities 185,691 165,109
Less long-term portion of investment securities (517) (517)
-------- --------
Investment securities - current portion $185,174 $164,592
======== ========
The long-term portion of investment securities at cost consists of
marketable debt securities which mature in three years.
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NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Long-Term Investments. At September 30, 1996, long-term investments
included investments in limited partnerships of $6,688, equity in a joint
venture of $3,796, an equity investment in a foreign corporation of $2,000,
and other investments of $392. During the first quarter of 1996, the
Company liquidated its position in two limited partnerships with an
aggregate carrying amount of $14,500 and recognized a gain on such
liquidations of $4,086. In July 1996, the Company sold its investment in a
Brazilian airplane manufacturer (the "Brazilian Investment") for $8,285 in
cash, which included $1,300 as reimbursement of the Company's expenses
related to this investment. The Company, after writing down this investment
by $8,698 in 1995, recognized a gain on the sale of the Brazilian Investment
of $4,285 in July 1996 representing a partial recovery of the impaired
carrying value. In June 1996, the Company determined that an other than
temporary impairment in the value of its minority equity interest in a
computer software company had occurred and, accordingly, $1,001 was provided
as an impairment charge.
The fair value of the Company's long-term investments approximates its
carrying amount. The Company's estimate of the fair value of its long-term
investments are subject to judgment and are not necessarily indicative of
the amounts that could be realized in the current market.
RJR Nabisco Equity Swap. On February 29, 1996, the Company entered into a
total return equity swap transaction (the "Swap") with an unaffiliated
company relating to 1,000,000 shares of RJR Nabisco Common Stock. During
the third quarter of 1996, the Company terminated the Swap and recognized a
loss on the Swap of $4,074 and $7,305 for the three months and nine months
ended September 30, 1996, respectively.
6. REDEEMABLE PREFERRED SHARES
At September 30, 1996, the Company had authorized and outstanding 2,000,000
and 1,035,462, respectively, of its Class A Senior Preferred Shares. At
September 30, 1996 and December 31, 1995, respectively, the carrying value
of such shares amounted to $201,318 and $226,396, including undeclared
dividends of $103,234 and $121,893, or $99.70 and $110.06 per share.
In January and February, 1996, the Company repurchased 72,104 of such shares
for $10,530. The repurchase of the Class A Senior Preferred Shares
increased the Company's additional paid-in capital by $4,279.
As of September 30, 1996, the unamortized discount on the Class A Senior
Preferred Shares was $5,462.
In March 1996 and July 1996, the Company declared and paid dividends on the
Class A Senior Preferred Shares of $10.00 and $30.00 per share,
respectively.
7. PREFERRED SHARES NOT SUBJECT TO REDEMPTION REQUIREMENTS
The undeclared dividends, as adjusted for conversions of Class B Preferred
Shares into Common Shares, cumulatively amounted to $110,476 and $95,118 at
September 30, 1996 and December 31, 1995, respectively. These undeclared
dividends represent $39.58 and $34.08 per share as of the end of each
period. No accrual was recorded for such undeclared dividends as the Class
B Preferred Shares are not mandatorily redeemable.
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NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
8. RESTRICTED ASSETS
Restricted assets at September 30, 1996 consisted primarily of $5,223
pledged as security for a long-term lease of commercial office space and
$3,300 pledged as collateral for a letter of credit.
In May 1996, the Company reached an agreement with First Financial
Management Corporation ("FFMC") whereby FFMC released all of the remaining
$28,742 held in escrow pursuant to the Asset Purchase Agreement, dated as of
October 20, 1994, between the Company and FFMC, relating to the sale of the
Company's money transfer business. In addition, the agreement required the
Company to pay FFMC $7,000 in connection with the termination of the various
service agreements the Company had with FFMC. The Company recognized a gain
on the termination of these service agreements of $1,317.
9. PREPETITION CLAIMS UNDER CHAPTER 11 AND RESTRUCTURING ACCRUALS
Those liabilities that are expected to be resolved as part of the Company's
First Amended Joint Chapter 11 Plan of Reorganization, as amended (the
"Joint Plan") are classified in the Consolidated Balance Sheets as
prepetition claims and restructuring accruals. On January 18, 1995,
approximately $550 million of prepetition claims were paid pursuant to the
Joint Plan. As of September 30, 1996 and December 31, 1995, the Company had
$26,669 and $33,392, respectively, of prepetition claims and restructuring
accruals. The prepetition claims remaining as of September 30, 1996 may be
subject to future adjustments depending on pending discussions with the
various parties and the decisions of the Bankruptcy Court.
10. CONTINGENCIES
Litigation
The Company is a defendant in various lawsuits and may be subject to
unasserted claims primarily in connection with its activities as a
securities broker-dealer and participation in public underwritings. These
lawsuits involve claims for substantial or indeterminate amounts and are in
varying stages of legal proceedings. In the opinion of management, after
consultation with counsel, the ultimate resolution of these matters will not
have a material adverse effect on the Company's consolidated financial
position, results of operations, or cash flow.
Investment Company Act
The Investment Company Act of 1940, as amended (the "Investment Company
Act"), and the rules and regulations thereunder require the registration of,
and impose various substantive restrictions on, companies that engage
primarily in the business of investing, reinvesting or trading in securities
or engage in the business of investing, reinvesting, owning, holding or
trading in securities and own or propose to acquire "investment securities"
having a "value" in excess of 40% of a company's "total assets" (exclusive
of Government securities and cash items) on an unconsolidated basis.
Following dispositions of its then operating businesses pursuant to the
Joint Plan, the Company was above this threshold and relied on the one-year
exemption from registration under the Investment Company Act provided by
Rule 3a-2 thereunder, which exemption expired on January 18, 1996. Prior to
such date, through the Company's acquisition of the investment banking and
brokerage
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12
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
business of Ladenburg and its acquisition of the Office Buildings and
Shopping Centers (see Note 2), the Company was engaged primarily in a
business or businesses other than that of investing, reinvesting, owning,
holding or trading in securities, and the value of its investment securities
was below the 40% threshold. Under the Investment Company Act, the Company
is required to determine the value of its total assets for purposes of the
40% threshold based on "market" or "fair" values, depending on the nature of
the asset, at the end of the last preceding fiscal quarter and based on cost
for assets acquired since that date. If the Company were required to
register under the Investment Company Act, it would be subject to a number
of material restrictions on its operations, capital structure and
management, including without limitation its ability to enter into
transactions with affiliates.
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