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Exhibit 99.4
NEW VALLEY HOLDINGS, INC.
FINANCIAL STATEMENTS
JUNE 30, 1997
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NEW VALLEY HOLDINGS, INC.
FINANCIAL STATEMENTS
TABLE OF CONTENTS
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PAGE
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Balance Sheets as of June 30, 1997 and December 31, 1996........................................... 2
Statements of Operations for the three months and six months ended June 30, 1997 and
June 30, 1996.................................................................................. 3
Statement of Stockholder's Equity (Deficit) for the six months ended June 30, 1997................. 4
Statements of Cash Flows for the six months ended June 30, 1997 and June 30, 1996................. 5
Notes to Financial Statements...................................................................... 6
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NEW VALLEY HOLDINGS, INC.
BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
================================================================================
June 30, December 31,
1997 1996
-------- ------------
ASSETS
Cash and cash equivalents ........................................ $ 8 $ 1
Investment in New Valley:
Redeemable preferred stock ..................................... 57,504 72,962
Common stock ................................................... (57,504) (72,962)
-------- --------
Total investment in New Valley .................................
-------- --------
Total assets ..................................................... $ 8 $ 1
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Payable to parent ................................................ $ 43 $ 4
Accrued expenses ................................................. 7
Current income taxes payable to parent ........................... 6,304 6,312
-------- --------
Total liabilities ................................................ 6,347 6,323
-------- --------
Commitments and contingencies ....................................
Common stock, $0.01 par value, 100 shares authorized, issued
and outstanding ................................................
Additional paid-in capital ....................................... 7,633 7,633
Deficit .......................................................... (15,022) (727)
Other ............................................................ 1,050 (13,228)
-------- --------
Total stockholder's equity (deficit) ............................. (6,339) (6,322)
-------- --------
Total liabilities and stockholder's equity (deficit) ............. $ 8 $ 1
======== ========
The accompanying notes are an integral part
of the financial statements.
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NEW VALLEY HOLDINGS, INC.
STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
================================================================================
Three Months Ended Six Months Ended
----------------------- -----------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
Equity in loss of New Valley ................................ $ (5,811) $ (1,487) $(14,325) $ (2,983)
Interest income ............................................. 41 6 48
General and administrative expenses ......................... (7) (2) (30) (4)
-------- -------- -------- --------
Loss from continuing operations before income taxes ......... (5,818) (1,448) (14,349) (2,939)
-------- -------- -------- --------
(Benefit) provision for income taxes:
Current .................................................. (1) 13 (8) 448
Deferred ................................................. (16) (520) (16) (3,208)
-------- -------- -------- --------
Income tax benefit .......................................... (17) (507) (24) (2,760)
-------- -------- -------- --------
Loss from continuing operations ............................. (5,801) (941) (14,325) (179)
(Loss) income from discontinued operations of New Valley,
net of taxes ........................................... (331) 30
-------- -------- -------- --------
Net loss .................................................... $ (6,132) $ (941) $(14,295) $ (179)
======== ======== ======== ========
The accompanying notes are an integral part
of the financial statements.
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NEW VALLEY HOLDINGS, INC.
STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
COMMON STOCK ADDITIONAL
--------------------- -- PAID-IN
SHARES AMOUNT CAPITAL DEFICIT OTHER TOTAL
-------- -------- ---------- -------- -------- --------
Balance, December 31, 1996 .......... 100 $ $ 7,633 $ (727) $(13,228) $ (6,322)
Proportionate share of New Valley's
capital transactions .............. (662) (662)
Unrealized holding gain on investment
in New Valley ..................... 14,940 14,940
Net loss ............................ (14,295) (14,295)
-------- -------- -------- -------- -------- --------
Balance, June 30, 1997 .............. 100 $ $ 7,633 $(15,022) $ 1,050 $ (6,339)
======== ======== ======== ======== ======== ========
The accompanying notes are an integral part
of the financial statements.
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NEW VALLEY HOLDINGS, INC.
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
================================================================================
Six Months Ended
---------------------
June 30, June 30,
1997 1996
------- -------
Net cash provided by operating activities ........... $ 7 $ (257)
------- -------
Cash flows from investing activities:
Dividends received from New Valley ................ 6,183
------- -------
Net cash provided by investing activities ........... 6,183
------- -------
Cash flows from financing activities:
Distributions paid to parent ...................... (5,801)
------- -------
Net cash used in financing activities ............... (5,801)
------- -------
Net increase in cash and cash equivalents ........... 7 125
Cash and cash equivalents at beginning of period .... 1 738
------- -------
Cash and cash equivalents at end of period .......... $ 8 $ 863
======= =======
The accompanying notes are an integral part
of the financial statements.
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NEW VALLEY HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. PRINCIPLES OF REPORTING
ORGANIZATION. New Valley Holdings, Inc. (the "Company") was formed on
September 9, 1994 by BGLS Inc. ("BGLS") to act as a holding company for
certain stock investments in New Valley Corporation ("New Valley"). BGLS
owns 100% of the authorized, issued and outstanding common stock of the
Company. BGLS is a wholly-owned subsidiary of Brooke Group Ltd.
("Brooke").
The interim 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 financial position, results
of operations and cash flows. These financial statements should be read in
conjunction with the financial statements and the notes thereto included
as Exhibit 99.3 in Brooke's and BGLS' Annual Report on Form 10-K, as
amended, for the year ended December 31, 1996, as filed with the
Securities and Exchange Commission. The results of operations for interim
periods should not be regarded as necessarily indicative of the results
that may be expected for the entire year.
Certain amounts in the 1996 financial statements have been reclassified to
conform to the 1997 presentation.
USE OF ESTIMATES AND ASSUMPTIONS:
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 and the reported amounts
of revenues and expenses. Actual results could differ from those
estimates.
2. INVESTMENT IN NEW VALLEY CORPORATION
The Company's investment in New Valley at June 30, 1997 is summarized
below:
UNREALIZED
NUMBER OF FAIR CARRYING HOLDING
SHARES VALUE AMOUNT LOSS
--------- --------- -------- -----------
Class A Preferred Shares .... 618,326 $ 57,504 $ 57,504 $ (9,941)
Common Shares ............... 3,969,962 3,970 (57,504)
--------- --------- ---------
$ 61,474 $ $ (9,941)
========= ========= =========
(A) Gives effect to July 1996 one-for-twenty reverse stock split.
The $15.00 Class A Increasing Rate Cumulative Senior Preferred Shares
($100 Liquidation Value), $.01 par value (the "Class A Preferred Shares"),
are accounted for as debt securities pursuant to the requirements of
Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting
for Certain Investments in Debt and Equity Securities", and are classified
as available-for-sale. Through September 1996, earnings on the Class A
Preferred Shares were comprised of dividends accrued during the period and
the accretion of the difference between the Company's basis and their
mandatory redemption price. New Valley's Common Shares, $.01 par value
(the "Common Shares") were accounted for pursuant to APB No. 18, "The
Equity Method of Accounting for Investments in Common Stock".
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NEW VALLEY HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)
(UNAUDITED)
During the quarter ended September 30, 1996, the decline in the market
value of the Class A Preferred Shares, the dividend received on the Class
A Preferred Shares and the Company's equity in losses incurred by New
Valley caused the carrying value of the Company's investment in New Valley
to be reduced to zero. Beginning in the fourth quarter of 1996, the
Company suspended the recording of its earnings on the dividends accrued
and the accretion of the difference between the Company's basis in the
Class A Preferred Shares and their mandatory redemption price.
At June 30, 1997, the Company's investment in New Valley consisted of an
approximate 42% voting interest. The Company's investment is represented
by 618,326 Class A Preferred Shares (57.7%) and 3,969,962 Common Shares
(41.5%) after giving effect to a one-for-twenty reverse stock split by New
Valley in July 1996.
During the first quarter of 1996, New Valley repurchased 72,104 Class A
Preferred Shares for a total amount of $10,530. The Company has recorded
its proportionate interest in the excess of the carrying value of the
shares over the cost of the shares repurchased as a credit to additional
paid-in capital in the amount of $1,782, along with other New Valley
capital transactions of $1,563 for the six months ended June 30, 1996. No
such repurchases have been made during the quarter ended June 30, 1997.
Other New Valley capital transactions charged to equity were $662 for the
six months ended June 30, 1997.
The Class A Preferred Shares of New Valley are required to be redeemed on
January 1, 2003 for $100.00 per share plus dividends accrued to the
redemption date. The shares are redeemable, at any time, at the option of
New Valley, at $100.00 per share plus accrued dividends. The holders of
Class A Preferred Shares are entitled to receive a quarterly dividend, as
declared by the Board of Directors, payable at the rate of $19.00 per
annum. On March 27, 1996, New Valley paid a cash dividend on the Class A
Preferred Shares of $10.00 per share. The Company received $6,183 in the
distribution. At June 30, 1997, the accrued and unpaid dividends arrearage
was $139,017 ($129.75 per share).
3. NEW VALLEY CORPORATION
Summarized financial information for New Valley as of June 30, 1997 and
December 31, 1996 and for the six months ended June 30, 1997 and 1996
follows:
June 30, December 31,
1997 1996
-------- ------------
Current assets, primarily cash and marketable
securities .................................... $ 114,175 $ 183,720
Non-current assets ............................... 311,005 222,820
Current liabilities .............................. 127,130 98,110
Non-current liabilities .......................... 175,258 170,223
Redeemable preferred stock ....................... 233,531 210,571
Shareholders' equity (deficit) ................... (110,739) (72,364)
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NEW VALLEY HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)
(UNAUDITED)
Three Months Ended Six Months Ended
------------------------ ------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
Revenues ...................................... $ 24,404 $ 30,449 $ 44,157 $ 62,434
Costs and expenses ............................ 29,594 35,138 61,519 73,316
Loss from continuing operations ............... (4,270) (4,872) (15,483) (10,484)
(Loss) income from discontinued operations .... (759) 110 113 838
Net loss applicable to common shares(A) ....... (21,779) (20,408) (48,100) (36,475)
(A) Considers all preferred accrued dividends, whether or not declared,
and the excess of carrying value of redeemable preferred shares over
cost of shares purchased.
ACQUISITION OF COMMON SHARES OF BML:
On January 31, 1997, New Valley acquired substantially all the common
shares of BrookeMil Ltd., a real estate investment company doing business
in Russia, from Brooke Overseas Ltd. ("BOL"), for $55,000, $21,500 payable
in cash and a promissory note of $33,500. On April 28, 1997 and June 30,
1997, New Valley paid BOL $3,500 and $18,000, respectively, representing a
portion of the promissory note together with accrued interest thereon. As
of June 30, 1997, the balance remaining on the note is $12,000 and is due
on December 31, 1997.
RJR NABISCO HOLDINGS CORP.:
At June 30, 1997, New Valley held 1,062,650 shares of RJR Nabisco Holdings
Corp. ("RJR Nabisco") common stock with a market value of $34,270 (cost of
$32,574). The unrealized gain on New Valley's investment in RJR Nabisco
common stock was $1,696 at June 30, 1997. Based on the market price of RJR
Nabisco common stock at June 30, 1997, no amounts are payable by Brooke or
New Valley under any of their net profit-sharing arrangements with respect
to the RJR Nabisco common stock.
4. FEDERAL INCOME TAX
At June 30, 1997, the Company had $8,400 of unrecognized net deferred tax
assets, comprised primarily of future deductible temporary differences. A
valuation allowance has been provided against this deferred tax asset as
it is presently deemed more likely than not that the benefit of the tax
asset will not be utilized. The Company continues to evaluate the
realizability of its deferred tax assets and its estimate is subject to
change.
The provision for taxes for the six month period ended June 30, 1996 does
not bear a customary relationship to the pretax income for the Company due
principally to the effects of the 80% dividends received deduction for
Federal taxes. The benefit for income taxes at June 30, 1997 is based on
the current taxable loss.
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NEW VALLEY HOLDINGS, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) - (CONTINUED)
(UNAUDITED)
5. CONTINGENCIES
BGLS has pledged its ownership interest in the Company's common stock and
the Company's investments in the New Valley securities as collateral in
connection with the issuance of BGLS' 15.75% Senior Secured Notes ("BGLS
Notes") due 2001. Liggett Group Inc., a subsidiary of BGLS, is currently
in negotiations with its note holders to restructure the terms of its
Senior Secured Notes. Pending completion of the negotiations, BGLS has
postponed its interest payment of approximately $18,338 due July 31, 1997,
on the BGLS Notes The indenture governing the BGLS Notes provides for a
30-day grace period before the failure to pay interest will be an event of
default.
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