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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2002
Commission File Number 1-2493
New Valley Corporation
(Exact name of registrant as specified in its charter)
Delaware 13-5482050
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
100 S.E. Second Street, 32nd Floor
Miami, Florida 33131
(Address of Principal Executive Offices) (Zip Code)
(305) 579-8000
(Registrant's telephone number, including area code)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
AS OF AUGUST 13, 2002, THERE WERE OUTSTANDING 22,881,467 OF THE
REGISTRANT'S COMMON SHARES, $.01 PAR VALUE.
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NEW VALLEY CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Page
----
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of June 30,
2002 and December 31, 2001.................................. 2
Condensed Consolidated Statements of Operations for the
three months and six months ended June 30, 2002 and
2001........................................................ 3
Condensed Consolidated Statement of Changes in
Stockholders' Equity for the six months ended
June 30, 2002............................................... 4
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 2002 and 2001............. 5
Notes to the Condensed Consolidated Financial
Statements ................................................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk...... 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................... 20
Item 6. Exhibits and Reports on Form 8-K................................ 20
SIGNATURE.................................................................. 21
- 1 -
NEW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
June 30, December 31,
2002 2001
--------- ------------
ASSETS
Current assets:
Cash and cash equivalents ....................................... $ 111,260 $ 92,069
Investment securities available for sale ........................ 18,742 20,902
Restricted assets ............................................... 518 17,380
Note receivable ................................................. 2,500 1,000
Other current assets ............................................ 356 1,714
--------- ---------
Total current assets ........................................ 133,376 133,065
--------- ---------
Investment in real estate, net ....................................... -- 10,581
Convertible note receivable .......................................... 8,010 8,010
Long-term investments, net ........................................... 10,794 10,044
Other assets ......................................................... 145 998
--------- ---------
Total assets ................................................ $ 152,325 $ 162,698
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable and long-term obligations ...... $ -- $ 84
Accounts payable and accrued liabilities ........................ 3,236 7,574
Prepetition claims and restructuring accruals ................... 2,671 2,700
Income taxes .................................................... 10,045 9,079
--------- ---------
Total current liabilities ................................... 15,952 19,437
--------- ---------
Notes payable ........................................................ -- 11,142
Other long-term liabilities .......................................... 3,370 3,639
Commitments and contingencies ........................................ -- --
Stockholders' equity:
Common Shares, $.01 par value; 100,000,000 and 100,000,000 shares
authorized; 22,881,467 and 22,813,063 shares outstanding ...... 229 228
Additional paid-in capital ...................................... 865,622 864,197
Accumulated deficit ............................................. (732,978) (737,894)
Unearned compensation on stock options .......................... (21) (26)
Accumulated other comprehensive income .......................... 151 1,975
--------- ---------
Total stockholders' equity .................................. 133,003 128,480
--------- ---------
Total liabilities and stockholders' equity .................. $ 152,325 $ 162,698
========= =========
See accompanying notes to condensed
consolidated financial statements
- 2 -
NEW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
2002 2001 2002 2001
------------ ------------ ------------ ------------
Revenues:
Real estate leasing ..................................... $ 237 $ 2,425 $ 661 $ 5,066
Gain on sale of investments, net ........................ 957 288 2,232 753
Interest and dividend income ............................ 538 1,060 1,123 2,262
------------ ------------ ------------ ------------
Total ............................................... 1,732 3,773 4,016 8,081
------------ ------------ ------------ ------------
Cost and expenses:
General and administrative .............................. 2,966 3,777 5,941 6,953
Rental real estate activities, excluding interest ....... 1,003 2,391 1,499 5,203
Interest expense ........................................ 101 526 338 1,235
------------ ------------ ------------ ------------
Total ............................................... 4,070 6,694 7,778 13,391
------------ ------------ ------------ ------------
Other results from continuing operations:
Gain on sale of real estate ............................. 8,909 -- 8,909 897
Gain on sale of assets .................................. -- 250 -- 250
Provision for loss on net investment in subsidiary ...... (388) -- (388) --
Other loss .............................................. (6) (114) (10) (127)
------------ ------------ ------------ ------------
Total ............................................... 8,515 136 8,511 1,020
------------ ------------ ------------ ------------
Income (loss) from continuing operations before income taxes
and minority interests .................................. 6,177 (2,785) 4,749 (4,290)
Income tax provision ......................................... -- 208 -- 208
Minority interests in loss from continuing operations
of consolidated subsidiaries ............................ (84) (5) (167) (90)
------------ ------------ ------------ ------------
Income (loss) from continuing operations ..................... 6,261 (2,988) 4,916 (4,408)
Discontinued operations:
Loss from discontinued operations, net of minority
interests of $1,044 and $1,098 and income tax benefit
of $809 and $809 .................................... -- (1,576) -- (1,844)
Gain on disposal of discontinued operations ............. -- 2,279 -- 2,279
------------ ------------ ------------ ------------
Income from discontinued operations ................. -- 703 -- 435
------------ ------------ ------------ ------------
Net income (loss) ............................................ $ 6,261 $ (2,285) $ 4,916 $ (3,973)
============ ============ ============ ============
Income (loss) per Common Share (basic):
Continuing operations ................................... $ 0.27 $ (0.13) $ 0.22 $ (0.19)
Discontinued operations ................................. -- 0.03 -- 0.02
------------ ------------ ------------ ------------
Net loss per Common Share ............................... $ 0.27 $ (0.10) $ 0.22 $ (0.17)
============ ============ ============ ============
Number of shares used in computation ......................... 22,851,613 22,813,612 22,851,613 22,839,607
============ ============ ============ ============
Income (loss) per Common Share (diluted):
Continuing operations ................................... $ 0.27 $ (0.13) $ 0.21 $ (0.19)
Discontinued operations ................................. -- 0.03 -- 0.02
------------ ------------ ------------ ------------
Net loss per Common Share ............................... $ 0.27 $ (0.10) $ 0.21 $ (0.17)
============ ============ ============ ============
Number of shares used in computation ......................... 22,893,107 22,813,612 22,870,153 22,839,607
============ ============ ============ ============
See accompanying notes to condensed
consolidated financial statements
- 3 -
NEW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
Unearned Accumulated
Additional Compensation Other
Common Paid-In Accumulated on Stock Comprehensive
Shares Capital Deficit Options Income Total
--------- ---------- ----------- ------------ ------------- ---------
Balance, December 31, 2001 .... $ 228 $ 864,197 $(737,894) $ (26) $ 1,975 $ 128,480
Net income ................. 4,916 4,916
Unrealized loss on
investment securities..... (1,824) (1,824)
Exercise of stock options... 1 264 265
Reclassification of
Dividends payable ........ 711 711
Compensation expense
on stock option grants.... 450 5 455
--------- --------- --------- --------- --------- ---------
Balance, June 30, 2002 ........ $ 229 $ 865,622 $(732,978) $ (21) $ 151 $ 133,003
========= ========= ========= ========= ========= =========
See accompanying notes to condensed
consolidated financial statements
- 4 -
NEW VALLEY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands, Except Per Share Amounts)
(Unaudited)
Six Months Ended
June 30,
-----------------------------
2002 2001
--------- ---------
Cash flows from operating activities:
Net income (loss) .................................................. $ 4,916 $ (3,973)
Income from discontinued operations ................................ -- (435)
--------- ---------
Subtotal ......................................................... 4,916 (4,408)
--------- ---------
Adjustments to reconcile net income (loss) to net cash provided from
(used in) operating activities:
Depreciation and amortization .................................... 191 1,328
Stock-based compensation expense ................................. 450 648
Gain on sale of investments ...................................... (2,232) (753)
Gain on sale of assets ........................................... (8,909) (1,147)
Minority interests in loss from continuing operations of
consolidated subsidiaries ..................................... (167) (90)
Changes in assets and liabilities, net of effects of dispositions
and acquisitions:
Decrease in receivables and other assets ................... 19,067 3,454
Decrease in accounts payable and accrued liabilities ....... (2,016) (4,022)
--------- ---------
Net cash provided from (used in) continuing operations ................ 11,300 (4,990)
--------- ---------
Cash flows from investing activities:
Sale or maturity of investment securities ........................ 5,575 9,744
Purchase of investment securities ................................ (3,007) (3,721)
Purchase of long-term investments ................................ (750) (5,717)
Sale of real estate, net ......................................... 20,461 9,172
Purchase of real estate .......................................... (688) (1,378)
Sale of other assets ............................................. -- 250
Cash received in LTS acquisition ................................. -- 8,010
Purchase of LTS common stock ..................................... -- (3,945)
Payment of prepetition claims and restructuring accruals ......... (29) (2,624)
Repayment of note receivable ..................................... 1,000 --
Issuance of note receivable ...................................... (2,500) --
--------- ---------
Net cash provided from investing activities ........................... 20,062 9,791
--------- ---------
Cash flows from financing activities:
Decrease in margin loans payable ................................. -- (2,315)
Proceeds from participating loan ................................. -- 2,478
Repayment of participating loan .................................. (12,400) --
Prepayment of notes payable ...................................... (36) (11,862)
Issuance of notes payable ........................................ -- 824
Exercise of stock options ........................................ 265 --
Repurchase of Common Shares ...................................... -- (274)
--------- ---------
Net cash used in financing activities ................................. (12,171) (11,149)
--------- ---------
Net cash provided from discontinued operations ........................ -- 403
--------- ---------
Net increase (decrease) in cash and cash equivalents .................. 19,191 (5,945)
Cash and cash equivalents, beginning of period ........................ 92,069 82,067
--------- ---------
Cash and cash equivalents, end of period .............................. $ 111,260 $ 76,122
========= =========
Supplement disclosure of non-cash activity:
Detail of LTS acquisition:
Assets acquired, including cash .................................... $ -- $ 62,024
Liabilities assumed, including minority interest ................... -- (60,014)
Increase in paid-in capital ........................................ -- (15,171)
--------- ---------
Cash received ...................................................... -- 13,161
Less cash received associated with discontinued operations ......... -- 5,151
--------- ---------
Net cash received in acquisition ................................... $ -- $ 8,010
========= =========
See accompanying notes to condensed
consolidated financial statements
- 5 -
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED 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 its majority-owned subsidiaries ("New Valley" or the
"Company"). The consolidated financial statements as of June 30, 2002
presented herein have been prepared by the Company and are unaudited. In
the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the financial position
as of June 30, 2002 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.
These financial statements should be read in conjunction with the
consolidated financial statements in New Valley's Annual Report on Form
10-K for the year ended December 31, 2001 as filed with the Securities and
Exchange Commission (Commission File Number 1-2493).
NATURE OF OPERATIONS
The Company is currently engaged in the real estate business through its
New Valley Realty division and is seeking to acquire additional operating
companies. In December 2001, New Valley determined to sell certain of its
remaining real estate holdings and completed the distribution to its
stockholders of its shares in Ladenburg Thalmann Financial Services Inc.
("LTS"), its former majority-owned subsidiary engaged in the investment
banking and brokerage business. The broker-dealer operations, which were
the primary source of New Valley's revenues since 1995, are treated as
discontinued operations in the consolidated financial statements. As a
result of the foregoing, the statement of operations has been reformatted
and certain prior year amounts have been reclassified to conform to current
year presentation.
Following the recent distribution of the LTS shares and asset dispositions
in Russia, the business strategy of New Valley is to continue to operate
its real estate business and to acquire operating businesses through
merger, purchase of assets, stock acquisition or other means, or to
acquire control of operating companies through one of such means, with the
purpose of being primarily engaged in a business or businesses other
than that of investing, reinvesting, owning, holding or trading in
securities. In the interim, New Valley's cash and investment securities
(aggregating $130,002 at June 30, 2002) are available for general
corporate purposes, including for acquisition purposes. Pending any
use of these funds in the real estate business or for acquisitions, New
Valley's liquid assets have been invested consistent with the preservation
of their value.
The Investment Company Act and its regulations generally impose substantive
restrictions on a company that owns "investment securities" having a value
in excess of 40% of the company's "total assets". New Valley, which is now
above this threshold following the distribution of LTS and asset
dispositions in Russia, has been relying since December 2001 on the
one-year exemption from registration under the Investment Company Act
provided by Rule 3a-2. New Valley will attempt to be engaged, within the
one-year period prescribed by Rule 3a-2, primarily in a business or
businesses other than that of investing, reinvesting, owning, holding or
trading in securities. If the Company were required to register under the
Investment Company Act, it would be subject to a number of severe
substantive restrictions on its operations, capital structure and
management. For example, it would also be prohibited from issuing
convertible securities and options and would be subject to limitations on
leverage.
- 6 -
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts) - (Continued)
(Unaudited)
USE OF ESTIMATES
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.
RECLASSIFICATIONS
Certain reclassifications have been made to prior interim period financial
information to conform to the current interim period presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supersedes SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of", and requires (i) the recognition and
measurement of the impairment of long-lived assets to be held and used and
(ii) the measurement of long-lived assets to be disposed of by sale. SFAS
No. 144 is effective for fiscal years beginning after December 15, 2001.
The adoption of this statement did not impact on the Company's Condensed
Consolidated Financial Statements for the three and six months ended June
30, 2002.
2. INVESTMENT IN REAL ESTATE AND NOTES PAYABLE
SHOPPING CENTER
New Valley disposed of its remaining U.S. shopping center in May 2002 and
recorded a gain of $425, which represented the shopping center's negative
book value, in connection with the disposal. No proceeds were received in
the disposal.
RUSSIAN REAL ESTATE
On April 30, 2002, New Valley sold the shares of BrookeMil Ltd.
("BrookeMil") for approximately $22,000 before closing expenses. BrookeMil
owned the two Kremlin sites in Moscow, which were the Company's remaining
real estate holdings in Russia. Under the terms of the Western Realty Repin
LLC participating loan to BrookeMil, New Valley received approximately
$7,400 of the net proceeds from the sale and Apollo Real Estate Investment
Fund III, L.P. received approximately $12,400 of the proceeds. These
amounts are subject to adjustment based on final closing expenses. New
Valley recorded a gain on the sale of real estate of $8,484 in the second
quarter of 2002 in connection with the sale. New Valley also recorded $767
in additional general and administrative expenses related to the closing of
its Russian operations. The expenses consisted principally of employee
severance.
- 7 -
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts) - (Continued)
(Unaudited)
3. INVESTMENT SECURITIES AVAILABLE FOR SALE
Investment securities classified as available for sale are carried at fair
value, with net unrealized gains included as a component of stockholders'
equity. The Company had realized gains on sales of investment securities
available for sale of $957 and $2,232 for the three and six months ended
June 30, 2002, respectively, and $595 and $130 for the three and six months
ended June 30, 2001, respectively.
The components of investment securities available for sale, which were all
equity securities, at June 30, 2002 are as follows:
Gross Gross
Unrealized Unrealized Fair
Cost Gain Loss Value
-------- ---------- ---------- -----
Investment securities..................... $ 18,591 $ 2,291 $ 2,140 $ 18,742
======== ======= ======= ========
4. RESTRICTED ASSETS
Restricted assets at December 31, 2001 consisted primarily of $16,856 held
in escrow by the United States District Court of New Jersey in connection
with a settlement of a lawsuit which cash was released to the Company in
March 2002.
5. LONG-TERM INVESTMENTS
At June 30, 2002, long-term investments consisted primarily of investments
in limited partnerships of $10,794. The Company is an investor in real
estate partnerships where it is required to make additional investments of
up to an aggregate of $7,550 at June 30, 2002. In the second quarter of
2001, the Company recognized a gain of $883 on the liquidation of an
investment in a limited partnership. The Company believes the fair value of
the limited partnerships exceeds their carrying amount by approximately
$7,060 based on the indicated market values of the underlying investment
portfolio provided by the partnerships. 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. The Company's investments in limited partnerships are illiquid, and
the ultimate realization of these investments is subject to the performance
of the underlying partnership and its management by the general partners.
6. OTHER LONG-TERM LIABILITIES
The components of other long-term liabilities at June 30, 2002 are as
follows:
Long-term Current
Portion Portion
--------- -------
Retiree and disability obligations $ 3,149 $ 500
Minority interests ............... (28) --
Note payable for Western Realty
Development Class A interests 229 --
Other long-term liabilities ...... 20 --
------- -------
Total other long-term liabilities $ 3,370 $ 500
======= =======
- 8 -
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts) - (Continued)
(Unaudited)
7. CONTINGENCIES
LAWSUITS
In March 1997, a stockholder derivative suit was filed against the Company,
as a nominal defendant, its directors and Brooke Group Holding Inc.
("Brooke Group Holding"), an indirect wholly-owned subsidiary of Vector
Group Ltd., the Company's principal stockholder, in the Delaware Chancery
Court by a stockholder of the Company. The suit alleges that the Company's
purchase of the BrookeMil shares from Brooke (Overseas) Ltd., which was
then an indirect subsidiary of Brooke Group Holding, in January 1997
constituted a self-dealing transaction which involved the payment of
excessive consideration by the Company. The plaintiff seeks a declaration
that the Company's directors breached their fiduciary duties and Brooke
Group Holding aided and abetted such breaches and that damages be awarded
to the Company. In December 1999, another stockholder of the Company
commenced an action in Delaware Chancery Court substantially similar to the
March 1997 action. This stockholder alleges, among other things, that the
consideration paid by the Company for the BrookeMil shares was excessive,
unfair and wasteful, that the special committee of the Company's board
lacked independence, and that the appraisal and fairness opinion were
flawed. By order of the court, both actions were consolidated. In January
2001, the court denied a motion to dismiss the consolidated action. Brooke
Group Holding and the Company believe that the allegations in the case are
without merit. Discovery in the case has commenced.
In July 1999, a purported class action was commenced on behalf of the
Company's former Class B preferred shareholders against the Company, Brooke
Group Holding and certain directors and officers of the Company in Delaware
Chancery Court. The complaint alleges that the recapitalization, approved
by a majority of each class of the Company's stockholders in May 1999, was
fundamentally unfair to the Class B preferred shareholders, the proxy
statement relating to the recapitalization was materially deficient and the
defendants breached their fiduciary duties to the Class B preferred
shareholders in approving the transaction. The plaintiffs seek class
certification of the action and an award of compensatory damages as well as
all costs and fees. The Court has dismissed six of plaintiff's nine claims
alleging inadequate disclosure in the proxy statement. Brooke Group Holding
and the Company believe that the remaining allegations are without merit.
Discovery in the case has commenced.
Although there can be no assurances, 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 flows.
As of June 30, 2002, New Valley had $2,671 of prepetition
bankruptcy-related claims and restructuring accruals including claims for
lease rejection damages and for unclaimed monies that certain states are
seeking on behalf of money transfer customers. The remaining claims may be
subject to future adjustments based on potential settlements or decisions
of the court. On August 8, 2002, the Company paid $2,000 to settle the
claim for unclaimed monies and the restructuring accrual will be reduced by
a corresponding amount in the third quarter of 2002. In connection with the
settlement, in the second quarter of 2002, the Company reclassified $711 of
accrued dividends to stockholders' equity.
- 9 -
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts) - (Continued)
(Unaudited)
8. BUSINESS SEGMENT INFORMATION
The following table presents certain financial information of the Company's
continuing operations before taxes and minority interests as of and for the
three and six months ended June 30, 2002 and 2001. The corporate and other
segment includes identifiable assets of $94,406 at June 30, 2001,
previously classified in the broker-dealer segment, which was discontinued
and disposed of, effective December 20, 2001.
Corporate
Real Estate and Other Total
----------- --------- -----
THREE MONTHS ENDED JUNE 30, 2002
Revenues......................... $ 237 $ 1,495 $ 1,732
Other income..................... 8,909 (394) 8,515
Operating income (loss).......... 8,143 (1,966) 6,177
Depreciation and
amortization.................. 68 -- 68
THREE MONTHS ENDED JUNE 30, 2001
Revenues......................... $ 2,425 $ 1,348 $ 3,773
Other income..................... -- 136 136
Operating loss................... (481) (2,304) (2,785)
Depreciation and
amortization.................. 648 -- 648
SIX MONTHS ENDED JUNE 30, 2002
Revenues......................... $ 661 $ 3,355 $ 4,016
Other income..................... 8,909 (398) 8,511
Operating income (loss).......... 8,071 (3,322) 4,749
Identifiable assets.............. 1,458 150,867 152,325
Depreciation and
amortization.................. 191 -- 191
Capital expenditures............. 688 -- 688
SIX MONTHS ENDED JUNE 30, 2001
Revenues......................... $ 5,066 $ 3,015 $ 8,081
Other income..................... 897 123 1,020
Operating loss................... (400) (3,890) (4,290)
Identifiable assets.............. 129,261 201,675 330,936
Depreciation and
amortization.................. 1,328 -- 1,328
Capital expenditures............. 1,378 -- 1,378
- 10 -
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts) - (Continued)
(Unaudited)
9. DISCONTINUED OPERATIONS
LADENBURG THALMANN FINANCIAL SERVICES INC.
On December 20, 2001, New Valley distributed its 53.6% interest in LTS
common stock to holders of New Valley common shares through a special
dividend. New Valley stockholders received 0.988 of a LTS share for each
share of New Valley.
The consolidated financial statements of New Valley for 2001 have been
reclassified to reflect as discontinued operations New Valley's
broker-dealer operations. Accordingly, revenues, costs and expenses, and
cash flows of the discontinued operations have been excluded from the
respective captions in the consolidated statements of operations and
consolidated statements of cash flows. The net operating results of these
entities have been reported, net of applicable income taxes and minority
interests, as "Loss from discontinued operations", and the net cash flows
of these entities have been reported as "Net cash provided from
discontinued operations".
Summarized operating results of the discontinued broker-dealer operations
for the three and six months ended June 30, 2001 are as follows:
Three Months Six Months
Ended June 30, Ended June 30,
2001 2001
-------------- --------------
Revenues............................. $ 21,258 $ 40,322
Expenses............................. 24,687 44,073
------ ------
Operating loss before income
taxes and minority interests..... $ (3,429) $ (3,751)
====== ======
On March 27, 2002, LTS borrowed $2,500 from New Valley. The loan, which
bears interest at 1% above the prime rate, is due on the earlier of
September 30, 2002 or the completion of one or more equity financings where
LTS receives at least $5,000 in total proceeds. On July 16, 2002, LTS
borrowed an additional $2,500 from New Valley on the same terms. LTS has
filed a registration statement for a proposed rights offering to the
holders of its outstanding common stock, convertible notes, warrants and
options. The Company has advised LTS that it will purchase up to $5,000 of
LTS common stock in the rights offering if such shares are otherwise
unsubscribed for. In August 2002, Ladenburg announced that it has postponed
the rights offering due to market conditions.
GAIN FROM DISCONTINUED OPERATIONS
The Company recorded a gain on disposal of discontinued operations of
$2,279 for the three and six months ended June 30, 2001 related to the
adjustment of accruals established during the Company's bankruptcy
proceedings in 1993 and 1994. The reversal of these accruals reduced
various tax accruals previously established.
- 11 -
NEW VALLEY CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts) - (Continued)
(Unaudited)
10. COMPREHENSIVE INCOME
Comprehensive income of the Company includes net income and net changes in
the value of investment securities available for sale that have not been
included in net income. Comprehensive loss applicable to common shares for
the three and six months ended June 30, 2002 and 2001 is as follows:
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ------------------------
2002 2001 2002 2001
-------- ------- ------- -------
Net income (loss)............... $ 6,261 $ (2,285) $ 4,916 $ (3,973)
Net change in unrealized gain
on investment securities..... (3,799) 1,604 (1,824) 1,729
-------- -------- ------- --------
Comprehensive income (loss).. $ 2,462 $ (681) $ 3,092 $ (2,244)
======== ======== ======= ========
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
INTRODUCTION
For the three and six months ended June 30, 2002, the results of
continuing operations of New Valley's primary operating units include the
accounts of BrookeMil Ltd., a wholly-owned subsidiary, and other subsidiaries.
For the three and six months ended June 30, 2001, the results of continuing
operations of New Valley's primary operating units include the accounts of
BrookeMil and Western Realty Investments LLC, a 99%-owned subsidiary and other
subsidiaries.
RECENT DEVELOPMENTS
DISTRIBUTION OF LADENBURG THALMANN FINANCIAL SERVICES SHARES. On
December 20, 2001, New Valley distributed its 22,543,158 shares of Ladenburg
Thalmann Financial Services Inc. common stock, a 53.6% interest, to holders of
New Valley common shares through a special dividend. New Valley stockholders
received 0.988 of a Ladenburg Thalmann Financial Services share for each share
of New Valley. As a result, results from broker-dealer operations for the three
and six months ended June 30, 2001 have been reclassified as "Loss from
Discontinued Operations".
SALE OF WESTERN REALTY INVESTMENTS. On December 21, 2001, Western
Realty Development LLC sold to Andante Limited, a Bermuda company, all of the
membership interests in its subsidiary Western Realty Investments, the entity
through which Western Realty Development owned the Ducat Place II office
building and the adjoining Ducat Place III site in Moscow, Russia. The purchase
price for the sale was approximately $42,000 including the assumption of
mortgage debt and payables. Of the net cash proceeds from the sale, New Valley
received approximately $21,000, and Apollo received approximately $9,000. These
amounts are subject to adjustment based on final closing expenses.
SALE OF BROOKEMIL. On April 30, 2002, New Valley sold the shares of
BrookeMil for approximately $22,000 before closing expenses. BrookeMil owned the
two Kremlin sites in Moscow, which were the Company's remaining real estate
holdings in Russia. Under the terms of the Western Realty Repin LLC
participating loan to BrookeMil, New Valley received approximately $7,400 of the
net proceeds from the sale and Apollo Real Estate Investment Fund III, L.P.
received approximately $12,400 of the proceeds. These amounts are subject to
adjustment based on final closing expenses. New Valley recorded a gain on sale
of real estate of $8,484 for the three and six months ended June 30, 2002 in
connection with the sale. New Valley also recorded $767 in additional general
and administrative expenses in the second quarter of 2002 related to the closing
of its Russian operations. The expenses consisted principally of employee
severance.
SHOPPING CENTER. New Valley disposed of its remaining U.S. shopping
center in May 2002 and recorded a gain of $425, which represented the shopping
center's negative book value, in connection with the disposal. No proceeds were
received in the disposal.
CRITICAL ACCOUNTING POLICIES
Financial Reporting Release No. 60, which was recently released by the
Securities and Exchange Commission, requires all companies to include a
discussion of critical accounting policies or methods used in the preparation of
financial statements. Note 2 of New Valley's consolidated financial statements
in its Annual Report on Form 10-K for the year ended December 31, 2001 as filed
with the Securities and Exchange Commission included a summary of the
significant accounting policies and methods used in the preparation of its
consolidated financial statements. The following is a brief discussion of the
more significant accounting policies and methods used by New Valley.
- 13 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
(Dollars in Thousands, Except Per Share Amounts)
GENERAL. 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,
disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses. Actual results could differ from those estimates.
LONG-TERM INVESTMENTS. At June 30, 2002, New Valley had long-term
investments of $10,794, representing investments in various limited
partnerships. The principal business of the limited partnerships is investing in
real estate and investment securities. These long-term investments are illiquid,
and the value of the investments is dependant on the performance of the
underlying partnership and its management by the general partners. In assessing
potential impairment for these investments, New Valley considers the external
markets for these types of investments as well as the forecasted financial
performance of its investees. If these forecasts are not met, New Valley may
have to recognize an impairment charge in its statement of operations.
INCOME TAXES. The year 2000 was the only year out of the last five in
which New Valley has reported net income. New Valley's losses during these and
prior years have generated a sizeable federal tax net operating loss, or NOL,
carryforward of approximately $150,000 as of June 30, 2002, which expire at
various dates from 2002 through 2008. Generally accepted accounting principles
require that New Valley record a valuation allowance against the deferred tax
asset associated with this NOL if it is "more likely than not" that New Valley
will not be able to utilize it to offset future taxes. Due to the size of the
NOL carryforward in relation to New Valley's history of unprofitable operations
and to the continuing uncertainties surrounding its operations as it seeks to
acquire additional operating companies, New Valley has not recognized any of
this net deferred tax asset. New Valley currently provides for income taxes only
to the extent that it expects to pay cash taxes (primarily state taxes and the
federal alternative minimum tax) for current income.
It is possible, however, that New Valley could be profitable in the
future at levels which cause management to conclude that it is more likely than
not that it will realize all or a portion of the NOL carryforward. Upon reaching
such a conclusion, New Valley would immediately record the estimated net
realizable value of the deferred tax asset at that time and would then provide
for income taxes at a rate equal to its combined federal and state effective
rates, which would approximate 40% under current tax rates, rather than the
nominal rate currently being used. Subsequent revisions to the estimated net
realizable value of the deferred tax asset could cause New Valley's provision
for income taxes to vary significantly from period to period, although its cash
tax payments would remain unaffected until the benefit of the NOL is utilized.
- 14 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
(Dollars in Thousands, Except Per Share Amounts)
RESULTS OF OPERATIONS
For the three and six months ended June 30, 2002, the results of
operations of New Valley's primary operating units, which include New Valley's
U.S. shopping centers and BrookeMil (real estate), are summarized below. For the
three and six months ended June 30, 2001, the results of operations of New
Valley's primary operating units, which include New Valley's U.S. shopping
centers, Western Realty Investments and BrookeMil (real estate), are summarized
below.
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2002 2001 2002 2001
------- ------- ------- -------
Real estate:
Revenues ...................... $ 237 $ 2,425 $ 661 $ 5,066
Expenses ...................... 1,003 2,906 1,499 6,363
Other income .................. 8,909 -- 8,909 897
------- ------- ------- -------
Operating income (loss) before
taxes and minority interests $ 8,143 $ (481) $ 8,071 $ (400)
======= ======= ======= =======
Corporate and other:
Revenues ...................... $ 1,495 $ 1,348 $ 3,355 $ 3,015
Expenses ...................... 3,067 3,788 6,279 7,028
Other (loss) income ........... (394) 136 (398) 123
------- ------- ------- -------
Operating loss before taxes
and minority interests ..... $(1,966) $(2,304) $(3,322) $(3,890)
======= ======= ======= =======
THREE MONTHS ENDED JUNE 30, 2002 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2001
Consolidated total revenues were $1,732 for the three months ended June
30, 2002 versus $3,773 for the same period last year. The decrease in revenues
of $2,041 is attributable primarily due to the sale of Western Realty
Investments offset by increased net gains on the sale of investments.
Revenues from the real estate operations for the three months ended
June 30, 2002 decreased $2,188 primarily due to the absence of rental revenue of
$2,100 from Western Realty Investments, which was sold in December 2001, and New
Valley's two U.S. shopping centers, one of which was sold in January 2001 and
the other of which was disposed of in May 2002. Expenses of the real estate
operations decreased $1,903 in the 2002 period due primarily to lower expenses
as a result of the sale of Western Realty Investments and the shopping centers.
New Valley recorded gains on sale of real estate in the second quarter of 2002
of $8,484 in connection with the April 2002 sale of BrookeMil and $425 from the
disposal of the remaining U.S. shopping center. New Valley also recorded $767 in
additional general and administrative expenses in the second quarter of 2002
related to the closing of its Russian operations. The expenses consisted
principally of employee severance. BrookeMil incurred expenses of $94 for the
three month period ended June 30, 2001 related to the development of the Kremlin
sites.
For the three months ended June 30, 2002, New Valley's revenues of
$1,495 related to corporate and other activities consisted of net gains on
investments of $957 and interest and dividend income of $538. For the same
period in the prior year, revenues related to corporate and other activities
were $1,348, which consisted of net gains on investments of $288 and interest
and dividend income of $1,060. The decrease in interest income is due primarily
to lower interest rates in 2002 versus 2001.
Corporate and other expenses of $3,067 for the three months ended June
30, 2002 consisted primarily of employee compensation and benefits of $1,616.
Corporate and other expenses of $3,788 for the second quarter of 2001 consisted
primarily of employee compensation and benefits of $1,835.
- 15 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
(Dollars in Thousands, Except Per Share Amounts)
New Valley recorded a $388 charge for the three months ended June 30, 2002
related to a provision for loss on its net investment in its 72.7% subsidiary,
ThinkCorp Holdings Corporation, formerly known as Thinking Machines Corporation.
In June 1999, ThinkCorp Holdings sold substantially all of its assets,
consisting of its Darwin(R) software and services business, to Oracle
Corporation. The purchase price included a contingent payable of $20,300 based
on sales by Oracle of the Darwin product above specified sales targets during a
three-year period. Based on Oracle having informed ThinkCorp Holdings that the
specified sales targets for the 2000 and 2001 periods were not achieved and the
overall market conditions in the U.S. computer industry, New Valley determined
it was more likely than not that it would not recover its investment in
ThinkCorp Holding.
For the three months ended June 30, 2001, ThinkCorp Holding recognized a
gain of $250 related to Oracle's final payment of the $400 of the purchase price
escrowed in connection with the sale.
There was no income tax for the three months ended June 30, 2002. The income
tax provision related to the three months ended June 30, 2001 related to Russian
income tax expense at Western Realty Investments. The effective tax rate 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.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2001
Consolidated total revenues were $4,016 for the six months ended June 30,
2002 versus $8,081 for the same period last year. The decrease in revenues of
$4,065 is attributable primarily due to the sale of Western Realty Investments
offset by increased net gains on the sale of investments.
Revenues from the real estate operations for the six months ended June 30,
2002 decreased $4,405 primarily due to the absence of rental revenue of $4,044
from Western Realty Investments, which was sold in December 2001, and New
Valley's two U.S. shopping centers, one of which was sold in January 2001 and
the other which was disposed of in May 2002. Expenses of the real estate
operations decreased $4,864 in the 2002 period due primarily to lower expenses
as a result of the sale of Western Realty Investments and the shopping centers.
New Valley recorded gains on sale of real estate for the six months ended June
30, 2002 of $8,484 in connection with the April 2002 sale of BrookeMil and $425
from the disposal of the remaining U.S. shopping center. New Valley also
recorded $767 in additional general and administrative expenses for the six
months ended June 30, 2002 related to the closing of its Russian operations. The
expenses consisted principally of employee severance. BrookeMil incurred
expenses of $406 for the six month period ended June 30, 2001, respectively, in
connection with the development of the Kremlin sites.
For the six months ended June 30, 2002, New Valley's revenues of $3,355
related to corporate and other activities consisted of net gains on investments
of $2,232 and interest and dividend income of $1,123. For the same period in the
prior year, revenues related to corporate and other activities were $3,015,
which consisted of net gains on investments of $753 and interest and dividend
income of $2,262. The decrease in interest income is due primarily to lower
interest rates in 2002 versus 2001.
Corporate and other expenses of $6,279 for the six months ended June 30,
2002 consisted primarily of employee compensation and benefits of $3,237.
Corporate and other expenses of $7,028 for the six months ended June 30, 2001
consisted primarily of employee compensation and benefits of $3,547.
New Valley recorded a $388 charge for the six months ended June 30, 2002
related to a provision for loss on its net investment in ThinkCorp Holdings. For
the six months ended June 30, 2001, ThinkCorp Holdings recognized a gain of $250
related to Oracle's final payment of the $400 of the purchase price escrowed in
connection with the sale.
- 16 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
(Dollars in Thousands, Except Per Share Amounts)
There was no income tax for the six months ended June 30, 2002. The
income tax provision related to the six months ended June 30, 2001 related to
Russian income tax expense at Western Realty Investments. The effective tax rate
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.
DISCONTINUED OPERATIONS
LADENBURG THALMANN FINANCIAL SERVICES. On December 20, 2001, New Valley
distributed its 53.6% interest in Ladenburg Thalmann Financial Services common
stock to holders of New Valley common shares through a special dividend. New
Valley stockholders received 0.988 of a Ladenburg Thalmann Financial Services
share for each share of New Valley.
The consolidated financial statements of New Valley for 2001 have been
reclassified to reflect as discontinued operations New Valley's broker-dealer
operations. Accordingly, revenues, costs and expenses, and cash flows of the
discontinued operations have been excluded from the respective captions in the
consolidated statements of operations and consolidated statements of cash flows.
The net operating results of these entities have been reported, net of
applicable income taxes and minority interests, as "Loss from discontinued
operations," and the net cash flows of these entities have been reported as "Net
cash provided from discontinued operations."
Summarized operating results of the discontinued broker-dealer
operations for the three and six months ended June 30, 2001 are as follows:
Three Months Six Months
Ended June 30, Ended June 30,
2001 2001
-------------- --------------
Revenues............................. $ 21,258 $ 40,322
Expenses............................. 24,687 44,073
------ ------
Operating loss before income
taxes and minority interests..... $ (3,429) $ (3,751)
====== ======
GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS. New Valley recorded a gain
on disposal of discontinued operations of $2,279 in the six months ended June
30, 2001 related to the adjustment of accruals established during the Company's
bankruptcy proceedings in 1993 and 1994. The reversal of these accruals reduced
various tax accruals previously established.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 2002, New Valley's cash and cash
equivalents increased from $92,069 to $111,260 due primarily to the receipt of
$17,551 in the first quarter related to a lawsuit, which was settled in the
fourth quarter of 2001.
Cash provided from operating activities for the six months ended June
30, 2002 was $11,300 compared with cash used for operating activities for the
six months ended June 30, 2001 of $4,990. The difference is primarily due to the
receipt of $17,551 from the lawsuit.
The lawsuit settlement resulted from litigation, which arose out of the
insurers' participation in a program of insurance covering the amount of fuel in
the Westar IV and V communication satellites owned by New Valley's former
Western Union satellite business, which was sold in 1989. The two satellites,
each of which were launched in 1982 with an expected ten year life, had
shortened lives due to insufficient fuel. In the settlement, New Valley received
payment from the insurers for the shortened lives of the two satellites.
- 17 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
(Dollars in Thousands, Except Per Share Amounts)
Cash provided from investing activities for the six months ended June
30, 2002 was $20,062 compared to $9,791 for the six months ended June 30, 2001.
The difference is primarily attributable to the sale of BrookeMil for $20,461,
net of closing expenses in 2002, net sales of marketable securities and
long-term investments of $1,818 in 2002 versus $306 in 2001 and payment of
restructuring accruals of $29 in 2002 versus $2,624 in 2001. The amounts were
offset by the sale of one of New Valley's two U.S. shopping centers for $9,172
in 2001.
As of June 30, 2002, New Valley had $2,671 of prepetition
bankruptcy-related claims and restructuring accruals including claims for lease
rejection damages and for unclaimed monies that certain states are seeking on
behalf of money transfer customers. The remaining claims may be subject to
future adjustments based on potential settlements or decisions of the court. On
August 8, 2002, the Company paid $2,000 to settle the claim for unclaimed monies
and the restructuring accruals will be reduced by a corresponding amount in the
third quarter of 2002. In connection with the settlement, in the second quarter
of 2002, the Company reclassified $711 of accrued dividends to stockholders'
equity.
On March 27, 2002, LTS borrowed $2,500 from New Valley. The loan, which
bears interest at 1% above the prime rate, is due on the earlier of September
30, 2002 or the completion of one or more equity financings where LTS receives
at least $5,000 in total proceeds. On July 16, 2002, LTS borrowed an additional
$2,500 from New Valley on the same terms. LTS has filed a registration statement
for a proposed rights offering to the holders of its outstanding common stock,
convertible notes, warrants and options. The Company has advised LTS that it
will purchase up to $5,000 of LTS common stock in the rights offering if such
shares are otherwise unsubscribed for. In August 2002, Ladenburg announced it
has postponed the rights offering due to market conditions.
In April 2002, New Valley sold the shares of BrookeMil for
approximately $22,000 before closing expenses. New Valley recorded a gain of
approximately $8,484 in the second quarter of 2002 in connection with the sale.
Cash flows used in financing activities were $12,171 for the six months
ended June 30, 2002 and $11,149 for the six months ended June 30, 2001. The 2002
amount primarily consists of the repayment of the participating loan to Apollo
in connection with the sale of BrookeMil. The 2001 amount primarily consists of
the repayment of notes payable of $11,862 in connection with the sale of a U.S.
shopping center in January 2001 and a decrease in margin loans payable of
$2,315. The 2001 amount also included cash provided from financing activities of
$2,478 in connection with borrowings under the participating loan.
On October 5, 1999, New Valley's Board of Directors authorized the
repurchase of up to 2,000,000 Common Shares from time to time on the open market
or in privately negotiated transactions depending on market conditions. As of
August 13, 2002, New Valley had repurchased 422,000 shares for approximately
$1,457.
New Valley expects that its available working capital will be
sufficient to fund its currently anticipated cash requirements for 2002,
including the currently anticipated cash requirements of its operating
businesses, investments, commitments, and payments of principal and interest on
its outstanding indebtedness.
MARKET RISK
Market risk generally represents the risk of loss that may result from
the potential change in the value of a financial instrument as a result of
fluctuations in interest and currency exchange rates, equity and commodity
prices, changes in the implied volatility of interest rate, foreign exchange
rate, equity and commodity prices and also changes in the credit ratings of
either the issuer or its related country of origin. Market risk is inherent to
both derivative and non-derivative financial instruments, and accordingly, the
scope of New Valley's market risk management procedures extends beyond
derivatives to include all market risk sensitive financial instruments.
- 18 -
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - Continued
(Dollars in Thousands, Except Per Share Amounts)
EQUITY PRICE RISK
New Valley held investment securities available for sale totaling
$18,742 at June 30, 2002. Adverse market conditions could have a significant
effect on the value of New Valley's investments.
New Valley also holds long-term investments in limited partnerships and
limited liability companies. These investments are illiquid, and their ultimate
realization is subject to the performance of the investee entities.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
New Valley and its representatives may from time to time make oral or
written "forward-looking statements" within the meaning of the Private
Securities Reform Act of 1995, including any statements that may be contained in
the foregoing "Management's Discussion and Analysis of Financial Condition and
Results of Operations", in this report and in other filings with the Securities
and Exchange Commission and in its reports to stockholders, which represent New
Valley's expectations or beliefs with respect to future events and financial
performance. These forward-looking statements are subject to certain risks and
uncertainties and, in connection with the "safe-harbor" provisions of the
Private Securities Reform Act, New Valley has identified under "Risk Factors" in
Item 1 of New Valley's Form 10-K for the year ended December 31, 2001 filed with
the Securities and Exchange Commission and in this section important factors
that could cause actual results to differ materially from those contained in any
forward-looking statements made by or on behalf of New Valley.
New Valley's operating businesses are subject to intense competition,
changes in consumer preferences, and local economic conditions. New Valley
Realty is additionally subject to the uncertainties relating to the real estate
business, including, without limitation, required capital improvements to
facilities, local real estate market conditions and federal, state, city and
municipal laws and regulations concerning, among others, zoning and
environmental matters. Uncertainties affecting New Valley generally include,
without limitation, the effect of market conditions on the salability of New
Valley's investment securities, the uncertainty of other potential acquisitions
and investments by New Valley, the effects of governmental regulation on New
Valley's ability to target and/or consummate any such acquisitions and the
effects of limited management experience in areas in which New Valley may become
involved.
Results actually achieved may differ materially from expected results
included in these forward-looking statements as a result of these or other
factors. Due to such uncertainties and risks, readers are cautioned not to place
undue reliance on such forward-looking statements, which speak only as of the
date on which such statements are made. New Valley does not undertake to update
any forward-looking statement that may be made from time to time on behalf of
New Valley.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Market Risk" is incorporated
herein by reference.
- 19 -
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
See Note 7 to the Notes to the Condensed Consolidated Financial
Statements in Part I, Item 1 of this Report.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
99.1 Certification of Chief Executive Officer, Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer, Pursuant to 18
U.S.C. Section 1350, as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(b) REPORTS ON FORM 8-K
None
- 20 -
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW VALLEY CORPORATION
(Registrant)
Date: August 14, 2002 By: /s/ J. BRYANT KIRKLAND III
-----------------------------------
J. Bryant Kirkland III
Vice President, Treasurer
and Chief Financial Officer
(Duly Authorized Officer and
Chief Accounting Officer)
- 21 -