Vector Group Ltd.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 9, 2006
VECTOR GROUP LTD.
(Exact Name of Registrant as Specified in Its Charter)
| |
|
|
|
|
| Delaware
|
|
1-5759
|
|
65-0949535 |
|
|
|
|
|
|
(State or Other Jurisdiction of
Incorporation)
|
|
(Commission File Number)
|
|
(I.R.S. Employer Identification No.) |
| |
|
|
|
|
| 100 S.E. Second Street, Miami, Florida
|
|
33131 |
|
|
|
|
| (Address of Principal Executive Offices)
|
|
(Zip Code) |
(305) 579-8000
(Registrant’s Telephone Number, Including Area Code)
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following provisions (see General
Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operation and Financial Condition.
On November 9, 2006, Vector Group Ltd. (the “Company”) issued a press release
disclosing certain operating data and other information relating to the third
quarter of 2006. A copy of the press release is attached hereto as Exhibit 99.1
and incorporated herein by reference.
The information in Item 2.02 of this Current Report on Form 8-K, including the
exhibit hereto, is not deemed “filed” for purposes of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities
of that section, nor shall it be deemed to be incorporated by reference in any
filing under the Securities Act of 1933, as amended, or the Exchange Act, except
as expressly set forth by specific reference in such filing.
Item 4.02. Non-Reliance on Previously Issued Financial Statements or a Related
Audit Report or Completed Interim Review.
On November 9, 2006, the Company determined that it would restate its financial
statements for each of the years ended December 31, 2004 and 2005, and selected
financial data for each of the years 2004 and 2005 appearing in Item 6 of its
Annual Report on Form 10-K, as amended, for the year ended December 31, 2005, as
well as its interim financial statements for the quarters ended March 31, 2005
and 2006, June 30, 2005 and 2006, and September 30, 2005. The restatement will
correct an error in the computation of the amortization of the debt discount
created by the embedded derivative and the beneficial conversion feature
associated with the Company’s 5% variable interest senior convertible notes due
2011. As a result, the Company’s previously issued financial statements for
these periods should not be relied upon.
The revised financial statements and selected financial data for the periods
referenced above will be included, as applicable, in an amended Annual Report on
Form 10-K, as amended, for the year ended December 31, 2005, and in amended
Quarterly Reports on Form 10-Q for the quarters ended March 31, 2006 and June 30,
2006. The revised interim financial statements for the quarter ended September
30, 2005 will be included in the Quarterly Report on Form 10-Q for the quarter
ended September 30, 2006. The Company expects to file the amended documents as
promptly as practicable.
The
Company previously amortized the debt discount using an erroneous
amortization method that did not
result in a consistent yield on the convertible debt over its term (the effective
interest method). The amortization method used by the Company resulted in an
overstatement of non-cash interest expense during 2004 and 2005, all interim
periods in 2005 and the first two interim periods in 2006 than that which would
have resulted using the effective interest method. The effect of the
restatement will be to decrease previously reported non-cash interest expense and
to increase previously
-2-
reported
income by a total of approximately $8.1 million on a pre-tax basis for
the affected periods as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Interest Expense |
|
Net Income (loss) |
| (Amounts in 000s) |
|
As reported |
|
As restated |
|
As reported |
|
As restated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31, 2004 |
|
$ |
5,332 |
|
|
$ |
4,811 |
|
|
$ |
11,024 |
|
|
$ |
11,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2004 |
|
|
25,077 |
|
|
|
24,556 |
|
|
|
6,815 |
|
|
|
7,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2005 |
|
|
6,647 |
|
|
|
5,514 |
|
|
|
11,496 |
|
|
|
12,227 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2005 |
|
|
9,242 |
|
|
|
7,581 |
|
|
|
10,277 |
|
|
|
11,348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2005 |
|
|
8,266 |
|
|
|
7,010 |
|
|
|
9,235 |
|
|
|
10,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31, 2005 |
|
|
7,825 |
|
|
|
6,626 |
|
|
|
18,087 |
|
|
|
18,766 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2005 |
|
|
31,980 |
|
|
|
26,731 |
|
|
|
49,095 |
|
|
|
52,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2006 |
|
|
8,266 |
|
|
|
7,052 |
|
|
|
9,293 |
|
|
|
10,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2006 |
|
|
8,802 |
|
|
|
7,724 |
|
|
|
(3,349 |
) |
|
|
(2,710 |
) |
The restatement will have no effect on previously reported operating income
or net reported cash flows for the restated periods. As a result of the
restatement, this previously reported non-cash interest expense of approximately
$8.1 million will be recognized over the remaining term of the convertible debt.
In the Company’s Quarterly Reports on Form 10-Q for each of the quarterly periods
ended March 31, 2005 and 2006, June 30, 2005 and 2006, and September 30, 2005,
and in the Company’s Annual Report on Form 10-K for the year ended December 31,
2005, management originally reported that the Company’s disclosure controls and
procedures were effective as of each of those dates. Further, in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2005, management
concluded that its internal control over financial reporting was effective as of
December 31, 2005. In the light of the restatement discussed above, the Company
has reassessed the effectiveness of its disclosure controls and procedures, and
its internal control over financial reporting as of those dates, respectively,
and has concluded that they were not effective as of those dates due to the
material weakness discussed below.
A material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim financial statements will not be prevented
or detected.
The Company did not maintain effective controls over the accuracy of its debt
discount amortization. Specifically, the Company did not maintain effective
controls to ensure that the amortization of its debt discount created
by the embedded derivative and beneficial converion feature resulted in a
consistent yield on the Company’s 5% variable interest senior convertible notes
due 2011 over its term in accordance with generally accepted accounting
principles through application of the effective interest method. This control
deficiency resulted in the restatement of
-3-
the Company’s annual consolidated financial statements for the years ended
December 31, 2004 and 2005, all interim periods in 2005, the first two interim
periods of 2006 and adjustments to the third interim period of 2006. In
addition, this control deficiency could result in misstatement of the Company’s
debt, other assets and interest expense that would result in a material misstatement to the
Company’s annual or interim consolidated financial statements that would not be
prevented or detected. Accordingly the Company’s management has determined that
this control deficiency constitutes a material weakness.
In response to the material weakness in internal control over financial reporting
described above, management has reviewed its procedures and processes over the
accuracy of its debt discount amortization. The Company has revised the
amortization of its debt discount for its 5% variable interest senior convertible
notes due 2011 and has plans to establish a control to test the amortization of
debt discounts to ascertain that such amortization results in a consistent yield
on the convertible debt over its term in accordance with the effective interest
method and generally accepted accounting principles. The Company will perform
such a review and test for any new convertible debt or any changes to projected
interest payments on its existing convertible debt to ensure it results in a
consistent yield. The Company will continue to monitor the effectiveness of this
newly designed control to ascertain when the aforementioned material weakness has
been remediated
The decision to restate the Company’s consolidated financial statements was made
by the Company’s Audit Committee on November 9, 2006 upon the recommendation of
the Company’s management. The Chairman of the Company’s Audit Committee and the
Company’s Chief Financial Officer have discussed the matters disclosed in Item
4.02 of this filing with PricewaterhouseCoopers LLP, the Company’s independent
registered certified public accounting firm.
Item 9.01. Financial Statements and Exhibits
(c) Exhibits
The following Exhibits are filed herewith:
Exhibit 99.1 Press Release dated November 9, 2006
-4-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
| |
|
|
|
|
| |
VECTOR GROUP LTD.
|
|
| |
By: |
/s/ J. Bryant Kirkland III
|
|
| |
|
J. Bryant Kirkland III |
|
| |
|
Vice President, Chief Financial Officer and Treasurer |
|
| |
Date:
November 13, 2006
-5-