Vector Group Ltd. (VGR)

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Vector Group Limited (VGR)

Q4 2007 Earnings Call

March 3, 2008 11 am ET


BK LeBow – Executive Chairman of the Board

Howard Lorber – President and Chief Executive Officer

Ronald Bernstein – President and CEO, Liggett Vector Brands

Bryant Kirkland III – Chief Financial Officer


Mitch Pindus – Royal Bank of Canada

Mark McMahon – Bank of America Investments

Andrew Shapiro – Lawndale Capital

Barry Blake



Welcome to Vector Group's fourth quarter and full year 2007 earnings conference call. Before the call begins, I would like to read a Safe Harbor statement. The statements made during this conference call which are not historical facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. These risks are described in more detail in the company's Securities and Exchange Commission filings. Now I would like to turn the call over to the President and Chief Executive Officer of Vector Group, Howard Lorber.

Howard Lorber

Good morning and thank you for joining us on Vector Group’s fourth quarter and year end 2007 earnings conference call. With me today is Ronald Bernstein, the president and CEO of Liggett Vector brands and Bryant Kirkland III, Vector’s chief financial officer.

On today’s call, I will provide an overview of our business and review Vector Group’s financials for the fourth quarter and full year of 2007. Ronald will then review the performance of Liggett Group and Vector Tobacco for the quarter and end year, discuss recent industry developments and provide you an update on the competitive environment. After that, we will take your questions.

Let me start by saying that I am pleased to report that 2007 proved to be a year of significant growth for our company. In a challenging industry environment, Liggett generated growth for the year in shipment volume, net sales, gross profit and most importantly, operating income which increased by a robust 13.4%. Ron will discuss the details of Liggett’s performance review shortly.

In addition, I am pleased to note that Prudential Douglas Elliman continued its growth trend with increased revenue and operating income of 17% and 51% respectively for the year ended December 31, 2007. In a moment, I will review Vector Group’s results in more detail.

With respect to QUEST since the last conference call, we have decided to suspend current activities relating to seeking FDA approval of using QUEST as part of the smoking cessation program. This affirms the decision that we made at the end of 2006 when we reported our intention to terminate these activities but delayed implementation to evaluate our options following the 2006 election.

At that time, congress appeared ready to move forward rapidly with FDA regulation of tobacco and we thought it prudent to wait and see what actions they might take. However, at this time, there is still not been a resolution and pressures remain against such legislation. As a result, we have decided to suspend our activities and we will revisit the situation if appropriate in the future.

In the meantime, we continue to sell QUEST cigarettes and we will continue to do so as long as there is a demand for the product. Before discussing the financial results for the quarter and the year, I would like to note that our liquidity remained strong with cash of approximately $238.1 million at December 31, 2007.

As reported during our last call in August, despite the bumping credit market, we are pleased to complete the sale of $165 million of 11% senior secured notes due 2015 to an offering to qualify to vet intuitions. In addition, at December 31, 2007, we held investment securities and partnership interest with a fair market value of approximately $145.4 million.

Now, let us turn to the key financials for the three months and full year ended December 31, 2007 for Vector Group. Our financial results for the year ended December 31, 2007 included an $8.1 million pre-tax gain from the exchange of $5 million of notes receivable from Ladenburg Thalmann Financial Services which had been previously written off for shares of Ladenburg common stock and $1.7 million of accrued interest.

Results for the full year 2007 period also included the previously announced March 2007 settlement between New Valley and the United States government under which the company received $20 million. We recognized the pre-tax gain in the 1st quarter of 2007 of approximately $19.6 million as a result of this settlement.

In comparison, the twelve months ended December 31, 2006 include a non-cash charges of $14.9 million associated with the issuance in June 2006 of additional shares of our common stock in connection with the conversion of $70 million of the company’s 6.25% convertible notes due 2008.

Our financial results for the twelve months ended December 31, 2006 also included an $11.5 million decreased and reported income tax expense due to the reduction of the company’s previously established reserves as a result of its July 2006 settlement with the Internal Revenue Service.

For the fourth quarter ended December 31, 2007, Vector Group revenues were $145.1 million compared to $137.5 million in the 2006 fourth quarter. The company recorded operating income of $36.9 million compared to operating income of $32.6 million in 2006 fourth quarter. Fourth quarter 2007 net income was $14.2 million or 20 cents per diluted share compared to net income of $15.8 million or 25 cents per diluted share in the 2006 period.

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