Vector Group Ltd (VGR) 2007 Q4 法說會逐字稿

Welcome to the 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.

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 Ron Bernstein, the President and CEO of Liggett Vector Brands and Liggett, and Bryant Kirkland, 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. Ron will then review the performance of Liggett Group and Vector Tobacco, for the quarter and 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 with you 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 our last conference call, we have decided to suspend current activities relating to seeking FDA approval of using Quest as part of a 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 delay implementation to evaluate our options following the 2006 election. At the 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 has still not been a resolution and pressures remain against such legislation. As a result, we have decided to suspend our activities and will revisit the situation if appropriate in the future. In the meantime, we continue to sell Quest cigarettes and 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 remains strong, with cash of approximately $238.1 million at December 31, 2007. As reported during our last call in August, despite the bumpy credit markets, we are pleased to complete the sale of $165 million of 11% senior secured notes due 2015, through an offering to qualified invest institutions. In addition, at December 31, 2007, we held investment securities and partnership interests with a fair market value of approximately $145.4 million.

Now let's 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 pretax 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 pretax gain in the first quarter of 2007 of approximately $19.6 million as a result of this settlement.

In comparison, the 12 months ended December 31, 2006 included noncash 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 12 months ended December 31, 2006 also included an $11.5 million decrease in 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 the 2006 fourth quarter. Fourth-quarter 2007 net income was $14.2 million, or $0.20 per diluted share, compared to net income of $15.8 million or $0.25 per diluted share in the 2006 period.

For the 12 months ended December 31, 2007, Vector Group revenues were $555.4 million, compared to $506.3 million for 2006. The Company recorded operating income of $125.5 million, compared to $101 million for 2006. Net income for the full-year 2007 was $73.8 million, or $1.13 per diluted common share, compared to net income of $42.7 million, or $0.38 per share for 2006. Excluding the Ladenburg note exchange, and the gain from the U.S. government lawsuit settlement, the Company's net income for the full year of 2007 would have been $57.4 million, or $0.88 per diluted share. Excluding the debt conversion expense and the income tax benefit, net income for the full year of 2006 would have been $46.1 million, or $0.73 per diluted common share.

Now I will turn the call over to Ron Bernstein, who will review the key financials for our conventional cigarette business and our Vector Tobacco new technology subsidiary. Our conventional cigarette business includes sales of both Liggett Group cigarettes and conventional cigarette products from Vector Group. Ron?

Thank you, Howard, and good morning, everybody. As Howard indicated, we are very pleased with the earnings and shipment growth that we generated in 2007. Our success continues to reflect the benefits of the long-term growth and pricing strategy that we began implementing in 2005. I am pleased to report, that we were the only one of the top five U.S. cigarette manufacturers to generate both retail and wholesale shipment growth during 2007.

According to Management Science Associates, overall industry wholesale shipments were down 5% for 2007, while Liggett wholesale shipments increased by 1.8%. At the same time, industry retail shipments were down 4% for the year, while Liggett's shipments grew by 0.5%. As reported by Management Science Associates, fourth-quarter industry wholesale shipments declined by 8%, while Liggett declined by 4.9%. During this period, industry retail shipments declined by 6.1%, while Liggett shipments declined by 5%. As we previously reported, fourth-quarter 2006 shipments were artificially inflated due to increased shipments throughout all channels relating to the MSA payment increase that went into effect January 1, 2007. This made for challenging fourth-quarter 2007 shipment comparisons, with all manufacturers reflecting year-over-year declines.

Our 2007 volume growth was especially pleasing given the change in buying strategy of one of our major customers. As discussed during the previous conference call, Speedway SuperAmerica made a one-time inventory management adjustment during the third quarter that substantially reduced Liggett's third-quarter shipments. They have subsequently resumed standard shipment levels. Excluding that third quarter adjustment, Liggett's shipments for 2007 would be approximately 4.4% higher than the prior year.

Turning now to the numbers. For the three months and 12 months ended December 31, 2007, our conventional cigarettes generated revenues of $144.4 million and $551.7 million, compared to $136.2 million and $499.5 million for the corresponding periods in 2006. Operating income for the three and 12 months ended December 31, 2007 were $46 million and $159.3 million compared to $44.6 million and $140.5 million for the corresponding 2006 periods. For the three months and 12 months ended December 31, 2007, Vector Tobacco's operating losses were $2.6 million and $9.9 million, compared to operating losses of $5 million and $14 million for the prior year periods.

We are obviously pleased with our financial performance for 2007. As previously mentioned, there was a substantial MSA payment increase effective January 1, 2007, and we managed to capture all of that increase into earnings, despite continued pricing pressure in the market. The trend of declining shipments from many nonparticipants of the master settlement agreement continued in 2007 and is likely to continue in 2008; however, there is still widespread evidence of smaller companies selling products at prices that appear to be below their costs. That is assuming that they are paying their MSA or escrow obligations, as required. Of course, we have our doubts about the conduct of some of these companies. In the past two years, we have seen several companies file bankruptcy after failing to collect sufficient funds to meet their MSA payment requirements. Yet the states remain slow at addressing the situation. We, and others in the industry, continue to provide the states information regarding potential noncompliant companies and encourage them to limit losses to states by pursuing these offenders as quickly as possible.

In addition, over the past several years, we have seen the emergence of new renegade-type threats, particularly from the sellers of little cigars and roll your own cigarettes. Since 2003, these two categories have grown by the equivalent of approximately 8.6 billion cigarettes, a 54% increase, while manufactured cigarettes have declined by approximately 2.5% to 3% annually over the same period. The reason for this growth is the extraordinary tax advantages enjoyed by little cigar and roll your own products. These tobacco categories pay approximately 10% of the federal excise tax rate paid by cigarette manufacturers and, on average, approximately 25% or less of the state excise tax rate paid by cigarette manufacturers. We have been working with the U.S. Congress, the public health community, and state authorities to equalize the tax rate on these products to that of manufactured cigarettes. As these companies grow, it is becoming clear to all concerned that they enjoy an unfair advantage and are undermining the efforts of Congress.

Regarding the market leaders, we continue to see aggressive promotional activity, including price discounting and buy some, get some deals on Marlboro and Camel. Of particular note, late in 2007, in an apparent effort to shore up declining volume, Philip Morris USA, for the first time that we are aware of, announced a buy one get one deal on both Marlboro Red and Marlboro Lights. We believe that this program was designed to force volume into the system at year end and to stimulate early 2008 sales among price-sensitive consumers. When the market leader takes an action of this nature and Reynolds American responds with similar programs on Camel, it obviously has negative effects on all competitors, including Liggett.

However, based upon our year-end performance, we feel comfortable with our position and believe that neither Philip Morris, nor Reynolds, can maintain these programs indefinitely, based on their extraordinary costs. In fact, on February 20, Reynolds announced that it was suspending buy some get some activity in 25 states through the first quarter of 2008 to better evaluate the promotion and pricing of their so-called growth brands as industry sales declined. Beyond the market leaders, commonwealth brands maintained unusually high levels of brand promotions through their September 30 fiscal year end. In the fourth quarter, it appears that spending levels on promotions were reduced and, as a result, commonwealth appeared to suffer significant shipment declines in the fourth quarter.

Despite the activities of these competitors and the nonparticipating companies, we continue to perform well in this market and remain committed to ongoing success. Our approach going forward will continue to be to strategically invest to build on our existing base with specific focus on achieving sustainable volume growth.

The star performer of Liggett's brand portfolio in the fourth quarter continued to be Grand Prix, which, to the best of our knowledge, remains the fastest-growing cigarette brand in the market. During the fourth quarter, both wholesale and retail shipments of Grand Prix increased by approximately 9% compared to the prior year period. Further, for the full year of 2007, Grand Prix wholesale and retail shipments increased by approximately 53% and 34%, respectively, compared to '06. While we anticipate continued Grand Prix growth, we do expect those growth rates to decline as we build margin on the brand.

On February 26, 2008, we announced that we will be introducing Grand Prix snus to the market. Grand Prix snus is a pouch tobacco product designed for adult smokers who are interested in smokeless tobacco alternatives to cigarettes, as well as for existing adult users of other smokeless products. We have been watching the growth and development of the U.S. snus category for the past 18 months, and have concluded that there is a significant opportunity to introduce our own snus product as a part of the Grand Prix brand family.

Grand Prix snus will be launched into a number of test markets in May 2008. These markets include Portland, Oregon, Kansas City, Missouri, Indianapolis, Indiana, Dallas/Fort Worth, Texas, Raleigh, North Carolina, Orlando, Florida, and Columbus, Ohio. Grand Prix snus, which will initially be available in three flavor varieties -- original, spearmint, and wintergreen, is a premium quality snus product, manufactured and imported from Sweden. As with Grand Prix cigarettes, our market approach will be to offer adult snus consumers a high quality product at an affordable value price point. We are excited about this product launch and are confident that the taste and value proposition of Grand Prix snus will appeal to a wide range of adult consumers.

Turning back to cigarettes. Liggett Select retail shipments declined 5.25% during the fourth quarter versus the corresponding quarter in '06, and by 13.1% for the full year of 2007. The retail shipment decline of Liggett Select was expected and directly reflects the price positioning of the brand as we continue to pursue margin growth. Of note, we continue to see solid shipment growth in our recent partner brand, Sunoco Silver Eagle brand and Quick Trips Bronson, and we are seeing positive performance with Circle K's Montego.

As mentioned earlier and in previous calls, effective January 1, 2007, the MSA payment rate increased by approximately $0.70 per carton for all cigarette manufacturers and importers. Approximately $0.55 was related to an increase in the MSA base payment and $0.15 was related to the annual inflationary adjustment. As a result of the increase in MSA cost, most companies raised prices prior to the end of 2006. As the scheduled increase in the payment rate was widely known, both wholesalers and retailers elected to increase on-hand inventories, which led to a substantial trade buy-in of product late in the year. In addition, many manufacturers and importers shipped additional amounts of product to their own field warehouses to hold for '07 sales.

This activity resulted in shipments being pulled forward into 2006, which had the effect of increasing the value of MSA grandfathered shares for those companies with a share for the full year of '06, and reducing the value of MSA grandfathered shares in '07. For Liggett, as we have previously stated, the effect of the increased industry shipments was approximately $2 million of additional earnings in '06 and resulted in a corresponding industry shipment related earnings reduction in '07. We realized approximately $500,000 of that decline during the fourth quarter, and thus have now realized the full $2 million for the year, as expected.

On the litigation front, in the dispute involving the nonparticipating manufacturer adjustment provisions of the MSA for 2003, 47 of 48 state courts have now ruled that the MSA clearly provides that arbitration, rather than litigation, is the correct way to resolve the NPM adjustment dispute, and 34 of these decisions are now final as those state AGs have exhausted their rights of appeal. We are pleased with these rulings which clearly support the position we've taken in conjunction with the other participating manufacturers. Additionally, the economic consulting firm which determined that the MSA was a significant factor contributing to the loss of market share of the participating manufacturers for '03 made the same determination for '04 and '05.

As expected, pursuant to prior rulings in the now de-certified Angle class-action in Florida, a number of cases have been filed in that state by individual claimants where either Liggett, Vector, or both, were named as a defendant. As of February 22, approximately 1,600 of these cases were filed and served in Florida against Liggett and Vector. These cases include approximately 3,500 plaintiffs. Although the deadline to file the so-called Angle progeny cases has passed, plaintiffs have 120 days from the filing of the case to serve the complaint. The latest possible date to serve these cases is early May. So we will be in a better position to provide more precise numbers during our first quarter 2008 conference call.

On the legislative front, federal legislation to fund the State Children's Health Insurance Program, which would have included a $6.10 per carton increase to the federal excise tax, is currently on hold. It is unclear whether the legislation will go forward during 2008. The President has twice vetoed the SCHIP legislation, and the House has failed to override the veto both times; however, it is important to note that should the legislation go forward, the effect of such a large increase on a market already impacted by large increases in state excise taxes is unclear, but could lead to additional, possibly substantial, industrywide declines.

Any decline in overall industry volume greater than the core inflation rate would result in a decline in the value of Liggett's MSA grandfathered share. Having said that, it is our belief that we are well-positioned to deal with market changes that may arise from a substantial FET increase, other legislative activities, and competitive increases. We believe that the actions we have taken over the past few years to change our cost structure and to properly position our brand should enable us to maximize our performance in any market environment.

In conclusion, I would like to say that we are obviously pleased with our 2007 earnings results and look forward to opportunities to build upon our recent performance. We will continue to watch legislative and market developments closely, and are prepared to address any changes that may occur. Thanks for your attention. And back to you, Howard. Howard?

Well why don't we just go ahead and confirm that the Company again reaffirms our dividend policy remains the same. And now maybe the operator can open the line up for questions.

I am sorry, I got dropped off accidentally.

(OPERATOR INSTRUCTIONS). Our first question comes from Mitch Pindus.

Hello, Mitch.

Hello, guys. You know it was a nice quarter. And I know that in this environment, with everything going on in the market with different equities, and under reporting, or somewhat not meeting expectations, it is a pleasure to see, I have to say.

But my question is-- and frankly this this is addressed to you, Howard, everyone noticed recently that you were filing on a spec. You are involved with many other companies, and frankly, there have been some great changes that have occurred since you have come on board, and taken over the helm at Vector. And I am just wondering if this is going to further detract from the amount of time you spend at Vector, and if in fact-- I guess the question I am asking is, why another involvement?

Well obviously it will not detract, otherwise I would not have even agreed to do it. That really is an investment, I view it as an investment. There is an operating person that I have known from another industry, that asked me to be involved with him, and to make an investment with him, in the spec, which I agreed to to. I will be a nonoperating person, so I don't really think there is much, or any time-- anything that is going to consume any time.

As it relates to our cash at Vector Group. The type of deal we would do at Vector Group, is most likely going to be anything else-- it is going to be in the tobacco business, the real estate business, or, maybe another public company, all of which are things that the specs specifically does not allow you to do, in relationship to the real estate or tobacco, and is not practical to do as it relates in getting involved in another public company. So I think it is really, an investment. Look, if I thought it would affect my duties, I wouldn't do it. But it will not affect my duties.

I guess along the same lines, do you have any plans to cut down on other involvements like Nathan's, and other things?

Nathan's I already did. I am no longer the CEO. I am the Chairman, and I have almost no time with Nathan's. That's it. There's really nothing else. I am on the Board of one other small public company, and that's it. There is really nothing else.

My other question relates to the fact that you do have an enormous amount of cash sitting on the books, and of course, right now in this environment, we are all thrilled to see that, because the opportunities are evolving, and that is fantastic, but at the same time, you have a very large interest expense which needs to be covered, and that of course, is hurting your earnings on the other side. I am just wondering, what you are looking at, and when you think you might have a usage for the funds?

Okay, that was the risk OEs-- but I think we did it at an opportune time. The opportunities are now coming. We are seeing them already. For a few years we sat, and we couldn't compete on buying anything, whether it was real estate, whether it was a company, because of all the money around. All of a sudden now, every day we are seeing opportunities.

My guess is, it may still be a little bit too early, but I would not be surprised if I see some things this year for sure. I can't tell if you it would be a month from now or six months from now, but the bulk of which we are looking at, is on the real estate side, and we are trying to be very opportunistic. There are a lot of opportunities that didn't exist a year ago, that do exist now. We plan on using some of that cash, for that purpose.

Are you looking in the investment of real estate itself, real estate assets?

Real estate assets themselves.

Not mortgage market?

No, no. We are talking, we are talking-- we're looking at some of this mortgage-related type of opportunities, but you know what, they are so hard to understand, as we all know. We are looking at-- in fact we have a meeting tomorrow. Ben and I are having a meeting with pretty smart guys on it. But, I don't know, I think most likely what you will be seeing and hearing from us is, the acquisition of real estate properties.

Okay. Thanks very much, guys. But it was a very good quarter.

Yes, thank you.

Thank you, Mitch.

Thank you. Our next question comes from Mike McCann.

I think that is Mark [McMahon]. That is my question there, I take it?

Hello, Mark.

Congratulations. A good year, guys.

Thank you.

A couple of questions, one which is sort of a follow-up here on the Douglas Elliman side. You mentioned in the last, or maybe the second to last conference call, that one of the sort of stumbling blocks to reaching a deal with Prudential on getting additional percentages in the business was, what they were requiring on pricing on mortgage in their business, and that had all sort of fallen into a black hole. Have you guys revisited negotiations with them on that, and have you reached any sort of conclusion on what sort of pricing would be appropriate, in this market?

Well, you know, your memory is correct. The deal fell apart last time because they put it at an unrealistically high view, at that time, on what the mortgage company was worth. In their view, from what they've seen, is most companies, in their system, made more on their mortgage side than they made on the real estate side, which I did not believe was at all possible, even in a good mortgage environment. So now obviously, you can remove the whole mortgage business from the equation. And, in fact, I am going to be meeting-- I am going down to a conference they have in New Orleans in about two weeks, and I plan on sitting down with them, and discussing again the opportunity.

I think the other big opportunity we have in acquiring that piece for the right price is the fact that, we are five years into our ten year agreement with Prudential. I think this past year we probably paid them $8 million in royalties. You know, they are very nervous about us not renewing, and once you get to a couple of years from now, we can probably buy ourselves out of it. I think there are a lot of things on the table, which will have to make a decision which way we are going. But I will say, that I do not plan on renewing with them, unless we own that other piece that they have now.

So you think there might be something to accomplish this year?

Yes.

Okay. This is a question for Ron on the smokeless tobacco side. Was it basically buildout that required you guys to subcontract this product? And how is that going to affect the margins in these test markets that-- affecting your decision of expanding nationwide, and then can you kind of bring the manufacturing process in house? Can you give a little bit more color on what the plan there is?

Sure. First of all, we looked at variety of options. And the thing that I think is most notable, Mark, is that neither we, nor anyone else, knows what is the Snooze marketplace is ultimately going to be. The fact that the market leaders Philip Morris and Reynolds have made a decision, and have spent hundreds of millions of dollars at least, in both developing a Snooze product, and in the initial marketing of the Snooze product, gives us some sense that they are committed to it. And what we are hearing is that they believe, particularly Reynolds, that this will be a big segment of the marketplace in the future.

There is not a lot of Snooze manufacturing equipment in the world. Remember before Philip Morris and Reynolds started to get involved with this, this was pretty much a Scandinavian phenomenon. And as a result, the pouch type of product that we all are using, is something that there isn't a lot of equipment for.

We made decision for a couple of reasons. First of all, because of expertise, that we wanted to partner up with a quality Swedish manufacturer. They invented the product. They understand the product. They know how to make it well. They know how to make it efficiently. And secondly, we didn't want to invest in major capital expenditures, while we were determining whether or not this is going to be successful in the market in general, and whether our price value alternative will be successful specifically. So we made the decision to limit our up front investment. Our margins on this are substantially greater than they are, for our highest margin cigarettes.

So we are very pleased with the opportunity that we have, and we believe that our worst-case scenario for this year, would be a revenue-neutral type of situation, but with profit opportunities in this year. So we didn't want to spend a lot of money up front. What happens in the future, I think depends upon the development of the marketplace, and also, we feel very good about our Swedish manufacturing relationship, and we will see how things develop. But we will certainly would have options in the future, depending on how things develop.

In terms of shelf pace, promotional spending, you think that will be neutral in terms of cost versus the revenues and profits you will be making off of this brand, by the end of the year?

I think-- my expectation on a very limited basis is that we would see positive profits during this year.

Okay. All right. Last question, and I know Dick Lampen had said at the very end, Howard when you got knocked off, that the dividend policy remains in effect. Have you guys considered doing something with the dividend, in this upcoming quarter, or is that off the table at this point?

Do you mean reducing it? We're definitely not reducing it.

No, raising it, or doubling it maybe.

I am only kidding. We talk about it. At the right time. We believe this company should be operating-- paying out as much as possible to the shareholders, and we keep that in mind, and we think we've done a very good job of doing that, so it is something that is always under consideration.

Is it under consideration for three weeks from now?

We talk about it, pretty much at just about every meeting.

Okay, thank you.

Thank you our next question comes from Andrew Shapiro.

Hello, Andrew.

Hello, thanks. Can you back out the fourth quarter for-- trying to-- the nine months from the year numbers for Douglas Elliman, it appears that revenues even in Q4 were up around 10%, and EBITDA grew 6%. Does that sound about right?

B.K., I think that is right, isn't it?

Howard, it sounds right. Let me confirm it.

It sounds right.

Anyway, in general the revenues were up and the EBITDA grew. Are you seeing any slowing so far, in this year yet, and are there particular plans that you have in mind to adjust to a changing market?

Yes, you know, New York City has not seen. You always get a feeling if you talk to brokers, that it is slowing down, but when you look at the numbers you don't see the slow down. It is hard, and not really feeling it in New York City yet, the Hamptons, since it is off season, it is a little hard to tell. If I had to guess, I'd say it was a little slower. Nassau County and Suffolk County, other than the Hamptons is definitely quieter this year. Wasn't that great last year either. Sort of tracking more what's happening in the rest of the country.

In answer your question, what are we doing? We are carefully going through all of our expenses, and plan on cutting some expenses, in order to keep our bottom line up there, where we want it.

Okay. With the bottom line where it is, okay we have about-- according to the footnotes, which we were thankfully able to go through, because you give us the 10-Ks and 10-Qs in advance of the call. You have about $27 million of cash, net debt of $11.7 million, and looks like the trailing 12-month EBITDA is about $46.3 million. So Vector's 50% share, we are assuming here, using reasonable conversative multiples that north of $2 of Vector's share. Given that the market doesn't appear to be giving you any credit for your portion, of the value, of this entity, can you discuss what thoughts the board and you have, towards monetizing the investment, getting a value on the investment better reflected here, something to get the remaining 50%, or control change here, such that you can consolidate the operation, and get some multiple on these substantive cash flows?

Dick, you can tell me what we say, or not say. We are always looking at it, and we considered all different sorts of things, whether we should make it a separate company, and we are again looking at it, and obviously we think it is a great asset and a very valuable asset. And when we come to the conclusion as to what will benefit the shareholders the most, we will have a plan and we will go forward with it.

So that-- you are looking at it, and looking at alternatives. You concur that the market is not giving you value for both of the entities here?

I concur. I think we are not getting any value for the Douglas Elliman piece at this particular time.

Okay. And are there efforts done in, and we will call it your "Investor Relations" areas, in terms of either-- we don't really have any dedicated tobacco industry analysts, that tend to be covering following the company, even for them to apply, a reduction in the-- ones only paying $16 a share for the tobacco company kind of concept. What IR efforts, and plans, do you and the board have in addressing that issue, because our cost of capital is reflected in the stock price too.

Yes, I think that our concern has been what do we do, to make the story easy, and what do we do with the real estate piece better for the investors, and for the stockholders, and then come out with an IR effort. We have no IR effort really currently, trying to convince people that it is undervalued other than our ownership, our substantial ownership, that management has in the company, and the results we have shown, going forward. At the time we come up with a concrete plan, we will have an IR effort to make sure that the market values that plan properly.

And we have certainly attempted to make our operation there as transparent as possible, by providing as much financial detail that we can about--

I definitely don't have any criticism on your disclosure, and as you can see we did the math. I think the issue is the way the investment world operates, you kind of have to spoon-feed it, and paint it pretty clearly in a little PowerPoint show to people, and go out and deliver it to them.

I think you are right and I hope to do that at the same time we finalize what our plan is, to do the right thing, to get the proper value for the Douglas Elliman piece.

Do you feel-- or can you share the timing of when the Board might decide on it decide on the alternatives it's considering for Douglas Elliman, is it the upcoming board meeting, for this quarter that's going to reaffirm the dividends, et cetera. Or is it another quarter's board meeting, is it later in the year? Do you have a feel for when you guys will come to some conclusions on these alternatives?

We have a very fluid board. We talk not only at board meetings, but we talk amongst each other much more often than at board meetings, I don't think it is appropriate to comment any further on it.

Okay. Cost of debt. It looks like your cost of debt is still, obviously quite high in this environment, around 11% or so, which means to take your cash, which is not earning all that much money, and it is a large amount of cash, and to put that into real estate assets, rather than maybe dealing with some of your high-cost debt, requires a pretty high return on the real estate opportunities. Are you seeing real estate opportunities at such low multiples, and cap rates, and high cap rates that do offer a better alternative than to deal with some of your very high-cost debt?

We are not really looking at any real estate that wouldn't show at least minimum mid-20s return. And while that has been impossible recently, although we have done a pretty good job in some of the real estate investments made within the last few years, anything we are looking at now is going to have to be north of that. And I think the answer is, yes, it is not buying a fully leased office building in the city at a 5% cap rate. That surely we are not going to do.

But it is a development deal. It is a deal where there could be value added by making changes. It could be a ground-up deal. It could be something that someone else has defaulted on. buying a (inaudible) piece. There is a lot of opportunities that we are starting to see, and that we expect to be able to achieve substantial returns, but we are surely not going to go into a real estate deal, unless we believe that we will have minimum 25% of IRR.

Right, under tax status here, return of capital expectation on last year's '07 dividends, and also importantly, the timing of when you guys will lock down the percentage numbers, for us to be able to properly deal with our tax returns in your 1099s.

B.K., you want to handle that?

Yes, Andy, right now we believe it will be between 65% to 95% taxable this year, and we are still awaiting nine to ten scheduled K-1s. We are calling these people constantly, but the reality is, as in prior years, it will probably be sometime summer, before we have a final number.

Okay. And then you guys had lower level of SG&A. Is that lower level sustainable?

As far as the operating company is concerned, we are in a very comfortable range with SG&A, and don't see any reason why it should increase. Other than inflationary type of issues.

How about the holding company?

No reason to increase the overhead of the holding company. We have no plans on it.

Okay. Thank you much.

Thank you. Our next question comes from Barry Blank.

Yes, I have two questions. The first one is, the company ever considering a stock buyback?

No, we are not considering a stock buyback. We feel that the stock dividend and the cash dividend is a better use-- better for the shareholders, than doing a stock buyback at this point.

My second question is, a lot of the back companies are diversifying by buying overseas companies, and various tobacco products. Have you looked that that at all? Or are you basically want to stay domestically?

We've actually looked. We had a couple of runs at a couple of foreign things, foreign tobacco operations in the last year, but at the end of the day, they're all fraught with so much difficulty and so much trouble, the type of companies that would make sense for us, that we sort of shied away, but we consistently look at overseas opportunities in the tobacco business.

Thank you very much.

Thank you, our next question comes from Mitch Pindus.

Hello again. A follow-up to some of the questions about Douglas Elliman. B.K., I hate to disappoint you, but can you tell me what the payback was on the loan here this quarter?

We paid $15 million this year, Mitch.

What about the quarter?

The quarter was around $4 million.

$4 million. What was the balance on the note?

The balance on the note was $10.3 million.

Okay. That's all I had. Thank you, guys.

And Mitch, there is another $18.4 million that's subordinated debt, that is outstanding.

At which level, at the Douglas Elliman level?

At Douglas Elliman, right. Half of that goes to Prudential, half of it goes to New Valley. The base value of that is around-- I gave you the amount net of discount, the face value around $10.1 million each. Around $20 million at face.

I understand. Okay. What is the interest on that note?

The subordinated debt is at 12% interest.

I think with two accrued.

Ten current and two accrued.

Right.

Any thoughts of refinancing that, or just paying it off?

Well, what will happen is, once the senior debt is paid off, the subordinated debt will then be due over the next two years in eight quarterly installments.

Okay.

And the senior debt, at the rate we are going, will probably be paid off some time in 2008.

Okay. The policy has always been is just to have the Douglas Elliman pay for its own cab fare, essentially.

Yes, that's correct.

Thanks, guys

(OPERATOR INSTRUCTIONS). Our next question comes from Andrew Shapiro.

Yes, it is a follow-up on a question the gentleman prior to Mitch had asked, about us looking at some International tobacco acquisition opportunities. There's been a bunch of actually acquisitions taken place, and paid for-- paying a fairly decent multiple by International companies buying others, and given the fact that the United States dollar has diminished against foreign currency so much, it would seem that Vector might be a very attractive target, for an International company that would like to come in here and take over our position. Have you folks been approached, but the pricing hadn't been right? Have you been approached, and have there been indications of interest from International buyers for an asset like our tobacco operations?

First, Mitch, let me answer by saying that, obviously we would entertain any approach by anyone as it relates to purchasing our company, if it is the right price for the shareholders. That is our number one concern. I believe that when Commonwealth was purchased, there was-- we were looked at the same time Commonwealth was, and I think very simply, and I think I have said it before, the pluses and minuses to both, the plus to them was that there was no tobacco litigation, because it was a pretty new company. The negative was their cap was small, and conversely the positive to us was we had a large cap, the negative was we had some tobacco litigation. They chose to go in that direction.

If you looked at that multiple, and applied it to our company, that probably would have been a price that would have been very advantageous to our shareholders. We speak to bankers, regularly I would say, when they come up, and say that so and so was looking at the business, and our answer always is, we are interested. And call us when you want to discuss it. So we surely encourage any interest from any of the International players that would be interested in coming into the U.S.

And what was the multiple that was paid for Continental, and what that multiple would have implied for our tobacco side of the business.

Ron, do you want to handle it?

As I recall the multiple was in the eight to nine range.

I think it was even a little bit more when you really looked at it. I thought it was closer to ten, but I could be wrong.

That would have implied on the tobacco side what kind of price per share?

Well, if you want to look at it I guess if you would think 9-- B.K., if you just looked at our-- let's take '07.

Yes, just trailing [LTNO].

If you look at our EBITDA for '07--

That will be about $1.5 billion.

$1.5 billion. And how many fully diluted shares right now?

63. Just a minute.

And you have debt outstanding.

And we have debt.

With your net cash, not much.

Bryant, exactly right. We look at that, as pretty close to a wash.

If you just took the-- that would be around $24 a share.

Without Douglas Elliman, and without-- pretty much without Douglas Elliman, that would be--

24 share for the tobacco side is what they kind of paid--

Now, Howard. The commonwealth deal was an asset purchase, and that was obviously because of the tax benefits of an asset purchase, was able to pay more.

They did a 338 election because of the [ESOP] nature of the commonwealth. There was no adverse tax consequence to the seller. So that wouldn't be the case for a normal customer, AC corporation like us.

They need to do a stock purchase to-- because we would want the liabilities to go with it.

That's correct.

That multiple might have been closer to 11 actually.

That's what I thought, I thought ten.

I think it was like 10.8.

But using the nine multiple on a $24 share value on our tobacco side?

I always say-- I always believe that our tobacco company is probably worth, minimum of about $25 a share. And then you have Douglas Elliman. I think pretty much our cash offsets our debt, and then you can say you have the converts, and how were they handled. Back and forth. At the end of the day, no matter how we figure it, we come to the same conclusion.

That does raise the question at some point, while you are looking around for very cheap assets to buy and generate, call it 20% returns on real estate. Right? Because your stock pays out presently a 9% yield, plus the 5% stock dividend a year, that you're doing, right? So there's a good almost 10% right there. And given the value maybe of the enterprises north of the $25 a share, that buying back and retiring Vector stock at the $18 a share it is currently languishing at, gets you pretty-- starts getting you close to your 20% returns.

We think about it. We understand. Something we will continue to look at.

Okay, great.

I will say the one morning I came in when the markets were getting killed. I guess a month or so again. And I saw, I saw the stock. You know pre-market was quoted like $15 to $15.50, or something like that.

I think that's when I got your shares at $17, yes.

I called up my own broker to buy. So, yeah, there comes a point-- I agree with you. I thought maybe I shouldn't buy, and maybe the company should buy, and then of course the stock opened higher that day, but it was for naught. I understand exactly, and I think the same way.

And the Board does as well, right?

Yes, absolutely.

Well, can't ask for much more. Thank you.

Operator I think that should be it for questions.

There are no more questions in the queue at this time.

Well, thank you all for being on the call. And as always, Ron, B.K., Dick Lampen, and myself are always available. We look forward to a very successful 2008. Have a nice day.