What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-02-19 compared with 2020-03-12 · 321 added, 320 removed, 840 unchanged (43% of the section changed)

13 unchanged sentences

We have audited the accompanying consolidated balance sheets of Turning Point Brands, Inc.

and its subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, changes in stockholders equity (deficit) and cash flows for each of the three years in the period ended December 31, 2019, and the related notes to the consolidated financial statements (collectively, the financial statements).

and its subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.

Basis for Opinion

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Greensboro, North Carolina

March 12, 2020

February 19, 2021

Turning Point Brands, Inc.

17 unchanged sentences

Current portion of long-term debt

Revolving credit facility

Other current liabilities

Total current liabilities

1 unchanged sentence

Deferred income taxes

Postretirement benefits

Lease liabilities

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authorized shares, 190,000,000 ;

issued and outstanding shares - 19,680,673 at December 31, 2019, and 19,553,857 at December 31, 2018

19,532,464 issued shares, 19,133,794 outstanding shares at December 31, 2020, and 19,680,673 issued and outstanding shares at December 31, 2019

Common stock, nonvoting, $ 0.01 par value;

authorized shares, 10,000,000;

issued and outstanding shares -0-

authorized shares, 10,000,000 ;issued and outstanding shares - 0 -

Additional paid-in capital

Cost of repurchased common stock ( 398,670 shares at December 31, 2020 and 0 shares at December 31, 2019)

Accumulated other comprehensive loss

Accumulated deficit

Accumulated earnings (deficit)

Non-controlling interest

Total stockholders’ equity

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Loss on extinguishment of debt

Net periodic benefit (income) cost, excluding service cost

Net periodic benefit cost (income), excluding service cost

Income before income taxes

1 unchanged sentence

Consolidated net income

Net loss attributable to non-controlling interest

Net income attributable to Turning Point Brands, Inc.

Basic income per common share:

Net income attributable to Turning Point Brands, Inc.

Consolidated net income

Diluted income per common share:

Net income attributable to Turning Point Brands, Inc.

Consolidated net income

Weighted average common shares outstanding:

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For the year ended December 31,

Net income attributable to Turning Point Brands, Inc.

Consolidated net income

Other comprehensive income (loss), net of tax

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Unrealized gain (loss) on investments, net of tax of $ 0 in 2020, $ 351 in 2019, and $ 31 in 2018

Unrealized loss on interest rate swaps, net of tax of $377 in 2019 and $204 in 2018

Unrealized loss on deriviative instruments, net of tax of $ 233 in 2020, $ 377 in 2019 and $ 204 in 2018

Comprehensive income

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Loss on extinguishment of debt

Pension settlement and curtailment loss

Loss on sale of property, plant, and equipment

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Net cash provided by (used in) investing activities

The accompanying notes are an integral part of the consolidated financial statements.

Turning Point Brands, Inc.

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Proceeds from Convertible Senior Notes

Payment of IVG note

Proceeds from unsecured note

Standard Diversified Inc.

reorganization, net of cash acquired

Payments for call options

Payment of dividends

Proceeds from 2017 first lien term loan

Payments of 2017 first lien term loan

Proceeds from 2017 second lien term loan

Payments of 2017 second lien term loan

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Payment to terminate acquired capital lease

Payments of first lien term loan

Payments of second lien term loan

Proceeds from (payments of) revolving credit facility

Payments of Vapor Shark loans

Prepaid equity issuance costs

Distribution to non-controlling interest

Common stock repurchased

Net cash provided by (used in) financing activities

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Unrecognized pension and postretirement cost adjustment, net of tax of $ 435

Unrealized gain on MSA investments, net of tax of $114

Unrealized gain on other investments, net of tax

Unrealized loss on MSA investments, net of tax of $ 31

Unrealized loss on other investments, net of tax of $ 1

Unrealized loss on derivative instruments, net of tax of $ 204

Stock compensation expense

Restricted stock forfeitures

Acquisition of non-controlling interest

Distribution to non-controlling interest

Exercise of options

Surrender of options

Redemption of options

Reclassification of tax effects from accumulated other comprehensive income

IVG issuance of stock

Ending balance December 31, 2018

Unrecognized pension and postretirement cost adjustment, net of tax of $ 136

Unrealized loss on MSA investments, net of tax

Unrealized loss on other investments, net of tax

Unrealized loss on interest rate swaps, net of tax of $204

Unrealized loss on MSA investments, net of tax of $ 351

Unrealized loss on derivative instruments, net of tax of $ 377

Stock compensation expense

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Redemption of options

Reclassification of tax effects from accumulated other comprehensive income

IVG issuance of stock

Purchase of call options, net of tax of $ 5,195

Issuance of Convertible Senior Notes, net of tax of $ 8,857

Fair value of earn-out

Ending balance December 31, 2019

Unrecognized pension and postretirement cost adjustment, net of tax of $ 57

Unrealized gain on MSA investments, net of tax

Unrealized loss on interest rate swaps, net of tax of $377

Unrealized loss on derivative instruments, net of tax of $ 233

Stock compensation expense

Restricted stock forfeitures

Exercise of options

Redemption of options

Purchase of call options, net of tax of $5,195

Issuance of Convertible Senior Notes, net of tax

Fair value of earn-out

Cost of repurchased common stock

Standard Diversified Inc.

reorganization, net

ReCreation acquisition

Ending balance December 31, 2020

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Organizations and Basis of Presentation

Organizations

Description of Business

Turning Point Brands, Inc.

(the Company), is a holding company which owns North Atlantic Trading Company, Inc.

(NATC), and its subsidiaries, Turning Point Brands, LLC (TPLLC), and its subsidiaries, and Turning Point Brands (Canada), Inc.

Except where the context indicates otherwise, references to the Company include the Company;

NATC and its subsidiaries National Tobacco Company, L.P.

(NTC), National Tobacco Finance, LLC (NTFLLC), North Atlantic Operating Company, Inc.

(NAOC), North Atlantic Cigarette Company, Inc.

(NACC), and RBJ Sales, Inc.

and TPLLC and its subsidiaries Intrepid Brands, LLC (Intrepid), TPB Beast, LLC (VaporBeast,), TPB Shark, LLC, and its subsidiaries (collectively, Vapor Shark,), TPB International, LLC and its subsidiaries (collectively, IVG), and Nu-X Ventures LLC (Nu-X).

and its Subsidiaries (collectively referred to herein as the “Company,” “we,” “our,” or “us”) is a leading manufacturer, marketer and distributor of branded consumer products.

We sell a wide range of products to adult consumers consisting of staple products with our iconic brands Zig-Zag ® and Stoker’s ® to our next generation products to fulfill evolving consumer preferences.

Our three focus segments are led by our core, proprietary brands:

Zig-Zag ® in the Zig-Zag Products segment;

Stoker’s ® along with Beech-Nut ® and Trophy ® in the Stoker’s Products segment;

and Nu-X TM , Solace ® along with our distribution platforms ( Vapor Beast ® , VaporFi ® and Direct Vapor ® ) in the NewGen Products segment.

The Company’s products are available in more than 210,000 retail outlets in North America.

In order to better align with Turning Point Brands, Inc.’s positioning as a branded consumer products company and to highlight the strength of its focus brands, the Company has renamed its two core business segments from Smoking Products to Zig-Zag Products and Smokeless Products to Stoker’s Products.

Historical financial results are not impacted by the segment name change.

We operate in three segments:

(i) Zig-Zag Products, (ii) Stoker’s Products, and (iii) NewGen Products .

Basis of Presentation

The consolidated financial statements include the Company, as well as its wholly owned subsidiaries.

All intercompany transactions have been eliminated.

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”).

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Actual results could differ from those estimates.

The Companys significant estimates include those affecting the valuation of goodwill and other intangible assets, assumptions used in determining pension and postretirement benefit obligations, deferred income tax valuation allowances and the valuation of inventory, including reserves.

The Company’s significant estimates include those affecting the valuation of goodwill and other intangible assets, deferred income tax valuation allowances and the valuation of inventory, including reserves.

Certain prior year amounts have been reclassified to conform to the current year’s presentation.

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Consolidation

The consolidated financial statements include the accounts of the Company, its subsidiaries, all of which are wholly owned, and the results of Vapor Shark from April 1, 2017, through June 30, 2017.

The consolidated financial statements include the accounts of the Company, its subsidiaries, all of which are wholly owned, and variable interest entities (“VIEs”) for which the Company is considered the primary beneficiary.

All significant intercompany transactions have been eliminated.

From April 1 through June 30, 2017, Vapor Shark was a variable interest entity (VIE) for which the Company was considered the primary beneficiary due to an April 2017 management agreement in which the Company was granted the right to purchase 100% of the equity interest of Vapor Shark.

The Company did not own Vapor Shark during the second quarter of 2017;

however, Vapor Sharks financial results are included in the Companys consolidated results as a VIE.

On June 30, 2017, the Company exercised a warrant to purchase all of the issued and outstanding equity of Vapor Shark.

Beginning June 30, 2017, Vapor Shark became a wholly owned subsidiary of the Company.

GAAP requires the Company to identify entities for which control is achieved through means other than voting rights and to determine whether the Company is the primary beneficiary of VIEs.

A VIE is broadly defined as an entity with one or more of the following characteristics:

(a) the total equity investment at risk is insufficient to finance the entity’s activities without additional subordinated financial support;

(b) as a group, the holders of the equity investment at risk lack (i) the ability to make decisions about the entity’s activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity;

and (c) the equity investors have voting rights that are not proportional to their economic interests, and substantially all of the entity’s activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights.

The Company consolidates its investment in a VIE when it determines that it is the VIE’s primary beneficiary.

The Company may change its original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affects the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary.

The primary beneficiary of a VIE as the entity that has both:

(i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance;

and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity.

The Company performs this analysis on an ongoing basis.

Effective November 2020, management of the Company has determined that ReCreation Marketing (“ReCreation”) is a VIE for which the Company is considered the primary beneficiary due to the power the Company has over the activities that most significantly impact the economic performance of ReCreation and the right to receive benefits and the obligation to absorb losses of ReCreation through the Company’s 50 % equity interest, additional subordinated financing provided by the Company to ReCreation and the distribution agreement with ReCreation for the sale of the Company’s products that makes up substantially all of ReCreations’s business activities.

See Note 3, “Acquisitions” for further details regarding the consolidation of ReCreation .

Revenue Recognition

The Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes nearly all existing revenue recognition guidance under U.S.

GAAP, on January 1, 2018.

The Company recognizes revenues, which includes excise taxes and shipping and handling charges billed to customers, net of cash discounts for prompt payment, sales returns and sales incentives, upon delivery of goods to the customer—at which time the Companys performance obligation is satisfied—at an amount that the Company expects to be entitled to in exchange for those goods in accordance with the five-step analysis outlined in Topic 606:

The Company recognizes revenues in accordance with Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), which includes excise taxes and shipping and handling charges billed to customers, net of cash discounts for prompt payment, sales returns and sales incentives, upon delivery of goods to the customer—at which time the Company’s performance obligation is satisfied—at an amount that the Company expects to be entitled to in exchange for those goods in accordance with the five-step analysis outlined in Topic 606:

(i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) performance obligations are satisfied.

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Forward contracts that qualify as hedges are adjusted to their fair value through other comprehensive income as determined by market prices on the measurement date, except any hedge ineffectiveness which is recognized currently in income.

Gains and losses on these forward contracts are transferred from other comprehensive income into net income as the related inventories are received.

Gains and losses on these forward contracts are transferred from other comprehensive income into inventory as the related inventories are received and are transferred to net income as inventory is sold .

Changes in fair value of any contracts that do not qualify for hedge accounting or are not designated as hedges are recognized currently in income.

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Cost is determined using the last-in, first-out (“LIFO”) method for approximately 45.1 % of the inventories and first-in, first-out (“FIFO”) for the remaining inventories as of December 31, 2020 .

Inventories that are measured

using the LIFO method are stated at the lower of cost or market.

Inventories that are measured using the LIFO method are stated at the lower of cost or market.

Inventories that are measured using the FIFO method are stated at the lower of cost or net realizable value.

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The Company had no such impairment of goodwill or other intangible assets during the year ended December 31, 2020.

However, there could be an impairment of the goodwill of the NewGen reporting unit if future revenues do not achieve our expected future cash flows or if macroeconomic conditions result in a future increase in the weighted average cost of capital used to estimate fair value.

However, there could be an impairment of the goodwill of the NewGen reporting unit if future revenues do not achieve our expected future cash flows or if macroeconomic conditions result in future increases in the weighted average cost of capital used to estimate fair value.

See Note 10, “Goodwill and Other Intangible Assets”, for further details regarding the Company’s goodwill and other intangible assets as of December 31, 2020.

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There can be no assurance as to the ultimate content, timing, or effect of any regulation of tobacco products by any federal, state, or local legislative or regulatory body, nor can there be any assurance that any such legislation or regulation would not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.

Recently, several state governors have reacted to perceived issues around nicotine vapor products by unilaterally, without regard to the legislative process, proclaiming bans on vapor products, particularly those that are flavored.

Many of these executive actions have been challenged and temporarily restrained, but no assurance can be given that such state or local flavor bans will not be enacted or ultimately upheld.

Depending on the number and location of such bans, such executive actions and legislation could have a material adverse effect on the Companys financial position, results of operations or cash flows.

In a number of states targeted flavor bans have been proposed or enacted legislatively or by the administrative process.

Depending on the number and location of such bans, that legislation or regulation could have a material adverse effect on the Company’s financial position, results of operations or cash flows.

Food Drug and Administration (“FDA”) continues to consider various restrictive regulations around our products, including targeted flavor bans;

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The investment vehicles available to the Company are specified in the state escrow agreements and are limited to low-risk government securities.

Effective April 1, 2009, the federal excise tax on MYO products was increased from $1.0969 per pound to $24.78 per pound of tobacco.

With this significant increase in the federal excise tax, the Company discontinued its

generic category of MYO.

The Companys Zig-Zag branded MYO cigarette smoking tobacco line was discontinued in the third quarter of 2017.

The Company discontinued its generic category of MYO in 2019 and its Zig-Zag branded MYO cigarette smoking tobacco in 2017.

Thus, pending a change in MSA legislation, the Company has no remaining product lines covered by the MSA and will not be required to make future escrow deposits .

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Realized losses are prohibited under the MSA;

thus, any investment in an unrealized loss position will be held until the value is recovered, or until maturity.

The following shows the fair value of the MSA escrow account:

As of December 31, 2019

As of December 31, 2018

Cash and cash equivalents

Governmental agency obligations (unrealized gain position < 12 months)

Governmental agency obligations (unrealized loss position < 12 months)

Governmental agency obligations (unrealized loss position > 12 months)

The following shows the maturities of the U.S.

Governmental agency obligations:

Less than one year

One to five years

Five to ten years

Greater than ten years

thus, any investment with an unrealized loss position will be held until the value is recovered, or until maturity.

All monies at December 31, 2020 and December 31, 2019 were held in money market savings accounts.

The following shows the amount of deposits by sales year for the MSA escrow account:

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Tobacco products, cigarette papers, and cigarette tubes are subject to federal excise taxes.

The following table outlines the federal excise tax rate by product category effective as of April 1, 2009:

Product Category

Cigarette and Tobacco Rates effective April 1, 2009

$1.0066 per pack

52.75% of manufacturer’s price;

cap of $0.4026 per cigar

Little Cigars

$1.0066 per pack

Pip Tobacco (including Shisha)

$2.8311 per pound

Chewing Tobacco

$0.5033 per pound

$1.51 per pound

RYO/MYO and Cigar Wrappers

$24.78 per pound

Cigarette Papers

$0.0315 per 50 papers

Cigarette Tubes

$0.063 per 50 tubes

Any future enactment of increases in federal excise taxes on the Companys products could have a material adverse effect on the results of operations or financial condition of the Company.

Any future increases in federal excise taxes on the Company’s products could have a material adverse effect on the results of operations or financial condition of the Company.

The Company is unable to predict the likelihood of passage of future increases in federal excise taxes.

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Several states have also implemented additional measures on e-cigarettes, such as licensing requirements.

Food and Drug Administration (FDA):

On June 22, 2009, the Family Smoking Prevention and Tobacco Control Act (FSPTCA) authorized the Food and Drug Administration to immediately regulate the manufacture, sale, and marketing of four categories of tobacco products – cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco.

On June 22, 2009, the Family Smoking Prevention and Tobacco Control Act (“FSPTCA”) authorized the FDA to immediately regulate the manufacture, sale, and marketing of four categories of tobacco products – cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco.

On August 8, 2016, the FDA deeming regulation became effective.

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These “deeming regulations” apply to all products made or derived from tobacco intended for human consumption, but excluding accessories of tobacco products (such as lighters).

Accordingly, the FDA has since regulated our pipe tobacco, cigar, and cigar wrap products as well as our vapor products containing tobacco-derived nicotine and products intended or reasonably expected to be used to consume such e-liquids.

Accordingly, the FDA has since regulated our cigar and cigar wrap products as well as our vapor products containing tobacco-derived nicotine and products intended or reasonably expected to be used to consume such e-liquids.

Under the deeming regulations, the FDA has responsibility for conducting premarket review of “new tobacco products”—defined as those products not commercially marketed in the United States as of February 15, 2007.

There are three pathways for obtaining premarket authorization, including submission of a premarket tobacco product application (“PMTA”).

When the FDA initially issued the deeming regulations, it recognized that many products in the deemed categories that were already on the market qualified as new tobacco products and lacked a marketing order.

In August 2017, the FDA issued a compliance policy (the August 2017 Guidance) that allowed new tobacco products to remain on the market without an FDA authorization until specified deadlines had passed.

Under the August 2017 Guidance, compliance dates vary depending upon the type of application submitted, but all

newly-deemed products require an application no later than August 8, 2021, for combustible products (e.g.

cigar and pipe), and August 8, 2022, for non-combustible products (e.g.

vapor products) with the exception of grandfathered products (products in commerce as of February 15, 2007) which are already authorized.

On March 27, 2018, several public health organizations filed a lawsuit (the Maryland Lawsuit) challenging the August 2017 Guidance.

The plaintiffs asserted, among other arguments, that the modification to the deeming regulations included in the August 2017 Guidance conflicts with the TCA and exceeds FDAs statutory authority.

The plaintiffs also expressed concern that the August 2017 Guidance allows vapor products to remain marketed for a significant period of time without required premarket review.

The court found in favor of the plaintiffs in May 2019 and vacated the August 2017 Guidance.

On July 12, 2019, the court issued its remedy order (the Remedy Order).

Specifically, the court ordered that:

(1) for all deemed new tobacco products, marketers must file applications within 10 months of the Remedy Order to continue marketing such products;

(2) such a product may remain on the market pending FDA review of a timely filed application for a period not to exceed one year from the date of the applications submission;

(3) in its discretion, the FDA may enforce the premarket review requirements against such products for which marketers do not file applications within 10 months;

and (4) the FDA will have the ability to exempt deemed new tobacco products from these application submission requirements for good cause, on a case-by-case basis.

On October 24, 2019, FDA filed a Notice of Appeal from the Remedy Order and other actions adverse to FDA.

The court-ordered modification to the compliance policy remains subject to change as a result of potential appeals or litigation brought or pending in other venues.

Currently, the deadline to submit an application and to continue marketing a deemed new product remains May 12, 2020.

In January, the FDA indicated it intended to maintain this deadline irrespective of the outcome of the pending appeal in the Maryland Lawsuit.

On September 11, 2019, President Donald Trump and the Department of Health and Human Services Secretary, Alex Azar, indicated FDA would adopt a regulatory policy restricting all flavors in vapor products.

We submitted premarket filings prior to the September 9, 2020 deadline for certain of our products and intend to supplement and complete the applications within FDA’s discretionary timeline.

A successful PMTA must demonstrate that the subject product is “appropriate for the protection of public health,” taking into account the effect of the marketing of the product on all sub-populations while a Substantial Equivalence Report must demonstrate that a new product either has the same characteristics as its predicate product or different characteristics, but does not raise different questions of public health.

FDA is required under a court order to issue a decision related to the authorization of these products within twelve months;

otherwise, these products cease to be subject to the FDA’s continued compliance policy, which allows products to be marketed pending premarket review.

FDA may, in its discretion and on a case-by-case basis, deviate from this policy.

FDA has issued a number of rules related to premarket filings;

however, those rules were not finalized until after September 9, 2020.

As such, it is unclear whether and how FDA will apply any new or additional requirements to currently pending applications.

We believe we have products that meet the requisite standards and have filed premarket filings supporting a showing of the respective required standard.

However, there is no assurance that the FDA’s guidance or ultimate regulation will not change, or that the FDA will review and authorize the products in the requisite time period or that, in that circumstance, the FDA will use its discretion on a case-by-case basis to allow for the continued marketing of the products, or that unforeseen circumstances will not arise that prevent us from sufficiently supplementing or completing our applications or otherwise increase the amount of time and money we are required to spend to receive all necessary marketing orders.

Although we filed many premarket applications in a timely manner, no assurance can be given that the applications will ultimately be successful.

This may result in the prioritization of supplementing or completing applications for high priority SKUs in our inventory position, which could adversely impact future revenues.

In addition, we currently distribute many third-party manufactured vapor products for which we will be completely dependent on the manufacturer complying with the premarket filing requirements.

There can be no assurance that these third-party products will receive a marketing order.

While we will take measures to pursue regulatory compliance for our own privately-branded or proprietary vape products that compete with these third-party products, there is no assurance that such proprietary products would be as successful in the marketplace or can fully displace third-party products that are currently being distributed by us, which could adversely affect our results of operations and liquidity.

For a period of time after the filing deadline, we expect there to be a lack of enforcement, which may adversely affect our ability to compete in the marketplace against those who continue to sell unauthorized products.

In January 2020, FDA issued a Guidance document (the “January 2020 Guidance”) that stated it would be prioritizing enforcement of several categories of electronic nicotine delivery system (“ENDS”) products:

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(3) ENDS products targeted to minors or whose marketing is likely to promote the use of ENDS by minors;

and (4) ENDS products offered for sale after May 12, 2020, for which the manufacturer has not submitted a premarket application.

and (4) ENDS products offered for sale after May 12, 2020, premarket application deadline (later updated to reflect the September 9, 2020 filing deadline) for which the manufacturer has not submitted a premarket application.

The policy outlined several factors the agency would consider in its enforcement of flavored cigars going forward but did not restrict those products as it had considered in the March 2019 Guidance proposal.

The agencys policy on these and other regulated products may change or expand over time in ways not yet known;

however, such a policy could significantly impact our products and our plans for PMTA filings.

As a result of the Remedy Order and subsequent January 2020 Guidance, we would not be permitted to continue marketing our existing line of vapor products that the FDA regulates as tobacco products past May 12, 2020, unless we file an application for each such product by that date.

We expect to be able to make appropriate PMTA applications by the deadlines and to supplement and complete the applications within FDAs discretionary timeline.

A successful PMTA must demonstrate that the subject product is appropriate for the protection of public health, taking into account the effect of the marketing of the product on all sub-populations.

On September 25, 2019, FDA published a proposed rule outlining certain required elements of PMTA filings.

This rule is not yet final, and its requirements may shift before being finalized.

We believe we have products that meet the requisite standard and that we will be able to efficiently produce satisfactory PMTA filings.

However, there is no assurance that the FDAs guidance or ultimate regulation will not change, the Remedy Order will not be altered or that unforeseen circumstances will not arise that prevent us from filing applications or otherwise increase the amount of time and money we are required to spend to successfully file all necessary PMTAs.

Even if we successfully file all of our PMTAs in a timely manner, no assurance can be given that the applications will ultimately be successful.

Given the shorter time frame mandated by the Remedy Order, which if not amended or successfully appealed, may result in the prioritization of meeting requisite deadlines by selecting high priority SKUs in our inventory position, and future revenues may be adversely impacted.

In addition, we currently distribute many third-party manufactured vapor products for which we will be completely dependent on the manufacturer complying with the premarket filing requirements.

There can be no assurances that some products that we currently distribute will be able to be sold to end consumers after May 2020.

Consumer Product Safety Commission (CPSC):

On July 26, 2016, the CPSC began requiring that e-liquid containers be packaged in child-resistant packaging, as outlined in the Poison Prevention Packaging Act.

We are not able to predict whether additional packaging requirements will be necessary for our e-liquid products in the future.

The FDA’s policy on these and other regulated products may change or expand over time in ways not yet known and may significantly impact our products or our premarket filings.

Prevent All Cigarette Trafficking Act (“PACT Act”):

On December 27, 2020, President Trump signed the Further Consolidated Appropriations Act, 2021, into law.

This law included an amendment to the Jenkins Act expanding the definition of “cigarette” to include “electronic nicotine delivery systems,” or ENDS, and requires that the United States Postal Service (USPS) promulgate regulations clarifying the applicability of the prohibition on delivery sales of cigarettes to ENDS.

Failure to comply with the PACT Act could result in significant financial or criminal penalties.

To the extent we are unable to respond to, or comply with, these new requirements, there could be a material adverse effect on our business, results of operations and financial condition.

Concentration of Credit Risk:

At December 31, 2020 and 2019, the Company had bank deposits, including MSA escrow accounts, in excess of federally insured limits of approximately $ 69.7 million and $ 126.0 million, respectively.

During 2019 and 2018, the Company invested a portion of the MSA escrow accounts in U.S.

During 2019, the Company invested a portion of the MSA escrow accounts in U.S.

Government securities including TIPS, Treasury Notes, and Treasury Bonds.

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Recent Accounting Pronouncements Adopted

Effective January 1, 2019, the Company adopted Accounting Standards Update (ASU) No.

2016-02, Leases. This ASU requires substantially all leases be recorded on the balance sheet as right of use assets and lease obligations.

The Company adopted the ASU using a modified retrospective adoption method at January 1, 2019, as outlined in ASU No.

2018-11, Leases - Targeted Improvements. Under this method of adoption, there is no impact to the comparative consolidated statement of income and consolidated balance sheet.

The Company determined that there was no cumulative-effect adjustment to beginning retained earnings on the consolidated balance sheet.

The Company will continue to report periods prior to January 1, 2019 in its financial statements under prior guidance as outlined in Accounting Standards Codification Topic 840, Leases.

In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed carry forward of historical lease classifications.

Adoption of this standard did not materially impact the Companys income before income taxes or the statement of cash flows.

See Note 16, Lease Commitments, for further details.

Recent Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

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This ASU applies to financial assets measured at amortized cost, including loans, held-to-maturity debt securities, net investments in leases, and trade accounts receivable as well as certain off-balance sheet credit exposures, such as loan commitments.

The ASU replaces the current incurred loss impairment methodology with a

methodology to reflect current expected credit losses (CECL) and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates.

The guidance must be adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption.

The ASU is effective for the Company beginning in the first quarter of 2020.

The Company does not expect the ASU to have a significant impact to the Companys financial statements and related disclosures.

The ASU replaced the previous incurred loss impairment methodology with a methodology to reflect current expected credit losses (“CECL”) and requires consideration of a broader range of reasonable and supportable information to explain credit loss estimates.

The guidance was adopted using a modified retrospective transition method through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption.

The ASU was effective for the Company beginning in the first quarter of 2020.

The ASU did not have an impact to the Company’s financial statements and related disclosures .

In August 2018, the FASB issued ASU 2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.

ASU 2018-15 aligns the requirements for capitalizing implementation costs in a cloud computing arrangement service contract with the requirements for capitalizing implementation costs incurred for an internal-use software license.

The guidance is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted.

The Company adopted ASU 2018-15 effective January 1, 2020.

The ASU did not have an impact to the Company’s financial statements and related disclosures.

Recent Accounting Pronouncements Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12 to simplify the accounting in ASC 740, Income Taxes .

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This ASU will be effective beginning in the first quarter of the Company’s fiscal year 2021.

Early adoption is permitted.

Certain amendments in this update must be applied on a prospective basis, certain amendments must be applied on a retrospective basis, and certain amendments must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings/(deficit) in the period of adoption.

The Company is currently evaluating the impact this ASU will have on the financial statements and related disclosures, as well as the timing of adoption.

Solace Technologies

In July 2019, the Company purchased the assets of E-Vape 12, Inc and Solace Technologies LLC (Solace) for $9.4 million in total consideration, comprised of $7.7 million in cash, $1.1 million earn-out fair value, and $0.5 million holdback for 18 months, which was adjusted by $0.2 million for a working capital deficiency.

The earn-out consists of 44,295 shares of the Companys common stock to be issued to the former owners upon the achievement of certain annual milestones.

Immediately following the acquisition, 88,582 performance based restricted stock units with a fair value of $4.62 million were issued to former owners who became employees.

See Note 17, Share Incentive Plans, for further details.

Solace is an innovative product development company that has grown from the creator of one of the leading vape juice brands in the industry into a leader of alternative ingredients product development.

The Company intends to incorporate Solaces innovative products as well as the legacy vapor products into our Nu-X development engine.

The Company is currently evaluating the impact this ASU will have on the financial statements and related disclosures.

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) .

This guidance simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded conversion features that could be recognized separately from the convertible instrument.

This guidance also enhances transparency and improves disclosures for convertible instruments and earnings per share guidance.

This ASU is effective for annual reporting periods beginning after December 15, 2021, including interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.

This update permits the use of either the modified retrospective or fully retrospective method of transition.

The Company will early adopt this ASU effective January 1, 2021 using the full retrospective method of transition.

The ASU will increase reported debt by approximately $ 25 million, decrease interest expense by approximately $ 7.0 million annually and increase weighed average diluted common shares outstanding by approximately 3.2 million shares .

ReCreation Marketing

In July 2019, the Company obtained a 30 % stake in a Canadian distribution entity, ReCreation for $ 1 million paid at closing.

In November 2020, the Company invested an additional $ 1 million related to our 30 % stake.

In November 2020, The Company also invested an additional $ 2 million increasing its ownership interest to 50 %.

We received board seats aligned with our ownership position.

The Company also provided a $ 2.0 million unsecured loan to ReCreation bearing interest at 8 % per annum and maturing November 19, 2022.

As discussed in Note 1, the Company has determined that ReCreation is a VIE due its required subordinated financial support.

The Company has determined it is the primary beneficiary due its 50 % equity interest, additional subordinated financing and distribution agreement with ReCreation for the sale of the Company’s products.

As a result, the Company began consolidating ReCreation effective November 2020.

As of December 31, 2020, the Company had not completed the accounting for the acquisition.

The following purchase price and goodwill and other intangibles are based on the excess of the acquisition price over the estimated fair value of the tangible assets acquired and are based on managements preliminary estimates:

The following table summarizes the consideration transferred and calculation of goodwill based on excess of the acquisition price over the estimated fair value of the identifiable net assets acquired and are based on management’s preliminary estimates:

Total consideration transferred

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Working capital

Intercompany debt eliminated

Adjusted consideration transferred

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Fixed assets and Other long term assets

Intangible assets

Other liabilities

Non-controlling interest

Net assets acquired

The goodwill of $6.4 million consists of the synergies and scale expected from combining the operations and is currently deductible for tax purposes.

In September 2018, the Company acquired 100% of the equity interest of IVG for total consideration of $23.8 million satisfied through $14.5 million paid in cash, 153,079 shares of the Companys common stock with a fair value of $5.3 million, and a $4.0 million note payable to IVGs shareholders (IVG Note) which matures 18 months from the acquisition date, on March 5, 2020.

All principal and accrued and unpaid interest under the IVG Note is subject to

indemnification obligations of the sellers pursuant to the International Vapor Group Stock Purchase Agreement dated as of September 5, 2018.

The Company has tracked liabilities subject to indemnification obligations and believes that such obligations exceed $4 million.

The Purchase Agreement provides a mechanism under which the parties either agree on the indemnity amount or litigate disputed amounts.

The Purchase Agreement provides that the amount of the indemnity is to initially be determined as of March 5, 2020.

Some of the liabilities are identified but not yet fixed, such as product liability expenses.

The Purchase Agreement and related agreements include an additional $4.5 million of earnouts with both performance-based and service-based conditions payable to former IVG owners who became employees of the Company as a result of the acquisition.

Such amounts will be considered compensation and are not a component of the IVG purchase price.

The portion of earnout payments a recipient will receive will be calculated by reference to certain performance metrics not to exceed a two-year period as specified within the acquisition agreement.

The Company recorded earnout expense of approximately $0.9 million and $1.5 million, respectively, within selling, general, and administrative expenses in the consolidated statements of income for the years ended December 31, 2019 and 2018, based on the probability of achieving the performance conditions.

IVG markets and sells a broad array of proprietary and third-party vapor products directly to adult consumers through an online platform under brand names such as VaporFi, South Beach Smoke, and Direct-Vapor.

IVG operates company-owned stores under the VaporFi brand and also operates as a franchisor to franchisee-owned stores.

The acquisition of IVG adds a significant business-to-consumer distribution platform to the Companys NewGen portfolio.

The goodwill of $ 5.3 million consists of the synergies expected from combining the operations and is currently not deductible for tax purposes.

Standard Diversified Inc.

On July 16, 2020, the Company completed its merger with SDI, whereby SDI was merged into a wholly-owned subsidiary of the Company in a tax-free downstream merger.

Under the terms of the merger, the holders of SDI’s Class A Common Stock and SDI’s Class B Common Stock (collectively, “SDI Common Stock”) received in the aggregate, in return for their SDI Common Stock, TPB Voting Common Stock (“TPB Common Stock”) at a ratio of 0.52095 shares of TPB Common Stock for each share of SDI Common Stock at the time of the merger.

SDI divested its assets, other than SDI’s TPB Common Stock, prior to close such that the net liabilities at closing were minimal and the only assets that SDI retained were the remaining TPB Common Stock holdings.

The transaction was accounted for as an asset purchase for $ 236.0 million in consideration, comprised of 7,934,704 shares of TPB Common Stock valued at $ 234.3 million plus transaction costs and assumed net liabilities.

$ 236.0 million was assigned to the 8,178,918 shares of TPB Common Stock acquired.

Shares of TPB Common Stock acquired in excess of the shares issued were retired.

The Company no longer has a controlling shareholder and 244,214 shares of TPB Common Stock were retired resulting in a charge of $ 1.7 million recorded in Accumulated earnings (deficit).

Durfort Holdings

In June 2020, the Company purchased certain tobacco assets and distribution rights from Durfort Holdings S.R.L.

(“Durfort”) and Blunt Wrap USA for $ 47.7 million in total consideration, comprised of $ 37.7 million in cash, including $ 1.7 million of capitalized transaction costs, and a $ 10.0 million unsecured subordinated promissory note (“Promissory Note”).

With this transaction, the Company acquired co-ownership in the intellectual property rights of all of Durfort’s and Blunt Wrap USA’s Homogenized Tobacco Leaf (“HTL”) cigar wraps and cones.

The Company also entered into an exclusive Master Distribution Agreement to market and sell the original Blunt Wrap ® cigar wraps within the USA which was effective October 9, 2020.

Durfort is an industry leader in alternative cigar and cigar wrap manufacturing and distribution.

Blunt Wrap USA has been an innovator of new products in the smoking alternative market since 1997 and has secured patents in the USA and internationally for novel smoking wrappers and cones.

The transaction was accounted for as an asset purchase with $ 42.2 million assigned to intellectual property, which has an indefinite life, and $ 5.5 million assigned to the Master Distribution Agreement, which has a 15 year life.

Both assets are currently deductible for tax purposes.

Solace Technologies

In July 2019, the Company purchased the assets of E-Vape 12, Inc and Solace Technologies LLC (“Solace”) for $ 9.4 million in total consideration, comprised of $ 7.7 million in cash, $ 1.1 million earn-out fair value, and $ 0.5 million holdback for 18 months , which was adjusted by $ 0.2 million for a working capital deficiency.

The earn-out consists of 44,295 shares of the Company’s common stock to be issued to the former owners upon the achievement of certain annual milestones.

Immediately following the acquisition, 88,582 PRSUs with a fair value of $ 4.62 million were issued to former owners who became employees.

See Note 17, “Share Incentive Plans”, for further details.

The Company intends to incorporate Solace’s innovative products as well as the legacy vapor products into our Nu-X development engine.

The Company completed the accounting for the acquisition during the third quarter 2020.

The following purchase price and goodwill are based on the excess of the acquisition price over the fair value of the tangible and intangible assets acquired:

The following purchase price and goodwill are based on the excess of the acquisition price over the estimated fair value of the tangible and intangible assets acquired:

Total consideration transferred

Adjustments to consideration transferred:

Cash acquired, net of debt assumed

Cash acquired

Working capital

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Assets acquired:

Working capital (primarily inventory)

Working capital (primarily AR and inventory)

Fixed assets and Other long term assets

Intangible assets

Other liabilities

Net assets acquired

The goodwill of $ 6.4 million consists of the synergies and scale expected from combining the operations and is currently deductible for tax purposes.

On April 30, 2018, the Company purchased the assets of Vapor Supply LLC, vaporsupply.com, and some of its affiliates including the Ecig.com domain through its subsidiary Vapor Acquisitions Company, LLC, for total consideration of $4.8 million paid in cash to strengthen its presence within the NewGen segment.

Vapor Supply is a business-to-business e-commerce distribution platform servicing independent retail vape shops.

Additionally, Vapor Supply manufactures and markets proprietary e-liquids under the DripCo brand and operates company-owned stores.

The accounting for the acquisition of these assets was finalized during the second quarter 2019.

The following purchase price and goodwill are based on the excess of the acquisition price over the estimated fair value of the tangible and intangible assets acquired:

Total consideration transferred

Assets acquired:

Working capital (primarily inventory)

Intangible assets

Net assets acquired

Upon finalization of the acquisition accounting during the second quarter 2019, $1.8 million was transferred between intangible assets and goodwill.

The goodwill of $1.8 million is related to the expected increased retail presence in geographic regions not previously served by the Company and is currently deductible for tax purposes.

Derivative Instruments

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The Company may, from time to time, hedge currency for non-inventory purchases, e.g., production equipment, not to exceed 90 % of the purchase price.

The Company did not execute any forward contracts during 2019.

During 2018 the Company executed various forward contracts, none of which met hedge accounting requirements, for the purchase of €14.5 million with maturity dates ranging from March 2018 to January 2019.

At December 31, 2019 and 2018, the Company had forward contracts for the purchase of €0.0 million and €1.5 million, respectively.

During 2020, the Company executed various forward contracts, which met hedge accounting requirements, for the purchase of € 19.7 million and sale of € 21.4 million with maturity dates ranging from December 2020 to November 2021.

The Company did no t execute any forward contracts during 2019.

At December 31, 2020, the Company had forward contracts for the purchase of € 18.0 million and sale of € 19.6 million.

The foreign currency contracts’ fair value at December 31, 2020, resulted in an asset of $ 0.4 million included in Other current assets and a liability of $ 0.0 million included in Accrued liabilities.

At December 31, 2019, the Company had no forward contracts.

Interest Rate Swaps

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thus, there is no ineffectiveness to be recorded in earnings.

The swap agreements’ fair values at December 31, 2020, and December 31, 2019, resulted in a liability of $ 3.7 million and $ 2.5 million, respectively, included in other long-term liabilities.

Losses of $ 1.5 million, $ 0.3 million and $ 0.4 million were reclassified into interest expense for the year ending December 31, 2020, 2019 and 2018 respectively.

Fair Value of Financial Instruments

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The fair value of accounts receivable approximates their carrying value due to their short-term nature.

Revolving Credit Facility

The fair value of the revolving credit facility approximates its carrying value as the interest rate fluctuates with changes in market rates.

Note Payable – Promissory Note

The fair value of the Promissory Note approximates its carrying value of $ 10.0 million due to the recency of the note’s issuance, related to the year ended December 31, 2020.

Note Payable – Unsecured Loan

The fair value of the Unsecured Note approximates its carrying value of $ 7.5 million due to the recency of the note’s issuance, related to the year ended December 31, 2020.

Note Payable – IVG

The fair value of the IVG Note approximates its carrying value of $4.2 million due to the recency of the notes issuance, relative to the year ended December 31, 2019.

The fair value of the IVG Note approximated its carrying value of $ 4.2 million due to the recency of the note’s issuance, relative to the year ended December 31, 2019.

Long-Term Debt

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As of December 31, 2020, the fair value of the 2018 First Lien Term Loan approximated $ 130.0 million.

As of December 31, 2018, the fair values of the 2018 First Lien Term Loans and the 2018 Second Lien Term Loan approximated $154.0 million and $40.0 million, respectively.

The Convertible Senior Notes bear interest at a rate of 2.50% per year and the fair value approximated $140.1 million, with a carrying value of $172.5 million as of December 31, 2019.

As of December 31, 2019, the fair value of the 2018 First Lien Term Loan approximated $ 146.0 million .

The Convertible Senior Notes bear interest at a rate of 2.50 % per year.

As of December 31, 2020, the fair value approximated $ 155.3 million, with a carrying value of $ 172.5 million.

As of December 31, 2019, the fair value approximated $ 140.1 million, with a carrying value of $ 172.5 million.

See Note 13, “Notes Payable and Long-Term Debt”, for further information regarding the Company’s long-term debt.

Foreign Exchange

At December 31, 2019 and 2018, we had forward contracts for the purchase of €0.0 million and €1.5 million, respectively.

The fair value of the foreign exchange contracts was based upon the quoted market price that resulted in no gain or loss for the year ended December 31, 2019 and a loss of approximately $0.1 million for the year ended December 31, 2018.

At December 31, 2020, the Company had forward contracts for the purchase of € 18.0 million and sale of € 19.6 million.

At December 31, 2019, the Company had no forward contracts.

The fair value of the foreign exchange contracts are based upon quoted market prices for similar instruments, thus leading to a level 2 distinction within the fair value hierarchy, and resulted in an asset of $ 0.4 million and a liability of $ 0.0 million as of December 31, 2020.

As there were no open contracts as of December 31, 2019, there is no resulting balance sheet position related to the fair value .

The fair value of the foreign exchange contracts resulted in a liability of approximately $0.1 million as of December 31, 2018.

Interest Rate Swaps

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Raw materials and work in process

Finished goods - Smokeless products

Finished goods - Smoking products

Finished goods - Zig-Zag Products

Finished goods - Stoker’s Products

Finished goods - NewGen Products

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Balance at end of period

Inventory reserves increased as a result of additional reserves necessary for products in our NewGen segment primarily from increased regulation.

Other Current Assets

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Inventory deposits

Insurance deposit

Prepaid taxes

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Trade names (useful life of 15 years)

Master distribution agreement (useful life of 15 years)

Franchise agreements (useful life of 8 years)

Non-compete agreements (useful life of 3.5 years)

Annual amortization expense for each of the next five years is estimated to be approximately $1.4 million, assuming no additional transactions occur that require the amortization of intangible assets.

During 2020, $ 2.4 million in trade names related to Wind River Brands in the Stoker’s Product segment were determined to no longer be indefinite lived and began to be amortized.

Annual amortization expense for each of the next five years is estimated to be approximately $ 1.9 million for 2021 through 2024 and $ 1.2 million for 2025, assuming no additional transactions occur that require the amortization of intangible assets.

Other assets consists of:

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Pension assets

In July 2019 we obtained a 30% stake in Canadian distribution entity, ReCreation Marketing (ReCreation) for $1 million paid at closing.

We may invest an additional $2 million, if certain performance metrics are achieved, with options to acquire up to a 50% ownership position.

We received board seats aligned with our ownership position.

2019 sales to ReCreation of RipTide products was $0.2 million, which was included in accounts receivable at December 31, 2019.

In November 2018, the Company paid $2.0 million to acquire a minority ownership position (19.99%) in Canadian American Standard Hemp (CASH).

In October 2020, the Company acquired a 20 % stake in Wild Hempettes LLC (“Wild Hempettes”), a leading manufacturer of hemp cigarettes under the WildHemp™ and Hempettes™ brands, for $ 2.5 million.

The Company has options to increase its stake to a 100 % ownership position based on certain milestones.

As part of the transaction, the Wild Hempettes joint venture was spun off from Crown Distributing LLC and formed as a vehicle for the Company to be the exclusive distributor of Hempettes™ to U.S.

bricks and mortar retailers under a profit-sharing arrangement.

The Company has provided Wild Hempettes with a secured line of credit up to $ 2.0 million with a term up to 5 years.

The Company accounts for its investment in Wild Hempettes as an equity method investment.

The Company recorded investment income of $ 0.1 million for 2020.

Purchases of inventory from Wild Hempettes was $ 0.5 million in 2020.

There were no amounts outstanding at December 31, 2020.

In October 2020, the Company invested $ 15.0 million in dosist TM , a global cannabinoid company, with an option to invest an additional $ 15.0 million on pre-determined terms over the next 12 months.

The Company received a warrant to receive preferred shares of dosist TM that will automatically be exercised upon the changing of federal laws in the United States, rescheduling cannabis and/or permitting the general cultivation, distribution and possession of cannabis.

There were no purchases of inventory from dosist TM in 2020.

In October 2020, the Company invested $ 1.8 million in BOMANI Cold Buzz, LLC (“BOMANI”), a manufacturer of alcohol-infused cold brew coffee.

The Company received rights to receive equity in BOMANI in the event of an equity financing.

There were no purchases of inventory from BOMANI in 2020.

The Company has a minority ownership position in Canadian American Standard Hemp (“CASH”).

CASH is headquartered in Warwick, Rhode Island, and manufactures cannabidiol isolate (“CBD”) developed through highly efficient and proprietary processes.

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This resulted in a gain of $ 2 million which is recorded in investment income for 2019.

2019 purchases of inventory from CASH was $0.6 million.

There were no amounts outstanding at December 31, 2019.

In October 2020, CASH merged with Real Brands, Inc.

(“Real Brands”), an over the counter traded shell company.

CASH will continue business under the Real Brands name.

The Company maintained its ownership position in Real Brands subsequent to the merger.

Purchases of inventory from CASH were $ 0.0 million and $ 0.6 million in 2020 and 2019, respectively.

There were no amounts outstanding at December 31, 2020 and 2019.

In December 2018, the Company acquired a minority ownership position in General Wireless Operations, Inc.

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The Company will work together with RadioShack on product development and sourcing teams in China.

Furthermore, the Company paid $0.2 million in consulting fees in 2019 and purchased $1.1 million of finished goods inventory from Radio Shack during 2018.

There were no amounts outstanding at December 31, 2019.

Furthermore, the Company paid $ 0.0 and 0.2 million in consulting fees in 2020 and 2019, respectively.

There were no amounts outstanding at December 31, 2020 and 2019.

Accrued Liabilities

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2018 First Lien Term Loan

2018 Second Lien Term Loan

Convertible Senior Notes

Note payable - Promissory Note

Note payable - Unsecured Loan

Note payable - IVG

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2018 Credit Facility

On March 7, 2018, the Company entered into a $250 million credit facility consisting of a $160 million 2018 First Lien Term Loan with Fifth Third Bank, as administrative agent, and other lenders, and a $50 million 2018 Revolving Credit Facility (collectively, the 2018 First Lien Credit Facility) in addition to a $40 million 2018 Second Lien Term Loan (together with the 2018 First Lien Credit Facility, the 2018 Credit Facility) with Prospect Capital Corporation, as administrative agent, and other lenders.

The 2018 Credit Facility retained the $40 million accordion feature of the 2017 Credit Facility.

On March 7, 2018, the Company entered into $ 250 million of credit facilities consisting of a $ 160 million 2018 First Lien Term Loan and a $ 50 million 2018 Revolving Credit Facility (collectively, the “2018 First Lien Credit Facility”), in each case, with Fifth Third Bank, as administrative agent, and other lenders, in addition to a $ 40 million 2018 Second Lien Term Loan (the “2018 Second Lien Credit Facility,” and, together with the 2018 First Lien Credit Facility, the “2018 Credit Facility”) with Prospect Capital Corporation, as administrative agent, and other lenders.

The 2018 Credit Facility contains a $ 40 million accordion feature.

Proceeds from the 2018 Credit Facility were used to repay, in full, the 2017 Credit Facility.

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In the first quarter of 2020, the financial covenants were amended to permit certain add-backs related to PMTA in the definition of Consolidated EBITDA for the period of October 1, 2019 until September 30, 2020.

In connection with the amendment, fees of $ 0.2 million were incurred.

Based on an excess cash covenant for the facility, a principal payment of $ 4.5 million was due in the second quarter 2019.

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The equity component is not remeasured as long as it continues to meet the criteria for equity classification.

Interest expense includes $2.9 million of amortization for the year ended December 31, 2019.

Interest expense includes $ 7.0 and $ 2.9 million of amortization for the years ended December 31, 2020 and 2019, respectively.

In accounting for the issuance costs related to the issuance of the Convertible Senior Notes, the Company allocated the total amount incurred to the liability and equity components based on their relative values.

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The Company paid $ 20.53 million for these capped calls and charged that amount to additional paid-in capital.

Promissory Note

On June 10, 2020 , in connection with the acquisition of certain Durfort assets, the Company issued the Promissory Note in the principal amount of $ 10.0 million (the “Principal Amount”), with an annual interest rate of 7.5 % , payable quarterly , with the first payment due September 10, 2020 .

The Principal Amount is payable in two $ 5.0 million installments, with the first installment due 18 months after the closing date of the acquisition ( June 10, 2020 ), and the second installment due 36 months after the closing date of the acquisition.

The second installment is subject to reduction for certain amounts payable to the Company as a holdback.

Unsecured Loan

On April 6, 2020 , the 2018 First Lien Credit Facility was amended to allow for an unsecured loan under the Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES”).

On April 17, 2020 , National Tobacco Company, L.P., a subsidiary of the Company, entered into a loan agreement with Regions Bank guaranteed by the Small Business Administration for a $ 7.5 million unsecured loan.

The proceeds of the loan were received on April 27, 2020 .

The loan is scheduled to mature on April 17, 2022 and has a 1.00 % interest rate.

Note Payable – IVG

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The IVG Note is $ 4.0 million principal with 6.0 % interest compounding annually and matures on March 5, 2020 .

The IVG Note is subject to customary defaults including defaults for nonpayment, nonperformance, any material breach under the purchase agreement, and bankruptcy or insolvency.

The carrying amount of the IVG Note is $4.2 million as of December 31, 2019.

All principal and accrued and unpaid interest under the IVG Note were subject to indemnification obligations of the sellers pursuant to the International Vapor Group Stock Purchase Agreement dated as of September 5, 2018.

The carrying amount of the IVG Note was $ 4.2 million as of December 31, 2019.

During 2020, the carrying amount of the IVG Note, $ 4.2 million, was deposited into an escrow account pending agreement with the sellers of any indemnification obligations.

Income tax expense (benefit) for the years ended December 31 consists of the following components:

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The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

The Company has determined that they did not have any uncertain tax positions requiring recognition as a result of the provisions of ASC 740-10-25.

The Company has determined that they did no t have any uncertain tax positions requiring recognition as a result of the provisions of ASC 740-10-25.

The Company’s policy is to recognize interest and penalties accrued on uncertain tax positions as part of interest expense.

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Pension and Postretirement Benefit Plans

The Company has a defined benefit pension plan.

The Company had a defined benefit pension plan.

Benefits for hourly employees were based on a stated benefit per year of service, reduced by amounts earned in a previous plan.

Benefits for salaried employees were based on years of service and the employees’ final compensation.

The defined benefit pension plan is frozen.

The Companys policy is to make the minimum amount of contributions that can be deducted for federal income taxes.

The Company expects to make no contributions to the pension plan in 2020.

The defined benefit pension plan was frozen.

The Company’s policy was to make the minimum amount of contributions that can be deducted for federal income taxes.

The Company made no contributions to the pension plan in 2020.

In the second quarter of 2018, the Company made mutually agreed upon lump-sum payments to certain individuals covered by the defined benefit pension plan which resulted in a curtailment loss of approximately $ 0.3 million during the second quarter of 2018, which is reported within “Net periodic benefit (income), excluding service cost” within the Consolidated Statements of Income.

In the fourth quarter 2019, the Company elected to terminate the defined benefit pension plan, effective December 31, 2019 with final distributions to be made in 2020.

In the fourth quarter 2019, the Company elected to terminate the defined benefit pension plan, effective December 31, 2019 with final distributions made in the third quarter of 2020.

The Company sponsored a defined benefit postretirement plan that covered hourly employees.

This plan provides medical and dental benefits.

This plan is contributory with retiree contributions adjusted annually.

The Companys policy is to make contributions equal to benefits paid during the year.

This plan provided medical and dental benefits.

This plan was contributory with retiree contributions adjusted annually.

The Company’s policy was to make contributions equal to benefits paid during the year.

In the fourth quarter 2019, the Company amended the plan to cease benefits effective June 30, 2020.

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The curtailment resulted in $ 1.8 million being reclassified from other comprehensive income to income.

The total gain on the curtailment was $4.9 million and is recorded in net periodic (benefit) expense, excluding service cost in the income statement.

The Company expects to contribute approximately $0.1 million to its postretirement plan in 2020 for payment of benefits.

The total gain on the curtailment was $ 4.9 million and is recorded in Net periodic benefit (income), excluding service cost in the income statement.

The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair value of assets for the years ended December 31, 2020 and 2019, and a statement of the funded status:

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Settlement/curtailment

Annuities purchased

Benefits paid

Benefit obligation at December 31

Postretirement

Reconciliation of fair value of plan assets:

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Settlement/curtailment

Annuities purchased

Benefits paid

Asset reversion upon termination

Fair value of plan assets at December 31

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Net amount recognized

Accumulated benefit obligations did not exceed plan assets at December 31, 2019 or 2018, for the Companys pension plan.

Accumulated benefit obligations did not exceed plan assets at December 31, 2019, for the Company’s pension plan.

The asset allocation for the Company’s defined benefit plan, by asset category, follows:

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Furthermore, while the Company believes its valuation methods are appropriate and consistent with those of other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.

There have been no changes in the methodologies used at December 31, 2019 and 2018.

There have been no changes in the methodologies used at December 31, 2019.

Pooled Separate Accounts.

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Total assets at fair value as of December 31, 2019

Pooled separate accounts

Guaranteed deposit account

Total assets at fair value as of December 31, 2018

The table below sets forth a summary of the changes in the fair value of the Guaranteed Deposit Account:

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Balance at December 31, 2020

The Companys investment philosophy is to earn a reasonable return without subjecting plan assets to undue risk.

The Company uses one management firm to manage plan assets, which are invested in equity and debt securities.

The Companys investment objective is to match the duration of the debt securities with the expected payments.

The Company’s investment philosophy was to earn a reasonable return without subjecting plan assets to undue risk.

The Company used one management firm to manage plan assets, which were invested in equity and debt securities.

The Company’s investment objective was to match the duration of the debt securities with the expected payments.

The following table provides the amounts recognized in the consolidated balance sheets as of December 31:

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Accumulated other comprehensive loss, unrecognized net gain (loss)

The amounts in accumulated other comprehensive income that are expected to be recognized in net periodic benefit costs in 2020 is a loss of $1.8 million for pension.

No amounts will be recognized in net periodic benefit costs from accumulated other comprehensive income in 2021 for the pension or post retirement plan as both plans have been terminated.

The following table provides the components of net periodic pension and postretirement benefit costs and total costs for the plans for the years ended December 31:

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Amortization of (gains) losses

Curtailment loss (gain)

Settlement and Curtailment loss (gain)

Net periodic benefit cost

The Company is required to make assumptions regarding such variables as the expected long-term rate of return on plan assets and the discount rate applied to determine service cost and interest cost.

The rate of return on assets used is determined based upon analysis of the plans historical performance relative to the overall markets and mix of assets.

The Company was required to make assumptions regarding such variables as the expected long-term rate of return on plan assets and the discount rate applied to determine service cost and interest cost.

The rate of return on assets used was determined based upon analysis of the plans’ historical performance relative to the overall markets and mix of assets.

The assumptions listed below represent management’s review of relevant market conditions and have been adjusted as appropriate.

A discount rate was not used for postretirement benefits in 2019 as all benefits will be paid in less than one year.

The weighted average assumptions used in the measurement of the Companys benefit obligation are as follows:

Postretirement

Discount rate

The weighted average assumptions used to determine net periodic pension and postretirement costs are as follows:

Postretirement

Discount rate

Expected return on plan assets

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

A discount rate was not used for pension benefits in 2020 as all benefits were distributed during the year.

A discount rate was not used for postretirement benefits in 2019 as all benefits were to be paid in less than one year.

The Company used a discount rate of 3.0 % as the weighted average assumption in the measurement of the its benefit obligation in 2019.

The Company used a discount of 4.0 % and an expected rate of return on plan assets of 4.5 % as the weighted average assumptions to determine net periodic pension and postretirement costs in 2019.

The Company also sponsors a voluntary 401(k) retirement savings plan.

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As of January 1, 2019, the Company adopted ASU 2016-02, Leases (Topic 842) .

The main impact to the financial statements is the recognition of lease liabilities and right of use assets.

The main impact to the financial statements was the recognition of lease liabilities and right of use assets.

The Company’s leases consist primarily of leased property for manufacturing warehouse, head offices and retail space as well as vehicle leases.

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The components of lease expense consists of the following:

For the year ended

For the year ended December 31,

Operating lease cost

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Reported within accrued liabilities on the balance sheet

As of December 31,

Weighted-average remaining lease term - operating leases

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Minimum lease payments for operating leases that had initial or remaining non-cancelable lease terms in excess of one year consisted of the following:

Years thereafter

At December 31, 2019, the Company had operating leases with lease liabilities of $ 1.5 million which had not yet commenced.

The leases are primarily related to vehicles for business use.

The Company recognized $0.3 million impairment of right of use assets in the fourth quarter 2019 related to planned store closures.

The Company recognized $ 0.1 and $ 0.3 million in impairments of right of use assets in 2020 and 2019, respectively, related to store closures.

Share Incentive Plans

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We intend to continue to consistently use the same group of publicly traded peer companies to determine expected volatility until sufficient information regarding volatility of our share price becomes available or the selected companies are no longer suitable for this purpose.

Due to our limited trading history, we are using the simplified method to calculate expected holding periods, which represent the periods of time for which options

granted are expected to be outstanding.

Due to our limited trading history, we are using the “simplified method” to calculate expected holding periods, which represent the periods of time for which options granted are expected to be outstanding.

We will continue to use this method until we have sufficient historical exercise experience to give us confidence in the reliability of our calculations.

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The Company has recorded compensation expense related to the options based on the provisions of ASC 718 under which the fixed portion of such expense is determined as the fair value of the options on the date of grant and amortized over the vesting period.

The Company recorded compensation expense related to the options of approximately $1.7 million and $0.7 million for the years ended December 31, 2019 and 2018, respectively.

The Company recorded compensation expense related to the options of approximately $ 1.2 million, $ 1.7 million and $ 0.7 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Total unrecognized compensation expense related to options at December 31, 2020, is $ 0.6 million, which will be expensed over 1.48 years.

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Remaining lives

The Company recorded compensation expense related to the PRSUs of approximately $1.9 million and $0.6 million in the consolidated statements of income for the years ended December 31, 2019 and 2018, respectively, based on the probability of achieving the performance condition.

The Company recorded compensation expense related to the PRSUs of approximately $ 1.4 million, $ 1.9 million and $ 0.6 million in the consolidated statements of income for the years ended December 31, 2020, 2019 and 2018, respectively, based on the probability of achieving the performance condition.

Total unrecognized compensation expense related to these awards at December 31, 2020, is $ 8.6 million, which will be expensed over the service period based on the probability of achieving the performance condition.

Contingencies

On October 9, 2020, a purported stockholder of Turning Point Brands, Inc., Paul-Emile Berteau, filed a complaint in the Delaware Court of Chancery relating to the Agreement and Plan of Merger and Reorganization, dated as of April 7, 2020, by and among TPB, SDI and Merger Sub (the “SDI Merger”).

The complaint asserts two derivative counts purportedly on behalf of TPB for breaches of fiduciary duty against the Board of Directors of Turning Point Brands, Inc.

and other parties.

The third count asserts a direct claim against the Company and its Board of Directors seeking a declaration that TPB’s Bylaws are inconsistent with TPB’s certificate of incorporation.

While the Company believes it has good and valid defenses to the claims, there can be no assurance that the Company will prevail in this case, and it could have a material adverse effect on the Company’s business and results of operations.

Other major tobacco companies are defendants in product liability claims.

In a number of these cases, the amounts of punitive and compensatory damages sought are significant and could have a material adverse effect on our business and results of operations.

The Company is subject to several lawsuits alleging personal injuries resulting from malfunctioning vaporizer devices or consumption of e-liquids and may be subject to claims in the future relating to other NewGen products.

The Company is still evaluating these claims and the potential defenses to them.

For example, the Company did not design or manufacture the products at issue;

rather, the Company was merely the distributor.

Nonetheless, there can be no assurance that the Company will prevail in these cases, and they could have a material adverse effect on the financial position, results of operations, or cash flows of the Company.

The Company has several subsidiaries engaged in making, distributing and retailing (online and in bricks-and-mortar) vapor products.

rather, we were merely the distributor.

Nonetheless, there can be no assurance that we will prevail in these cases, and they could have a material adverse effect on our financial position, results of operations or cash flows.

We have two franchisor subsidiaries.

Like many franchise businesses, in the ordinary course of their business, these subsidiaries are from time to time responding parties to arbitration demands brought by franchisees.

One of our subsidiaries, which we acquired in 2018, is the franchisor of the VaporFi system.

This subsidiary is a responding party in an arbitration brought by a franchisee claiming, among other things, violations of Federal Trade Commission Rules and Florida law.

These allegations relate to the franchise disclosure document (FDD) utilized by the franchise system, a small vapor store chain, prior to our acquisition in 2018.

We believe that we have good and valid substantive defenses against these claims and will vigorously defend ourselves in the arbitration.

We have also been named in a lawsuit brought by a different franchisee represented by the same firm that represents the plaintiff in the action described above.

This case relates to the termination of the franchise agreement by the franchisor for failure to pay franchising fees and our subsequent demand that the franchisee cease using our marks and de-image locations formerly housing the franchises.

The franchisee filed suit against us in the U.S.

District Court for the Southern District of Florida sixteen months after our demand.

The franchisee is claiming tortious interference and conversion.

We believe that the suit was improperly brought before the U.S.

District Court for the South District of Florida because the related franchising agreements included a mandatory arbitrary clause.

We also believe we have valid substantive defenses against the claims and intend on vigorously defending our interests in this matter.

We have several subsidiaries engaged in making, distributing and retailing (online and in bricks-and-mortar) vapor products.

As a result of the overall publicity and controversy surrounding the vapor industry generally, many companies have received informational subpoenas from various regulatory bodies and in some jurisdictions regulatory lawsuits have been filed regarding marketing practices and possible underage sales.

The Company expects that its subsidiaries will be subject to some such cases and information requests.

In the acquisition of the vapor businesses, the Company negotiated financial hold-backs, which it expects to be able to use to defray expenses associated with the information production and the cost of defending any such lawsuits.

To the extent that litigation becomes necessary, the Company believes that the subsidiaries have strong factual and legal defenses against claims that it unfairly marketed vapor products.

On October 8, 2019, the City of New York filed a complaint against twenty-three companies, including IVG and VaporFi, making various allegations including selling to consumers over the age of 18 but under 21.

In response, those subsidiaries have ceased all sales into New York City, which was an immaterial market for those businesses.

This proceeding was settled for monetary terms which were not material and certain structural remedies that the subsidiaries deemed acceptable.

We expect that our subsidiaries will be subject to some such cases and investigative requests.

In the acquisition of the vapor businesses, we negotiated financial “hold-backs”, which we expect to be able to use to defray expenses associated with the information production and the cost of defending any such lawsuits.

To the extent that litigation becomes necessary, we believe that the subsidiaries have strong factual and legal defenses against claims that they unfairly marketed vapor products.

Legal Settlement

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The discussions have been completed and the Company received $ 6.7 million in the second quarter 2019 to settle the issue.

Net of legal costs and reserves for anticipated future returns associated with the discontinuance, the Company recorded a $5.5 million gain in the second quarter, which is recorded as a reduction to selling, general, and administrative expenses.

Net of legal costs and reserves for anticipated future returns associated with the discontinuance, the Company recorded a $ 5.5 million gain in the second quarter of 2019, which was recorded as a reduction to selling, general, and administrative expenses.

Income Per Share

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December 31, 2018

Net income attributable to Turning Point Brands, Inc.

Consolidated net income

Weighted average

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Stock options

For the year ended December 31, 2019, the effect of the 3,202,808 shares issuable upon conversion of the Convertible Senior Notes were excluded from the diluted net income per share calculation because the Companys average stock price did not exceed $53.86 during the period.

For the years ended December 31, 2020 and 2019, the effect of the 3,202,808 shares issuable upon conversion of the Convertible Senior Notes were excluded from the diluted net income per share calculation because the Company’s average stock price did not exceed $ 53.86 during the period.

Segment Information

In accordance with ASC 280, Segment Reporting, the Company has three reportable segments, (1) Smokeless products;

(2) Smoking products;

In accordance with ASC 280, Segment Reporting, the Company has three reportable segments, (1) Zig-Zag Products;

(2) Stoker’s Products;

and (3) NewGen Products.

The Smokeless products segment (a) manufactures and markets moist snuff and (b) contracts for and markets chewing tobacco products.

The Smoking products segment (a) markets cigarette papers, tubes, and related products;

(b) markets and distributes finished cigars and MYO cigar wraps;

and (c) processes, packages, markets, and distributes traditional pipe tobaccos.

The NewGen products segment

(a) markets and distributes e-cigarettes, e-liquids, vaporizers, and certain other products without tobacco and/or nicotine;

(b) markets and distributes a wide assortment of vaping and CBD related products to non-traditional retail outlets via VaporBeast, Vapor Shark, Vapor Supply, IVG and Solace;

and (c) markets and distributes a wide assortment of vapor and CBD related products to individual consumers via Vapor Shark and VaporFi branded retail outlets in addition to online platforms.

Smokeless and Smoking products are distributed primarily through wholesale distributors in the United States while NewGen products are distributed primarily through e-commerce to non-traditional retail outlets in the United States.

The Zig-Zag Products segment markets and distributes (a) rolling papers, tubes, and related products;

and (b) finished cigars and MYO cigar wraps.

The Stoker’s Products segment (a) manufactures and markets moist snuff and (b) contracts for and markets loose leaf chewing tobacco products.

The NewGen Products segment (a) markets and distributes CBD, liquid vapor products and certain other products without tobacco and/or nicotine;

(b) distributes a wide assortment of products to non-traditional retail outlets via VaporBeast;

and (c) markets and distributes a wide assortment of products to individual consumers via the VaporFi B 2 C online platform.

Products in the Zig-Zag Products and Stoker’s Products segments are distributed primarily through wholesale distributors in the United States while products in the NewGen Products segment are distributed primarily through e-commerce to non-traditional retail outlets and direct to consumers in the United States.

The Other segment includes the costs and assets of the Company not assigned to one of the three reportable segments such as intercompany transfers, deferred taxes, deferred financing fees, and investments in subsidiaries.

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For the year ended December 31,

Smokeless products

Smoking products

Zig-Zag products

Stoker’s products

NewGen products

Smokeless products

Smoking products

Zig-Zag products

Stoker’s products

NewGen products

Operating income (loss)

Smokeless products

Smoking products

Zig-Zag products

Stoker’s products

NewGen products

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Capital expenditures

Smokeless products

Smoking products

Zig-Zag products

Stoker’s products

NewGen products

Depreciation and amortization

Smokeless products

Smoking products

Zig-Zag products

Stoker’s products

NewGen products

Includes corporate costs that are not allocated to any of the three reportable segments.

Smokeless products

Smoking products

Includes costs related to PMTA of $ 14.4 million and $ 2.2 million in 2020 and 2019, respectively.

Zig-Zag products

Stoker’s products

NewGen products

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Revenue Disaggregation—Sales Channel

Revenues of the Smokeless and Smoking segments are primarily comprised of sales made to wholesalers while NewGen sales are made business to business and business to consumer, both online and through our corporate retail stores.

Revenues of the Zig-Zag Products and Stoker’s Products segments are primarily comprised of sales made to wholesalers while NewGen sales are made business to business and business to consumer, both online and through our corporate retail stores.

NewGen net sales are broken out by sales channel below.

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Diluted net income per share

(1) Includes $1,883 of loss on extinguishment of debt, net of tax of $501

Includes corporate and vapor restructuring costs of $ 12.7 million net of tax of $ 5.1 million

(3) Includes out of period non-cash interest expense adjustment related to the convertible debt of $0.8 million, net of tax of $0.3 million related to the prior quarters of 2019

Includes an immaterial out of period non-cash adjustment of $ 0.8 million net of tax of $ 0.3 million related to the prior quarters of 2019

The amounts presented in the table above are computed independently for each quarter.

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The initial quarterly dividend of $ 0.04 per common share was paid on December 15, 2017 to shareholders of record at the close of business on November 27, 2017 .

The most recent dividend of $0.05 per common share, an increase of approximately 11%, will be paid on April 10, 2020, to shareholders of record at the close of business on March 20, 2020.

The most recent dividend of $ 0.05 per common share, an increase of approximately 25 %, was paid on January 8, 2021 , to shareholders of record at the close of business on December 18, 2020 .

Dividends, among other disbursements assets, are classified as restricted payments within the 2018 Credit Facility.

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Subsequent Events

On February 25, 2020 the Companys board of directors approved a $50.0 million share repurchase authorization, which is intended for opportunistic execution based upon a variety of factors including market dynamics.

The authorization will be subject to the ongoing discretion of the board.

On February 11 , 2021, the Company closed a private offering (the “Offering”) of $ 250 million aggregate principal amount of its 5.625 % senior secured notes due 2026 (the “Senior Secured Notes”).

The Senior Secured Notes bear interest at a rate of 5.625 % and will mature on February 15, 2026 .

The Company used the proceeds from the Offering (i) to repay all obligations under and terminate the 2018 First Lien Credit Facility, (ii) to pay related fees, costs, and expenses and (iii) for general corporate purposes.

In connection with the Offering, the Company also entered into a new $ 25 million senior secured revolving credit facility (the “ New Revolving Credit Facility”).

The Company did not draw any borrowings under the New Revolving Credit Facility on the effective date of the facility but did have letters of credit of approximately $ 3.6 million outstanding.

The New Revolving Credit Facility will mature on August 11, 2025 if none of the Company’s Convertible Senior Notes are outstanding, and if any Convertible Senior Notes are outstanding, the date which is 91 days prior to the maturity date of July 15, 2024 for such Convertible Senior Notes.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data