STANDARD DIVERSIFIED : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

You should read the following discussion of the historical financial condition
and results of operations in conjunction with our historical consolidated
financial statements and accompanying notes, which are included elsewhere in
this Annual Report on Form 10-K. In addition, this discussion includes
forward-looking statements subject to risks and uncertainties which may result
in actual results differing from statements we make. See "Cautionary Note
Regarding Forward-Looking Statements." Factors that could cause actual results
to differ include those risks and uncertainties discussed in "Risk Factors".

The following discussion relates to the audited financial statements of the
Company included elsewhere in this Annual Report on Form 10-K. In this
discussion, unless the context requires otherwise, references to "our Company"
"we," "our," or "us" refer to Standard Diversified Inc. and our consolidated
subsidiaries. References to "SDI" refer to Standard Diversified Inc. without any
of its subsidiaries. Dollars are in thousands, except where designated and in
per share data. Many of the amounts and percentages in this discussion have been
rounded for convenience of presentation.

Overview

We are a diversified holding company with interests in a variety of industries and market sectors. Our subsidiaries are engaged in the following lines of business:

• Other tobacco products (Turning Point Brands, Inc. ("Turning Point"), a 50.0%

owned subsidiary); and

• Outdoor advertising (Standard Outdoor LLC ("Standard Outdoor"), a wholly owned

subsidiary), beginning in July 2017.

• Insurance (Pillar General Inc. ("Pillar General"), a wholly owned subsidiary),

beginning in January 2018 and disposed of on February 13, 2020.

We are continually evaluating our portfolio of subsidiaries and lines of
business and may make investment and divestiture decisions that could materially
impact us and any of our existing or future lines of business. This may include
investment and divestiture decisions, such as our plans to pursue a pursue a
corporate reorganization with Turning Point, as we disclosed in a press release
issued on November 18, 2019, which was filed as an exhibit to a Current Report
on Form 8-K filed with the Securities and Exchange Commission on the same date.
The reorganization is expected to consist of a statutory merger implemented via
Delaware law pursuant to which we would be merged with a wholly-owned subsidiary
of Turning Point with Turning Point as the survivor of the merger. Pursuant to
the merger, which would be designed to constitute a tax-free "downstream
reorganization" for U.S. federal income tax purposes, holders of our common
stock would receive, in turn, for their SDI common stock, shares of Turning
Point common stock. There can be no assurance that any definitive agreement will
be executed or that any transaction will be approved or consummated. In the same
press release, we also announced our intent to dispose of (i) our interest in
Maidstone through a disposition to the NYSDFS, and (ii) our out-of-home
advertising business, conducted through our subsidiary Standard Outdoor. The
liquidation of  Maidstone was approved by the Supreme Court of the State of New
York, County of Nassau (the "Court") on February 13, 2020, as of which date the
control and assets of Maidstone vested with the New York State Liquidation
Bureau ("NYS Liquidation Bureau") and were no longer under our control. All
Maidstone assets and liabilities were removed from our financial statements as
of February 13, 2020. Our out-of-home advertising business has not yet been
disposed of, however, the expectation is that it will be disposed of in the
first half of 2020. See Note 29, "Subsequent Events" to the consolidated
financial statements included in this filing for further information. There can
be no assurance that our plans will result in the approval or completion of any
particular transaction in the future.

Recent Developments

SDI

Corporate Reorganization

On November 18, 2019, we announced that we intend to pursue a merger with
Turning Point, of which we held a 50.0% interest as of December 31, 2019. The
reorganization is expected to consist of a statutory merger implemented via
Delaware law pursuant to which we would be merged with a wholly-owned subsidiary
of Turning Point with Turning Point as the survivor of the merger. Pursuant to
the merger, which would be designed to constitute a tax-free "downstream
reorganization" for U.S. federal income tax purposes, holders of our common
stock would receive, in turn, for their SDI common stock, shares of Turning
Point common stock. There can be no assurance that any definitive agreement will
be executed or that any transaction will be approved or consummated. Our Board
of Directors has formed a Special Committee of independent directors to engage
in discussions with Turning Point. The proposed transaction is subject to the
approval of our Board of Directors (which would be based on a recommendation
from the Special Committee) and stockholders, and also Turning Point's requisite
approval.

Prior to the consummation of the proposed merger, we plan to divest all assets
and liabilities of the Company other than our interest in Turning Point. This
includes the dispositions of our interests in Maidstone and our outdoor
billboard business, as discussed above.

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Term Loan

On September 18, 2019, we entered into a Term Loan Agreement (the "Term Loan
Agreement") with GACP II, L.P., a Delaware limited partnership (the "Agent"), as
administrative agent and collateral agent for the financial institutions (the
"Lenders"). The Term Loan Agreement provides for a term loan of $25.0 million
(the "Term Loan"). The Term Loan will be used to (a) repay, in full, all
outstanding indebtedness under the Crystal Term Loan (as defined herein), (b)
finance the purchase of common stock of Turning Point, (c) finance the
repurchase of our common stock, (d) fund certain fees and expenses, and (e)
provide working capital. At closing of the Term Loan, we received net proceeds
from the Term Loan of $9.1 million.

Standard Outdoor

On May 7, 2019, we, through Standard Outdoor, completed an asset acquisition
consisting of six billboard structures located in Georgia, as well as the ground
leases and advertising contracts relating to such billboard structures for total
consideration of $0.6 million.

Chief Executive Officer

On March 29, 2019, the duties of Ian Estus, formerly the Chief Executive Officer
of SDI, were reassigned by the Board of Directors of the Company (the "Board"),
such that Mr. Estus no longer serves as the Chief Executive Officer of the
Company, or as an officer in any other position of the Company, or as an
officer, director, manager or in any similar position for any of the Company's
subsidiaries. Mr. Estus remains a member of the Board. Also on March 29, 2019,
Gregory H.A. Baxter, currently the Executive Chairman of the Board, was
appointed by the Board to serve, on an interim basis, as the Chief Executive
Officer of the Company, and to replace Mr. Estus on an interim basis in any
other position held by Mr. Estus as an officer in any other position of the
Company, or as an officer, director, manager or in any similar position for any
of the Company's subsidiaries, to serve in each case until his successor has
been duly appointed or until his resignation or removal from any such position
by further action of the Board.

Maidstone

Order of Liquidation

Maidstone is subject to certain risk-based capital ("RBC") requirements as
specified by the National Association of Insurance Commissioners ("NAIC"). Under
such requirements, the amount of capital and surplus maintained by a property
and casualty insurance company is to be determined on various risk factors
including risk-based capital ratios. In August 2019, the Company reported a
negative statutory capital and surplus to the NYSDFS. The NYSDFS requested that
the Company consent to the entry of an order of liquidation pursuant to Article
74 of the New York Consolidated Insurance Law ("Order of Liquidation") to effect
a liquidation of the Company by the NYSDFS. On August 7, 2019, Maidstone
consented to the filing of a petition for the entry of an Order of Liquidation
with the NYSDFS.

On January 14, 2020, the NYSDFS filed a petition for an Order of Liquidation in
the Court with respect to Maidstone. On January 21, 2020, the Court issued an
order to show cause establishing February 13, 2020 as the date of a hearing
before the Court with respect to the Order of Liquidation. On February 13, 2020,
the Court conducted a hearing with respect to the Order of Liquidation and,
thereafter, approved the Order of Liquidation. At such time, the control and
assets of Maidstone vested with the NYS Liquidation Bureau and were no longer
under our control. All Maidstone assets and liabilities were removed from our
financial statements as of February 13, 2020. See Note 29, "Subsequent Events"
to the consolidated financial statements included in this filing for further
information.

Turning Point

Vaping Business Review

The Turning Point Board of Directors is reviewing strategic alternatives for
Turning Point's third-party vaping distribution business. Turning Point is
committed to capitalizing on its core competencies in branding, distribution,
product development, and regulatory affairs to create market- leading adult
actives products. This includes investing in the FDA premarket tobacco product
application ("PMTA") process for Turning Point's proprietary brands. However,
the expected future returns from third-party vaping distribution may not justify
the required investment of human and financial resources going forward. There
can be no assurance that this process will result in the approval or completion
of any particular strategic alternative or transaction in the future. See "Item
1. Business" for further information.

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British American Tobacco ("BAT") Partnership

In December 2019, Turning Point announced it had executed a binding letter of
intent with BAT's Canadian subsidiary, its Canadian partner and distributor of
Zig-Zag rolling papers ("BAT Canada"). The newly executed agreement provides the
foundation for accelerated success in the dynamic Canadian marketplace with
stronger Turning Point Zig-Zag rolling paper margins and the ability to
complement the traditional Direct-Store-Delivery network of BAT Canada with
supplemental distribution in the alternative channels space, including
dispensaries, through Turning Point's recently established partnership with
ReCreation Marketing. Turning Point's first Zig-Zag paper purchase order from
ReCreation Marketing was received in February 2020.

Share Repurchase Authorization

On February 25, 2020, the Turning Point Board of Directors approved a $50 million share repurchase authorization, which is intended for opportunistic execution based upon a variety of factors including marketing dynamics. The program will be subject to the ongoing discretion of the Turning Point Board of Directors.

Solace Technologies Acquisition

In July 2019, Turning Point 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 and $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 Turning Point to be issued
to the former owners upon the achievement of certain annual milestones.
Immediately following the acquisition, 88,582 performance based restricted stock
with a fair value of $4.62 million were issued to former owners who became
employees. 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. Turning Point intends to
incorporate Solace's innovative products as well as the legacy vapor products
into its Nu-X Ventures development engine.

ReCreation Marketing Investment

In July 2019, Turning Point obtained a 30% stake in Canadian distribution
entity, ReCreation Marketing ("ReCreation").  For $1.0 million paid at closing
through its newly created subsidiary, Turning Point Brands (Canada) Inc. Turning
Point may invest an additional $2.0 million, if certain performance metrics are
achieved, with options to acquire up to a 50% ownership position. Turning Point
received board seats aligned with its ownership position.

ReCreation Marketing is a specialty marketing and distribution firm focused on
building brands in the Canadian smoking, vaping and alternative products
categories. ReCreation's management has significant expertise in marketing and
distributing tobacco and cannabis products throughout Canada. ReCreation's
management and advisory team has over 50 years combined experience building and
managing a portfolio of premium brands, all supported by an expert team of sales
associates working across Canada to provide service to over 30,000 traditional
retail outlets and newly constructed cannabis dispensaries.

Overview of Turning Point

Turning Point Brands, Inc., 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.
("TPBC").  NATC includes 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.
("RBJ"). TPLLC includes 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").

Turning Point is a leading independent provider of Other Tobacco Products
("OTP") in the U.S. Turning Point sells a wide range of products across the OTP
spectrum including moist snuff tobacco ("MST"), loose-leaf chewing tobacco,
premium cigarette papers, make-your-own ("MYO") cigar wraps, cigars, and liquid
vapor products; but, Turning Point does not sell cigarettes. Turning Point
estimates the OTP industry generated approximately $11.5 billion in manufacturer
revenue in 2019. In contrast to manufactured cigarettes, which have been
experiencing declining volumes for decades based on data published by the
Alcohol and Tobacco Tax and Trade Bureau ("TTB"), the OTP industry is
demonstrating increased consumer appeal with low to mid-single digit consumer
unit growth as reported by Management Science Associates, Inc. ("MSAi"), a
third-party analytics and informatics company. Under the leadership of a senior
management team with an average of 24 years of experience in the tobacco
industry, Turning Point has grown and diversified its business through new
product launches, category expansions, and acquisitions while concurrently
improving operational efficiency.

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Products

Turning Point operates in three segments: Smokeless products, Smoking products
and NewGen products. In Turning Point's Smokeless products segment, Turning
Point (i) manufactures and market moist snuff and (ii) contracts for and market
loose-leaf chewing tobacco products. In Turning Point's Smoking products
segment, Turning Point (i) markets and distributes cigarette papers, tubes, and
related products; and (ii) markets and distributes finished cigars and MYO cigar
wraps. In Turning Point's NewGen products segment, Turning Point (i) markets and
distributes CBD, liquid vapor products and certain other products without
tobacco and/or nicotine; (ii) distributes a wide assortment of products to
non-traditional retail via VaporBeast and (iii) market and distribute a wide
assortment of products to individual consumers via the VaporFi B2C online
platforms.

Turning Points portfolio of brands includes some of the most widely recognized
names in the OTP industry, such as Stoker's® in the Smokeless segment, Zig-Zag®
in the Smoking segment, and VaporBeast® and VaporFi® in the NewGen segment. The
following table sets forth the market share and category rank of Turning Point's
core products and demonstrates their industry positions:

Brand       Product                   TPB Segment          Market Share (1)   Category Rank (1)
Stoker's®   Chewing Tobacco           Smokeless Products              20.0%   #1 discount, #2
                                                                              overall
Stoker's®   Moist Snuff               Smokeless Products               4.5%   #4 discount, #6
                                                                              overall
Zig-Zag®    Cigarette Papers          Smoking Products                35.0%   #1 premium
Zig-Zag®    MYO Cigar Wraps           Smoking Products                

75.0% #1 overall

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(1) Market share and category rank data for all products are derived from MSAi

      data as of 12/31/19



Operations

As of December 31, 2019, Turning Point's products are available in approximately
185,000 U.S. retail locations which, with the addition of retail stores in
Canada, brings Turning Point's total North American retail presence to an
estimated 210,000 points of distribution. Turning Point subscribes to a sales
tracking system from MSAi that records all OTP product shipments (Turning
Point's as well as those of its competitors) from approximately 900 wholesalers
to over 250,000 traditional retail stores in the U.S. This system enables
Turning Point to understand individual product share and volume trends across
multiple categories down to the individual retail store level, allowing Turning
Point to allocate field salesforce coverage to the highest opportunity stores.
Turning Point's sales and marketing group of approximately 178 professionals
utilizes the MSAi system to efficiently target markets and sales channels with
the highest sales potential.

Turning Point's core tobacco business (Smokeless and Smoking segments) primarily
generates revenues from the sale of products to wholesale distributors who, in
turn, resell the products to retail operations. Turning Point's acquisition of
VaporBeast in 2016 expanded its revenue streams as Turning Point began selling
directly to non-traditional retail outlets. Turning Point's acquisition of IVG
in 2018 enhanced its business-to-consumer revenue stream with the addition of
the Vapor-Fi online platform. The acquisition of Solace provided Turning Point
with a line of leading liquids and a powerful new product development platform.
Turning Point's net sales, which include federal excise taxes, consist of gross
sales net of cash discounts, returns, and selling and marketing allowances.

Turning Point relies on long-standing relationships with high-quality,
established manufacturers to provide the majority of its produced products. More
than 80% of Turning Point's production, as measured by net sales, is outsourced
to suppliers. The remaining production consists primarily of Turning Point's
moist snuff tobacco operations located in Dresden, Tennessee, and Louisville,
Kentucky and the proprietary e-liquids operations located in Louisville,
Kentucky. Turning Point's principal operating expenses include the cost of raw
materials used to manufacture the limited number of its products which Turning
Point produces in-house; the cost of finished products, which are generally
purchased goods; federal excise taxes; legal expenses; and compensation
expenses, including benefits and costs of salaried personnel. Turning Point's
other principal expenses include interest expense and other expenses.

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Key Factors Affecting Turning Point's Results of Operations

Turning Point considers the following to be the key factors affecting its results of operations:

• Turning Point's ability to further penetrate markets with its existing

products;

• Turning Point's ability to introduce new products and product lines that

complement its core business;

• Decreasing interest in tobacco products among consumers;

• Price sensitivity in its end-markets;

• Marketing and promotional initiatives, which cause variability in Turning

Point's results;

• General economic conditions, including consumer access to disposable income;

• Cost and increasing regulation of promotional and advertising activities;

• Cost of complying with regulation, including newly passed "deeming

regulations";

• Counterfeit and other illegal products in Turning Point's end-markets;

• Currency fluctuations;

• Turning Point's ability to identify attractive acquisition opportunities in

OTP; and

• Turning Point's ability to integrate acquisitions.

Overview of Standard Outdoor

Standard Outdoor is an out-of-home advertising business. Revenues include outdoor advertising revenues, while operating expenses primarily include compensation costs, depreciation and rent expense.

Overview of Pillar General

On January 2, 2018, Pillar General acquired all of the outstanding capital stock
of Interboro for a cash purchase price of $2.5 million. Under the name Maidstone
Insurance Company, Maidstone offered personal automobile and homeowners
insurance, primarily in the state of New York.

Maidstone is subject to certain RBC requirements as specified by the NAIC. Under
such requirements, the amount of capital and surplus maintained by a property
and casualty insurance company is to be determined on various risk factors
including risk-based capital ratios. In August 2019, the Company reported a
negative statutory capital and surplus to the NYSDFS. The NYSDFS requested that
the Company consent to an Order of Liquidation to effect a liquidation of the
Company by the NYSDFS. On August 7, 2019, Maidstone consented to the filing of a
petition for the entry of an Order of Liquidation with the NYSDFS.

On January 14, 2020, the NYSDFS filed a petition for an Order of Liquidation in
Court with respect to Maidstone. On January 21, 2020, the Court issued an order
to show cause establishing February 13, 2020 as the date of a hearing before the
Court with respect to the Order of Liquidation. On February 13, 2020, the Court
conducted a hearing with respect to the Order of Liquidation and, thereafter,
approved the Order of Liquidation. At such time, the control and assets of
Maidstone vested with the NYS Liquidation Bureau and were no longer under our
control. All Maidstone assets and liabilities were removed from our financial
statements as of February 13, 2020. See Note 29, "Subsequent Events," to the
consolidated financial statements included in this filing for further
information.

Critical Accounting Policies and Uses of Estimates

The Company's accounting policies are described in Note 2, "Summary of
Significant Accounting Policies: Risk and Uncertainties" to the consolidated
financial statements included in this filing. The accompanying consolidated
financial statements have been prepared in conformity with accounting principles
generally accepted in the United States. When more than one accounting
principle, or the method of its application, is generally accepted, we select
the principle or method that is appropriate in the specific circumstances.
Application of these accounting principles requires us to make estimates about
the future resolution of existing uncertainties. Actual results could differ
from these estimates. We evaluate our estimates, including those related to
revenue recognition, collectability of accounts receivable, inventory valuation
and obsolescence, goodwill, intangibles, pension and post-retirement
obligations, income taxes, litigation, and contingencies on an ongoing basis. We
base these estimates on our historical experience and other assumptions we
believe are appropriate under the circumstances. In preparing these consolidated
financial statements, we have made our best estimates and judgments of the
amounts and disclosures included in the consolidated financial statements.

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Revenue Recognition - Turning Point

Turning Point 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. Turning Point
recognizes revenues, which include 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 its performance obligation is satisfied-at an amount that Turning Point
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. We exclude from the transaction price, sales taxes
and value-added taxes imposed at the time of sale (which do not include excise
taxes on smokeless tobacco, cigars or vaping products billed to customers).

Turning Point records an allowance for sales returns, based principally on
historical volume and return rates, which is included in accrued liabilities on
the consolidated balance sheets. Turning Point records sales incentives, which
consist of consumer incentives and trade promotion activities, as a reduction in
revenues (a portion of which is based on amounts estimated as being due to
wholesalers, retailers and consumers at the end of the period) based principally
on historical volume and utilization rates. Expected payments for sales
incentives are included in accrued liabilities on the consolidated balance
sheets.

A further requirement of ASU 2014-09 is for entities to disaggregate revenue
recognized from contracts with customers into categories that depict how the
nature, amount, timing, and uncertainty of revenue and cash flows are affected
by economic factors.Turning Point's management views business performance
through segments that closely resemble the performance of major product lines.
Thus, the primary, and most useful, disaggregation of Turning Point's contract
revenue for decision making purposes is the disaggregation by segment which can
be found in Note -25, "Segment Information" to the consolidated financial
statements included in this filing. An additional disaggregation of contract
revenue by sales channel can be found within Note 25 as well.

Maidstone - Maidstone recognizes revenues from insurance contracts, including
premiums and fees, under the guidance in ASC 944, Financial Services-Insurance
Premiums. Maidstone's premiums, which are recorded at the policy inception, are
earned pro rata over the period for which the coverage is provided, generally
six months for auto policies and one year for homeowner policies. Unearned
premiums represent the portion of premiums written that are applicable to the
unexpired terms of policies in force.

Derivative Instruments

Turning Point uses foreign currency forward contracts to hedge a portion of our
exposure to changes in foreign currency exchange rates from time to time.
Turning Point accounts for our forward contracts under the provisions of ASC
815, Derivatives and Hedging. Under its policy, as amended, Turning Point may
hedge up to 100% of its anticipated purchases of inventory in the denominated
invoice currency over a forward period not to exceed twelve months. Turning
Point may also, from time to time, hedge up to ninety percent of its
non-inventory purchases in the denominated invoice currency. Forward contracts
that qualify as hedges are adjusted to their fair value through other
comprehensive (loss) 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 contracts are transferred from other comprehensive
(loss) income into net (loss) income as the related inventories are received.
Changes in fair value of any contracts that do not qualify for hedge accounting
or are not designated as hedges are recognized in income currently.

Interest Rate Swaps

Turning Point enters into interest rate swap contracts to manage interest rate
risk and reduce the volatility of future cash flows. Turning Point accounts for
interest rate swap contracts under the provisions of ASC 815, Derivatives and
Hedging. Swap contracts that qualify as hedges are adjusted to their fair value
through other comprehensive (loss) 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 swap contracts are transferred from other
comprehensive (loss) income into net income upon settlement of the derivative
position or at maturity of the interest rate swap contract. 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.

Goodwill and Other Intangible Assets

We follow the provisions of ASC 350, Intangibles - Goodwill and Other in
accounting for our goodwill and other intangible assets. Goodwill and
indefinite-lived intangible assets are reviewed for impairment annually on
December 31, or more frequently if certain indicators are present, in accordance
with ASC 350-20-35 and ASC 350-30-35, respectively. If the carrying value of the
goodwill or indefinite-life intangible asset exceeds its fair value, determined
using the discounted cash flows method and the relief-from-royalty method,
respectively, the goodwill or intangible asset is considered impaired. The
carrying value of the goodwill or indefinite-life intangible asset would then be
reduced to fair value. For goodwill, the determination of a reporting unit's
fair value involves, among other things, our market capitalization and
application of the income approach, which includes developing forecasts of
future cash flows and determining an appropriate discount rate. Currently our
goodwill is recorded at our subsidiary, Turning Point.

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During the year ended December 31, 2019, we recorded impairment charges of $0.8
million and $2.0 million related to the full impairment of the goodwill and
intangible asset balances, respectively, in our Insurance segment. This
impairment was a result of changes in the future plans for the Insurance segment
and certain other factors impacting recoverability. As a result, there were no
goodwill or intangible asset balances remaining in our Insurance segment as of
December 31, 2019.

Based on Turning Point's annual goodwill impairment testing, the estimated fair
values of each of its reporting units were in excess of the respective carrying
values at December 31, 2019. Turning Point had no such impairment of goodwill or
other intangible assets during the year ended December 31, 2019. 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. Refer to Note 11, "Goodwill and Other Intangible
Assets" to the consolidated financial statements included in this filing for
further details regarding our goodwill and other intangible assets as of
December 31, 2019.

Fair Value

GAAP establishes a framework for measuring fair value. That framework provides a
fair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities (level 1)
and the lowest priority to unobservable inputs (level 3). The three levels of
the fair value hierarchy under GAAP are described below:

• Level 1 - Inputs to the valuation methodology are unadjusted quoted prices for

identical assets or liabilities in active markets at the measurement date.

• Level 2 - Inputs to the valuation methodology include: quoted prices for

similar assets or liabilities in active markets; quoted prices for identical or

similar assets or liabilities in inactive markets; inputs other than quoted

prices that are observable for the asset or liability; and inputs that are

derived principally from or corroborated by observable market data by

correlation or other means.

• Level 3 - Unobservable inputs that reflect management's best estimate of what

   market participants would use in pricing the asset or liability at the
   measurement date.



Under GAAP, certain convertible debt instruments that may be settled in cash on
conversion are required to be separately accounted for as liability and equity
components of the instrument in a manner that reflects the issue's
non-convertible debt borrowing rate. Accordingly, in accounting for the issuance
of the Convertible Senior Notes, Turning Point separated the Convertible Senior
Notes into liability and equity components. The carrying amount of the liability
component was calculated by measuring the fair value of a similar liability that
does not have an associated convertible feature. This evaluation can be complex
and requires management to make assumptions to determine the fair value.

Retirement Plans

We follow the provisions of ASC 715, Compensation - Retirement Benefits in
accounting for our retirement plans, which requires an employer to (i) recognize
in its statement of financial position the funded status of a benefit plan,
measured as the difference between the fair value of plan assets and benefit
obligations; (ii) recognize, net of tax, the gains or losses and prior service
costs or credits that arise during the period but are not recognized as
components of net periodic benefit cost; and (iii) measure defined benefit plan
assets and obligations as of the date of the employer's statement of financial
position.

Income Taxes

We account for income taxes under ASC 740. We record the effects of income taxes
under the liability method in which deferred income tax assets and liabilities
are recognized based on the difference between the financial and tax basis of
assets and liabilities using the enacted tax rates in effect for the years in
which the differences are expected to reverse. We assess our ability to realize
future benefits of deferred tax assets by determining if they meet the "more
likely than not" criteria in ASC 740, Income Taxes. If we determine that future
benefits do not meet the "more likely than not" criteria, a valuation allowance
is recorded.

Stock-Based Compensation

We account for stock-based compensation using the fair value method, which
requires that compensation costs related to employee share-based payment
transactions are measured in the financial statements at the fair value on the
date of grant and are recognized over the vesting period of the award. We
determined the fair value of these awards using the Black-Scholes option pricing
model.

Accounts Receivable

Accounts receivable are recognized at their net realizable value. All accounts
receivable are trade-related and are recorded at the invoiced amount and do not
bear interest. We maintain allowances for doubtful accounts receivable for
estimated uncollectible invoices resulting from the customer's inability to pay,
which may result in write-offs. We recorded an allowance for doubtful accounts
of $0.3 million and less than $0.1 million as of December 31, 2019 and 2018,
respectively.

                                       53

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Inventories

Inventories are stated at the lower of cost or market. Cost was determined using
the LIFO method for approximately 49.4% of the inventories as of December 31,
2019. Leaf tobacco is presented in current assets in accordance with standard
industry practice, notwithstanding the fact that such tobaccos are carried
longer than one year for the purpose of curing. We recorded an inventory
valuation allowance of $21.5 million and $2.5 million at December 31, 2019 and
2018, respectively.

Reserves for Losses and Loss Adjustment Expenses

As an insurance company, Maidstone is required by applicable laws and
regulations and GAAP to establish loss and loss expense reserves for the
estimated unpaid portion of the ultimate liability for losses and loss expenses
under the terms of its policies and agreements with its insured customers. The
Company estimates reserves for both reported and unreported unpaid losses that
have occurred on or before the balance sheet date that will need to be paid in
the future. Reserves for unpaid losses fall into two categories: case reserves
and reserves for claims incurred but not reported, or "IBNR". We do not discount
the liability for unpaid losses and incurred losses and loss adjustment expenses
("LAE") for financial statement purposes.

Reserves for losses and LAE represent an estimate of the expected cost of the
ultimate settlement and administration of losses, based on facts and
circumstances then known less the amount paid to date. Our actuaries calculate
indicated IBNR loss reserves by using standard actuarial methodologies, which
are projection or extrapolation techniques, including: (a) the loss development
method and (b) the Bornhuetter-Ferguson method. Each of these methodologies is
generally applicable to both long tail and short tail lines of business
depending on a variety of circumstances. Informed subjective judgments as to our
ultimate exposure to losses are an integral component of our loss reserving
process due to numerous factors that contribute to the inherent uncertainty in
the process of establishing loss reserves, including:

• Inflationary pressures (medical and economic) that affect the size of losses;

• Judicial, regulatory, legislative, and legal decisions that affect insurers'

liabilities;

• Changes in the frequency and severity of losses;

• Changes in the underlying loss exposures of our policies; and

• Changes in our claims handling procedures.

A review of the emergence of actual losses relative to expectations is generally
derived from the quarterly in depth reserve analyses is conducted to determine
whether the assumptions used in the reserving process continue to form a
reasonable basis for the projection of liabilities for each product line. As
time passes, estimated loss reserves will be based more on historical loss
activity and loss development patterns rather than on assumptions based on
underwriters' input, pricing assumptions or industry experience. During the loss
settlement period, it often becomes necessary to refine and adjust the estimates
of liability on a claim either upward or downward. No assurance can be given
that actual claims made and related payments will not be in excess of the
amounts reserved.

A brief summary of each actuarial method discussed above follows:

• Incurred Development Method - The incurred development method is based upon the

assumption that the relative change in a given year's incurred loss estimates

from one evaluation point to the next is similar to the relative change in

prior years' reported loss estimates at similar evaluation points.

• Paid Development Method - The paid development method is similar to the

incurred development method, simply using paid triangles to calculate

development factors.

• Incurred Bornhuetter-Ferguson ("BF") Method - The Incurred BF Method uses an

estimated loss ratio for a particular year, and is weighted against the portion

of the year's claims that have been reported, based on historical incurred loss

   development patterns. The estimate of required reserves assumes that the
   remaining unreported portion of a particular year will pay out at a rate
   consistent with the estimated loss ratio for that year.

• Paid Bornhuetter-Ferguson ("BF") Method - The Paid BF Method uses an estimated

loss ratio for a particular year, and is weighted against the portion of the

year's claims that have been paid, based on historical paid loss development

patterns. The estimate of required reserves assumes that the remaining unpaid

   portion of a particular year will pay out at a rate consistent with the
   estimated loss ratio for that year.



Maidstone engages an independent external actuarial specialist (the "Actuary")
to calculate its recorded reserves. The Actuary estimates a range of ultimate
losses, along with a range and recommended central estimate of IBNR reserve
amounts. As of December 31, 2019, this range was between $23.1 million and $28.4
million. Maidstone's carried IBNR reserves are based on an internal actuarial
analysis and reflect management's best estimate of unpaid loss and LAE
liabilities. Refer to Note 14, "Liability for Losses and Loss Adjustment
Expenses" to the consolidated financial statements included in this filing for
additional information on the loss and loss adjustment expenses.

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Consolidated Results of Operations

The table and discussion set forth below relate to our consolidated results of
operations:

                                                         Year Ended December 31,
                                             2019          2018        $ Change      % Change
(In thousands)
Revenues
Smokeless Products                         $  99,894     $  90,031     $   9,863          11.0 %
Smoking Products                             108,733       111,507        (2,774 )        -2.5 %
NewGen Products                              153,362       131,145        22,217          16.9 %
Insurance                                     26,971        30,657        (3,686 )       -12.0 %
Other                                          2,818         2,445           373          15.3 %
Total revenues                             $ 391,778     $ 365,785     $  25,993           7.1 %

Operating Income (Loss)
Smokeless Products                         $  35,978     $  28,920     $   7,058          24.4 %
Smoking Products                              45,058        42,650         2,408           5.6 %
NewGen Products                              (20,629 )       6,752       (27,381 )      -405.5 %
Insurance                                     (8,732 )      (3,195 )      (5,537 )       100.0 %
Other                                        (39,079 )     (35,009 )      (4,070 )        11.6 %
Total operating income                        12,596        40,118       (27,522 )       -68.6 %
Interest expense                              20,194        17,237         2,957          17.2 %
Interest and investment income                (2,749 )        (736 )      (2,013 )       273.5 %
Loss on extinguishment of debt                 2,267         2,384          (117 )        -4.9 %
Net periodic benefit (income) expense,
excluding service cost                        (4,961 )         131        (5,092 )     -3887.0 %
(Loss) income before income taxes             (2,155 )      21,102       (23,257 )      -110.2 %
Income tax expense                             1,624         6,285        (4,661 )       -74.2 %
Net (loss) income                             (3,779 )      14,817       (18,596 )      -125.5 %
Amounts attributable to noncontrolling
interests                                     (6,844 )     (12,436 )       

5,592 -45.0 % Net (loss) income attributable to SDI $ (10,623 ) $ 2,381 $ (13,004 ) -546.2 %

Comparison of the Year Ended December 31, 2019, to the Year Ended December 31, 2018

Total Revenues. For the year ended December 31, 2019, revenues were $391.8
million, an increase of $26.0 million, or 7.1%, from $365.8 million for the year
ended December 31, 2018. The increase in total revenues was primarily driven by
Stoker's MST, Zig-Zag cigar wraps, and Nu-X including the acquisition of Solace
in 2019.

Total Operating Income. For the year ended December 31, 2019, operating income
was $12.6 million, a decrease of $27.5 million, or 68.6%, from $40.1 million for
the year ended December 31, 2018. This decrease was due primarily to a decrease
in Turning Point's gross profit of $5.8 million, primarily as a result of
certain restructuring activities in the fourth quarter 2019, along with an
increase in Turning Point's selling, general and administrative costs of $15.8
million and a $5.5 million increase in the operating loss of the Insurance
segment. Turning Point's gross profit for the year ended December 31, 2019,
included $0.4 million of unfavorable LIFO adjustments, $1.2 million of
introductory launch costs, and $23.0 million of restructuring costs, primarily
inventory reserves, compared to $0.1 million, $1.0 million, and $2.9 million,
respectively, in the year ended December 31, 2018. Gross profit as a percentage
of net sales weakened to 37.8% for the year ended December 31, 2019, from 42.9%
for the year ended December 31, 2018, primarily due to the aforementioned
restructuring expenses, including the inventory reserves and write-off
associated with Turning Point's pivot from third-party vaping products. Turning
Point's selling, general, and administrative expenses for the year ended
December 31, 2019, include $1.7 million of expenses relating to the inclusion of
its 2019 investment in Solace, $1.8 million of transaction costs (primarily
relating to Solace and ReCreation as well as earnout expense for IVG), $5.0
million of introductory launch costs, $3.2 million of restructuring  expenses,
and $2.2 million in PMTA expenses. Selling, general, and administrative expenses
for the year ended December 31, 2018, include $4.5 million of transaction and
strategic initiative costs (primarily relating to IVG and Vapor Supply
transaction costs), $0.9 million of company-wide introductory launch costs, and
$1.8 million of restructuring costs. Lastly, the Insurance segment, due to a
decrease in revenue coupled with the full impairment of goodwill and other
intangible assets, contributed $5.3 million to the decline in operating income.

                                       55
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Interest Expense. For the year ended December 31, 2019, interest expense
increased to $20.2 million from $17.2 million for the year ended December 31,
2018, an increase of $3.0 million, or 17.2%, primarily as a result of the
amortization of the discount on the Convertible Senior Notes in 2019 of $2.9
million.

Interest and Investment Income. Interest and investment income relating to
investment of the MSA escrow deposits as well as SDI's cash and cash equivalents
was $2.7 million for the year ended December 31, 2019 compared to $0.7 million
for the year ended December 31, 2018, an increase of $2.0 million, or 273.5%,
primarily due to the $2.0 million gain on the CASH investment as a result of
marking the investment to fair value.

Loss on Extinguishment of Debt. For the year ended December 31, 2019, loss on
extinguishment of debt was $2.3 million as the result of Turning Point paying
off its 2018 Second Lien Credit Facility, coupled with SDI's payoff of the
Crystal Term Loan in 2019. For the year ended December 31, 2018, loss on
extinguishment of debt was $2.4 million as the result of Turning Point
refinancing its credit facility in the first quarter of 2018.

Net Periodic Benefit (Income) Expense, Excluding Service Cost. For the year ended December 31, 2019, net periodic benefit (income) expense, excluding service cost was income of $5.0 million primarily due to the gain on the termination of the postretirement plan. For the year ended December 31, 2018, net periodic benefit expense was $0.1 million.

Income Tax Expense. The Company's income tax expense of $1.6 million for the
year ended December 31, 2019, was primarily due to the income tax expense of
Turning Point of $2.0 million, which was offset by the reversal of a deferred
tax liability at Pillar General of $0.4 million creating an income tax benefit
for the year ended December 31, 2019. The Company's consolidated income tax
expense is higher than expected as a result of the contribution of losses before
income taxes by SDI and Standard Outdoor (which due to the impact of valuation
allowances do not create income tax benefits) to the income before taxes of
Turning Point. Turning Point's effective tax rate of 12.9% of income before
income taxes, for the year ended December 31, 2019, is lower than the expected
annual effective tax rate as a result of discrete tax benefits of $4.6 million
from the exercise of stock options during the year. The Company's income tax
expense of $6.3 million, or 29.8% of income before income taxes, for the year
ended December 31, 2018 was higher than the expected annual effective tax rate
as a result of the contribution of losses before income taxes by SDI and
Standard Outdoor (which due to the impact of valuation allowances do not create
income tax benefits) to the income before taxes of Turning Point. Turning
Point's income tax expense of $6.3 million, or 19.9% of income before income
taxes, for the year ended December 31, 2018, is lower than the expected annual
effective tax rate as a result of discrete tax benefits of $5.4 million from the
exercise of stock options during the year.

Consolidated Net (Loss) Income. Due to the factors described above, net loss for
the year ended December 31, 2019 was $3.8 million, compared to net income of
$14.8 million for the year ended December 31, 2018.

Amounts Attributable to Non-Controlling Interests. Amounts attributable to
noncontrolling interests of $6.8 million and $12.4 million for the years ended
December 31, 2019 and 2018, respectively, was related to the shareholders of
Turning Point other than SDI and is based on the decrease in Turning Point's net
income.

Net (Loss) Income Attributable to SDI. For the year ended December 31, 2019, net
loss attributable to SDI was $10.6 million compared to net income of $2.4
million for the year ended December 31, 2018, a decrease of $13.0 million or
546.2%. This decrease was a result of the items discussed above.

                                       56

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Segment Results of Operations

Turning Point and Other segments

The table and discussion set forth below relate to the results of operations of
the three Turning Point segments, as well as our Other reportable segment, which
includes non-allocated amounts of Turning Point, SDI and Standard Outdoor:

                                                             Year Ended December 31,
(In thousands)                                   2019          2018        $ Change       % Change
Net sales
Smokeless products                             $  99,894     $  90,031     $   9,863           11.0 %
Smoking products                                 108,733       111,507        (2,774 )         -2.5 %
NewGen products                                  153,362       131,145        22,217           16.9 %
Other                                              2,818         2,445           373           15.3 %
Total net sales                                  364,807       335,128        29,679            8.9 %
Cost of sales                                    227,787       192,336        35,451           18.4 %
Gross profit
Smokeless products                                52,277        46,490         5,787           12.4 %
Smoking products                                  59,386        57,043         2,343            4.1 %
NewGen products                                   25,083        39,026       (13,943 )        -35.7 %
Other                                                274           233            41           17.6 %
Total gross profit                               137,020       142,792        (5,772 )         -4.0 %
Selling, general and administrative expenses     115,692        99,479        16,213           16.3 %
Operating income                               $  21,328     $  43,313     $ (21,985 )        -50.8 %

Comparison of the Year Ended December 31, 2019, to the Year Ended December 31, 2018

Net Sales. For the year ended December 31, 2019, overall net sales increased to
$364.8 million from $335.1 million for the year ended December 31, 2018, an
increase of $29.7 million or 8.9%. The increase in net sales was primarily
driven by Stoker's MST, Zig-Zag cigar wraps, and Nu-X including the acquisition
of Solace in 2019.

For the year ended December 31, 2019, net sales in the Smokeless products
segment increased to $99.9 million from $90.0 million for the year ended
December 31, 2018, an increase of $9.9 million or 11.0%. For the year ended
December 31, 2019, Smokeless products volume increased 7.3% and price/mix
increased 3.7%. The increase in net sales was primarily driven by the continuing
growth of Stoker's® MST partially offset by declines in chewing tobacco
attributable to increased competition, Turning Point's promotional timing, and a
continuing segment shift to lower price products. MST represented 54% of
Smokeless revenue in 2019, up from 47% a year earlier.

For the year ended December 31, 2019, net sales in the Smoking products segment
decreased to $108.7 million from $111.5 million for the year ended December 31,
2018, a decrease of $2.8 million or 2.5%. For the year ended December 31, 2019,
Smoking products volumes decreased 4.9%, while price/mix increased 2.4%. The
decrease in net sales is primarily due to the delay of Canadian paper orders in
the first half of the year as a result of the new packaging regulations in
Canada as well as Turning Point's strategic decision to de-emphasize the low
margin cigar and MYO / pipe products businesses. Cigar and MYO / pipe product
sales declined by $2.4 million to $7.2 million in the year ended December 31,
2019.

For the year ended December 31, 2019, net sales in the NewGen products segment
increased to $153.4 million from $131.1 million for the year ended December 31,
2018, an increase of $22.2 million or 16.9%. The increase in net sales was
primarily driven by higher Nu-X alternative products sales in 2019 (includes the
Solace acquisition) and an additional eight months of IVG net sales in 2019. Net
sales were negatively impacted by the vape disruption in the fourth quarter of
2019.

                                       57
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Gross Profit. For the year ended December 31, 2019, overall gross profit
decreased to $137.0 million from $142.8 million for the year ended December 31,
2018, a decrease of $5.8 million or 4.0%, primarily as a result of certain
restructuring activities at Turning Point in the fourth quarter 2019.
Consolidated gross profit for the year ended December 31, 2019, included $0.4
million of unfavorable LIFO adjustments, $1.2 million of introductory launch
costs, and $23.0 million of restructuring costs, primarily inventory reserves,
compared to $0.1 million, $1.0 million, and $2.9 million, respectively, in the
year ended December 31, 2018. Gross profit as a percentage of net sales weakened
to 37.6% for the year ended December 31, 2019, from 42.6% for the year ended
December 31, 2018, primarily due to the aforementioned restructuring expenses,
including the inventory reserves and write-off associated with Turning Point's
pivot from third-party vaping products.

For the year ended December 31, 2019, gross profit in the Smokeless products
segment increased to $52.3 million from $46.5 million for the year ended
December 31, 2018, an increase of $5.8 million or 12.4%. Smokeless gross profit
for the year ended December 31, 2019, included $0.3 million of unfavorable LIFO
adjustments and $0.0 million of introductory launch costs compared to $0.1
million and $0.2 million, respectively, for the year ended December 31, 2018.
Gross profit as a percentage of net sales increased to 52.3% of net sales for
the year ended December 31, 2019, from 51.6% of net sales for the year ended
December 31, 2018 driven by Stoker MST gains.

For the year ended December 31, 2019, gross profit in the Smoking products
segment increased to $59.4 million from $57.0 million for the year ended
December 31, 2018, an increase of $2.3 million or 4.1%. Smoking gross profit for
the year ended December 31, 2018 included $0.6 million of introductory launch
costs and $1.3 million of line rationalization expenses. Gross profit as a
percentage of net sales increased to 54.6% of net sales for the year ended
December 31, 2019, from 51.2% of net sales for the year ended December 31, 2018.
The increase in gross profit as a percentage of net sales is primarily due to
declining sales of lower margin, low priority products.

For the year ended December 31, 2019, gross profit in the NewGen products
segment decreased to $25.1 million from $39.0 million for the year ended
December 31, 2018, a decrease of $13.9 million or 35.7%. NewGen gross profit for
the year ended December 31, 2019, included $1.2 million of introductory launch
costs and $23.2 million of restructuring expenses compared to $0.3 million and
$1.5 million, respectively, for the year ended December 31, 2018. Additionally,
gross profit includes $9.3 million of tariff expenses in 2019 compared to $1.1
million in 2018. Gross profit as a percentage of net sales decreased to 16.4% of
net sales for the year ended December 31, 2019, from 29.8% of net sales for the
year ended December 31, 2018, primarily due to the aforementioned restructuring
expenses associated with Turning Point's pivot from third-party vaping products.

Selling, General and Administrative Expenses. For the year ended December 31,
2019, selling, general and administrative expenses increased to $115.7 million
from $99.5 million for the year ended December 31, 2018, an increase of $16.2
million or 16.3%. Selling, general, and administrative expenses for the year
ended December 31, 2019, include $1.7 million of expenses relating to the
inclusion of Turning Point's 2019 investment in Solace, $1.8 million of
transaction costs (primarily relating to Solace and ReCreation as well as
earnout expense for IVG), $5.0 million of introductory launch costs, $3.2
million of restructuring  expenses, and $2.2 million in PMTA expenses. Selling,
general, and administrative expenses for the year ended December 31, 2018,
include $4.5 million of transaction and strategic initiative costs (primarily
relating to IVG and Vapor Supply transaction costs), $0.9 million of
company-wide introductory launch costs, and $1.8 million of restructuring costs.

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Insurance segment

On January 2, 2018, we completed the acquisition of Interboro Holdings Inc.,
which operates as Maidstone Insurance. The table and discussion set forth below
relate to the results of operations of our Insurance segment:

                                                                     For the Period from
                                            For the Year Ended       January 2, 2018 to
                                            December 31, 2019         December 31, 2018        $ Change       % Change
(In thousands)
Insurance premiums earned                  $             25,072     $              28,648     $   (3,576 )        -12.5 %
Net investment income                                       935                       851             84            9.9 %
Other income                                                964                     1,158           (194 )        -16.8 %
Total revenues                                           26,971                    30,657         (3,686 )        -12.0 %

Incurred losses and loss adjustment
expenses                                                 24,350                    25,221           (871 )         -3.5 %
Impairment loss on goodwill and other
intangible assets                                         2,826                         -          2,826             NM
Other operating expenses                                  8,527                     8,631           (104 )         -1.2 %
Total operating costs and expenses                       35,703                    33,852          1,851            5.5 %
Loss before income taxes                                 (9,063 )                  (3,195 )       (5,868 )        183.7 %
Income tax benefit                                         (420 )                       -           (420 )           NM
Net loss                                   $             (8,643 )   $              (3,195 )   $   (5,448 )        170.5 %

Insurance premiums earned. For the year ended December 31, 2019, insurance premiums earned decreased by approximately $3.6 million, or 12.5%, to $25.1 million, as compared to $28.6 million for the period from January 2, 2018 to December 31, 2018. We are no longer writing new policies in the Insurance segment.

Net investment income. Net investment income was $0.9 million for the year ended
December 31, 2019 and 2018, though it was approximately $84,000 higher for the
year ended December 31, 2019.

Other income. We recognized $1.0 million of other income for the year ended
December 31, 2019, a decrease of $0.2 million compared to $1.2 million for the
period from January 2, 2018 to December 31, 2018. Other income includes service
and takeout fees, installment and late fees collected by Maidstone, and broker
fees collected from non-affiliated insurance companies when acting as an agent.
Service and takeout fees are in the form of credits for writing business from
the state assigned pool.

Incurred losses and loss adjustment expenses. For the year ended December 31,
2019, incurred losses and loss adjustment expenses were $24.4 million, a
decrease of $0.9 million compared to $25.2 million for the period from January
2, 2018 to December 31, 2018. These amounts are based on individual case
estimates for reported claims and a factor for incurred but not reported
("IBNR") claims.

Impairment loss on goodwill and other intangible assets. For the year ended December 31, 2019, we recorded an impairment loss of $2.8 million on our Insurance segment goodwill and other intangible assets. There was no impairment loss recorded for the period from January 2, 2018 to December 31, 2018.

Other operating expenses. We incurred other expenses of $8.5 million for the
year ended December 31, 2019 compared to $8.6 million for the period from
January 2, 2018 to December 31, 2018, a decrease of $0.1 million. Other
operating expenses consists of acquisition and underwriting expenses, salaries
and benefits, depreciation, amortization and other general and administrative
expenses.

Income tax benefit. We recognized $0.4 million of income tax benefit during the
year ended December 31, 2019 due to the reversal of deferred tax liabilities
recorded as a part of the acquisition of Maidstone. No income tax benefit was
recorded during the period from January 2, 2018 to December 31, 2018.

Net loss. Due to the reduction in revenues, coupled with the impairment loss,
which was only partially offset by the decreases in incurred losses and loss
adjustment expenses and other operating expenses, net loss for the year ended
December 31, 2019 was $8.6 million, compared to net loss of $3.2 million for the
period from January 2, 2018 to December 31, 2018, for the insurance business.

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Liquidity and Capital Resources

Our principal uses for cash are working capital, debt service, and capital expenditures. We believe our cash flows from operations and borrowing availability under Turning Point's 2018 Revolving Credit Facility (as defined herein) are adequate to satisfy our operating cash requirements for the foreseeable future.

The following table summarizes our consolidated statements of cash flows for the years ended December 31, 2019 and 2018:

                                         Year Ended December 31,
(In thousands)                             2019             2018
Net cash flow provided by (used in):
Operating activities                   $     21,160       $     110
Investing activities                         27,136         (30,805 )
Financing activities                         72,688          31,329
Net increase in cash                   $    120,984       $     634



Operating activities. Net cash provided by operating activities represents the
cash receipts and cash disbursements from all of our activities other than
investing activities and financing activities. Changes in cash from operating
activities reflect, among other things, the timing of cash collections from
customers, payments to suppliers, timing of payments to customers to settle
insurance claims and changes in payments related to insurance policy acquisition
costs.

Net cash provided by operating activities was $21.2 million for the year ended
December 31, 2019 compared to $0.1 million for the year ended December 31, 2018.
This $21.1 million increase in net cash provided by operating activities was
primarily the result of Turning Point's inventory buys in 2018 that reduced cash
flow.

Investing activities. Net cash provided by investing activities was $27.1
million for the year ended December 31, 2019 compared to net cash used in
investing activities of $30.8 million for the year ended December 31, 2018, an
increase of $57.9 million primarily due to Turning Points change in MSA escrow
deposits from investments to cash holdings as well as lower cash paid for
Turning Point acquisitions and Maidstone's sale of fixed maturity securities
during the year ended December 31, 2019, which net of fixed maturity securities
purchases increased cash flow from investing activities by $19.4 million.

Financing activities. Net cash provided by financing activities was $72.7
million for the year ended December 31, 2019 compared to net cash provided by
financing activities of $31.3 million for the year ended December 31, 2018, an
increase of $41.4 million. During 2019, net cash provided by financing
activities included Turning Point's proceeds from the issuance of the
Convertible Senior Notes and SDI's new Term Loan offset by payments on the 2018
Revolving Credit Facility, the 2018 Second Lien Credit Facility, payment for the
call options and payment of the Crystal Term Loan.

Long-Term Debt

As of December 31, 2019, the Company was in compliance with the financial and restrictive covenants in its existing debt instruments. The following table provides outstanding balances under our debt instruments.

                                                       December 31,
(In thousands)                                      2019          2018
2018 First Lien Term Loan                         $ 146,000     $ 154,000
2018 Second Lien Term Loan                                -        40,000
Convertible Senior Notes                            172,500             -
SDI GACP Term Loan                                   25,000             -
SDI Crystal Term Loan                                     -        15,000
Standard Outdoor Promissory Notes                     8,447         9,950
Note payable - IVG                                    4,240         4,000
Gross notes payable and long-term debt              356,187       222,950

Less deferred finance charges and debt discount (39,641 ) (4,903 ) Less current maturities

                             (16,977 )      (9,431 )
Net notes payable and long-term debt              $ 299,569     $ 208,616



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2018 Credit Facility

On March 7, 2018, Turning Point 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. Proceeds from the
2018 Credit Facility were used to repay, in full, the 2017 Credit Facility.
Turning Point incurred a loss on extinguishment of debt of $2.4 million in the
first quarter of 2018 as a result of the refinancing.

The 2018 Credit Facility contains customary events of default including payment
defaults, breaches of representations and warranties, covenant defaults,
cross-defaults to certain other material indebtedness in excess of specified
amounts, certain events of bankruptcy and insolvency, certain ERISA events,
judgments in excess of specified amounts, and change in control defaults. The
2018 Credit Facility also contains certain negative covenants customary for
facilities of these types including covenants that, subject to exceptions
described in the 2018 Credit Facility, restrict the ability of Turning Point and
its subsidiary guarantors: (i) to pledge assets, (ii) to incur additional
indebtedness, (iii) to pay dividends, (iv) to make distributions, (v) to sell
assets, and (vi) to make investments.

2018 First Lien Credit Facility: The 2018 First Lien Term Loan and the 2018
Revolving Credit Facility bear interest at LIBOR plus a spread of 2.75% to 3.50%
based on Turning Point's senior leverage ratio. The 2018 First Lien Term Loan
has quarterly required payments of $2.0 million beginning June 30, 2018,
increasing to $3.0 million on June 30, 2020, and increasing to $4.0 million on
June 30, 2022. The 2018 First Lien Credit Facility has a maturity date of March
7, 2023. The 2018 First Lien Term Loan is secured by a first priority lien on
substantially all of the assets of the borrowers and the guarantors thereunder,
including a pledge of Turning Point's capital stock, other than certain excluded
assets (the "Collateral"). In connection with the Senior Notes offering, Turning
Point entered into a First Amendment (the "Amendment") to the First Lien Credit
Agreement, with Fifth Third Bank, as administrative agent, and other lenders and
certain other lending other lending parties thereto. The Amendment was entered
into primarily to permit Turning Point to issue up to $200 million of
convertible senior notes, enter into certain capped call transactions in
connection with the issuance of such notes and to use the proceeds from the
issuance of the notes to repay amounts outstanding under Turning Point's Second
Lien Credit Agreement and use the remaining proceeds for acquisitions and
investments. In connection with the Amendment, fees of $0.7 million were
incurred. The 2018 First Lien Credit Facility contains certain financial
covenants, which were amended in connection with the Convertible Senior Notes
offering in the third quarter 2019. The covenants include maximum senior
leverage ratio of 3.00x with step-downs to 2.50x, a maximum total leverage ratio
of 5.50x with step-downs to 5.00x, and a minimum fixed charge coverage ratio of
1.20x. 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. Based on an
excess cash covenant for the facility, a principal payment of $4.5 million was
due in the second quarter 2019. All parties agreed to waive the payment,
resulting in consent fees of $0.1 million. The weighted average interest rate of
the 2018 First Lien Term Loan was 4.55% as of December 31, 2019. As of December
31, 2019, Turning Point had no borrowings outstanding under the 2018 Revolving
Credit Facility. The $50.0 million unused portion of the 2018 Revolving Credit
Facility is reduced by letters of credit from Fifth Third Bank totaling $3.7
million, resulting in $46.3 million of availability under the 2018 Revolving
Credit Facility at December 31, 2019.

2018 Second Lien Credit Facility: The 2018 Second Lien Credit Facility bore
interest at a rate of LIBOR plus 7.00% and had a maturity date of March 7, 2024.
The 2018 Second Lien Term Loan was secured by a second priority interest in the
Collateral and was guaranteed by the same entities as the 2018 First Lien Term
Loan. The 2018 Second Lien Credit Facility contained certain financial covenants
including a maximum senior leverage ratio of 3.75x with step-downs to 3.50x, a
maximum total leverage ratio of 4.75x with step-downs to 4.50x, and a minimum
fixed charge coverage ratio of 1.10x. Based on an excess cash covenant for the
facility, a $4.5 million principal payment was made in the second quarter 2019,
resulting in $0.2 million loss on extinguishment of debt. Turning Point used a
portion of the proceeds from the issuance of the Convertible Senior Notes to
prepay all outstanding amounts related to the 2018 Second Lien Credit Facility
in the third quarter 2019. The principal paid in the third quarter 2019 amounted
to $35.5 million, and the transaction resulted in a $1.1 million loss on
extinguishment of debt.

Convertible Senior Notes

In July 2019, Turning Point closed an offering of $172.5 million in aggregate
principal amount of 2.50% Convertible Senior Notes due July 15, 2024 (the
"Convertible Senior Notes"). The Convertible Senior Notes bear interest at a
rate of 2.50% per year, payable semiannually in arrears on January 15 and July
15 of each year, beginning on January 15, 2020. The Convertible Senior Notes
will mature on July 15, 2024, unless earlier repurchased, redeemed or converted.
The Convertible Senior Notes are senior unsecured obligations.

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The Convertible Senior Notes are convertible into approximately 3,202,808 shares
of Turning Point voting common stock under certain circumstances prior to
maturity at a conversion rate of 18.567 shares per $1,000 principal amount of
the Convertible Senior Notes, which represents a conversion price of
approximately $53.86 per share, subject to adjustment under certain conditions,
but will not be adjusted for any accrued and unpaid interest. Upon conversion,
Turning Point may pay cash, shares of its common stock or a combination of cash
and stock, as determined by Turning Point at its discretion. The conditions
required to allow the holders to convert their Convertible Senior Notes were not
met as of December 31, 2019.

Under GAAP, certain convertible debt instruments that may be settled in cash on
conversion are required to be separately accounted for as liability and equity
components of the instrument in a manner that reflects the issuer's
non-convertible debt borrowing rate. Accordingly, in accounting for the issuance
of the Convertible Senior Notes, Turning Point separated the Convertible Senior
Notes into liability and equity components. The carrying amount of the liability
component was calculated by measuring the fair value of a similar liability that
does not have an associated convertible feature. The carrying amount of the
equity component, which is recognized as a debt discount, represents the
difference between the proceeds from the issuance of the Convertible Senior
Notes and the fair value of the liability component of the Convertible Senior
Notes. The excess of the principal amount of the liability component over its
carrying amount ("debt discount"), $35.0 million, will be amortized to interest
expense using an effective interest rate of 7.5% over the expected life of the
Convertible Senior Notes. 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.

In accounting for the debt issuance costs related to the issuance of the
Convertible Senior Notes, Turning Point allocated the total amount incurred to
the liability and equity components based on their relative values. Debt
issuance costs attributable to the liability component are amortized to the
interest expense using the effective interest method over the expected life of
the Convertible Senior Notes, $4.7 million, and the debt issuance costs
attributable to the equity component, $1.2 million, are netted with the equity
component of stockholders' equity.

In connection with the Convertible Senior Notes offering, Turning Point entered
into privately negotiated capped call transactions with certain financial
institutions. The capped call transactions have a strike price of $53.86 per and
a cap price of $82.86 per and are exercisable when and if the Convertible Senior
Notes are converted. Turning Point paid $20.53 million for these capped calls
and charged that amount to additional paid-in capital.

Note Payable - IVG

In September 2018, Turning Point issued a note payable to IVG's former
shareholders ("IVG Note"). 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.

SDI Term Loan

On September 18, 2019, we entered into a Term Loan Agreement (the "Term Loan
Agreement") with GACP II, L.P., a Delaware limited partnership (the "Agent"), as
administrative agent and collateral agent for the financial institutions (the
"Lenders"). The Term Loan Agreement provides for a term loan of $25.0 million
(the "Term Loan"). The Term Loan will be used to (a) repay, in full, all
outstanding indebtedness under the Crystal Term Loan (defined below), (b)
finance the purchase of common stock of Turning Point, (c) finance the
repurchase of our common stock, (d) fund certain fees and expenses, and (e)
provide working capital.

The Term Loan bears interest at a rate equal to the three-month "Libor Rate" as
published in The Wall Street Journal plus 9.00%. Interest under the Term Loan
Agreement is payable monthly with the principal balance due on September 18,
2024. The Term Loan was subject to a closing fee of $0.5 million, which was paid
upon execution of the Term Loan Agreement. Additionally, the Term Loan is
subject to an agent monitoring fee of $25,000, payable quarterly. An early
termination fee shall be due at any time if on or prior to the third anniversary
of the closing of the Term Loan, we prepay or repay (whether voluntarily or
mandatorily), or is required to prepay or repay, the Term Loan in whole or in
part. Our obligations under the Term Loan Agreement are secured by all the
shares of Turning Point stock owned by the Company.

SDI Crystal Term Loan

On February 2, 2018, we and our Outdoor advertising subsidiaries (the
"Borrowers") entered into a term loan agreement with Crystal Financial LLC
("Crystal Term Loan"). The Crystal Term Loan provided for an initial term loan
of $10.0 million and a commitment to provide additional term loans of up to
$15.0 million. The Crystal Term Loan bore interest at a rate equal to the
three-month "Libor Rate" as published in The Wall Street Journal plus 7.25%.
Interest under the Crystal Term Loan agreement was payable monthly and was also
subject to an agency fee of $50,000, payable upon execution of the agreement,
and annually thereafter. In addition, the Crystal Term Loan was subject to a
one-time commitment fee of $350,000, which was paid upon execution of the
agreement. The principal balance was payable at maturity, on February 2, 2023.
In August 2018, we borrowed an additional $5.0 million under the Crystal Term
Loan. This borrowing is subject to the same terms as the initial borrowing. On
September 18, 2019, in connection with entering into the Term Loan, all amounts
outstanding under the Crystal Term Loan were repaid. The repayment resulted in a
$1.0 million loss on extinguishment of debt for the third quarter of 2019.

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Standard Outdoor Promissory Notes

On January 18, 2018, as partial consideration for an asset purchase of 83
billboard structures located in Alabama, as well as the ground leases and
advertising contracts relating to such billboard structures, we issued a
promissory note with a face value of $6.5 million. The promissory note was
recorded net of a discount of $0.9 million, representing the difference between
the face value and fair value at issuance. A principal payment of $1.0 million
on the promissory note is payable January 1 of each year, beginning with a
payment that was made on January 1, 2020 and ending January 1, 2022, with a $3.5
million final principal payment on January 1, 2023. The promissory note has a 5%
fixed coupon interest rate and interest is payable quarterly.

On February 20, 2018, as partial consideration for an asset purchase of 86
billboard structures located in Georgia and Florida, as well as the ground
leases and advertising contracts relating to such billboard structures, we
issued a promissory note with a face value of $3.5 million. The promissory note
was recorded net of a discount of $0.3 million, representing the difference
between the face value and fair value at issuance. A principal payment of $0.9
million on the promissory note was paid on March 1, 2019, with the remaining
principal paid down monthly through March 1, 2022. The promissory note has a 5%
fixed coupon interest rate and interest is payable monthly after March 1, 2019.

Distribution Agreements

For a description of our material distribution agreements, see "Business-Distribution and Supply Agreements."

Master Settlement Agreement

On November 23, 1998, the major U.S. cigarette manufacturers, Philip Morris USA,
Inc., Brown & Williamson Tobacco Corporation, Lorillard Tobacco Company and R.J.
Reynolds Tobacco Company, entered into the MSA with attorneys general
representing states that agreed to settle certain recovery actions (the
"Settling States"). In order to be in compliance with the MSA and subsequent
states' statutes, Turning Point was required to fund an escrow account with each
of the Settling States based on the number of cigarettes or cigarette
equivalents (which is measured by pounds of MYO cigarette smoking tobacco) sold
in such state. Funding of the escrow deposit by Turning Point in 2018 was less
than $0.1 million in respect of sales of smoking products in 2017. Turning Point
estimates the total deposits relating to 2018 sales will be less than $0.1
million. Under current MSA legislation, Turning Point will not be required to
make escrow deposits after making deposits for 2017 sales as its last remaining
product line subject to MSA legislation, MYO cigarette smoking tobacco, was
discontinued in the third quarter of 2017. Each year's deposit will be released
from escrow after 25 years. Turning Point is scheduled to begin receiving
payments as its escrow deposits are released from escrow beginning in 2024.

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The following table summarizes Turning Point's escrow deposit balances by sales year as of:

(Dollar amounts in thousands) Deposits as of December 31,

         Sales Year                  2019                 2018
            1999                $          211       $          211
            2000                         1,017                1,017
            2001                         1,673                1,673
            2002                         2,271                2,271
            2003                         4,249                4,249
            2004                         3,714                3,714
            2005                         4,553                4,552
            2006                         3,847                3,847
            2007                         4,167                4,167
            2008                         3,364                3,364
            2009                         1,619                1,619
            2010                           406                  406
            2011                           193                  193
            2012                           199                  199
            2013                           173                  173
            2014                           143                  143
            2015                           101                  101
            2016                            91                   91
            2017                            83                   83
            Total               $       32,074       $       32,073

Off-balance Sheet Arrangements

During 2019, Turning Point did not execute any forward contracts. During 2018,
Turning Point 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, Turning
Point had forward contracts for the purchase of €0.0 million and €1.5 million,
respectively. Turning Point had swap contracts for a total notional amount of
$70 million at December 31, 2019 and 2018. The fair values of the swap contracts
are based upon quoted market prices and resulted in a liability of $2.5 million
and $0.9 million, respectively, as of December 31, 2019 and 2018, which is
included in other long-term liabilities in the consolidated balance sheets.

Inflation

We believe that any effect of inflation at current levels will be minimal.
Historically, Turning Point has been able to increase prices at a rate equal to
or greater than that of inflation and believes it will continue to be able to do
so for the foreseeable future. In addition, Turning Point has been able to
maintain a relatively stable, variable cost structure for its products due, in
part, to its successful procurement with regard to its tobacco products and, in
part, to its existing contractual agreement for the purchase of its premium
cigarette papers.

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