UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended March 31,June 30, 2021

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
VECTOR GROUP LTD.
(Exact name of registrant as specified in its charter)
Delaware1-575965-0949535
(State or other jurisdiction of incorporationCommission File Number(I.R.S. Employer Identification No.)
incorporation or organization)
4400 Biscayne Boulevard
Miami, Florida 33137
305-579-8000
(Address, including zip code and telephone number, including area code,
of the principal executive offices)
Securities Registered Pursuant to 12(b) of the Act:
Title of each class:TradingName of each exchange
Symbol(s)on which registered:
Common stock, par value $0.10 per shareVGRNew York Stock Exchange
    Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes o No
    Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x Yes o No
    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging Growth Company
    If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
    Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes x No
    At MayAugust 3, 2021, Vector Group Ltd. had 154,194,629153,959,427 shares of common stock outstanding.



VECTOR GROUP LTD.

FORM 10-Q

TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Vector Group Ltd. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of March 31,June 30, 2021 and December 31, 2020
Condensed Consolidated Statements of Operations for the three and six months ended March 31,June 30, 2021 and 2020
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended March 31,June 30, 2021 and 2020
Condensed Consolidated Statements of Stockholders' Deficiency for the three and six months ended March 31,June 30, 2021 and 2020
Condensed Consolidated Statements of Cash Flows for the threesix months ended March 31,June 30, 2021 and 2020
Notes to Condensed Consolidated Financial Statements
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
SIGNATURE

1

VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
March 31,
2021
December 31,
2020
June 30,
2021
December 31,
2020
ASSETS:ASSETS:ASSETS:
Current assets:Current assets:Current assets:
Cash and cash equivalentsCash and cash equivalents$382,387 $352,842 Cash and cash equivalents$490,390 $352,842 
Investment securities at fair valueInvestment securities at fair value149,087 135,585 Investment securities at fair value157,001 135,585 
Accounts receivable - trade, netAccounts receivable - trade, net45,905 40,711 Accounts receivable - trade, net51,463 40,711 
InventoriesInventories100,945 97,545 Inventories93,161 97,545 
Other current assetsOther current assets46,906 37,220 Other current assets46,171 37,220 
Total current assetsTotal current assets725,230 663,903 Total current assets838,186 663,903 
Property, plant and equipment, netProperty, plant and equipment, net75,678 77,988 Property, plant and equipment, net72,804 77,988 
Investments in real estate, netInvestments in real estate, net15,802 15,631 Investments in real estate, net9,608 15,631 
Long-term investments (includes $38,108 and $34,218 at fair value)56,995 52,528 
Long-term investments (includes $35,534 and $34,218 at fair value)Long-term investments (includes $35,534 and $34,218 at fair value)55,362 52,528 
Investments in real estate venturesInvestments in real estate ventures83,984 85,400 Investments in real estate ventures76,192 85,400 
Operating lease right-of-use assetsOperating lease right-of-use assets140,777 145,356 Operating lease right-of-use assets138,057 145,356 
Goodwill and other intangible assets, netGoodwill and other intangible assets, net207,536 207,577 Goodwill and other intangible assets, net207,497 207,577 
Other assetsOther assets97,585 95,026 Other assets98,671 95,026 
Total assetsTotal assets$1,403,587 $1,343,409 Total assets$1,496,377 $1,343,409 
LIABILITIES AND STOCKHOLDERS' DEFICIENCY:LIABILITIES AND STOCKHOLDERS' DEFICIENCY:LIABILITIES AND STOCKHOLDERS' DEFICIENCY:
Current liabilities:Current liabilities:Current liabilities:
Current portion of notes payable and long-term debt Current portion of notes payable and long-term debt$12,556 $12,557  Current portion of notes payable and long-term debt$12,558 $12,557 
Current payments due under the Master Settlement Agreement Current payments due under the Master Settlement Agreement73,036 38,767  Current payments due under the Master Settlement Agreement89,488 38,767 
Income taxes payable, netIncome taxes payable, net16,458 5,847 Income taxes payable, net13,834 5,847 
Current operating lease liabilityCurrent operating lease liability27,207 27,207 Current operating lease liability26,625 27,207 
Other current liabilitiesOther current liabilities203,641 198,937 Other current liabilities223,498 198,937 
Total current liabilitiesTotal current liabilities332,898 283,315 Total current liabilities366,003 283,315 
Notes payable, long-term debt and other obligations, less current portionNotes payable, long-term debt and other obligations, less current portion1,405,399 1,393,729 Notes payable, long-term debt and other obligations, less current portion1,402,827 1,393,729 
Non-current employee benefitsNon-current employee benefits66,722 66,616 Non-current employee benefits66,829 66,616 
Deferred income taxes, netDeferred income taxes, net34,854 32,456 Deferred income taxes, net36,602 32,456 
Non-current operating lease liabilityNon-current operating lease liability148,417 154,199 Non-current operating lease liability144,487 154,199 
Payments due under the Master Settlement AgreementPayments due under the Master Settlement Agreement17,933 17,933 Payments due under the Master Settlement Agreement13,224 17,933 
Other liabilitiesOther liabilities53,863 54,848 Other liabilities58,450 54,848 
Total liabilitiesTotal liabilities2,060,086 2,003,096 Total liabilities2,088,422 2,003,096 
Commitments and contingencies (Note 9)Commitments and contingencies (Note 9)00Commitments and contingencies (Note 9)00
Stockholders' deficiency:Stockholders' deficiency:Stockholders' deficiency:
Preferred stock, par value $1 per share, 10,000,000 shares authorizedPreferred stock, par value $1 per share, 10,000,000 shares authorizedPreferred stock, par value $1 per share, 10,000,000 shares authorized
Common stock, par value $0.1 per share, 250,000,000 shares authorized, 154,194,629 and 153,324,629 shares issued and outstanding15,419 15,332 
Common stock, par value $0.1 per share, 250,000,000 shares authorized, 154,156,100 and 153,324,629 shares issued and outstandingCommon stock, par value $0.1 per share, 250,000,000 shares authorized, 154,156,100 and 153,324,629 shares issued and outstanding15,416 15,332 
Additional paid-in capitalAdditional paid-in capital2,573 Additional paid-in capital5,048 
Accumulated deficitAccumulated deficit(653,606)(653,945)Accumulated deficit(591,911)(653,945)
Accumulated other comprehensive lossAccumulated other comprehensive loss(20,885)(21,074)Accumulated other comprehensive loss(20,598)(21,074)
Total Vector Group Ltd. stockholders' deficiencyTotal Vector Group Ltd. stockholders' deficiency(656,499)(659,687)Total Vector Group Ltd. stockholders' deficiency(592,045)(659,687)
Non-controlling interestNon-controlling interestNon-controlling interest
Total stockholders' deficiencyTotal stockholders' deficiency(656,499)(659,687)Total stockholders' deficiency(592,045)(659,687)
Total liabilities and stockholders' deficiencyTotal liabilities and stockholders' deficiency$1,403,587 $1,343,409 Total liabilities and stockholders' deficiency$1,496,377 $1,343,409 

The accompanying notes are an integral part of the condensed consolidated financial statements.
2


VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Three Months EndedThree Months EndedSix Months Ended
March 31,June 30,June 30,
202120202021202020212020
Revenues:Revenues:Revenues:
Tobacco* Tobacco*$268,463 $287,069  Tobacco*$329,496 $312,510 $597,959 $599,579 
Real estate Real estate275,301 167,419  Real estate400,033 133,250 675,334 300,669 
Total revenues Total revenues543,764 454,488  Total revenues729,529 445,760 1,273,293 900,248 
Expenses:Expenses:Expenses:
Cost of sales: Cost of sales: Cost of sales:
Tobacco* Tobacco*164,031 197,290  Tobacco*206,145 214,067 370,176 411,357 
Real estate Real estate199,511 113,333  Real estate294,265 90,818 493,776 204,151 
Total cost of sales Total cost of sales363,542 310,623  Total cost of sales500,410 304,885 863,952 615,508 
Operating, selling, administrative and general expensesOperating, selling, administrative and general expenses90,014 90,517 Operating, selling, administrative and general expenses92,043 71,064 182,057 161,581 
Litigation settlement and judgment expenseLitigation settlement and judgment expenseLitigation settlement and judgment expense53 53 
Impairments of goodwill and other intangible assetsImpairments of goodwill and other intangible assets58,252 Impairments of goodwill and other intangible assets58,252 
Operating income (loss)90,203 (4,904)
Restructuring chargesRestructuring charges2,961 2,961 
Operating incomeOperating income137,076 66,797 227,279 61,893 
Other income (expenses):Other income (expenses):Other income (expenses):
Interest expenseInterest expense(28,751)(35,627)Interest expense(28,115)(29,358)(56,866)(64,985)
Loss on extinguishment of debtLoss on extinguishment of debt(21,362)Loss on extinguishment of debt(21,362)
Change in fair value of derivatives embedded within convertible debtChange in fair value of derivatives embedded within convertible debt3,330 Change in fair value of derivatives embedded within convertible debt1,669 4,999 
Equity in earnings from investmentsEquity in earnings from investments577 50,152 Equity in earnings from investments941 2,207 1,518 52,359 
Equity in earnings (losses) from real estate venturesEquity in earnings (losses) from real estate ventures1,589 (6,505)Equity in earnings (losses) from real estate ventures16,685 (12,260)18,274 (18,765)
Other, netOther, net2,754 (10,655)Other, net5,578 7,635 8,332 (3,020)
Income (loss) before provision for income taxes45,010 (4,209)
Income tax expense (benefit)13,053 (978)
Income before provision for income taxesIncome before provision for income taxes132,165 36,690 177,175 32,481 
Income tax expenseIncome tax expense38,860 10,916 51,913 9,938 
Net income (loss)31,957 (3,231)
Net incomeNet income93,305 25,774 125,262 22,543 
Net income attributed to non-controlling interestNet income attributed to non-controlling interestNet income attributed to non-controlling interest
Net income (loss) attributed to Vector Group Ltd.$31,957 $(3,231)
Net income attributed to Vector Group Ltd.Net income attributed to Vector Group Ltd.$93,305 $25,774 $125,262 $22,543 
Per basic common share:Per basic common share:Per basic common share:
Net income (loss) applicable to common shares attributed to Vector Group Ltd.$0.20 $(0.03)
Net income applicable to common shares attributed to Vector Group Ltd.Net income applicable to common shares attributed to Vector Group Ltd.$0.61 $0.17 $0.81 $0.14 
Per diluted common share:Per diluted common share:Per diluted common share:
Net income (loss) applicable to common shares attributed to Vector Group Ltd.$0.20 $(0.03)
Net income applicable to common shares attributed to Vector Group Ltd.Net income applicable to common shares attributed to Vector Group Ltd.$0.61 $0.16 $0.81 $0.14 
                                      

* Revenues and cost of sales include federal excise taxes of $97,714,$118,735, $121,170, $216,449, and $113,139$234,309 for the three and six months ended March 31,June 30, 2021 and 2020, respectively.


The accompanying notes are an integral part of the condensed consolidated financial statements.
3



VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in Thousands)
Unaudited
 Three Months Ended
March 31,
 20212020
 
Net income (loss)$31,957 $(3,231)
Net unrealized losses on investment securities available for sale:
Change in net unrealized losses(182)(664)
Net unrealized (gains) losses reclassified into net income (loss)(41)503 
Net unrealized losses on investment securities available for sale(223)(161)
Net change in pension-related amounts:
Amortization of loss482 464 
Net change in pension-related amounts482 464 
Other comprehensive income259 303 
Income tax effect on:
Change in net unrealized losses on investment securities49 180 
Net unrealized (gains) losses reclassified into net income (loss) on investment securities11 (136)
Pension-related amounts(130)(125)
Income tax provision on other comprehensive income(70)(81)
Other comprehensive income, net of tax189 222 
Comprehensive income (loss)32,146 (3,009)
Comprehensive income attributed to non-controlling interest
Comprehensive income (loss) attributed to Vector Group Ltd.$32,146 $(3,009)
 Three Months EndedSix Months Ended
June 30,June 30,
 2021202020212020
 
Net income$93,305 $25,774 $125,262 $22,543 
Net unrealized (losses) gains on investment securities available for sale:
Change in net unrealized (losses) gains(122)644 (304)(20)
Net unrealized losses (gains) reclassified into net income34 (70)(7)433 
Net unrealized (losses) gains on investment securities available for sale(88)574 (311)413 
Net change in pension-related amounts:
Amortization of loss481 463 963 927 
Other comprehensive income393 1,037 652 1,340 
Income tax effect on:
Change in net unrealized (losses) gains on investment securities33 (174)82 
Net unrealized losses (gains) reclassified into net income on investment securities(9)19 (117)
Pension-related amounts(130)(125)(260)(250)
Income tax provision on other comprehensive income(106)(280)(176)(361)
Other comprehensive income, net of tax287 757 476 979 
Comprehensive income93,592 26,531 125,738 23,522 
Comprehensive income attributed to non-controlling interest
Comprehensive income attributed to Vector Group Ltd.$93,592 $26,531 $125,738 $23,522 

The accompanying notes are an integral part of the condensed consolidated financial statements.
4


VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(Dollars in Thousands, Except Share Amounts)
Unaudited
Vector Group Ltd. Stockholders' DeficiencyVector Group Ltd. Stockholders' Deficiency
Additional Paid-InAccumulated
Other Comprehensive
Non-controllingAdditional Paid-InAccumulated
Other Comprehensive
Non-controlling
Common StockAccumulatedCommon StockAccumulated
SharesAmountCapitalDeficitLossInterestTotalSharesAmountCapitalDeficitLossInterestTotal
Balance as of January 1, 2021153,324,629 $15,332 $$(653,945)$(21,074)$$(659,687)
Balance as of April 1, 2021Balance as of April 1, 2021154,194,629 $15,419 $2,573 $(653,606)$(20,885)$$(656,499)
Net incomeNet income— — — 31,957 — — 31,957 Net income— — — 93,305 — — 93,305 
Total other comprehensive incomeTotal other comprehensive income— — — — 189 — 189 Total other comprehensive income— — — — 287 — 287 
Dividends on common stock ($0.20 per share)Dividends on common stock ($0.20 per share)— — (31,618)— — (31,618)Dividends on common stock ($0.20 per share)— — — (31,610)— — (31,610)
Restricted stock grants870,000 87 (87)— — — 
Restricted stock grantRestricted stock grant3,500 (1)— — — 
Surrender of shares in connection with restricted stock vestingSurrender of shares in connection with restricted stock vesting(42,029)(4)(604)— — — (608)
Stock-based compensationStock-based compensation— — 2,660 — — — 2,660 Stock-based compensation— — 3,080 — — — 3,080 
Balance as of March 31, 2021154,194,629 $15,419 $2,573 $(653,606)$(20,885)$$(656,499)
Balance as of June 30, 2021Balance as of June 30, 2021154,156,100 $15,416 $5,048 $(591,911)$(20,598)$$(592,045)
Vector Group Ltd. Stockholders' Deficiency
Additional Paid-InAccumulated
Other Comprehensive
Non-controlling
Common StockAccumulated
SharesAmountCapitalDeficitLossInterestTotal
Balance as of January 1, 2020148,084,900 $14,808 $$(678,464)$(21,808)$448 $(685,016)
Impact of adoption of new accounting standards— — — (2,263)— — (2,263)
Net loss— — — (3,231)— (3,231)
Total other comprehensive income— — — — 222 — 222 
Distributions and dividends on common stock ($0.20 per share)— — (2,258)(28,263)— — (30,521)
Stock-based compensation— — 2,258 — — — 2,258 
Distributions to non-controlling interest— — — — — (448)(448)
Balance as of March 31, 2020148,084,900 $14,808 $$(712,221)$(21,586)$$(718,999)
Vector Group Ltd. Stockholders' Deficiency
Additional Paid-InAccumulated
Other Comprehensive
Non-controlling
Common StockAccumulated
SharesAmountCapitalDeficitLossInterestTotal
Balance as of April 1, 2020148,084,900 $14,808 $$(712,221)$(21,586)$$(718,999)
Net income— — — 25,774 — — 25,774 
Total other comprehensive income— — — — 757 — 757 
Distributions and dividends on common stock ($0.20 per share)— — (54,244)22,644 — — (31,600)
Restricted stock grant405,000 41 (41)— — — 
Surrender of shares in connection with restricted stock vesting(5,423)(1)(61)— — — (62)
Issuance of common stock5,000,000 500 52,063 — — — 52,563 
Stock-based compensation— — 2,283 — — — 2,283 
Other— — — 80 — — 80 
Balance as of June 30, 2020153,484,477 $15,348 $$(663,723)$(20,829)$$(669,204)

The accompanying notes are an integral part of the condensed consolidated financial statements.
5


Vector Group Ltd. Stockholders' Deficiency
Additional Paid-InAccumulated
Other Comprehensive
Non-controlling
Common StockAccumulated
SharesAmountCapitalDeficitLossInterestTotal
Balance as of January 1, 2021153,324,629 $15,332 $$(653,945)$(21,074)$$(659,687)
Net income— — — 125,262 — — 125,262 
Total other comprehensive income— — — — 476 — 476 
Dividends on common stock ($0.40 per share)— — — (63,228)— — (63,228)
Restricted stock grants873,500 88 (88)— — — 
Surrender of shares in connection with restricted stock vesting(42,029)(4)(604)— — — (608)
Stock-based compensation— — 5,740 — — — 5,740 
Balance as of June 30, 2021154,156,100 $15,416 $5,048 $(591,911)$(20,598)$$(592,045)
Vector Group Ltd. Stockholders' Deficiency
Additional Paid-InAccumulated
Other Comprehensive
Non-controlling
Common StockAccumulated
SharesAmountCapitalDeficitLossInterestTotal
Balance as of January 1, 2020148,084,900 $14,808 $$(678,464)$(21,808)$448 $(685,016)
Impact of adoption of new accounting standards— — — (2,263)— — (2,263)
Net income— — — 22,543 — — 22,543 
Total other comprehensive income— — — — 979 — 979 
Distributions and dividends on common stock ($0.40 per share)— — (56,502)(5,619)— — (62,121)
Restricted stock grant405,000 41 (41)— — — 
Surrender of shares in connection with restricted stock vesting(5,423)(1)(61)— — — (62)
Issuance of common stock5,000,000 500 52,063 — — — 52,563 
Stock-based compensation— — 4,541 — — — 4,541 
Distributions to non-controlling interest— — — — — (448)(448)
Other— — — 80 — — 80 
Balance as of June 30, 2020153,484,477 $15,348 $$(663,723)$(20,829)$$(669,204)

The accompanying notes are an integral part of the condensed consolidated financial statements.
6


VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Unaudited
Three Months EndedThree Months EndedSix Months EndedSix Months Ended
March 31,
2021
March 31,
2020
June 30,
2021
June 30,
2020
Net cash provided by operating activitiesNet cash provided by operating activities$78,364 $115,309 Net cash provided by operating activities$221,300 $341,329 
Cash flows from investing activities:Cash flows from investing activities:Cash flows from investing activities:
Sale of investment securitiesSale of investment securities10,228 16,672 Sale of investment securities23,477 19,555 
Maturities of investment securitiesMaturities of investment securities13,968 15,616 Maturities of investment securities36,461 31,574 
Purchase of investment securitiesPurchase of investment securities(38,441)(15,798)Purchase of investment securities(74,805)(16,867)
Proceeds from sale or liquidation of long-term investmentsProceeds from sale or liquidation of long-term investments4,389 19,544 Proceeds from sale or liquidation of long-term investments8,009 23,407 
Purchase of long-term investmentsPurchase of long-term investments(5,813)(5,238)Purchase of long-term investments(6,963)(5,238)
Investments in real estate venturesInvestments in real estate ventures(8,087)(673)Investments in real estate ventures(9,902)(3,858)
Distributions from investments in real estate venturesDistributions from investments in real estate ventures7,577 1,036 Distributions from investments in real estate ventures11,163 5,172 
Increase in cash surrender value of life insurance policiesIncrease in cash surrender value of life insurance policies(564)(258)Increase in cash surrender value of life insurance policies(1,348)(751)
(Increase) decrease in restricted assets(Increase) decrease in restricted assets(3)93 (Increase) decrease in restricted assets(5)87 
Capital expendituresCapital expenditures(1,931)(4,888)Capital expenditures(3,055)(6,242)
Paydowns of investment securitiesPaydowns of investment securities172 202 Paydowns of investment securities302 415 
Investments in real estate, netInvestments in real estate, net(340)Investments in real estate, net(679)
Net cash (used in) provided by investing activitiesNet cash (used in) provided by investing activities(18,505)25,968 Net cash (used in) provided by investing activities(16,666)46,575 
Cash flows from financing activities:Cash flows from financing activities:Cash flows from financing activities:
Proceeds from issuance of debtProceeds from issuance of debt875,000 36 Proceeds from issuance of debt875,000 531 
Deferred financing costsDeferred financing costs(20,000)Deferred financing costs(20,109)
Repayments of debtRepayments of debt(853,158)(2,638)Repayments of debt(856,316)(172,467)
Borrowings under revolverBorrowings under revolver259 126,603 Borrowings under revolver7,699 130,641 
Repayments on revolverRepayments on revolver(259)(137,056)Repayments on revolver(7,699)(165,593)
Dividends and distributions on common stockDividends and distributions on common stock(32,273)(32,074)Dividends and distributions on common stock(63,738)(63,478)
Distributions to non-controlling interestDistributions to non-controlling interest(448)Distributions to non-controlling interest(448)
Proceeds from issuance of common stockProceeds from issuance of common stock52,563 
OtherOther(21)Other(51)
Net cash used in financing activitiesNet cash used in financing activities(30,452)(45,577)Net cash used in financing activities(65,214)(218,246)
Net increase in cash, cash equivalents and restricted cashNet increase in cash, cash equivalents and restricted cash29,407 95,700 Net increase in cash, cash equivalents and restricted cash139,420 169,658 
Cash, cash equivalents and restricted cash, beginning of periodCash, cash equivalents and restricted cash, beginning of period365,677 379,476 Cash, cash equivalents and restricted cash, beginning of period365,677 379,476 
Cash, cash equivalents and restricted cash, end of periodCash, cash equivalents and restricted cash, end of period$395,084 $475,176 Cash, cash equivalents and restricted cash, end of period$505,097 $549,134 

The accompanying notes are an integral part of the condensed consolidated financial statements.
67

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)Basis of Presentation:
The condensed consolidated financial statements of Vector Group Ltd. (the “Company” or “Vector”) include the accounts of Liggett Group LLC (“Liggett”), Vector Tobacco Inc. (“Vector Tobacco”), Liggett Vector Brands LLC (“Liggett Vector Brands”), New Valley LLC (“New Valley”) and other less significant subsidiaries. New Valley includes the accounts of Douglas Elliman Realty, LLC (“Douglas Elliman”) and other less significant subsidiaries. All significant intercompany balances and transactions have been eliminated.
Liggett and Vector Tobacco are engaged in the manufacture and sale of cigarettes in the United States. Liggett Vector Brands coordinates Liggett and Vector Tobacco’s sales and marketing efforts. Certain references to “Liggett” refer to the Company’s tobacco operations, including the business of Liggett and Vector Tobacco, unless otherwise specified. New Valley is engaged in the real estate business.
The unaudited, interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and, in management’s opinion, contain all adjustments, consisting only of normal recurring items, necessary for a fair statement of the results for the periods presented. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission (“SEC”). The consolidated results of operations for interim periods should not be regarded as necessarily indicative of the results that may be expected for the entire year.
Certain reclassifications have been made to the 2020 financial information to conform to the 2021 presentation. Credit loss expenseincome (expense) has been reclassified from Other (expense) income as components of Other, net.

(b)Distributions and Dividends on Common Stock:

The Company records distributions on its common stock as dividends in its condensed consolidated statementstatements of stockholders’ deficiency to the extent of retained earnings. Any amounts exceeding retained earnings are recorded as a reduction to additional paid-in capital to the extent paid-in-capital is available and then to accumulated deficit.

(c)Earnings Per Share (“EPS”):

Net income (loss) for purposes of determining basic and diluted EPS was as follows:
Three Months Ended
March 31,
20212020
Net income (loss) attributed to Vector Group Ltd.$31,957 $(3,231)
Income attributed to participating securities(756)(561)
Net income (loss) applicable to common shares attributed to Vector Group Ltd.$31,201 $(3,792)
Three Months EndedSix Months Ended
June 30,June 30,
2021202020212020
Net income attributed to Vector Group Ltd.$93,305 $25,774 $125,262 $22,543 
Income attributed to participating securities(952)(707)(1,686)(1,268)
Net income applicable to common shares attributed to Vector Group Ltd.$92,353 $25,067 $123,576 $21,275 










7
8

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Net income for purposes of determining diluted EPS was as follows:
Three Months EndedSix Months Ended
June 30,June 30,
2021202020212020
Net income attributed to Vector Group Ltd.$93,305 $25,774 $125,262 $22,543 
Income attributable to 5.50% Variable Interest Senior Convertible Notes(375)
Income attributed to participating securities(952)(707)(1,686)(1,268)
Net income applicable to common shares attributed to Vector Group Ltd.$92,353 $24,692 $123,576 $21,275 

Basic and diluted EPS were calculated using the following common shares:
Three Months EndedThree Months EndedSix Months Ended
March 31,June 30,June 30,
202120202021202020212020
Weighted-average shares for basic EPSWeighted-average shares for basic EPS152,249,440 147,000,114 Weighted-average shares for basic EPS152,285,182 149,379,306 152,267,410 148,189,710 
Plus incremental shares related to convertible debtPlus incremental shares related to convertible debt1,379,454 
Plus incremental shares related to stock options and non-vested restricted stockPlus incremental shares related to stock options and non-vested restricted stock134,650 83,603 Plus incremental shares related to stock options and non-vested restricted stock282,313 88,100 206,381 85,701 
Weighted-average shares for diluted EPSWeighted-average shares for diluted EPS152,384,090 147,083,717 Weighted-average shares for diluted EPS152,567,495 150,846,860 152,473,791 148,275,411 

The following non-vested restricted stock and shares issuable upon the conversion of convertible debt were outstanding during the three and six months ended March 31,June 30, 2021 and 2020, but were not included in the computation of diluted EPS because the impact of the per share expense associated with the restricted stock was greater than the average market price of the common shares during the respective periodsperiods. The following shares issuable upon the conversion of convertible debt were outstanding during the three and six months ended June 30, 2020, but were not included in the computation of diluted EPS because the impact of the common shares issuable under the convertible debt were anti-dilutive to EPS.
Three Months EndedThree Months EndedSix Months Ended
March 31,June 30,June 30,
202120202021202020212020
Weighted-average shares of non-vested restricted stock Weighted-average shares of non-vested restricted stock97,222 625,122  Weighted-average shares of non-vested restricted stock625,122 625,122 
Weighted-average expense per share Weighted-average expense per share$14.31 $19.54  Weighted-average expense per share$$19.54 $$19.54 
Weighted-average number of shares issuable upon conversion of debt Weighted-average number of shares issuable upon conversion of debt8,368,690  Weighted-average number of shares issuable upon conversion of debt4,874,072 
Weighted-average conversion price Weighted-average conversion price$$20.27  Weighted-average conversion price$$$$20.27 

9

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

(d)Restructuring:

During 2020, in response to the coronavirus pandemic (“COVID-19”), the Company's Real Estate segment, including Douglas Elliman, underwent a restructuring by realigning its administrative support function and office locations as well as adjusting its business model to more efficiently serve its clients. This included a reduction of brokerage personnel by approximately 25% at Douglas Elliman. For the three and six months ended June 30, 2021, there were 0 restructuring charges. As of December 31, 2020, there was 0 accrual for restructuring charges.

The following table summarizes amounts expensed for the three and six months ended June 30, 2020:

Three Months EndedSix Months Ended
June 30, 2020June 30, 2020
Cash Charges:
    Employee severance and benefits$1,599 $1,599 
    Other restructuring expenses218 218
1,817 1,817 
Non-Cash:
  ��  Loss on fixed assets associated with consolidation of sales offices1,144 1,144 
Total restructuring charges$2,961 $2,961 
All amounts expensed for the three and six months ended June 30, 2020 are included as Restructuring charges in the Company’s condensed consolidated statements of operations and are all attributable to the Company’s Real Estate segment.

Severance and benefits expensed for the three and six months ended June 30, 2020 relate entirely to a reduction in administrative positions.

The following table presents the activity under the Real Estate segment restructuring plan for the six months ended June 30, 2020:

Employee Severance and BenefitsOtherNon-Cash Loss on Fixed AssetsTotal
Accrual balance as of January 1, 2020$$$$
Restructuring charges1,599 218 1,144 2,961 
Utilized(1,239)(1,144)(2,383)
Accrual balance as of June 30, 2020$360 $218 $$578 

(d)(e)Investments in Real Estate Ventures:

In accounting for its investments in real estate ventures, the Company identified its participation in Variable Interest Entities (“VIE”), which are defined as (a) entities in which the equity investment at risk is not sufficient to finance its activities without additional subordinated financial support; (b) as a group, the equity investors at risk lack 1) the power to direct the activities of a legal entity that most significantly impact the entity’s economic performance, 2) the obligation to absorb the expected losses of the entity, or 3) the right to receive the expected residual returns of the entity; or (c) as a group, the equity investors have voting rights that are not proportionate to their economic interests and the entity’s activities involve or are conducted on behalf of an investor with a disproportionately small voting interest.
The Company’s interest in VIEs is primarily in the form of equity ownership. The Company examines specific criteria and uses judgment when determining if the Company is the primary beneficiary of a VIE. Factors considered include risk and reward sharing, experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and
10

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

operating decisions, representation on a VIE’s executive committee, existence of unilateral kick-out rights exclusive of protective rights or voting rights and level of economic disproportionality between the Company and its other partner(s).
Accounting guidance requires the consolidation of VIEs in which the Company is the primary beneficiary. The guidance requires consolidation of VIEs that an enterprise has a controlling financial interest. A controlling financial interest will have both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company’s maximum exposure to loss in its investments in unconsolidated VIEs is limited to its investment in the VIE, any unfunded capital commitments to the VIE, and, in some cases, guarantees in connection with debt on the specific project. The Company’s maximum exposure to loss in its investment in consolidated VIEs is limited to its investment, which is the carrying value of the investment net of the non-controlling interest. Creditors of the consolidated VIEs have no recourse to the general credit of the primary beneficiary.
On a quarterly basis, the Company evaluates its investments in real estate ventures to determine if there are indicators of impairment. If so, the Company further investigates to determine if an impairment has occurred and whether such impairment is considered temporary or other than temporary. The Company believes that the assessment of temporary or other-than-temporary impairment is facts-and-circumstances driven.
8

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

(e)(f)Other, net:

Other, net consisted of:
Three Months EndedThree Months EndedSix Months Ended
March 31,June 30,June 30,
202120202021202020212020
Interest and dividend incomeInterest and dividend income$611 $2,680 Interest and dividend income$525 $968 $1,136 $3,648 
Net gains (losses) recognized on investment securitiesNet gains (losses) recognized on investment securities2,449 (12,240)Net gains (losses) recognized on investment securities8,469 4,781 10,918 (7,459)
Net periodic benefit cost other than the service costsNet periodic benefit cost other than the service costs(244)(455)Net periodic benefit cost other than the service costs(243)(454)(487)(909)
Credit loss expense(1,560)
Credit loss income (expense)Credit loss income (expense)1,128 (432)
Other (expense) incomeOther (expense) income(62)920 Other (expense) income(3,173)1,212 (3,235)2,132 
Other, netOther, net$2,754 $(10,655)Other, net$5,578 $7,635 $8,332 $(3,020)

(f)(g)Other Assets:

Other assets consisted of:
March 31,
2021
December 31, 2020
Restricted assets$4,529 $3,456 
Prepaid pension costs35,480 35,209 
Contract assets, net24,183 24,002 
Other assets33,393 32,359 
Total other assets$97,585 $95,026 

(g)Other Current Liabilities:

Other current liabilities consisted of:
March 31,
2021
December 31, 2020
Accounts payable$15,170 $12,846 
Accrued promotional expenses40,697 45,579 
Accrued excise and payroll taxes payable, net23,359 13,849 
Accrued interest32,974 31,624 
Commissions payable33,077 25,615 
Accrued salaries and benefits13,253 27,104 
Contract liabilities7,758 7,633 
Allowance for sales returns7,340 7,356 
Other current liabilities30,013 27,331 
Total other current liabilities$203,641 $198,937 

June 30,
2021
December 31, 2020
Restricted assets$4,170 $3,456 
Prepaid pension costs35,751 35,209 
Contract assets, net23,538 24,002 
Other assets35,212 32,359 
Total other assets$98,671 $95,026 
911

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

(h)Other Current Liabilities:

Other current liabilities consisted of:
June 30,
2021
December 31, 2020
Accounts payable$10,718 $12,846 
Accrued promotional expenses49,269 45,579 
Accrued excise and payroll taxes payable, net22,973 13,849 
Accrued interest30,998 31,624 
Commissions payable38,832 25,615 
Accrued salaries and benefits25,517 27,104 
Contract liabilities7,507 7,633 
Allowance for sales returns7,414 7,356 
Other current liabilities30,270 27,331 
Total other current liabilities$223,498 $198,937 

(i)Reconciliation of Cash, Cash Equivalents and Restricted Cash:

The components of “Cash, cash equivalents and restricted cash” in the condensed consolidated statements of cash flows were as follows:
March 31,
2021
December 31,
2020
June 30,
2021
December 31,
2020
Cash and cash equivalentsCash and cash equivalents$382,387 $352,842 Cash and cash equivalents$490,390 $352,842 
Restricted cash and cash equivalents included in other current assetsRestricted cash and cash equivalents included in other current assets10,790 10,374 Restricted cash and cash equivalents included in other current assets11,364 10,374 
Restricted cash and cash equivalents included in other assetsRestricted cash and cash equivalents included in other assets1,907 2,461 Restricted cash and cash equivalents included in other assets3,343 2,461 
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flowsTotal cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows$395,084 $365,677 Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows$505,097 $365,677 

Amounts included in current restricted assets and non-current restricted assets represent cash and cash equivalents required to be deposited into escrow for bonds required to appeal adverse product liability judgments, amounts required for letters of credit related to office leases, and certain deposit requirements for banking arrangements. The restrictions related to the appellate bonds will remain in place until the appeal process has been completed. The restrictions related to the letters of credit will remain in place for the duration of the respective lease. The restrictions related to the banking arrangements will remain in place for the duration of the arrangement.

(i)(j)New Accounting Pronouncements:

Accounting Standards Updates (“ASU”) adopted in 2021:
In December 2019, the Financial Accounting Standards Board (the “FASB”) issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This update simplifies various aspects related to accounting for income taxes, removes certain exceptions to the general principles in Accounting Standards Codification (“ASC”) 740, and clarifies and amends existing guidance to improve consistent application. ASU No. 2019-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. Adoption of this update did not have a material impact on the Company’s condensed consolidated financial statements.
In January 2020, the FASB issued ASU No. 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”). The new standard clarifies the interaction of accounting for the transition into and out of the equity method. The new standard also clarifies the accounting for measuring certain purchased options and forward contracts to acquire investments. The ASU is effective for
12

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Adoption of this update did not have a material impact on the Company’s condensed consolidated financial statements.

ASUs to be adopted in future periods:
In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). This ASU is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. This guidance is effective for all entities for contract modifications beginning March 12, 2020 and can be applied prospectively through December 31, 2022. In January 2021, the FASB issued ASU 2021-01 to clarify the scope of the guidance and allow certain aspects of Topic 848 to be applied to all derivative instruments that undergo a modification of the interest rate used for discounting, margining or contract price alignment as a result of the reference reform. The Company has not yet determined the extent to which it will utilize these expedients and exceptions should a modification occur. The Company does not anticipate an impact on its condensed consolidated financial statements.

10

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

2.    REVENUE RECOGNITION

Disaggregation of Revenue
In the following table, revenue is disaggregated by major product line for the Tobacco segment:
Three Months EndedThree Months EndedSix Months Ended
March 31,June 30,June 30,
202120202021202020212020
Tobacco Segment Revenues:Tobacco Segment Revenues:Tobacco Segment Revenues:
Core Discount Brands - Eagle 20’s, Pyramid, Montego, Grand Prix, Liggett Select, and Eve
Core Discount Brands - Eagle 20’s, Pyramid, Montego, Grand Prix, Liggett Select, and Eve
$253,256 $269,005 
Core Discount Brands - Eagle 20’s, Pyramid, Montego, Grand Prix, Liggett Select, and Eve
$313,264 $295,388 $566,520 $564,393 
Other BrandsOther Brands15,207 18,064 Other Brands16,232 17,122 31,439 35,186 
Total tobacco revenuesTotal tobacco revenues$268,463 $287,069 Total tobacco revenues$329,496 $312,510 $597,959 $599,579 

In the following table, revenue is disaggregated by major services line and primary geographical market for the Real Estate segment:
Three Months Ended March 31, 2021Three Months Ended June 30, 2021
New York CityNortheastSoutheastWestTotalNew York CityNortheastSoutheastWestTotal
Real Estate Segment Revenues:
Real Estate Segment Revenues:
Real Estate Segment Revenues:
Commission and other brokerage income - existing home salesCommission and other brokerage income - existing home sales$70,135 $56,250 $75,553 $41,078 $243,016 Commission and other brokerage income - existing home sales$105,852 $66,419 $121,966 $51,518 $345,755 
Commission and other brokerage income - development marketingCommission and other brokerage income - development marketing8,444 7,307 333 16,084 Commission and other brokerage income - development marketing15,919 14,078 281 30,278 
Property management revenueProperty management revenue9,095 173 9,268 Property management revenue9,762 139 9,901 
Escrow and title feesEscrow and title fees466 417 3,525 4,408 Escrow and title fees1,413 392 4,236 6,041 
Total Douglas Elliman revenueTotal Douglas Elliman revenue88,140 56,840 82,860 44,936 272,776 Total Douglas Elliman revenue132,946 66,950 136,044 56,035 391,975 
Other real estate revenuesOther real estate revenues2,525 2,525 Other real estate revenues6,750 1,308 8,058 
Total real estate revenues Total real estate revenues$88,140 $56,840 $82,860 $47,461 $275,301  Total real estate revenues$139,696 $66,950 $136,044 $57,343 $400,033 
Three Months Ended March 31, 2020
New York CityNortheastSoutheastWestTotal
Real Estate Segment Revenues:
Commission and other brokerage income - existing home sales$50,109 $34,724 $30,178 $25,700 $140,711 
Commission and other brokerage income - development marketing8,451 6,722 82 15,255 
Property management revenue8,562 217 8,779 
Escrow and title fees593 263 856 
Total Douglas Elliman revenue67,715 35,204 36,900 25,782 165,601 
Other real estate revenues1,818 1,818 
  Total real estate revenues$67,715 $35,204 $36,900 $27,600 $167,419 

1113

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Three Months Ended June 30, 2020
New York CityNortheastSoutheastWestTotal
Real Estate Segment Revenues:
Commission and other brokerage income - existing home sales$35,861 $35,631 $23,232 $20,024 $114,748 
Commission and other brokerage income - development marketing5,173 2,747 586 8,506 
Property management revenue8,617 215 8,832 
Escrow and title fees474 369 843 
Total Douglas Elliman revenue50,125 36,215 25,979 20,610 132,929 
Other real estate revenues321 321 
  Total real estate revenues$50,125 $36,215 $25,979 $20,931 $133,250 
Six Months Ended June 30, 2021
New York CityNortheastSoutheastWestTotal
Real Estate Segment Revenues:
Commission and other brokerage income - existing home sales$175,987 $122,669 $197,519 $92,596 $588,771 
Commission and other brokerage income - development marketing24,363 21,385 614 46,362 
Property management revenue18,857 312 19,169 
Escrow and title fees1,879 809 7,761 10,449 
Total Douglas Elliman revenue221,086 123,790 218,904 100,971 664,751 
Other real estate revenues6,750 3,833 10,583 
  Total real estate revenues$227,836 $123,790 $218,904 $104,804 $675,334 
Six Months Ended June 30, 2020
New York CityNortheastSoutheastWestTotal
Real Estate Segment Revenues:
Commission and other brokerage income - existing home sales$85,970 $70,355 $53,410 $45,724 $255,459 
Commission and other brokerage income - development marketing13,624 9,469 668 23,761 
Property management revenue17,179 432 17,611 
Escrow and title fees1,067 632 1,699 
Total Douglas Elliman revenue117,840 71,419 62,879 46,392 298,530 
Other real estate revenues2,139 2,139 
  Total real estate revenues$117,840 $71,419 $62,879 $48,531 $300,669 

14

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Contract Balances
The following table provides information about contract assets and contract liabilities from development marketing and commercial leasing contracts with customers:
March 31, 2021December 31, 2020June 30, 2021December 31, 2020
Receivables, which are included in accounts receivable - trade, netReceivables, which are included in accounts receivable - trade, net$1,715 $1,520 Receivables, which are included in accounts receivable - trade, net$2,703 $1,520 
Contract assets, net, which are included in other current assetsContract assets, net, which are included in other current assets6,609 6,529 Contract assets, net, which are included in other current assets6,563 6,529 
Payables, which are included in other current liabilitiesPayables, which are included in other current liabilities1,245 1,113 Payables, which are included in other current liabilities2,072 1,113 
Contract liabilities, which are included in other current liabilitiesContract liabilities, which are included in other current liabilities7,758 7,633 Contract liabilities, which are included in other current liabilities7,507 7,633 
Contract assets, net, which are included in other assetsContract assets, net, which are included in other assets24,183 24,002 Contract assets, net, which are included in other assets23,538 24,002 
Contract liabilities, which are included in other liabilitiesContract liabilities, which are included in other liabilities33,730 32,104 Contract liabilities, which are included in other liabilities34,302 32,104 

The Company recognized revenue of $932$1,717 and $2,649 for the three and six months ended March 31,June 30, 2021, that were included in the contract liabilities balances at December 31, 2020. The Company recognized revenue of $2,737$3,921 and $6,658 for the three and six months ended March 31,June 30, 2020, that were included in the contract liabilities balances at December 31, 2019.

3.    CURRENT EXPECTED CREDIT LOSSES
Tobacco receivables: Average collection terms for Tobacco sales range between three and twelve days from the time that the cigarettes are shipped to the customer. Based on Tobacco historical and ongoing cash collections from customers, an estimated credit loss in accordance with ASU 2016-13 was not recorded for these trade receivables as of March 31,June 30, 2021 and December 31, 2020.
Real estate broker agent receivables: Douglas Elliman Realty is exposed to credit losses for various amounts due from real estate agents, which are included in Other current assets on the condensed consolidated balance sheets, net of an allowance for credit losses. The Company estimates its allowance for credit losses on receivables from agents based on an evaluation of aging, agent sales in pipeline, any security, specific exposures, historical experience of collections from the individual agents, and current and expected future market trends (such as the current and expected impact of COVID-19 on the real estate market). The Company estimated that the credit losses for these receivables were $7,314$7,128 and $7,038 at March 31,June 30, 2021 and December 31, 2020, respectively.
Term loan receivables: New Valley periodically provides term loans to commercial real estate developers, which are included in Other assets on the condensed consolidated balance sheets. New Valley had 2 loans with a total amortized cost basis of $15,928, including accrued interest receivable of $6,428 at both March 31,June 30, 2021 and December 31, 2020, and have maturities in 2021 and beyond. The loans are secured by guarantees and given their risk profiles are evaluated individually. As New Valley does not have internal historical loss information by which to evaluate the risk of credit losses, external market data measuring default risks on high yield loans as of each measurement date was utilized to estimate reserves for credit losses on these loans. Pursuant to the requirements of ASU 2016-13, New Valley’s expected credit loss estimate was $15,928 at both March 31,June 30, 2021 and December 31, 2020.


1215

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

The following is the rollforward of the allowance for credit losses for the threesix months ended March 31,June 30, 2021:
January 1,
2021
Current Period ProvisionWrite-offsRecoveriesMarch 31,
2021
January 1,
2021
Current Period ProvisionWrite-offsRecoveriesJune 30,
2021
Allowance for credit losses:Allowance for credit losses:Allowance for credit losses:
Real estate broker agent receivablesReal estate broker agent receivables$7,038 $385 (1)$109 $$7,314 Real estate broker agent receivables$7,038 $289 (1)$199 $$7,128 
New Valley term loan receivablesNew Valley term loan receivables15,928 — 15,928 New Valley term loan receivables15,928 15,928 
_____________________________
(1) The bad debt expense related to the real estate broker agent receivables is included in Operating, selling, administrative and general expenses on the condensed consolidated statements of operations.

The following is the rollforward of the allowance for credit losses for the threesix months ended March 31,June 30, 2020:
January 1,
2020
Current Period ProvisionWrite-offsRecoveriesMarch 31,
2020
January 1,
2020
Current Period ProvisionWrite-offsRecoveriesJune 30,
2020
Allowance for credit losses:Allowance for credit losses:Allowance for credit losses:
Real estate broker agent receivablesReal estate broker agent receivables$6,132 $360 (1)$$$6,492 Real estate broker agent receivables$6,132 $1,270 (1)$41 $$7,361 
New Valley term loan receivablesNew Valley term loan receivables3,100 1,560 (2)4,660 New Valley term loan receivables3,100 432 (2)3,532 
_____________________________
(1) The bad debt expense related to the real estate broker agent receivables is included in Operating, selling, administrative and general expenses on the condensed consolidated statements of operations.
(2) The credit losses related to the New Valley term loan receivables are included in Other, net on the condensed consolidated statements of operations.

4.    LEASES

Leases
The Company has operating and finance leases for corporate and sales offices, and certain vehicles and equipment. The components of lease expense were as follows:
Three Months EndedThree Months EndedSix Months Ended
March 31,June 30,June 30,
202120202021202020212020
Operating lease costOperating lease cost$9,301 $9,424 Operating lease cost$9,292 $9,356 $18,593 $18,780 
Short-term lease costShort-term lease cost291 401 Short-term lease cost261 389 552 790 
Variable lease costVariable lease cost1,008 567 Variable lease cost1,029 588 2,037 1,155 
Finance lease cost:Finance lease cost:Finance lease cost:
AmortizationAmortization16 38 Amortization14 39 30 77 
Interest on lease liabilitiesInterest on lease liabilitiesInterest on lease liabilities
Total lease costTotal lease cost$10,619 $10,434 Total lease cost$10,598 $10,376 $21,217 $20,809 

1316

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Supplemental cash flow information related to leases was as follows:
Three Months EndedSix Months Ended
March 31,June 30,
2021202020212020
Cash paid for amounts included in measurement of lease liabilities:Cash paid for amounts included in measurement of lease liabilities:Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leasesOperating cash flows from operating leases$10,739 $9,546 Operating cash flows from operating leases$21,879 $11,953 
Operating cash flows from finance leasesOperating cash flows from finance leasesOperating cash flows from finance leases
Financing cash flows from finance leasesFinancing cash flows from finance leases15 37 Financing cash flows from finance leases28 69 
Right-of-use assets obtained in exchange for lease obligations:Right-of-use assets obtained in exchange for lease obligations:Right-of-use assets obtained in exchange for lease obligations:
Operating leasesOperating leases724 66 Operating leases3,432 9,076 
Finance leasesFinance leases60 Finance leases60 


14

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Supplemental balance sheet information related to leases was as follows:
March 31,December 31,June 30,December 31,
2021202020212020
Operating leases:Operating leases:Operating leases:
Operating lease right-of-use assetsOperating lease right-of-use assets$140,777 $145,356 Operating lease right-of-use assets$138,057 $145,356 
Current operating lease liabilityCurrent operating lease liability$27,207 $27,207 Current operating lease liability$26,625 $27,207 
Non-current operating lease liabilityNon-current operating lease liability148,417 154,199 Non-current operating lease liability144,487 154,199 
Total operating lease liabilitiesTotal operating lease liabilities$175,624 $181,406 Total operating lease liabilities$171,112 $181,406 
Finance leases:Finance leases:Finance leases:
Investments in real estate, net (1)
Investments in real estate, net (1)
$53 $62 
Investments in real estate, net (1)
$45 $62 
Property, plant and equipment, at costProperty, plant and equipment, at cost$127 $127 Property, plant and equipment, at cost$127 $127 
Accumulated amortizationAccumulated amortization(51)(44)Accumulated amortization(57)(44)
Property and equipment, netProperty and equipment, net$76 $83 Property and equipment, net$70 $83 
Current portion of notes payable and long-term debtCurrent portion of notes payable and long-term debt$57 $57 Current portion of notes payable and long-term debt$57 $57 
Notes payable, long-term debt and other obligations, less current portionNotes payable, long-term debt and other obligations, less current portion81 96 Notes payable, long-term debt and other obligations, less current portion67 96 
Total finance lease liabilitiesTotal finance lease liabilities$138 $153 Total finance lease liabilities$124 $153 
Weighted average remaining lease term:Weighted average remaining lease term:Weighted average remaining lease term:
Operating leasesOperating leases7.757.87Operating leases7.627.87
Finance leasesFinance leases2.502.71Finance leases2.272.71
Weighted average discount rate:Weighted average discount rate:Weighted average discount rate:
Operating leasesOperating leases9.27 %9.26 %Operating leases9.24 %9.26 %
Finance leasesFinance leases7.90 %7.82 %Finance leases7.98 %7.82 %
(1)     Included in Investments in real estate, net on the condensed consolidated balance sheets are financing lease equipment, at cost of $748 and $748 and accumulated amortization of $695$703 and $686 as of March 31,June 30, 2021 and December 31, 2020, respectively.

As of March 31, 2021, maturities of lease liabilities were as follows:
Operating LeasesFinance
 Leases
Period Ending December 31:  
Remainder of 2021$33,125 $49 
202238,183 60 
202333,398 35 
202427,378 
202522,219 
202618,534 
Thereafter78,236 
Total lease payments251,073 152 
 Less imputed interest(75,449)(14)
Total$175,624 $138 
1517

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

As of March 31,June 30, 2021, maturities of lease liabilities were as follows:
Operating LeasesFinance
 Leases
Period Ending December 31:  
Remainder of 2021$21,960 $33 
202238,780 60 
202334,007 35 
202428,054 
202522,895 
202619,114 
Thereafter78,236 
Total lease payments243,046 136 
 Less imputed interest(71,934)(12)
Total$171,112 $124 
As of June 30, 2021, the Company had $2,320$2,181 in undiscounted lease payments relating to an additional operating lease for equipment that has not yet commenced. The operating lease will commence in the second half of 2021 with a lease term of 3 years.
As a result of the COVID-19 pandemic, the Company received lease concessions from landlords in 2020 mostly in the form of rent deferrals and a few in the form of rent abatements. The Company elected to treat these deferrals and abatements as lease modifications and the existing lease liabilities were remeasured with a corresponding adjustment to the right-of-use asset on the effective date of the modification in 2020. The deferrals varied as to the timing of repayment but all agreements required repayment of the deferrals over the remaining lease terms.

5.    INVENTORIES

Inventories consisted of:
March 31,
2021
December 31,
2020
June 30,
2021
December 31,
2020
Leaf tobaccoLeaf tobacco$47,256 $42,988 Leaf tobacco$41,693 $42,988 
Other raw materialsOther raw materials5,301 5,987 Other raw materials5,292 5,987 
Work-in-processWork-in-process664 520 Work-in-process674 520 
Finished goodsFinished goods68,455 68,781 Finished goods66,233 68,781 
Inventories at current costInventories at current cost121,676 118,276 Inventories at current cost113,892 118,276 
LIFO adjustmentsLIFO adjustments(20,731)(20,731)LIFO adjustments(20,731)(20,731)
$100,945 $97,545 $93,161 $97,545 

All of the Company’s inventories at March 31,June 30, 2021 and December 31, 2020 are reported under the LIFO method. The $20,731 LIFO adjustment as of March 31,June 30, 2021 decreased the current cost of inventories by $14,139 for Leaf tobacco, $474 for Other raw materials, $26 for Work-in-process and $6,092 for Finished goods. The $20,731 LIFO adjustment as of December 31, 2020 decreased the current cost of inventories by $14,139 for Leaf tobacco, $474 for Other raw materials, $26 for Work-in-process and $6,092 for Finished goods.
The amount of capitalized MSA cost in “Finished goods” inventory was $21,099$21,416 and $21,120 at March 31,June 30, 2021 and December 31, 2020, respectively. Federal excise tax capitalized in inventory was $25,172$24,695 and $27,683 at March 31,June 30, 2021 and December 31, 2020, respectively.
At March 31,June 30, 2021, Liggett had tobacco purchase commitments of approximately $2,037.$18,772. Liggett has a single-source supply agreement for reduced ignition propensity cigarette paper through 2022.


1618

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

6.    INVESTMENT SECURITIES

Investment securities consisted of the following:
March 31,
2021
December 31, 2020June 30,
2021
December 31, 2020
Debt securities available for saleDebt securities available for sale$102,958 $91,204 Debt securities available for sale$108,489 $91,204 
Property technology (“PropTech”) convertible trading debt securitiesProperty technology (“PropTech”) convertible trading debt securities2,481 
Equity securities at fair value:Equity securities at fair value:Equity securities at fair value:
Marketable equity securitiesMarketable equity securities25,389 21,155 Marketable equity securities25,187 21,155 
Mutual funds invested in debt securitiesMutual funds invested in debt securities23,240 23,226 Mutual funds invested in debt securities23,325 23,226 
Long-term investment securities at fair value (1)
Long-term investment securities at fair value (1)
35,608 34,218 
Long-term investment securities at fair value (1)
33,053 34,218 
Total equity securities at fair value Total equity securities at fair value84,237 78,599  Total equity securities at fair value81,565 78,599 
Total investment securities at fair valueTotal investment securities at fair value187,195 169,803 Total investment securities at fair value192,535 169,803 
Less:Less:Less:
Long-term investment securities at fair value (1)
Long-term investment securities at fair value (1)
35,608 34,218 
Long-term investment securities at fair value (1)
33,053 34,218 
Property technology (“PropTech”) convertible debt securities2,500 
PropTech convertible trading debt securitiesPropTech convertible trading debt securities2,481 
Current investment securities at fair valueCurrent investment securities at fair value149,087 135,585 Current investment securities at fair value157,001 135,585 
Long-term investment securities at fair value (1)
Long-term investment securities at fair value (1)
35,608 34,218 
Long-term investment securities at fair value (1)
33,053 34,218 
Equity-method investmentsEquity-method investments18,887 18,310 Equity-method investments19,828 18,310 
PropTech convertible debt securities2,500 
PropTech convertible trading debt securitiesPropTech convertible trading debt securities2,481 
Total long-term investmentsTotal long-term investments$56,995 $52,528 Total long-term investments$55,362 $52,528 
(1) These assets are measured at net asset value (“NAV”) as a practical expedient under ASC 820.

Net gains (losses) recognized on investment securities were as follows:
Three Months Ended
March 31,
20212020
Net gains (losses) recognized on equity securities$2,408 $(11,737)
Net gains (losses) recognized on debt securities available for sale55 (117)
Impairment expense(14)(386)
Net gains (losses) recognized on investment securities$2,449 $(12,240)
(a) Debt Securities Available for Sale:
The components of debt securities available for sale at March 31, 2021 were as follows:
CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Marketable debt securities$100,098 $360 $$100,458 
PropTech convertible debt securities2,500 2,500 
Total debt securities available for sale$102,598 $360 $$102,958 


1719

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

New Valley, through its subsidiary New Valley Ventures LLC, is actively seeking to capitalizeNet gains (losses) recognized on its real estate knowledge and experience by investing in PropTech ventures that will both supplement and enhance the technology-based experienceinvestment securities were as follows:
Three Months EndedSix Months Ended
June 30,June 30,
2021202020212020
Net gains (losses) recognized on equity securities$8,522 $4,711 $10,930 $(7,026)
Net gains (losses) recognized on debt securities available for sale10 70 65 (47)
Impairment expense(44)(58)(386)
Net losses recognized on PropTech convertible trading debt securities(19)(19)
Net gains (losses) recognized on investment securities$8,469 $4,781 $10,918 $(7,459)
(a) Debt Securities Available for Sale:
The components of Douglas Elliman’s agents and the general real estate industrydebt securities available for sale at June 30, 2021 were as well as improve the operating efficiency of New Valley. As of March 31, 2021, New Valley Ventures has invested $2,500 into convertible notes of 4 PropTech ventures. The maturities of the notes are between April 2022 and March 2023.follows:
CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Marketable debt securities$108,217 $272 $$108,489 


The table below summarizes the maturity dates of debt securities available for sale at March 31,June 30, 2021.
Investment Type:Investment Type:Fair ValueUnder 1 Year1 Year up to 5 YearsMore than 5 YearsInvestment Type:Fair ValueUnder 1 Year1 Year up to 5 YearsMore than 5 Years
U.S. Government securitiesU.S. Government securities$17,976 $13,106 $4,870 $U.S. Government securities$12,512 $10,195 $2,317 $
Corporate securitiesCorporate securities48,601 35,373 13,228 Corporate securities49,843 31,457 18,386 
U.S. mortgage-backed securitiesU.S. mortgage-backed securities9,626 2,270 7,356 U.S. mortgage-backed securities15,467 200 15,267 
Commercial paperCommercial paper23,031 23,031 Commercial paper29,443 29,443 
Foreign fixed-income securitiesForeign fixed-income securities1,224 1,224 Foreign fixed-income securities1,224 1,224 
PropTech convertible debt securities2,500 2,500 
Total debt securities available for sale by maturity datesTotal debt securities available for sale by maturity dates$102,958 $73,780 $29,178 $Total debt securities available for sale by maturity dates$108,489 $71,295 $37,194 $

The components of debt securities available for sale at December 31, 2020 were as follows:
CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Marketable debt securities$90,621 $583 $$91,204 

There were no available-for-sale debt securities with continuous unrealized losses for less than 12 months and 12 months or greater at March 31,June 30, 2021 and December 31, 2020, respectively.

20

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Gross realized gains and losses on debt securities available for sale were as follows:
Three Months EndedThree Months EndedSix Months Ended
March 31,June 30,June 30,
202120202021202020212020
Gross realized gains on salesGross realized gains on sales$56 $98 Gross realized gains on sales$11 $72 $67 $170 
Gross realized losses on salesGross realized losses on sales(1)(215)Gross realized losses on sales(1)(2)(2)(217)
Net gains (losses) recognized on debt securities available for saleNet gains (losses) recognized on debt securities available for sale$55 $(117)Net gains (losses) recognized on debt securities available for sale$10 $70 $65 $(47)
Impairment expenseImpairment expense$(14)$(386)Impairment expense$(44)$$(58)$(386)

Although management generally does not have the intent to sell any specific securities at the end of the period, in the ordinary course of managing the Company’s investment securities portfolio, management may sell securities prior to their maturities for a variety of reasons, including diversification, credit quality, yield and liquidity requirements.

18

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)(b) PropTech Convertible Trading Debt Securities:

(DollarsNew Valley, through its subsidiary New Valley Ventures LLC, is actively seeking to capitalize on its real estate knowledge and experience by investing in Thousands, Except Per Share Amounts)
UnauditedPropTech ventures that will both supplement and enhance the technology-based experience of Douglas Elliman’s agents and the general real estate industry as well as improve the operating efficiency of New Valley. During the first quarter 2021, New Valley Ventures invested $2,500 into convertible notes of 4 PropTech ventures. The securities are classified as trading debt securities and are accounted for at fair value. The maturities of the notes are between April 2022 and March 2023.

(b)(c) Equity Securities at Fair Value:

The following is a summary of unrealized and realized net gains and losses recognized in net income on equity securities at fair value during the three and six months ended March 31,June 30, 2021 and 2020, respectively:
Three Months EndedThree Months EndedSix Months Ended
March 31,June 30,June 30,
202120202021202020212020
Net gains (losses) recognized on equity securitiesNet gains (losses) recognized on equity securities$2,408 $(11,737)Net gains (losses) recognized on equity securities$8,522 $4,711 $10,930 $(7,026)
Less: Net gains (losses) recognized on equity securities soldLess: Net gains (losses) recognized on equity securities sold169 (618)Less: Net gains (losses) recognized on equity securities sold4,054 601 4,223 (17)
Net unrealized gains (losses) recognized on equity securities still held at the reporting dateNet unrealized gains (losses) recognized on equity securities still held at the reporting date$2,239 $(11,119)Net unrealized gains (losses) recognized on equity securities still held at the reporting date$4,468 $4,110 $6,707 $(7,009)

The Company’s mutual funds invested in debt securities are classified as Level 1 under the fair value hierarchy disclosed in Note 12. Their fair values are based on quoted prices for identical assets in active markets or inputs that are based upon quoted prices for similar instruments in active markets. The Company has unfunded commitments of $1,864$1,939 related to long-term investment securities at fair value as of March 31,June 30, 2021.

The Company received cash distributions of $4,389$8,009 and recognized a receivable of $154 of in-transit redemptions as of March 31, 2021$23,510 related to its long-term investment securities at fair value.value for the six months ended June 30, 2021 and 2020, respectively. The Company classified $4,389$8,009 and $23,407 of these distributions as investing cash inflows for the threesix months ended March 31, 2021.June 30, 2021 and 2020, respectively.
21

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(c)(Dollars in Thousands, Except Per Share Amounts)
Unaudited

(d) Equity-Method Investments:

Equity-method investments consisted of the following:
 March 31,
2021
December 31, 2020
Mutual fund and hedge funds$18,887 $18,310 
 June 30,
2021
December 31, 2020
Mutual fund and hedge funds$19,828 $18,310 

At March 31,June 30, 2021, the Company’s ownership percentages in the mutual fund and hedge funds accounted for under the equity method ranged from 6.6%6.63% to 37.09%. The Company’s ownership percentage in these investments meets the threshold for equity-method accounting.
On February 14, 2020, the Company received proceeds of $53,169 in exchange for the Company’s 15,191,205 common shares of Ladenburg Thalmann Financial Services Inc. (“LTS”). The Company also tendered 240,000 shares of LTS 8% Series A Cumulative Redeemable Preferred Stock (Liquidation Preference $25.00 Per Share) for redemption and received an additional $6,009 in March 2020. At the closing of the transaction, the Company’s Executive Vice President and Chief Operating Officer resigned as Chairman, President and Chief Executive Officer of LTS, and the Company’s management agreement with LTS was terminated.
Equity in earnings from investments were:
Three Months EndedThree Months EndedSix Months Ended
March 31,June 30,June 30,
202120202021202020212020
Mutual fund and hedge fundsMutual fund and hedge funds$577 $(2,900)Mutual fund and hedge funds$941 $2,207 $1,518 $(693)
LTSLTS53,052 LTS53,052 
Equity in earnings from investmentsEquity in earnings from investments$577 $50,152 Equity in earnings from investments$941 $2,207 $1,518 $52,359 

The Company received cash distributions of $53,382$53,484 (including the $53,169 received by the Company in exchange for the Company’s 15,191,205 common shares of LTS) from the Company’s equity-method investments for the threesix months ended March 31,June 30, 2020. The Company classified these cash distributions as operating activities on the condensed consolidated statements of cash flows for the threesix months ended March 31,June 30, 2020.
19

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


(d)(e) Equity Securities Without Readily Determinable Fair Values That Do Not Qualify for the NAV Practical Expedient

Equity securities without readily determinable fair values that do not qualify for the NAV practical expedient consisted of investments in various limited liability companies at March 31,June 30, 2021 and December 31, 2020, respectively. The total carrying value of these investments was $6,225 as of June 30, 2021 and $5,200 as of both March 31, 2021 and December 31, 2020, and was included in “Other assets” on the condensed consolidated balance sheets. NaN impairment or other adjustments related to observable price changes in orderly transactions for identical or similar investments were identified for the three and six months ended March 31,June 30, 2021 and 2020, respectively.
(e) Combined Financial Statements for Unconsolidated Subsidiaries Accounted for on Equity Method
Pursuant to Rule 4-08(g), the following summarized financial data for unconsolidated subsidiaries includes information for Boyar.
Three Months Ended
March 31,
20212020
Investment income$115 $140 
Expenses121 112 
    Net investment (loss) gain(6)28 
Total net realized gain (loss) and net change in unrealized appreciation (depreciation) from investments2,845 (6,833)
Net increase (decrease) in partners’ capital resulting from operations$2,839 $(6,805)



22

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

7. NEW VALLEY LLC

Investments in real estate ventures:

The components of “Investments in real estate ventures” were as follows:
Range of Ownership (1)
March 31, 2021December 31, 2020
Range of Ownership (1)
June 30, 2021December 31, 2020
Condominium and Mixed Use Development:Condominium and Mixed Use Development:Condominium and Mixed Use Development:
New York City Standard Metropolitan Statistical Area (“SMSA”) New York City Standard Metropolitan Statistical Area (“SMSA”)4.2% - 46.7%$29,212 $30,465  New York City Standard Metropolitan Statistical Area (“SMSA”)4.2% - 46.7%$25,233 $30,465 
All other U.S. areas All other U.S. areas19.6% - 77.8%39,218 37,773  All other U.S. areas19.6% - 77.8%36,253 37,773 
68,430 68,238 61,486 68,238 
Hotels:Hotels:Hotels:
New York City SMSA New York City SMSA0.4% - 15.7%2,167 2,629  New York City SMSA0.4% - 17.8%2,114 2,629 
International International49.0%1,346 1,852  International49.0%1,324 1,852 
3,513 4,481 3,438 4,481 
Commercial:Commercial:Commercial:
New York City SMSA New York City SMSA49.0%2,713 2,591  New York City SMSA49.0%2,591 
All other U.S. areas All other U.S. areas1.6%7,041 7,084  All other U.S. areas1.6%7,139 7,084 
9,754 9,675 7,139 9,675 
Other:Other:15.0% - 49.0%2,287 3,006 Other:15.0% - 50.0%4,129 3,006 
Investments in real estate venturesInvestments in real estate ventures$83,984 $85,400 Investments in real estate ventures$76,192 $85,400 
_____________________________
(1) The Range of Ownership reflects New Valley’s estimated current ownership percentage. New Valley’s actual ownership percentage as well as the percentage of earnings and cash distributions may ultimately differ as a result of a number of factors including potential dilution, financing or admission of additional partners.
20

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Contributions:

The components of New Valley’s contributions to its investments in real estate ventures were as follows:
Three Months EndedSix Months Ended
March 31,June 30,
2021202020212020
Condominium and Mixed Use Development:Condominium and Mixed Use Development:Condominium and Mixed Use Development:
New York City SMSA New York City SMSA$180 $495  New York City SMSA$396 $1,169 
All other U.S. areas All other U.S. areas6,661  All other U.S. areas6,661 2,161 
6,841 495 7,057 3,330 
Apartment Buildings:Apartment Buildings:
All other U.S. areas All other U.S. areas76 
76 
Hotels:Hotels:Hotels:
New York City SMSA New York City SMSA1,246  New York City SMSA1,246 
1,246 1,246 
Other:Other:178 Other:1,599 452 
Total contributionsTotal contributions$8,087 $673 Total contributions$9,902 $3,858 

For ventures where New Valley previously held an investment, New Valley contributed its proportionate share of additional capital along with contributions by the other investment partners during the threesix months ended March 31,June 30, 2021 and March 31,June 30, 2020. New Valley’s direct investment percentage for these ventures did not significantly change. 
23

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Distributions:

The components of distributions received by New Valley from its investments in real estate ventures were as follows:
Three Months EndedSix Months Ended
March 31,June 30,
2021202020212020
Condominium and Mixed Use Development:Condominium and Mixed Use Development:Condominium and Mixed Use Development:
New York City SMSA New York City SMSA$$1,036  New York City SMSA$3,338 $1,735 
All other U.S. areas All other U.S. areas2,833 996  All other U.S. areas13,594 5,214 
2,833 2,032 16,932 6,949 
Apartment Buildings:Apartment Buildings:Apartment Buildings:
All other U.S. areas All other U.S. areas4,608  All other U.S. areas17,567 
4,608 17,567 
Commercial:Commercial:Commercial:
New York City SMSA New York City SMSA New York City SMSA
All other U.S. areas All other U.S. areas136 52  All other U.S. areas219 52 
136 55 219 55 
OtherOther23 Other75 23 
Total distributionsTotal distributions$7,577 $2,110 Total distributions$34,793 $7,027 

Of the distributions received by New Valley from its investment in real estate ventures, $1,074$23,630 and $1,855 were from distributions of earnings for the threesix months ended March 31,June 30, 2021 and 2020, respectively, and $7,577$11,163 and $1,036$5,172 were a return of capital for the threesix months ended March 31,June 30, 2021 and 2020, respectively. Distributions from earnings are included in cash from operations in the condensed consolidated statements of cash flows, while distributions that are returns of capital are included in cash flows from investing activities in the condensed consolidated statements of cash flows.


2124

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Equity in Earnings (losses) from Real Estate Ventures:

New Valley recognized equity in earnings (losses) from real estate ventures as follows:
Three Months EndedThree Months EndedSix Months Ended
March 31,June 30,June 30,
202120202021202020212020
Condominium and Mixed Use Development:Condominium and Mixed Use Development:Condominium and Mixed Use Development:
New York City SMSA New York City SMSA$(1,505)$(3,347) New York City SMSA$(967)$(5,104)$(2,472)$(8,451)
All other U.S. areas All other U.S. areas(41)(2,799) All other U.S. areas7,315 (6,489)7,274 (9,288)
(1,546)(6,146)6,348 (11,593)4,802 (17,739)
Apartment Buildings:Apartment Buildings:Apartment Buildings:
All other U.S. areas All other U.S. areas4,608  All other U.S. areas12,959 (76)17,567 (76)
4,608 12,959 (76)17,567 (76)
Hotels:Hotels:Hotels:
New York City SMSA(462)(107)
New York City SMSA (1)
New York City SMSA (1)
(386)(542)(848)(649)
International International(506)(461) International(23)(90)(529)(551)
(968)(568)(409)(632)(1,377)(1,200)
Commercial:Commercial:Commercial:
New York City SMSA New York City SMSA122 (74) New York City SMSA(2,713)301 (2,591)227 
All other U.S. areas All other U.S. areas93 249  All other U.S. areas180 (264)273 (15)
215 175 (2,533)37 (2,318)212 
Other:Other:(720)34 Other:320 (400)38 
Equity in earnings (losses) from real estate venturesEquity in earnings (losses) from real estate ventures$1,589 $(6,505)Equity in earnings (losses) from real estate ventures$16,685 $(12,260)$18,274 $(18,765)
_____________________________
(1) The Company recognized a liability, classified in Other current liabilities, of $333 as a result of recording equity in losses in excess of the joint venture’s carrying value.

As part of the Company’s ongoing assessment of the carrying values of its investments in real estate ventures, the Company determined that the fair value of one of its New York City SMSA Commercial ventures was less than its carrying value as of June 30, 2021. The Company determined that the impairment was other than temporary. The Company recorded an impairment charge as a component of equity in losses from real estate ventures of $2,713 for the three and six months ended June 30, 2021.

As part of the Company’s ongoing assessment of the carrying values of its investments in real estate ventures, the Company determined that the fair value of a New York City SMSA Condominium and Mixed Use Development venture was less than its carrying value as of June 30, 2020. The Company determined that the impairment was other than temporary. The Company recorded an impairment charge as a component of equity in losses from real estate ventures of $3,784 for the three and six months ended June 30, 2020.

VIE Consideration:

The Company has determined that New Valley is the primary beneficiary of 1 real estate venture because it controls the activities that most significantly impact the economic performance of the real estate venture. Consequently, New Valley consolidates this variable interest entity (“VIE”).

The carrying amount of the consolidated assets of the VIE was $0 at both March 31,June 30, 2021 and December 31, 2020. Those assets are owned by the VIE, not the Company. The consolidated VIE had no recourse liabilities as of March 31,June 30, 2021 and December 31, 2020. A VIE’s assets can only be used to settle the obligations of that VIE. The VIE is not a guarantor of the Company’s senior notes and other debts payable.

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(Dollars in Thousands, Except Per Share Amounts)
Unaudited

For the remaining investments in real estate ventures, New Valley determined that the entities were VIEs but New Valley was not the primary beneficiary. Therefore, New Valley’s investment in such real estate ventures has been accounted for under the equity method of accounting.

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(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Maximum Exposure to Loss:

New Valley’s maximum exposure to loss from its investments in real estate ventures consisted of the net carrying value of the venture adjusted for any future capital commitments and/or guarantee arrangements. The maximum exposure to loss was as follows:
March 31,June 30, 2021
Condominium and Mixed Use Development:
            New York City SMSA$29,21225,233 
            All other U.S. areas39,21836,253 
68,43061,486 
Hotels:
            New York City SMSA2,1672,114 
            International1,3461,324 
3,5133,438 
Commercial:
            New York City SMSA2,713 
            All other U.S. areas7,0417,139 
9,7547,139 
Other2,2874,129 
Total maximum exposure to loss$83,98476,192 

New Valley capitalized $430$592 and $1,253$1,022 of interest costs into the carrying value of its ventures whose projects were currently under development for the three and six months ended March 31,June 30, 2021, respectively. New Valley capitalized $1,004 and $2,257 of interest costs into the carrying value of its ventures whose projects were currently under development for the three and six months ended June 30, 2020, respectively.
Douglas Elliman has been engaged by the developers as the sole broker or the co-broker for several of the real estate development projects that New Valley owns an interest in through its real estate venture investments. Douglas Elliman had gross commissions of approximately $2,357$6,585 and $5,530$7,698 from these projects for the threesix months ended March 31,June 30, 2021 and 2020, respectively.

Combined Financial Statements for Unconsolidated Subsidiaries Accounted for under the Equity Method:

Pursuant to Rule 4-08(g), the following summarized financial data for unconsolidated subsidiaries includes information for the following: Other Condominium and Mixed Use Development (West Hollywood Edition, 111 Murray Street, and Collins 11th Floor) Hotels (215 Chrystie Street) and Other (Witkoff GP Partners)Edition).

Other Condominium and Mixed Use Development:
Three Months Ended
March 31,
20212020
Income Statements
Revenue$10,287 $35,134 
Other expenses26,500 42,520 
Loss from continuing operations$(16,213)$(7,386)





Three Months Ended
June 30,
Six Months Ended
June 30,
2021202020212020
Income Statements
Revenue$4,991 $1,830 $15,278 $33,409 
Cost of goods sold22,100 
Other expenses16,997 14,013 42,340 31,926 
Loss from continuing operations$(12,006)$(12,183)$(27,062)$(20,617)
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(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Hotels:
Three Months Ended
March 31,
20212020
Income Statements
Revenue$$13,447 
Other expenses16,553 19,261 
Loss from continuing operations$(16,553)$(5,814)

Other:
Three Months Ended
March 31,
20212020
Income Statements
Revenue$21 $337 
Other expenses300,829 2,800 
Loss from continuing operations$(300,808)$(2,463)

Investments in Real Estate, net:

The components of “Investments in real estate, net” were as follows:
March 31,
2021
December 31,
2020
June 30,
2021
December 31,
2020
Escena, netEscena, net$9,670 $9,735 Escena, net$9,608 $9,735 
Townhome A (11 Beach Street)Townhome A (11 Beach Street)6,132 5,896 Townhome A (11 Beach Street)5,896 
Investments in real estate, net Investments in real estate, net$15,802 $15,631  Investments in real estate, net$9,608 $15,631 

Escena.  The assets of “Escena, net” were as follows:
March 31,
2021
December 31,
2020
June 30,
2021
December 31,
2020
Land and land improvementsLand and land improvements$8,911 $8,911 Land and land improvements$8,911 $8,911 
Building and building improvementsBuilding and building improvements1,926 1,926 Building and building improvements1,926 1,926 
OtherOther1,663 1,672 Other1,655 1,672 
12,500 12,509  12,492 12,509 
Less accumulated depreciationLess accumulated depreciation(2,830)(2,774)Less accumulated depreciation(2,884)(2,774)
$9,670 $9,735  $9,608 $9,735 

New Valley recorded operating incomelosses of $370$90 and $357$629 for the three months ended March 31,June 30, 2021 and 2020, respectively, from Escena. New Valley recorded operating income of $280 and operating losses of $272 for the six months ended June 30, 2021 and 2020, respectively, from Escena. Escena is a master planned community, golf course, and club house in Palm Springs, California.

Townhome A (11 Beach Street). In November 2020, New Valley received, as part of a liquidating distribution from a real estate joint venture, Unit TH-A, a townhouse located in Manhattan, NY. In April 2021, New Valley sold the unit for $6,750 and recognized the revenue in accordance with the scope of ASC Topic 606 since New Valley has no continuing investment or involvement. The unit is wholly ownedsale was presented as revenue and the balances are included incost of the investment as cost of sales on the condensed consolidated financial statements of the Company. As of March 31, 2021, the carrying value of Unit TH-A was $6,132 and consisted of the value assigned to the unit as part of the distribution, acquisition costs and property related expenses.operations.


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(Dollars in Thousands, Except Per Share Amounts)
Unaudited

8.    NOTES PAYABLE, LONG-TERM DEBT AND OTHER OBLIGATIONS

Notes payable, long-term debt and other obligations consisted of:
March 31,
2021
December 31,
2020
June 30,
2021
December 31,
2020
Vector:Vector:Vector:
5.75% Senior Secured Notes due 20295.75% Senior Secured Notes due 2029$875,000 $5.75% Senior Secured Notes due 2029$875,000 $
6.125% Senior Secured Notes due 20256.125% Senior Secured Notes due 2025850,000 6.125% Senior Secured Notes due 2025850,000 
10.5% Senior Notes due 2026, net of unamortized discount of $2,946 and $3,040552,054 551,960 
10.5% Senior Notes due 2026, net of unamortized discount of $2,849 and $3,04010.5% Senior Notes due 2026, net of unamortized discount of $2,849 and $3,040552,151 551,960 
Liggett:Liggett:Liggett:
Equipment loansEquipment loans83 89 Equipment loans77 89 
OtherOther22,350 25,484 Other18,797 25,484 
Notes payable, long-term debt and other obligationsNotes payable, long-term debt and other obligations1,449,487 1,427,533 Notes payable, long-term debt and other obligations1,446,025 1,427,533 
Less:Less:Less:
Debt issuance costsDebt issuance costs(31,532)(21,247)Debt issuance costs(30,640)(21,247)
Total notes payable, long-term debt and other obligationsTotal notes payable, long-term debt and other obligations1,417,955 1,406,286 Total notes payable, long-term debt and other obligations1,415,385 1,406,286 
Less:Less:Less:
Current maturitiesCurrent maturities(12,556)(12,557)Current maturities(12,558)(12,557)
Amount due after one yearAmount due after one year$1,405,399 $1,393,729 Amount due after one year$1,402,827 $1,393,729 

5.75% Senior Secured Notes due 2029 — Vector:
On January 28, 2021, the Company completed the sale of $875,000 in aggregate principal amount of its 5.75% Senior Secured Notes due 2029 (“5.75% Senior Secured Notes”) to qualified institutional buyers and non-U.S. persons in a private offering pursuant to the exemptions from the registration requirements of the Securities Act contained in Rule 144A and Regulation S under the Securities Act. The aggregate net cash proceeds from the sale of the 5.75% Senior Secured Notes were approximately $855,500 after deducting the initial purchaser’s discount and estimated expenses and fees payable by the Company in connection with the offering. The Company used the net cash proceeds from the 5.75% Senior Secured Notes offering, together with cash on hand, to redeem all of the Company’s outstanding 6.125% Senior Secured Notes due 2025, including accrued interest and premium thereon, and to pay fees and expenses in connection with the offering of the 5.75% Senior Secured Notes and the redemption of the 6.125% Secured Notes due 2025.
The 5.75% Senior Secured Notes pay interest on a semi-annual basis at a rate of 5.75% per year and mature on the earlier of February 1, 2029 and the date that is 91 days before November 1, 2026, the final stated maturity date of the 10.5% Senior Notes due 2026 (“10.5% Senior Notes”) if such 10.5% Senior Notes have not been repurchased and cancelled or refinanced by such date.
The 5.75% Senior Secured Notes are fully and unconditionally guaranteed, subject to certain customary automatic release provisions, on a joint and several basis by all of the wholly-owned domestic subsidiaries of the Company that are engaged in the conduct of the Company’s cigarette businesses, which subsidiaries, as of the issuance date of the 5.75% Senior Secured Notes were also guarantors under the Company’s outstanding 10.5% Senior Notes. The 5.75% Senior Secured Notes are not guaranteed by New Valley LLC, or any of the Company’s subsidiaries engaged in the Company’s real estate business conducted through its subsidiary, New Valley LLC. The guarantees provided by certain of the guarantors are secured by first priority or second priority security interests in certain collateral of such guarantors pursuant to security and pledge agreements, subject to certain permitted liens and exceptions as further described in the indenture and the security documents relating thereto. The Company does not provide any security for the 5.75% Senior Secured Notes.
As of March 31,June 30, 2021, the Company was in compliance with all debt covenants.
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(Dollars in Thousands, Except Per Share Amounts)
Unaudited

6.125% Senior Secured Notes due 2025 — Vector:
On February 1, 2021, the 6.125% Senior Secured Notes due 2025 were redeemed in full and the Company recorded a loss on the extinguishment of debt of $21,362 for the threesix months ended March 31,June 30, 2021, including $13,014 of premium and $8,348 of other costs and non-cash interest expense related to the recognition of previously unamortized deferred finance costs.
10.5% Senior Notes due 2026 — Vector:
As of March 31,June 30, 2021, the Company was in compliance with all debt covenants related to its 10.5% Senior Notes due 2026.
Revolving Credit Agreement — Liggett:
On March 22, 2021, Liggett, 100 Maple LLC (“Maple”) and Vector Tobacco entered into Amendment No. 4 and Joinder to Third Amended and Restated Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, as agent and lender.
The existing credit agreement was amended to, among other things, (i) add Vector Tobacco as a borrower under the Credit Agreement, (ii) extend the maturity of the Credit Agreement to March 22, 2026, and (iii) increase the amount of the maximum credit line thereunder from $60,000 to $90,000.
As of March 31,June 30, 2021, there was 0 outstanding balance due under the Credit Agreement. Availability, as determined under the Credit Agreement, was approximately $90,000$84,600 based on eligible collateral at March 31,June 30, 2021. As of March 31,June 30, 2021, Liggett, Maple, and Vector Tobacco were in compliance with all debt covenants under the Credit Agreement.
Other:
Other notes payable consist primarily of $21,875$18,750 of notes payable issued by New Valley as part of the acquisition of the remaining 29.41% interest in Douglas Elliman in December 2018. Interest on the outstanding principal balance of the notes accrues at the then-current mid-term applicable federal rate. Principal and interest is payable in installments through October 1, 2022. $8,125$11,250 of principal has been repaid through March 31,June 30, 2021 and the remaining principal is due to be repaid as follows: (1) $9,375$6,250 in 2021; and (2) $12,500 in 2022.
Non-Cash Interest Expense — Vector:
Three Months EndedThree Months EndedSix Months Ended
March 31,June 30,June 30,
202120202021202020212020
Amortization of debt discount, netAmortization of debt discount, net$94 $4,600 Amortization of debt discount, net$97 $847 $191 $5,447 
Amortization of debt issuance costsAmortization of debt issuance costs893 1,158 Amortization of debt issuance costs942 889 1,835 2,047 
Loss on extinguishment of 6.125% Senior Secured NotesLoss on extinguishment of 6.125% Senior Secured Notes8,349 Loss on extinguishment of 6.125% Senior Secured Notes8,349 
$9,336 $5,758 $1,039 $1,736 $10,375 $7,494 

Fair Value of Notes Payable and Long-Term Debt:
March 31, 2021December 31, 2020June 30, 2021December 31, 2020
CarryingFairCarryingFairCarryingFairCarryingFair
ValueValueValueValueValueValueValueValue
Senior NotesSenior Notes$1,427,054 $1,493,436 $1,401,960 $1,464,208 Senior Notes$1,427,151 $1,482,980 $1,401,960 $1,464,208 
Liggett and otherLiggett and other22,433 22,440 25,573 25,581 Liggett and other18,874 18,880 25,573 25,581 
Notes payable and long-term debtNotes payable and long-term debt$1,449,487 $1,515,876 $1,427,533 $1,489,789 Notes payable and long-term debt$1,446,025 $1,501,860 $1,427,533 $1,489,789 

Notes payable and long-term debt are carried on the condensed consolidated balance sheets at amortized cost. The fair value determinations disclosed above are classified as Level 2 under the fair value hierarchy disclosed in Note 12 if such liabilities were recorded on the condensed consolidated balance sheets at fair value. The estimated fair value of the Company’s notes payable and long-term debt has been determined by the Company using available market information and appropriate
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(Dollars in Thousands, Except Per Share Amounts)
Unaudited

valuation methodologies including the evaluation of the Company’s credit risk. The Company used a derived price based upon quoted market prices and trade activity as of March 31,June 30, 2021 to determine the fair value of its publicly-traded notes and debentures. The carrying value of the revolving credit facility is equal to fair value. The fair value of the equipment loans and other obligations was determined by calculating the present value of the required future cash flows. However, considerable judgment is required to develop the estimates of fair value and, accordingly, the estimate presented herein is not necessarily indicative of the amount that could be realized in a current market exchange.


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(Dollars in Thousands, Except Per Share Amounts)
Unaudited

9.    CONTINGENCIES

Tobacco-Related Litigation:
Overview. Since 1954, Liggett and other United States cigarette manufacturers have been named as defendants in numerous direct, third-party and purported class actions predicated on the theory that cigarette manufacturers should be liable for damages alleged to have been caused by cigarette smoking or by exposure to secondary smoke from cigarettes. The cases have generally fallen into the following categories: (i) smoking and health cases alleging personal injury brought on behalf of individual plaintiffs (“Individual Actions”); (ii) lawsuits by individuals requesting the benefit of the Engle ruling (“Engle progeny cases”); (iii) smoking and health cases primarily alleging personal injury or seeking court-supervised programs for ongoing medical monitoring, as well as cases alleging that use of the terms “lights” and/or “ultra lights” constitutes a deceptive and unfair trade practice, common law fraud or violation of federal law, purporting to be brought on behalf of a class of individual plaintiffs (“Class Actions”); and (iv) health care cost recovery actions brought by various foreign and domestic governmental plaintiffs and non-governmental plaintiffs seeking reimbursement for health care expenditures allegedly caused by cigarette smoking and/or disgorgement of profits (“Health Care Cost Recovery Actions”). The future financial impact of the risks and expenses of litigation are not quantifiable. For the threesix months ended March 31,June 30, 2021 and 2020, Liggett incurred tobacco product liability legal expenses and costs totaling $1,525$3,067 and $1,550$3,191 respectively. Legal defense costs are expensed as incurred.
Litigation is subject to uncertainty and it is possible that there could be adverse developments in pending cases. With the commencement of new cases, the defense costs and the risks relating to the unpredictability of litigation increase. Management reviews on a quarterly basis with counsel all pending litigation and evaluates the probability of a loss being incurred and whether an estimate can be made of the possible loss or range of loss that could result from an unfavorable outcome. An unfavorable outcome or settlement of pending tobacco-related litigation could encourage the commencement of additional litigation. Damages awarded in tobacco-related litigation can be significant.
Bonds. Although Liggett has been able to obtain required bonds or relief from bonding requirements in order to prevent plaintiffs from seeking to collect judgments while adverse verdicts are on appeal, there remains a risk that such relief may not be obtainable in all cases. This risk has been reduced given that a majority of states now limit the dollar amount of bonds or require no bond at all. As of March 31,June 30, 2021, Liggett had 0 outstanding bonds.
In June 2009, Florida amended its existing bond cap statute by adding a $200,000 bond cap that applies to all Engle progeny cases in the aggregate and establishes individual bond caps for individual Engle progeny cases in amounts that vary depending on the number of judgments in effect at a given time. The maximum amount of any such bond for an appeal in the Florida state courts will be no greater than $5,000. In several cases, plaintiffs challenged the constitutionality of the bond cap statute, but to date the courts have upheld the constitutionality of the statute. It is possible that the Company’s consolidated financial position, results of operations, and cash flows could be materially adversely affected by an unfavorable outcome of such challenges.
Accounting Policy. The Company and its subsidiaries record provisions in their consolidated financial statements for pending litigation when they determine that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. At the present time, while it is reasonably possible that an unfavorable outcome in a case may occur, except as discussed in this Note 9: (i) management has concluded that it is not probable that a loss has been incurred in any of the pending tobacco-related cases; or (ii) management is unable to reasonably estimate the possible loss or range of loss that could result from an unfavorable outcome of any of the pending tobacco-related cases and, therefore, management has not provided any amounts in the condensed consolidated financial statements for unfavorable outcomes, if any.
Although Liggett has generally been successful in managing the litigation filed against it, litigation is subject to uncertainty and significant challenges remain, including with respect to the remaining Engle progeny cases. There can be no assurances that Liggett’s past litigation experience will be representative of future results. Judgments have been entered against Liggett in the past, in Individual Actions and Engle progeny cases, and several of those judgments were affirmed on appeal and satisfied by Liggett. It is possible that the consolidated financial position, results of operations and cash flows of the Company could be materially adversely affected by an unfavorable outcome or settlement of any of the remaining smoking-related litigation. Liggett believes, and has been so advised by counsel, that it has valid defenses to the litigation pending against it, as well as valid bases for appeal of adverse verdicts. All such cases are and will continue to be vigorously defended. Liggett has entered into settlement discussions in individual cases or groups of cases where Liggett has determined it was in its best interest to do so, and it may continue to do so in the future. As cases proceed through the appellate process, the Company will consider accruals on a case-by-case basis if an unfavorable outcome becomes probable and the amount can be reasonably estimated.
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(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Individual Actions
As of March 31,June 30, 2021, there were 75 74Individual Actions pending against Liggett, where one or more individual plaintiffs allege injury resulting from cigarette smoking, addiction to cigarette smoking or exposure to secondary smoke and seek compensatory and, in some cases, punitive damages. These cases do not include the remaining Engle progeny cases. The following table lists the number of Individual Actions by state:
StateNumber
of Cases
Florida45
Illinois14
Nevada7
New Mexico5
Louisiana2
Hawaii1
Massachusetts1
The plaintiffs’ allegations of liability in cases in which individuals seek recovery for injuries allegedly caused by cigarette smoking are based on various theories of recovery, including negligence, gross negligence, breach of special duty, strict liability, fraud, concealment, misrepresentation, design defect, failure to warn, breach of express and implied warranties, conspiracy, aiding and abetting, concert of action, unjust enrichment, common law public nuisance, property damage, invasion of privacy, mental anguish, emotional distress, disability, shock, indemnity, violations of deceptive trade practice laws, the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”), state RICO statutes and antitrust statutes. In many of these cases, in addition to compensatory damages, plaintiffs also seek other forms of relief including treble/multiple damages, medical monitoring, disgorgement of profits and punitive damages. Although alleged damages often are not determinable from a complaint, and the law governing the pleading and calculation of damages varies from state to state and jurisdiction to jurisdiction, compensatory and punitive damages have been specifically pleaded in a number of cases, sometimes in amounts ranging into the hundreds of millions and even billions of dollars.
Defenses raised in Individual Actions include lack of proximate cause, assumption of the risk, comparative fault and/or contributory negligence, lack of design defect, statute of limitations, statute of repose, equitable defenses such as “unclean hands” and lack of benefit, failure to state a claim and federal preemption.
Engle Progeny Cases
In May 1994, the Engle case was filed as a class action against Liggett and others in Miami-Dade County, Florida. The class consisted of all Florida residents who, by November 21, 1996, “have suffered, presently suffer or have died from diseases and medical conditions caused by their addiction to cigarette smoking.” A trial was held and the jury returned a verdict adverse to the defendants (approximately $145,000,000 in punitive damages, including $790,000 against Liggett). Following an appeal to the Third District Court of Appeal, the Florida Supreme Court in July 2006 decertified the class on a prospective basis and affirmed the appellate court’s reversal of the punitive damages award. Former class members had until January 2008 to file individual lawsuits. As a result, Liggett and the Company, and other cigarette manufacturers, were sued in thousands of Engle progeny cases in both federal and state courts in Florida. Although the Company was not named as a defendant in the Engle case, it was named as a defendant in substantially all of the Engle progeny cases where Liggett was named as a defendant.
Cautionary Statement About Engle Progeny Cases. Since 2009, judgments have been entered against Liggett and other cigarette manufacturers in Engle progeny cases. A number of the judgments were affirmed on appeal and satisfied by the defendants. Many were overturned on appeal. As of March 31,June 30, 2021, 25 Engle progeny cases where Liggett was a defendant at trial resulted in verdicts.
There have been 16 verdicts returned in favor of the plaintiffs and 9 in favor of Liggett. In 5 of the cases, punitive damages were awarded against Liggett. Several of the adverse verdicts were overturned on appeal and new trials were ordered. In certain cases, the judgments were entered jointly and severally with other defendants and Liggett may face the risk that one or more co-defendants decline or otherwise fail to participate in the bonding required for an appeal or to pay their proportionate or jury-allocated share of a judgment. As a result, under certain circumstances, Liggett may have to pay more than its proportionate share of any bonding or judgment related amounts. Except as discussed in this Note 9, management is unable to estimate the possible loss or range of loss from the remaining Engle progeny cases as there are currently multiple defendants in
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(Dollars in Thousands, Except Per Share Amounts)
Unaudited

estimate the possible loss or range of loss from the remaining Engle progeny cases as there are currently multiple defendants in each case and, in most cases, discovery has not occurred or is limited. As a result, the Company lacks information about whether plaintiffs are in fact Engle class members, the relevant smoking history, the nature of the alleged injury and the availability of various defenses, among other things. Further, plaintiffs typically do not specify the amount of their demand for damages. As cases proceed through the appellate process, the Company will consider accruals on a case-by-case basis if an unfavorable outcome becomes probable and the amount can be reasonably estimated.
Engle Progeny Settlements.
In October 2013, the Company and Liggett entered into a settlement with approximately 4,900 Engle progeny plaintiffs and their counsel. Pursuant to the terms of the settlement, Liggett agreed to pay a total of approximately $110,000, with $61,600 paid in an initial lump sum and the balance to be paid in installments over 14 years starting in February 2015. The Company’s future payments will be approximately $3,400 per annum through 2028, with a cost of living increase beginning in 2021. In exchange, the claims of these plaintiffs were dismissed with prejudice against the Company and Liggett.
Liggett subsequently entered into two separate settlement agreements with a total of 152 Engle progeny plaintiffs where Liggett paid a total of $23,150. On an individual basis, Liggett settled an additional 202203 Engle progeny cases for approximately $8,100 in the aggregate.
Notwithstanding the comprehensive nature of the Engle progeny settlements, 3938 plaintiffs’ claims remain pending in state court. Therefore, the Company and Liggett may still be subject to periodic adverse judgments which could have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows.
Judgments Paid in Engle Progeny Cases.
As of March 31,June 30, 2021, Liggett had paid in the aggregate $40,111, including interest and attorneys’ fees, to satisfy the judgments in the following Engle progeny cases: Lukacs, Campbell, Douglas, Clay, Tullo, Ward, Rizzuto, Lambert, Buchanan, and Santoro.
Maryland Cases
Liggett was a defendant in 16 multi-defendant personal injury cases in Maryland alleging claims arising from asbestos and tobacco exposure (“synergy cases”). In July 2016, the Court of Appeals (Maryland’s highest court) ruled that joinder of tobacco and asbestos cases may be possible in certain circumstances, but plaintiffs must demonstrate at the trial court level how such cases may be joined while providing appropriate safeguards to prevent embarrassment, delay, expense or prejudice to defendants and “the extent to which, if at all, the special procedures applicable to asbestos cases should extend to tobacco companies.” The Court of Appeals remanded these issues to be determined at the trial court level. In June 2017, the trial court issued an order dismissing all synergy cases against the tobacco defendants, including Liggett, without prejudice. Plaintiffs may seek appellate review or file new cases against the tobacco companies.
Liggett Only Cases  
There are currently 54 cases where Liggett is the sole defendant: Cowartand Clay areis an Individual ActionsAction and Tumin, Forbing, and Jones, are Engle progeny cases. It is possible that cases where Liggett is the only defendant could increase as a result of the remaining Engle progeny cases and newly filed Individual Actions.
Upcoming Trials
As of March 31,June 30, 2021, there was one Engle progeny case (RearickAlvarez) and sixeight Individual Actions (Baron, Clark,Bennett, Cupp, Feld, Geist, Lane, Mendez and Mendez Tully) scheduled for trial through March 31,June 30, 2022, where Liggett (and/or the Company) is a named defendant. Trial dates are subject to change and additional cases could be set for trial during this time.
Class Actions
As of March 31,June 30, 2021, 2 actions were pending for which either a class had been certified or plaintiffs were seeking class certification where Liggett is a named defendant. Other cigarette manufacturers are also named in these two cases.
Plaintiffs’ allegations of liability in class action cases are based on various theories of recovery, including negligence, gross negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, nuisance, breach of express and implied warranties, breach of special duty, conspiracy, concert of action, violation of deceptive trade practice laws and consumer protection statutes and claims under the federal and state anti-racketeering statutes. Plaintiffs in the class actions seek various forms of relief, including compensatory and punitive damages, treble/multiple damages and other statutory damages and penalties, creation of medical monitoring and smoking cessation funds, disgorgement of profits, and injunctive and equitable relief.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

and penalties, creation of medical monitoring and smoking cessation funds, disgorgement of profits, and injunctive and equitable relief.
Defenses raised in these cases include, among others, lack of proximate cause, individual issues predominate, assumption of the risk, comparative fault and/or contributory negligence, statute of limitations and federal preemption.
In November 1997, in Young v. American Tobacco Co., a purported personal injury class action was commenced on behalf of plaintiff and all similarly situated residents in Louisiana who, though not themselves cigarette smokers, allege they were exposed to secondhand smoke from cigarettes that were manufactured by the defendants, including Liggett, and suffered injury as a result of that exposure. The plaintiffs seek to recover an unspecified amount of compensatory and punitive damages. No class certification hearing has been held. A stay order entered on March 16, 2016 stays the case pending completion of the smoking cessation program ordered by the court in Scott v. The American Tobacco Co.
In February 1998, in Parsons v. AC & S Inc., a purported class action was commenced on behalf of all West Virginia residents who allegedly have claims arising from their exposure to cigarette smoke and asbestos fibers. The operative complaint seeks to recover unspecified compensatory and punitive damages on behalf of the putative class. The case is stayed as a result of the December 2000 bankruptcy of 3 of the defendants.
Health Care Cost Recovery Actions
As of March 31,June 30, 2021, 1 Health Care Cost Recovery Action was pending against Liggett, Crow Creek Sioux Tribe v. American Tobacco Company, a South Dakota case filed in 1997, where the plaintiff seeks to recover damages from Liggett and other cigarette manufacturers based on various theories of recovery as a result of alleged sales of tobacco products to minors. The case is dormant.
The claims asserted in health care cost recovery actions vary, but can include the equitable claim of indemnity, common law claims of negligence, strict liability, breach of express and implied warranty, breach of special duty, fraud, negligent misrepresentation, conspiracy, public nuisance, claims under state and federal statutes governing consumer fraud, antitrust, deceptive trade practices and false advertising, and claims under RICO. Although no specific damage amounts are typically pleaded, it is possible that requested damages might be in the billions of dollars. In these cases, plaintiffs typically assert equitable claims that the tobacco industry was “unjustly enriched” by their payment of health care costs allegedly attributable to smoking and seek reimbursement of those costs. Relief sought by some, but not all, plaintiffs include punitive damages, multiple damages and other statutory damages and penalties, injunctions prohibiting alleged marketing and sales to minors, disclosure of research, disgorgement of profits, funding of anti-smoking programs, additional disclosure of nicotine yields, and payment of attorney and expert witness fees.
Department of Justice Lawsuit
In September 1999, the United States government commenced litigation against Liggett and other cigarette manufacturers in the United States District Court for the District of Columbia. The action sought to recover, among other things, an unspecified amount of health care costs paid and to be paid by the federal government for smoking-related illnesses allegedly caused by the fraudulent and tortious conduct of defendants. In August 2006, the trial court entered a Final Judgment against each of the cigarette manufacturing defendants, except Liggett. The judgment was affirmed on appeal. As a result, the cigarette manufacturing defendants, other than Liggett, are now subject to the trial court’s Final Judgment which ordered, among other things, the issuance of “corrective statements” in various media regarding the adverse health effects of smoking, the addictiveness of smoking and nicotine, the lack of any significant health benefit from smoking “low tar” or “lights” cigarettes, defendants’ manipulation of cigarette design to ensure optimum nicotine delivery and the adverse health effects of exposure to environmental tobacco smoke.
MSA and Other State Settlement Agreements
In March 1996, March 1997 and March 1998, Liggett entered into settlements of smoking-related litigation with 45 states and territories. The settlements released Liggett from all smoking-related claims made by those states and territories, including claims for health care cost reimbursement and claims concerning sales of cigarettes to minors.
In November 1998, Philip Morris, R.J. Reynolds and two other companies (the “Original Participating Manufacturers” or “OPMs”) and Liggett and Vector Tobacco (together with any other tobacco product manufacturer that becomes a signatory, the “Subsequent Participating Manufacturers” or “SPMs”) (the OPMs and SPMs are hereinafter referred to jointly as “PMs”) entered into the Master Settlement Agreement (the “MSA”) with 46 states, the District of Columbia, Puerto Rico, Guam, the United States Virgin Islands, American Samoa and the Northern Mariana Islands (collectively, the “Settling States”) to settle the asserted and unasserted health care cost recovery and certain other claims of the Settling States. The MSA received final judicial approval in each Settling State.
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(Dollars in Thousands, Except Per Share Amounts)
Unaudited

the asserted and unasserted health care cost recovery and certain other claims of the Settling States. The MSA received final judicial approval in each Settling State.
As a result of the MSA, the Settling States released Liggett and Vector Tobacco from:
all claims of the Settling States and their respective political subdivisions and other recipients of state health care funds, relating to: (i) past conduct arising out of the use, sale, distribution, manufacture, development, advertising and marketing of tobacco products; (ii) the health effects of, the exposure to, or research, statements or warnings about, tobacco products; and
all monetary claims of the Settling States and their respective subdivisions and other recipients of state health care funds relating to future conduct arising out of the use of, or exposure to, tobacco products that have been manufactured in the ordinary course of business.
The MSA restricts tobacco product advertising and marketing within the Settling States and otherwise restricts the activities of PMs. Among other things, the MSA prohibits the targeting of youth in the advertising, promotion or marketing of tobacco products; bans the use of cartoon characters in all tobacco advertising and promotion; limits each PM to 1 tobacco brand name sponsorship during any 12-month period; bans all outdoor advertising, with certain limited exceptions; prohibits payments for tobacco product placement in various media; bans gift offers based on the purchase of tobacco products without sufficient proof that the intended recipient is an adult; prohibits PMs from licensing third parties to advertise tobacco brand names in any manner prohibited under the MSA; and prohibits PMs from using as a tobacco product brand name any nationally recognized non-tobacco brand or trade name or the names of sports teams, entertainment groups or individual celebrities.
The MSA also requires PMs to affirm corporate principles to comply with the MSA and to reduce underage use of tobacco products and imposes restrictions on lobbying activities conducted on behalf of PMs. In addition, the MSA provides for the appointment of an independent auditor to calculate and determine the amounts of payments owed pursuant to the MSA.
Under the payment provisions of the MSA, PMs are required to make annual payments of $9,000,000 (subject to applicable adjustments, offsets and reductions including a “Non-Participating Manufacturers Adjustment” or “NPM Adjustment”). These annual payments are allocated based on unit volume of domestic cigarette shipments. The payment obligations under the MSA are the several, and not joint, obligation of each PM and are not the responsibility of any parent or affiliate of a PM.
Liggett has 0 payment obligations under the MSA except to the extent its market share exceeds a market share exemption of approximately 1.65% of total cigarettes sold in the United States. Vector Tobacco has 0 payment obligations under the MSA except to the extent its market share exceeds a market share exemption of approximately 0.28% of total cigarettes sold in the United States. Liggett and Vector Tobacco’s domestic shipments accounted for approximately 4.1% of the total cigarettes sold in the United States in 2020. If Liggett’s or Vector Tobacco’s market share exceeds their respective market share exemption in a given year, then on April 15 of the following year, Liggett and/or Vector Tobacco, as the case may be, must pay on each excess unit an amount equal (on a per-unit basis) to that due from the OPMs for that year. On December 30, 2020, Liggett and Vector Tobacco pre-paid $143,000 of their approximate $178,000 2020 MSA obligation, the balance of which was paid in April 2021, subject to applicable disputes or adjustments.
Certain MSA Disputes
NPM Adjustment.  Liggett and Vector Tobacco contend that they are entitled to an NPM Adjustment for each year from 2003 - 2020. The NPM Adjustment is a potential adjustment to annual MSA payments, available when PMs suffer a market share loss to NPMs for a particular year and an economic consulting firm selected pursuant to the MSA determines (or the parties agree) that the MSA was a “significant factor contributing to” that loss. A Settling State that has “diligently enforced” its qualifying escrow statute in the year in question may be able to avoid its allocable share of the NPM Adjustment. For 2003 - 2020, Liggett and Vector Tobacco, as applicable, disputed that they owed the Settling States the NPM Adjustments as calculated by the independent auditor. As permitted by the MSA, Liggett and Vector Tobacco either paid subject to dispute, withheld payment, or paid into a disputed payment account, the amounts associated with these NPM Adjustments.
    In June 2010, after the PMs prevailed in 48 of 49 motions to compel arbitration, the parties commenced the arbitration for the 2003 NPM Adjustment. That arbitration concluded in September 2013. It was followed by various challenges filed in state courts by states that did not prevail in the arbitration. Those challenges resulted in reductions, but not elimination of, the amounts awarded.
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(Dollars in Thousands, Except Per Share Amounts)
Unaudited

    The PMs settled most of the disputed NPM Adjustment years with 37 states representing approximately 75% of the MSA share for 2003 - 2022. The 2004 NPM Adjustment arbitration commenced in 2016, with the final individual state hearing scheduled to occur in October 2021 and a second phase addressing the effect of the settlements to start thereafter. The parties have also selected an arbitration panel to address the NPM Adjustments for 2005-2007, and,2005-2007.
35

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in April 2021, that panel is set to issue a Case Management Order setting a schedule for the arbitration.Thousands, Except Per Share Amounts)
Unaudited

As a result of the settlement and arbitration award described above, Liggett and Vector Tobacco reduced cost of sales for years 2013 - 2020 by $54,382 and by $1,675$3,935 for the threesix months ended March 31,June 30, 2021. Liggett and Vector Tobacco may be entitled to further adjustments. As of March 31,June 30, 2021, Liggett and Vector Tobacco had accrued approximately $13,200 related to the disputed amounts withheld from the non-settling states for 2004 - 2010, which may be subject to payment, with interest, if Liggett and Vector Tobacco lose the disputes for those years. As of March 31,June 30, 2021, there remains approximately $40,700$49,800 in the disputed payments account relating to Liggett and Vector Tobacco’s 2011 - 20192020 NPM Adjustment disputes with the non-settling states. If Liggett and Vector Tobacco lose the disputes for all or any of those years, pursuant to the MSA, no interest would be due on the amounts paid into the disputed payment account.
Other State Settlements.  The MSA replaced Liggett’s prior settlements with all states and territories except for Florida, Mississippi, Texas and Minnesota. Each of these 4 states, prior to the effective date of the MSA, negotiated and executed settlement agreements with each of the other major tobacco companies, separate from those settlements reached previously with Liggett. Except as described below, Liggett’s agreements with these states remain in full force and effect. These states’ settlement agreements with Liggett contained most favored nation provisions which could reduce Liggett’s payment obligations based on subsequent settlements or resolutions by those states with certain other tobacco companies. Beginning in 1999, Liggett determined that, based on settlements or resolutions with United States Tobacco Company, Liggett’s payment obligations to those 4 states were eliminated. With respect to all non-economic obligations under the previous settlements, Liggett believes it is entitled to the most favorable provisions as between the MSA and each state’s respective settlement with the other major tobacco companies. Therefore, Liggett’s non-economic obligations to all states and territories are now defined by the MSA.
In 2003, as a result of a dispute with Minnesota regarding its settlement agreement, Liggett agreed to pay $100 a year in any year cigarettes manufactured by Liggett are sold in that state. Further, the Attorneys General for Florida, Mississippi and Texas advised Liggett that they believed Liggett had failed to make payments under the respective settlement agreements with those states. In 2010, Liggett settled with Florida and agreed to pay $1,200 and to make further annual payments of $250 for a period of 21 years, starting in March 2011, with the payments from year 12 forward being subject to an inflation adjustment.
In January 2016, the Attorney General for Mississippi filed a motion in Chancery Court in Jackson County, Mississippi to enforce the March 1996 settlement agreement among Liggett, Mississippi and other states (the “1996 Agreement”) alleging that Liggett owes Mississippi at least $27,000 in compensatory damages and additional amounts for interest, punitive damages and attorneys’ fees.interest. In April 2017, the Chancery Court ruled, over Liggett’s objections, that the 1996 Agreement should be enforced as Mississippi claims and referred the matter first to arbitration and then to a Special Master for further proceedings to determine the amount of damages, if any, to be awarded. In June 2018, the Chancery Court granted Liggett’s motion to compel arbitration as to two issues concerning damages and stayed the proceedings before the Special Master pending completionApril 2021, following confirmation of the arbitration. In March 2019, the arbitration panel issued its final arbitration award, on the two issues before it: (i) the panel ruled in favor of Liggett, findingparties stipulated that the $294,000unpaid principal (exclusive of proceedsinterest) purportedly due from Eve Holdings’ 1999 brand sale should not be included in Liggett’s pre-tax income; and (ii) ruled in favor of Mississippi on the remaining issue, finding that compensatory damagesLiggett to Mississippi if any, would be based on 0.5% ofpursuant to the 1996 Agreement was approximately $16,700, subject to Liggett’s annual pre-tax income forright to litigate and/or appeal the termenforceability of the settlement agreement. Following confirmation1996 Agreement (and all issues other than the calculation of the arbitration award, Mississippi voluntarily dismissed with prejudice its claims for punitive damages and attorneys’ fees.principal amount allegedly due).
In September 2019, the Special Master held a hearing regarding the state’sMississippi’s claim for approximately $17,500 in prejudgment interest as well aspre and post-judgment interest. In June 2021, the Special Master issued a draft report with proposed findings that pre-judgment interest, in the amount of approximately $18,600, is due from Liggett from April 2005 - July 9, 2021. At the request of the Special Master, the parties provided comments to the draft report and the matter is sub judice. The Special Master’s report, once finalized, is subject to objections by the parties and further review and hearing by the trial court before a final judgment may be entered. Once final judgment is entered, additional interest amounts to be determined. A decisionwill accrue if the judgment is pending.not overturned on appeal. Liggett continues to believe that the April 2017 Chancery Court order is in error because the most favored nations provision in the 1996 Agreement eliminated all of Liggett’s payment obligations to Mississippi, and it reserved all rights to appeal this and other issues at the conclusion of the case. In April 2021, the parties stipulated that the unpaid principal (exclusive of interest) purportedly due from Liggett to Mississippi pursuant to the 1996 Agreement (from inception through 2020 - the final contract year) is approximately $16,700, subject to Liggett’s right to litigate and/or appeal the enforceability of the 1996 Agreement (and all issues other than the calculation of such principal amount). In the event Liggett appeals an adverse judgment, the posting of a bond may be required.
Liggett may be required to make additional payments to Mississippi and Texas which could have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows.
33

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Cautionary Statement  
Management is not able to reasonably predict the outcome of the litigation pending or threatened against Liggett or the Company. Litigation is subject to many uncertainties. Liggett has been found liable in multiple Engle progeny cases and Individual Actions, several of which were affirmed on appeal and satisfied by Liggett. It is possible that other cases could be decided unfavorably against Liggett and that Liggett will be unsuccessful on appeal. Liggett may attempt to settle particular cases if it believes it is in its best interest to do so.
Management cannot predict the cash requirements related to any future defense costs, settlements or judgments, including cash required to bond any appeals, and there is a risk that Liggett may not be able to meet those requirements. An unfavorable outcome of a pending smoking-related case could encourage the commencement of additional litigation. Except as discussed in
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VECTOR GROUP LTD.
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(Dollars in Thousands, Except Per Share Amounts)
Unaudited

this Note 9, management is unable to estimate the loss or range of loss that could result from an unfavorable outcome of the cases pending against Liggett or the costs of defending such cases and as a result has not provided any amounts in its consolidated financial statements for unfavorable outcomes.
The tobacco industry is subject to a wide range of laws and regulations regarding the marketing, sale, taxation and use of tobacco products imposed by local, state and federal governments. There have been a number of restrictive regulatory actions, adverse legislative and political decisions and other unfavorable developments concerning cigarette smoking and the tobacco industry. These developments may negatively affect the perception of potential triers of fact with respect to the tobacco industry, possibly to the detriment of certain pending litigation, and may prompt the commencement of additional litigation or legislation.
It is possible that the Company’s consolidated financial position, results of operations and cash flows could be materially adversely affected by an unfavorable outcome in any of the smoking-related litigation.
The activity in the Company’s accruals for the MSA and tobacco litigation for the threesix months ended March 31,June 30, 2021 was as follows:
Current LiabilitiesNon-Current LiabilitiesCurrent LiabilitiesNon-Current Liabilities
Payments due under Master Settlement AgreementLitigation AccrualsTotalPayments due under Master Settlement AgreementLitigation AccrualsTotalPayments due under Master Settlement AgreementLitigation AccrualsTotalPayments due under Master Settlement AgreementLitigation AccrualsTotal
Balance as of January 1, 2021Balance as of January 1, 2021$38,767 $3,967 $42,734 $17,933 $19,268 $37,201 Balance as of January 1, 2021$38,767 $3,967 $42,734 $17,933 $19,268 $37,201 
ExpensesExpenses34,121 34,126 Expenses80,922 80,927 
Change in MSA obligations capitalized as inventoryChange in MSA obligations capitalized as inventory148 148 Change in MSA obligations capitalized as inventory296 296 
PaymentsPayments(4,065)(4,065)Payments(35,206)(4,065)(39,271)
Reclassification to/(from) non-current liabilitiesReclassification to/(from) non-current liabilities3,351 3,351 (3,351)(3,351)Reclassification to/(from) non-current liabilities4,709 3,351 8,060 (4,709)(3,351)(8,060)
Interest on withholdingInterest on withholding197 197 418 418 Interest on withholding288 288 851 851 
Balance as of March 31, 2021$73,036 $3,455 $76,491 $17,933 $16,335 $34,268 
Balance as of June 30, 2021Balance as of June 30, 2021$89,488 $3,546 $93,034 $13,224 $16,768 $29,992 
The activity in the Company’s accruals for the MSA and tobacco litigation for the six months ended June 30, 2020 was as follows:
Current LiabilitiesNon-Current Liabilities
Payments due under Master Settlement AgreementLitigation AccrualsTotalPayments due under Master Settlement AgreementLitigation AccrualsTotal
Balance as of January 1, 2020$34,116 $4,249 $38,365 $17,275 $20,594 $37,869 
Expenses96,215 28 96,243 
Change in MSA obligations capitalized as inventory(137)(137)
Payments(27,214)(4,324)(31,538)
Reclassification to/(from) non-current liabilities(855)3,252 2,397 855 (3,252)(2,397)
Interest on withholding238 238 932 932 
Balance as of June 30, 2020$102,125 $3,443 $105,568 $18,130 $18,274 $36,404 

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VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

The activity in the Company’s accruals for the MSA and tobacco litigation for the three months ended March 31, 2020 was as follows:
Current LiabilitiesNon-Current Liabilities
Payments due under Master Settlement AgreementLitigation AccrualsTotalPayments due under Master Settlement AgreementLitigation AccrualsTotal
Balance as of January 1, 2020$34,116 $4,249 $38,365 $17,275 $20,594 $37,869 
Expenses43,464 (25)43,439 
Change in MSA obligations capitalized as inventory(295)(295)
Payments(4,271)(4,271)
Reclassification to/(from) non-current liabilities3,252 3,252 (3,252)(3,252)
Interest on withholding150 150 459 459 
Balance as of March 31, 2020$77,285 $3,355 $80,640 $17,275 $17,801 $35,076 

Other Matters:

Liggett’s and Vector Tobacco’s management are unaware of any material environmental conditions affecting their existing facilities. Liggett’s and Vector Tobacco’s management believe that current operations are conducted in material compliance with all environmental laws and regulations and other laws and regulations governing cigarette manufacturers. Compliance with federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material impact on the capital expenditures, results of operations or competitive position of Liggett or Vector Tobacco.
Liggett and the Company have received three separate demands for indemnification from Altria Client Services, on behalf of Philip Morris, relating to lawsuits alleging smokers’ use of L&M cigarettes. The indemnification demands are purportedly issued in connection with Eve Holdings’ 1999 sale of certain brands to Philip Morris.
In addition to the foregoing, Douglas Elliman and certain of its subsidiaries are subject to numerous proceedings, lawsuits and claims in connection with their ordinary business activities. Many of these matters are covered by insurance or, in some cases, the Company iscompany or its subsidiaries are indemnified by third parties.
Management is of the opinion that the liabilities, if any, resulting from other proceedings, lawsuits and claims pending against the Company and its consolidated subsidiaries, unrelated to tobacco product liability, should not materially affect the Company’s consolidated financial position, results of operations or cash flows.

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VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

10.    GOODWILL AND OTHER INTANGIBLE ASSETS

The components of Goodwill and other intangible assets, net were as follows:
December 31,
2020
Impairment LossesAmortizationMarch 31,
2021
December 31,
2020
Impairment LossesAmortizationJune 30,
2021
GoodwillGoodwill$31,756 $$— $31,756 Goodwill$31,756 $$— $31,756 
Indefinite life intangibles:Indefinite life intangibles:Indefinite life intangibles:
Intangible asset associated with benefit under the MSAIntangible asset associated with benefit under the MSA107,511 — 107,511 Intangible asset associated with benefit under the MSA107,511 — 107,511 
Trademark - Douglas EllimanTrademark - Douglas Elliman68,000 0— 68,000 Trademark - Douglas Elliman68,000 0— 68,000 
Intangibles with a finite life, netIntangibles with a finite life, net310 (41)269 Intangibles with a finite life, net310 (80)230 
Total goodwill and other intangible assets, net Total goodwill and other intangible assets, net$207,577 $$(41)$207,536  Total goodwill and other intangible assets, net$207,577 $$(80)$207,497 
December 31,
2019
Impairment LossesAmortizationMarch 31,
2020
December 31,
2019
Impairment LossesAmortizationJune 30,
2020
GoodwillGoodwill$78,008 $(46,252)$— $31,756 Goodwill$78,008 $(46,252)$— $31,756 
Indefinite life intangibles:Indefinite life intangibles:Indefinite life intangibles:
Intangible asset associated with benefit under the MSAIntangible asset associated with benefit under the MSA107,511 — 107,511 Intangible asset associated with benefit under the MSA107,511 — 107,511 
Trademark - Douglas EllimanTrademark - Douglas Elliman80,000 (12,000)— 68,000 Trademark - Douglas Elliman80,000 (12,000)— 68,000 
Intangibles with a finite life, netIntangibles with a finite life, net474 (42)432 Intangibles with a finite life, net474 (82)392 
Total goodwill and other intangible assets, net Total goodwill and other intangible assets, net$265,993 $(58,252)$(42)$207,699  Total goodwill and other intangible assets, net$265,993 $(58,252)$(82)$207,659 
Goodwill is evaluated for impairment annually or whenever the Company identifies certain triggering events or circumstances that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Events or circumstances that might indicate an interim evaluation is warranted include, among other things, unexpected adverse business conditions, macro and reporting unit specific economic factors (for example, interest rate and foreign exchange rate fluctuations, and loss of key personnel), supply costs, unanticipated competitive activities, and acts by governments and courts.
During the first quarter of 2020, the Company determined that a triggering event occurred related to the Douglas Elliman reporting unit due to a decline in sales and profitability projections for the reporting unit driven by the COVID-19 pandemic
38

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

and related economic disruption. The Company utilized third-party valuation specialists to prepare a quantitative assessment of goodwill and trademark intangible asset related to Douglas Elliman.
For the goodwill testing, the Company utilized an income approach (a discounted cash flows method) to estimate the fair value of the Douglas Elliman business. The estimated fair value of the trademark indefinite-life intangible asset related to the Douglas Elliman brand name was determined using an approach that values the Company’s cash savings from having a royalty-free license compared to the market rate it would pay for access to use the trade name.
The third-party quantitative assessments of the goodwill and trademark intangible asset reflected management’s assumptions regarding revenue growth rates, economic and market trends including current expectations of deterioration resulting from the COVID-19 pandemic, changes to cost structures and other expectations about the anticipated short-term and long-term operating results of Douglas Elliman. The quantitative assessments resulted in impairment charges to goodwill of $46,252 and to the trademark intangible asset of $12,000.
The Company determined that there have not been any triggering events since the first quarter of 2020. If the Company fails to achieve the financial projections used in the quantitative assessments of fair value or the impacts of COVID-19 are more severe than expected, additional impairment charges could result in future periods, and such impairment charges could be material.

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VECTOR GROUP LTD.
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(Dollars in Thousands, Except Per Share Amounts)
Unaudited

11.    INCOME TAXES

The Company’s effective income tax rate is based on expected income, statutory rates, valuation allowances against deferred tax assets, and any tax planning opportunities available to the Company. For interim financial reporting, the Company estimates the annual effective income tax rate based on full year projections and applies the annual effective income tax rate against year-to-date pretax income (loss) to record income tax expense, (benefit), adjusted for discrete items, if any. The Company refines annual estimates as new information becomes available. The Company’s tax rate does not bear a relationship to statutory tax rates due to permanent differences, which are primarily related to nondeductible compensation, and state taxes.
The Company’s income tax expense (benefit) consisted of the following:
Three Months EndedThree Months EndedSix Months Ended
March 31,June 30,June 30,
202120202021202020212020
Income (loss) before provision for income taxes$45,010 $(4,209)
Income before provision for income taxesIncome before provision for income taxes$132,165 $36,690 $177,175 $32,481 
Income tax expense using estimated annual effective income tax rateIncome tax expense using estimated annual effective income tax rate13,053 308 Income tax expense using estimated annual effective income tax rate38,725 10,896 51,913 9,647 
Changes in effective tax ratesChanges in effective tax rates135 (12)
Impact of discrete items, netImpact of discrete items, net(1,286)Impact of discrete items, net32 291 
Income tax expense (benefit)$13,053 $(978)
Income tax expenseIncome tax expense$38,860 $10,916 $51,913 $9,938 

The net discrete items for the three months ended March 31,June 30, 2020 primarily relates to income tax benefitsexpense on goodwill and trademark impairment charges andthe changes in value of certain contingent consideration partially offset by income tax benefit related to stock-based compensation. The discrete items for the six months ended June 30, 2020 relate to income tax benefits on the goodwill and trademark impairment charges, changes in value of certain contingent consideration and stock-based compensation partially offset by the income tax expense related to the equity in earnings from investments associated with the one-time gain on sale of LTS.

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(Dollars in Thousands, Except Per Share Amounts)
Unaudited

12.    INVESTMENTS AND FAIR VALUE MEASUREMENTS

The Company’s financial assets and liabilities subject to fair value measurements were as follows:
Fair Value Measurements as of March 31, 2021Fair Value Measurements as of June 30, 2021
DescriptionDescriptionTotalQuoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)


Significant Unobservable Inputs
(Level 3)
DescriptionTotalQuoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)


Significant Unobservable Inputs
(Level 3)
Assets:Assets:Assets:
Money market funds (1)
Money market funds (1)
$244,115 $244,115 $$
Money market funds (1)
$310,300 $310,300 $$
Commercial paper (1)
Commercial paper (1)
30,467 30,467 
Commercial paper (1)
24,071 24,071 
Certificates of deposit (2)
Certificates of deposit (2)
2,113 2,113 
Certificates of deposit (2)
679 679 
Investment securities at fair valueInvestment securities at fair valueInvestment securities at fair value
Equity securities at fair value Equity securities at fair value Equity securities at fair value
Marketable equity securities Marketable equity securities25,389 25,389  Marketable equity securities25,187 25,187 
Mutual funds invested in debt securities Mutual funds invested in debt securities23,240 23,240  Mutual funds invested in debt securities23,325 23,325 
Total equity securities at fair value Total equity securities at fair value48,629 48,629  Total equity securities at fair value48,512 48,512 
Debt securities available for sale Debt securities available for sale Debt securities available for sale
U.S. government securitiesU.S. government securities17,976 17,976 U.S. government securities12,512 12,512 
Corporate securitiesCorporate securities48,601 48,601 Corporate securities49,843 49,843 
U.S. government and federal agencyU.S. government and federal agency9,626 9,626 U.S. government and federal agency15,467 15,467 
Commercial paperCommercial paper23,031 23,031 Commercial paper29,443 29,443 
Foreign fixed-income securitiesForeign fixed-income securities1,224 1,224 Foreign fixed-income securities1,224 1,224 
PropTech convertible debt securities2,500 2,500 
Total debt securities available for saleTotal debt securities available for sale102,958 102,958 Total debt securities available for sale108,489 108,489 
PropTech convertible trading debt securities PropTech convertible trading debt securities2,481 2,481 
Total investment securities at fair valueTotal investment securities at fair value151,587 48,629 102,958 Total investment securities at fair value159,482 48,512 108,489 2,481 
Long-term investmentsLong-term investmentsLong-term investments
Long-term investment securities at fair value (3)
Long-term investment securities at fair value (3)
35,608 
Long-term investment securities at fair value (3)
33,053 
TotalTotal$463,890 $292,744 $135,538 $Total$527,585 $358,812 $133,239 $2,481 
Liabilities:Liabilities:Liabilities:
Fair value of contingent liabilityFair value of contingent liability$926 $$$926 Fair value of contingent liability$4,522 $$$4,522 
TotalTotal$926 $$$926 Total$4,522 $$$4,522 

(1)     Amounts included in Cash and cash equivalents on the condensed consolidated balance sheet,sheets, except for $10,790$11,364 that is included in Other current assets and $1,907 that is included in Other assets.
(2)    Amounts included in current restricted assets and non-current restricted assets on the condensed consolidated balance sheets.
(3)    In accordance with Subtopic 820-10, investments that are measured at fair value using the NAV practical expedient are not classified in the fair value hierarchy.
3840

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Fair Value Measurements as of December 31, 2020
DescriptionTotalQuoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)


Significant Unobservable Inputs
(Level 3)
Assets:
Money market funds (1)
$255,294 $255,294 $$
Commercial paper (1)
44,397 44,397 
Certificates of deposit (2)
2,111 2,111 
Money market funds securing legal bonds (2)
535 535 
Investment securities at fair value
   Equity securities at fair value
   Marketable equity securities21,155 21,155 
   Mutual funds invested in debt securities23,226 23,226 
         Total equity securities at fair value44,381 44,381 
    Debt securities available for sale
U.S. government securities19,200 19,200 
Corporate securities52,434 52,434 
U.S. government and federal agency10,484 10,484 
Commercial paper9,086 9,086 
Total debt securities available for sale91,204 91,204 
Total investment securities at fair value135,585 44,381 91,204 
Long-term investments
Long-term investment securities at fair value (3)
34,218 
Total$472,140 $300,210 $137,712 $
Liabilities:
Fair value of contingent liability$999 $$$999 
Total$999 $$$999 

(1)     Amounts included in Cash and cash equivalents on the condensed consolidated balance sheet,sheets, except for $10,374 that is included in current restricted assets and $1,907 that is included in non-current restricted assets.
(2)    Amounts included in current restricted assets and non-current restricted assets on the condensed consolidated balance sheets.
(3)    In accordance with Subtopic 820-10, investments that are measured at fair value using the NAV practical expedient are not classified in the fair value hierarchy.

The fair value of the Level 2 certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is the rate offered by the financial institution. The fair value of investment securities at fair value included in Level 1 is based on quoted market prices from various stock exchanges. The Level 2 investment securities at fair value are based on quoted market prices of securities that are thinly traded, quoted prices for identical or similar assets in markets that are not active or inputs other than quoted prices such as interest rates and yield curves.
The long-term investments are based on NAV per share provided by the partnerships based on the indicated market value of the underlying assets or investment portfolio. In accordance with Subtopic 820-10, these investments are not classified under the fair value hierarchy disclosed above because they are measured at fair value using the NAV practical expedient.
The unobservable inputs related to the valuations of the Level 3 assets and liabilities were as follows at March 31, 2021:
3941

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Quantitative Information about Level 3 Fair Value Measurements
Fair Value at
March 31,
2021
Valuation TechniqueUnobservable InputRange (Actual)
Fair value of contingent liability$926 Monte Carlo simulation modelEstimated fair value of the Douglas Elliman reporting unit$169,000 
Risk-free rate for a 2-year term0.14 %
Leverage-adjusted equity volatility of peer firms84.95 %
The unobservable inputs related to the valuations of the Level 3 assets and liabilities were as follows at June 30, 2021:
Quantitative Information about Level 3 Fair Value Measurements
Fair Value at
June 30,
2021
Valuation TechniqueUnobservable InputRange (Actual)
PropTech convertible trading debt securities$2,481 Discounted cash flowInterest rates3% - 5%
MaturityApr 2022 - Mar 2023
Volatility43.6% - 111.6%
Discount rate23.75% - 43.33%
Fair value of contingent liability$4,522 Monte Carlo simulation modelEstimated fair value of the Douglas Elliman reporting unit$825,946 
Risk-free rate for a 1.5-year term0.16 %
Leverage-adjusted equity volatility of peer firms48.21 %
The unobservable inputs related to the valuations of the Level 3 assets and liabilities were as follows at December 31, 2020:
Quantitative Information about Level 3 Fair Value Measurements
Fair Value at
December 31,
2020
Valuation TechniqueUnobservable InputRange (Actual)
Fair value of contingent liability$999 Monte Carlo simulation modelEstimated fair value of the Douglas Elliman reporting unit$169,000 
Risk-free rate for a 2-year term0.13 %
Leverage-adjusted equity volatility of peer firms78.57 %

In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company is required to record assets and liabilities at fair value on a nonrecurring basis. Generally, assets and liabilities are recorded at fair value on a nonrecurring basis as a result of impairment charges. The Company had 0 nonrecurring nonfinancial assets subject to fair value measurements as of March 31,June 30, 2021 and December 31, 2020, respectively, except for investments in real estate ventures that were impaired as of June 30, 2021 and December 31, 2020.2020, respectively.

42

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

The Company’s investments in real estate ventures subject to nonrecurring fair value measurements are as follows:
Fair Value Measurement Using:
Three Months Ended June 30, 2021Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)


Significant Unobservable Inputs
(Level 3)
DescriptionImpairment ChargeTotal
Assets:
Investments in real estate ventures$2,713 $$$$
The Company estimated the fair value of its investments in real estate ventures using observable inputs such as market pricing based on recent events, however, significant judgment was required to select certain inputs from observed market data. The decrease in the investments in real estate ventures was attributed to the decline in the projected sales prices and the duration of the estimated sell out of the respective real estate ventures. The $2,713 of impairment charges were included in equity in earnings from real estate ventures for the three months ended June 30, 2021.
Fair Value Measurement Using:
Year Ended December 31,
2020
Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)


Significant Unobservable Inputs
(Level 3)
DescriptionImpairment ChargeTotal
Assets:
Investments in real estate ventures$16,513 $$$$

The Company estimated the fair value of its investments in real estate ventures using observable inputs such as market pricing based on recent events, however, significant judgment was required to select certain inputs from observed market data. The decrease in the investments in real estate ventures was attributed to the decline in the projected sales prices and the duration of the estimated sell out of the respective real estate ventures. The $16,513 of impairment charges were included in equity in losses from real estate ventures for the year ended December 31, 2020.


4043

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

13.    SEGMENT INFORMATION

The Company’s business segments for the three and six months ended March 31,June 30, 2021 and 2020 were Tobacco and Real Estate. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.

Financial information for the Company’s operations before taxes and non-controlling interests for the three and six months ended March 31,June 30, 2021 and 2020 were as follows:
RealCorporateRealCorporate
TobaccoEstateand OtherTotalTobaccoEstateand OtherTotal
Three months ended March 31, 2021
Three months ended June 30, 2021Three months ended June 30, 2021
RevenuesRevenues$268,463 $275,301 $$543,764 Revenues$329,496 $400,033 $$729,529 
Operating income (loss)Operating income (loss)81,599 (1)15,260 (6,656)90,203 Operating income (loss)103,179 42,362 (8,465)137,076 
Equity in earnings from real estate venturesEquity in earnings from real estate ventures1,589 1,589 Equity in earnings from real estate ventures16,685 16,685 
Depreciation and amortizationDepreciation and amortization1,697 2,158 234 4,089 
Three months ended June 30, 2020Three months ended June 30, 2020
RevenuesRevenues$312,510 $133,250 $$445,760 
Operating income (loss)Operating income (loss)79,309 (1)(6,875)(2)(5,637)66,797 
Equity in losses from real estate venturesEquity in losses from real estate ventures(12,260)(12,260)
Depreciation and amortizationDepreciation and amortization2,000 2,198 214 4,412 
Six months ended June 30, 2021Six months ended June 30, 2021
RevenuesRevenues$597,959 $675,334 $$1,273,293 
Operating income (loss)Operating income (loss)184,778 (3)57,622 (15,121)227,279 
Equity in earnings from real estate venturesEquity in earnings from real estate ventures18,274 18,274 
Identifiable assetsIdentifiable assets406,978 620,499 468,900 1,496,377 
Depreciation and amortizationDepreciation and amortization1,760 2,188 231 4,179 Depreciation and amortization3,457 4,346 465 8,268 
Capital expendituresCapital expenditures937 597 397 1,931 Capital expenditures1,375 1,263 417 3,055 
Three months ended March 31, 2020
Six months ended June 30, 2020Six months ended June 30, 2020
RevenuesRevenues$287,069 $167,419 $$454,488 Revenues$599,579 $300,669 $$900,248 
Operating income (loss)Operating income (loss)69,186 (67,475)(2)(6,615)(4,904)Operating income (loss)148,495 (4)(74,350)(5)(12,252)61,893 
Equity in losses from real estate venturesEquity in losses from real estate ventures(6,505)(6,505)Equity in losses from real estate ventures(18,765)(18,765)
Identifiable assetsIdentifiable assets357,518  557,505 428,386 1,343,409 
Depreciation and amortizationDepreciation and amortization2,042 2,313 220 4,575 Depreciation and amortization4,042 4,511 434 8,987 
Capital expendituresCapital expenditures2,749 2,119 20 4,888 Capital expenditures2,973 3,249 20 6,242 
(1) Operating income includes $53 of litigation settlement and judgment expense.
(2) Operating loss includes $2,961 of restructuring charges.
(3)Operating income includes $2,722 received from a litigation settlement associated with the MSA (which reduced cost of sales) and $5 of litigation settlement and judgment expense.
(2)(4) Operating income includes $53 of litigation settlement and judgment expense.
(5) Operating loss includes $58,252 of impairment charges related to the impairments of goodwill and other intangible assets.assets and $2,961 of restructuring charges.



4144


ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Dollars in Thousands, Except Per Share Amounts)


Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of Vector Group Ltd.’s financial statements with a narrative from our management’s perspective. Our MD&A is divided into the following sections:
Overview
Recent Developments
Results of Operations
Summary of Real Estate Investments
Liquidity and Capital Resources

Please read this discussion along with our MD&A and audited financial statements as of and for the year ended December 31, 2020 and Notes thereto, included in our 2020 Annual Report on Form 10-K, and our Condensed Consolidated Financial Statements and related Notes as of and for the quarterly period and six months ended March 31,June 30, 2021 and 2020.

Overview
We are a holding company and are engaged principally in two business segments:
Tobacco: the manufacture and sale of cigarettes in the United States through our Liggett Group LLC (“Liggett”) and Vector Tobacco Inc. (“Vector Tobacco”) subsidiaries, and
Real Estate: the real estate services, technology and investment business through our subsidiary New Valley, which (i) owns Douglas Elliman Realty LLC (“Douglas Elliman”), (ii) has interests in numerous real estate projects across the United States and (iii) is seeking to acquire or invest in additional real estate services, technologies, properties or projects. Douglas Elliman operates the largest residential brokerage company in the New York metropolitan area and also conducts residential real estate brokerage operations in Florida, California, Connecticut, Massachusetts, Colorado, New Jersey and Texas.
Our tobacco subsidiaries’ cigarettes are produced in 100 combinations of length, style and packaging. Liggett’s current brand portfolio includes:
Eagle 20’s
Pyramid
Montego
Grand Prix 
Liggett Select
Eve
USA and various Partner Brands and private label brands.
The discount segment is a challenging marketplace, with consumers having less brand loyalty and placing greater emphasis on price. Liggett’s competition is divided into two segments. The first segment consists of the three largest manufacturers of cigarettes in the United States: Philip Morris USA Inc., which is owned by Altria Group, Inc., RJ Reynolds Tobacco Company, which is owned by British American Tobacco Plc, and ITG Brands LLC, which is owned by Imperial Brands Plc. These three manufacturers, while primarily premium cigarette-based companies, also produce and sell discount cigarettes. The second segment of competition is comprised of a group of smaller manufacturers and importers, most of which sell deep discount cigarettes.
    
4245


COVID-19 Pandemic

The COVID-19 pandemic continues to evolve and disrupt normal activities in many segments of the U.S. economy even as COVID-19 vaccines have been and continue to be administered in 2021. Although much uncertainty still surroundsMany uncertainties continue to surround the pandemic, including itsrisks associated with the timing and extent of vaccine administration and the impact of COVID-19 variants, the duration of the pandemic and the length of immunity. Thus, the ultimate overall impact on our operations and real estate ventures is uncertain and we are continuing to carefully evaluate potential outcomes and working to mitigate risks. Similar to many other companies, our operations have been affected by COVID-19. We have implemented remote working for many employees and adopted safety requirements, including the social distancing protocols recommended by public health authorities.

The following provides a summary of our actions in our two segments - Tobacco and Real Estate - since COVID-19 was declared a pandemic in March 2020.

Impact of COVID-19 on Tobacco Segment. We believe many adult tobacco consumers have had incremental discretionary spending availability during the COVID-19 pandemic as a result of a variety of factors, including federal government stimulus payments and enhanced unemployment benefit payments enacted in response to the COVID-19 pandemic, and lower non-tobacco discretionary spending due to their stay-at-home practices.

Although our Tobacco segment has not experienced a material adverse impact to date by the COVID-19 pandemic, there is continued uncertainty as to how the COVID-19 pandemic (including vaccine administration and the impact of variants as well as changes in COVID-19-related restrictions and guidelines) may impact adult tobacco consumers in the future. The majority of retail stores in which our tobacco products are sold, including convenience stores, have been deemed to be essential businesses by authorities and have remained open.

Our management also continues to monitor the macroeconomic risks of the COVID-19 pandemic and its effect on adult tobacco consumers purchasing behaviors, including mix between premium and discount brand purchases. Our Eagle 20’s and Montego brands are priced in the deep discount category and our other brands are primarily priced in the traditional discount category.

To date, we have not experienced any material disruptions to our supply or distribution chains and have not experienced any material adverse effects associated with governmental actions to restrict consumer movement or business operations. However, our suppliers and members of our distribution chain may be subject to government action requiring facility closures and remote working protocols. The majority of retail stores in which our tobacco products are sold, including convenience stores, have been deemed to be essential businesses by authorities and have remained open. We continue to monitor the risk that a supplier, a distributor or any other entity within our supply and distribution chain closes temporarily or permanently.

Although our tobacco segment has not been negatively impacted to date by COVID-19, there remains uncertainty as to how the pandemic may ultimately impact the market. We continue to monitor the macro-economic risks of COVID-19 and the effect on tobacco consumers, including purchasing behavior changes and changes in sales volumes and mix within the discount category. Our Eagle 20’s and Montego brands are priced in the deep discount category and our other brands are primarily priced in the traditional discount category.

Impact of COVID-19 on Real Estate Segment.  Douglas Elliman isThe three and six months ended June 30, 2021 demonstrated continued strength in the largest residential real estate brokermarket, which has improved markedly from a sharp decline in transactions, primarily in the second quarter of 2020, due to factors related to the COVID-19 pandemic. As Douglas Elliman’s markets began reopening and vaccines for COVID-19 have become available, and consistent with home buying trends in the U.S., Douglas Elliman’s business improved significantly in markets complementary to New York City, including South Florida (Miami and Palm Beach), the New York City marketsuburbs (Long Island, Westchester County and approximately 46% of its brokerage revenues were derived from this regionConnecticut), the Hamptons, Los Angeles, and Aspen and, in 2018 and 2019. In addition, New Valley has investments2021, in multiple real estate ventures and properties in the New York metropolitan area, which had a carrying value of $34,092 at March 31, 2021. Published reports and data indicate that the New York metropolitan area was initially impacted more than any other area in the United States. Consequently, various governmental agencies in the New York metropolitan area and in other markets where Douglas Elliman operates, instituted quarantines, “pause” orders, “shelter-in-place” rules, restrictions on travel and restrictions on the types of businesses that could operate. These restrictions adversely impacted Douglas Elliman’s ability to conduct business during the year ended December 31,City.

In 2020, and, in particular, from Marchthe second quarter of 2020, to October 2020. For example, Douglas Elliman’s agents were restricted from performing in-person showings of properties or conducting open houses in most of Douglas Elliman’s markets from March 2020 to June 2020. Douglas Elliman experienced a severe decline in closed sales volume in New York City from March 2020 to October 2020. AsCity. Therefore, as a result of the impact of COVID-19 pandemic on the New York City market, and combined with the increased demand for existing-homes in other areas of the U.S., the percentage of Douglas Elliman’s brokerage revenues from the New York City market declined from approximately 46% in 2019 to approximately 28%29% for the twelve months ended March 31,June 30, 2021. As Douglas Elliman’s markets began reopeningIn addition, New Valley has investments in multiple real estate ventures and vaccines for COVID-19 have become available, and consistent with home buying trendsproperties in the U.S., Douglas Elliman’s business improved significantly in markets complementary to New York City, including the New York City suburbs (Long Island, Westchester County and Connecticut), the Hamptons, Palm Beach, Miami, Los Angeles, and Aspen and, more recently, New York City.metropolitan area, which had a carrying value of $27,347 at June 30, 2021. 

Beginning in April 2020, as a response to the impact of the COVID-19 pandemic, we made significant operating adjustments at Douglas Elliman, including a reduction of brokerage personnel of approximately 25% and reductions of other administrative expenses, as well as a reduction, deferral or elimination of certain office lease expenses. As markets have reopened and Douglas Elliman’s revenues have significantly increased, Douglas Elliman’s expenses have increased from the comparable 2020 periods. These increases were primarily the result of increased personnel expenses (associated with both discretionary compensation as well as the reinstatement of salary levels) and advertising expenses (associated with increased listings in 2021). Despite increases in expenses, which began during the fourth quarter of 2020, as business improved, Douglas Elliman operated at a lower cost basis forduring the first quarterthree and six months ended March 31,June 30, 2021 when compared to the first quarter ended March 31, 2020.2019 comparable periods.

The circumstances around the potential impact of COVID-19 pandemic on our Real Estate segment remain fluid and we continue to actively monitor the impact of the pandemic, including risks associated with the availabilitytiming and extent of vaccines,vaccine administration and related macroeconomic trends on our Real Estate segment. In addition, the likelihood and magnitudeimpact of a material impact fromCOVID-19 variants, the duration of the pandemic increases with the amount of time the virus affects activity levels in locations in which Douglas Elliman operates.and how long immunity lasts. Therefore, we are unable to predict the ultimate impact of the COVID-19 pandemic and related macroeconomic trends (including, in particular, the virtual work trend arising as a result of the COVID-19 pandemic and the availability of vaccines), or other factors resulting therefrom on the future financial condition, results of operations and cash flows from our Real Estate segment.

4346


Recent Developments
Issuance of Senior Secured Notes due 2029. In January 2021, we issued $875,000 in aggregate principal of our 5.75% Senior Secured Notes due 2029 (“5.75% Senior Secured Notes”) in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), to qualified institutional buyers in accordance with Rule 144A under the Securities Act and to persons outside the United States in compliance with Regulation S under the Securities Act. The 5.75% Senior Secured Notes pay interest on a semi-annual basis at a rate of 5.75% per year and mature on February 1, 2029. Prior to February 1, 2024, we may redeem some or all of the 5.75% Senior Secured Notes at any time at a make-whole redemption price and, thereafter, we may redeem some or all of the 5.75% Senior Secured Notes at a premium that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. The aggregate net proceeds from the issuance of the 5.75% Senior Secured Notes were approximately $855,500 after deducting offering expenses. We used the net proceeds of the issuance, together with cash on hand, to redeem all of our outstanding 6.125% Senior Secured Notes due 2025, including accrued interest and any premium thereon, and to pay fees and expenses in connection with the offering of the 5.75% Senior Secured Notes.
Liggett Credit Facility. On March 22, 2021, Liggett, 100 Maple LLC (“Maple”) and Vector Tobacco entered into Amendment No. 4 and Joinder to Third Amended and Restated Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, as agent and lender.
The existing credit agreement was amended to, among other things, (i) add Vector Tobacco as a borrower under the Restated Credit Agreement, (ii) extend the maturity of the Credit Agreement to March 22, 2026, and (iii) increase the amount of the maximum credit line thereunder from $60,000 to $90,000. As of March 31,June 30, 2021, approximately $90,000$84,600 was available for borrowing with no outstanding balance under the Restated Credit Agreement.
Montego. Since August 2020, Liggett has expanded the distribution of its Montego deep discount brand by 1217 states, primarily located in the southeast and midwest. Montego was Liggett’s third-largest brand for the three months ended March 31,June 30, 2021. Prior to August 2020, Montego was sold in select targeted markets in four states. Montego’s volume represented 10.0%approximately 12% for the three months ended June 30, 2021 compared to approximately 5% of total unit volume sales for the three months ended June 30, 2020 and approximately 12% of Liggett’s unit volume for the threesix months ended March 31,June 30, 2021 compared to 5.0%approximately 5% for the threesix months ended March 31,June 30, 2020.
Property Technology (“PropTech”) Investments. New Valley Ventures’ made the following investments (all of which are currently $1.0 million$1,000 or less) during the threesix months ended March 31,June 30, 2021.
Rechat – an investment in February 2021 in a mobile-centric real estate agent marketing, customer relationship management and transaction-management software. This investment aligns strategically with Douglas Elliman’s multi-year services agreement with Rechat for its agents.
Purlin – an investment in March 2021 in an automated intelligence platform to aid in home buying.
EVPassport – an investment in March 2021 in an electronic vehicle charging platform.
Humming Homes – an investment in March 2021 in a tech-enabled home management service.
MoveEasy – an investment in June 2021 in a client-facing digital concierge service designed to assist clients move into and “set up” their new homes, while offering additional services to maintain their homes. MoveEasy is delivered in a white-labeled format in partnership with residential real estate brokerages in a package that features the name and contact information of the selling agent.

The Lab PropTech Fund – an investment in June 2021 into a Miami-based fund that will invest in emerging technology companies serving emerging real estate and construction industries.

Recent Developments in Litigation
The cigarette industry continues to be challenged on numerous fronts. New cases continue to be commenced against Liggett and other cigarette manufacturers. Liggett could be subjected to substantial liabilities and bonding requirements from litigation relating to cigarette products. Adverse litigation outcomes could have a negative impact on our ability to operate due to their impact on cash flows. It is possible that there could be adverse developments in pending cases including the certification of additional class actions. An unfavorable outcome or settlement of pending tobacco-related litigation could encourage the commencement of additional litigation. In addition, an unfavorable outcome in any tobacco-related litigation could have a material adverse effect on our consolidated financial position, results of operations or cash flows. Liggett could face difficulties in obtaining a bond to stay execution of a judgment pending appeal.
47


Mississippi Dispute. In January 2016, the Attorney General for Mississippi filed a motion in Chancery Court in Jackson County, Mississippi to enforce the March 1996 settlement agreement (the “1996 Agreement”). alleging that Liggett owes Mississippi at least $27,000 in compensatory damages and interest. In April 2017, the Chancery Court ruled, over Liggett’s objections, that the 1996 Agreement should be enforced and referred the matter first to arbitration and then to a Special Master for further proceedings to determine the amount of damages, if any, to be awarded. In September 2019, the Special Master held a hearing regarding the state’s claim for approximately $17,500 in prejudgment interest as well as post-judgment interest in amounts to be determined. A decision is pending. Liggett continues to believe that the April 2017 Chancery Court order is in error because the most favored nations provision in the 1996 Agreement eliminated all of Liggett’s payment obligations to Mississippi, and it reserved all rights to appeal this and other issues at the conclusion2021, following confirmation of the case. In April 2021,final arbitration award, the parties stipulated that the unpaid principal (exclusive of interest) purportedly due from Liggett to Mississippi pursuant to the 1996 Agreement (from inception through 2020 - the final contract year) is approximately $16,700, subject to Liggett’s right to litigate and/or appeal the enforceability of the 1996 Agreement (and all issues other than the calculation of such principal amount).
In September 2019, the Special Master held a hearing regarding Mississippi’s claim for pre and post-judgment interest. In June 2021, the Special Master issued a draft report with proposed findings that pre-judgment interest in the amount of approximately $18,600, is due from Liggett from April 2005 - July 9, 2021. At the request of the Special Master, the parties provided comments to the draft report and the matter is sub judice. The Special Master’s report, once finalized, is subject to objections by the parties and further review and hearing by the trial court before a final judgment may be entered. Once final judgment is entered, additional interest amounts will accrue if the judgment is not overturned on appeal. Liggett continues to believe that the April 2017 Chancery Court order is in error because the most favored nations provision in the 1996 Agreement eliminated all of Liggett’s payment obligations to Mississippi, and it reserved all rights to appeal this and other issues at the conclusion of the case. In the event Liggett appeals an adverse judgment, the posting of a bond may be required.
44


Liggett may be required to make additional payments to Mississippi and Texas which could have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows.
See “Legislation and Regulation” in Item 2 of the MD&A for further information on litigation.


Critical Accounting Policies

There are no material changes except for the items listed below from the critical accounting policies set forth in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K, for the year ended December 31, 2020. Please refer to that section and the information below for disclosures regarding the critical accounting policies related to our business.

Results of Operations

The following discussion provides an assessment of our results of operations, capital resources and liquidity and should be read in conjunction with our condensed consolidated financial statements included elsewhere in this report. The condensed consolidated financial statements include the accounts of Liggett, Vector Tobacco, Liggett Vector Brands, New Valley and other less significant subsidiaries.

For purposes of this discussion and other consolidated financial reporting, our business segments for the three and six months ended March 31,June 30, 2021 and 2020 were Tobacco and Real Estate. The Tobacco segment consisted of the manufacture and sale of cigarettes. The Real Estate segment included our investment in New Valley, which includes ownership of Douglas Elliman, investments in real estate and investments in real estate ventures.
Three Months EndedThree Months EndedSix Months Ended
March 31,June 30,June 30,
202120202021202020212020
Revenues:
Revenues:
Revenues:
TobaccoTobacco$268,463 $287,069 Tobacco$329,496 $312,510 $597,959 $599,579 
Real estateReal estate275,301 167,419 Real estate400,033 133,250 675,334 300,669 
Total revenuesTotal revenues$543,764 $454,488 Total revenues$729,529 $445,760 $1,273,293 $900,248 
Operating income (loss):
Operating income (loss):
Operating income (loss):
TobaccoTobacco$81,599 (1)$69,186 Tobacco$103,179 $79,309 (1)$184,778 (3)$148,495 (4)
Real estateReal estate15,260 (67,475)(2)Real estate42,362 (6,875)(2)57,622 (74,350)(5)
Corporate and OtherCorporate and Other(6,656)(6,615)Corporate and Other(8,465)(5,637)(15,121)(12,252)
Total operating incomeTotal operating income$90,203 $(4,904)Total operating income$137,076 $66,797 $227,279 $61,893 
(1) Operating income includesincluded $53 of litigation settlement and judgement expense.
(2) Operating loss included $2,961 of restructuring charges.
48


(3)Operating income included $2,722 received from a litigation settlement associated with the MSA (which reduced cost of sales) and $5 of litigation settlement and judgment expense.
(2)(4) Operating income included $53 of litigation settlement and judgement expense.
(5) Operating loss includesincluded $58,252 of impairment charges related to the impairments of goodwill and other intangible assets.assets and $2,961 of restructuring charges.


Three Months Ended March 31,June 30, 2021 Compared to Three Months Ended March 31,June 30, 2020
Revenues. Total revenues were $729,529 for the three months ended June 30, 2021 compared to $445,760 for the three months ended June 30, 2020. The $283,769 (63.7%) increase in revenues was primarily due to a $266,783 increase in Real Estate revenues, which was primarily related to Douglas Elliman and a $16,986 increase in Tobacco revenues.
Cost of sales. Total cost of sales was $500,410 for the three months ended June 30, 2021 compared to $304,885 for the three months ended June 30, 2020. The $195,525 (64.1%) increase in cost of sales was primarily due to a $203,447 increase in Real Estate cost of sales, which was primarily related to Douglas Elliman. This was offset by a $7,922 decline in Tobacco cost of sales.
Expenses. Operating expenses were $92,043 for the three months ended June 30, 2021 compared to $74,078 for the same period last year. The $17,965 (24.3%) increase in operating expenses was due to a $14,099 increase in Real Estate expenses, which included $2,961 of restructuring expenses, a $1,038 increase in Tobacco expenses, and a $2,828 increase in Corporate and Other expenses.
Operating income. Operating income was $137,076 for the three months ended June 30, 2021 compared to $66,797 for the same period last year. The $70,279 (105.2%) increase in operating income was due to a $49,237 increase in Real Estate operating income, primarily related to Douglas Elliman, and a $23,870 increase in Tobacco operating income. This was offset by an increase of $2,828 in Corporate and Other operating loss.
Other expenses. Other expenses were $4,911 and $30,107 for the three months ended June 30, 2021 and 2020, respectively. For the three months ended June 30, 2021, other expenses primarily consisted of interest expense of $28,115. This was offset by equity in earnings from real estate ventures of $16,685, other income of $5,578 and equity in earnings from investments of $941. For the three months ended June 30, 2020, other expenses primarily consisted of interest expense of $29,358 and equity in losses from real estate ventures of $12,260. This was offset by income of $1,669 from changes in fair value of derivatives embedded within convertible debt, other income of $7,635 and equity in earnings from investments of $2,207.
Income before provision for income taxes. Income before income taxes was $132,165 and $36,690 for the three months ended June 30, 2021 and 2020, respectively.
Income tax expense. Income tax expense was $38,860 and $10,916 for the three months ended June 30, 2021 and 2020, respectively. Our provision for income taxes in interim periods is based on expected income, statutory rates, permanent differences, valuation allowances against deferred tax assets, and any tax planning opportunities available to us. For interim financial reporting, we estimate the annual effective income tax rate based on full year projections and apply the annual effective income tax rate against year-to-date pretax income to record income tax expense, adjusted for discrete items, if any. We refine annual estimates as new information becomes available. For the three months ended June 30, 2020, the discrete items of $32 primarily relates to changes in value of certain contingent consideration and stock-based compensation.
Tobacco.
Tobacco revenues. Liggett increased the list price of Eagle 20’s, Pyramid, Liggett Select and Grand Prix by $0.14 per pack on June 28, 2021, $0.14 per pack in January 2021,by $0.13 per pack in November 2020, $0.11 per pack in June 2020, and $0.08 per pack in February 2020.
All of our Tobacco sales were in the discount category in 2021 and 2020. For the three months ended June 30, 2021, Tobacco revenues were $329,496 compared to $312,510 for the three months ended June 30, 2020. Revenues increased by $16,986 (5.4%) due primarily to an increase in the average selling price of our brands for the three months ended June 30, 2021 partially offset by a 1.9% (46 million units) decline in sales volume.
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Despite recent pricing increases, Eagle 20’s remains Liggett’s primary low-cost cigarette brand and its percentage of Liggett’s total unit volume sales has declined slightly from 63% in the three months ended June 30, 2020 to 60% for the three months ended June 30, 2021. Pyramid, Liggett’s second-largest brand, declined from 24% of total unit volume sales in the three months ended June 30, 2020 to 21% for the three months ended June 30, 2021. Montego is Liggett’s third largest brand and increased from approximately 5% of total unit volume sales in the three months ended June 30, 2020 to approximately 12% for the three months ended June 30, 2021.
Tobacco cost of sales. The major components of our Tobacco cost of sales were as follows:
Three Months Ended
June 30,
20212020
Manufacturing overhead, raw materials and labor$33,277 $32,669 
Customer shipping and handling1,885 1,361 
Federal Excise Taxes, net118,735 121,170 
FDA expense5,622 6,116 
MSA expense, net of market share exemption46,626 52,751 
Total cost of sales$206,145 $214,067 

The Tobacco segment’s MSA expense is included in cost of sales. Under the terms of the MSA, we have no payment obligations except to the extent that our tobacco subsidiaries’ market share of the U.S. Cigarette market exceeds 1.92%. The calculation of our benefit from the MSA is an estimate based on U.S. domestic taxable cigarette shipments. As of June 30, 2021, we estimate taxable shipments in the U.S. will decline by 6.0% in 2021. As of June 30, 2020, we estimated taxable shipments in the U.S. would decline by 4.5% in 2020 and, the actual change in 2020 taxable shipments was an increase of 2.0%. Our annual MSA expense changes by approximately $1,650 for each percentage change in estimated shipment volumes in the U.S. market.
Inflationary pressures impact Liggett’s cost of sales through increases in MSA expense as well as manufacturing costs. Liggett’s MSA expense is subject to an annual inflation adjustment, which is the greater of the U.S. CPI rate or 3% and inflationary pressures in the U.S. economy could also increase Liggett’s cost of sales. For the three months ended June 30, 2021, Liggett’s management assumed an inflation adjustment to MSA expense of 3.4% for the six months ended June 30, 2021 and assumed 3% for the three months ended June 30, 2020. The actual inflation adjustment to the MSA in 2020 was 3%. In addition, the largest component of Liggett’s manufacturing costs is leaf tobacco and other raw materials. Our annual MSA expense increases by approximately $1,800 for each 1% percentage increase of inflation in excess of 3%. In addition, the largest component of Liggett’s manufacturing costs is leaf tobacco and other raw materials. In recent years, due to declining prices of leaf tobacco as well as efficiencies gained from technological innovation in Liggett’s factory, Liggett’s raw material costs have been flat and, therefore, has not been impacted by inflation. However, during 2021, Liggett experienced a 2.1% inflation increase for the three months ended June 30, 2021 and management anticipates the inflationary trends could continue.
Tobacco gross profit was $123,351 for the three months ended June 30, 2021 compared to $98,443 for the three months ended June 30, 2020, an increase of $24,908 (25.3%). The increase in gross profit for the three months ended June 30, 2021 was primarily attributable to increased pricing associated with the Eagle 20’s and Pyramid brands more than offsetting the impact of a 1.9% decline in unit sales. As a percentage of revenue (excluding Federal Excise Taxes), Tobacco gross profit increased from 51.4% in the 2020 period to 58.5% in the 2021 period. The increase in gross profit was primarily the result of increased net pricing as well as lower per unit MSA expense.
Tobacco expenses. Tobacco operating, selling, general and administrative expenses, excluding settlements and judgments, were $20,172 and $19,081 for the three months ended June 30, 2021 and 2020, respectively. The increase of $1,091 was mainly due to increased travel and marketing expenses related to the lifting of COVID-19 pandemic related restrictions, and higher compensation accruals, partially offset by a decrease in professional fees and expenses associated with Colorado’s minimum price legislation.Total tobacco product liability legal expenses, including settlements and judgments, were $1,542 and $1,641 for the three months ended June 30, 2021 and 2020, respectively.
Tobacco operating income. Tobacco operating income was $103,179 for the three months ended June 30, 2021 compared to $79,309 for the same period last year. The increase of $23,870 (30.1%) was primarily attributable to higher gross profit, as discussed above, partially offset by increased operating, selling, general and administrative expenses.
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Real Estate.
Real Estate revenues. Real Estate revenues were $400,033 and $133,250 for the three months ended June 30, 2021 and 2020, respectively. Real Estate revenues increased by $266,783, which was primarily related to an increase of $252,779 in Douglas Elliman’s commission and other brokerage income, reflecting increased revenues from existing home sales due to home-buying trends in Douglas Elliman’s markets.
In 2020, and, in particular, the second quarter of 2020, Douglas Elliman experienced a severe decline in closed sales volume in New York City. Therefore, as a result of the impact of COVID-19 pandemic on the New York City market, and combined with the increased demand for existing-homes in other areas of the U.S., the percentage of Douglas Elliman’s brokerage revenues from the New York City market declined from approximately 46% in 2019 to approximately 29% for the twelve months ended June 30, 2021.
The three months ended June 30, 2021 demonstrated continued strength in the residential real estate market, which has improved markedly from a sharp decline in transactions, primarily in the second quarter of 2020, due to factors related to the COVID-19 pandemic. As Douglas Elliman’s markets began reopening and vaccines for COVID-19 have become available, and consistent with home buying trends in the U.S., Douglas Elliman’s business improved significantly in markets complementary to New York City, including South Florida (Miami and Palm Beach), the New York City suburbs (Long Island, Westchester County and Connecticut), the Hamptons, Los Angeles, and Aspen and, in 2021, in New York City. Douglas Elliman’s commission and other brokerage income generated from the sales of existing homes increased by $98,734 in the Southeast region, $69,991 in New York City, $31,494 in the West (California and Colorado) region, and $30,788 in the Northeast region, which excludes New York City. In addition, Douglas Elliman’s revenues from Development Marketing increased by $21,772 for the three months ended June 30, 2021.
Real Estate revenues and cost of sales for the three months ended June 30, 2021 and 2020, respectively, were as follows:
Three Months Ended
June 30,
20212020
Real Estate Revenues:
Commission and other brokerage income$376,033 $123,254 
Property management revenue9,901 8,832 
Escrow and title fees6,041 843 
Revenues from investments in real estate6,750 — 
Sales on facilities primarily from Escena1,308 321 
  Total real estate revenues$400,033 $133,250 
Real Estate Cost of Sales:
Real estate commissions$283,652 $90,116 
Cost of sales from investments in real estate6,744 — 
Escrow and title fees2,867 139 
Cost of sales on facilities primarily from Escena1,002 563 
  Total real estate cost of sales$294,265 $90,818 

Real Estate cost of sales. Real Estate cost of sales were $294,265 and $90,818 for the three months ended June 30, 2021 and 2020, respectively. Real Estate cost of sales increased by $203,447, primarily related to a $193,536 increase in Douglas Elliman’s real estate agent commissions, which resulted from an increase in sales volume. Real estate brokerage commissions increased from 73.1% for the three months ended June��30, 2020 to 75.4% for the three months ended June 30, 2021. This was primarily due to the increase in the percentage of revenues from the Southeast (Florida) and Western (primarily California) regions which traditionally pay higher commission percentages than the New York City region.
Real Estate segment gross profit increased from $42,432 for the three months ended June 30, 2020 to $105,768 for the three months ended June 30, 2021, an increase of $63,336, which was primarily related to increases in Douglas Elliman’s commission and other brokerage income.
Real Estate expenses. Real Estate expenses, which are primarily comprised of expenses of Douglas Elliman, were $63,406 and $49,307 for the three months ended June 30, 2021 and 2020, respectively. For the three months ended June 30, 2020, Real Estate expenses included restructuring charges, which were the result of expense-reduction initiatives, of $2,961 at Douglas
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Elliman. The restructuring charges were the result of Douglas Elliman realigning its administrative support functions, and office locations as well as adjusting its business model to more efficiently serve its clients.
Beginning in April 2020, as a response to the impact of the COVID-19 pandemic, we made significant operating adjustments at Douglas Elliman, including reductions in brokerage personnel of approximately 25%, certain salaries and other administrative expenses, as well as a reduction, deferral or elimination of certain office lease expenses. As markets have reopened and Douglas Elliman’s revenues have significantly increased, Douglas Elliman’s expenses have increased from the comparable 2020 periods. Real estate expenses, excluding restructuring charges, increased by $17,060 for the three months ended June 30, 2021 compared to the comparable period in 2020, primarily as a result of increased personnel expense (associated with both discretionary compensation as well as the reinstatement of salary levels) and advertising expenses associated with Douglas Elliman’s increased listings in 2021.
Real Estate operating income (loss). The Real Estate segment reported operating income of $42,362 for the three months ended June 30, 2021 compared to operating loss of $6,875 for the three months ended June 30, 2020. The increase in Real Estate segment’s operating income of $49,237 was primarily the result of the increase in gross profit discussed above along with the impact of expense-reduction initiatives that began at Douglas Elliman in the second quarter of 2020.
Corporate and Other.
Corporate and Other operating loss. The operating loss at the Corporate and Other segment was $8,465 for the three months ended June 30, 2021 compared to $5,637 for the same period in 2020 and the difference was due primarily to increased administrative costs related to professional fees and travel expenses related to the lifting of COVID-19 restrictions.
Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020
Revenues. Total revenues were $543,764$1,273,293 for the threesix months ended March 31,June 30, 2021 compared to $454,488$900,248 for the threesix months ended March 31,June 30, 2020. The $89,276 (19.6%$373,045 (41.4%) increase in revenues was primarily due to a $107,882$374,665 increase in Real Estate revenues, which was primarily related to an increase in Douglas Elliman’s brokerage revenues related to the strength of the U.S. existing home market during the 2021 period. This was offset by a $18,606$1,620 decline in Tobacco revenues related to lower unit volume partially offset by increases in net pricing resulting primarily from increases in 2020 and 2021.
Cost of sales. Total cost of sales was $363,542$863,952 for the threesix months ended March 31,June 30, 2021 compared to $310,623$615,508 for the threesix months ended March 31,June 30, 2020. The $52,919 (17.0%$248,444 (40.4%) increase in cost of sales was primarily due to a $86,178$289,625 increase in Real Estate cost of sales, which was primarily related to increased Douglas Elliman’s commissions. This was offset by a $33,259$41,181 decline in Tobacco cost of sales primarily related to decreased sales volume.
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Expenses. Operating expenses were $90,019$182,062 for the threesix months ended March 31,June 30, 2021 compared to $148,769$222,847 for the same period last year. The $58,750 (39.5%$40,785 (18.3%) decline was due to a $61,031$46,932 decline in Real Estate expenses, primarily related to the absence of the impairment of goodwill and other intangible asset charge and restructuring charges at Douglas Elliman of $58,252 and $2,961, respectively, recorded in the 2020 period. This was offset by a $2,240$3,278 increase in Tobacco expenses and by a $41$2,869 increase in Corporate and Other expense for the threesix months ended March 31,June 30, 2021.
Operating income. Operating income was $90,203$227,279 for the threesix months ended March 31,June 30, 2021 compared to an operating lossincome of $4,904$61,893 for the same period last year. Operating income for the threesix months ended March 31,June 30, 2020 included an impairment expense associated with goodwill and other intangible assets and restructuring charges in our real estateReal Estate segment. Real Estate operating income increased $82,735$131,972 primarily related to increased revenues at Douglas Elliman in the first quarter of 2021 associated with the strength of existing-home sales, which was propelled by home-buying trends associated with increased demand in Douglas Elliman’s markets, and the absence of the impairment expenseand restructuring expenses in the 2021 period. Tobacco operating income increased by $12,413$36,283 due primarily to increases in net pricing and lower per unit MSA expense. This was offset by the increased Corporate and Other operating loss of $41.$2,869.
Other expenses (income). Other expenses were $45,193$50,104 for the threesix months ended March 31,June 30, 2021 compared to other incomeexpenses of $695$29,412 for the threesix months ended March 31,June 30, 2020. For the threesix months ended March 31,June 30, 2021, other expenses primarily consisted of interest expense of $28,751,$56,866, and loss on the extinguishment of debt of $21,362. This was offset by equity in earnings from real estate ventures of $1,589,$18,274, equity in earnings from investments of $577$1,518 and other income of $2,754.$8,332. For the threesix months ended March 31,June 30, 2020, other incomeexpenses primarily consisted of interest expense of $64,985, equity in losses from real estate ventures $18,765 and other expenses of $3,020. This was offset by equity in earnings of investments of $50,152$52,359 and income of $3,330$4,999 from changes in fair value of derivatives embedded within convertible debt. This was offset by interest expense of $35,627, equity in losses from real estate ventures of $6,505 and other expenses of $10,655.
Income (loss) before provision for income taxes. Income before income taxes was $45,010$177,175 for the threesix months ended March 31,June 30, 2021 compared to loss before income taxes of $4,209$32,481 for the threesix months ended March 31,June 30, 2020.
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Income tax expense (benefit). Income tax expense was $13,053$51,913 for the threesix months ended March 31,June 30, 2021 compared to income tax benefitexpense of $978$9,938 for the threesix months ended March 31,June 30, 2020. Our provision for income taxes in interim periods is based on expected income, statutory rates, permanent differences, valuation allowances against deferred tax assets, and any tax planning opportunities available to us. For interim financial reporting, we estimate the annual effective income tax rate based on full year projections and apply the annual effective income tax rate against year-to-date pretax income (loss) to record income tax expense, (benefit), adjusted for discrete items, if any. We refine annual estimates as new information becomes available. For the threesix months ended March 31,June 30, 2020, the annual effective tax rate applied to year-to-date income resulted in tax expense which was reducedincreased by discrete items and resulted in an income tax benefit for the period. The net discrete tax benefit of $1,286 primarily relatesrelated to income tax benefits on goodwill and trademark impairment charges, changes in value of certain contingent consideration and stock-based compensation, partially offset by the income tax expense related to equity in earnings from investments associated with the one-time gain on sale of LTS.
Tobacco.
Tobacco revenues. Liggett increased the list price of Eagle 20’s, Pyramid, Liggett Select, Eve and Grand Prix by $0.14 per pack on June 28, 2021, $0.14 per pack in January 25, 2021, by $0.13 per pack in November 2020, $0.11 per pack in June 2020, and $0.08 per pack in February 2020.
All of our Tobacco sales were in the discount category in 2021 and 2020. For the threesix months ended March 31,June 30, 2021, Tobacco revenues were $268,463$597,959 compared to $287,069$599,579 for the threesix months ended March 31,June 30, 2020. Revenues declined by $18,606 (6.5%$1,620 (0.3%) due primarily to a 13.8% (3117.7% (357 million units) decline in unit sales volume partially offset by an increase in the average selling price of our brands for the threesix months ended March 31,June 30, 2021. We believe that
Despite recent pricing increases, Eagle 20’s remains Liggett’s primary low-cost cigarette brand and its percentage of Liggett’s total unit volumesvolume sales declined from approximately 63% in the six months ended June 30, 2020 to approximately 60% for the threesix months ended March 31, 2021June 30, 2021. Pyramid, Liggett’s second largest brand, declined duefrom approximately 24% of total unit volume sales in the six months ended June 30, 2020 to elevated wholesale inventories at December 31,approximately 21% for the six months ended June 30, 2021. Montego is Liggett’s third largest brand and increased from approximately 5% of total unit volume sales in the six months ended June 30, 2020 which wereto approximately 12% for the result of purchases after a competitor’s announcement of a price increase in December 2020, as well as the prospect of increased restrictions associated with the COVID-19 pandemic.
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six months ended June 30, 2021.
Tobacco cost of sales. The major components of our Tobacco cost of sales were as follows:
Three Months EndedSix Months Ended
March 31,June 30,
2021202020212020
Manufacturing overhead, raw materials and laborManufacturing overhead, raw materials and labor$27,261 $32,865 Manufacturing overhead, raw materials and labor$60,538 $65,534 
Customer shipping and handlingCustomer shipping and handling1,416 1,472 Customer shipping and handling3,301 2,833 
Federal Excise Taxes, netFederal Excise Taxes, net97,714 113,139 Federal Excise Taxes, net216,449 234,309 
FDA expenseFDA expense6,072 6,350 FDA expense11,694 12,466 
MSA expense, net of market share exemptionMSA expense, net of market share exemption31,568 (1)43,464 MSA expense, net of market share exemption78,194 (1)96,215 
Total cost of sales Total cost of sales$164,031 $197,290  Total cost of sales$370,176 $411,357 
(1) Includes $2,722 received from a litigation settlement associated with the MSA expense.
The Tobacco segment’s MSA expense is included in cost of sales. Under the terms of the MSA, we have no payment obligations except to the extent that our tobacco subsidiaries’ market share of the U.S. cigarette market exceeds 1.92%. The calculation of our benefit from the MSA is an estimate based on U.S. domestic taxable cigarette shipments. As of March 31,June 30, 2021, we estimate taxable shipments in the U.S. will decline by 6.0% in 2021. As of June 30, 2020, we estimated taxable shipments in the U.S. would decline by 4.5% in 2020 and, the actual change in 2020 taxable shipments was an increase of 2.0%. Our annual MSA liabilityexpense changes by approximately $1,700$1,650 for each percentage change in estimated shipment volumes in the U.S. market.
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Inflationary pressures impact Liggett’s cost of sales through increases in MSA expense as well as manufacturing costs. Liggett’s MSA expense is subject to an annual inflation adjustment, which is the greater of the U.S. CPI rate or 3% and inflationary pressures in the U.S. economy could also increase Liggett’s cost of sales. For the six months ended June 30, 2021, Liggett’s management assumed an inflation adjustment to MSA expense of 3.4% for the six months ended June 30, 2021 and assumed 3% for the six months ended June 30, 2020. The actual inflation adjustment to the MSA in 2020 was 3%. In addition, the largest component of Liggett’s manufacturing costs is leaf tobacco and other raw materials. In recent years, due to declining prices of leaf tobacco as well as efficiencies gained from technological innovation in Liggett’s factory, Liggett’s raw material costs have been flat and, therefore, has not been impacted by inflation. However, during 2021, Liggett experienced a 1.2% inflation increase for the six months ended June 30, 2021 and management anticipates the inflationary trends could continue.
Tobacco gross profit was $104,432$227,783 for the threesix months ended March 31,June 30, 2021 compared to $89,779$188,222 for the threesix months ended March 31,June 30, 2020, an increase of $14,653 (16.3%$39,561 (21.0%). For the threesix months ended March 31,June 30, 2021, gross profit included $2,722 received from an MSA settlement, which reduced cost of sales. Excluding this settlement, gross profit for the threesix months ended March 31,June 30, 2021 was $101,710,$225,061, an increase of $11,931 (13.3%$36,839 (19.6%). This increase in gross profit for the threesix months ended March 31,June 30, 2021 was primarily attributable to increased net pricing across Liggett’s brand portfolio more than offsetting the impact of a 13.8%7.7% decline in unit sales. As a percentage of revenue (excluding Federal Excise Taxes), Tobacco gross profit increased from 51.6%51.5% in the 2020 period to 61.2%59.7% in the 2021 period. The increase in gross profit was aprimarily the result of increased pricing and lower per unit MSA and manufacturing costs. Manufacturing costs per unit were higher in the comparable 2020 period due to the costs associated with a voluntary shutdown of Liggett’s manufacturing facility in March 2020 related to the COVID-19 pandemic.
Despite recent pricing increases, Eagle 20’s remains Liggett’s primary low-cost cigarette brand and its percentage of Liggett’s total unit volume sales declined from approximately 62% in the three months ended March 31, 2020 to approximately 61% for the three months ended March 31, 2021. Pyramid, Liggett’s second largest brand, declined from approximately 24% of total unit volume sales in the three months ended March 31, 2020 to approximately 21% for the three months ended March 31, 2021. Montego is Liggett’s third largest brand and increased from approximately 5% of total unit volume sales in the three months ended March 31, 2020 to approximately 10% for the three months ended March 31, 2021.expenses.
Tobacco expenses. Tobacco operating, selling, general and administrative expenses, excluding settlements and judgments, were $22,828$43,000 for the threesix months ended March 31,June 30, 2021 compared to $20,593$39,674 for the threesix months ended March 31,June 30, 2020. The increase of $2,235$3,326 was mainly due to increased litigationprofessional fees and expenses associated with Colorado’s minimum price legislation.legislation, increased travel and marketing expenses related to the lifting of COVID-19 restrictions and higher compensation accruals. Tobacco product liability legal expenses, including settlements and judgments, were $1,525$3,067 and $1,550$3,191 for the threesix months ended March 31,June 30, 2021 and 2020, respectively.
Tobacco operating income. Tobacco operating income was $81,599$184,778 for the threesix months ended March 31,June 30, 2021 compared to $69,186$148,495 for the same period last year, ansix months ended June 30, 2020. The increase of $12,413. The increase in operating income$36,283 (24.4%) was primarily attributable to higher gross profit margins, as discussed above, partially offset by increased operating, selling, general and administrative expenses.
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Real Estate.
Real Estate revenues. Real Estate revenues were $275,301$675,334 and $167,419$300,669 for the threesix months ended March 31,June 30, 2021 and 2020, respectively. Real Estate revenues increased by $107,882 (64.4%),$374,665, which was primarily related to an increase of $103,134$355,913 in Douglas Elliman’s commission and other brokerage income, which increased as a result ofreflecting increased revenues from existing home sales as a result ofdue to home-buying trends in Douglas Elliman’s markets. These trends are consistent with
In 2020, and, in particular, the increased demand for existing-homessecond quarter of 2020, Douglas Elliman experienced a severe decline in Douglas Elliman’s markets as well as other areas of the U.S. Douglas Elliman’s revenues generated from theclosed sales of existing homes increased by $45,375 in the Southeast region, $21,526 in the Northeast region, which does not include New York City, $15,378 in the West region and $20,026volume in New York City. In addition, Douglas Elliman’s sales from Development Marketing increased by $829 for the three months ended March 31, 2021.
From March 2020 to October 2020, the COVID-19 pandemic had a significant effect on the economy and, especially, in the New York City market, where approximately 46% of Douglas Elliman’s commissions and other brokerage revenues were derived in 2018 and 2019. During this time, in response to the pandemic, various governmental agencies in the markets where Douglas Elliman operates instituted restrictions on individuals and on the types of businesses that were permitted to operate from March 2020 to June 2020, which adversely impacted Douglas Elliman’s business. AsTherefore, as a result of the impact of COVID-19 pandemic on the New York City market, and combined with the increased demand for existing-homes in other areas of the U.S., the percentage of Douglas Elliman’s brokerage revenues from the New York City market declined from approximately 46% in 2019 to approximately 28%29% for the twelve months ended March 31,June 30, 2021.
The six months ended June 30, 2021 demonstrated continued strength in the residential real estate market, which has improved markedly from a sharp decline in transactions, primarily in the second quarter of 2020, due to factors related to the COVID-19 pandemic. As Douglas Elliman’s markets began reopening and vaccines for COVID-19 have become available, and consistent with home buying trends in the U.S., Douglas Elliman’s business improved significantly in markets complementary to New York City, including South Florida (Miami and Palm Beach), the New York City suburbs (Long Island, Westchester County and Connecticut), the Hamptons, Palm Beach, Miami, Los Angeles, and Aspen and, more recently,in 2021, in New York City. Douglas Elliman’s commission and other brokerage income generated from the sales of existing homes increased by $144,109 in the Southeast region, $90,017 in New York City, $52,314 in the Northeast region, which excludes New York City, and $46,872 in the West region. In addition, Douglas Elliman’s revenues from Development Marketing increased by $22,601 for the six months ended June 30, 2021.

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Real Estate revenues and cost of sales for the threesix months ended March 31,June 30, 2021 and 2020, respectively, were as follows:
Three Months EndedSix Months Ended
March 31,June 30,
2021202020212020
Real Estate Revenues:
Real Estate Revenues:
Real Estate Revenues:
Commission and other brokerage incomeCommission and other brokerage income$259,100 $155,966 Commission and other brokerage income$635,133 $279,220 
Property management revenueProperty management revenue9,268 8,779 Property management revenue19,169 17,611 
Escrow and title feesEscrow and title fees4,408 856 Escrow and title fees10,449 1,699 
Revenues from investments in real estateRevenues from investments in real estate900 — Revenues from investments in real estate7,650 — 
Sales on facilities primarily from EscenaSales on facilities primarily from Escena1,625 1,818 Sales on facilities primarily from Escena2,933 2,139 
Other— — 
Total real estate revenues Total real estate revenues$275,301 $167,419  Total real estate revenues$675,334 $300,669 
Real Estate Cost of Sales:
Real Estate Cost of Sales:
Real Estate Cost of Sales:
Real estate agent commissionsReal estate agent commissions$197,017 $112,199 Real estate agent commissions$480,669 $202,315 
Cost of sales from investments in real estateCost of sales from investments in real estate6,744 — 
Escrow and title feesEscrow and title fees4,485 277 
Cost of sales on facilities primarily from EscenaCost of sales on facilities primarily from Escena876 996 Cost of sales on facilities primarily from Escena1,878 1,559 
Escrow and title fees1,618 138 
Total real estate cost of sales Total real estate cost of sales$199,511 $113,333  Total real estate cost of sales$493,776 $204,151 
Real Estate cost of sales. Real Estate cost of sales were $199,511$493,776 and $113,333$204,151 for the threesix months ended March 31,June 30, 2021 and 2020, respectively. Real Estate cost of sales increased by $86,178,$289,625, primarily related to $84,818$278,354 increase in Douglas Elliman’s real estate agent commissions, which increased as a result of increased commission and other brokerage income.
Douglas Elliman’s gross profit increased by $21,704 (40.1%) while gross margin percentage on realresulted from an increase in sales volume. Real estate brokerage income declinedcommissions increased from 28.1%72.5% to for the threesix months ended March 31,June 30, 2020 to 24.0%75.7% for the threesix months ended March 31,June 30, 2021. This was primarily due to the declineincrease in the percentage of revenues from the New York City region, which traditionally earns higher gross margin percentages than the Southeast (Florida) and Western (primarily California) regions.regions which traditionally pay higher commission percentages than the New York City region.
See Impact of COVID-19 on Real Estate Segment.segment gross profit increased from $96,518 for a discussionthe six months ended June 30, 2020 to $181,558 for the six months ended June 30, 2021, an increase of the impact of the COVID-19 pandemic on the Real Estate segment.
48


$85,040, which was primarily related to increases in Douglas Elliman’s commission and other brokerage income.
Real Estate expenses. Real Estate expenses, which are primarily comprised of expenses of Douglas Elliman, were $60,530$123,936 and $121,561$170,868 for the threesix months ended March 31,June 30, 2021 and 2020. The expenses for the threesix months ended March 31,June 30, 2020 included the non-cash impairment of goodwill and other intangible assets of $58,252 and restructuring charges, which were the result of expense-reduction initiatives, of $2,961 at Douglas Elliman. The restructuring charges were the result of Douglas Elliman realigning its administrative support functions, and office locations as well as adjusting its business model to more efficiently serve its clients.
Beginning in April 2020, as a response to the impact of the COVID-19 pandemic, we made significant operating adjustments at Douglas Elliman, including reductions in brokerage personnel of approximately 25%, certain salaries and other administrative expenses, as well as a reduction, deferral or elimination of certain office lease expenses. As markets have reopened and Douglas Elliman’s revenues have significantly increased, Douglas Elliman’s expenses have increased from the comparable 2020 periods. Real estate expenses, excluding the restructuring charges and non-cash impairment, charge, declinedincreased by $2,779$14,281 for the six months ended June 30, 2021 compared to the comparable period in 2020, primarily as a result of increased personnel expense (associated with both discretionary compensation as well as the continued expense-reduction initiatives that began at Douglas Elliman in the second quarterreinstatement of 2020.salary levels) and advertising expenses associated with Douglas Elliman’s expenses declined as a result ofincreased listings in 2021. These amounts were offset by lower general and administrative, professional services, occupancy and travel expenses. The decline in these expenses was offset by increased advertising expense as Douglas Elliman’s business increased.
Real Estate operating income (loss). The Real Estate segment reported operating income of $15,260$57,622 and operating loss of $67,475$74,350 for the threesix months ended March 31,June 30, 2021 and 2020, respectively. The increase in the Real Estate segment’s operating income, after excluding the non-cash impairment charge in the 2020 period, was primarily the result of the increase in gross profit discussed above along with the impact of expense-reduction initiatives that began at Douglas Elliman in the second quarter of 2020.
Corporate and Other.
Corporate and Other loss. The operating loss at the Corporate and Other segment was $6,656$15,121 for the threesix months ended March 31,June 30, 2021 compared to $6,615$12,252 for the same period in 2020.
4955


Summary of Real Estate Investments
We own and seek to acquire investment interests in various domestic and international real estate projects through debt and equity investments. Our real estate investments primarily include the following projects as of March 31,June 30, 2021:
(Dollars in Thousands. Area and Unit Information in Ones)(Dollars in Thousands. Area and Unit Information in Ones)
LocationDate of Initial InvestmentPercentage Owned (1)Net Cash Invested (Returned)Cumulative Earnings (Losses)Carrying Value as of March 31, 2021Future Capital Commit-
ments from New Valley (2)
Projected Residential and/or Hotel AreaProjected Commercial SpaceProjected Number of Residential Lots, Units and/or Hotel RoomsActual/Projected Construction Start DateProjected Construction End DateLocationDate of Initial InvestmentPercentage Owned (1)Net Cash Invested (Returned)Cumulative Earnings (Losses)Carrying Value as of June 30, 2021Future Capital Commit-
ments from New Valley (2)
Projected Residential and/or Hotel AreaProjected Commercial SpaceProjected Number of Residential Lots, Units and/or Hotel RoomsActual/Projected Construction Start DateProjected Construction End Date
Escena, netEscena, netMaster planned community, golf course, and club house in Palm Springs, CAMarch 2008100 %$2,951 $6,719 $9,670 $— 450 Acres667
450
R Lots
H
N/AEscena, netMaster planned community, golf course, and club house in Palm Springs, CAMarch 2008100 %$2,951 $6,657 $9,608 $— 450 Acres667
450
R Lots
H
N/A
Townhome A (11 Beach Street)Townhome A (11 Beach Street)TriBeCa, Manhattan, NYNovember 2020100 %6,132 — 6,132 — 6,169 SFRN/ACompletedTownhome A (11 Beach Street)TriBeCa, Manhattan, NYNovember 2020100 %(6)— — 6,169 SFRN/ACompleted
Investments in real estate, netInvestments in real estate, net$9,083 $6,719 $15,802 $— Investments in real estate, net$2,945 $6,663 $9,608 $— 
Investments in real estate ventures:Investments in real estate ventures:Investments in real estate ventures:
111 Murray Street111 Murray StreetTriBeCa, Manhattan, NYMay 20139.5 %$6,819 $(4,414)$2,405 $— 330,000 SF1,700 SF157 RSeptember 2014Completed111 Murray StreetTriBeCa, Manhattan, NYMay 20139.5 %$6,819 $(4,414)$2,405 $— 330,000 SF1,700 SF157 RSeptember 2014Completed
87 Park (8701 Collins Avenue)87 Park (8701 Collins Avenue)Miami Beach, FLDecember 201323.1 %(893)893 — — 160,000 SFTBD70 ROctober 2015Completed87 Park (8701 Collins Avenue)Miami Beach, FLDecember 201323.1 %(6,485)6,485 — — 160,000 SFTBD70 ROctober 2015Completed
125 Greenwich Street125 Greenwich StreetFinancial District, Manhattan, NYAugust 201413.4 %7,992 (7,992)— — 306,000 SF16,000 SF273 RMarch 2015TBD125 Greenwich StreetFinancial District, Manhattan, NYAugust 201413.4 %7,992 (7,992)— — 306,000 SF16,000 SF273 RMarch 2015TBD
West Hollywood Edition (9040 Sunset Boulevard)West Hollywood Edition (9040 Sunset Boulevard)West Hollywood, CAOctober 201448.5 %11,513 (11,513)— — 210,000 SF— 20
190
R
H
May 2015CompletedWest Hollywood Edition (9040 Sunset Boulevard)West Hollywood, CAOctober 201448.5 %11,513 (11,513)— — 210,000 SF— 20
190
R
H
May 2015Completed
The XI (76 Eleventh Avenue)The XI (76 Eleventh Avenue)West Chelsea, Manhattan, NYMay 20155.1 %17,000 (17,000)— — 630,000 SF85,000 SF236
137
R
H
September 2016TBDThe XI (76 Eleventh Avenue)West Chelsea, Manhattan, NYMay 20155.1 %17,000 (17,000)— — 630,000 SF85,000 SF236
137
R
H
September 2016TBD
Monad TerraceMiami Beach, FLMay 201519.6 %7,635 (5,490)2,145 — 160,000 SF— 59 RMay 2016Completed
Monad Terrace (1300 West Ave)Monad Terrace (1300 West Ave)Miami Beach, FLMay 201519.6 %7,635 (7,635)— — 160,000 SF— 59 RMay 2016Completed
Takanasee (805 Ocean Ave)Takanasee (805 Ocean Ave)Long Branch, NJDecember 201522.8 %6,144 (6,144)— — 63,000 SF— 13 RJune 2017TBDTakanasee (805 Ocean Ave)Long Branch, NJDecember 201522.8 %6,144 (6,144)— — 63,000 SF— 13 RJune 2017TBD
Brookland (15 East 19th St)Brookland (15 East 19th St)Brooklyn, NYApril 20179.8 %402 20 422 — 24,000 SF— 33 RAugust 2017CompletedBrookland (15 East 19th St)Brooklyn, NYApril 20179.8 %402 403 — 24,000 SF— 33 RAugust 2017Completed
Dime (209 Havemeyer St)Dime (209 Havemeyer St)Brooklyn, NYNovember 201716.5 %9,145 (42)9,103 — 100,000 SF150,000 SF177 RMay 2017CompletedDime (209 Havemeyer St)Brooklyn, NYNovember 201716.5 %9,145 (1,356)7,789 — 100,000 SF150,000 SF177 RMay 2017Completed
352 6th Avenue352 6th AvenueBrooklyn, NYFebruary 201937.0 %685 98 783 — 5,200 SF— RSeptember 2019Completed352 6th AvenueBrooklyn, NYFebruary 201937.0 %685 111 796 — 5,200 SF— RSeptember 2019Completed
Meatpacking PlazaMeatpacking District, NYApril 201916.9 %10,692 (2,527)8,165 — TBDTBDTBDTBD
Meatpacking Plaza (44 Ninth Ave)Meatpacking Plaza (44 Ninth Ave)Meatpacking District, Manhattan, NYApril 201916.9 %10,692 (2,746)7,946 — 8,741SF76,919SF15 RJuly 2021May 2023
The Park on FifthMiami Beach, FLSeptember 201938.9 %18,098 1,228 19,326 — 482,000 SF15,000 SF330 RApril 2020August 2023
9 DeKalbBrooklyn, NYApril 20194.2 %5,000 804 5,804 — 450,000 SF120,000 SF540 RMarch 2019February 2023
West HialeahMiami, FLDecember 201977.8 %12,522 1,116 13,638 — 1,400,000 SF— 1,369 RDecember 2019November 2022
Five Park (500 Alton Road)Five Park (500 Alton Road)Miami Beach, FLSeptember 201938.9 %18,098 1,461 19,559 — 482,000 SF15,000 SF291 RApril 2020August 2023
9 DeKalb Avenue9 DeKalb AvenueBrooklyn, NYApril 20194.2 %5,000 894 5,894 — 450,000 SF120,000 SF540 RMarch 2019February 2023
NaturaNaturaMiami, FLDecember 201977.8 %7,354 5,263 12,617 — 460,000 SF— 460 RDecember 2019November 2022
Townhome B (11 Beach Street)Townhome B (11 Beach Street)TriBeCa, Manhattan, NYNovember 202046.7 %2,530 — 2,530 — 4,752 SF— RN/ACompletedTownhome B (11 Beach Street)TriBeCa, Manhattan, NYNovember 202046.7 %(594)594 — — 4,752 SF— RN/ACompleted
Ritz-Carlton VillasMiami Beach, FLDecember 202050.0 %4,109 — 4,109 — 55,000 SF— 15 ROctober 2020August 2022
Ritz-Carlton Villas (4701 Meridian Avenue)Ritz-Carlton Villas (4701 Meridian Avenue)Miami Beach, FLDecember 202050.0 %4,109 (32)4,077 — 55,000 SF— 15 ROctober 2020August 2022
Condominium and Mixed Use DevelopmentCondominium and Mixed Use Development$119,393 $(50,963)$68,430 $— Condominium and Mixed Use Development$105,509 $(44,023)$61,486 $— 
Maryland PortfolioMaryland PortfolioPrimarily Baltimore County, MDJuly 20127.6 %$(3,626)$3,626 $— — N/AN/A4,064 RN/AMaryland PortfolioPrimarily Baltimore County, MDJuly 20127.6 %$(16,585)$16,585 $— — N/AN/A245 RN/A
Apartment BuildingsApartment Buildings$(3,626)$3,626 $— $— Apartment Buildings$(16,585)$16,585 $— $— 
Park Lane Hotel (36 Central Park South)Park Lane Hotel (36 Central Park South)Central Park South, Manhattan, NYNovember 20131.0 %$8,682 $(7,056)$1,626 $— 446,000 SF— 628 HN/APark Lane Hotel (36 Central Park South)Central Park South, Manhattan, NYNovember 20131.0 %$8,682 $(7,229)$1,453 $— 446,000 SF— 628 HN/A
215 Chrystie Street(4)215 Chrystie Street(4)Lower East Side, Manhattan, NYDecember 201215.7 %(2,136)2,136 — — 246,000 SF— 367 HJune 2014Completed215 Chrystie Street(4)Lower East Side, Manhattan, NYDecember 201217.8 %(2,136)1,803 (333)— 246,000 SF— 367 HJune 2014Completed
Coral Beach and Tennis ClubCoral Beach and Tennis ClubCoral Beach, BermudaDecember 201349.0 %6,048 (4,702)1,346 — 52 Acres— 101 HN/ACoral Beach and Tennis ClubCoral Beach, BermudaDecember 201349.0 %6,048 (4,724)1,324 — 52 Acres— 101 HN/A
Parker New YorkCentral Park South, Manhattan, NYJuly 20190.4 %1,000 (459)541 — TBD— 589
99
H
R
May 2020February 2022
Parker New York (119 W 56th St)Parker New York (119 W 56th St)Midtown, Manhattan, NYJuly 20190.4 %1,000 (339)661 — 470,000SF— 587
99
H
R
May 2020December 2022
HotelsHotels$13,594 $(10,081)$3,513 $— Hotels$13,594 $(10,489)$3,105 $— 
The Plaza at Harmon MeadowThe Plaza at Harmon MeadowSecaucus, NJMarch 201549.0 %$4,200 $(1,487)$2,713 $— — 219,000 SF— N/AN /AThe Plaza at Harmon MeadowSecaucus, NJMarch 201549.0 %$4,200 $(4,200)$— $— — 219,000 SF— N/AN /A
Wynn Las Vegas RetailWynn Las Vegas RetailLas Vegas, NVDecember 20161.6 %4,602 2,439 7,041 — — 160,000 SF— N/AWynn Las Vegas RetailLas Vegas, NVDecember 20161.6 %4,519 2,620 7,139 — — 160,000 SF— N/A
CommercialCommercial$8,802 $952 $9,754 $— Commercial$8,719 $(1,580)$7,139 $— 
Witkoff GP Partners (3)
Witkoff GP Partners (3)
MultipleMarch 201715.0 %$11,154 $(9,849)$1,305 $— N/AN/AN/AN/A
Witkoff GP Partners (3)
MultipleMarch 201715.0 %$11,154 $(9,620)$1,534 $— N/AN/AN/AN/A
1 QPS Tower (23-10 Queens Plaza South)1 QPS Tower (23-10 Queens Plaza South)Long Island City, NYDecember 201245.4 %(14,406)14,406 — — N/AN/AN/AMarch 2014Completed1 QPS Tower (23-10 Queens Plaza South)Long Island City, NYDecember 201245.4 %(14,406)14,406 — — N/AN/AN/AMarch 2014Completed
Witkoff EB-5 Capital PartnersWitkoff EB-5 Capital PartnersMultipleSeptember 201849.0 %516 466 982 — N/AN/AN/AN/AWitkoff EB-5 Capital PartnersMultipleSeptember 201849.0 %516 479 995 — N/AN/AN/AN/A
Biscayne MortgageBiscayne MortgageMultipleApril 202150.0 %1,500 — 1,500 — N/AN/AN/AN/A
Partners Land ServicesPartners Land ServicesMultipleJune 202150.0 %100 — 100 — N/AN/AN/AN/A
Diverse Real Estate PortfolioDiverse Real Estate Portfolio$(2,736)$5,023 $2,287 $— Diverse Real Estate Portfolio$(1,136)$5,265 $4,129 $— 
Investments in real estate venturesInvestments in real estate ventures$135,427 $(51,443)$83,984 $— Investments in real estate ventures$110,101 $(34,242)$75,859 $— 
Total Carrying ValueTotal Carrying Value$144,510 $(44,724)$99,786 $— Total Carrying Value$113,046 $(27,579)$85,467 $— 
5056


(1) The Percentage Owned reflects our estimated current ownership percentage. Our actual ownership percentage as well as the percentage of earnings and cash distributions may ultimately differ as a result of a number of factors including potential dilution, financing or admission of additional partners.
(2) This column only represents capital commitments required under the various joint venture agreements. However, many of the operating agreements provide for the operating partner to call capital. If a joint venture partner, such as New Valley, declines to fund the capital call, then the partner’s ownership percentage could either be diluted or, in some situations, the character of a funding member’s contribution would be converted from a capital contribution to a member loan.
(3) The Witkoff GP Partners venture includes a $1,305$1,534 investment in 500 Broadway, a Condominium and Mixed Use Development in Santa Monica, CA.
(4) Equity in losses in excess of the joint ventures' carrying value were $333 as of June 30, 2021, and are classified in Other current liabilities.
N/A - Not applicableSF - Square feetH - Hotel roomsTBD -To be determinedR - Residential UnitsR Lots - Residential lots
New Valley capitalizes net interest expense into the carrying value of its ventures whose projects were under development. Net capitalized interest costs included in Carrying Value as of March 31,June 30, 2021 were $7,787.$8,347. This amount is included in the “Cumulative Earnings (Losses)” column in the table above. During the threesix months ended March 31,June 30, 2021, New Valley capitalized $430$1,022 of interest costs and utilized (reversed) $120$153 of previously capitalized interest in connection with the recognition of equity in (losses) earnings, gains and liquidations from various ventures.


5157


Liquidity and Capital Resources

Cash, cash equivalents and restricted cash increased by $29,407$139,420 and $169,658 for the threesix months ended March 31,June 30, 2021 and increased by $95,700 for the three months ended March 31, 2020.2020, respectively.
Cash provided from operations was $78,364$221,300 and $115,309$341,329 for the threesix months ended March 31,June 30, 2021 and 2020, respectively. The decline in cash provided from operations related primarily to higher federal excise tax payments by the tobacco segment in 2021, (ii) the absence of proceeds in the 2021 period associated with the sale of LTS, which occurred in 2020, and (iii) cash expenditures in February 2021 associated with the premium for the retirement of our 6.125% Senior Secured Notes due 2025. These amounts were offset by increases inincreased operating income during the threesix months ended June 30, 2021. The lower excise tax payments in 2020 related to the 90-day postponement of the payment due dates of U.S. excise taxes from March 31, 2021.1, 2020 to July 1, 2020. This postponement resulted in an increase to the liquidity of our tobacco segment in the second quarter of 2020 of approximately $131,700 and the payments were made in the third quarter of 2020.
Cash used in investing activities was $18,505$16,666 for the threesix months ended March 31,June 30, 2021 and cash provided by investing activities was $25,968$46,575 for the threesix months ended March 31,June 30, 2020. In the first threesix months of 2021, cash used in investing activities was for the purchase of investment securities of $38,441,$74,805, investments in real estate ventures of $8,087,$9,902, capital expenditures of $1,931,$3,055, an increase in cash surrender value of life insurance policies of $564,$1,348, purchase of long-term investments of $5,813,$6,963, and an increase in restricted assets of $3.$5. This was offset by the sale of investment securities of $10,228,$23,477, paydowns of investment securities of $172,$302, maturities of investment securities of $13,968,$36,461, distributions from investments in real estate ventures of $7,577,$11,163, and proceeds from the sale or liquidation of long-term investments of $4,389.$8,009. In the first threesix months of 2020, cash provided by investing activities was from the sale of investment securities of $16,672, pay downs$19,555, paydowns of investment securities of $202,$415, maturities of investment securities of $15,616,$31,574, distributions from investments in real estate ventures of $1,036,$5,172, a decrease in restricted assets of $93,$87, and proceeds from the sale or liquidation of long-term investments of $19,544.$23,407. This was offset by the purchase of investment securities of $15,798,$16,867, investments in real estate ventures of $673,$3,858, capital expenditures of $4,888,$6,242, investments in real estate, net of $340,$679, an increase in cash surrender value of life insurance policies of $258,$751, and purchase of long-term investments of $5,238.
Cash used in financing activities was $30,452$65,214 and $45,577$218,246 for the threesix months ended March 31,June 30, 2021 and 2020, respectively. In the first threesix months of 2021, cash was used for the dividends and distributions on common stock of $32,273,$63,738, repayments of debt of $853,158,$856,316, deferred financing costs of $20,000,$20,109, and other of $21.$51. This was offset by proceeds from debt issuance of $875,000. In the first threesix months of 2020, cash was used for dividends and distributions on common stock of $32,074,$63,478, repayments of debt of $2,638,$172,467, distributions to non-controlling interest of $448, and net repayments of debt under the revolver of $10,453,$34,952. This was offset by proceeds from issuance of common stock of $52,563, proceeds from debt issuance of $36.$531 and other of $5.
We haveuse dividends from our tobacco and real estate subsidiaries, as well as cash and cash equivalents maintained at the corporate level, to fund our significant liquidity commitments at the corporate level (not including our tobacco and real estate operations) that require the use of existing cash resources.. These liquidity commitments include cash interest expense of approximately $108,900, dividends on our outstanding common shares of approximately $128,900, which is based on an assumed quarterly cash dividend of $0.20 per share, and other corporate expenses and income taxes.
In order to meet these liquidity requirements as well as other liquidity needs in the normal course of business, we have in the past used cash flows from operations as well as existing cash and cash equivalents, which have, in the past, been generated from operations, monetization of investments and proceeds from debt and equity issuances. Should these resources be insufficient to meet upcoming liquidity needs, we may also liquidate investment securities and other long-term investments, or, if available, draw on Liggett’s credit facility. While there are actions we can take to reduce our liquidity needs, there can be no assurance that such measures will be successful. As of March 31,June 30, 2021, we had cash and cash equivalents of $382,387$490,390 (including $107,380$155,224 of cash at Douglas Elliman and $83,046$108,191 of cash at Liggett), investment securities and long-term investments, which were carried at $206,082$212,363 (see Note 6 to condensed consolidated financial statements). As of March 31,June 30, 2021, our investments in real estate ventures were carried at $83,984$76,192 and our investment in real estate, net of accumulated depreciation, was carried at $15,802.$9,608.

Limitation of interest expense deductible for income taxes. Since 2018, the amount of interest expense that is deductible in the computation of income tax liability has been limited to a percentage of adjusted taxable income, as defined by applicable law. In 2019 and 2020, the amount of deductible interest expense was limited to 50% of taxable income before interest, depreciation and amortization and, in 2021, the amount will be limited to 30% of taxable income before interest, depreciation and amortization. Beginning in 2022, the amount will be limited to 30% of taxable income before interest. However, interest expense allocable to a designated excepted trade or business is not subject to limitation. One such excepted trade or business is any electing real property trade or business, for which portions of our real estate businesses may qualify. If any interest expense is disallowed, we are permitted to carry forward the disallowed interest expense indefinitely. As a result of interest expense that is allocated to our real estate businesses (from the holding company) not being subject to the limitation, all of our interest expense to date has been tax deductible; however, due to our high degree of leverage and the large amount of our interest expense that is currently allocated to our real estate businesses (from the holding company) for income tax purposes, a portion of our interest expense in future years may not be deductible, which could increase the after-tax cost of any new debt financings as well as the refinancing of our existing debt.
5258


Tobacco Litigation. As of March 31,June 30, 2021, 16 verdicts were entered in Engle progeny cases against Liggett. Several of these verdicts have been affirmed on appeal and have been satisfied by Liggett. Liggett has paid $40,111, including interest and attorney’s fees, to satisfy the final judgments entered against it. It is possible that additional cases could be decided unfavorably.
Notwithstanding the comprehensive nature of the Engle Progeny Settlements of more than 5,200 cases, approximately 3938 plaintiffs’ claims remain outstanding. Therefore, we and Liggett may still be subject to periodic adverse judgments that could have a material adverse effect on our consolidated financial position, results of operations and cash flows.
In addition, Liggett may be required to make additional payments to Mississippi which could have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows. See Recent Developments in Litigation.
Management cannot predict the cash requirements related to any future settlements or judgments, including cash required to bond any appeals, and there is a risk that those requirements will not be able to be met. Management is unable to make a reasonable estimate of the amount or range of loss that could result from an unfavorable outcome of the cases pending against Liggett or the costs of defending such cases. It is possible that our consolidated financial position, results of operations or cash flows could be materially adversely affected by an unfavorable outcome in any such tobacco-related litigation.
Vector.
6.125% Senior Secured Notes. On February 1, 2021, the 6.125% Senior Secured Notes due 2025 were redeemed in full and we recorded a loss on the extinguishment of debt of $21,362 for the threesix months ended March 31,June 30, 2021, including $13,014 of premium and $8,348 of other costs and non-cash interest expense related to the recognition of previously unamortized deferred finance costs.
5.75% Senior Secured Notes due 2029. On January 28, 2021, we completed the sale of $875,000 in aggregate principal amount of our 5.75% Senior Secured Notes due 2029 (“5.75% Senior Secured Notes”) to qualified institutional buyers and non-U.S. persons in a private offering pursuant to the exemptions from the registration requirements of the Securities Act contained in Rule 144A and Regulation S thereunder. The aggregate net cash proceeds from the sale of the 5.75% Senior Secured Notes were approximately $855,500 after deducting the initial purchaser’s discount and estimated expenses and fees in connection with the offering. We used the net cash proceeds from the 5.75% Senior Secured Notes offering, together with cash on hand, to redeem all of our outstanding 6.125% Senior Secured Notes due 2025, including accrued interest and premium thereon, on January 28, 2021.
The 5.75% Senior Secured Notes pay interest on a semi-annual basis at a rate of 5.75% per year and mature on the earlier of February 1, 2029 and the date that is 91 days before the final stated maturity date of our 10.5% Senior Notes due 2026 (“10.5% Senior Notes”) if such 10.5% Senior Notes have not been repurchased and cancelled or refinanced by such date. Prior to February 1, 2024, we may redeem some or all of the 5.75% Senior Secured Notes at any time at a make-whole redemption price. On or after February 1, 2024, we may redeem some or all of the 5.75% Senior Secured Notes at a premium that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. In addition, any time prior to February 1, 2024, we may redeem up to 40% of the aggregate outstanding amount of the 5.75% Senior Secured Notes with the net proceeds of certain equity offerings at 105.75% of the aggregate principal amount of the 5.75% Senior Secured Notes, plus accrued and unpaid interest, if any, to the redemption date, if at least 60% of the aggregate principal amount of the 5.75% Senior Secured Notes originally issued remains outstanding after such redemption, and the redemption occurs within 90 days of the closing of such equity offering. In the event of a change of control, as defined in the indenture governing the 5.75% Senior Secured Notes (the “2029 Indenture”), each holder of the 5.75% Senior Secured Notes may require the Company to repurchase some or all of its 5.75% Senior Secured Notes at a repurchase price equal to 101% of their aggregate principal amount plus accrued and unpaid interest, if any, to the date of purchase. If the Company sells certain assets and does not apply the proceeds as required pursuant to the 2029 Indenture, it must offer to repurchase the 5.75% Senior Secured Notes at the prices listed in the 2029 Indenture.
The 5.75% Senior Secured Notes are fully and unconditionally guaranteed, subject to certain customary automatic release provisions, on a joint and several basis by all of our wholly-owned domestic subsidiaries that are engaged in the conduct of our cigarette businesses, which subsidiaries, as of the issuance date of the 5.75% Senior Secured Notes, were also guarantors under our outstanding 10.5% Senior Notes. The 5.75% Senior Secured Notes are not guaranteed by New Valley LLC, or any of our subsidiaries engaged in our real estate business conducted through our subsidiary, New Valley LLC. The guarantees provided by certain of the guarantors are secured by first priority or second priority security interests in certain collateral of such guarantors pursuant to security and pledge agreements, subject to certain permitted liens and exceptions as further described in the 2029 Indenture and the security documents relating thereto. Vector Group Ltd does not provide any security for the 5.75% Senior Secured Notes.
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The 2029 Indenture contains covenants that restrict the payment of dividends if our consolidated earnings before interest, taxes, depreciation and amortization (“Consolidated EBITDA”), as defined in the 2029 Indenture, for the most recently ended four full quarters is less than $75,000. The 2029 Indenture also restricts the incurrence of debt if our Leverage Ratio and our Secured Leverage Ratio, each as defined in the 2029 Indenture, exceed 3.0 to 1.0 and 1.5 to 1.0, respectively. Our Leverage Ratio is defined in the 2029 Indenture as the ratio of our and our guaranteeing subsidiaries’ total debt less the fair market value of our cash, investment securities and long-term investments to Consolidated EBITDA, as defined in the 2029 Indenture. Our Secured Leverage Ratio is defined in the 2029 Indenture in the same manner as the Leverage Ratio, except that secured indebtedness is substituted for indebtedness. The following table summarizes the requirements of these financial test and the extent to which we would have satisfied these requirements had the 2029 Indenture been in effect as of March 31,June 30, 2021.
IndentureMarch 31,
2021
IndentureJune 30,
2021
CovenantCovenantRequirementCovenantRequirementJune 30,
2021
Consolidated EBITDA, as definedConsolidated EBITDA, as defined$75,000$364,459Consolidated EBITDA, as defined$75,000$411,838
Leverage ratio, as definedLeverage ratio, as defined<3.0 to 12.57 to 1Leverage ratio, as defined<3.0 to 12.10 to 1
Secured leverage ratio, as definedSecured leverage ratio, as defined<1.5 to 11.09 to 1Secured leverage ratio, as defined<1.5 to 10.79 to 1

As of March 31,June 30, 2021, we were in compliance with all debt covenants related to the 2029 Indenture.
10.5% Senior Notes due 2026. On November 2, 2018 and November 18, 2019, respectively, we sold $325,000 and $230,000, respectively, in aggregate principal amount of our 10.5% Senior Notes to qualified institutional buyers and non-U.S. persons pursuant to the exemptions from the registration requirements of the Securities Act contained in Rule 144A and Regulation S thereunder. The 10.5% Senior Secured Notes due 2026 are guaranteed by all of our wholly owned domestic subsidiaries that are engaged in the conduct of our cigarette business and DER Holdings LLC.
The indenture governing our 10.5% Senior Notes due 2026 (the “2026 Indenture”) contains covenants that restrict the payment of dividends and certain other distributions subject to certain exceptions, including exceptions for (1) dividends and other distributions in an amount up to 50% of our consolidated net income, plus certain specified proceeds received by the Company, if no event of default has occurred, and we are in compliance with a Fixed Charge Coverage Ratio (as defined in the 2026 Indenture) of at least 2.0 to 1.0, and (2) dividends and other distributions in an unlimited amount, if no event of default has occurred and we are in compliance with a Net Leverage Ratio (as defined in the 2026 Indenture) no greater than 4.0 to 1.0. As a result, absent an event of default, we can pay dividends if the Net Leverage ratio is below 4.0 to 1.0, regardless of the value of the Fixed Charge Coverage Ratio at the time. The 2026 Indenture also restricts our ability to incur debt if our Fixed Charge Coverage Ratio is less than 2.0 to 1.0, and restricts our ability to secure debt to the extent doing so would cause our Secured Leverage Ratio (as defined in the 2026 Indenture) to exceed 3.75 to 1.0, unless the 10.5% Senior Notes are secured on an equal and ratable basis. In addition, the 2026 Indenture restricts our ability to spin-off or transfer New Valley and its subsidiaries as a whole, or DER Holdings LLC and its subsidiaries (including Douglas Elliman) as a whole, unless (1) such spin-off or transfer complies with the covenants restricting mergers and asset sales, or (2) our Net Leverage Ratio is no greater than 4.0 to 1.0. Our Fixed Charge Coverage Ratio is defined in the 2026 Indenture as the ratio of our Consolidated EBITDA to our Fixed Charges (each as defined in the 2026 Indenture). Our Net Leverage Ratio is defined in the 2026 Indenture as the ratio of our and our guaranteeing subsidiaries’ total debt less our cash, cash equivalents, and the fair market value of our investment securities, long-term investments, investments in real estate, net, and investments in real estate ventures, to Consolidated EBITDA, as defined in the 2026 Indenture. Our Secured Leverage Ratio is defined in the 2026 Indenture as the ratio of our and our guaranteeing subsidiaries’ total secured debt, to Consolidated EBITDA, as defined in the 2026 Indenture. The following table summarizes the requirements of these financial test and the extent to which we satisfied these requirements as of March 31,June 30, 2021.
CovenantIndenture RequirementMarch 31,June 30,
2021
Consolidated EBITDA, as definedN/A$370,860438,502
Fixed charge coverage ratio, as defined>2.0 to 13.424.01 to 1
Net leverage ratio, as defined<4.0 to 12.021.46 to 1
Secured leverage ratio, as defined<3.75 to 12.371.99 to 1
As of March 31,June 30, 2021 and December 31, 2020, we were in compliance with all of the debt covenants related to the 2026 Indenture.
Guarantor Summarized Financial Information. Vector Group Ltd. (the “Issuer”) and its wholly-owned domestic subsidiaries that are engaged in the conduct of its cigarette business (the “Subsidiary Guarantors”) have filed a shelf registration
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statement for the offering of debt and equity securities on a delayed or continuous basis and we are including this condensed consolidating financial information in connection therewith. Any such debt securities may be issued by us and guaranteed by our Subsidiary Guarantors. New Valley and any of its subsidiaries, other than DER Holdings LLC (the “Nonguarantor Subsidiaries”) will not guarantee any such debt securities. Both the Subsidiary Guarantors and the Nonguarantor Subsidiaries are wholly-owned by the Issuer. The Condensed Consolidating Balance Sheets as of March 31,June 30, 2021 and the related Condensed Consolidating Statements of Operations for the threesix months ended March 31,June 30, 2021 of the Issuer, Subsidiary Guarantors and Nonguarantor Subsidiaries are set forth in Exhibit 99.2.
Presented herein are the Summarized Combined Balance Sheets as of March 31,June 30, 2021 and December 31, 2020 and the related Summarized Combined Statements of Operations for the threesix months ended March 31,June 30, 2021 for the Issuer and the Subsidiary Guarantors (collectively, the “Obligor Group”). The summarized combined financial information is presented after the elimination of: (i) intercompany transactions and balances among the Obligor Group, and (ii) equity in earnings from and investments in the Nonguarantor Subsidiaries.

Summarized Combined Balance Sheets:

March 31,
2021
December 31,
2020
June 30,
2021
December 31,
2020
Assets:Assets:Assets:
Current assetsCurrent assets$540,370 $515,082 Current assets$605,478 $515,082 
Noncurrent assetsNoncurrent assets265,649 264,041 Noncurrent assets262,690 264,041 
Intercompany receivables from Nonguarantor SubsidiariesIntercompany receivables from Nonguarantor Subsidiaries5,902 2,040 Intercompany receivables from Nonguarantor Subsidiaries1,835 2,040 
Liabilities:Liabilities:Liabilities:
Current liabilitiesCurrent liabilities245,924 193,125 Current liabilities256,488 193,125 
Noncurrent liabilitiesNoncurrent liabilities1,531,591 1,521,293 Noncurrent liabilities1,529,714 1,521,293 

Summarized Combined Statements of Operations:

Three Months EndedSix Months Ended
March 31,June 30,
2021202020212020
RevenuesRevenues$268,486 $287,188 Revenues$598,004 $599,818 
Cost of salesCost of sales164,031 197,290 Cost of sales370,176 411,357 
Operating incomeOperating income75,018 62,673 Operating income169,776 136,375 
Net incomeNet income19,891 51,201 Net income73,798 123,668 

Liggett Credit Facility and Liggett Term Loan Under Credit Facility. On March 22, 2021, Liggett, Maple and Vector Tobacco entered into the Amendment with Wells Fargo, as agent and lender.
The Amendment amended the existing credit agreement to, among other things, (i) add Vector Tobacco as a borrower under the Credit Agreement, (ii) extend the maturity of the Credit Agreement to March 22, 2026, and (iii) increase the amount of the maximum credit line thereunder from $60,000 to $90,000. As of March 31,June 30, 2021, there was no outstanding balance under the Credit Agreement. Availability as determined under the Credit Agreement was approximately $90,000$84,600 based on eligible collateral at March 31,June 30, 2021. At March 31,June 30, 2021, Liggett was in compliance with all covenants under the Credit Agreement; Liggett’s EBITDA, as defined, were $338,799$362,521 for the last twelve months ended March 31,June 30, 2021.
Anticipated Liquidity Obligations. We and our subsidiaries have significant indebtedness and debt service obligations. As of March 31,June 30, 2021, we and our subsidiaries had total outstanding indebtedness of approximately $1,427,400.$1,448,900. Of this amount, $875,000 comprised of the outstanding amount under our 5.75% Senior Secured Notes due 2029, and $555,000 comprised of the outstanding amount under our 10.5% Senior Notes due 2026. There is a risk that we will not be able to generate sufficient funds to repay our debt. If we cannot service our fixed charges, it would have a material adverse effect on our business and results of operations.
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We currently believe that our tobacco and real estate segments will generate positive cash flow and will continue to be able to sustain their operations in 2021 without any significant liquidity concerns.
In order to meet the above liquidity requirements as well as other anticipated liquidity needs in the normal course of business, we had cash and cash equivalents of approximately $382,400,$490,400, investment securities at fair value of approximately $149,100,$157,001, long-term investments with an estimated value of approximately $57,100,$55,400, including in-transit redemptions, and availability under Liggett’s credit facility of approximately $90,000$84,600 at March 31,June 30, 2021. Management currently anticipates that these amounts, as well as expected cash flows from our operations, proceeds from public and/or private debt and equity financing to the extent available, management fees and other payments from subsidiaries should be sufficient to meet our liquidity needs over the next 12 months. 
We continue to evaluate our capital structure and current market conditions related to our capital structure. Depending on market conditions, we may utilize our cash, investment securities and long-term investments to repurchase our 10.5% Senior Notes due 2026 in open-market purchases or privately negotiated transactions.
There can be no assurance that we would be able to continue to issue debt at a lower interest rate than our historical borrowing levels in the future and, in the event we pursue any capital markets activities, our ability to complete any debt or equity offering would be subject to market conditions.
 Furthermore, we may access the capital markets to refinance our 10.5% Senior Notes due 2026. We are able to redeem such bonds at price of 105.3% on November 1, 2021 and the redemption price declines to 102.625% on November 1, 2022 and 100% on November 1, 2023. There can be no assurance that we would be able to continue to issue debt at a lower interest rate than our historical borrowing levels in the future and, in the event we pursue any capital markets activities, our ability to complete any debt or equity offering would be subject to market conditions.

We may acquire or seek to acquire additional operating businesses through merger, purchase of assets, stock acquisition or other means, or to make other investments, which may limit our liquidity otherwise available.


Market Risk
We are exposed to market risks principally from fluctuations in interest rates, foreign currency exchange rates and equity prices. We seek to minimize these risks through our regular operating and financing activities and our long-term investment strategy. Our market risk management procedures cover all market risk sensitive financial instruments.
As of March 31,June 30, 2021, approximately $21,900$18,800 of our outstanding debt at face value had variable interest rates determined by various interest rate indices, which increases the risk of fluctuating interest rates. Our exposure to market risk includes interest rate fluctuations in connection with our variable rate borrowings, which could adversely affect our cash flows. As of March 31,June 30, 2021, there was no outstanding balance on the Liggett Credit Facility which also has variable interest rates. As of March 31,June 30, 2021, we had no interest rate caps or swaps. Based on a hypothetical 100 basis point increase or decrease in interest rates (1%), our annual interest expense could increase or decrease by approximately $200.
We held debt securities available for sale totaling $102,958$108,489 and convertible trading debt securities totaling $2,481 as of March 31,June 30, 2021. See Note 6 to our condensed consolidated financial statements. Adverse market conditions could have a significant impact on the value of these investments.
On a quarterly basis, we evaluate our debt securities available for sale and equity securities without readily determinable fair values that do not qualify for the NAV practical expedient to determine whether an impairment has occurred. If so, we also make a determination if such impairment is considered temporary or other-than-temporary. We believe that the assessment of temporary or other-than-temporary impairment is facts-and-circumstances driven. The impairment indicators that are taken into consideration as part of our analysis include (a) a significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee, (b) a significant adverse change in the regulatory, economic, or technological environment of the investee, (c) a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates, and (d) factors that raise significant concerns about the investee’s ability to continue as a going concern, such as negative cash flows from operations, working capital deficiencies, or noncompliance with statutory capital requirements or debt covenants.

Equity Security Price Risk

As of March 31,June 30, 2021, we held various investments in equity securities with a total fair value of $84,237,$81,565, of which $48,629$48,512 represents equity securities at fair value and $35,608$33,053 represents long-term investment securities at fair value. The latter securities represent long-term investments in various investment partnerships. These investments are illiquid and their ultimate
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realization is subject to the performance of the underlying entities. See Note 6 to our condensed consolidated financial
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statements, respectively, for more details on equity securities at fair value and long-term investment securities at fair value. The impact to our condensed consolidated statementstatements of operations related to equity securities fluctuates based on changes in their fair value.
We record changes in the fair value of equity securities in net income. To the extent that we continue to hold equity securities, our operating results may fluctuate significantly. Based on our equity securities held as of March 31,June 30, 2021, a hypothetical decrease of 10% in the price of these equity securities would reduce the fair value of the investments and, accordingly, our net income by approximately $8,424.$8,157.

New Accounting Pronouncements

Refer to Note 1, Summary of Significant Accounting Policies, to our financial statements for further information on New Accounting Pronouncements.


Legislation and Regulation
    There are no material changes from the Legislation and Regulation section set forth in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the year ended December 31, 2020, except as set forth below:
Menthol and Flavorings

The Tobacco Products Scientific Advisory Committee (“TPSAC”) completed its review of the use of menthol in cigarettes and issued a report with recommendations to the U.S. Food and Drug Administration (“FDA”) in March 2011. The report stated that “removal of menthol cigarettes from the marketplace would benefit public health in the United States,” but did not expressly recommend that FDA ban menthol cigarettes. In July 2013, FDA made available its preliminary scientific evaluation (“PSE”) of public health issues related to the use of menthol in cigarettes, in which it concluded that menthol cigarettes likely pose a public health risk above that seen with non-menthol cigarettes. FDA also issued and accepted public comment on an Advance Notice of Proposed Rulemaking (“ANPR”) seeking input related to potential regulatory options it might consider in determining what future regulatory action, if any, it believes is warranted. A decision by FDA to ban menthol in tobacco products could have a material adverse effect on us. In July 2014, the federal district court for the District of Columbia ruled on cross-motions for summary judgment in a lawsuit brought by several cigarette manufacturers against FDA challenging the composition of the TPSAC. The district court granted, in part, the manufacturers’ motion for summary judgment, ordering FDA to reconstitute the TPSAC and barring the agency from relying in any manner on the March 2011 TPSAC report on menthol. FDA appealed the decision to the U.S. Court of Appeals for the District of Columbia Circuit. In January 2016, the D.C. Circuit vacated the district court’s decision due to the manufacturers’ lack of standing and lifted the prohibition on FDA relying on the March 2011 TPSAC report. The D.C. Circuit’s decision does not preclude future challenges if FDA ultimately relies on the March 2011 TPSAC report to restrict or ban menthol in cigarettes.

In July 2017, FDA announced a comprehensive plan for Tobacco and Nicotine Regulation. As part of this comprehensive plan, FDA announced its intent to issue an ANPR requesting public stakeholder input on the impact of flavors (including menthol) on increased initiation among youth and young adults, as well as assisting adult smokers to switch to potentially less harmful forms of nicotine delivery. FDA issued this ANPR on March 21, 2018, seeking comments, data, research results, or other information about, among other things, how flavors attract youth to initiate tobacco product use and about whether and how certain flavors may help adult cigarette smokers reduce cigarette use and switch to potentially less harmful products. In the ANPR, FDA stated that potential regulatory actions include, but are not limited to, tobacco product standards and restrictions on the sale and distribution of tobacco products with flavors.

On April 29, 2021, FDA announced that it intends to issuepropose a proposed rule to prohibitprohibiting menthol as a characterizing flavor in cigarettes withinby the next year.end of April 2022. FDA indicated that the proposed rule will be one of the agency’s highest priorities. The public would have at minimum 60 days to provide comments on the proposed rule and, if FDA decides to proceed, it would then draft and publish a final rule. The rulemaking process could take many months or years and once a final rule is published it ordinarily would not be expected to take effect until at least one year after the date of publication. For the twelve months ended March 31,June 30, 2021, approximately 19% of our cigarette unit sales were menthol flavored. We cannot predict how a tobacco product standard or a restriction on the sale and distribution of tobacco products with menthol, if ultimately issued by FDA, will impact product sales, whether it will have a material adverse effect on Liggett or Vector Tobacco, or whether it will impact Liggett and Vector Tobacco to a greater degree than other companies in the industry.

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In December 2019, Massachusetts enacted a ban on the sale of menthol cigarettes effective June 1, 2020. Although certain municipalities throughout the United States have banned the sale of menthol cigarettes, Massachusetts is the first state to do so.
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We cannot predict how the menthol ban in Massachusetts will impact product sales, whether it will have a material adverse effect on Liggett or Vector Tobacco, or whether it will impact Liggett and Vector Tobacco to a greater degree than other companies in the industry. We also cannot predict whether other states will enact similar bans on the sale of menthol cigarettes.

On March 18, 2020, FDA issued a final rule to require new health warnings on cigarette packages and in cigarette advertisements. This rule requires each cigarette package and advertisement to bear one of eleven textual warning statements accompanied by a corresponding graphic image covering 50% of the area of the front and rear panels of cigarette packages and at least 20% of the area at the top of cigarette advertisements. The rule establishes marketing requirements that include the random and equal display and distribution of the required warnings for cigarette packages and quarterly rotation of the required warnings for cigarette advertisements. The final rule provided for an effective date of June 18, 2021, 15 months after issuance of the final rule. The inclusion of new warnings and rotation requirements pursuant to the final rule would likely increase Liggett’s production costs. On April 3, 2020, Liggett, along with other tobacco companies, commenced an action against the FDA in the United States District Court, District of Texas (Tyler Division) challenging the legality of the graphic warning final rule. On May 21, 2021, the court granted a motion to postpone the effective date of the final rule to July 13, 2022.

FDA requires each tobacco manufacturer to submit a plan providing for the random and equal display and distribution of the required warnings on cigarette packaging and the quarterly rotation of the required warnings in cigarette advertising. FDA must review and approve the plan prior to implementation. Liggett and Vector Tobacco each submitted a plan to FDA and these plans were approved by FDA on April 30, 2021.
    
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this report contains “forward-looking statements” within the meaning of the federal securities law. Forward-looking statements include information relating to our intent, belief or current expectations, primarily with respect to, but not limited to:
economic outlook,
capital expenditures,
cost reduction,
legislation and regulations,
cash flows,
operating performance,
litigation, and
related industry developments (including trends affecting our business, financial condition and results of operations).
We identify forward-looking statements in this report by using words or phrases such as “anticipate,”“anticipate”, “believe”, “continue”, "could", “believe,” “estimate,”“estimate”, “expect,” “intend,”“intend”, “may be,” “objective,” “plan,” “seek,” “predict,”“objective”, “opportunistically”, “plan”, “potential”, “predict”, “project” and, “prospects”, “seek” or “will be” and similar words or phrases or their negatives.
The forward-looking information involves important risks and uncertainties that could cause our actual results, performance or achievements to differ materially from our anticipated results, performance or achievements expressed or implied by the forward-looking statements. Factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, without limitation, the following:
general economic and market conditions and any changes therein, due to acts of war and terrorism or otherwise,
governmental regulations and policies,
adverse changes in global, national, regional and local economic and market conditions, including those related to pandemics and health crises, such as the outbreak of COVID-19, which began in 2020, as well as the impact of associated variants of COVID-19,
impact of legislation on our results of operations and product costs, i.e. the impact of federal legislation providing for regulation of tobacco products by FDA,
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impact of substantial increases in federal, state and local excise taxes,
uncertainty related to product liability and other tobacco-related litigations including the Engle progeny cases pending in Florida and other individual and class action cases where certain plaintiffs have alleged compensatory and punitive damage amounts ranging into the hundreds of million and even billions of dollars,
potential additional payment obligations for us under the MSA and other settlement agreements with the states;
significant changes in the price, availability or quality of tobacco, other raw materials or component parts, including as a result of the COVID-19 pandemic,
the timing and breadthextent of COVID-19 vaccine administration,
the duration of the COVID-19 pandemic,
adult smoker purchasing behavior of those who receive the COVID-19 vaccine,
potential dilution to our holders of or common stock as a result of issuances of additional shares of common stock to fund our financial obligations and other financing activities,
effects of industry competition,
impact of business combinations, including acquisitions and divestitures, both internally for us and externally in the tobacco industry,
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the impacts of the Tax Cuts and Jobs Act of 2017, including the deductibility of interest expense and the impact of the markets on our Real Estate segment,
the impacts of future income tax legislation in the U.S., including the impact of the markets on our Real Estate segment,
failure to properly use and protect client and employee information and data, and
the effect of a material breach of security or other performance issues of any of the Company’s or its vendors’ systems.
Further information on the risks and uncertainties to our business include the risk factors discussed above in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and under Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission.
Although we believe the expectations reflected in these forward-looking statements are based on reasonable assumptions, there is a risk that these expectations will not be attained and that any deviations will be material. The forward-looking statements speak only as of the date they are made.


ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Market Risk” is incorporated herein by reference.


ITEM 4.    CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we have evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, and, based on their evaluation, our principal executive officer and principal financial officer have concluded that these controls and procedures are effective.

There have not been any changes in our internal control over financial reporting that occurred during the firstsecond quarter of 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the COVID-19 situation on our internal controls to minimize the impact on their design and operating effectiveness.

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PART II

OTHER INFORMATION

Item 1.     Legal Proceedings

Reference is made to Note 9, incorporated herein by reference, to our condensed consolidated financial statements included elsewhere in this report which contains a general description of certain legal proceedings to which our company, or its subsidiaries are a party and certain related matters. Reference is also made to Exhibit 99.1 for additional information regarding the pending smoking-related legal proceedings to which Liggett or us is a party. A copy of Exhibit 99.1 will be furnished without charge upon written request to us at our principal executive offices, 4400 Biscayne Boulevard, 10th Floor, Miami, Florida 33137, Attn. Investor Relations.

Item 1A. Risk Factors

There are no material changes from the risk factors set forth in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2020, except as set forth below:

FDA Regulation under the Family Smoking Prevention and Tobacco Control Act may adversely affect our sales and operating profit.

In June 2009, the Family Smoking Prevention and Tobacco Control Act (“TCA”) became law. The TCA grants FDA broad authority over the manufacture, sale, marketing and packaging of tobacco products, although FDA is prohibited from banning all cigarettes or all smokeless tobacco products. For a more complete discussion of the TCA, see Item 1. Business. Legislation and Regulation.

In July 2017, FDA announced a comprehensive plan for tobacco and nicotine regulation, proposing an increased focus on the impact of flavors (including menthol) and on reducing the level of nicotine in tobacco. On April 29, 2021, FDA announced that it intends to issue a proposed rule to prohibit menthol as a characterizing flavor in cigarettes within the next year. FDA indicated that the proposed rule will be one of the agency’s highest priorities. The rulemakingrule making process could take many months or years and once a final rule is published it ordinarily would not be expected to take effect until at least one year after the date of publication. For the last twelve months ended March 31,June 30, 2021, approximately 19% of our cigarette unit sales were menthol flavored. Regulations under the TCA that restrict or prohibit the sale of menthol flavored cigarettes would reduce the demand for our cigarettes and may have an adverse effect on our business and results of operations. We cannot predict how a tobacco product standard or a restriction on the sale and distribution of tobacco products with menthol, if ultimately issued by FDA, will impact product sales, whether it will have a material adverse effect on Liggett or Vector Tobacco, or whether it will impact Liggett and Vector Tobacco to a greater degree than other companies in the industry

As part of the comprehensive plan announced in July 2017, FDA said it would focus on nicotine addiction, with the goal of lowering nicotine levels in combustible cigarettes through a product standard developed through notice and comment rulemaking,rule making, which FDA announced in March 2018. See Item 1. Business. Legislation and Regulation. At this time, we cannot predict the specific regulations FDA will enact, the timeframe for such regulations, or the effect of such regulations. The rulemakingrule making process could take years and once a final rule is issued it typically does not take effect for at least one year. We cannot predict how a nicotine tobacco product standard, if ultimately issued by FDA, would impact product sales, whether it would have a material adverse effect on Liggett or Vector Tobacco, or whether it would impact Liggett and Vector Tobacco to a greater degree than other companies in the industry.

In April 2018, FDA announced a change in its process for reviewing “provisional” substantial equivalence applications. See Item 1. Business. Legislation and Regulation for additional information on the substantial equivalence process. Vector Tobacco received a letter from FDA in April 2018 advising that FDA does not intend to conduct further review of Vector Tobacco’s remaining applications, with certain “conditions” (as described under Item 1. Business. Legislation and Regulation). Liggett received a letter from FDA in May 2018 advising that FDA does not intend to conduct further review for certain applications, also with certain “conditions” (as described under Item 1. Business. Legislation and Regulation). FDA has not indicated whether the applications relating to Liggett’s other products, not covered by that May 2018 letter, would proceed through FDA review. We cannot predict whether FDA will deem Liggett’s outstanding applications to be sufficient to support determinations of substantial equivalence for the products covered by these substantial equivalence reports. It is possible that FDA could determine that some, or all, of these products are “not substantially equivalent” to a preexisting tobacco product, as
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the agency has already done for 20 of Liggett’s applications. NSE orders for other cigarette styles may require us to stop the sale of the applicable cigarettes and other cigarette styles and could have a material adverse effect on us.

On March 18, 2020, FDA issued a final rule to require new health warnings on cigarette packages and in cigarette advertisements. This rule requires each cigarette package and advertisement to bear one of eleven textual warning statements accompanied by a corresponding graphic image covering 50% of the area of the front and rear panels of cigarette packages and at least 20% of the area at the top of cigarette advertisements. The rule establishes marketing requirements that include the random and equal display and distribution of the required warnings for cigarette packages and quarterly rotation of the required warnings for cigarette advertisements. The final rule provided for an effective date of June 18, 2021, 15 months after issuance of the final rule. The inclusion of new warnings and rotation requirements pursuant to the final rule would likely increase Liggett’s production costs. On April 3, 2020, Liggett, along with other tobacco companies, commenced an action against the FDA in the United States District Court, District of Texas (Tyler Division) challenging the legality of the graphic warning final rule. On May 8, 2020, the court issued an updated scheduling order and granted a joint motion to postpone the effective date of the final rule by 120 days to October 16, 2021. The court subsequently postponed the effective date to AprilJuly 14, 2022.

We cannot predict whether the court will further delay the effective date and/or determine that some or all of the proposed textual and/or graphic warnings, or proposed prominence of the warnings, violate the First Amendment, Administrative Procedure Act, or other legal requirements, or what the impact of such a court ruling would have on the compliance timeline or requirements imposed on industry.

It is likely that the TCA and further regulatory efforts by FDA could result in a decrease in cigarette sales in the United States, including sales of Liggett’s and Vector Tobacco’s brands. Compliance and related costs are not possible to predict and depend substantially on the future requirements imposed by FDA under the law. Costs, however, could be substantial and could have a material adverse effect on the companies’ financial condition, results of operations, and cash flows. In addition, FDA has a number of investigatory and enforcement tools available to it. Failure to comply with the law and with FDA regulatory requirements could result in significant financial penalties and could have a material adverse effect on the business, financial condition and results of operation of both Liggett and Vector Tobacco. At present, we are not able to predict whether the law will impact Liggett and Vector Tobacco to a greater degree than other companies in the industry, thus affecting our competitive position.

Maintaining the integrity of our computer systems and protecting confidential information and personal identifying information has become increasingly costly, as cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact our reputation and results of operations.
Global cybersecurity threats and incidents can range from uncoordinated individual attempts that gain unauthorized access to information technology systems both internally and externally, to sophisticated and targeted measures known as advanced persistent threats, directed at the Company and its affiliated agents. In the ordinary course of our business, we collect and store sensitive data, including our proprietary business information and intellectual property, and personally identifiable information of our tobacco and real estate customers. Additionally, we increasingly rely on third-party data storage providers, including cloud storage solution providers. The secure processing, maintenance and transmission of this information are critical to our operations and with respect to information collected and stored by our third-party service providers, we are reliant upon their security procedures. Our systems and the confidential information on them may also be compromised by employee misconduct or employee error. We and our third-party service providers have experienced, and expect to continue to experience, these types of internal and external threats and incidents, which can result, and have resulted, in the misappropriation and unavailability of critical data and confidential or proprietary information (our own and that of third parties, including personally identifiable information) and the disruption of business operations. Depending on their nature and scope, these incidents could potentially also result in the destruction or corruption of such data and information. Our business interruption insurance may be insufficient to compensate us for losses that may occur. The potential consequences of a material cybersecurity incident include reputational damage, litigation with third parties, diminution in the value of the services we provide to our customers, and increased cybersecurity protection and remediation costs, which in turn could adversely affect our competitiveness and results of operations. Developments in the laws and regulations governing the handling and transmission of personal identifying information in the United States may require us to devote more resources to protecting such information, which could in turn adversely affect our results of operations and financial condition.




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

No equity securities of ours which were not registered under the Securities Act have been issued or sold by us during the three months ended March 31,June 30, 2021.

Issuer Purchase of Equity Securities

Our purchase of our common stock during the three months ended June 30, 2021 were as follows:
PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
April 1 to April 30, 2021— $— (1)— — 
May 1 to May 31, 202142,029 14.48 — — 
June 1 to June 30, 2021— — — — 
  Total42,029 $14.48 — — 

(1) Delivery of shares to us in payment of tax withholding in connection with several employees’ vesting in restricted stock. The shares were immediately canceled.
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Item 6.    Exhibits:

* 4.1
Indenture, dated as of January 28, 2021, among Vector Group Ltd., the guarantors named therein and U.S. Bank National Association, as trustee and collateral agent (incorporated by reference to Exhibit 4.1 of Vector’s Form 8-K dated January 28, 2021).
* 4.2
Pledge Agreement, dated as of January 28, 2021, between VGR Holding LLC and U.S. Bank National Association, as collateral agent (incorporated by reference to Exhibit 4.2 of Vector’s Form 8-K dated January 28, 2021).
* 4.3
Security Agreement, dated as of January 28, 2021, between Vector Tobacco Inc. and U.S. Bank National Association, as collateral agent (incorporated by reference to Exhibit 4.3 of Vector’s Form 8-K dated January 28, 2021).
* 4.4
Security Agreement, dated as of January 28, 2021, among Liggett Group LLC, 100 Maple LLC and U.S. Bank National Association, as collateral agent (incorporated by reference to Exhibit 4.4 of Vector’s Form 8-K dated January 28, 2021).
* 4.5
Second Amended and Restated Intercreditor and Lien Subordination Agreement, dated as of January 28, 2021, among Liggett Group LLC, 100 Maple LLC, U.S. Bank National Association and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.5 of Vector’s Form 8-K dated January 28, 2021).
Amendment to the Employment Agreement dated January 15, 2021 between Vector Group Ltd. Amended and Richard J. Lampen (incorporated by reference to Exhibit 10.1 in Vector’s Form 8-K dated January 14, 2021).Restated 2014 Management Incentive Plan.
Restricted Shares Award Agreement Pursuant to the Vector Group Ltd. Amended and Restated 2014 Management Incentive Plan.
Performance-based Restricted Shares Award Agreement Pursuant to the Vector Group Ltd. Amended and Restated 2014 Management Incentive Plan.
Third Amended and Restated Credit Agreement, dated as of January 14, 2015, among Liggett Group LLC, 100 Maple LLC, and, upon its accession thereto pursuant to Amendment No. 4 and Joinder, Vector Tobacco Inc., the lenders party thereto from time to time and Wells Fargo Bank, National Association, as administrative and collateral agent, as amended by Amendment No. 1 to Third Amended and Restated Credit Agreement, dated as of January 27, 2017, Amendment No. 2 to Third Amended and Restated Credit Agreement, dated as of October 30, 2018, Amendment No. 3 to Third Amended and Restated Credit Agreement, dated as of October 31, 2019, and Amendment No. 4 and Joinder to Third Amended and Restated Credit Agreement, dated as of March 22, 2021 (incorporated by reference to Exhibit 10.1 of Vector’s Form 8-K dated March 22, 2021).
List of Subsidiary Guarantors (incorporated by reference to Exhibit 22 of Vector’s Form 10-K for the year ended December 31, 2020).
Certification of Chief Executive Officer, Pursuant to Exchange Act Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer, Pursuant to Exchange Act Rule 13a-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Material Legal Proceedings.
Condensed Consolidating Financial Statements of Vector Group Ltd.
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema
101.CALInline XBRL Taxonomy Extension Calculation Linkbase
101.DEFInline XBRL Taxonomy Extension Definition Linkbase
101.LABInline XBRL Taxonomy Extension Label Linkbase
101.PREInline XBRL Taxonomy Extension Presentation Linkbase
104Cover Page Interactive Data File (the cover page tabs are embedded within the Inline XBRL document).
* Incorporated by reference
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SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

VECTOR GROUP LTD.
(Registrant)
By: /s/ J. Bryant Kirkland III
J. Bryant Kirkland III
Senior Vice President, Treasurer and
Chief Financial Officer
Date:MayAugust 6, 2021
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