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 June 30, 20212022
☐ 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)
| | | | | | | | |
Delaware | 1-5759 | 65-0949535 |
(State or other jurisdiction of incorporation | Commission 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: | Trading | Name of each exchange |
| Symbol(s) | on which registered: |
Common stock, par value $0.10 per share | VGR | New 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 filer | ☐ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging 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 August 3, 2021,4, 2022, Vector Group Ltd. had 153,959,427154,795,902 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 June 30, 20212022 and December 31, 20202021 | |
| |
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 20212022 and 20202021 | |
| |
Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 20212022 and 20202021 | |
| |
Condensed Consolidated Statements of Stockholders' Deficiency for the three and six months ended June 30, 20212022 and 20202021 | |
| |
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 20212022 and 20202021 | |
| |
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 | |
VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
| | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
ASSETS: | ASSETS: | | | | ASSETS: | | | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 490,390 | | | $ | 352,842 | | Cash and cash equivalents | $ | 323,885 | | | $ | 193,411 | |
Investment securities at fair value | Investment securities at fair value | 157,001 | | | 135,585 | | Investment securities at fair value | 122,394 | | | 146,687 | |
| Accounts receivable - trade, net | Accounts receivable - trade, net | 51,463 | | | 40,711 | | Accounts receivable - trade, net | 29,728 | | | 16,067 | |
Inventories | Inventories | 93,161 | | | 97,545 | | Inventories | 93,419 | | | 94,615 | |
| Income taxes receivable, net | | Income taxes receivable, net | 4,279 | | | 10,948 | |
| Other current assets | Other current assets | 46,171 | | | 37,220 | | Other current assets | 7,938 | | | 10,075 | |
Total current assets | Total current assets | 838,186 | | | 663,903 | | Total current assets | 581,643 | | | 471,803 | |
Property, plant and equipment, net | Property, plant and equipment, net | 72,804 | | | 77,988 | | Property, plant and equipment, net | 36,030 | | | 36,883 | |
Investments in real estate, net | Investments in real estate, net | 9,608 | | | 15,631 | | Investments in real estate, net | — | | | 9,098 | |
Long-term investments (includes $35,534 and $34,218 at fair value) | 55,362 | | | 52,528 | | |
Long-term investments (includes $29,090 and $32,089 at fair value) | | Long-term investments (includes $29,090 and $32,089 at fair value) | 45,522 | | | 53,073 | |
Investments in real estate ventures | Investments in real estate ventures | 76,192 | | | 85,400 | | Investments in real estate ventures | 108,864 | | | 105,062 | |
| Operating lease right-of-use assets | Operating lease right-of-use assets | 138,057 | | | 145,356 | | Operating lease right-of-use assets | 9,272 | | | 10,972 | |
Goodwill and other intangible assets, net | 207,497 | | | 207,577 | | |
Intangible assets | | Intangible assets | 107,511 | | | 107,511 | |
Other assets | Other assets | 98,671 | | | 95,026 | | Other assets | 105,762 | | | 76,685 | |
Total assets | Total assets | $ | 1,496,377 | | | $ | 1,343,409 | | Total assets | $ | 994,604 | | | $ | 871,087 | |
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 | $ | 12,558 | | | $ | 12,557 | | Current portion of notes payable and long-term debt | $ | 51 | | | $ | 79 | |
| Current payments due under the Master Settlement Agreement | Current payments due under the Master Settlement Agreement | 89,488 | | | 38,767 | | Current payments due under the Master Settlement Agreement | 136,245 | | | 11,886 | |
| Income taxes payable, net | 13,834 | | | 5,847 | | |
| | Current operating lease liability | Current operating lease liability | 26,625 | | | 27,207 | | Current operating lease liability | 3,795 | | | 3,838 | |
| Other current liabilities | Other current liabilities | 223,498 | | | 198,937 | | Other current liabilities | 144,659 | | | 149,487 | |
Total current liabilities | Total current liabilities | 366,003 | | | 283,315 | | Total current liabilities | 284,750 | | | 165,290 | |
Notes payable, long-term debt and other obligations, less current portion | Notes payable, long-term debt and other obligations, less current portion | 1,402,827 | | | 1,393,729 | | Notes payable, long-term debt and other obligations, less current portion | 1,400,701 | | | 1,398,591 | |
| Non-current employee benefits | Non-current employee benefits | 66,829 | | | 66,616 | | Non-current employee benefits | 69,357 | | | 68,970 | |
Deferred income taxes, net | Deferred income taxes, net | 36,602 | | | 32,456 | | Deferred income taxes, net | 33,518 | | | 34,768 | |
Non-current operating lease liability | Non-current operating lease liability | 144,487 | | | 154,199 | | Non-current operating lease liability | 6,981 | | | 8,853 | |
Payments due under the Master Settlement Agreement | Payments due under the Master Settlement Agreement | 13,224 | | | 17,933 | | Payments due under the Master Settlement Agreement | 11,116 | | | 13,224 | |
| Other liabilities | Other liabilities | 58,450 | | | 54,848 | | Other liabilities | 19,093 | | | 22,944 | |
Total liabilities | Total liabilities | 2,088,422 | | | 2,003,096 | | Total liabilities | 1,825,516 | | | 1,712,640 | |
Commitments and contingencies (Note 9) | Commitments and contingencies (Note 9) | 0 | | 0 | Commitments and contingencies (Note 9) | 0 | | 0 |
Stockholders' deficiency: | Stockholders' deficiency: | | Stockholders' deficiency: | |
Preferred stock, par value $1 per share, 10,000,000 shares authorized | Preferred stock, par value $1 per share, 10,000,000 shares authorized | 0 | | | 0 | | Preferred stock, par value $1 per share, 10,000,000 shares authorized | — | | | — | |
Common stock, par value $0.1 per share, 250,000,000 shares authorized, 154,156,100 and 153,324,629 shares issued and outstanding | 15,416 | | | 15,332 | | |
Common stock, par value $0.1 per share, 250,000,000 shares authorized, 154,896,129 and 153,959,427 shares issued and outstanding | | Common stock, par value $0.1 per share, 250,000,000 shares authorized, 154,896,129 and 153,959,427 shares issued and outstanding | 15,490 | | | 15,396 | |
Additional paid-in capital | Additional paid-in capital | 5,048 | | | 0 | | Additional paid-in capital | 3,066 | | | 11,172 | |
Accumulated deficit | Accumulated deficit | (591,911) | | | (653,945) | | Accumulated deficit | (834,297) | | | (852,398) | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (20,598) | | | (21,074) | | Accumulated other comprehensive loss | (15,171) | | | (15,723) | |
| Total Vector Group Ltd. stockholders' deficiency | Total Vector Group Ltd. stockholders' deficiency | (592,045) | | | (659,687) | | Total Vector Group Ltd. stockholders' deficiency | (830,912) | | | (841,553) | |
Non-controlling interest | 0 | | | 0 | | |
Total stockholders' deficiency | (592,045) | | | (659,687) | | |
| Total liabilities and stockholders' deficiency | Total liabilities and stockholders' deficiency | $ | 1,496,377 | | | $ | 1,343,409 | | Total liabilities and stockholders' deficiency | $ | 994,604 | | | $ | 871,087 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, | | June 30, | | June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Revenues: | Revenues: | | | | | | | | Revenues: | | | | | | | |
Tobacco* | Tobacco* | $ | 329,496 | | | $ | 312,510 | | | $ | 597,959 | | | $ | 599,579 | | Tobacco* | $ | 374,312 | | | $ | 329,496 | | | $ | 683,360 | | | $ | 597,959 | |
Real estate | Real estate | 400,033 | | | 133,250 | | | 675,334 | | | 300,669 | | Real estate | 12,890 | | | 8,058 | | | 15,884 | | | 10,583 | |
| Total revenues | Total revenues | 729,529 | | | 445,760 | | | 1,273,293 | | | 900,248 | | Total revenues | 387,202 | | | 337,554 | | | 699,244 | | | 608,542 | |
| Expenses: | Expenses: | | Expenses: | |
Cost of sales: | Cost of sales: | | Cost of sales: | |
Tobacco* | Tobacco* | 206,145 | | | 214,067 | | | 370,176 | | | 411,357 | | Tobacco* | 265,189 | | | 206,145 | | | 476,726 | | | 370,176 | |
Real estate | Real estate | 294,265 | | | 90,818 | | | 493,776 | | | 204,151 | | Real estate | 6,049 | | | 7,746 | | | 7,327 | | | 8,622 | |
| Total cost of sales | Total cost of sales | 500,410 | | | 304,885 | | | 863,952 | | | 615,508 | | Total cost of sales | 271,238 | | | 213,891 | | | 484,053 | | | 378,798 | |
| Operating, selling, administrative and general expenses | Operating, selling, administrative and general expenses | 92,043 | | | 71,064 | | | 182,057 | | | 161,581 | | Operating, selling, administrative and general expenses | 25,196 | | | 29,770 | | | 49,225 | | | 59,871 | |
Litigation settlement and judgment expense | Litigation settlement and judgment expense | 0 | | | 53 | | | 5 | | | 53 | | Litigation settlement and judgment expense | 57 | | | — | | | 129 | | | 5 | |
Impairments of goodwill and other intangible assets | 0 | | | 0 | | | 0 | | | 58,252 | | |
Restructuring charges | 0 | | | 2,961 | | | 0 | | | 2,961 | | |
| Operating income | Operating income | 137,076 | | | 66,797 | | | 227,279 | | | 61,893 | | Operating income | 90,711 | | | 93,893 | | | 165,837 | | | 169,868 | |
| Other income (expenses): | Other income (expenses): | | Other income (expenses): | |
Interest expense | Interest expense | (28,115) | | | (29,358) | | | (56,866) | | | (64,985) | | Interest expense | (30,724) | | | (28,072) | | | (55,822) | | | (56,793) | |
Loss on extinguishment of debt | Loss on extinguishment of debt | 0 | | | 0 | | | (21,362) | | | 0 | | Loss on extinguishment of debt | — | | | — | | | — | | | (21,362) | |
Change in fair value of derivatives embedded within convertible debt | 0 | | | 1,669 | | | 0 | | | 4,999 | | |
| Equity in earnings from investments | 941 | | | 2,207 | | | 1,518 | | | 52,359 | | |
Equity in earnings (losses) from real estate ventures | 16,685 | | | (12,260) | | | 18,274 | | | (18,765) | | |
Equity in (losses) earnings from investments | | Equity in (losses) earnings from investments | (2,311) | | | 941 | | | (4,553) | | | 1,518 | |
Equity in (losses) earnings from real estate ventures | | Equity in (losses) earnings from real estate ventures | (460) | | | 16,610 | | | (2,337) | | | 18,199 | |
Other, net | Other, net | 5,578 | | | 7,635 | | | 8,332 | | | (3,020) | | Other, net | (3,094) | | | 8,613 | | | (4,239) | | | 11,319 | |
Income before provision for income taxes | Income before provision for income taxes | 132,165 | | | 36,690 | | | 177,175 | | | 32,481 | | Income before provision for income taxes | 54,122 | | | 91,985 | | | 98,886 | | | 122,749 | |
Income tax expense | Income tax expense | 38,860 | | | 10,916 | | | 51,913 | | | 9,938 | | Income tax expense | 14,969 | | | 27,004 | | | 27,191 | | | 36,218 | |
| Income from continuing operations | | Income from continuing operations | 39,153 | | | 64,981 | | | 71,695 | | | 86,531 | |
Income from discontinued operations, net of income taxes | | Income from discontinued operations, net of income taxes | — | | | 28,324 | | | — | | | 38,731 | |
Net income | Net income | 93,305 | | | 25,774 | | | 125,262 | | | 22,543 | | Net income | $ | 39,153 | | | $ | 93,305 | | | $ | 71,695 | | | $ | 125,262 | |
| Net income attributed to non-controlling interest | 0 | | | 0 | | | 0 | | | 0 | | |
| 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 applicable to common shares attributed to Vector Group Ltd. | $ | 0.61 | | | $ | 0.17 | | | $ | 0.81 | | | $ | 0.14 | | |
Net income from continuing operations applicable to common shares | | Net income from continuing operations applicable to common shares | $ | 0.25 | | | $ | 0.41 | | | $ | 0.46 | | | $ | 0.55 | |
Net income from discontinued operations applicable to common shares | | Net income from discontinued operations applicable to common shares | — | | | 0.19 | | | — | | | 0.25 | |
Net income applicable to common shares | | Net income applicable to common shares | $ | 0.25 | | | $ | 0.60 | | | $ | 0.46 | | | $ | 0.80 | |
| Per diluted common share: | Per diluted common share: | | Per diluted common share: | |
| Net income applicable to common shares attributed to Vector Group Ltd. | $ | 0.61 | | | $ | 0.16 | | | $ | 0.81 | | | $ | 0.14 | | |
Net income from continuing operations applicable to common shares | | Net income from continuing operations applicable to common shares | $ | 0.25 | | | $ | 0.41 | | | $ | 0.45 | | | $ | 0.55 | |
Net income from discontinued operations applicable to common shares | | Net income from discontinued operations applicable to common shares | — | | | 0.19 | | | — | | | 0.25 | |
Net income applicable to common shares | | Net income applicable to common shares | $ | 0.25 | | | $ | 0.60 | | | $ | 0.45 | | | $ | 0.80 | |
* Revenues and cost of sales include federal excise taxes of $137,884, $118,735, $121,170,$253,963, and $216,449 and $234,309 for the three and six months ended June 30, 20212022 and 2020,2021, respectively.
The accompanying notes are an integral part of the condensed consolidated financial statements.
VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
Unaudited
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, | | June 30, | | June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | | |
Net income | Net income | $ | 93,305 | | | $ | 25,774 | | | $ | 125,262 | | | $ | 22,543 | | Net income | $ | 39,153 | | | $ | 93,305 | | | $ | 71,695 | | | $ | 125,262 | |
| Net unrealized (losses) gains on investment securities available for sale: | | |
Change in net unrealized (losses) gains | (122) | | | 644 | | | (304) | | | (20) | | |
Net unrealized losses on investment securities available for sale: | | Net unrealized losses on investment securities available for sale: | |
Change in net unrealized losses | | Change in net unrealized losses | (671) | | | (122) | | | (1,893) | | | (304) | |
Net unrealized losses (gains) reclassified into net income | Net unrealized losses (gains) reclassified into net income | 34 | | | (70) | | | (7) | | | 433 | | Net unrealized losses (gains) reclassified into net income | 665 | | | 34 | | | 1,830 | | | (7) | |
Net unrealized (losses) gains on investment securities available for sale | (88) | | | 574 | | | (311) | | | 413 | | |
Net unrealized losses on investment securities available for sale | | Net unrealized losses on investment securities available for sale | (6) | | | (88) | | | (63) | | | (311) | |
| | Net change in pension-related amounts: | Net change in pension-related amounts: | | Net change in pension-related amounts: | |
| Amortization of loss | Amortization of loss | 481 | | | 463 | | | 963 | | | 927 | | Amortization of loss | 404 | | | 481 | | | 808 | | | 963 | |
| Net change in pension-related amounts | | Net change in pension-related amounts | 404 | | | 481 | | | 808 | | | 963 | |
| Other comprehensive income | Other comprehensive income | 393 | | | 1,037 | | | 652 | | | 1,340 | | Other comprehensive income | 398 | | | 393 | | | 745 | | | 652 | |
| Income tax effect on: | Income tax effect on: | | Income tax effect on: | |
Change in net unrealized (losses) gains on investment securities | 33 | | | (174) | | | 82 | | | 6 | | |
Change in net unrealized losses on investment securities | | Change in net unrealized losses on investment securities | 172 | | | 33 | | | 488 | | | 82 | |
Net unrealized losses (gains) reclassified into net income on investment securities | Net unrealized losses (gains) reclassified into net income on investment securities | (9) | | | 19 | | | 2 | | | (117) | | Net unrealized losses (gains) reclassified into net income on investment securities | (171) | | | (9) | | | (472) | | | 2 | |
| Pension-related amounts | Pension-related amounts | (130) | | | (125) | | | (260) | | | (250) | | Pension-related amounts | (104) | | | (130) | | | (209) | | | (260) | |
Income tax provision on other comprehensive income | Income tax provision on other comprehensive income | (106) | | | (280) | | | (176) | | | (361) | | Income tax provision on other comprehensive income | (103) | | | (106) | | | (193) | | | (176) | |
| Other comprehensive income, net of tax | Other comprehensive income, net of tax | 287 | | | 757 | | | 476 | | | 979 | | Other comprehensive income, net of tax | 295 | | | 287 | | | 552 | | | 476 | |
| Comprehensive income | Comprehensive income | 93,592 | | | 26,531 | | | 125,738 | | | 23,522 | | Comprehensive income | $ | 39,448 | | | $ | 93,592 | | | $ | 72,247 | | | $ | 125,738 | |
| Comprehensive income attributed to non-controlling interest | 0 | | | 0 | | | 0 | | | 0 | | |
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.
VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(Dollars in Thousands, Except Share Amounts)
Unaudited
| | | Vector Group Ltd. Stockholders' Deficiency | | | Vector Group Ltd. Stockholders' Deficiency | |
| | | | Additional Paid-In | | Accumulated Other Comprehensive | | | Non-controlling | | | | | Additional Paid-In | | Accumulated Other Comprehensive | | | Non-controlling | |
| | Common Stock | | Accumulated | | | | | Common Stock | | Accumulated | | | |
| | Shares | | Amount | | Capital | | Deficit | | Loss | | | Interest | | Total | | Shares | | Amount | | Capital | | Deficit | | Loss | | | Interest | | Total |
Balance as of April 1, 2021 | 154,194,629 | | | $ | 15,419 | | | $ | 2,573 | | | $ | (653,606) | | | $ | (20,885) | | | | $ | 0 | | | $ | (656,499) | | |
Balance as of April 1, 2022 | | Balance as of April 1, 2022 | 154,938,177 | | | $ | 15,494 | | | $ | 12,183 | | | $ | (852,863) | | | $ | (15,466) | | | | $ | — | | | $ | (840,652) | |
| Net income | Net income | — | | | — | | | — | | | 93,305 | | | — | | | | — | | | 93,305 | | Net income | — | | | — | | | — | | | 39,153 | | | — | | | | — | | | 39,153 | |
| Total other comprehensive income | Total other comprehensive income | — | | | — | | | — | | | — | | | 287 | | | | — | | | 287 | | Total other comprehensive income | — | | | — | | | — | | | — | | | 295 | | | | — | | | 295 | |
| Dividends on common stock ($0.20 per share) | Dividends on common stock ($0.20 per share) | — | | | — | | | — | | | (31,610) | | | — | | | | — | | | (31,610) | | Dividends on common stock ($0.20 per share) | — | | | — | | | — | | | (31,759) | | | — | | | | — | | | (31,759) | |
Restricted stock grant | 3,500 | | | 1 | | | (1) | | | — | | | — | | | | — | | | 0 | | |
| Surrender of shares in connection with restricted stock vesting | (42,029) | | | (4) | | | (604) | | | — | | | — | | | | — | | | (608) | | |
| Withholding of shares as payment of payroll tax liabilities in connection with restricted stock vesting | | Withholding of shares as payment of payroll tax liabilities in connection with restricted stock vesting | (42,048) | | | (4) | | | (515) | | | — | | | — | | | | — | | | (519) | |
| Stock-based compensation | Stock-based compensation | — | | | — | | | 3,080 | | | — | | | — | | | | — | | | 3,080 | | Stock-based compensation | — | | | — | | | 2,570 | | | — | | | — | | | | — | | | 2,570 | |
| Reallocation of distribution of Douglas Elliman | | Reallocation of distribution of Douglas Elliman | — | | | — | | | (11,172) | | | 11,172 | | | — | | | | — | | | — | |
| Balance as of June 30, 2021 | 154,156,100 | | | $ | 15,416 | | | $ | 5,048 | | | $ | (591,911) | | | $ | (20,598) | | | | $ | 0 | | | $ | (592,045) | | |
| Balance as of June 30, 2022 | | Balance as of June 30, 2022 | 154,896,129 | | | $ | 15,490 | | | $ | 3,066 | | | $ | (834,297) | | | $ | (15,171) | | | | $ | — | | | $ | (830,912) | |
| | | Vector Group Ltd. Stockholders' Deficiency | | | Vector Group Ltd. Stockholders' Deficiency | |
| | | | Additional Paid-In | | Accumulated Other Comprehensive | | | Non-controlling | | | | | Additional Paid-In | | Accumulated Other Comprehensive | | | Non-controlling | |
| | Common Stock | | Accumulated | | | | | Common Stock | | Accumulated | | | |
| | Shares | | Amount | | Capital | | Deficit | | Loss | | | Interest | | Total | | Shares | | Amount | | Capital | | Deficit | | Loss | | | Interest | | Total |
Balance as of April 1, 2020 | 148,084,900 | | | $ | 14,808 | | | $ | 0 | | | $ | (712,221) | | | $ | (21,586) | | | | $ | 0 | | | $ | (718,999) | | |
Balance as of April 1, 2021 | | Balance as of April 1, 2021 | 154,194,629 | | | $ | 15,419 | | | $ | 2,573 | | | $ | (653,606) | | | $ | (20,885) | | | | $ | — | | | $ | (656,499) | |
| Net income | Net income | — | | | — | | | — | | | 25,774 | | | — | | | | — | | | 25,774 | | Net income | — | | | — | | | — | | | 93,305 | | | — | | | | — | | | 93,305 | |
| Total other comprehensive income | Total other comprehensive income | — | | | — | | | — | | | — | | | 757 | | | | — | | | 757 | | Total other comprehensive income | — | | | — | | | — | | | — | | | 287 | | | | — | | | 287 | |
| Distributions and dividends on common stock ($0.20 per share) | Distributions and dividends on common stock ($0.20 per share) | — | | | — | | | (54,244) | | | 22,644 | | | — | | | | — | | | (31,600) | | Distributions and dividends on common stock ($0.20 per share) | — | | | — | | | — | | | (31,610) | | | — | | | | — | | | (31,610) | |
Restricted stock grant | Restricted stock grant | 405,000 | | | 41 | | | (41) | | | — | | | — | | | | — | | | 0 | | Restricted stock grant | 3,500 | | | 1 | | | (1) | | | — | | | — | | | | — | | | — | |
| Surrender of shares in connection with restricted stock vesting | (5,423) | | | (1) | | | (61) | | | — | | | — | | | | — | | | (62) | | |
Withholding of shares as payment of payroll tax liabilities in connection with restricted stock vesting | | Withholding of shares as payment of payroll tax liabilities in connection with restricted stock vesting | (42,029) | | | (4) | | | (604) | | | — | | | — | | | | — | | | (608) | |
| Issuance of common stock | 5,000,000 | | | 500 | | | 52,063 | | | — | | | — | | | | — | | | 52,563 | | |
| | Stock-based compensation | Stock-based compensation | — | | | — | | | 2,283 | | | — | | | — | | | | — | | | 2,283 | | Stock-based compensation | — | | | — | | | 3,080 | | | — | | | — | | | | — | | | 3,080 | |
| Other | — | | | — | | | — | | | 80 | | | — | | | | — | | | 80 | | |
Balance as of June 30, 2020 | 153,484,477 | | | $ | 15,348 | | | $ | 0 | | | $ | (663,723) | | | $ | (20,829) | | | | $ | 0 | | | $ | (669,204) | | |
| Balance as of June 30, 2021 | | Balance as of June 30, 2021 | 154,156,100 | | | $ | 15,416 | | | $ | 5,048 | | | $ | (591,911) | | | $ | (20,598) | | | | $ | — | | | $ | (592,045) | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
| | | Vector Group Ltd. Stockholders' Deficiency | | | | Vector Group Ltd. Stockholders' Deficiency | | |
| | | | Additional Paid-In | | Accumulated Other Comprehensive | | | Non-controlling | | | | | Additional Paid-In | | Accumulated Other Comprehensive | | | |
| | Common Stock | | Accumulated | | | | | Common Stock | | Accumulated | | | |
| | Shares | | Amount | | Capital | | Deficit | | Loss | | | Interest | | Total | | Shares | | Amount | | Capital | | Deficit | | Loss | | | Total |
Balance as of January 1, 2021 | 153,324,629 | | | $ | 15,332 | | | $ | 0 | | | $ | (653,945) | | | $ | (21,074) | | | | $ | 0 | | | $ | (659,687) | | |
Balance as of January 1, 2022 | | Balance as of January 1, 2022 | 153,959,427 | | | $ | 15,396 | | | $ | 11,172 | | | $ | (852,398) | | | $ | (15,723) | | | | $ | (841,553) | |
| Net income | Net income | — | | | — | | | — | | | 125,262 | | | — | | | | — | | | 125,262 | | Net income | — | | | — | | | — | | | 71,695 | | | — | | | | 71,695 | |
| Total other comprehensive income | Total other comprehensive income | — | | | — | | | — | | | — | | | 476 | | | | — | | | 476 | | Total other comprehensive income | — | | | — | | | — | | | — | | | 552 | | | | 552 | |
| Dividends on common stock ($0.40 per share) | Dividends on common stock ($0.40 per share) | — | | | — | | | — | | | (63,228) | | | — | | | | — | | | (63,228) | | Dividends on common stock ($0.40 per share) | — | | | — | | | — | | | (63,526) | | | — | | | | (63,526) | |
Restricted stock grants | Restricted stock grants | 873,500 | | | 88 | | | (88) | | | — | | | — | | | | — | | | 0 | | Restricted stock grants | 1,070,000 | | | 107 | | | (107) | | | — | | | — | | | | — | |
| Surrender of shares in connection with restricted stock vesting | (42,029) | | | (4) | | | (604) | | | — | | | — | | | | — | | | (608) | | |
Withholding of shares as payment of payroll tax liabilities in connection with restricted stock vesting | | Withholding of shares as payment of payroll tax liabilities in connection with restricted stock vesting | (133,298) | | | (13) | | | (1,544) | | | — | | | — | | | | (1,557) | |
| Stock-based compensation | Stock-based compensation | — | | | — | | | 5,740 | | | — | | | — | | | | — | | | 5,740 | | Stock-based compensation | — | | | — | | | 4,717 | | | — | | | — | | | | 4,717 | |
| Balance as of June 30, 2021 | 154,156,100 | | | $ | 15,416 | | | $ | 5,048 | | | $ | (591,911) | | | $ | (20,598) | | | | $ | 0 | | | $ | (592,045) | | |
Reallocation of distribution of Douglas Elliman | | Reallocation of distribution of Douglas Elliman | — | | | — | | | (11,172) | | | 11,172 | | | — | | | | — | |
Other | | Other | — | | | — | | | — | | | (1,240) | | | — | | | | (1,240) | |
Balance as of June 30, 2022 | | Balance as of June 30, 2022 | 154,896,129 | | | $ | 15,490 | | | $ | 3,066 | | | $ | (834,297) | | | $ | (15,171) | | | | $ | (830,912) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Vector Group Ltd. Stockholders' Deficiency | | | | |
| | | Additional Paid-In | | | | Accumulated Other Comprehensive | | | | Non-controlling | | |
| Common Stock | | | Accumulated | | | | | | |
| Shares | | Amount | | Capital | | Deficit | | Loss | | | | Interest | | Total |
Balance as of January 1, 2020 | 148,084,900 | | | $ | 14,808 | | | $ | 0 | | | $ | (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 grant | 405,000 | | | 41 | | | (41) | | | — | | | — | | | | | — | | | 0 | |
| | | | | | | | | | | | | | | |
Surrender of shares in connection with restricted stock vesting | (5,423) | | | (1) | | | (61) | | | — | | | — | | | | | — | | | (62) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Issuance of common stock | 5,000,000 | | | 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, 2020 | 153,484,477 | | | $ | 15,348 | | | $ | 0 | | | $ | (663,723) | | | $ | (20,829) | | | | | $ | 0 | | | $ | (669,204) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Vector Group Ltd. Stockholders' Deficiency | | | | |
| | | Additional Paid-In | | | | Accumulated Other Comprehensive | | | | | | |
| Common Stock | | | Accumulated | | | | | | |
| Shares | | Amount | | Capital | | Deficit | | Loss | | | | | | Total |
Balance as of January 1, 2021 | 153,324,629 | | | $ | 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 grant | 873,500 | | | 88 | | | (88) | | | — | | | — | | | | | | | — | |
| | | | | | | | | | | | | | | |
Withholding of shares as payment of payroll tax liabilities in connection with restricted stock vesting | (42,029) | | | (4) | | | (604) | | | — | | | — | | | | | | | (608) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | 5,740 | | | — | | | — | | | | | | | 5,740 | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Balance as of June 30, 2021 | 154,156,100 | | | $ | 15,416 | | | $ | 5,048 | | | $ | (591,911) | | | $ | (20,598) | | | | | | | $ | (592,045) | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Unaudited
| | | | | | | | | | | | | Six Months Ended |
| | Six Months Ended | | Six Months Ended | | June 30, |
| | June 30, 2021 | | June 30, 2020 | | 2022 | | 2021 |
Net cash provided by operating activities | Net cash provided by operating activities | $ | 221,300 | | | $ | 341,329 | | Net cash provided by operating activities | $ | 211,211 | | | $ | 221,300 | |
Cash flows from investing activities: | Cash flows from investing activities: | | Cash flows from investing activities: | |
Sale of investment securities | Sale of investment securities | 23,477 | | | 19,555 | | Sale of investment securities | 21,011 | | | 23,477 | |
Maturities of investment securities | Maturities of investment securities | 36,461 | | | 31,574 | | Maturities of investment securities | 36,357 | | | 36,461 | |
Purchase of investment securities | Purchase of investment securities | (74,805) | | | (16,867) | | Purchase of investment securities | (39,000) | | | (74,805) | |
Proceeds from sale or liquidation of long-term investments | Proceeds from sale or liquidation of long-term investments | 8,009 | | | 23,407 | | Proceeds from sale or liquidation of long-term investments | 1,101 | | | 8,009 | |
| Purchase of long-term investments | Purchase of long-term investments | (6,963) | | | (5,238) | | Purchase of long-term investments | (1,000) | | | (6,963) | |
Investments in real estate ventures | Investments in real estate ventures | (9,902) | | | (3,858) | | Investments in real estate ventures | (10,456) | | | (9,902) | |
Distributions from investments in real estate ventures | Distributions from investments in real estate ventures | 11,163 | | | 5,172 | | Distributions from investments in real estate ventures | 3,641 | | | 11,163 | |
Increase in cash surrender value of life insurance policies | Increase in cash surrender value of life insurance policies | (1,348) | | | (751) | | Increase in cash surrender value of life insurance policies | (1,282) | | | (1,348) | |
(Increase) decrease in restricted assets | (5) | | | 87 | | |
| Increase in restricted assets | | Increase in restricted assets | — | | | (5) | |
Issuance of notes receivable | | Issuance of notes receivable | (10) | | | — | |
| Capital expenditures | Capital expenditures | (3,055) | | | (6,242) | | Capital expenditures | (2,911) | | | (3,055) | |
| Paydowns of investment securities | Paydowns of investment securities | 302 | | | 415 | | Paydowns of investment securities | 114 | | | 302 | |
| Investments in real estate, net | 0 | | | (679) | | |
Net cash (used in) provided by investing activities | (16,666) | | | 46,575 | | |
| Net cash provided by (used in) investing activities | | Net cash provided by (used in) investing activities | 7,565 | | | (16,666) | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | Cash flows from financing activities: | | | |
Proceeds from issuance of debt | Proceeds from issuance of debt | 875,000 | | | 531 | | Proceeds from issuance of debt | — | | | 875,000 | |
Deferred financing costs | Deferred financing costs | (20,109) | | | 0 | | Deferred financing costs | — | | | (20,109) | |
Repayments of debt | Repayments of debt | (856,316) | | | (172,467) | | Repayments of debt | (17) | | | (856,316) | |
Borrowings under revolver | 7,699 | | | 130,641 | | |
Repayments on revolver | (7,699) | | | (165,593) | | |
Dividends and distributions on common stock | (63,738) | | | (63,478) | | |
Borrowings under revolving credit facility | | Borrowings under revolving credit facility | 67,373 | | | 7,699 | |
Repayments on revolving credit facility | | Repayments on revolving credit facility | (67,375) | | | (7,699) | |
Dividends on common stock | | Dividends on common stock | (63,327) | | | (63,738) | |
| Distributions to non-controlling interest | 0 | | | (448) | | |
Proceeds from issuance of common stock | 0 | | | 52,563 | | |
| | Other | Other | (51) | | | 5 | | Other | (938) | | | (51) | |
Net cash used in financing activities | Net cash used in financing activities | (65,214) | | | (218,246) | | Net cash used in financing activities | (64,284) | | | (65,214) | |
Net increase in cash, cash equivalents and restricted cash | Net increase in cash, cash equivalents and restricted cash | 139,420 | | | 169,658 | | Net increase in cash, cash equivalents and restricted cash | 154,492 | | | 139,420 | |
Cash, cash equivalents and restricted cash, beginning of period | Cash, cash equivalents and restricted cash, beginning of period | 365,677 | | | 379,476 | | Cash, cash equivalents and restricted cash, beginning of period | 194,849 | | | 365,677 | |
Cash, cash equivalents and restricted cash, end of period | Cash, cash equivalents and restricted cash, end of period | $ | 505,097 | | | $ | 549,134 | | Cash, cash equivalents and restricted cash, end of period | $ | 349,341 | | | $ | 505,097 | |
The accompanying notes are an integral part of the condensed consolidated financial statements.
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.LLC (“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, 20202021 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 income (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 statements of stockholders’ deficiency to the extent of retained earnings.earnings and net income for the respective fiscal year. Any amounts exceeding retained earnings and net income 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 for purposes of determining basic and diluted EPS for discontinued operations and net income available to common stockholders was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
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 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net income from continuing operations | $ | 39,153 | | | $ | 64,981 | | | $ | 71,695 | | | $ | 86,531 | |
Net income from discontinued operations | — | | | 28,324 | | | — | | | 38,731 | |
Net income | 39,153 | | | 93,305 | | | 71,695 | | | 125,262 | |
Income from continuing operations attributable to participating securities | (1,249) | | | (2,699) | | | (2,226) | | | (3,411) | |
Net income applicable to common shares | $ | 37,904 | | | $ | 90,606 | | | $ | 69,469 | | | $ | 121,851 | |
Net income for purposes of determining basic and diluted EPS for continuing operations applicable to common shares was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net income from continuing operations | $ | 39,153 | | | $ | 64,981 | | | $ | 71,695 | | | $ | 86,531 | |
Income from continuing operations attributable to participating securities | (1,249) | | | (1,829) | | | (2,226) | | | (2,261) | |
Net income available to common stockholders | $ | 37,904 | | | $ | 63,152 | | | $ | 69,469 | | | $ | 84,270 | |
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 Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
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 | 0 | | | (375) | | | 0 | | | 0 | |
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 for continuing and discontinued operations were calculated using the following common shares:
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, | | June 30, | | June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Weighted-average shares for basic EPS | Weighted-average shares for basic EPS | 152,285,182 | | | 149,379,306 | | | 152,267,410 | | | 148,189,710 | | Weighted-average shares for basic EPS | 152,700,134 | | | 152,285,182 | | | 152,643,830 | | | 152,267,410 | |
Plus incremental shares related to convertible debt | 0 | | | 1,379,454 | | | 0 | | | 0 | | |
| Plus incremental shares related to stock options and non-vested restricted stock | Plus incremental shares related to stock options and non-vested restricted stock | 282,313 | | | 88,100 | | | 206,381 | | | 85,701 | | Plus incremental shares related to stock options and non-vested restricted stock | 263,362 | | | 282,313 | | | 210,230 | | | 206,381 | |
Weighted-average shares for diluted EPS | Weighted-average shares for diluted EPS | 152,567,495 | | | 150,846,860 | | | 152,473,791 | | | 148,275,411 | | Weighted-average shares for diluted EPS | 152,963,496 | | | 152,567,495 | | | 152,854,060 | | | 152,473,791 | |
It may not be possible to recalculate EPS attributable to common stockholders by adjusting EPS from continuing operations by EPS from discontinued operations as each amount is calculated independently.
The following non-vested restricted stock werewas outstanding during the three and six months ended June 30, 2022 and 2021, and 2020, but werewas 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 periods. 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 Ended | | Six Months Ended | | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, | | June 30, | | June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
| Weighted-average shares of non-vested restricted stock | Weighted-average shares of non-vested restricted stock | 0 | | | 625,122 | | | 0 | | | 625,122 | | Weighted-average shares of non-vested restricted stock | — | | | — | | | — | | | — | |
Weighted-average expense per share | Weighted-average expense per share | $ | 0 | | | $ | 19.54 | | | $ | 0 | | | $ | 19.54 | | Weighted-average expense per share | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Weighted-average number of shares issuable upon conversion of debt | 0 | | | 0 | | | 0 | | | 4,874,072 | | |
Weighted-average conversion price | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 20.27 | | |
|
(d)Other, net:
Other, net consisted of:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| | | | | | | |
Interest and dividend income | $ | 935 | | | $ | 457 | | | $ | 1,385 | | | $ | 991 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net (losses) gains recognized on investment securities | (4,130) | | | 8,401 | | | (7,169) | | | 10,816 | |
Net periodic benefit cost other than the service costs | (237) | | | (243) | | | (473) | | | (487) | |
| | | | | | | |
| | | | | | | |
Other income (expense) | 338 | | | (2) | | | 2,018 | | | (1) | |
Other, net | $ | (3,094) | | | $ | 8,613 | | | $ | (4,239) | | | $ | 11,319 | |
(e)Other Assets:
Other assets consisted of:
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
Restricted assets | $ | 25,569 | | | $ | 1,551 | |
Prepaid pension costs | 45,148 | | | 44,585 | |
Other assets | 35,045 | | | 30,549 | |
Total other assets | $ | 105,762 | | | $ | 76,685 | |
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 Ended | | Six Months Ended |
| June 30, 2020 | | June 30, 2020 |
Cash Charges: | | | |
Employee severance and benefits | $ | 1,599 | | | $ | 1,599 | |
Other restructuring expenses | 218 | | | 218 |
| 1,817 | | | 1,817 | |
Non-Cash: | | | |
�� Loss on fixed assets associated with consolidation of sales offices | 1,144 | | | 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 Benefits | Other | Non-Cash Loss on Fixed Assets | Total |
Accrual balance as of January 1, 2020 | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | |
Restructuring charges | 1,599 | | 218 | | 1,144 | | 2,961 | |
Utilized | (1,239) | | 0 | | (1,144) | | (2,383) | |
Accrual balance as of June 30, 2020 | $ | 360 | | $ | 218 | | $ | 0 | | $ | 578 | |
(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
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.
(f)Other, net:
Other, net consisted of:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | |
Interest and dividend income | $ | 525 | | | $ | 968 | | | $ | 1,136 | | | $ | 3,648 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net gains (losses) recognized on investment securities | 8,469 | | | 4,781 | | | 10,918 | | | (7,459) | |
Net periodic benefit cost other than the service costs | (243) | | | (454) | | | (487) | | | (909) | |
| | | | | | | |
| | | | | | | |
Credit loss income (expense) | 0 | | | 1,128 | | | 0 | | | (432) | |
Other (expense) income | (3,173) | | | 1,212 | | | (3,235) | | | 2,132 | |
Other, net | $ | 5,578 | | | $ | 7,635 | | | $ | 8,332 | | | $ | (3,020) | |
(g)Other Assets:
Other assets consisted of:
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Restricted assets | $ | 4,170 | | | $ | 3,456 | |
Prepaid pension costs | 35,751 | | | 35,209 | |
Contract assets, net | 23,538 | | | 24,002 | |
Other assets | 35,212 | | | 32,359 | |
Total other assets | $ | 98,671 | | | $ | 95,026 | |
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 | | June 30, 2022 | | December 31, 2021 |
Accounts payable | Accounts payable | $ | 10,718 | | | $ | 12,846 | | Accounts payable | $ | 7,590 | | | $ | 9,443 | |
Accrued promotional expenses | Accrued promotional expenses | 49,269 | | | 45,579 | | Accrued promotional expenses | 60,342 | | | 55,647 | |
Accrued excise and payroll taxes payable, net | Accrued excise and payroll taxes payable, net | 22,973 | | | 13,849 | | Accrued excise and payroll taxes payable, net | 22,701 | | | 22,919 | |
Accrued interest | Accrued interest | 30,998 | | | 31,624 | | Accrued interest | 30,676 | | | 30,676 | |
Commissions payable | 38,832 | | | 25,615 | | |
Accrued salaries and benefits | Accrued salaries and benefits | 25,517 | | | 27,104 | | Accrued salaries and benefits | 5,979 | | | 13,982 | |
Contract liabilities | 7,507 | | | 7,633 | | |
Allowance for sales returns | Allowance for sales returns | 7,414 | | | 7,356 | | Allowance for sales returns | 6,496 | | | 6,669 | |
Other current liabilities | Other current liabilities | 30,270 | | | 27,331 | | Other current liabilities | 10,875 | | | 10,151 | |
Total other current liabilities | Total other current liabilities | $ | 223,498 | | | $ | 198,937 | | Total other current liabilities | $ | 144,659 | | | $ | 149,487 | |
(i)(g)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:
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Cash and cash equivalents | $ | 490,390 | | | $ | 352,842 | |
Restricted cash and cash equivalents included in other current assets | 11,364 | | | 10,374 | |
Restricted cash and cash equivalents included in other assets | 3,343 | | | 2,461 | |
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. | | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
Cash and cash equivalents | $ | 323,885 | | | $ | 193,411 | |
| | | |
Restricted cash and cash equivalents included in other assets | 25,456 | | | 1,438 | |
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows | $ | 349,341 | | | $ | 194,849 | |
(j)(h)New Accounting PronouncementsRelated Party Transactions:
Agreements with Douglas Elliman. The Company received $1,050 and $2,100 under the Transition Services Agreement and $686 and $1,177 under the Aircraft Lease Agreement during the three and six months ended June 30, 2022.
The Company has agreed to indemnify Douglas Elliman for certain tax matters under the Tax Disaffiliation Agreement. The Company has recorded a payable of $553 in its condensed consolidated balance sheet as of June 30, 2022 as well as Other expense of $553 in its condensed consolidated statement of operations for each of the three and six months ended June 30, 2022 related to the tax indemnification.
Real estate venture investments.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 $201, $4,228, $1,101, and $6,585 from these projects for the three and six months ended June 30, 2022 and 2021, respectively.
(i)New Accounting Standards Updates (“ASU”)Pronouncements:
ASUs to be adopted in 2021:future periods:
In December 2019,October 2021, the Financial Accounting Standards Board (the “FASB”)FASB issued ASU No. 2019-12, Simplifying the2021-08, Business Combinations (Topic 805), Accounting for Income Taxes (“Contract Assets and Contract Liabilities from Contracts with Customers. The ASU 2019-12”). This update simplifies various aspects related to accounting for income taxes, removes certain exceptions to the general principlesrequires that an acquirer recognize and measure contract assets and contract liabilities in Accounting Standards Codification (“ASC”) 740, and clarifies and amends existing guidance to improve consistent application. a business combination in accordance with Topic 606. The ASU No. 2019-12 is effective for fiscal years andbeginning after December 15, 2022, including interim periods within those years, beginning after December 15, 2020. Adoptionfiscal years. The Company is currently evaluating the impact of this update did not have a material impactthe new guidance on the Company’sits 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
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 notSEC Proposed Rules
On March 21, 2022, the SEC proposed rule changes that would require registrants to provide certain climate-related information in their registration statements and annual reports. The proposed rules would require information about a registrant's climate-related risks that are reasonably likely to have a material impact on its business, results of operations, or financial condition. The required information about climate-related risks would also include disclosure of a registrant's greenhouse gas emissions, which have become a commonly used metric to assess a registrant's exposure to such risks. In addition, under the Company’s condensed consolidatedproposed rules, certain climate-related financial metrics would be required in a registrant's audited financial statements.
ASUs to be adopted in future periods:
In March 2020, The Company is currently evaluating the FASB issued ASU No. 2020-04, Facilitationimpact 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.proposed rule changes.
2. REVENUE RECOGNITION
Disaggregation of Revenue
In the following table, revenue is disaggregated by major product line for the Tobacco segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Tobacco Segment Revenues: | | | | | | | | |
Core Discount Brands - Eagle 20’s, Pyramid, Montego, Grand Prix, Liggett Select, and Eve | | $ | 313,264 | | | $ | 295,388 | | | $ | 566,520 | | | $ | 564,393 | |
Other Brands | | 16,232 | | | 17,122 | | | 31,439 | | | 35,186 | |
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 June 30, 2021 | | |
| | New York City | | Northeast | | Southeast | | West | | Total | | |
Real Estate Segment Revenues: | | | | | | | | | | | | |
Commission and other brokerage income - existing home sales | | $ | 105,852 | | | $ | 66,419 | | | $ | 121,966 | | | $ | 51,518 | | | $ | 345,755 | | | |
Commission and other brokerage income - development marketing | | 15,919 | | | 0 | | | 14,078 | | | 281 | | | 30,278 | | | |
Property management revenue | | 9,762 | | | 139 | | | 0 | | | 0 | | | 9,901 | | | |
Escrow and title fees | | 1,413 | | | 392 | | | 0 | | | 4,236 | | | 6,041 | | | |
Total Douglas Elliman revenue | | 132,946 | | | 66,950 | | | 136,044 | | | 56,035 | | | 391,975 | | | |
Other real estate revenues | | 6,750 | | | 0 | | | 0 | | | 1,308 | | | 8,058 | | | |
Total real estate revenues | | $ | 139,696 | | | $ | 66,950 | | | $ | 136,044 | | | $ | 57,343 | | | $ | 400,033 | | | |
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 City | | Northeast | | Southeast | | West | | Total |
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 marketing | | 5,173 | | | 0 | | | 2,747 | | | 586 | | | 8,506 | |
Property management revenue | | 8,617 | | | 215 | | | 0 | | | 0 | | | 8,832 | |
Escrow and title fees | | 474 | | | 369 | | | 0 | | | 0 | | | 843 | |
Total Douglas Elliman revenue | | 50,125 | | | 36,215 | | | 25,979 | | | 20,610 | | | 132,929 | |
Other real estate revenues | | 0 | | | 0 | | | 0 | | | 321 | | | 321 | |
Total real estate revenues | | $ | 50,125 | | | $ | 36,215 | | | $ | 25,979 | | | $ | 20,931 | | | $ | 133,250 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Six Months Ended June 30, 2021 | | |
| | New York City | | Northeast | | Southeast | | West | | Total | | |
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 marketing | | 24,363 | | | 0 | | | 21,385 | | | 614 | | | 46,362 | | | |
Property management revenue | | 18,857 | | | 312 | | | 0 | | | 0 | | | 19,169 | | | |
Escrow and title fees | | 1,879 | | | 809 | | | 0 | | | 7,761 | | | 10,449 | | | |
Total Douglas Elliman revenue | | 221,086 | | | 123,790 | | | 218,904 | | | 100,971 | | | 664,751 | | | |
Other real estate revenues | | 6,750 | | | 0 | | | 0 | | | 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 City | | Northeast | | Southeast | | West | | Total | | |
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 marketing | | 13,624 | | | 0 | | | 9,469 | | | 668 | | | 23,761 | | | |
Property management revenue | | 17,179 | | | 432 | | | 0 | | | 0 | | | 17,611 | | | |
Escrow and title fees | | 1,067 | | | 632 | | | 0 | | | 0 | | | 1,699 | | | |
Total Douglas Elliman revenue | | 117,840 | | | 71,419 | | | 62,879 | | | 46,392 | | | 298,530 | | | |
Other real estate revenues | | 0 | | | 0 | | | 0 | | | 2,139 | | | 2,139 | | | |
Total real estate revenues | | $ | 117,840 | | | $ | 71,419 | | | $ | 62,879 | | | $ | 48,531 | | | $ | 300,669 | | | |
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:
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| | | |
Receivables, which are included in accounts receivable - trade, net | $ | 2,703 | | | $ | 1,520 | |
Contract assets, net, which are included in other current assets | 6,563 | | | 6,529 | |
Payables, which are included in other current liabilities | 2,072 | | | 1,113 | |
Contract liabilities, which are included in other current liabilities | 7,507 | | | 7,633 | |
Contract assets, net, which are included in other assets | 23,538 | | | 24,002 | |
Contract liabilities, which are included in other liabilities | 34,302 | | | 32,104 | |
| | | |
The Company recognized revenuedisaggregates revenues by segment.
Tobacco. Tobacco segment revenues are not disaggregated because all revenues are generated from the discount segment of $1,717 and $2,649 for the three and six months ended June 30, 2021, that were includedU.S. cigarette industry.
Real Estate. Real Estate segment revenues are disaggregated in the contract liabilities balances at December 31, 2020. The Company recognized revenue of $3,921 and $6,658 for the three and six months ended June 30, 2020, that were included in the contract liabilities balances at December 31, 2019.table below.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Real Estate Segment Revenues | | | | | | | |
Sales on facilities located on investments in real estate | $ | 290 | | | $ | 1,308 | | | $ | 3,259 | | | $ | 2,933 | |
Revenues from investments in real estate | 12,600 | | | 6,750 | | | 12,625 | | | 7,650 | |
Total real estate revenues | $ | 12,890 | | | $ | 8,058 | | | $ | 15,884 | | | $ | 10,583 | |
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 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 $7,128 and $7,038 at 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 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 June 30, 2021 and December 31, 2020.
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 six months ended June 30, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| January 1, 2021 | | Current Period Provision | | Write-offs | | Recoveries | | June 30, 2021 |
Allowance for credit losses: | | | | | | | | | |
| | | | | | | | | |
Real estate broker agent receivables | $ | 7,038 | | | $ | 289 | | (1) | $ | 199 | | | $ | 0 | | | $ | 7,128 | |
| | | | | | | | | |
New Valley term loan receivables | 15,928 | | | 0 | | | 0 | | | 0 | | | 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 six months ended June 30, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| January 1, 2020 | | Current Period Provision | | Write-offs | | Recoveries | | June 30, 2020 |
Allowance for credit losses: | | | | | | | | | |
| | | | | | | | | |
Real estate broker agent receivables | $ | 6,132 | | | $ | 1,270 | | (1) | $ | 41 | | | $ | 0 | | | $ | 7,361 | |
| | | | | | | | | |
New Valley term loan receivables | 3,100 | | | 432 | | (2) | 0 | | | 0 | | | 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 Ended | | Six Months Ended | | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, | | June 30, | | June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Operating lease cost | Operating lease cost | $ | 9,292 | | | $ | 9,356 | | | $ | 18,593 | | | $ | 18,780 | | Operating lease cost | $ | 1,110 | | | $ | 1,150 | | | $ | 2,235 | | | $ | 2,316 | |
Short-term lease cost | Short-term lease cost | 261 | | | 389 | | | 552 | | | 790 | | Short-term lease cost | 101 | | | 92 | | | 204 | | | 183 | |
Variable lease cost | Variable lease cost | 1,029 | | | 588 | | | 2,037 | | | 1,155 | | Variable lease cost | 140 | | | 53 | | | 196 | | | 105 | |
| Finance lease cost: | Finance lease cost: | | Finance lease cost: | |
Amortization | Amortization | 14 | | | 39 | | | 30 | | | 77 | | Amortization | 6 | | | 14 | | | 20 | | | 30 | |
Interest on lease liabilities | Interest on lease liabilities | 2 | | | 4 | | | 5 | | | 7 | | Interest on lease liabilities | 1 | | | 2 | | | 3 | | | 5 | |
Total lease cost | Total lease cost | $ | 10,598 | | | $ | 10,376 | | | $ | 21,217 | | | $ | 20,809 | | Total lease cost | $ | 1,358 | | | $ | 1,311 | | | $ | 2,658 | | | $ | 2,639 | |
|
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:
| | | Six Months Ended | | | Six Months Ended | |
| | June 30, | | | June 30, | |
| | 2021 | | 2020 | | | 2022 | | 2021 | |
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 leases | Operating cash flows from operating leases | $ | 21,879 | | | $ | 11,953 | | | Operating cash flows from operating leases | $ | 2,455 | | | $ | 2,487 | | |
Operating cash flows from finance leases | Operating cash flows from finance leases | 5 | | | 7 | | | Operating cash flows from finance leases | 3 | | | 5 | | |
Financing cash flows from finance leases | Financing cash flows from finance leases | 28 | | | 69 | | | Financing cash flows from finance leases | 23 | | | 28 | | |
| 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 leases | Operating leases | 3,432 | | | 9,076 | | | Operating leases | 31 | | | 107 | | |
Finance leases | Finance leases | 0 | | | 60 | | | Finance leases | — | | | — | | |
|
Supplemental balance sheet information relatedAs of June 30, 2022, the Company had $120 in undiscounted lease payments relating to operating leases was as follows:
| | | | | | | | | | | |
| | | |
| June 30, | | December 31, |
| 2021 | | 2020 |
Operating leases: | | | |
Operating lease right-of-use assets | $ | 138,057 | | | $ | 145,356 | |
| | | |
Current operating lease liability | $ | 26,625 | | | $ | 27,207 | |
Non-current operating lease liability | 144,487 | | | 154,199 | |
Total operating lease liabilities | $ | 171,112 | | | $ | 181,406 | |
| | | |
Finance leases: | | | |
Investments in real estate, net (1) | $ | 45 | | | $ | 62 | |
| | | |
Property, plant and equipment, at cost | $ | 127 | | | $ | 127 | |
Accumulated amortization | (57) | | | (44) | |
Property and equipment, net | $ | 70 | | | $ | 83 | |
| | | |
Current portion of notes payable and long-term debt | $ | 57 | | | $ | 57 | |
Notes payable, long-term debt and other obligations, less current portion | 67 | | | 96 | |
Total finance lease liabilities | $ | 124 | | | $ | 153 | |
| | | |
Weighted average remaining lease term: | | | |
Operating leases | 7.62 | | 7.87 |
Finance leases | 2.27 | | 2.71 |
| | | |
Weighted average discount rate: | | | |
Operating leases | 9.24 | % | | 9.26 | % |
Finance leases | 7.98 | % | | 7.82 | % |
| | | |
| | | |
for equipment that have not yet commenced. The operating leases will commence in the second half of 2022 with lease terms ranging between 2 and 3 years.(1)
4. Included in Investments in real estate, net onDISCONTINUED OPERATIONS
On December 29, 2021, the condensed consolidated balance sheets are financing lease equipment, at costCompany completed the distribution to its stockholders (including Vector common stock underlying outstanding stock options awards and restricted stock awards) of $748 and $748 and accumulated amortizationthe common stock of $703 and $686Douglas Elliman Inc. (the “Distribution”).
There were no assets or liabilities of discontinued operations of Douglas Elliman as of June 30, 2021 and2022 or December 31, 2020, respectively.2021.
The financial results of Douglas Elliman through the completion of the Distribution are presented as income from discontinued operations, net of income taxes on the Company’s condensed consolidated statements of operations. The following table presents financial results of Douglas Elliman for the periods prior to the completion of the Distribution:
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2022 | | 2021 | | 2022 | | 2021 | | |
| (Dollars in thousands) |
Revenues: | | | | | | | | | |
Real estate | $ | — | | | $ | 391,975 | | | $ | — | | | $ | 664,751 | | | |
| | | | | | | | | |
Expenses: | | | | | | | | | |
Cost of sales | — | | | 286,519 | | | — | | | 485,154 | | | |
| | | | | | | | | |
Operating, selling, administrative and general expenses | — | | | 62,273 | | | — | | | 122,186 | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Operating income | — | | | 43,183 | | | — | | | 57,411 | | | |
| | | | | | | | | |
Other income (expenses): | | | | | | | | | |
Interest expense | — | | | (43) | | | — | | | (73) | | | |
Equity in earnings from real estate ventures | — | | | 75 | | | — | | | 75 | | | |
Other, net | — | | | (3,035) | | | — | | | (2,987) | | | |
Pretax income from discontinued operations | — | | | 40,180 | | | — | | | 54,426 | | | |
Income tax expense | — | | | 11,856 | | | — | | | 15,695 | | | |
Income from discontinued operations | $ | — | | | $ | 28,324 | | | $ | — | | | $ | 38,731 | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
AsThe following table presents the information regarding certain components of June 30, 2021, maturities of lease liabilities were as follows:cash flows from discontinued operations:
| | | | | | | | | | | | |
| Operating Leases | | Finance Leases | |
Period Ending December 31: | | | | |
Remainder of 2021 | $ | 21,960 | | | $ | 33 | | |
2022 | 38,780 | | | 60 | | |
2023 | 34,007 | | | 35 | | |
2024 | 28,054 | | | 8 | | |
2025 | 22,895 | | | 0 | | |
2026 | 19,114 | | | 0 | | |
Thereafter | 78,236 | | | 0 | | |
Total lease payments | 243,046 | | | 136 | | |
Less imputed interest | (71,934) | | | (12) | | |
Total | $ | 171,112 | | | $ | 124 | | |
As of June 30, 2021, the Company had $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. | | | | | | | | | | | | | |
| Six Months Ended June 30, |
| 2022 | | 2021 | | |
| (Dollars in thousands) |
Depreciation and amortization | $ | — | | | $ | 4,220 | | | |
Non-cash lease expense | — | | | 9,094 | | | |
| | | | | |
| | | | | |
| | | | | |
Capital expenditures | — | | | (1,263) | | | |
| | | | | |
| | | | | |
| | | | | |
5. INVENTORIES
Inventories consisted of:
| | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
Leaf tobacco | Leaf tobacco | $ | 41,693 | | | $ | 42,988 | | Leaf tobacco | $ | 38,416 | | | $ | 38,825 | |
Other raw materials | Other raw materials | 5,292 | | | 5,987 | | Other raw materials | 10,172 | | | 7,560 | |
Work-in-process | Work-in-process | 674 | | | 520 | | Work-in-process | 774 | | | 2,639 | |
| Finished goods | Finished goods | 66,233 | | | 68,781 | | Finished goods | 62,984 | | | 64,218 | |
| Inventories at current cost | Inventories at current cost | 113,892 | | | 118,276 | | Inventories at current cost | 112,346 | | | 113,242 | |
LIFO adjustments | LIFO adjustments | (20,731) | | | (20,731) | | LIFO adjustments | (18,927) | | | (18,627) | |
| | $ | 93,161 | | | $ | 97,545 | | | $ | 93,419 | | | $ | 94,615 | |
All of the Company’s inventories at June 30, 20212022 and December 31, 20202021 are reported under the LIFO method. The $20,731$18,927 LIFO adjustment as of June 30, 2021 decreased2022 reduced the current cost of inventories by $14,139$12,428 for Leaf tobacco, $474$829 for Other raw materials, $26$18 for Work-in-process and $6,092$5,652 for Finished goods. The $20,731$18,627 LIFO adjustment as of December 31, 2020 decreased2021 reduced the current cost of inventories by $14,139$12,128 for Leaf tobacco, $474$829 for Other raw materials, $26$18 for Work-in-process and $6,092$5,652 for Finished goods.
The amount of capitalized MSAMaster Settlement Agreement (“MSA”) cost in “Finished goods” inventory was $21,416$21,419 and $21,120$20,450 at June 30, 20212022 and December 31, 2020,2021, respectively. Federal excise tax capitalized in inventory was $24,695$25,236 and $27,683$25,160 at June 30, 20212022 and December 31, 2020,2021, respectively.
At June 30, 2021,2022, Liggett had tobacco purchase commitments of approximately $18,772.$20,033. Liggett has a single-source supply agreement for reduced ignition propensity cigarette paper through 2022.December 2025.
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:
| | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
Debt securities available for sale | Debt securities available for sale | $ | 108,489 | | | $ | 91,204 | | Debt securities available for sale | $ | 85,371 | | | $ | 103,906 | |
| | Property technology (“PropTech”) convertible trading debt securities | 2,481 | | | 0 | | |
| Equity securities at fair value: | Equity securities at fair value: | | Equity securities at fair value: | |
Marketable equity securities | Marketable equity securities | 25,187 | | | 21,155 | | Marketable equity securities | 14,967 | | | 19,560 | |
Mutual funds invested in debt securities | Mutual funds invested in debt securities | 23,325 | | | 23,226 | | Mutual funds invested in debt securities | 22,056 | | | 23,221 | |
Long-term investment securities at fair value (1) | Long-term investment securities at fair value (1) | 33,053 | | | 34,218 | | Long-term investment securities at fair value (1) | 29,090 | | | 32,089 | |
Total equity securities at fair value | Total equity securities at fair value | 81,565 | | | 78,599 | | Total equity securities at fair value | 66,113 | | | 74,870 | |
| Total investment securities at fair value | Total investment securities at fair value | 192,535 | | | 169,803 | | Total investment securities at fair value | 151,484 | | | 178,776 | |
Less: | Less: | | Less: | |
Long-term investment securities at fair value (1) | Long-term investment securities at fair value (1) | 33,053 | | | 34,218 | | Long-term investment securities at fair value (1) | 29,090 | | | 32,089 | |
PropTech convertible trading debt securities | 2,481 | | | 0 | | |
Current investment securities at fair value | Current investment securities at fair value | 157,001 | | | 135,585 | | Current investment securities at fair value | $ | 122,394 | | | $ | 146,687 | |
| Long-term investment securities at fair value (1) | Long-term investment securities at fair value (1) | 33,053 | | | 34,218 | | Long-term investment securities at fair value (1) | $ | 29,090 | | | $ | 32,089 | |
Equity-method investments | Equity-method investments | 19,828 | | | 18,310 | | Equity-method investments | 16,432 | | | 20,984 | |
PropTech convertible trading debt securities | 2,481 | | | 0 | | |
Total long-term investments | Total long-term investments | $ | 55,362 | | | $ | 52,528 | | Total long-term investments | $ | 45,522 | | | $ | 53,073 | |
| Equity securities at cost (2) | | Equity securities at cost (2) | $ | 6,200 | | | $ | 5,200 | |
|
(1) These assets are measured at net asset value (“NAV”) as a practical expedient under ASC 820.
(2) These assets are without readily determinable fair values that do not qualify for the NAV practical expedient and are included in Other assets on the condensed consolidated balance sheets.
Net (losses) gains recognized on investment securities were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net (losses) gains recognized on equity securities | $ | (3,465) | | | $ | 8,435 | | | $ | (5,339) | | | $ | 10,809 | |
Net gains recognized on debt securities available for sale | 6 | | | 10 | | | 6 | | | 65 | |
| | | | | | | |
Impairment expense | (671) | | | (44) | | | (1,836) | | | (58) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net (losses) gains recognized on investment securities | $ | (4,130) | | | $ | 8,401 | | | $ | (7,169) | | | $ | 10,816 | |
(a) Debt Securities Available for Sale:
The components of debt securities available for sale at June 30, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| | | | | | | |
| | | | | | | |
Marketable debt securities | $ | 85,367 | | | $ | 4 | | | $ | — | | | $ | 85,371 | |
| | | | | | | |
| | | | | | | |
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Net gains (losses) recognized on investment securities were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net gains (losses) recognized on equity securities | $ | 8,522 | | | $ | 4,711 | | | $ | 10,930 | | | $ | (7,026) | |
Net gains (losses) recognized on debt securities available for sale | 10 | | | 70 | | | 65 | | | (47) | |
| | | | | | | |
Impairment expense | (44) | | | 0 | | | (58) | | | (386) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Net losses recognized on PropTech convertible trading debt securities | (19) | | | 0 | | | (19) | | | 0 | |
Net gains (losses) recognized on investment securities | $ | 8,469 | | | $ | 4,781 | | | $ | 10,918 | | | $ | (7,459) | |
(a) Debt Securities Available for Sale:
The components of debt securities available for sale at June 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| | | | | | | |
| | | | | | | |
Marketable debt securities | $ | 108,217 | | | $ | 272 | | | $ | 0 | | | $ | 108,489 | |
| | | | | | | |
| | | | | | | |
The table below summarizes the maturity dates of debt securities available for sale at June 30, 2021.2022.
| Investment Type: | Investment Type: | Fair Value | | Under 1 Year | | 1 Year up to 5 Years | | More than 5 Years | Investment Type: | Fair Value | | Under 1 Year | | 1 Year up to 5 Years | | More than 5 Years |
U.S. Government securities | U.S. Government securities | $ | 12,512 | | | $ | 10,195 | | | $ | 2,317 | | | $ | 0 | | U.S. Government securities | $ | 3,072 | | | $ | 2,296 | | | $ | 776 | | | $ | — | |
Corporate securities | Corporate securities | 49,843 | | | 31,457 | | | 18,386 | | | 0 | | Corporate securities | 50,827 | | | 27,011 | | | 23,816 | | | — | |
U.S. mortgage-backed securities | U.S. mortgage-backed securities | 15,467 | | | 200 | | | 15,267 | | | 0 | | U.S. mortgage-backed securities | 25,728 | | | 8,557 | | | 17,171 | | | — | |
| Commercial paper | Commercial paper | 29,443 | | | 29,443 | | | 0 | | | 0 | | Commercial paper | 4,529 | | | 4,529 | | | — | | | — | |
| Foreign fixed-income securities | Foreign fixed-income securities | 1,224 | | | 0 | | | 1,224 | | | 0 | | Foreign fixed-income securities | 1,215 | | | 1,215 | | | — | | | — | |
| Total debt securities available for sale by maturity dates | Total debt securities available for sale by maturity dates | $ | 108,489 | | | $ | 71,295 | | | $ | 37,194 | | | $ | 0 | | Total debt securities available for sale by maturity dates | $ | 85,371 | | | $ | 43,608 | | | $ | 41,763 | | | $ | — | |
The components of debt securities available for sale at December 31, 20202021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| | | | | | | |
| | | | | | | |
Marketable debt securities | $ | 90,621 | | | $ | 583 | | | $ | 0 | | | $ | 91,204 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
| | | | | | | |
| | | | | | | |
Marketable debt securities | $ | 103,838 | | | $ | 68 | | | $ | — | | | $ | 103,906 | |
| | | | | | | |
There were no available-for-sale debt securities with continuous unrealized losses for less than 12 months and 12 months or greater at June 30, 20212022 and December 31, 2020,2021, respectively.
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 Ended | | Six Months Ended | | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, | | June 30, | | June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Gross realized gains on sales | Gross realized gains on sales | $ | 11 | | | $ | 72 | | | $ | 67 | | | $ | 170 | | Gross realized gains on sales | $ | 6 | | | $ | 11 | | | $ | 7 | | | $ | 67 | |
Gross realized losses on sales | Gross realized losses on sales | (1) | | | (2) | | | (2) | | | (217) | | Gross realized losses on sales | (1) | | | (1) | | | (1) | | | (2) | |
Net gains (losses) recognized on debt securities available for sale | $ | 10 | | | $ | 70 | | | $ | 65 | | | $ | (47) | | |
Net gains recognized on debt securities available for sale | | Net gains recognized on debt securities available for sale | $ | 5 | | | $ | 10 | | | $ | 6 | | | $ | 65 | |
| Impairment expense | Impairment expense | $ | (44) | | | $ | 0 | | | $ | (58) | | | $ | (386) | | Impairment expense | $ | (671) | | | $ | (44) | | | $ | (1,836) | | | $ | (58) | |
|
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.
(b) PropTech Convertible Trading Debt Securities:
New Valley, through its subsidiary New Valley Ventures LLC, is actively seeking to capitalize on its real estate knowledge and experience by investing in PropTech 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.
(c) Equity Securities at Fair Value:
The following is a summary of unrealized and realized net gainslosses and lossesgains recognized in net income on equity securities at fair value during the three and six months ended June 30, 2022 and 2021, and 2020, respectively:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Net gains (losses) recognized on equity securities | $ | 8,522 | | | $ | 4,711 | | | $ | 10,930 | | | $ | (7,026) | |
Less: Net gains (losses) recognized on equity securities sold | 4,054 | | | 601 | | | 4,223 | | | (17) | |
Net unrealized gains (losses) recognized on equity securities still held at the reporting date | $ | 4,468 | | | $ | 4,110 | | | $ | 6,707 | | | $ | (7,009) | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Net (losses) gains recognized on equity securities | $ | (3,465) | | | $ | 8,435 | | | $ | (5,339) | | | $ | 10,809 | |
Less: Net gains recognized on equity securities sold | 13 | | | 4,054 | | | 306 | | | 4,223 | |
Net unrealized (losses) gains recognized on equity securities still held at the reporting date | $ | (3,478) | | | $ | 4,381 | | | $ | (5,645) | | | $ | 6,586 | |
| | | | | | | |
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
The Company’s investments in mutual funds investedthat invest in debt securities are classified as Level 1 under the fair value hierarchy disclosed in Note 12.11. 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 $1,939$514 related to long-term investment securities at fair value as of June 30, 2021.2022.
The Company received cash distributions of $8,009$1,349 and $23,510$8,009 related to its long-term investment securities at fair value for the six months ended June 30, 2022 and 2021, and 2020, respectively. TheOf the total $1,349 distributions, the Company classified $8,009$248 as operating cash inflows and $23,407 of these distributions$1,101 as investing cash inflows for the six months ended June 30, 20212022, and 2020, respectively.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)the total $8,009 distributions were classified as investing cash inflows for the six months ended June 30, 2021.
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
(d)(c) Equity-Method Investments:
Equity-method investments consisted of the following:
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Mutual fund and hedge funds | $ | 19,828 | | | $ | 18,310 | |
| | | |
| | | |
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
Mutual fund and hedge funds | $ | 16,432 | | | $ | 20,984 | |
| | | |
| | | |
At June 30, 2021,2022, the Company’s ownership percentages in the mutual fund and hedge funds accounted for under the equity method ranged from 6.63%6.13% to 37.09%37.70%. 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 (losses) earnings from investments were:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Mutual fund and hedge funds | $ | 941 | | | $ | 2,207 | | | $ | 1,518 | | | $ | (693) | |
LTS | 0 | | | 0 | | | 0 | | | 53,052 | |
| | | | | | | |
Equity in earnings from investments | $ | 941 | | | $ | 2,207 | | | $ | 1,518 | | | $ | 52,359 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| June 30, | | June 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Mutual fund and hedge funds | $ | (2,311) | | | $ | 941 | | | $ | (4,553) | | | $ | 1,518 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The Company received cash distributions of $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 six months ended June 30, 2020. The Company classified these cash distributions as operating activities on the condensed consolidated statements of cash flows for the six months ended June 30, 2020.
(e)(d) 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 June 30, 20212022 and December 31, 2020,2021, respectively. The total carrying value of these investments was $6,225$6,200 as of June 30, 20212022 and $5,200 as of December 31, 2020,2021, and was included in “Other assets” on the condensed consolidated balance sheets. NaNNo 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 June 30, 20212022 and 2020,2021, respectively.
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) | | June 30, 2021 | | December 31, 2020 | | Range of Ownership (1) | | June 30, 2022 | | December 31, 2021 |
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% | | $ | 25,233 | | | $ | 30,465 | | New York City Standard Metropolitan Statistical Area (“SMSA”) | 4.2% - 37.0% | | $ | 20,147 | | | $ | 22,654 | |
All other U.S. areas | All other U.S. areas | 19.6% - 77.8% | | 36,253 | | | 37,773 | | All other U.S. areas | 12.5% - 89.1% | | 60,059 | | | 57,485 | |
| | 61,486 | | | 68,238 | | | 80,206 | | | 80,139 | |
Apartment Buildings: | | Apartment Buildings: | |
| All other U.S. areas | | All other U.S. areas | 50.0% | | 10,576 | | | 11,900 | |
| | | 10,576 | | | 11,900 | |
Hotels: | Hotels: | | Hotels: | |
New York City SMSA | New York City SMSA | 0.4% - 17.8% | | 2,114 | | | 2,629 | | New York City SMSA | 0.4% - 12.3% | | 1,098 | | | 1,635 | |
International | International | 49.0% | | 1,324 | | | 1,852 | | International | 49.0% | | 1,217 | | | 1,522 | |
| | 3,438 | | | 4,481 | | | 2,315 | | | 3,157 | |
Commercial: | Commercial: | | Commercial: | |
New York City SMSA | New York City SMSA | 49.0% | | 0 | | | 2,591 | | New York City SMSA | 49.0% | | 7,912 | | | — | |
All other U.S. areas | All other U.S. areas | 1.6% | | 7,139 | | | 7,084 | | All other U.S. areas | 1.6% | | 7,488 | | | 7,290 | |
| | 7,139 | | | 9,675 | | | 15,400 | | | 7,290 | |
| Other: | Other: | 15.0% - 50.0% | | 4,129 | | | 3,006 | | Other: | 15.0% - 49.0% | | 367 | | | 2,576 | |
Investments in real estate ventures | Investments in real estate ventures | | $ | 76,192 | | | $ | 85,400 | | Investments in real estate ventures | | $ | 108,864 | | | $ | 105,062 | |
_____________________________
(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.
Contributions:
The components of New Valley’s contributions to its investments in real estate ventures were as follows:
| | | Six Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Condominium and Mixed Use Development: | Condominium and Mixed Use Development: | | | | Condominium and Mixed Use Development: | | | |
New York City SMSA | New York City SMSA | $ | 396 | | | $ | 1,169 | | New York City SMSA | $ | 498 | | | $ | 396 | |
All other U.S. areas | All other U.S. areas | 6,661 | | | 2,161 | | All other U.S. areas | 1,682 | | | 6,661 | |
| | 7,057 | | | 3,330 | | | 2,180 | | | 7,057 | |
Apartment Buildings: | | |
| All other U.S. areas | 0 | | | 76 | | |
| | | 0 | | | 76 | | |
| Hotels: | Hotels: | | Hotels: | |
New York City SMSA | New York City SMSA | 1,246 | | | 0 | | New York City SMSA | 206 | | | 1,246 | |
| | | 1,246 | | | 0 | | | 206 | | | 1,246 | |
| Commercial: | | Commercial: | |
New York City SMSA | | New York City SMSA | 8,070 | | | — | |
| | | | 8,070 | | | — | |
| Other: | Other: | 1,599 | | | 452 | | Other: | — | | | 1,599 | |
Total contributions | Total contributions | $ | 9,902 | | | $ | 3,858 | | Total contributions | $ | 10,456 | | | $ | 9,902 | |
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
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 six months ended June 30, 20212022 and June 30, 2020.2021. New Valley’s direct investment percentage for these ventures did not significantly change.
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:
| | | Six Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Condominium and Mixed Use Development: | Condominium and Mixed Use Development: | | | | Condominium and Mixed Use Development: | | | |
New York City SMSA | New York City SMSA | $ | 3,338 | | | $ | 1,735 | | New York City SMSA | $ | 1,032 | | | $ | 3,338 | |
All other U.S. areas | All other U.S. areas | 13,594 | | | 5,214 | | All other U.S. areas | — | | | 13,594 | |
| | 16,932 | | | 6,949 | | | 1,032 | | | 16,932 | |
Apartment Buildings: | Apartment Buildings: | | Apartment Buildings: | |
| All other U.S. areas | All other U.S. areas | 17,567 | | | 0 | | All other U.S. areas | 400 | | | 17,567 | |
| | 17,567 | | | 0 | | | 400 | | | 17,567 | |
| Commercial: | Commercial: | | Commercial: | |
New York City SMSA | 0 | | | 3 | | |
| All other U.S. areas | All other U.S. areas | 219 | | | 52 | | All other U.S. areas | 476 | | | 219 | |
| | 219 | | | 55 | | | 476 | | | 219 | |
| Other | Other | 75 | | | 23 | | Other | 4,459 | | | — | |
Total distributions | Total distributions | $ | 34,793 | | | $ | 7,027 | | Total distributions | $ | 6,367 | | | $ | 34,718 | |
Of the distributions received by New Valley from its investment in real estate ventures, $23,630$2,726 and $1,855$23,555 were from distributions of earnings for the six months ended June 30, 20212022 and 2020,2021, respectively, and $11,163$3,641 and $5,172$11,163 were a return of capital for the six months ended June 30, 20212022 and 2020,2021, respectively. Distributions from earnings are included in cash from operations in the condensed consolidated statements of cash flows, while distributions that are returnsfrom return of capital are included in cash flows from investing activities in the condensed consolidated statements of cash flows.
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 (losses) earnings (losses) from real estate ventures as follows:
| | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | |
| June 30, | | June 30, | |
| 2021 | | 2020 | | 2021 | | 2020 | |
Condominium and Mixed Use Development: | | | | | | | | |
New York City SMSA | $ | (967) | | | $ | (5,104) | | | $ | (2,472) | | | $ | (8,451) | | |
All other U.S. areas | 7,315 | | | (6,489) | | | 7,274 | | | (9,288) | | |
| 6,348 | | | (11,593) | | | 4,802 | | | (17,739) | | |
Apartment Buildings: | | | | | | | | |
| | | | | | | | |
All other U.S. areas | 12,959 | | | (76) | | | 17,567 | | | (76) | | |
| 12,959 | | | (76) | | | 17,567 | | | (76) | | |
Hotels: | | | | | | | | |
New York City SMSA (1) | (386) | | | (542) | | | (848) | | | (649) | | |
International | (23) | | | (90) | | | (529) | | | (551) | | |
| (409) | | | (632) | | | (1,377) | | | (1,200) | | |
Commercial: | | | | | | | | |
New York City SMSA | (2,713) | | | 301 | | | (2,591) | | | 227 | | |
All other U.S. areas | 180 | | | (264) | | | 273 | | | (15) | | |
| (2,533) | | | 37 | | | (2,318) | | | 212 | | |
| | | | | | | | |
Other: | 320 | | | 4 | | | (400) | | | 38 | | |
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. | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | |
| June 30, | | June 30, | |
| 2022 | | 2021 | | 2022 | | 2021 | |
Condominium and Mixed Use Development: | | | | | | | | |
New York City SMSA | $ | (955) | | | $ | (967) | | | $ | (2,171) | | | $ | (2,472) | | |
All other U.S. areas | (479) | | | 7,315 | | | (961) | | | 7,274 | | |
| (1,434) | | | 6,348 | | | (3,132) | | | 4,802 | | |
Apartment Buildings: | | | | | | | | |
| | | | | | | | |
All other U.S. areas | (615) | | | 12,959 | | | (924) | | | 17,567 | | |
| (615) | | | 12,959 | | | (924) | | | 17,567 | | |
Hotels: | | | | | | | | |
New York City SMSA | (248) | | | (386) | | | (742) | | | (848) | | |
International | (42) | | | (23) | | | (305) | | | (529) | | |
| (290) | | | (409) | | | (1,047) | | | (1,377) | | |
Commercial: | | | | | | | | |
New York City SMSA | (158) | | | (2,713) | | | (158) | | | (2,591) | | |
All other U.S. areas | 302 | | | 180 | | | 674 | | | 273 | | |
| 144 | | | (2,533) | | | 516 | | | (2,318) | | |
| | | | | | | | |
Other: | 1,735 | | | 245 | | | 2,250 | | | (475) | | |
Equity in (losses) earnings from real estate ventures | $ | (460) | | | $ | 16,610 | | | $ | (2,337) | | | $ | 18,199 | | |
As part ofInvestment in Real Estate Ventures Entered Into During 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, 2021.2022:
As partIn June 2022, New Valley invested $410 for an approximate 75.0% interest in Nash Square Upstream JV LLC. The joint venture plans to develop a mixed use development. The venture is a VIE; however, New Valley is not the primary beneficiary. New Valley accounts for this investment under the equity method of the Company’s ongoing assessment of the carrying valuesaccounting. New Valley's maximum exposure to loss as a result of its investmentsinvestment in real estate ventures, the Company determined that the fair value of a New York City SMSA Condominium and Mixed Use Development ventureNash Square Upstream JV LLC was less than its carrying value as of$410 at June 30, 2020.2022.
In June 2022, New Valley invested $1,000 for an approximate 25.0% interest in BH NV Aventura LLC. The Company determined thatjoint venture plans to develop a mixed use development. The venture is a VIE; however, New Valley is not the impairment was other than temporary. The Company recorded an impairment chargeprimary beneficiary. New Valley accounts for this investment under the equity method of accounting. New Valley's maximum exposure to loss as a componentresult of equityits investment in losses from real estate ventures of $3,784 for the three and six months endedBH NV Aventura LLC was $1,000 at June 30, 2020.2022.
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 June 30, 20212022 and December 31, 2020.2021. Those assets are owned by the VIE, not the Company. The consolidated VIE had no recourse liabilities as of June 30, 20212022 and December 31, 2020.2021. 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.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(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.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(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:
| | | | | |
| June 30, 20212022 |
Condominium and Mixed Use Development: | |
New York City SMSA | $ | 25,23320,147 | |
All other U.S. areas | 36,25360,059 | |
| 61,486 80,206 | |
Apartment Buildings: | |
| |
All other U.S. areas | 10,576 | |
| |
10,576 | |
Hotels: | |
New York City SMSA | 2,1141,098 | |
International | 1,3241,217 | |
| 3,4382,315 | |
Commercial: | |
New York City SMSA | 7,912 | |
All other U.S. areas | 7,1397,488 | |
| 7,13915,400 | |
| |
Other | 4,129367 | |
Total maximum exposure to loss | $ | 76,192108,864 | |
New Valley capitalized $1,028 and $2,051 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, 2022, respectively. New Valley capitalized $592 and $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 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 $6,585 and $7,698 from these projects for the six months ended 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).
Other Condominium and Mixed Use Development:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended June 30, | | Six Months Ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Income Statements | | | | | | | |
Revenue | $ | 4,991 | | | $ | 1,830 | | | $ | 15,278 | | | $ | 33,409 | |
Cost of goods sold | 0 | | | 0 | | | 0 | | | 22,100 | |
Other expenses | 16,997 | | | 14,013 | | | 42,340 | | | 31,926 | |
Loss from continuing operations | $ | (12,006) | | | $ | (12,183) | | | $ | (27,062) | | | $ | (20,617) | |
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Investments in Real Estate, net:
The components of “Investments in real estate, net” were as follows:
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Escena, net | $ | 9,608 | | | $ | 9,735 | |
Townhome A (11 Beach Street) | 0 | | | 5,896 | |
| | | |
Investments in real estate, net | $ | 9,608 | | | $ | 15,631 | |
Escena. The assets of “Escena, net” were as follows:
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Land and land improvements | $ | 8,911 | | | $ | 8,911 | |
Building and building improvements | 1,926 | | | 1,926 | |
Other | 1,655 | | | 1,672 | |
| 12,492 | | | 12,509 | |
Less accumulated depreciation | (2,884) | | | (2,774) | |
| $ | 9,608 | | | $ | 9,735 | |
| | | | | | | | | | | |
| June 30, 2022 | | December 31, 2021 |
Escena, net | $ | — | | | $ | 9,098 | |
| | | |
| | | |
Investments in real estate, net | $ | — | | | $ | 9,098 | |
New Valley recorded operating lossesincome of $90$77 and $629$90 for the three months ended June 30, 20212022 and 2020,2021, respectively, from Escena. New Valley recorded operating income of $280$1,316 and operating losses of $272$280 for the six months ended June 30, 20212022 and 2020,2021, 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 2021,2022, New Valley sold the unit for $6,750Escena and received approximately $15,300 in net cash proceeds. The Company recognized the revenue in accordance with the scope of ASC Topic 606 since New Valley has no continuing investment or involvement. The sale was presented as revenue and the cost of the investment as cost of sales on the condensed consolidated statements of operations.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(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:
| | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
Vector: | Vector: | | | | Vector: | | | |
5.75% Senior Secured Notes due 2029 | 5.75% Senior Secured Notes due 2029 | $ | 875,000 | | | $ | 0 | | 5.75% Senior Secured Notes due 2029 | $ | 875,000 | | | $ | 875,000 | |
6.125% Senior Secured Notes due 2025 | 0 | | | 850,000 | | |
10.5% Senior Notes due 2026, net of unamortized discount of $2,849 and $3,040 | 552,151 | | | 551,960 | | |
| 10.5% Senior Notes due 2026, net of unamortized discount of $2,434 and $2,647 | | 10.5% Senior Notes due 2026, net of unamortized discount of $2,434 and $2,647 | 552,566 | | | 552,353 | |
| Liggett: | Liggett: | | Liggett: | |
| Revolving credit facility | | Revolving credit facility | 23 | | | 24 | |
| Equipment loans | Equipment loans | 77 | | | 89 | | Equipment loans | 51 | | | 64 | |
Other | Other | 18,797 | | | 25,484 | | Other | — | | | 32 | |
Notes payable, long-term debt and other obligations | Notes payable, long-term debt and other obligations | 1,446,025 | | | 1,427,533 | | Notes payable, long-term debt and other obligations | 1,427,640 | | | 1,427,473 | |
Less: | Less: | | Less: | |
Debt issuance costs | Debt issuance costs | (30,640) | | | (21,247) | | Debt issuance costs | (26,888) | | | (28,803) | |
Total notes payable, long-term debt and other obligations | Total notes payable, long-term debt and other obligations | 1,415,385 | | | 1,406,286 | | Total notes payable, long-term debt and other obligations | 1,400,752 | | | 1,398,670 | |
Less: | Less: | | Less: | |
Current maturities | Current maturities | (12,558) | | | (12,557) | | Current maturities | (51) | | | (79) | |
Amount due after one year | Amount due after one year | $ | 1,402,827 | | | $ | 1,393,729 | | Amount due after one year | $ | 1,400,701 | | | $ | 1,398,591 | |
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 June 30, 2021,2022, the Company was in compliance with all debt covenants.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
covenants related to its 5.75% Senior Secured Notes due 2029.6.125% 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 six months ended June 30, 2021, including $13,014$13,013 of premium and $8,348$8,349 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 June 30, 2021,2022, 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 June 30, 2021,2022, there was 0$23 outstanding balance due under the Credit Agreement. Availability, as determined under the Credit Agreement, was approximately $84,600$79,500 based on eligible collateral at June 30, 2021.2022. As of June 30, 2021,2022, Liggett, Maple, and Vector Tobacco were in compliance with all debt covenants under the Credit Agreement.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Other:
Other notes payable consist primarily of $18,750 of notes payable issued by New Valley as part of the acquisition of the remaining 29.41% interest(Dollars 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. $11,250 of principal has been repaid through June 30, 2021 and the remaining principal is due to be repaid as follows: (1) $6,250 in 2021; and (2) $12,500 in 2022.Thousands, Except Per Share Amounts)
Unaudited
Non-Cash Interest Expense — Vector:
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, | | June 30, | | June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Amortization of debt discount, net | Amortization of debt discount, net | $ | 97 | | | $ | 847 | | | $ | 191 | | | $ | 5,447 | | Amortization of debt discount, net | $ | 108 | | | $ | 97 | | | $ | 213 | | | $ | 191 | |
Amortization of debt issuance costs | Amortization of debt issuance costs | 942 | | | 889 | | | 1,835 | | | 2,047 | | Amortization of debt issuance costs | 1,018 | | | 942 | | | 2,016 | | | 1,835 | |
Loss on extinguishment of 6.125% Senior Secured Notes | Loss on extinguishment of 6.125% Senior Secured Notes | 0 | | | 0 | | | 8,349 | | | 0 | | Loss on extinguishment of 6.125% Senior Secured Notes | — | | | — | | | — | | | 8,349 | |
| | | $ | 1,039 | | | $ | 1,736 | | | $ | 10,375 | | | $ | 7,494 | | | $ | 1,126 | | | $ | 1,039 | | | $ | 2,229 | | | $ | 10,375 | |
Fair Value of Notes Payable and Long-Term Debt:
| | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
| | Carrying | | Fair | | Carrying | | Fair | | Carrying | | Fair | | Carrying | | Fair |
| | Value | | Value | | Value | | Value | | Value | | Value | | Value | | Value |
Senior Notes | Senior Notes | $ | 1,427,151 | | | $ | 1,482,980 | | | $ | 1,401,960 | | | $ | 1,464,208 | | Senior Notes | $ | 1,427,566 | | | $ | 1,248,116 | | | $ | 1,427,353 | | | $ | 1,426,176 | |
| Liggett and other | Liggett and other | 18,874 | | | 18,880 | | | 25,573 | | | 25,581 | | Liggett and other | 74 | | | 75 | | | 120 | | | 124 | |
Notes payable and long-term debt | Notes payable and long-term debt | $ | 1,446,025 | | | $ | 1,501,860 | | | $ | 1,427,533 | | | $ | 1,489,789 | | Notes payable and long-term debt | $ | 1,427,640 | | | $ | 1,248,191 | | | $ | 1,427,473 | | | $ | 1,426,300 | |
|
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 1211 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
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(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 June 30, 20212022 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.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(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 six months ended June 30, 20212022 and 2020,2021, Liggett incurred tobacco product liability legal expenses and costs totaling $3,067$3,323 and $3,191$3,067 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 June 30, 2021, Liggett had 0 outstanding bonds.2022, other than the bond regarding the Mississippi litigation (described below), there are no other litigation bonds posted.
In June 2009, Florida amended its existing bond cap statute by adding a $200,000 bond cap that applies to all Engle progeny casesFlorida tobacco litigation 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.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Individual Actions
As of June 30, 2021,2022, there were 7461 Individual 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:
| | | | | | | | |
State | | Number of Cases |
Florida | | 4528 |
Illinois | | 1416 |
Nevada | | 75 |
New Mexico | | 54 |
Hawaii | | 4 |
Louisiana | | 2 |
HawaiiMassachusetts | | 1 |
South Carolina | | 1 |
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 June 30, 2021,2022, 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 facefaces 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
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(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, except as discussed herein 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$3,600 per annum through 2028, with aincluding an annual cost of living increase beginningthat began in 2021. In exchange, the claims of these plaintiffs were dismissed with prejudice against the Company and Liggett.
Liggett subsequently entered into two2 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 203208 Engle progeny cases for approximately $8,100$8,200 in the aggregate. One of those settlements occurred in the second quarter of 2022.
Notwithstanding the comprehensive nature of the Engle progeny settlements, 3824 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 June 30, 2021,2022, 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.
Liggett Only Cases
There are currently 3 cases where Liggett is the sole defendant: Cowart and Baluja are Individual Actions and Forbing, is an Engle progeny case. 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 June 30, 2022, there were 5 Individual Actions (Camacho, Grace, Martinez, Mendez, and Speed) scheduled for trial through June 30, 2023, where Liggett is a named defendant. Trial dates are subject to change and additional cases could be set for trial during this time.
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,June 2017, after 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 atand then remanded the case, 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 dismissingdismissed all synergy cases against the tobacco company defendants, including Liggett, without prejudice. At some point, Plaintiffs may seek appellate review or file new cases against the tobacco companies.
Liggett Only Cases
There are currently 4 cases where Liggett is the sole defendant: Cowart is an Individual Action 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 June 30, 2021, there was one Engle progeny case (Alvarez) and eight Individual Actions (Baron, Bennett, Cupp, Feld, Geist, Lane, Mendez and Tully) scheduled for trial through June 30, 2022, where Liggett 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 June 30, 2021,2022, 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 two2 cases.
In November 1997, in Young v. American Tobacco Co., a purported class action was brought on behalf of plaintiff and all similarly situated residents in Louisiana who, though not themselves cigarette smokers, allege they were exposed to and suffered injury from secondhand smoke from cigarettes. The plaintiffs seek an unspecified amount of compensatory and punitive damages. The case has been stayed since March 2016 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 brought on behalf of plaintiff and all West Virginia residents who allegedly have claims arising from their exposure to cigarette smoke and asbestos fibers and seeks compensatory and punitive damages. The case has been stayed since December 2000 as a result of bankruptcy petitions filed by 3 co-defendants.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
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.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
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 June 30, 2021,2022, 1 Health Care Cost Recovery Action was pending against LiggettCrow 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 asserthave asserted 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.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
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, obligationobligations of each PM and are not the responsibility of any parent or affiliate of a PM.
Liggett has 0no 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 0no 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 2020.2021. 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, 2020,2021, Liggett and Vector Tobacco pre-paid $143,000$169,500 of their approximate $178,000 2020$179,000 2021 MSA obligation, the balance of which was paid in April 2021,2022, 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 - 2020.2021. 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 - 2020,2021, 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.
The Since then, the PMs have settled most of the disputed NPM Adjustment yearsdispute with 3739 states representing approximately 75%80% of the MSA share for 2003 - 2022. allocable share.
The 2004 NPM Adjustment arbitration commenced in 2016, with the arbitration panel issuing interim decisions on most individual states in September 2021, finding two of them liable for the NPM Adjustment; the final individual state hearing scheduled to occurwas concluded in October 2021 andMarch 2022, however a second phase addressingdecision has not yet been issued. The two states determined by the effect of the settlements to start thereafter. The parties have also selected an arbitration panel to address the NPM Adjustments for 2005-2007.be
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
non-diligent have filed motions in applicable state courts and with the arbitration panels challenging these determinations and several issues remain to be resolved by the arbitration panels that will affect the final amount of the 2004 NPM Adjustment. The parties have selected an arbitration panel to address the NPM Adjustments for 2005-2007, and are engaged in discovery, with individual state hearings likely to start in the third quarter of 2022.
As a result of the settlement and arbitration awardsettlements described above, Liggett and Vector Tobacco reduced cost of sales for years 2013 - 2020 by $54,382 and by $3,935 for the six months ended June 30, 2021.2022 and 2021 by $7,280 and $3,935 respectively. Liggett and Vector Tobacco may be entitled to further adjustments. As of June 30, 2021,2022, Liggett and Vector Tobacco had accrued approximately $13,200$11,100 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 June 30, 2021,2022, there remains approximately $49,800$48,500 in the disputed payments account relating to Liggett and Vector Tobacco’s 2011 - 20202021 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 12March 2022 forward being subject to an inflation adjustment.
Mississippi Litigation. 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 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 April 2021, following confirmation of the final arbitration award, the parties stipulated that the unpaid principal (exclusive of interest) purportedly due from Liggett to Mississippi pursuant to the 1996 Agreement was 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 the principal amount allegedly due).
In September 2019, the Special Master held a hearing regarding Mississippi’s claim for prepre- and post-judgment interest. In JuneAugust 2021, the Special Master issued a draftfinal report with proposed findings and recommendations that pre-judgment interest, in the amount of approximately $18,600,$18,800, is due from Liggett from April 2005 - July 9,August 3, 2021. AtIn April 2022, the request ofMississippi Chancery Court affirmed the Special Master, the parties provided comments to the draft reportMaster’s findings 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 iswas entered additionalby the court on June 1, 2022. Additional interest amounts will accrue if the judgment is not overturned on appeal. Liggett continues to believeassert 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,Mississippi. Liggett appealed the final judgment 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 ofposted a bond may be required.of $24,000.
Liggett may be required to make additional payments to Mississippi andand/or Texas which could have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows.
VECTOR GROUP LTD.
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
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(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 condensed 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 six months ended June 30, 20212022 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current Liabilities | | Non-Current Liabilities |
| Payments due under Master Settlement Agreement | | Litigation Accruals | | Total | | Payments due under Master Settlement Agreement | | Litigation Accruals | | Total |
| | | | | | | | | | | |
Balance as of January 1, 2021 | $ | 38,767 | | | $ | 3,967 | | | $ | 42,734 | | | $ | 17,933 | | | $ | 19,268 | | | $ | 37,201 | |
Expenses | 80,922 | | | 5 | | | 80,927 | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | | | |
Change in MSA obligations capitalized as inventory | 296 | | | 0 | | | 296 | | | 0 | | | 0 | | | 0 | |
Payments | (35,206) | | | (4,065) | | | (39,271) | | | 0 | | | 0 | | | 0 | |
Reclassification to/(from) non-current liabilities | 4,709 | | | 3,351 | | | 8,060 | | | (4,709) | | | (3,351) | | | (8,060) | |
Interest on withholding | 0 | | | 288 | | | 288 | | | 0 | | | 851 | | | 851 | |
Balance 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 Liabilities | | Non-Current Liabilities |
| Payments due under Master Settlement Agreement | | Litigation Accruals | | Total | | Payments due under Master Settlement Agreement | | Litigation Accruals | | Total |
| | | | | | | | | | | |
Balance as of January 1, 2020 | $ | 34,116 | | | $ | 4,249 | | | $ | 38,365 | | | $ | 17,275 | | | $ | 20,594 | | | $ | 37,869 | |
Expenses | 96,215 | | | 28 | | | 96,243 | | | 0 | | | 0 | | | 0 | |
| | | | | | | | | | | |
Change in MSA obligations capitalized as inventory | (137) | | | 0 | | | (137) | | | 0 | | | 0 | | | 0 | |
Payments | (27,214) | | | (4,324) | | | (31,538) | | | 0 | | | 0 | | | 0 | |
Reclassification to/(from) non-current liabilities | (855) | | | 3,252 | | | 2,397 | | | 855 | | | (3,252) | | | (2,397) | |
Interest on withholding | 0 | | | 238 | | | 238 | | | 0 | | | 932 | | | 932 | |
Balance as of June 30, 2020 | $ | 102,125 | | | $ | 3,443 | | | $ | 105,568 | | | $ | 18,130 | | | $ | 18,274 | | | $ | 36,404 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current Liabilities | | Non-Current Liabilities |
| Payments due under Master Settlement Agreement | | Litigation Accruals | | Total | | Payments due under Master Settlement Agreement | | Litigation Accruals | | Total |
| | | | | | | | | | | |
Balance as of January 1, 2022 | $ | 11,886 | | | $ | 3,918 | | | $ | 15,804 | | | $ | 13,224 | | | $ | 17,680 | | | $ | 30,904 | |
Expenses | 133,149 | | | 129 | | | 133,278 | | | — | | | — | | | — | |
NPM Settlement adjustment | (15) | | | — | | | (15) | | | (2,108) | | | — | | | (2,108) | |
Change in MSA obligations capitalized as inventory | 969 | | | — | | | 969 | | | — | | | — | | | — | |
Payments | (9,744) | | | (4,137) | | | (13,881) | | | — | | | — | | | — | |
Reclassification to/(from) non-current liabilities | — | | | 3,566 | | | 3,566 | | | — | | | (3,566) | | | (3,566) | |
Interest on withholding | — | | | 259 | | | 259 | | | — | | | 1,171 | | | 1,171 | |
Balance as of June 30, 2022 | $ | 136,245 | | | $ | 3,735 | | | $ | 139,980 | | | $ | 11,116 | | | $ | 15,285 | | | $ | 26,401 | |
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 six months ended June 30, 2021 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current Liabilities | | Non-Current Liabilities |
| Payments due under Master Settlement Agreement | | Litigation Accruals | | Total | | Payments due under Master Settlement Agreement | | Litigation Accruals | | Total |
| | | | | | | | | | | |
Balance as of January 1, 2021 | $ | 38,767 | | | $ | 3,967 | | | $ | 42,734 | | | $ | 17,933 | | | $ | 19,268 | | | $ | 37,201 | |
Expenses | 80,922 | | | 5 | | | 80,927 | | | — | | | — | | | — | |
| | | | | | | | | | | |
Change in MSA obligations capitalized as inventory | 296 | | | — | | | 296 | | | — | | | — | | | — | |
Payments | (35,206) | | | (4,065) | | | (39,271) | | | — | | | — | | | — | |
Reclassification to/(from) non-current liabilities | 4,709 | | | 3,351 | | | 8,060 | | | (4,709) | | | (3,351) | | | (8,060) | |
Interest on withholding | — | | | 288 | | | 288 | | | — | | | 851 | | | 851 | |
Balance as of June 30, 2021 | $ | 89,488 | | | $ | 3,546 | | | $ | 93,034 | | | $ | 13,224 | | | $ | 16,768 | | | $ | 29,992 | |
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 three3 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 brandstrademarks 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 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.
10. GOODWILL AND OTHER INTANGIBLE ASSETS
The components of Goodwill and other intangible assets, net were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2020 | | Impairment Losses | | Amortization | | June 30, 2021 |
Goodwill | | $ | 31,756 | | | $ | 0 | | | $ | — | | | $ | 31,756 | |
| | | | | | | | |
Indefinite life intangibles: | | | | | | | | |
Intangible asset associated with benefit under the MSA | | 107,511 | | | 0 | | | — | | | 107,511 | |
| | | | | | | | |
Trademark - Douglas Elliman | | 68,000 | | | 0 | | — | | | 68,000 | |
| | | | | | | | |
Intangibles with a finite life, net | | 310 | | | 0 | | | (80) | | | 230 | |
| | | | | | | | |
Total goodwill and other intangible assets, net | | $ | 207,577 | | | $ | 0 | | | $ | (80) | | | $ | 207,497 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2019 | | Impairment Losses | | Amortization | | June 30, 2020 |
Goodwill | | $ | 78,008 | | | $ | (46,252) | | | $ | — | | | $ | 31,756 | |
| | | | | | | | |
Indefinite life intangibles: | | | | | | | | |
Intangible asset associated with benefit under the MSA | | 107,511 | | | 0 | | | — | | | 107,511 | |
| | | | | | | | |
Trademark - Douglas Elliman | | 80,000 | | | (12,000) | | | — | | | 68,000 | |
| | | | | | | | |
Intangibles with a finite life, net | | 474 | | | 0 | | | (82) | | | 392 | |
| | | | | | | | |
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
VECTOR GROUP LTD.
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.
11.10. 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 to record income tax expense, 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 consisted of the following:
| | | Three Months Ended | | Six Months Ended | | Three Months Ended | | Six Months Ended |
| | June 30, | | June 30, | | June 30, | | June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 | | 2022 | | 2021 | | 2022 | | 2021 |
Income before provision for income taxes | Income before provision for income taxes | $ | 132,165 | | | $ | 36,690 | | | $ | 177,175 | | | $ | 32,481 | | Income before provision for income taxes | $ | 54,122 | | | $ | 91,985 | | | $ | 98,886 | | | $ | 122,749 | |
Income tax expense using estimated annual effective income tax rate | Income tax expense using estimated annual effective income tax rate | 38,725 | | | 10,896 | | | 51,913 | | | 9,647 | | Income tax expense using estimated annual effective income tax rate | 14,883 | | | 26,952 | | | 27,191 | | | 36,218 | |
Changes in effective tax rates | Changes in effective tax rates | 135 | | | (12) | | | 0 | | | 0 | | Changes in effective tax rates | 86 | | | 52 | | | — | | | — | |
| Impact of discrete items, net | 0 | | | 32 | | | 0 | | | 291 | | |
| | Income tax expense | Income tax expense | $ | 38,860 | | | $ | 10,916 | | | $ | 51,913 | | | $ | 9,938 | | Income tax expense | $ | 14,969 | | | $ | 27,004 | | | $ | 27,191 | | | $ | 36,218 | |
TheThere are no discrete items for the three months ended June 30, 2020 primarily relates to income tax expense on the changes in value of certain contingent consideration partially offset by income tax benefit related to stock-based compensation. The discrete items for theand six months ended June 30, 2020 relate to income tax benefits on the goodwill2022 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.June 30, 2021, respectively.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
12.11. 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 June 30, 2021 |
Description | | Total | | Quoted 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) | | $ | 310,300 | | | $ | 310,300 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | |
Commercial paper (1) | | 24,071 | | | 0 | | | 24,071 | | | 0 | |
| | | | | | | | |
Certificates of deposit (2) | | 679 | | | 0 | | | 679 | | | 0 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Investment securities at fair value | | | | | | | | |
Equity securities at fair value | | | | | | | | |
Marketable equity securities | | 25,187 | | | 25,187 | | | 0 | | | 0 | |
Mutual funds invested in debt securities | | 23,325 | | | 23,325 | | | 0 | | | 0 | |
Total equity securities at fair value | | 48,512 | | | 48,512 | | | 0 | | | 0 | |
Debt securities available for sale | | | | | | | | |
U.S. government securities | | 12,512 | | | 0 | | | 12,512 | | | 0 | |
Corporate securities | | 49,843 | | | 0 | | | 49,843 | | | 0 | |
U.S. government and federal agency | | 15,467 | | | 0 | | | 15,467 | | | 0 | |
| | | | | | | | |
| | | | | | | | |
Commercial paper | | 29,443 | | | 0 | | | 29,443 | | | 0 | |
| | | | | | | | |
Foreign fixed-income securities | | 1,224 | | | 0 | | | 1,224 | | | 0 | |
| | | | | | | | |
Total debt securities available for sale | | 108,489 | | | 0 | | | 108,489 | | | 0 | |
| | | | | | | | |
PropTech convertible trading debt securities | | 2,481 | | | 0 | | | 0 | | | 2,481 | |
Total investment securities at fair value | | 159,482 | | | 48,512 | | | 108,489 | | | 2,481 | |
| | | | | | | | |
Long-term investments | | | | | | | | |
Long-term investment securities at fair value (3) | | 33,053 | | | 0 | | | 0 | | | 0 | |
| | | | | | | | |
Total | | $ | 527,585 | | | $ | 358,812 | | | $ | 133,239 | | | $ | 2,481 | |
| | | | | | | | |
Liabilities: | | | | | | | | |
Fair value of contingent liability | | $ | 4,522 | | | $ | 0 | | | $ | 0 | | | $ | 4,522 | |
| | | | | | | | |
Total | | $ | 4,522 | | | $ | 0 | | | $ | 0 | | | $ | 4,522 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements as of June 30, 2022 |
| | Total | | Quoted 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) | | $ | 210,258 | | | $ | 210,258 | | | $ | — | | | $ | — | |
| | | | | | | | |
Commercial paper (1) | | 49,143 | | | — | | | 49,143 | | | — | |
| | | | | | | | |
Certificates of deposit (2) | | 110 | | | — | | | 110 | | | — | |
| | | | | | | | |
Money market funds securing legal bonds (2) | | 24,000 | | | 24,000 | | | — | | | — | |
| | | | | | | | |
Investment securities at fair value | | | | | | | | |
Equity securities at fair value | | | | | | | | |
Marketable equity securities | | 14,967 | | | 14,967 | | | — | | | — | |
Mutual funds invested in debt securities | | 22,056 | | | 22,056 | | | — | | | — | |
Total equity securities at fair value | | 37,023 | | | 37,023 | | | — | | | — | |
Debt securities available for sale | | | | | | | | |
U.S. government securities | | 3,072 | | | — | | | 3,072 | | | — | |
Corporate securities | | 50,827 | | | — | | | 50,827 | | | — | |
U.S. government and federal agency | | 25,728 | | | — | | | 25,728 | | | — | |
| | | | | | | | |
| | | | | | | | |
Commercial paper | | 4,529 | | | — | | | 4,529 | | | — | |
| | | | | | | | |
Foreign fixed-income securities | | 1,215 | | | — | | | 1,215 | | | — | |
| | | | | | | | |
Total debt securities available for sale | | 85,371 | | | — | | | 85,371 | | | — | |
| | | | | | | | |
Total investment securities at fair value | | 122,394 | | | 37,023 | | | 85,371 | | | — | |
| | | | | | | | |
Long-term investments | | | | | | | | |
Long-term investment securities at fair value (3) | | 29,090 | | | — | | | — | | | — | |
| | | | | | | | |
Total | | $ | 434,995 | | | $ | 271,281 | | | $ | 134,624 | | | $ | — | |
| | | | | | | | |
Liabilities: | | | | | | | | |
Fair value of contingent liability | | $ | 182 | | | $ | — | | | $ | — | | | $ | 182 | |
| | | | | | | | |
Total | | $ | 182 | | | $ | — | | | $ | — | | | $ | 182 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(1) Amounts included in Cash and cash equivalents on the condensed consolidated balance sheets, except for $11,364 that is included in Other current assets and $1,907 that is included in Other assets.sheets.
(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.
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 |
Description | | Total | | Quoted 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 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | |
Commercial paper (1) | | 44,397 | | | 0 | | | 44,397 | | | 0 | |
| | | | | | | | |
Certificates of deposit (2) | | 2,111 | | | 0 | | | 2,111 | | | 0 | |
| | | | | | | | |
Money market funds securing legal bonds (2) | | 535 | | | 535 | | | 0 | | | 0 | |
| | | | | | | | |
Investment securities at fair value | | | | | | | | |
Equity securities at fair value | | | | | | | | |
Marketable equity securities | | 21,155 | | | 21,155 | | | 0 | | | 0 | |
Mutual funds invested in debt securities | | 23,226 | | | 23,226 | | | 0 | | | 0 | |
Total equity securities at fair value | | 44,381 | | | 44,381 | | | 0 | | | 0 | |
Debt securities available for sale | | | | | | | | |
U.S. government securities | | 19,200 | | | 0 | | | 19,200 | | | 0 | |
Corporate securities | | 52,434 | | | 0 | | | 52,434 | | | 0 | |
U.S. government and federal agency | | 10,484 | | | 0 | | | 10,484 | | | 0 | |
| | | | | | | | |
Commercial paper | | 9,086 | | | 0 | | | 9,086 | | | 0 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Total debt securities available for sale | | 91,204 | | | 0 | | | 91,204 | | | 0 | |
| | | | | | | | |
Total investment securities at fair value | | 135,585 | | | 44,381 | | | 91,204 | | | 0 | |
| | | | | | | | |
Long-term investments | | | | | | | | |
Long-term investment securities at fair value (3) | | 34,218 | | | 0 | | | 0 | | | 0 | |
| | | | | | | | |
Total | | $ | 472,140 | | | $ | 300,210 | | | $ | 137,712 | | | $ | 0 | |
| | | | | | | | |
Liabilities: | | | | | | | | |
Fair value of contingent liability | | $ | 999 | | | $ | 0 | | | $ | 0 | | | $ | 999 | |
| | | | | | | | |
Total | | $ | 999 | | | $ | 0 | | | $ | 0 | | | $ | 999 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements as of December 31, 2021 |
| | Total | | Quoted 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) | | $ | 130,583 | | | $ | 130,583 | | | $ | — | | | $ | — | |
| | | | | | | | |
Commercial paper (1) | | 24,426 | | | 0 | | 24,426 | | | — | |
| | | | | | | | |
Certificates of deposit (2) | | 110 | | | 0 | | 110 | | | — | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Investment securities at fair value | | | | | | | | |
Equity securities at fair value | | | | | | | | |
Marketable equity securities | | 19,560 | | | 19,560 | | | — | | | — | |
Mutual funds invested in debt securities | | 23,221 | | | 23,221 | | | — | | | — | |
Total equity securities at fair value | | 42,781 | | | 42,781 | | | — | | | — | |
Debt securities available for sale | | | | | | | | |
U.S. government securities | | 6,481 | | | — | | | 6,481 | | | — | |
Corporate securities | | 47,531 | | | — | | | 47,531 | | | — | |
U.S. government and federal agency | | 19,572 | | | — | | | 19,572 | | | — | |
| | | | | | | | |
Commercial paper | | 29,103 | | | — | | | 29,103 | | | — | |
| | | | | | | | |
| | | | | | | | |
Foreign fixed-income securities | | 1,219 | | | — | | | 1,219 | | | — | |
Total debt securities available for sale | | 103,906 | | | — | | | 103,906 | | | — | |
| | | | | | | | |
Total investment securities at fair value | | 146,687 | | | 42,781 | | | 103,906 | | | — | |
| | | | | | | | |
Long-term investments | | | | | | | | |
Long-term investment securities at fair value (3) | | 32,089 | | | — | | | — | | | — | |
| | | | | | | | |
Total | | $ | 333,895 | | | $ | 173,364 | | | $ | 128,442 | | | $ | — | |
| | | | | | | | |
Liabilities: | | | | | | | | |
Fair value of contingent liability | | $ | 2,646 | | | $ | — | | | $ | — | | | $ | 2,646 | |
| | | | | | | | |
Total | | $ | 2,646 | | | $ | — | | | $ | — | | | $ | 2,646 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(1) Amounts included in Cash and cash equivalents on the condensed consolidated balance sheets, except for $10,374 that is included in current restricted assets and $1,907 that is included in non-current restricted assets.sheets.
(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.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
The unobservable inputsonly Level 3 asset or liability is the guarantee of a contingent liability related to Douglas Elliman. The Company calculates the valuationsfair value 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 Technique | | Unobservable Input | | Range (Actual) |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
PropTech convertible trading debt securities | | $ | 2,481 | | | Discounted cash flow | | Interest rates | | 3% - 5% |
| | | | | | Maturity | | Apr 2022 - Mar 2023 |
| | | | | | Volatility | | 43.6% - 111.6% |
| | | | | | Discount rate | | 23.75% - 43.33% |
| | | | | | | | |
Fair value of contingent liability | | $ | 4,522 | | | Monte Carlo simulation model | | Estimated fair value of the Douglas Elliman reporting unit | | $ | 825,946 | |
| | | | | | Risk-free rate for a 1.5-year term | | 0.16 | % |
| | | | | | Leverage-adjusted equity volatility of peer firms | | 48.21 | % |
liability using a Monte Carlo simulation model. The unobservable inputs related to the valuationsvaluation are the estimated fair value of the Level 3 assetsunderlying asset, the risk-free rate for the remaining term of the liability and liabilitiesthe leverage-adjusted equity volatility of peer firms. These values were as follows$389,119, 1.72%, 32.22% at June 30, 2022 and $776,351, 0.39%, 26.13% at December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Quantitative Information about Level 3 Fair Value Measurements |
| | Fair Value at | | | | | | |
| | December 31, 2020 | | Valuation Technique | | Unobservable Input | | Range (Actual) |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Fair value of contingent liability | | $ | 999 | | | Monte Carlo simulation model | | Estimated fair value of the Douglas Elliman reporting unit | | $ | 169,000 | |
| | | | | | Risk-free rate for a 2-year term | | 0.13 | % |
| | | | | | Leverage-adjusted equity volatility of peer firms | | 78.57 | % |
| | | | | | | | |
2021.
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 0no nonrecurring nonfinancial assets subject to fair value measurements as of June 30, 20212022 and December 31, 2020,2021, respectively, except for investments in real estate ventures that were impaired as of June 30, 2021 and December 31, 2020, respectively.2021.
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, 2021 | | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | |
Significant Unobservable Inputs (Level 3) |
Description | | Impairment Charge | | Total | | | |
| | | | | | | | | | |
Assets: | | | | | | | | | | |
Investments in real estate ventures | | $ | 2,713 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Fair Value Measurement Using: |
| | Year Ended December 31, 2021 | | | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | Significant Other Observable Inputs (Level 2) | |
Significant Unobservable Inputs (Level 3) |
| | Impairment Charge | | Total | | | |
| | | | | | | | | | |
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 decreasedecline 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) |
Description | | Impairment Charge | | Total | | | |
| | | | | | | | | | |
Assets: | | | | | | | | | | |
Investments in real estate ventures | | $ | 16,513 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 0 | |
| | | | | | | | | | |
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.
2021.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
13.12. SEGMENT INFORMATION
The Company’s business segments for the three and six months ended June 30, 20212022 and 20202021 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 June 30, 20212022 and 20202021 were as follows:
| | | | Real | | Corporate | | | | Real | | Corporate | |
| | | Tobacco | | | Estate | | and Other | | Total |
Three months ended June 30, 2022 | | Three months ended June 30, 2022 | | | | | | | | |
Revenues | | Revenues | $ | 374,312 | | | | $ | 12,890 | | | $ | — | | | $ | 387,202 | |
Operating income (loss) | | Operating income (loss) | 88,332 | | (1) | | 6,867 | | | (4,488) | | | 90,711 | |
Equity in losses from real estate ventures | | Equity in losses from real estate ventures | — | | | | (460) | | | — | | | (460) | |
Depreciation and amortization | | Depreciation and amortization | 1,475 | | | | 6 | | | 312 | | | 1,793 | |
| | Tobacco | | | Estate | | and Other | | Total | | | |
Three months ended June 30, 2021 | Three months ended June 30, 2021 | | | | | | | | | Three months ended June 30, 2021 | | | |
Revenues | Revenues | $ | 329,496 | | | | $ | 400,033 | | | $ | 0 | | | $ | 729,529 | | Revenues | $ | 329,496 | | | | $ | 8,058 | | | $ | — | | | $ | 337,554 | |
Operating income (loss) | Operating income (loss) | 103,179 | | | | 42,362 | | | (8,465) | | | 137,076 | | Operating income (loss) | 103,179 | | | | (821) | | | (8,465) | | | 93,893 | |
Equity in earnings from real estate ventures | Equity in earnings from real estate ventures | 0 | | | | 16,685 | | | 0 | | | 16,685 | | Equity in earnings from real estate ventures | — | | | | 16,610 | | | — | | | 16,610 | |
Depreciation and amortization | Depreciation and amortization | 1,697 | | | | 2,158 | | | 234 | | | 4,089 | | Depreciation and amortization | 1,697 | | | | 61 | | | 234 | | | 1,992 | |
| Three months ended June 30, 2020 | | | | |
Six months ended June 30, 2022 | | Six months ended June 30, 2022 | | | |
Revenues | Revenues | $ | 312,510 | | | | $ | 133,250 | | | $ | 0 | | | $ | 445,760 | | Revenues | $ | 683,360 | | | | $ | 15,884 | | | $ | — | | | $ | 699,244 | |
Operating income (loss) | Operating income (loss) | 79,309 | | (1) | | (6,875) | | (2) | (5,637) | | | 66,797 | | Operating income (loss) | 165,971 | | (2) | | 7,842 | | | (7,976) | | | 165,837 | |
Equity in losses from real estate ventures | Equity in losses from real estate ventures | 0 | | | | (12,260) | | | 0 | | | (12,260) | | Equity in losses from real estate ventures | — | | | | (2,337) | | | — | | | (2,337) | |
| Depreciation and amortization | Depreciation and amortization | 2,000 | | | | 2,198 | | | 214 | | | 4,412 | | Depreciation and amortization | 2,952 | | | | 66 | | | 625 | | | 3,643 | |
Capital expenditures | | Capital expenditures | 2,872 | | | | 1 | | | 38 | | | 2,911 | |
| Six months ended June 30, 2021 | Six months ended June 30, 2021 | | | | Six months ended June 30, 2021 | | | |
Revenues | Revenues | $ | 597,959 | | | | $ | 675,334 | | | $ | 0 | | | $ | 1,273,293 | | Revenues | $ | 597,959 | | | | $ | 10,583 | | | $ | — | | | $ | 608,542 | |
Operating income (loss) | Operating income (loss) | 184,778 | | (3) | | 57,622 | | | (15,121) | | | 227,279 | | Operating income (loss) | 184,778 | | (3) | | 211 | | | (15,121) | | | 169,868 | |
Equity in earnings from real estate ventures | Equity in earnings from real estate ventures | 0 | | | | 18,274 | | | 0 | | | 18,274 | | Equity in earnings from real estate ventures | — | | | | 18,199 | | | — | | | 18,199 | |
Identifiable assets | 406,978 | | | | 620,499 | | | 468,900 | | | 1,496,377 | | |
| Depreciation and amortization | Depreciation and amortization | 3,457 | | | | 4,346 | | | 465 | | | 8,268 | | Depreciation and amortization | 3,457 | | | | 126 | | | 465 | | | 4,048 | |
Capital expenditures | Capital expenditures | 1,375 | | | | 1,263 | | | 417 | | | 3,055 | | Capital expenditures | 1,375 | | | | — | | | 417 | | | 1,792 | |
| Six months ended June 30, 2020 | | | | |
Revenues | $ | 599,579 | | | | $ | 300,669 | | | $ | 0 | | | $ | 900,248 | | |
Operating income (loss) | 148,495 | | (4) | | (74,350) | | (5) | (12,252) | | | 61,893 | | |
Equity in losses from real estate ventures | 0 | | | | (18,765) | | | 0 | | | (18,765) | | |
Identifiable assets | 357,518 | | | | 557,505 | | | 428,386 | | | 1,343,409 | | |
Depreciation and amortization | 4,042 | | | | 4,511 | | | 434 | | | 8,987 | | |
Capital expenditures | 2,973 | | | | 3,249 | | | 20 | | | 6,242 | | |
|
(1) Operating income includes $53$57 of litigation settlement and judgment expense.
(2) Operating lossincome includes $2,961$2,123 received from a litigation settlement associated with the MSA (which reduced cost of restructuring charges.sales) and $129 of litigation settlement and judgment expense.
(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.
(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 and $2,961 of restructuring charges.
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, 20202021 and Notes thereto, included in our 20202021 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 June 30, 2022 and 2021.
Basis of Presentation
The Condensed Consolidated Financial Statements included in this Form 10-Q present the financial position of Vector Group Ltd., a Delaware corporation, as of June 30, 2022 and December 31, 2021 and 2020.the results of our operations for the three and six months ended June 30, 2022 and 2021 giving effect to the distribution of Douglas Elliman Inc. (the “Distribution”) with the historical financial results of Douglas Elliman reflected as discontinued operations. The cash flows and comprehensive income related to Douglas Elliman have not been segregated and are included in the Condensed Consolidated Statements of Cash Flows and Condensed Consolidated Statements of Comprehensive Income, respectively, for all periods presented. Unless otherwise indicated, the information in the Notes to the Condensed Consolidated Financial Statements refer only to Vector Group’s continuing operations and do not include discussion of balances or activity of Douglas Elliman.
The financial results of Douglas Elliman through the date of the Distribution are presented as income from discontinued operations, net of income taxes on our condensed consolidated statements of operations and are not included in our results from continuing operations discussed below. See Note 4 in our condensed consolidated financial statements.
Overview
We are a holding company and are engaged principally in two business segments:
•Tobacco: the manufacture and sale of discount cigarettes in the United States through our Liggett Group LLC (“Liggett”) and Vector Tobacco Inc. (“Vector Tobacco”)LLC subsidiaries, and
•Real Estate: the real estate services, technology and investment business through our subsidiary, New Valley LLC, which (i) owns Douglas Elliman Realty LLC (“Douglas Elliman”), (ii) has interests in numerous real estate projects across the United States and (iii)(ii) 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:
•Montego
•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.
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. Many uncertainties continue to surround the pandemic, including risks 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.
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. 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.
Impact of COVID-19 on Real Estate Segment. The three and 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, Los Angeles, and Aspen and, in 2021, in New York City.
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. In addition, New Valley has investments in multiple real estate ventures and properties in the New York 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, Douglas Elliman operated at a lower cost basis during the three and six months ended June 30, 2021 when compared to the 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 timing and extent of vaccine administration and the impact of COVID-19 variants, the duration of the pandemic 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.
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 June 30, 2021, approximately $84,600 was available for borrowing with no outstanding balance under the Restated Credit Agreement.
Montego. SinceFrom August 2020 to February 2022, Liggett has expanded the distribution of its Montego deep discount brand by 17 states, primarily located in the southeast and midwest.nationally. Montego wasbecame Liggett’s third-largestlargest brand forby volume during the three months ended June 30, 2021.2022. Prior to August 2020, Montego was sold in select targeted markets in four states. Montego’s unit volume represented approximately 12% for the three months ended June 30, 2021 compared to approximately 5%43% of total unit volume sales for the three months ended June 30, 2020 and2022 compared to approximately 12% of Liggett’stotal unit volume sales for the three months ended June 30, 2021 and approximately 41% for the six months ended June 30, 20212022 compared to approximately 5%11% for the six months ended June 30, 2020.
Property Technology (“PropTech”) Investments. New Valley Ventures’ made the following investments (all of which are currently $1,000 or less) during the six months ended June 30, 2021.
•Menthol and Flavorings. Rechat – an investmentOn May 4, 2022, FDA published a proposed rule to prohibit menthol as a characterizing flavor in February 2021cigarettes. For the twelve months ended June 30, 2022, approximately 20% 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 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.the industry.
•Nicotine. Purlin – aninvestmentOn June 21, 2022, the FDA indicated it plans to publish a proposed rule in March 2021May 2023 that establishes a tobacco product standard reducing the level of nicotine in an automated intelligence platformcigarettes to aid in home buying.
•EVPassport – aninvestment in March 2021 in anelectronic vehicle charging platform.
•Humming Homes – an investment in March 2021 innon-addictive levels. Under the Tobacco Control Act (“TCA”), FDA may adopt a tech-enabled home management service.
•MoveEasy – an investment in June 2021 intobacco product standard for nicotine if the agency concludes that such 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. MoveEasystandard is delivered in a white-labeled format in partnership with residential real estate brokerages in a package that featuresappropriate for the name and contact informationprotection of the selling agent.
•public health. FDA may refer the proposed regulation to the Tobacco Products Scientific Advisory Committee (“TPSAC”) for a report and recommendation. FDA may consider a wide range of issues prior to the promulgation of a final rule, including the technical achievability of compliance with the proposed product standard. The Lab PropTech Fund – an investmentrulemaking 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. We cannot predict how a tobacco product standard reducing nicotine, 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 June 2021 into a Miami-based fund that will invest in emerging technology companies serving emerging real estate and construction industries.
the industry.
Recent Developments in Tobacco-Related 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.
Mississippi Dispute.Litigation. 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 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 April 2021, following confirmation of the 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) iswas 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 suchthe principal amount)amount allegedly due).
In September 2019, the Special Master held a hearing regarding Mississippi’s claim for prepre- and post-judgment interest. In JuneAugust 2021, the Special Master issued a draftfinal report with proposed findings and recommendations that pre-judgment interest, in the amount of approximately $18,600,$18,800, is due from Liggett from April 2005 - July 9,August 3, 2021. AtIn April 2022, the request ofMississippi Chancery Court affirmed the Special Master, the parties provided comments to the draft reportMaster’s findings 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 iswas entered additionalby the court on June 1, 2022. Additional interest amounts will accrue if the judgment is not overturned on appeal. Liggett continues to believeassert 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,Mississippi. Liggett appealed the final judgment and it reserved all rights toposted a $24,000 bond in June 2022. We cannot predict the outcome of this matter but if the judgment is not overturned on 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.
Liggett may be required to make additional payments to Mississippi and Texas whichit could have a material adverse effect on the Company’sour consolidated financial position, results of operations and cash flows.position.
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 June 30, 20212022 and 20202021 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 Ended | | Six Months Ended | | | Three Months Ended | | Six Months Ended | |
| | June 30, | | June 30, | | | June 30, | | June 30, | |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 | | 2022 | | 2021 | |
Revenues: | Revenues: | | | | | | | | | Revenues: | | | | | | | | |
Tobacco | Tobacco | $ | 329,496 | | | $ | 312,510 | | | $ | 597,959 | | | $ | 599,579 | | | Tobacco | $ | 374,312 | | | $ | 329,496 | | | $ | 683,360 | | | $ | 597,959 | | |
| Real estate | Real estate | 400,033 | | | 133,250 | | | 675,334 | | | 300,669 | | | Real estate | 12,890 | | | 8,058 | | | 15,884 | | | 10,583 | | |
| Total revenues | Total revenues | $ | 729,529 | | | $ | 445,760 | | | $ | 1,273,293 | | | $ | 900,248 | | | Total revenues | $ | 387,202 | | | $ | 337,554 | | | $ | 699,244 | | | $ | 608,542 | | |
Operating income (loss): | Operating income (loss): | | | | | | | | | Operating income (loss): | | | | | | | | |
Tobacco | Tobacco | $ | 103,179 | | | $ | 79,309 | | (1) | $ | 184,778 | | (3) | $ | 148,495 | | (4) | Tobacco | $ | 88,332 | | (1) | $ | 103,179 | | | $ | 165,971 | | (2) | $ | 184,778 | | (3) |
| Real estate | Real estate | 42,362 | | | (6,875) | | (2) | 57,622 | | | (74,350) | | (5) | Real estate | 6,867 | | | (821) | | | 7,842 | | | 211 | | |
Corporate and Other | Corporate and Other | (8,465) | | | (5,637) | | | (15,121) | | | (12,252) | | | Corporate and Other | (4,488) | | | (8,465) | | | (7,976) | | | (15,121) | | |
Total operating income | Total operating income | $ | 137,076 | | | $ | 66,797 | | | $ | 227,279 | | | $ | 61,893 | | | Total operating income | $ | 90,711 | | | $ | 93,893 | | | $ | 165,837 | | | $ | 169,868 | | |
(1) Operating income included $53includes $57 of litigation settlement and judgementjudgment expense.
(2) Operating loss included $2,961 of restructuring charges.
(3)(2) Operating income includedincludes $2,123 received from a litigation settlement associated with the MSA (which reduced cost of sales) and $129
of litigation settlement and judgment expense.
(3) $2,722Operating 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.
(4) Operating income included $53 of litigation settlement and judgement expense.
(5) Operating loss included $58,252 of impairment charges related to the impairments of goodwill and other intangible assets and $2,961 of restructuring charges.
Pricing actions
Since January 1, 2021, Liggett has taken the following pricing actions.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | Brand |
| | Amount per pack | | Montego | Eagle 20’s | Pyramid | Liggett Select, Eve and Grand Prix |
| | | | | | | |
January 25, 2021 (1) | | $ | 0.14 | | | — | P | P | P |
June 28, 2021 (1) | | 0.14 | | | — | P | P | P |
September 27, 2021 (1) | | 0.15 | | | — | P | P | P |
January 31, 2022 (1) | | 0.10 | | | P | — | — | — |
January 31, 2022 (1) | | 0.15 | | | — | P | P | P |
April 29, 2022 (1) | | 0.16 | | | — | P | P | P |
May 1,2022 (2) | | 0.10 | | | P | — | — | — |
July 29, 2022 (1) | | 0.16 | | | P | P | P | P |
(1) List price increase
(2) Promotional spending reduction
Three Months Ended June 30, 20212022 Compared to Three Months Ended June 30, 20202021
Revenues. Total revenues were $729,529$387,202 for the three months ended June 30, 20212022 compared to $445,760$337,554 for the three months ended June 30, 2020.2021. The $283,769 (63.7%$49,648 (14.7%) increase in revenues was primarily due to a $266,783$44,816 increase in Tobacco revenues and a $4,832 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$271,238 for the three months ended June 30, 20212022 compared to $304,885$213,891 for the three months ended June 30, 2020.2021. The $195,525 (64.1%$57,347 (26.8%) increase in cost of sales was primarily due to a $203,447$59,044 increase in Real EstateTobacco cost of sales, which was primarily related to Douglas Elliman.sales. This was offset by a $7,922$1,697 decline in TobaccoReal Estate cost of sales.
Expenses. Operating expenses were $92,043$25,253 for the three months ended June 30, 20212022 compared to $74,078$29,770 for the same period last year. The $17,965 (24.3%$4,517 (15.2%) increasedecline in operating expenses was primarily 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$3,977 decline in Corporate and Other expenses and a $1,159 decline in Real Estate expenses. This was offset by a $619 increase in Tobacco expenses.
Operating income. Operating income was $137,076$90,711 for the three months ended June 30, 20212022 compared to $66,797$93,893 for the same period last year. The $70,279 (105.2%$3,182 (3.4%) increasedecline 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$14,847 decline in Tobacco operating income. This was offset by ana $7,688 increase in Real Estate operating income and a decline of $2,828$3,977 in Corporate and Other operating loss.
Other expenses. Other expenses were $4,911$36,589 and $30,107$1,908 for the three months ended June 30, 2022 and 2021, respectively. For the three months ended June 30, 2022, other expenses primarily consisted of interest expense of $30,724, other expenses of $3,094, equity in losses from investments of $2,311, and 2020, respectively.equity in losses from real estate ventures of $460. For the three months ended June 30, 2021, other expenses primarily consisted of interest expense of $28,115.$28,072. This was offset by equity in earnings from real estate ventures of $16,685,$16,610, other income of $5,578$8,613 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$54,122 and $36,690$91,985 for the three months ended June 30, 20212022 and 2020,2021, respectively.
Income tax expense. Income tax expense was $38,860$14,969 and $10,916$27,004 for the three months ended June 30, 20212022 and 2020,2021, respectively. Our provision for income taxes in interim periods is based on expected income, statutory rates, permanentnontaxable 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 20212022 and 2020.2021. For the three months ended June 30, 2021,2022, Tobacco revenues were $329,496$374,312 compared to $312,510$329,496 for the three months ended June 30, 2020.2021. Revenues increased by $16,986 (5.4%$44,816 (13.6%) due primarily to ana 16.2% (382 million units) increase in sales volume, partially offset by a decrease 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.
Despite recent pricing increases,Our current strategy for Montego is based on volume growth, while our current strategy for Eagle 20’s remainsand Pyramid is based on income growth. Because Montego is in the volume growth phase, it became Liggett’s primary low-cost cigarettelargest brand by volume during the three months ended June 30, 2022 and its volume has increased to approximately 43% of Liggett’s total unit sales for the three months ended June 30, 2022 from approximately 12% for the three months ended June 30, 2021. As a result of the growth in Montego’s volume and price increases that began in the fourth quarter of 2018, Eagle 20’s is now Liggett’s second largest brand and its percentage of Liggett’s total unit volume sales has declined slightly from 63% into approximately 38% for the three months ended June 30, 2020 to2022 from approximately 60% for the three months ended June 30, 2021. Pyramid, Liggett’s second-largestthird-largest brand, also declined from 24%to approximately 14% of Liggett’s total unit volume sales infor the three months ended June 30, 2020 to2022 from approximately 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 | | | Three Months Ended | |
| | June 30, | | | June 30, | |
| | 2021 | | 2020 | | | 2022 | | 2021 | |
| Manufacturing overhead, raw materials and labor | Manufacturing overhead, raw materials and labor | | $ | 33,277 | | | $ | 32,669 | | | Manufacturing overhead, raw materials and labor | | $ | 40,427 | | | $ | 33,277 | | |
Customer shipping and handling | Customer shipping and handling | | 1,885 | | | 1,361 | | | Customer shipping and handling | | 2,304 | | | 1,885 | | |
Federal Excise Taxes, net | | 118,735 | | | 121,170 | | | |
Federal excise taxes, net | | Federal excise taxes, net | | 137,884 | | | 118,735 | | |
| FDA expense | FDA expense | | 5,622 | | | 6,116 | | | FDA expense | | 7,624 | | | 5,622 | | |
MSA expense, net of market share exemption | MSA expense, net of market share exemption | | 46,626 | | | 52,751 | | | MSA expense, net of market share exemption | | 76,950 | | | 46,626 | | |
Total cost of sales | Total cost of sales | | $ | 206,145 | | | $ | 214,067 | | | Total cost of sales | | $ | 265,189 | | | $ | 206,145 | | |
|
The Tobacco segment’s MSA expense is included inthe most volume-sensitive component (on a per-unit basis) of its cost of sales. Undersales because, under the terms of the MSA, we havethe Tobacco segment has no payment obligations except to the extent that our tobacco subsidiaries’ market share of theits U.S. Cigarette market share exceeds 1.92%. The calculation of our benefit from theWe estimate MSA is an estimateexpense based on U.S.total domestic taxable cigarette shipments.shipments in the United States, our taxable shipments and inflation. Based on assumptions discussed below, we estimated our MSA expense increased to $0.56 per pack for the three months ended June 30, 2022 from our estimate of $0.40 per pack from the three months ended June 30, 2021. (We estimated our MSA expense was $0.40 per pack for the year ended December 31, 2021.)
Our MSA expense is impacted by total domestic taxable shipments in the United States. As of June 30, 2021,2022, we estimate taxable shipments in the U.S. will decline by 9.0% in 2022 compared to our estimate as of June 30, 2021 of a decline of 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(The actual change in 20202021 taxable shipments was an increasea decline of 2.0%6.1%. Our) We estimate our 2022 projected annual MSA expense changes by approximately $1,650$1,900 for each percentage1% change in estimatedU.S. shipment volumes in the U.S. market.volumes.
Inflationary pressures also impact Liggett’s cost of sales through increases in MSA expense as well as manufacturing costs. Liggett’s MSA expense, which is subject to an annual inflation adjustment. The 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. As of sales. For the three months ended June 30, 2021,2022, Liggett’s management assumed an inflation adjustment to MSA expense of 9.0% compared to an assumption of 3.4% for the six months endedas of June 30, 2021 and assumed 3% for the three months ended June 30, 2020. The2021. (The actual inflation adjustment to the MSA in 20202021 was 3%7.0%. 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$2,400 for each 1% percentage increase ofin inflation in excess ofmore than 3%.
In addition to the MSA expense, we could experience inflationary impacts from manufacturing costs. 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 relatively flat and, therefore, hasprior to 2021, Liggett had not been impacted by inflation. However,During the three months ended June 30, 2022, Liggett experienced an approximate 3.9% inflation increase in leaf tobacco and raw materials (on a per-unit basis) compared to 2.1% during 2021,the three months ended June 30, 2021. Further, when including labor costs, manufacturing overhead and shipping costs with leaf tobacco and raw materials, Liggett experienced a 2.1% inflation4.6% increase in production costs (on a per-unit basis) during the three months ended June 30, 2022, compared to an increase in total production costs of 5.3% during the three months ended June 30, 2021.
Tobacco gross profit was $109,123 for the three months ended June 30, 2021 and management anticipates the inflationary trends could continue.
Tobacco gross profit was2022 compared to $123,351 for the three months ended June 30, 2021, compared to $98,443 for the three months ended June 30, 2020, an increasea decline of $24,908 (25.3%$14,228 (11.5%). The increasedecline in gross profit for the three months ended June 30, 20212022 was primarily attributable to declines in net pricing (due to the growth of the Montego brand) and higher per unit MSA expense and was partially offset by a 16.2% increase in unit sales and increased pricing associated with the Eagle 20’s and Pyramid brands more than offsetting the impact of a 1.9% decline in unit sales.across all brands. As a percentage of revenue (excluding Federal Excise Taxes), Tobacco gross profit increasedmargin declined from 51.4% in the 2020 period to 58.5% in the 2021 period. The increaseperiod to 46.2% in gross profit was primarily the result of increased net pricing as well as lower per unit MSA expense.2022 period.
Tobacco expenses. Tobacco operating, selling, general and administrative expenses, excluding settlements and judgments, were $20,172$20,734 and $19,081$20,172 for the three months ended June 30, 20212022 and 2020,2021, respectively. The increase of $1,091$562 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.expenses. Total tobacco product liability legal expenses, including settlements and judgments, were $1,542$1,678 and $1,641$1,542 for the three months ended June 30, 20212022 and 2020,2021, respectively.
Tobacco operating income. Tobacco operating income was $88,332 for the three months ended June 30, 2022 compared to $103,179 for the three months ended June 30, 2021 compared to $79,309 for the same period last year.2021. The increasedecline of $23,870 (30.1%$14,847 (14.4%) was primarily attributable to higherlower gross profit as discussed above, partially offset byalong with increased operating, selling, general and administrative expenses.
Real Estate.
Real Estate revenues. Real Estate revenues were $400,033$12,890 and $133,250$8,058 for the three months ended June 30, 2022 and 2021, respectively. In April 2022, New Valley sold Escena and 2020, respectively. Real Estate revenues increased by $266,783, which was primarily related to an increase of $252,779recognized $12,600 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.revenues.
Real Estate revenues and cost of sales for the three months ended June 30, 20212022 and 2020,2021, respectively, were as follows:
| | | | | | | | | | | |
| Three Months Ended |
| June 30, |
| 2021 | | 2020 |
Real Estate Revenues: | | | |
Commission and other brokerage income | $ | 376,033 | | | $ | 123,254 | |
Property management revenue | 9,901 | | | 8,832 | |
Escrow and title fees | 6,041 | | | 843 | |
Revenues from investments in real estate | 6,750 | | | — | |
Sales on facilities primarily from Escena | 1,308 | | | 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 estate | 6,744 | | | — | |
Escrow and title fees | 2,867 | | | 139 | |
Cost of sales on facilities primarily from Escena | 1,002 | | | 563 | |
| | | |
| | | |
Total real estate cost of sales | $ | 294,265 | | | $ | 90,818 | |
| | | | | | | | | | | |
| Three Months Ended |
| June 30, |
| 2022 | | 2021 |
Real Estate Revenues: | | | |
Sales on facilities located on investments in real estate | $ | 290 | | | $ | 1,308 | |
Revenues from investments in real estate | 12,600 | | | 6,750 | |
| | | |
Total real estate revenues | $ | 12,890 | | | $ | 8,058 | |
| | | |
Real Estate Cost of Sales: | | | |
Cost of sales from investments in real estate | $ | 5,891 | | | $ | 6,744 | |
Cost of sales on facilities located on investments in real estate | 158 | | | 1,002 | |
| | | |
| | | |
Total real estate cost of sales | $ | 6,049 | | | $ | 7,746 | |
| | | |
Operating, selling, administrative and general expenses | $ | (26) | | | $ | 1,133 | |
| | | |
Operating income (loss) | $ | 6,867 | | | $ | (821) | |
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
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$4,488 for the three months ended June 30, 20212022 compared to $5,637$8,465 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.2021.
Six Months Ended June 30, 20212022 Compared to Six Months Ended June 30, 20202021
Revenues. Total revenues were $1,273,293$699,244 for the six months ended June 30, 20212022 compared to $900,248$608,542 for the six months ended June 30, 2020.2021. The $373,045 (41.4%$90,702 (14.9%) increase in revenues was primarily due to a $374,665$85,401 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 $1,620 decline in Tobacco revenues related to lowerincreased unit volume partially offset by increasesand a $5,301 increase in net pricing resulting primarily from increases in 2020 and 2021.Real Estate revenues.
Cost of sales. Total cost of sales was $863,952$484,053 for the six months ended June 30, 20212022 compared to $615,508$378,798 for the six months ended June 30, 2020.2021. The $248,444 (40.4%$105,255 (27.8%) increase in cost of sales was primarily due to a $289,625$106,550 increase in Real Estate cost of sales, which was primarily related to increased Douglas Elliman’s commissions. This was offset by a $41,181 decline in Tobacco cost of sales primarily related to decreasedincreased sales volume.volume, offset by a $1,295 decline in Real Estate cost of sales.
Expenses. Operating expenses were $182,062$49,354 for the six months ended June 30, 20212022 compared to $222,847$59,876 for the same period last year. The $40,785 (18.3%$10,522 (17.6%) decline was due to a $46,932$7,145 decline in Corporate and Other expense, a $2,342 decline in Tobacco expenses and $1,035 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 $3,278 increase in Tobacco expenses and a $2,869 increase in Corporate and Other expense for the six months ended June 30, 2021.2022.
Operating income. Operating income was $227,279$165,837 for the six months ended June 30, 20212022 compared to an operating income of $61,893$169,868 for the same period last year. Operating income for the six months ended June 30, 2020 included an impairment expense associated with goodwill and other intangible assets and restructuring chargesyear as a result of a decline in our Real Estate segment. Real Estate operating income increased $131,972 primarily related to increased revenues at Douglas Elliman in 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 and restructuring expenses in the 2021 period. Tobacco operating income increased by $36,283of $18,807 due primarily to increasesdeclines in net pricing (due to the growth of the Montego brand) and lowerhigher per unit MSA expense. This was offset by an increase in Real Estate operating income of $7,631, which was associated with the increasedsale of Escena, and a decline in Corporate and Other operating loss of $2,869.$7,145.
Other expenses. Other expenses were $50,104$66,951 for the six months ended June 30, 20212022 compared to other expenses of $29,412$47,119 for the six months ended June 30, 2020.2021. For the six months ended June 30, 2022, other expenses primarily consisted of interest expense of $55,822, equity in losses from investments of $4,553, other expenses of $4,239, and equity in losses from real estate ventures of $2,337. For the six months ended June 30, 2021, other expenses primarily consisted of interest expense of $56,866,$56,793 and loss on the extinguishment of debt of $21,362. This was offset by other income of $11,319, equity in earnings from real estate ventures of $18,274,$18,199, and equity in earnings from investments of $1,518 and other income of $8,332. For the six months ended June 30, 2020, other expenses 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 $52,359 and income of $4,999 from changes in fair value of derivatives embedded within convertible debt.$1,518.
Income (loss) before provision for income taxes. Income before income taxes was $177,175$98,886 and $122,749 for the six months ended June 30, 2022 and 2021, compared to loss before income taxes of $32,481 for the six months ended June 30, 2020.respectively.
Income tax expense (benefit). Income tax expense was $51,913$27,191 for the six months ended June 30, 20212022 compared to income tax expense of $9,938$36,218 for the six months ended June 30, 2020.2021. Our provision for income taxes in interim periods is based on expected income, statutory rates, permanentnontaxable 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 six months ended June 30, 2020, the annual effective tax rate applied to year-to-date income resulted in tax expense which was increased by discrete items related 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 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 20212022 and 2020.2021. For the six months ended June 30, 2021,2022, Tobacco revenues were $597,959$683,360 compared to $599,579$597,959 for the six months ended June 30, 2020.2021. Revenues declinedincreased by $1,620 (0.3%$85,401 (14.3%) due primarily to a 7.7% (357an 17.3% (745 million units) declineincrease in unit sales volume, partially offset by an increasea decline in the average selling price of our brands. The average selling price of our brands declined due to a shift in volume from our higher priced Eagle 20’s and Pyramid brands to Montego.
Our current strategy for Montego is based on volume growth, while our current strategy for Eagle 20’s and Pyramid is based on income growth. Because Montego is in the volume growth phase, it became Liggett’s largest brand by volume during the six months ended June 30, 2022 and its volume has increased to approximately 41% of Liggett’s total unit sales for the six months ended June 30, 2022 from approximately 11% for the six months ended June 30, 2021.
As a result of the growth in Despite recent pricingMontego’s volume and price increases that began in the fourth quarter of 2018, Eagle 20’s remainsis now Liggett’s primary low-cost cigarettesecond largest brand and its percentage of Liggett’s total unit volume sales has declined fromto approximately 63% in39% for the six months ended June 30, 2020 to2022 from approximately 60% for the six months ended June 30, 2021. Pyramid, Liggett’s second largestthird-largest brand, also declined fromto approximately 24%15% of Liggett’s total unit volume sales in the six months ended June 30, 2020 to approximately 21% for the six months ended June 30, 2021. Montego is Liggett’s third largest brand and increased2022 from approximately 5% of total unit volume sales in the six months ended June 30, 2020 to approximately 12%21% for the six months ended June 30, 2021.
Tobacco cost of sales. The major components of our Tobacco cost of sales were as follows:
| | | Six Months Ended | | Six Months Ended | |
| | June 30, | | June 30, | |
| | 2021 | | 2020 | | 2022 | | 2021 | |
| Manufacturing overhead, raw materials and labor | Manufacturing overhead, raw materials and labor | | $ | 60,538 | | | $ | 65,534 | | Manufacturing overhead, raw materials and labor | | $ | 73,192 | | | $ | 60,538 | | |
Customer shipping and handling | Customer shipping and handling | | 3,301 | | | 2,833 | | Customer shipping and handling | | 4,297 | | | 3,301 | | |
Federal Excise Taxes, net | | 216,449 | | | 234,309 | | |
Federal excise taxes, net | | Federal excise taxes, net | | 253,963 | | | 216,449 | | |
| FDA expense | FDA expense | | 11,694 | | | 12,466 | | FDA expense | | 14,248 | | | 11,694 | | |
MSA expense, net of market share exemption | MSA expense, net of market share exemption | | 78,194 | | (1) | 96,215 | | MSA expense, net of market share exemption | | 131,026 | | (1) | 78,194 | | (2) |
Total cost of sales | Total cost of sales | | $ | 370,176 | | | $ | 411,357 | | Total cost of sales | | $ | 476,726 | | | $ | 370,176 | | |
|
(1)Includes $2,123 received from a litigation settlement associated with the MSA expense (which reduced cost of sales).
(2) Includes $2,722 received from a litigation settlement associated with the MSA expense.expense (which reduced cost of sales).
The Tobacco segment’s MSA expense is included inthe most volume-sensitive component (on a per-unit basis) of its cost of sales. Undersales because, under the terms of the MSA, we havethe Tobacco segment has no payment obligations except to the extent that our tobacco subsidiaries’its U.S. Cigarette market share of the U.S. cigarette market exceeds 1.92%. The calculation of our benefit from theWe estimate MSA is an estimateexpense based on U.S.total domestic taxable cigarette shipments.shipments in the United States, our taxable shipments and inflation. Based on assumptions discussed below, we estimated our MSA expense increased to $0.52 per pack for the six months ended June 30, 2022 from our estimate of $0.36 per pack from the six months ended June 30, 2021. (We estimated our MSA expense was $0.40 per pack for the year ended December 31, 2021.)
Our MSA expense is impacted by total domestic taxable cigarette shipments in the United States. As of June 30, 2021,2022, we estimate taxable shipments in the U.S. will decline by 9.0% in 2022 compared to our estimate as of June 30, 2021 of a decline of 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(The actual change in 20202021 taxable shipments was an increasea decline of 2.0%6.1%. Our) We estimate our 2022 projected annual MSA expense changes by approximately $1,650$1,900 for each percentage1% change in estimatedU.S. shipment volumes in the U.S. market.volumes.
Inflationary pressures also impact Liggett’s cost of sales through increases in MSA expense as well as manufacturing costs. Liggett’s MSA expense, which is subject to an annual inflation adjustment. The 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, 2021,2022, Liggett’s management assumed an inflation adjustment to MSA expense of 9% compared to an assumption of 3.4% for the six months ended June 30, 2021 and assumed 3% for the six months ended June 30, 2020. The2021. (The actual inflation adjustment to the MSA in 20202021 was 7.0%.) Our annual MSA expense increases by approximately $2,400 for each 1% increase in inflation more than 3%.
In addition to the MSA expense, we could experience inflationary impacts from manufacturing costs. 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 relatively flat and, therefore, hasprior to 2021, Liggett had not been impacted by inflation. However, during 2021,During the six months ended June 30, 2022, Liggett experienced a 3.9% increase in leaf tobacco and raw materials (on a per-unit basis) compared to 1.2% inflationduring the six months ended June 30, 2021. Further, when including labor costs, manufacturing overhead and shipping costs with leaf tobacco and raw materials, Liggett experienced a 3.5% increase in production costs (on a per-unit basis) during the six months ended June 30, 2022, compared to a 1.1% increase in production costs during the six months ended June 30, 2021.
Tobacco gross profit was $206,634 for the six months ended June 30, 2021 and management anticipates the inflationary trends could continue.
Tobacco gross profit was2022 compared to $227,783 for the six months ended June 30, 2021, compared to $188,222 for the six months ended June 30, 2020, an increasea decline of $39,561 (21.0%). For the six months ended 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 six months ended June 30, 2021 was $225,061, an increase of $36,839 (19.6%$21,149 (9.3%). This increasedecline in gross profit for the six months ended June 30, 20212022 was primarily attributable to increaseddeclines in net pricing across Liggett’s brand portfolio more than offsetting(due to the impactgrowth of the Montego brand) and higher per unit MSA expense and was partially offset by a 7.7% decline17.3% increase in unit sales.sales and increased pricing across all brands. As a percentage of revenue (excluding Federal Excise Taxes), Tobacco gross profit increasedmargin declined from 51.5% in the 2020 period to 59.7% in the 2021 period. The increaseperiod to 48.1% in gross profit was primarily the result of increased pricing and lower per unit MSA expenses.2022 period.
Tobacco expenses. Tobacco operating, selling, general and administrative expenses, excluding settlements and judgments, were $40,534 for the six months ended June 30, 2022 compared to $43,000 for the six months ended June 30, 2021 compared to $39,674 for the six months ended June 30, 2020.2021. The increasedecline of $3,326$2,466 was mainlyprimarily due to increasedlower professional fees and expenses associated with Colorado’s minimum price legislation, increased travel and marketing expenses related to the lifting of COVID-19 restrictions and higher compensation accruals.expenses. Tobacco product liability legal expenses, including settlements and judgments, were $3,067$3,323 and $3,191$3,067 for the six months ended June 30, 20212022 and 2020,2021, respectively.
Tobacco operating income. Tobacco operating income was $165,971 for the six months ended June 30, 2022 compared to $184,778 for the six months ended June 30, 2021 compared to $148,495 for the six months ended June 30, 2020.2021. The increasedecline of $36,283 (24.4%$18,807 (10.2%) was primarily attributable to higherlower gross profit margins, as discussed above, partially offset by increasedlower operating, selling, general and administrative expenses.
Real Estate.
Real Estate revenues. Real Estate revenues were $675,334$15,884 and $300,669$10,583 for the six months ended June 30, 20212022 and 2020,2021, respectively. Real Estate revenues increased by $374,665, which was primarily related to an increase$5,301. In April 2022, New Valley sold Escena and recognized $12,600 in revenues.
Real Estate revenues, cost of $355,913 in Douglas Elliman’s commissionsales, expenses and other brokerageoperating 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 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, 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 $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.
Real Estate revenues2022 and cost of sales for the six months ended June 30, 2021, and 2020, respectively, were as follows:
| | | | | | | | | | | |
| Six Months Ended |
| June 30, |
| 2021 | | 2020 |
Real Estate Revenues: | | | |
Commission and other brokerage income | $ | 635,133 | | | $ | 279,220 | |
Property management revenue | 19,169 | | | 17,611 | |
Escrow and title fees | 10,449 | | | 1,699 | |
Revenues from investments in real estate | 7,650 | | | — | |
Sales on facilities primarily from Escena | 2,933 | | | 2,139 | |
| | | |
Total real estate revenues | $ | 675,334 | | | $ | 300,669 | |
| | | |
Real Estate Cost of Sales: | | | |
Real estate agent commissions | $ | 480,669 | | | $ | 202,315 | |
Cost of sales from investments in real estate | 6,744 | | | — | |
Escrow and title fees | 4,485 | | | 277 | |
Cost of sales on facilities primarily from Escena | 1,878 | | | 1,559 | |
| | | |
Total real estate cost of sales | $ | 493,776 | | | $ | 204,151 | |
| | | | | | | | | | | |
| Six Months Ended |
| June 30, |
| 2022 | | 2021 |
Real Estate Revenues: | | | |
Sales on facilities located on investments in real estate | $ | 3,259 | | | $ | 2,933 | |
Revenues from investments in real estate | 12,625 | | | 7,650 | |
| | | |
Total real estate revenues | $ | 15,884 | | | $ | 10,583 | |
| | | |
Real Estate Cost of Sales: | | | |
Cost of sales from investments in real estate | $ | 5,891 | | | $ | 6,744 | |
Cost of sales on facilities located on investments in real estate | $ | 1,436 | | | $ | 1,878 | |
Total real estate cost of sales | $ | 7,327 | | | $ | 8,622 | |
| | | |
Operating, selling, administrative and general expenses | $ | 715 | | | $ | 1,750 | |
| | | |
Operating income | $ | 7,842 | | | $ | 211 | |
Real Estate cost of sales. Real Estate cost of sales were $493,776 and $204,151 for the six months ended June 30, 2021 and 2020, respectively. Real Estate cost of sales increased by $289,625, primarily related to $278,354 increase in Douglas Elliman’s real estate agent commissions, which resulted from an increase in sales volume. Real estate brokerage commissions increased from 72.5% to for the six months ended June 30, 2020 to 75.7% for the six 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 $96,518 for the six months ended June 30, 2020 to $181,558 for the six months ended June 30, 2021, an increase of $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 $123,936 and $170,868 for the six months ended June 30, 2021 and 2020. The expenses for the six months ended 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, increased by $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 reinstatement of salary levels) and advertising expenses associated with Douglas Elliman’s increased listings in 2021. These amounts were offset by lower general and administrative, occupancy and travel expenses.
Real Estate operating income (loss). The Real Estate segment reported operating income of $57,622 and operating loss of $74,350 for the six months ended 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 $15,121$7,976 for the six months ended June 30, 20212022 compared to $12,252$15,121 for the same period in 2020.2021.
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 June 30, 2021:2022:
| | | (Dollars in Thousands. Area and Unit Information in Ones) | | (Dollars in Thousands. Area and Unit Information in Ones) |
| | Location | Date of Initial Investment | Percentage Owned (1) | Net Cash Invested (Returned) | Cumulative Earnings (Losses) | Carrying Value as of June 30, 2021 | Future Capital Commit- ments from New Valley (2) | Projected Residential and/or Hotel Area | Projected Commercial Space | Projected Number of Residential Lots, Units and/or Hotel Rooms | Actual/Projected Construction Start Date | Projected Construction End Date | | Location | Date of Initial Investment | Percentage Owned (1) | Net Cash Invested (Returned) | Cumulative Earnings (Losses) | Carrying Value as of June 30, 2022 | Future Capital Commit- ments from New Valley (2) | Projected Residential and/or Hotel Area | Projected Commercial Space | Projected Number of Residential Lots, Units and/or Hotel Rooms | Actual/Projected Construction Start Date | Projected Construction End Date |
| Escena, net | Master planned community, golf course, and club house in Palm Springs, CA | March 2008 | 100 | % | $ | 2,951 | | $ | 6,657 | | $ | 9,608 | | $ | — | | 450 | | Acres | | 667 450 | R Lots H | N/A | |
Townhome A (11 Beach Street) | TriBeCa, Manhattan, NY | November 2020 | 100 | % | (6) | | 6 | | — | | — | | 6,169 | | SF | | 1 | | R | N/A | Completed | |
Escena, net (liquidated April 2022) | | Escena, net (liquidated April 2022) | Master planned community, golf course, and club house in Palm Springs, CA | March 2008 | 100 | % | $ | (17,307) | | $ | 17,307 | | $ | — | | $ | — | | 450 | | Acres | | 667 450 | R Lots H | N/A |
Investments in real estate, net | Investments in real estate, net | | $ | 2,945 | | $ | 6,663 | | $ | 9,608 | | $ | — | | | Investments in real estate, net | | $ | (17,307) | | $ | 17,307 | | $ | — | | $ | — | | |
| Investments in real estate ventures: | Investments in real estate ventures: | | Investments in real estate ventures: | |
| 111 Murray Street | 111 Murray Street | TriBeCa, Manhattan, NY | May 2013 | 9.5 | % | $ | 6,819 | | $ | (4,414) | | $ | 2,405 | | $ | — | | 330,000 | | SF | 1,700 | | SF | 157 | | R | September 2014 | Completed | 111 Murray Street | TriBeCa, Manhattan, NY | May 2013 | 9.5 | % | $ | 7,285 | | $ | (4,414) | | $ | 2,871 | | $ | — | | 330,000 | | SF | 1,700 | | SF | 157 | | R | September 2014 | Completed |
| 87 Park (8701 Collins Avenue) | 87 Park (8701 Collins Avenue) | Miami Beach, FL | December 2013 | 23.1 | % | (6,485) | | 6,485 | | — | | — | | 160,000 | | SF | TBD | | 70 | | R | October 2015 | Completed | 87 Park (8701 Collins Avenue) | Miami Beach, FL | December 2013 | 23.1 | % | (6,485) | | 6,485 | | — | | — | | 160,000 | | SF | TBD | | 70 | | R | October 2015 | Completed |
125 Greenwich Street | 125 Greenwich Street | Financial District, Manhattan, NY | August 2014 | 13.4 | % | 7,992 | | (7,992) | | — | | — | | 306,000 | | SF | 16,000 | | SF | 273 | | R | March 2015 | TBD | 125 Greenwich Street | Financial District, Manhattan, NY | August 2014 | 13.4 | % | 7,992 | | (7,992) | | — | | — | | 306,000 | | SF | 16,000 | | SF | 273 | | R | March 2015 | TBD |
West Hollywood Edition (9040 Sunset Boulevard) | West Hollywood Edition (9040 Sunset Boulevard) | West Hollywood, CA | October 2014 | 48.5 | % | 11,513 | | (11,513) | | — | | — | | 210,000 | | SF | — | | | 20 190 | R H | May 2015 | Completed | West Hollywood Edition (9040 Sunset Boulevard) | West Hollywood, CA | October 2014 | 48.5 | % | 17,188 | | (17,188) | | — | | — | | 210,000 | | SF | — | | | 20 190 | R H | May 2015 | Completed |
The XI (76 Eleventh Avenue) | West Chelsea, Manhattan, NY | May 2015 | 5.1 | % | 17,000 | | (17,000) | | — | | — | | 630,000 | | SF | 85,000 | | SF | 236 137 | R H | September 2016 | TBD | |
Monad Terrace (1300 West Ave) | Monad Terrace (1300 West Ave) | Miami Beach, FL | May 2015 | 19.6 | % | 7,635 | | (7,635) | | — | | — | | 160,000 | | SF | — | | | 59 | | R | May 2016 | Completed | Monad Terrace (1300 West Ave) | Miami Beach, FL | May 2015 | 19.6 | % | 7,635 | | (7,635) | | — | | — | | 160,000 | | SF | — | | | 59 | | R | May 2016 | Completed |
Takanasee (805 Ocean Ave) | Takanasee (805 Ocean Ave) | Long Branch, NJ | December 2015 | 22.8 | % | 6,144 | | (6,144) | | — | | — | | 63,000 | | SF | — | | | 13 | | R | June 2017 | TBD | Takanasee (805 Ocean Ave) | Long Branch, NJ | December 2015 | 22.8 | % | 5,456 | | (5,456) | | — | | — | | 63,000 | | SF | — | | | 13 | | R | June 2017 | TBD |
Brookland (15 East 19th St) | Brookland (15 East 19th St) | Brooklyn, NY | April 2017 | 9.8 | % | 402 | | 1 | | 403 | | — | | 24,000 | | SF | — | | | 33 | | R | August 2017 | Completed | Brookland (15 East 19th St) | Brooklyn, NY | April 2017 | 9.8 | % | 57 | | (57) | | — | | — | | 24,000 | | SF | — | | | 33 | | R | August 2017 | Completed |
Dime (209 Havemeyer St) | Dime (209 Havemeyer St) | Brooklyn, NY | November 2017 | 16.5 | % | 9,145 | | (1,356) | | 7,789 | | — | | 100,000 | | SF | 150,000 | | SF | 177 | | R | May 2017 | Completed | Dime (209 Havemeyer St) | Brooklyn, NY | November 2017 | 16.5 | % | 9,145 | | (5,740) | | 3,405 | | — | | 100,000 | | SF | 150,000 | | SF | 177 | | R | May 2017 | Completed |
352 6th Avenue | 352 6th Avenue | Brooklyn, NY | February 2019 | 37.0 | % | 685 | | 111 | | 796 | | — | | 5,200 | | SF | — | | | 4 | | R | September 2019 | Completed | 352 6th Avenue | Brooklyn, NY | February 2019 | 37.0 | % | (394) | | 394 | | — | | — | | 5,200 | | SF | — | | | 4 | | R | September 2019 | Completed |
Meatpacking Plaza (44 Ninth Ave) | Meatpacking Plaza (44 Ninth Ave) | Meatpacking District, Manhattan, NY | April 2019 | 16.9 | % | 10,692 | | (2,746) | | 7,946 | | — | | 8,741 | SF | 76,919 | SF | 15 | | R | July 2021 | May 2023 | Meatpacking Plaza (44 Ninth Ave) | Meatpacking District, Manhattan, NY | April 2019 | 16.9 | % | 10,692 | | (3,035) | | 7,657 | | — | | 8,741 | SF | 76,919 | SF | 15 | | R | July 2021 | August 2023 |
| Five Park (500 Alton Road) | Five Park (500 Alton Road) | Miami Beach, FL | September 2019 | 38.9 | % | 18,098 | | 1,461 | | 19,559 | | — | | 482,000 | | SF | 15,000 | | SF | 291 | | R | April 2020 | August 2023 | Five Park (500 Alton Road) | Miami Beach, FL | September 2019 | 38.9 | % | 18,098 | | 1,203 | | 19,301 | | — | | 472,000 | | SF | 15,000 | | SF | 251 | | R | April 2020 | September 2024 |
9 DeKalb Avenue | 9 DeKalb Avenue | Brooklyn, NY | April 2019 | 4.2 | % | 5,000 | | 894 | | 5,894 | | — | | 450,000 | | SF | 120,000 | | SF | 540 | | R | March 2019 | February 2023 | 9 DeKalb Avenue | Brooklyn, NY | April 2019 | 4.2 | % | 5,000 | | 1,214 | | 6,214 | | — | | 450,000 | | SF | 120,000 | | SF | 540 | | R | March 2019 | February 2023 |
Natura | Natura | Miami, FL | December 2019 | 77.8 | % | 7,354 | | 5,263 | | 12,617 | | — | | 460,000 | | SF | — | | | 460 | | R | December 2019 | November 2022 | Natura | Miami, FL | December 2019 | 77.8 | % | 7,626 | | 5,177 | | 12,803 | | — | | 460,000 | | SF | — | | | 460 | | R | December 2019 | November 2022 |
Townhome B (11 Beach Street) | TriBeCa, Manhattan, NY | November 2020 | 46.7 | % | (594) | | 594 | | — | | — | | 4,752 | | SF | — | | | 1 | | R | N/A | Completed | |
Ritz-Carlton Villas (4701 Meridian Avenue) | Ritz-Carlton Villas (4701 Meridian Avenue) | Miami Beach, FL | December 2020 | 50.0 | % | 4,109 | | (32) | | 4,077 | | — | | 55,000 | | SF | — | | | 15 | | R | October 2020 | August 2022 | Ritz-Carlton Villas (4701 Meridian Avenue) | Miami Beach, FL | December 2020 | 50.0 | % | 4,109 | | (172) | | 3,937 | | — | | 58,000 | | SF | — | | | 15 | | R | October 2020 | December 2022 |
| 2000 N. Atlantic Ave. | | 2000 N. Atlantic Ave. | Daytona Beach, FL | November 2021 | 75.0 | % | 1,882 | | 72 | | 1,954 | | — | | TBD | | TBD |
Society Nashville (915 Division St) | | Society Nashville (915 Division St) | Nashville, TN | November 2021 | 89.1 | % | 19,500 | | 1,154 | | 20,654 | | — | | 335,000 | | SF | 8,000 | | SF | 502 | | R | July 2022 | April 2025 |
3621 Collins Ave (3) | | 3621 Collins Ave (3) | Miami Beach, FL | March 2022 | 2.5 | % | 1,000 | | — | | 1,000 | | — | | TBD | | TBD |
Alchemy Nash Square | | Alchemy Nash Square | Raleigh, NC | June 2022 | 75.0 | % | 410 | | — | | 410 | | — | | TBD | | TBD |
2999 Aventura | | 2999 Aventura | Aventura, FL | June 2022 | 12.5 | % | $ | 1,000 | | $ | — | | $ | 1,000 | | — | | TBD | | | | TBD |
Condominium and Mixed Use Development | Condominium and Mixed Use Development | | $ | 105,509 | | $ | (44,023) | | $ | 61,486 | | $ | — | | | Condominium and Mixed Use Development | | $ | 117,196 | | $ | (35,990) | | $ | 81,206 | | $ | — | | |
| Maryland Portfolio | Primarily Baltimore County, MD | July 2012 | 7.6 | % | $ | (16,585) | | $ | 16,585 | | $ | — | | — | | N/A | | N/A | | 245 | | R | N/A | |
Riverchase Landing | | Riverchase Landing | Hoover, AL | October 2021 | 50.0 | % | $ | 11,500 | | $ | (924) | | $ | 10,576 | | $ | — | | 746,000 | SF | N/A | | 468 | | R | N/A |
Apartment Buildings | Apartment Buildings | | $ | (16,585) | | $ | 16,585 | | $ | — | | $ | — | | | Apartment Buildings | | $ | 11,500 | | $ | (924) | | $ | 10,576 | | $ | — | | |
| Park Lane Hotel (36 Central Park South) | Park Lane Hotel (36 Central Park South) | Central Park South, Manhattan, NY | November 2013 | 1.0 | % | $ | 8,682 | | $ | (7,229) | | $ | 1,453 | | $ | — | | 446,000 | | SF | — | | | 628 | | H | N/A | Park Lane Hotel (36 Central Park South) | Central Park South, Manhattan, NY | November 2013 | 1.0 | % | $ | 8,682 | | $ | (7,982) | | $ | 700 | | $ | — | | 446,000 | | SF | — | | | 628 | | H | N/A |
215 Chrystie Street (4) | Lower East Side, Manhattan, NY | December 2012 | 17.8 | % | (2,136) | | 1,803 | | (333) | | — | | 246,000 | | SF | — | | | 367 | | H | June 2014 | Completed | |
215 Chrystie Street | | 215 Chrystie Street | Lower East Side, Manhattan, NY | December 2012 | 12.3 | % | (1,328) | | 1,328 | | — | | — | | 246,000 | | SF | — | | | 367 | | H | June 2014 | Completed |
Coral Beach and Tennis Club | Coral Beach and Tennis Club | Coral Beach, Bermuda | December 2013 | 49.0 | % | 6,048 | | (4,724) | | 1,324 | | — | | 52 | | Acres | — | | | 101 | | H | N/A | Coral Beach and Tennis Club | Coral Beach, Bermuda | December 2013 | 49.0 | % | 6,048 | | (4,831) | | 1,217 | | — | | 52 | | Acres | — | | | 101 | | H | N/A |
Parker New York (119 W 56th St) | Parker New York (119 W 56th St) | Midtown, Manhattan, NY | July 2019 | 0.4 | % | 1,000 | | (339) | | 661 | | — | | 470,000 | SF | — | | | 587 99 | H R | May 2020 | December 2022 | Parker New York (119 W 56th St) | Midtown, Manhattan, NY | July 2019 | 0.4 | % | 1,000 | | (602) | | 398 | | — | | 470,000 | | SF | — | | | 587 99 | H R | May 2020 | December 2022 |
Hotels | Hotels | | $ | 13,594 | | $ | (10,489) | | $ | 3,105 | | $ | — | | | Hotels | | $ | 14,402 | | $ | (12,087) | | $ | 2,315 | | $ | — | | |
| The Plaza at Harmon Meadow | The Plaza at Harmon Meadow | Secaucus, NJ | March 2015 | 49.0 | % | $ | 4,200 | | $ | (4,200) | | $ | — | | $ | — | | — | | — | 219,000 | | SF | — | | — | N/A | N /A | The Plaza at Harmon Meadow | Secaucus, NJ | March 2015 | 49.0 | % | $ | 12,270 | | $ | (4,358) | | $ | 7,912 | | $ | — | | — | | — | 219,000 | | SF | — | | — | N/A | N /A |
Wynn Las Vegas Retail | Wynn Las Vegas Retail | Las Vegas, NV | December 2016 | 1.6 | % | 4,519 | | 2,620 | | 7,139 | | — | | — | | — | 160,000 | | SF | — | | — | N/A | Wynn Las Vegas Retail | Las Vegas, NV | December 2016 | 1.6 | % | 3,686 | | 3,802 | | 7,488 | | — | | — | | — | 160,000 | | SF | — | | — | N/A |
Commercial | Commercial | | $ | 8,719 | | $ | (1,580) | | $ | 7,139 | | $ | — | | | Commercial | | $ | 15,956 | | $ | (556) | | $ | 15,400 | | $ | — | | |
| Witkoff GP Partners (3) | Multiple | March 2017 | 15.0 | % | $ | 11,154 | | $ | (9,620) | | $ | 1,534 | | $ | — | | N/A | | N/A | | N/A | | N/A | |
Witkoff GP Partners (4) | | Witkoff GP Partners (4) | Multiple | March 2017 | 15.0 | % | $ | 9,986 | | $ | (9,619) | | $ | 367 | | $ | — | | N/A | | N/A | | N/A | | N/A |
1 QPS Tower (23-10 Queens Plaza South) | 1 QPS Tower (23-10 Queens Plaza South) | Long Island City, NY | December 2012 | 45.4 | % | (14,406) | | 14,406 | | — | | — | | N/A | | N/A | | N/A | | March 2014 | Completed | 1 QPS Tower (23-10 Queens Plaza South) | Long Island City, NY | December 2012 | 45.4 | % | (16,141) | | 16,141 | | — | | — | | N/A | | N/A | | N/A | | March 2014 | Completed |
Witkoff EB-5 Capital Partners | Witkoff EB-5 Capital Partners | Multiple | September 2018 | 49.0 | % | 516 | | 479 | | 995 | | — | | N/A | | N/A | | N/A | | N/A | Witkoff EB-5 Capital Partners | Multiple | September 2018 | 49.0 | % | (1,041) | | 1,041 | | — | | — | | N/A | | N/A | | N/A | | N/A |
Biscayne Mortgage | Multiple | April 2021 | 50.0 | % | 1,500 | | — | | 1,500 | | — | | N/A | | N/A | | N/A | | N/A | |
Partners Land Services | Multiple | June 2021 | 50.0 | % | 100 | | — | | 100 | | — | | N/A | | N/A | | N/A | | N/A | |
Diverse Real Estate Portfolio | Diverse Real Estate Portfolio | | $ | (1,136) | | $ | 5,265 | | $ | 4,129 | | $ | — | | | Diverse Real Estate Portfolio | | $ | (7,196) | | $ | 7,563 | | $ | 367 | | $ | — | | |
| Investments in real estate ventures | Investments in real estate ventures | | $ | 110,101 | | $ | (34,242) | | $ | 75,859 | | $ | — | | | Investments in real estate ventures | | $ | 151,858 | | $ | (41,994) | | $ | 109,864 | | $ | — | | |
| Total Carrying Value | Total Carrying Value | | $ | 113,046 | | $ | (27,579) | | $ | 85,467 | | $ | — | | | Total Carrying Value | | $ | 134,551 | | $ | (24,687) | | $ | 109,864 | | $ | — | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
(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 3621 Collins Ave venture is measured at cost, less impairment, following the guidance under ASC 821. The investment is included in Other Assets on the condensed consolidated balance sheets. |
|
(4) The Witkoff GP Partners venture includes a $1,534$367 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 applicable | SF - Square feet | H - Hotel rooms | TBD -To be determined | R - Residential Units | R 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 June 30, 20212022 were $8,347.$10,668. This amount is included in the “Cumulative Earnings (Losses)” column in the table above. During the six months ended June 30, 2021,2022, New Valley capitalized $1,022$2,051 of interest costs and utilized (reversed) $153$40 of previously capitalized interest in connection with the recognition of equity in (losses) earnings, gains and liquidations from various ventures.
Liquidity and Capital Resources
Cash, cash equivalents and restricted cash increased by $139,420$154,492 and $169,658$139,420 for the six months ended June 30, 20212022 and 2020,2021, respectively.
Cash provided fromby operations was $221,300$211,211 and $341,329$221,300 for the six months ended June 30, 20212022 and 2020,2021, 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 2021 associated with the sale of LTS, which occurred in 2020, and (iii) cash expenditures in February 2021 associated with the premiumfrom operations from Douglas Elliman for the retirementsix months ended June 30, 2022 as a result of the Distribution. The amounts were offset by increased obligations due under the MSA (due to increased unit volumes) and lower payments made under the MSA for the six months ended June 30, 2022 as well as the absence, in 2022, of premiums paid during the six months ended June 30, 2021 to retire our 6.125% Senior Secured Notes due 2025. These amounts were offset
Cash provided by increased operating income duringinvesting activities was $7,565 for the six 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 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 $131,7002022 and the payments were made in the third quarter of 2020.
Cashcash used in investing activities was $16,666 for the six months ended June 30, 2021 and2021. In the first six months of 2022, cash provided by investing activities was $46,575 forfrom the six months ended June 30, 2020.sale of investment securities of $21,011, maturities of investment securities of $36,357, distributions from investments in real estate ventures of $3,641, proceeds from the sale or liquidation of long-term investments of $1,101, and paydowns of investment securities of $114. This was offset by the purchase of investment securities of $39,000, investments in real estate ventures of $10,456, capital expenditures of $2,911, an increase in cash surrender value of life insurance policies of $1,282, purchase of long-term investments of $1,000, and issuance of a note receivable of $10. In the first six months of 2021, cash used in investing activities was for the purchase of investment securities of $74,805, investments in real estate ventures of $9,902, capital expenditures of $3,055, an increase in cash surrender value of life insurance policies of $1,348, purchase of long-term investments of $6,963, and an increase in restricted assets of $5. This was offset by the sale of investment securities of $23,477, paydowns of investment securities of $302, maturities of investment securities of $36,461, distributions from investments in real estate ventures of $11,163, and proceeds from the sale or liquidation of long-term investments of $8,009. In the first six monthsLiggett anticipates entering into purchase commitments of 2020, cash provided by investing activities was from the sale of investment securities of $19,555, paydowns of investment securities of $415, maturities of investment securities of $31,574, distributions from investments in real estate ventures of $5,172, a decrease in restricted assets of $87,approximately $15,000 related to factory modernization throughout 2022 and proceeds from the sale or liquidation of long-term investments of $23,407. This was offset by the purchase of investment securities of $16,867, investments in real estate ventures of $3,858,2023. These capital expenditures of $6,242, investments in real estate, net of $679, an increase in cash surrender value of life insurance policies of $751, and purchase of long-term investments of $5,238.will be incremental to Liggett’s recurring capital expenditure program.
Cash used in financing activities was $65,214$64,284 and $218,246$65,214 for the six months ended June 30, 20212022 and 2020,2021, respectively. In the first six months of 2021,2022, cash was used for the dividends on common stock of $63,738,$63,327, other of $938, repayments of debt of $856,316, deferred financing costs of $20,109, and other of $51. This was offset by proceeds from debt issuance of $875,000. In the first six months of 2020, cash was used for dividends and distributions on common stock of $63,478, repayments of debt of $172,467, distributions to non-controlling interest of $448,$17, and net repayments of debt under the revolver of $34,952. This$2. In the first six months of 2021, cash used in financing activities consisted primarily of dividends and distributions on common stock of $63,738 and was offset by net impact of the refinancing of our Senior Secured Notes. The refinancing consisted of proceeds of $875,000 from the issuance of common stockour 5.75% Senior Secured Notes due 2029 offset by deferred financing costs of $52,563, proceeds from$20,109 and the retirement of our 6.125% Senior Secured Notes due 2025 of $850,000. In addition, cash used in financing activities in the 2021 period consisted of additional debt issuanceretirements of $531$6,316 and other of $5.$51.
We use 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). These liquidity commitments include cash interest expense of approximately $108,900,$108,600, dividends on our outstanding common shares of approximately $128,900,$128,100, which is based on an assumed quarterly cash dividend of $0.20 per share, and other corporate expenses and income taxes.
As of June 30, 2021,2022, we had cash and cash equivalents of $490,390$323,885 (including $155,224 of cash at Douglas Elliman and $108,191$105,155 of cash at Liggett), investment securities and long-term investments, which were carried at $212,363$167,916 (see Note 6 to condensed consolidated financial statements). As of June 30, 2021,2022, our investments in real estate ventures were carried at $76,192 and our investment in real estate, net of accumulated depreciation, was carried at $9,608.$108,864.
Limitation of interest expense deductible for income taxestaxes. . 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 bewas limited to 30% of taxable income before interest, depreciation and amortization. Beginning inIn 2022, the amount will beis 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 degreeafter the Distribution, the allocation of leverage and the large amount of our interest expense that is currently allocated to our real estate businesses (frombusiness is expected to decline. Without the holding company) for income tax purposes,benefit of such an excepted trade or business, a portion of our interest expense in future years may not be deductible, which couldmay increase the after-tax cost of any new debt financings as well as the refinancing of our existing debt.
Tobacco Litigation. As of June 30, 2021,2022, 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 3824 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,June 2022, Liggett appealed the final judgment related to the Mississippi litigation and posted a bond of $24,000. Liggett may be required to make additional payments to Mississippi which could have a material adverse effect on the Company’s consolidated financial position, resultsposition. The potential exposures for unpaid principal and pre-judgment interest were approximately $16,700 and $18,800 (as of operations and cash flows.August 2021), respectively. See Recent Developments in Tobacco-Related 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.Vector Indebtedness.
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 six months ended June 30,March 31, 2021, including $13,014$13,013 of premium and $8,348$8,349 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 of 1933, as amended, (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 decreasedecline 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 Companyus to repurchase some or all of itsour 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 sellswe sell certain assets and doesdo not apply the proceeds as required pursuant to the 2029 Indenture, itwe 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 LtdLtd. does not provide any security for the 5.75% Senior Secured Notes.
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 June 30, 2021.2022.
| | | Indenture | | June 30, 2021 | | | Indenture | | June 30, 2022 | |
Covenant | Covenant | | Requirement | | | Covenant | | Requirement | | June 30, 2022 |
Consolidated EBITDA, as defined | Consolidated EBITDA, as defined | | $75,000 | | $411,838 | | Consolidated EBITDA, as defined | | $75,000 | $394,397 | |
Leverage ratio, as defined | Leverage ratio, as defined | | <3.0 to 1 | | 2.10 to 1 | | Leverage ratio, as defined | | <3.0 to 1 | | 2.31 to 1 | |
Secured leverage ratio, as defined | Secured leverage ratio, as defined | | <1.5 to 1 | | 0.79 to 1 | | Secured leverage ratio, as defined | | <1.5 to 1 | | 0.93 to 1 | |
As of June 30, 2021,2022, we were in compliance with all debt covenants related to the 2029 Indenture.
10.5% Senior Notes due 2026. On November 2,In 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 arewere fully and unconditionally guaranteed subject to certain customary automatic release provisions on a joint and several basis by all of our wholly ownedwholly-owned domestic subsidiaries that are engaged in the conduct of our cigarette businessbusinesses.
The 10.5% Senior Notes pay interest on a semi-annual basis at a rate of 10.5% per year and DER Holdings LLC.mature on November 1, 2026. We may presently redeem such bonds at price of 105.25% and the redemption price declines to 102.625% on November 1, 2022 and 100% on November 1, 2023. In addition, in the event of a change of control, as defined in the indenture governing the 10.5% Senior Notes (the “2026 Indenture”), each holder of the 10.5% Senior Notes may require us to make an offer to repurchase some or all of our 10.5% Senior 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 we sell certain assets and do not apply the proceeds as required pursuant to the 2026 Indenture, we must offer to repurchase the 10.5% Senior Notes at the prices listed in the 2026 Indenture.
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,us, if no event of default has occurred, and we are in compliance with a Fixed Charge Coverage Ratio (as defined in the 2026 Indenture)indenture to our 10.5% Senior Notes) 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)indenture to our 10.5% Senior Notes) 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 Indentureindenture to our 10.5% Senior Notes 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)indenture to our 10.5% Senior Notes) to exceed 3.75 to 1.0, unless theour 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 Indentureindenture to our 10.5% Senior Notes as the ratio of our Consolidated EBITDA to our Fixed Charges (each as defined in the 2026 Indenture)indenture to our 10.5% Senior Notes). Our Net Leverage Ratio is defined in the 2026 Indentureindenture 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.indenture to our 10.5% Senior Notes. Our Secured Leverage Ratio is defined in the 2026 Indentureindenture to our 10.5% Senior Notes as the ratio of our and our guaranteeing subsidiaries’ total secured debt, to Consolidated EBITDA, as defined in the 2026 Indenture. indenture to our 10.5% Senior Notes.
The following table summarizes the requirements of these financial test and the extent to which we satisfied these requirements as of June 30, 2021.2022.
| | | | | | | | | | | | | | | | |
Covenant | | Indenture Requirement | | June 30,
20212022 | | |
Consolidated EBITDA, as defined | | N/A | | $438,502335,644 | | |
Fixed charge coverage ratio, as defined | | >2.0 to 1 | | 4.013.07 to 1 | | |
Net leverage ratio, as defined | | <4.0 to 1 | | 1.462.38 to 1 | | |
Secured leverage ratio, as defined | | <3.75 to 1 | | 1.992.56 to 1 | | |
As of June 30, 2021 and December 31, 2020,2022, 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
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 SheetsSheet as of June 30, 20212022 and the related Condensed Consolidating Statements of Operations for the six months ended June 30, 20212022 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 June 30, 20212022 and December 31, 20202021 and the related Summarized Combined Statements of Operations for the six months ended June 30, 20212022 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:
| | | June 30, 2021 | | December 31, 2020 | | June 30, 2022 | | December 31, 2021 |
Assets: | Assets: | | | | | Assets: | | | | |
Current assets | Current assets | | $ | 605,478 | | | $ | 515,082 | | Current assets | | $ | 607,845 | | | $ | 487,797 | |
Noncurrent assets | Noncurrent assets | | 262,690 | | | 264,041 | | Noncurrent assets | | 290,907 | | | 274,292 | |
Intercompany receivables from Nonguarantor Subsidiaries | Intercompany receivables from Nonguarantor Subsidiaries | | 1,835 | | | 2,040 | | Intercompany receivables from Nonguarantor Subsidiaries | | 1,974 | | | 1,832 | |
| Liabilities: | Liabilities: | | Liabilities: | |
Current liabilities | Current liabilities | | 256,488 | | | 193,125 | | Current liabilities | | 310,511 | | | 194,097 | |
Noncurrent liabilities | Noncurrent liabilities | | 1,529,714 | | | 1,521,293 | | Noncurrent liabilities | | 1,529,738 | | | 1,536,792 | |
|
Summarized Combined Statements of Operations:
| | | Six Months Ended | | Six Months Ended |
| | June 30, | | June 30, |
| | 2021 | | 2020 | | 2022 | | 2021 |
Revenues | Revenues | | $ | 598,004 | | | $ | 599,818 | | Revenues | | $ | 683,360 | | | $ | 597,959 | |
Cost of sales | Cost of sales | | 370,176 | | | 411,357 | | Cost of sales | | 476,726 | | | 370,176 | |
Operating income | Operating income | | 169,776 | | | 136,375 | | Operating income | | 158,136 | | | 169,776 | |
Net income | Net income | | 73,798 | | | 123,668 | | Net income | | 65,378 | | | 73,798 | |
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 June 30, 2021,2022, there was no$23 outstanding balance under the Credit Agreement. Availability as determined under the Credit Agreement was approximately $84,600$79,500 based on eligible collateral at June 30, 2021.2022. At June 30, 2021,
2022, Liggett was in compliance with all covenants under the Credit Agreement; Liggett’s EBITDA, as defined, were $362,521$349,495 for the last twelve months ended June 30, 2021.2022.
Anticipated Liquidity Obligations. We and our subsidiaries have significant indebtedness and debt service obligations. As of June 30, 2021,2022, we and our subsidiaries had total outstanding indebtedness of approximately $1,448,900.$1,430,100. 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.
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 $490,400,$323,900, investment securities at fair value of approximately $157,001,$122,394, long-term investments with an estimated value of approximately $55,400, including in-transit redemptions,$45,500, and availability under Liggett’s credit facility of approximately $84,600$79,500 at June 30, 2021. Management2022. We currently anticipatesanticipate 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 tocan presently redeem such bonds at price of 105.3% on November 1, 2021105.25% 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 June 30, 2021, approximately $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 June 30, 2021,2022, there was noan outstanding balance of $23 on the Liggett Credit Facility which also has variable interest rates. As of June 30, 2021,2022, we had no interest rate caps or swaps. Based on a hypothetical 100 basis point increase or decreasedecline in interest rates (1%), our annual interest expense could increase or decreasedecline by approximately $200.$0.
We held debt securities available for sale totaling $108,489 and convertible trading debt securities totaling $2,481$85,371 as of June 30, 2021.2022. 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 June 30, 2021,2022, we held various investments in equity securities with a total fair value of $81,565,$66,113, of which $48,512$37,023 represents equity securities at fair value and $33,053$29,090 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
realization is subject to the performance of the underlying entities. See Note 6 to our condensed consolidated financial 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 statements 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 June 30, 2021,2022, 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 $8,157.$6,611.
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“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, 2020,2021, 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 issuedOn May 4, 2022, FDA published a report with recommendationsproposed rule 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 propose a rule prohibitingprohibit menthol as a characterizing flavor in cigarettes by the 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.cigarettes. For the twelve months ended June 30, 2021,2022, approximately 19%20% 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.
Nicotine
In December 2019, Massachusetts enactedOn June 21, 2022, the FDA indicated it plans to publish a ban onproposed rule in May 2023 that establishes a tobacco product standard reducing the salelevel of mentholnicotine in cigarettes effective June 1, 2020. Although certain municipalities throughoutto non-addictive levels. Under the United States have bannedTCA, FDA may adopt a tobacco product standard for nicotine if the saleagency concludes that such a standard is appropriate for the protection of menthol cigarettes, Massachusettsthe public health. FDA may refer the proposed regulation to the TPSAC for a report and recommendation. FDA may consider a wide range of issues prior to the promulgation of a final rule, including the technical achievability of compliance with the proposed product standard. 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 first state to do so.
date of publication. We cannot predict how the menthol ban in Massachusettsa tobacco product standard reducing nicotine, 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. 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,
•competition,
•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”, “believe”, “continue”, "could", “believe,” “estimate”, “expect,” “intend”, “may be,” “objective”, “opportunistically”, “plan”, “potential”, “predict”, “project”, “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, including due to macroeconomic conditions, acts of war and terrorism or otherwise,
•governmental regulations and policies, including rules to regulate or restrict menthol flavoring or nicotine content of cigarettes,
•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,
•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 or disruptions to our supply or distribution chains or 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 extent 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,
•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 customer and employee information and data,
•the tax-free treatment of the Distribution,
•the failure of us or Douglas Elliman to satisfy the obligations under the Transition Services Agreement or other agreements entered into in connection with the Distribution,
•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’sour or itsour 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, 20202021 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“Management’s Discussion and Analysis of Financial Condition and Results of Operations - Market Risk” is incorporated herein by reference.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure 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.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting that occurred during the second quarter of 20212022 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.
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, 2020,2021, 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”(the “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.Regulation.
In July 2017,On May 4, 2022, 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 issuepublished 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 rule 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.cigarettes. For the last twelve months ended June 30, 2021,2022, approximately 19%20% 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 industryindustry.
As part ofOn June 21, 2022, the comprehensive plan announcedFDA indicated it plans to publish a proposed rule in July 2017, FDA said it would focus on nicotine addiction, with the goal of lowering nicotine levels in combustible cigarettes throughMay 2023 that establishes a tobacco product standard developed through notice and comment rule making, which FDA announcedreducing the level of nicotine in March 2018.cigarettes to non-addictive levels. 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 rule makingrulemaking 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 reducing nicotine, 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)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)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
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, 2020,10, 2022, 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 July 14, 2022.8, 2023.
We cannot predict whether the court will further delaypostpone 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 decreasedecline 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.
MaintainingOur tobacco business faces multiple risks in today’s economic environment. These risks have the integrity ofpotential to significantly affect our computer systems and protecting confidential information and personal identifying information has become increasingly costly, as cybersecurity incidents could disrupt business operations result inas well as our profitability.
International trade disruptions, shipping container availability, climate change, inflation, geopolitical instability, government regulations and man-made disasters could affect the loss of criticalcost, availability 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 informationsupply 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 toraw materials as well as component parts for 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.equipment.
Overall economic conditions including but not limited to inflation, labor shortages and supply chain disruptions in the aftermath of and on-going Covid-19 pandemic, all present significant challenges and obstacles to overcome to enable our operations to continue uninterrupted. Our tobacco business also operates a single manufacturing facility which could affect our ability to produce and distribute our products, if there was a major disruption.
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 June 30, 2021.2022.
Issuer Purchase of Equity Securities
Our purchasepurchases of our common stock during the three months ended June 30, 20212022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
Period | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum 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, 2021 | 42,029 | | | 14.48 | | | — | | | — | |
June 1 to June 30, 2021 | — | | | — | | | — | | | — | |
Total | 42,029 | | | $ | 14.48 | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | |
Period | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
April 1 to April 30, 2022 | — | | | $ | — | | (1) | — | | | — | |
May 1 to May 31, 2022 | 42,048 | | | 12.35 | | | — | | | — | |
June 1 to June 30, 2022 | — | | | — | | | — | | | — | |
Total | 42,048 | | | $ | 12.35 | | | — | | | — | |
(1) DeliveryRepresents withholdings of shares to us inas payment of payroll tax withholding in connection withliabilities incident to the vesting of several employees’ vesting inshares of restricted stock. The shares were immediately canceled.
Item 6. Exhibits:
| | | | | | | | |
| Vector Group Ltd. Amended and Restated 2014 Management Incentive Plan. | |
| | |
| Restricted Shares Award Agreement Pursuant to theAmended and Restated Bylaws of Vector Group Ltd. Amended and Restated 2014 Management Incentive Plan. | |
| | |
| Performance-based Restricted Shares Award Agreement Pursuant, effective April 29, 2022 (incorporated by reference to the Vector Group Ltd. Amended and Restated 2014 Management Incentive Plan.Exhibit 3.2 of Vector’s Form 8-K dated April 29, 2022). | |
| | |
| Amended and Restated Employment Agreement dated as of April 29, 2022, between Vector and Howard M. Lorber (incorporated by reference to Exhibit 10.1 of Vector’s Form 10-Q for the period ended March 31, 2022). | |
| | |
| List of Subsidiary Guarantors (incorporated by reference to Exhibit 2222.1 of Vector’s Form 10-K for the year ended December 31, 2020)2021). | |
| | |
| 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. | |
| | |
| CertificationCertifications 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 ofand Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| | |
| MaterialCertain Legal Proceedings. | |
| | |
| Condensed Consolidating Financial Statements of Vector Group Ltd. | |
| | |
101.INS | XBRL 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.SCH | Inline XBRL Taxonomy Extension Schema | |
| | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | |
| | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | |
| | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | |
| | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | |
| | |
104 | Cover Page Interactive Data File (the cover page tabs are embedded within the Inline XBRL document). | |
| | |
* Incorporated by reference
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: | August 6, 20215, 2022 | |