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

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

For The Quarterly Period Ended March 31, 2021

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
VECTOR GROUP LTD.
(Exact name of registrant as specified in its charter)
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 May 3, 2021, Vector Group Ltd. had 154,194,629 shares of common stock outstanding.



VECTOR GROUP LTD.

FORM 10-Q

TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Vector Group Ltd. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020
2
Condensed Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020
3
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2021 and 2020
4
Condensed Consolidated Statements of Stockholders' Deficiency for the three months ended March 31, 2021 and 2020
5
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020
6
Notes to Condensed Consolidated Financial Statements
7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
SIGNATURE

1

VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
March 31,
2021
December 31,
2020
ASSETS:
Current assets:
Cash and cash equivalents $ 382,387  $ 352,842 
Investment securities at fair value 149,087  135,585 
Accounts receivable - trade, net 45,905  40,711 
Inventories 100,945  97,545 
Other current assets 46,906  37,220 
Total current assets 725,230  663,903 
Property, plant and equipment, net 75,678  77,988 
Investments in real estate, net 15,802  15,631 
Long-term investments (includes $38,108 and $34,218 at fair value)
56,995  52,528 
Investments in real estate ventures 83,984  85,400 
Operating lease right-of-use assets 140,777  145,356 
Goodwill and other intangible assets, net 207,536  207,577 
Other assets 97,585  95,026 
Total assets $ 1,403,587  $ 1,343,409 
LIABILITIES AND STOCKHOLDERS' DEFICIENCY:
Current liabilities:
   Current portion of notes payable and long-term debt $ 12,556  $ 12,557 
 Current payments due under the Master Settlement Agreement
73,036  38,767 
Income taxes payable, net 16,458  5,847 
Current operating lease liability 27,207  27,207 
Other current liabilities 203,641  198,937 
Total current liabilities 332,898  283,315 
Notes payable, long-term debt and other obligations, less current portion 1,405,399  1,393,729 
Non-current employee benefits 66,722  66,616 
Deferred income taxes, net 34,854  32,456 
Non-current operating lease liability 148,417  154,199 
Payments due under the Master Settlement Agreement 17,933  17,933 
Other liabilities 53,863  54,848 
Total liabilities 2,060,086  2,003,096 
Commitments and contingencies (Note 9)
Stockholders' deficiency:
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, 154,194,629 and 153,324,629 shares issued and outstanding
15,419  15,332 
Additional paid-in capital 2,573  — 
Accumulated deficit (653,606) (653,945)
Accumulated other comprehensive loss (20,885) (21,074)
Total Vector Group Ltd. stockholders' deficiency (656,499) (659,687)
Non-controlling interest —  — 
Total stockholders' deficiency (656,499) (659,687)
Total liabilities and stockholders' deficiency $ 1,403,587  $ 1,343,409 

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


VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Three Months Ended
March 31,
2021 2020
Revenues:
   Tobacco* $ 268,463  $ 287,069 
   Real estate 275,301  167,419 
       Total revenues 543,764  454,488 
Expenses:
 Cost of sales:
   Tobacco* 164,031  197,290 
   Real estate 199,511  113,333 
       Total cost of sales 363,542  310,623 
Operating, selling, administrative and general expenses 90,014  90,517 
Litigation settlement and judgment expense — 
Impairments of goodwill and other intangible assets —  58,252 
Operating income (loss) 90,203  (4,904)
Other income (expenses):
Interest expense (28,751) (35,627)
Loss on extinguishment of debt (21,362) — 
Change in fair value of derivatives embedded within convertible debt —  3,330 
Equity in earnings from investments 577  50,152 
Equity in earnings (losses) from real estate ventures 1,589  (6,505)
Other, net 2,754  (10,655)
Income (loss) before provision for income taxes 45,010  (4,209)
Income tax expense (benefit) 13,053  (978)
Net income (loss) 31,957  (3,231)
Net income attributed to non-controlling interest —  — 
Net income (loss) attributed to Vector Group Ltd. $ 31,957  $ (3,231)
Per basic common share:
Net income (loss) applicable to common shares attributed to Vector Group Ltd. $ 0.20  $ (0.03)
Per diluted common share:
Net income (loss) applicable to common shares attributed to Vector Group Ltd. $ 0.20  $ (0.03)
                                      

* Revenues and cost of sales include federal excise taxes of $97,714, and $113,139 for the three months ended March 31, 2021 and 2020, respectively.


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



VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in Thousands)
Unaudited
  Three Months Ended
March 31,
  2021 2020
 
Net income (loss) $ 31,957  $ (3,231)
Net unrealized losses on investment securities available for sale:
Change in net unrealized losses (182) (664)
Net unrealized (gains) losses reclassified into net income (loss) (41) 503 
Net unrealized losses on investment securities available for sale (223) (161)
Net change in pension-related amounts:
Amortization of loss 482  464 
Net change in pension-related amounts 482  464 
Other comprehensive income 259  303 
Income tax effect on:
Change in net unrealized losses on investment securities 49  180 
Net unrealized (gains) losses reclassified into net income (loss) on investment securities 11  (136)
Pension-related amounts (130) (125)
Income tax provision on other comprehensive income (70) (81)
Other comprehensive income, net of tax 189  222 
Comprehensive income (loss) 32,146  (3,009)
Comprehensive income attributed to non-controlling interest —  — 
Comprehensive income (loss) attributed to Vector Group Ltd. $ 32,146  $ (3,009)

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


VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(Dollars in Thousands, Except Share Amounts)
Unaudited
Vector Group Ltd. Stockholders' Deficiency
Additional Paid-In Accumulated
Other Comprehensive
Non-controlling
Common Stock Accumulated
Shares Amount Capital Deficit Loss Interest Total
Balance as of January 1, 2021 153,324,629  $ 15,332  $ —  $ (653,945) $ (21,074) $ —  $ (659,687)
Net income —  —  —  31,957  —  —  31,957 
Total other comprehensive income —  —  —  —  189  —  189 
Dividends on common stock ($0.20 per share)
—  —  —  (31,618) —  —  (31,618)
Restricted stock grants 870,000  87  (87) —  —  —  — 
Stock-based compensation —  —  2,660  —  —  —  2,660 
Balance as of March 31, 2021 154,194,629  $ 15,419  $ 2,573  $ (653,606) $ (20,885) $ —  $ (656,499)
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  $ —  $ (678,464) $ (21,808) $ 448  $ (685,016)
Impact of adoption of new accounting standards —  —  —  (2,263) —  —  (2,263)
Net loss —  —  —  (3,231) —  —  (3,231)
Total other comprehensive income —  —  —  —  222  —  222 
Distributions and dividends on common stock ($0.20 per share)
—  —  (2,258) (28,263) —  —  (30,521)
Stock-based compensation —  —  2,258  —  —  —  2,258 
Distributions to non-controlling interest —  —  —  —  —  (448) (448)
Balance as of March 31, 2020 148,084,900  $ 14,808  $ —  $ (712,221) $ (21,586) $ —  $ (718,999)
The accompanying notes are an integral part of the condensed consolidated financial statements.
5


VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Unaudited
Three Months Ended Three Months Ended
March 31,
2021
March 31,
2020
Net cash provided by operating activities $ 78,364  $ 115,309 
Cash flows from investing activities:
Sale of investment securities 10,228  16,672 
Maturities of investment securities 13,968  15,616 
Purchase of investment securities (38,441) (15,798)
Proceeds from sale or liquidation of long-term investments 4,389  19,544 
Purchase of long-term investments (5,813) (5,238)
Investments in real estate ventures (8,087) (673)
Distributions from investments in real estate ventures 7,577  1,036 
Increase in cash surrender value of life insurance policies (564) (258)
(Increase) decrease in restricted assets (3) 93 
Capital expenditures (1,931) (4,888)
Paydowns of investment securities 172  202 
Investments in real estate, net —  (340)
Net cash (used in) provided by investing activities (18,505) 25,968 
Cash flows from financing activities:
Proceeds from issuance of debt 875,000  36 
Deferred financing costs (20,000) — 
Repayments of debt (853,158) (2,638)
Borrowings under revolver 259  126,603 
Repayments on revolver (259) (137,056)
Dividends and distributions on common stock (32,273) (32,074)
Distributions to non-controlling interest —  (448)
Other (21) — 
Net cash used in financing activities (30,452) (45,577)
Net increase in cash, cash equivalents and restricted cash 29,407  95,700 
Cash, cash equivalents and restricted cash, beginning of period 365,677  379,476 
Cash, cash equivalents and restricted cash, end of period $ 395,084  $ 475,176 

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

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

(c)Earnings Per Share (“EPS”):

Net income (loss) for purposes of determining basic and diluted EPS was as follows:
Three Months Ended
March 31,
2021 2020
Net income (loss) attributed to Vector Group Ltd. $ 31,957  $ (3,231)
Income attributed to participating securities (756) (561)
Net income (loss) applicable to common shares attributed to Vector Group Ltd. $ 31,201  $ (3,792)


7

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Basic and diluted EPS were calculated using the following common shares:
Three Months Ended
March 31,
2021 2020
Weighted-average shares for basic EPS 152,249,440  147,000,114 
Plus incremental shares related to stock options and non-vested restricted stock 134,650  83,603 
Weighted-average shares for diluted EPS 152,384,090  147,083,717 

The following non-vested restricted stock and shares issuable upon the conversion of convertible debt were outstanding during the three months ended March 31, 2021 and 2020, but were not included in the computation of diluted EPS because the impact of the per share expense associated with the restricted stock was greater than the average market price of the common shares during the respective periods and the common shares issuable under the convertible debt were anti-dilutive to EPS.
Three Months Ended
March 31,
2021 2020
  Weighted-average shares of non-vested restricted stock 97,222  625,122 
  Weighted-average expense per share $ 14.31  $ 19.54 
  Weighted-average number of shares issuable upon conversion of debt —  8,368,690 
  Weighted-average conversion price $ —  $ 20.27 

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

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

(e)Other, net:

Other, net consisted of:
Three Months Ended
March 31,
2021 2020
Interest and dividend income $ 611  $ 2,680 
Net gains (losses) recognized on investment securities 2,449  (12,240)
Net periodic benefit cost other than the service costs (244) (455)
Credit loss expense —  (1,560)
Other (expense) income (62) 920 
Other, net $ 2,754  $ (10,655)

(f)Other Assets:

Other assets consisted of:
March 31,
2021
December 31, 2020
Restricted assets $ 4,529  $ 3,456 
Prepaid pension costs 35,480  35,209 
Contract assets, net 24,183  24,002 
Other assets 33,393  32,359 
Total other assets $ 97,585  $ 95,026 

(g)Other Current Liabilities:

Other current liabilities consisted of:
March 31,
2021
December 31, 2020
Accounts payable $ 15,170  $ 12,846 
Accrued promotional expenses 40,697  45,579 
Accrued excise and payroll taxes payable, net 23,359  13,849 
Accrued interest 32,974  31,624 
Commissions payable 33,077  25,615 
Accrued salaries and benefits 13,253  27,104 
Contract liabilities 7,758  7,633 
Allowance for sales returns 7,340  7,356 
Other current liabilities 30,013  27,331 
Total other current liabilities $ 203,641  $ 198,937 

9

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

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

The components of “Cash, cash equivalents and restricted cash” in the condensed consolidated statements of cash flows were as follows:
March 31,
2021
December 31,
2020
Cash and cash equivalents
$ 382,387  $ 352,842 
Restricted cash and cash equivalents included in other current assets 10,790  10,374 
Restricted cash and cash equivalents included in other assets 1,907  2,461 
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows
$ 395,084  $ 365,677 

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

(i)New Accounting Pronouncements:

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

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

10

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

2.    REVENUE RECOGNITION

Disaggregation of Revenue
In the following table, revenue is disaggregated by major product line for the Tobacco segment:
Three Months Ended
March 31,
2021 2020
Tobacco Segment Revenues:
Core Discount Brands - Eagle 20’s, Pyramid, Montego, Grand Prix, Liggett Select, and Eve
$ 253,256  $ 269,005 
Other Brands 15,207  18,064 
Total tobacco revenues
$ 268,463  $ 287,069 
In the following table, revenue is disaggregated by major services line and primary geographical market for the Real Estate segment:
Three Months Ended March 31, 2021
New York City Northeast Southeast West Total
Real Estate Segment Revenues:
Commission and other brokerage income - existing home sales $ 70,135  $ 56,250  $ 75,553  $ 41,078  $ 243,016 
Commission and other brokerage income - development marketing 8,444  —  7,307  333  16,084 
Property management revenue 9,095  173  —  —  9,268 
Escrow and title fees 466  417  —  3,525  4,408 
Total Douglas Elliman revenue 88,140  56,840  82,860  44,936  272,776 
Other real estate revenues —  —  —  2,525  2,525 
  Total real estate revenues $ 88,140  $ 56,840  $ 82,860  $ 47,461  $ 275,301 
Three Months Ended March 31, 2020
New York City Northeast Southeast West Total
Real Estate Segment Revenues:
Commission and other brokerage income - existing home sales $ 50,109  $ 34,724  $ 30,178  $ 25,700  $ 140,711 
Commission and other brokerage income - development marketing 8,451  —  6,722  82  15,255 
Property management revenue 8,562  217  —  —  8,779 
Escrow and title fees 593  263  —  —  856 
Total Douglas Elliman revenue 67,715  35,204  36,900  25,782  165,601 
Other real estate revenues —  —  —  1,818  1,818 
  Total real estate revenues $ 67,715  $ 35,204  $ 36,900  $ 27,600  $ 167,419 
11

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Contract Balances
The following table provides information about contract assets and contract liabilities from development marketing and commercial leasing contracts with customers:
March 31, 2021 December 31, 2020
Receivables, which are included in accounts receivable - trade, net $ 1,715  $ 1,520 
Contract assets, net, which are included in other current assets 6,609  6,529 
Payables, which are included in other current liabilities 1,245  1,113 
Contract liabilities, which are included in other current liabilities 7,758  7,633 
Contract assets, net, which are included in other assets 24,183  24,002 
Contract liabilities, which are included in other liabilities 33,730  32,104 

The Company recognized revenue of $932 for the three months ended March 31, 2021, that were included in the contract liabilities balances at December 31, 2020. The Company recognized revenue of $2,737 for the three months ended March 31, 2020, that were included in the contract liabilities balances at December 31, 2019.

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


12

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 three months ended March 31, 2021:
January 1,
2021
Current Period Provision Write-offs Recoveries March 31,
2021
Allowance for credit losses:
Real estate broker agent receivables
$ 7,038  $ 385  (1) $ 109  $ —  $ 7,314 
New Valley term loan receivables
15,928  —  —  —  15,928 
_____________________________
(1) The bad debt expense related to the real estate broker agent receivables is included in Operating, selling, administrative and general expenses on the condensed consolidated statements of operations.

The following is the rollforward of the allowance for credit losses for the three months ended March 31, 2020:
January 1,
2020
Current Period Provision Write-offs Recoveries March 31,
2020
Allowance for credit losses:
Real estate broker agent receivables
$ 6,132  $ 360  (1) $ —  $ —  $ 6,492 
New Valley term loan receivables
3,100  1,560  (2) —  —  4,660 
_____________________________
(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
March 31,
2021 2020
Operating lease cost $ 9,301  $ 9,424 
Short-term lease cost
291  401 
Variable lease cost
1,008  567 
Finance lease cost:
Amortization
16  38 
Interest on lease liabilities
Total lease cost
$ 10,619  $ 10,434 

13

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Supplemental cash flow information related to leases was as follows:
Three Months Ended
March 31,
2021 2020
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases
$ 10,739  $ 9,546 
Operating cash flows from finance leases
Financing cash flows from finance leases
15  37 
Right-of-use assets obtained in exchange for lease obligations:
Operating leases
724  66 
Finance leases
—  60 


14

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Supplemental balance sheet information related to leases was as follows:
March 31, December 31,
2021 2020
Operating leases:
Operating lease right-of-use assets
$ 140,777  $ 145,356 
Current operating lease liability
$ 27,207  $ 27,207 
Non-current operating lease liability
148,417  154,199 
Total operating lease liabilities
$ 175,624  $ 181,406 
Finance leases:
Investments in real estate, net (1)
$ 53  $ 62 
Property, plant and equipment, at cost
$ 127  $ 127 
Accumulated amortization
(51) (44)
Property and equipment, net
$ 76  $ 83 
Current portion of notes payable and long-term debt
$ 57  $ 57 
Notes payable, long-term debt and other obligations, less current portion
81  96 
Total finance lease liabilities
$ 138  $ 153 
Weighted average remaining lease term:
Operating leases
7.75 7.87
Finance leases
2.50 2.71
Weighted average discount rate:
Operating leases
9.27  % 9.26  %
Finance leases
7.90  % 7.82  %
(1)     Included in Investments in real estate, net on the condensed consolidated balance sheets are financing lease equipment, at cost of $748 and $748 and accumulated amortization of $695 and $686 as of March 31, 2021 and December 31, 2020, respectively.

As of March 31, 2021, maturities of lease liabilities were as follows:
Operating Leases Finance
 Leases
Period Ending December 31:    
Remainder of 2021 $ 33,125  $ 49 
2022 38,183  60 
2023 33,398  35 
2024 27,378 
2025 22,219  — 
2026 18,534  — 
Thereafter 78,236  — 
Total lease payments 251,073  152 
 Less imputed interest
(75,449) (14)
Total $ 175,624  $ 138 
15

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

As of March 31, 2021, the Company had $2,320 in undiscounted lease payments relating to an additional operating lease for equipment that has not yet commenced. The operating lease will commence in the second half of 2021 with a lease term of 3 years.
As a result of the COVID-19 pandemic, the Company received lease concessions from landlords in 2020 mostly in the form of rent deferrals and a few in the form of rent abatements. The Company elected to treat these deferrals and abatements as lease modifications and the existing lease liabilities were remeasured with a corresponding adjustment to the right-of-use asset on the effective date of the modification in 2020. The deferrals varied as to the timing of repayment but all agreements required repayment of the deferrals over the remaining lease terms.

5.    INVENTORIES

Inventories consisted of:
March 31,
2021
December 31,
2020
Leaf tobacco $ 47,256  $ 42,988 
Other raw materials 5,301  5,987 
Work-in-process 664  520 
Finished goods 68,455  68,781 
Inventories at current cost 121,676  118,276 
LIFO adjustments (20,731) (20,731)
$ 100,945  $ 97,545 

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


16

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

6.    INVESTMENT SECURITIES

Investment securities consisted of the following:
March 31,
2021
December 31, 2020
Debt securities available for sale $ 102,958  $ 91,204 
Equity securities at fair value:
Marketable equity securities 25,389  21,155 
Mutual funds invested in debt securities 23,240  23,226 
Long-term investment securities at fair value (1)
35,608  34,218 
          Total equity securities at fair value 84,237  78,599 
Total investment securities at fair value 187,195  169,803 
Less:
Long-term investment securities at fair value (1)
35,608  34,218 
Property technology (“PropTech”) convertible debt securities 2,500  — 
Current investment securities at fair value 149,087  135,585 
Long-term investment securities at fair value (1)
35,608  34,218 
Equity-method investments 18,887  18,310 
PropTech convertible debt securities 2,500  — 
Total long-term investments $ 56,995  $ 52,528 
(1) These assets are measured at net asset value (“NAV”) as a practical expedient under ASC 820.

Net gains (losses) recognized on investment securities were as follows:
Three Months Ended
March 31,
2021 2020
Net gains (losses) recognized on equity securities $ 2,408  $ (11,737)
Net gains (losses) recognized on debt securities available for sale 55  (117)
Impairment expense (14) (386)
Net gains (losses) recognized on investment securities $ 2,449  $ (12,240)
(a) Debt Securities Available for Sale:
The components of debt securities available for sale at March 31, 2021 were as follows:
Cost Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Marketable debt securities $ 100,098  $ 360  $ —  $ 100,458 
PropTech convertible debt securities 2,500  —  —  2,500 
Total debt securities available for sale $ 102,598  $ 360  $ —  $ 102,958 


17

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

New Valley, through its subsidiary New Valley Ventures LLC, is actively seeking to 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. As of March 31, 2021, New Valley Ventures has invested $2,500 into convertible notes of four PropTech ventures. The maturities of the notes are between April 2022 and March 2023.

The table below summarizes the maturity dates of debt securities available for sale at March 31, 2021.
Investment Type: Fair Value Under 1 Year 1 Year up to 5 Years More than 5 Years
U.S. Government securities $ 17,976  $ 13,106  $ 4,870  $ — 
Corporate securities 48,601  35,373  13,228  — 
U.S. mortgage-backed securities 9,626  2,270  7,356  — 
Commercial paper 23,031  23,031  —  — 
Foreign fixed-income securities 1,224  —  1,224  — 
PropTech convertible debt securities 2,500  —  2,500  — 
Total debt securities available for sale by maturity dates
$ 102,958  $ 73,780  $ 29,178  $ — 

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

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

Gross realized gains and losses on debt securities available for sale were as follows:
Three Months Ended
March 31,
2021 2020
Gross realized gains on sales $ 56  $ 98 
Gross realized losses on sales (1) (215)
Net gains (losses) recognized on debt securities available for sale $ 55  $ (117)
Impairment expense $ (14) $ (386)

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

18

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(Dollars in Thousands, Except Per Share Amounts)
Unaudited

(b) Equity Securities at Fair Value:

The following is a summary of unrealized and realized net gains and losses recognized in net income on equity securities at fair value during the three months ended March 31, 2021 and 2020, respectively:
Three Months Ended
March 31,
2021 2020
Net gains (losses) recognized on equity securities $ 2,408  $ (11,737)
Less: Net gains (losses) recognized on equity securities sold 169  (618)
Net unrealized gains (losses) recognized on equity securities still held at the reporting date $ 2,239  $ (11,119)

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

The Company received cash distributions of $4,389 and recognized a receivable of $154 of in-transit redemptions as of March 31, 2021 related to its long-term investment securities at fair value. The Company classified $4,389 of these distributions as investing cash inflows for the three months ended March 31, 2021.

(c) Equity-Method Investments:

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

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

The Company received cash distributions of $53,382 (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 three months ended March 31, 2020. The Company classified these cash distributions as operating activities on the condensed consolidated statements of cash flows for the three months ended March 31, 2020.
19

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(Dollars in Thousands, Except Per Share Amounts)
Unaudited


(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 March 31, 2021 and December 31, 2020, respectively. The total carrying value of these investments was $5,200 as of both March 31, 2021 and December 31, 2020, and was included in “Other assets” on the condensed consolidated balance sheets. No impairment or other adjustments related to observable price changes in orderly transactions for identical or similar investments were identified for the three months ended March 31, 2021 and 2020, respectively.
(e) Combined Financial Statements for Unconsolidated Subsidiaries Accounted for on Equity Method
Pursuant to Rule 4-08(g), the following summarized financial data for unconsolidated subsidiaries includes information for Boyar.
Three Months Ended
March 31,
2021 2020
Investment income $ 115  $ 140 
Expenses 121  112 
    Net investment (loss) gain (6) 28 
Total net realized gain (loss) and net change in unrealized appreciation (depreciation) from investments 2,845  (6,833)
Net increase (decrease) in partners’ capital resulting from operations $ 2,839  $ (6,805)


7. NEW VALLEY LLC

Investments in real estate ventures:

The components of “Investments in real estate ventures” were as follows:
Range of Ownership (1)
March 31, 2021 December 31, 2020
Condominium and Mixed Use Development:
            New York City Standard Metropolitan Statistical Area (“SMSA”)
4.2% - 46.7%
$ 29,212  $ 30,465 
            All other U.S. areas
19.6% - 77.8%
39,218  37,773 
68,430  68,238 
Hotels:
            New York City SMSA
0.4% - 15.7%
2,167  2,629 
            International 49.0% 1,346  1,852 
3,513  4,481 
Commercial:
            New York City SMSA 49.0% 2,713  2,591 
            All other U.S. areas 1.6% 7,041  7,084 
9,754  9,675 
Other:
15.0% - 49.0%
2,287  3,006 
Investments in real estate ventures $ 83,984  $ 85,400 
_____________________________
(1) The Range of Ownership reflects New Valley’s estimated current ownership percentage. New Valley’s actual ownership percentage as well as the percentage of earnings and cash distributions may ultimately differ as a result of a number of factors including potential dilution, financing or admission of additional partners.
20

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

Contributions:

The components of New Valley’s contributions to its investments in real estate ventures were as follows:
Three Months Ended
March 31,
2021 2020
Condominium and Mixed Use Development:
            New York City SMSA $ 180  $ 495 
            All other U.S. areas 6,661  — 
6,841  495 
Hotels:
            New York City SMSA 1,246  — 
1,246  — 
Other: —  178 
Total contributions $ 8,087  $ 673 

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 three months ended March 31, 2021 and March 31, 2020. New Valley’s direct investment percentage for these ventures did not significantly change. 

Distributions:

The components of distributions received by New Valley from its investments in real estate ventures were as follows:
Three Months Ended
March 31,
2021 2020
Condominium and Mixed Use Development:
            New York City SMSA $ —  $ 1,036 
            All other U.S. areas 2,833  996 
2,833  2,032 
Apartment Buildings:
            All other U.S. areas 4,608  — 
4,608  — 
Commercial:
            New York City SMSA — 
            All other U.S. areas 136  52 
136  55 
Other —  23 
Total distributions $ 7,577  $ 2,110 

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


21

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Equity in Earnings (losses) from Real Estate Ventures:

New Valley recognized equity in earnings (losses) from real estate ventures as follows:
Three Months Ended
March 31,
2021 2020
Condominium and Mixed Use Development:
            New York City SMSA $ (1,505) $ (3,347)
            All other U.S. areas (41) (2,799)
(1,546) (6,146)
Apartment Buildings:
            All other U.S. areas 4,608  — 
4,608  — 
Hotels:
            New York City SMSA (462) (107)
            International (506) (461)
(968) (568)
Commercial:
            New York City SMSA 122  (74)
            All other U.S. areas 93  249 
215  175 
Other: (720) 34 
Equity in earnings (losses) from real estate ventures $ 1,589  $ (6,505)

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

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

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.

22

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:
March 31, 2021
Condominium and Mixed Use Development:
            New York City SMSA $ 29,212 
            All other U.S. areas 39,218 
68,430 
Hotels:
            New York City SMSA 2,167 
            International 1,346 
3,513 
Commercial:
            New York City SMSA 2,713 
            All other U.S. areas 7,041 
9,754 
Other 2,287 
Total maximum exposure to loss $ 83,984 

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

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

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

Other Condominium and Mixed Use Development:
Three Months Ended
March 31,
2021 2020
Income Statements
Revenue $ 10,287  $ 35,134 
Other expenses 26,500  42,520 
Loss from continuing operations $ (16,213) $ (7,386)





23

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Hotels:
Three Months Ended
March 31,
2021 2020
Income Statements
Revenue $ —  $ 13,447 
Other expenses 16,553  19,261 
Loss from continuing operations $ (16,553) $ (5,814)

Other:
Three Months Ended
March 31,
2021 2020
Income Statements
Revenue $ 21  $ 337 
Other expenses 300,829  2,800 
Loss from continuing operations $ (300,808) $ (2,463)

Investments in Real Estate, net:

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

Escena.  The assets of “Escena, net” were as follows:
March 31,
2021
December 31,
2020
Land and land improvements $ 8,911  $ 8,911 
Building and building improvements 1,926  1,926 
Other 1,663  1,672 
  12,500  12,509 
Less accumulated depreciation (2,830) (2,774)
  $ 9,670  $ 9,735 

New Valley recorded operating income of $370 and $357 for the three months ended March 31, 2021 and 2020, respectively, from Escena. Escena is a master planned community, golf course, and club house in Palm Springs, California.
Townhome A (11 Beach Street). In November 2020, New Valley received, as part of a liquidating distribution from a real estate joint venture, Unit TH-A, a townhouse located in Manhattan, NY. The unit is wholly owned and the balances are included in the condensed consolidated financial statements of the Company. As of March 31, 2021, the carrying value of Unit TH-A was $6,132 and consisted of the value assigned to the unit as part of the distribution, acquisition costs and property related expenses.

24

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:
March 31,
2021
December 31,
2020
Vector:
5.75% Senior Secured Notes due 2029
$ 875,000  $ — 
6.125% Senior Secured Notes due 2025
—  850,000 
10.5% Senior Notes due 2026, net of unamortized discount of $2,946 and $3,040
552,054  551,960 
Liggett:
Equipment loans
83  89 
Other 22,350  25,484 
Notes payable, long-term debt and other obligations 1,449,487  1,427,533 
Less:
Debt issuance costs
(31,532) (21,247)
Total notes payable, long-term debt and other obligations 1,417,955  1,406,286 
Less:
Current maturities (12,556) (12,557)
Amount due after one year $ 1,405,399  $ 1,393,729 

5.75% Senior Secured Notes due 2029 — Vector:
On January 28, 2021, the Company completed the sale of $875,000 in aggregate principal amount of its 5.75% Senior Secured Notes due 2029 (“5.75% Senior Secured Notes”) to qualified institutional buyers and non-U.S. persons in a private offering pursuant to the exemptions from the registration requirements of the Securities Act contained in Rule 144A and Regulation S under the Securities Act. The aggregate net cash proceeds from the sale of the 5.75% Senior Secured Notes were approximately $855,500 after deducting the initial purchaser’s discount and estimated expenses and fees payable by the Company in connection with the offering. The Company used the net cash proceeds from the 5.75% Senior Secured Notes offering, together with cash on hand, to redeem all of the Company’s outstanding 6.125% Senior Secured Notes due 2025, including accrued interest and premium thereon, and to pay fees and expenses in connection with the offering of the 5.75% Senior Secured Notes and the redemption of the 6.125% Secured Notes due 2025.
The 5.75% Senior Secured Notes pay interest on a semi-annual basis at a rate of 5.75% per year and mature on the earlier of February 1, 2029 and the date that is 91 days before November 1, 2026, the final stated maturity date of the 10.5% Senior Notes due 2026 (“10.5% Senior Notes”) if such 10.5% Senior Notes have not been repurchased and cancelled or refinanced by such date.
The 5.75% Senior Secured Notes are fully and unconditionally guaranteed, subject to certain customary automatic release provisions, on a joint and several basis by all of the wholly-owned domestic subsidiaries of the Company that are engaged in the conduct of the Company’s cigarette businesses, which subsidiaries, as of the issuance date of the 5.75% Senior Secured Notes were also guarantors under the Company’s outstanding 10.5% Senior Notes. The 5.75% Senior Secured Notes are not guaranteed by New Valley LLC, or any of the Company’s subsidiaries engaged in the Company’s real estate business conducted through its subsidiary, New Valley LLC. The guarantees provided by certain of the guarantors are secured by first priority or second priority security interests in certain collateral of such guarantors pursuant to security and pledge agreements, subject to certain permitted liens and exceptions as further described in the indenture and the security documents relating thereto. The Company does not provide any security for the 5.75% Senior Secured Notes.
As of March 31, 2021, the Company was in compliance with all debt covenants.
25

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

6.125% Senior Secured Notes due 2025 — Vector:
On February 1, 2021, the 6.125% Senior Secured Notes due 2025 were redeemed in full and the Company recorded a loss on the extinguishment of debt of $21,362 for the three months ended March 31, 2021, including $13,014 of premium and $8,348 of other costs and non-cash interest expense related to the recognition of previously unamortized deferred finance costs.
10.5% Senior Notes due 2026 — Vector:
As of March 31, 2021, the Company was in compliance with all debt covenants related to its 10.5% Senior Notes due 2026.
Revolving Credit Agreement — Liggett:
On March 22, 2021, Liggett, 100 Maple LLC (“Maple”) and Vector Tobacco entered into Amendment No. 4 and Joinder to Third Amended and Restated Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, as agent and lender.
The existing credit agreement was amended to, among other things, (i) add Vector Tobacco as a borrower under the Credit Agreement, (ii) extend the maturity of the Credit Agreement to March 22, 2026, and (iii) increase the amount of the maximum credit line thereunder from $60,000 to $90,000.
As of March 31, 2021, there was no outstanding balance due under the Credit Agreement. Availability, as determined under the Credit Agreement, was approximately $90,000 based on eligible collateral at March 31, 2021. As of March 31, 2021, Liggett, Maple, and Vector Tobacco were in compliance with all debt covenants under the Credit Agreement.
Other:
Other notes payable consist primarily of $21,875 of notes payable issued by New Valley as part of the acquisition of the remaining 29.41% interest in Douglas Elliman in December 2018. Interest on the outstanding principal balance of the notes accrues at the then-current mid-term applicable federal rate. Principal and interest is payable in installments through October 1, 2022. $8,125 of principal has been repaid through March 31, 2021 and the remaining principal is due to be repaid as follows: (1) $9,375 in 2021; and (2) $12,500 in 2022.
Non-Cash Interest Expense — Vector:
Three Months Ended
March 31,
2021 2020
Amortization of debt discount, net $ 94  $ 4,600 
Amortization of debt issuance costs 893  1,158 
Loss on extinguishment of 6.125% Senior Secured Notes
8,349  — 
$ 9,336  $ 5,758 

Fair Value of Notes Payable and Long-Term Debt:
March 31, 2021 December 31, 2020
Carrying Fair Carrying Fair
Value Value Value Value
Senior Notes $ 1,427,054  $ 1,493,436  $ 1,401,960  $ 1,464,208 
Liggett and other 22,433  22,440  25,573  25,581 
Notes payable and long-term debt $ 1,449,487  $ 1,515,876  $ 1,427,533  $ 1,489,789 

Notes payable and long-term debt are carried on the condensed consolidated balance sheets at amortized cost. The fair value determinations disclosed above are classified as Level 2 under the fair value hierarchy disclosed in Note 12 if such liabilities were recorded on the condensed consolidated balance sheets at fair value. The estimated fair value of the Company’s notes payable and long-term debt has been determined by the Company using available market information and appropriate
26

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 March 31, 2021 to determine the fair value of its publicly-traded notes and debentures. The carrying value of the revolving credit facility is equal to fair value. The fair value of the equipment loans and other obligations was determined by calculating the present value of the required future cash flows. However, considerable judgment is required to develop the estimates of fair value and, accordingly, the estimate presented herein is not necessarily indicative of the amount that could be realized in a current market exchange.


27

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 three months ended March 31, 2021 and 2020, Liggett incurred tobacco product liability legal expenses and costs totaling $1,525 and $1,550 respectively. Legal defense costs are expensed as incurred.
Litigation is subject to uncertainty and it is possible that there could be adverse developments in pending cases. With the commencement of new cases, the defense costs and the risks relating to the unpredictability of litigation increase. Management reviews on a quarterly basis with counsel all pending litigation and evaluates the probability of a loss being incurred and whether an estimate can be made of the possible loss or range of loss that could result from an unfavorable outcome. An unfavorable outcome or settlement of pending tobacco-related litigation could encourage the commencement of additional litigation. Damages awarded in tobacco-related litigation can be significant.
Bonds. Although Liggett has been able to obtain required bonds or relief from bonding requirements in order to prevent plaintiffs from seeking to collect judgments while adverse verdicts are on appeal, there remains a risk that such relief may not be obtainable in all cases. This risk has been reduced given that a majority of states now limit the dollar amount of bonds or require no bond at all. As of March 31, 2021, Liggett had no outstanding bonds.
In June 2009, Florida amended its existing bond cap statute by adding a $200,000 bond cap that applies to all Engle progeny cases in the aggregate and establishes individual bond caps for individual Engle progeny cases in amounts that vary depending on the number of judgments in effect at a given time. The maximum amount of any such bond for an appeal in the Florida state courts will be no greater than $5,000. In several cases, plaintiffs challenged the constitutionality of the bond cap statute, but to date the courts have upheld the constitutionality of the statute. It is possible that the Company’s consolidated financial position, results of operations, and cash flows could be materially adversely affected by an unfavorable outcome of such challenges.
Accounting Policy. The Company and its subsidiaries record provisions in their consolidated financial statements for pending litigation when they determine that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. At the present time, while it is reasonably possible that an unfavorable outcome in a case may occur, except as discussed in this Note 9: (i) management has concluded that it is not probable that a loss has been incurred in any of the pending tobacco-related cases; or (ii) management is unable to reasonably estimate the possible loss or range of loss that could result from an unfavorable outcome of any of the pending tobacco-related cases and, therefore, management has not provided any amounts in the condensed consolidated financial statements for unfavorable outcomes, if any.
Although Liggett has generally been successful in managing the litigation filed against it, litigation is subject to uncertainty and significant challenges remain, including with respect to the remaining Engle progeny cases. There can be no assurances that Liggett’s past litigation experience will be representative of future results. Judgments have been entered against Liggett in the past, in Individual Actions and Engle progeny cases, and several of those judgments were affirmed on appeal and satisfied by Liggett. It is possible that the consolidated financial position, results of operations and cash flows of the Company could be materially adversely affected by an unfavorable outcome or settlement of any of the remaining smoking-related litigation. Liggett believes, and has been so advised by counsel, that it has valid defenses to the litigation pending against it, as well as valid bases for appeal of adverse verdicts. All such cases are and will continue to be vigorously defended. Liggett has entered into settlement discussions in individual cases or groups of cases where Liggett has determined it was in its best interest to do so, and it may continue to do so in the future. As cases proceed through the appellate process, the Company will consider accruals on a case-by-case basis if an unfavorable outcome becomes probable and the amount can be reasonably estimated.
28

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Individual Actions
As of March 31, 2021, there were 75 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 45
Illinois 14
Nevada 7
New Mexico 5
Louisiana 2
Hawaii 1
Massachusetts 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 March 31, 2021, 25 Engle progeny cases where Liggett was a defendant at trial resulted in verdicts.
There have been 16 verdicts returned in favor of the plaintiffs and nine in favor of Liggett. In five of the cases, punitive damages were awarded against Liggett. Several of the adverse verdicts were overturned on appeal and new trials were ordered. In certain cases, the judgments were entered jointly and severally with other defendants and Liggett may face the risk that one or more co-defendants decline or otherwise fail to participate in the bonding required for an appeal or to pay their proportionate or jury-allocated share of a judgment. As a result, under certain circumstances, Liggett may have to pay more than its proportionate share of any bonding or judgment related amounts. Except as discussed in this Note 9, management is unable to
29

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 and, in most cases, discovery has not occurred or is limited. As a result, the Company lacks information about whether plaintiffs are in fact Engle class members, the relevant smoking history, the nature of the alleged injury and the availability of various defenses, among other things. Further, plaintiffs typically do not specify the amount of their demand for damages. As cases proceed through the appellate process, the Company will consider accruals on a case-by-case basis if an unfavorable outcome becomes probable and the amount can be reasonably estimated.
Engle Progeny Settlements.
In October 2013, the Company and Liggett entered into a settlement with approximately 4,900 Engle progeny plaintiffs and their counsel. Pursuant to the terms of the settlement, Liggett agreed to pay a total of approximately $110,000, with $61,600 paid in an initial lump sum and the balance to be paid in installments over 14 years starting in February 2015. The Company’s future payments will be approximately $3,400 per annum through 2028, with a cost of living increase beginning in 2021. In exchange, the claims of these plaintiffs were dismissed with prejudice against the Company and Liggett.
Liggett subsequently entered into two separate settlement agreements with a total of 152 Engle progeny plaintiffs where Liggett paid a total of $23,150. On an individual basis, Liggett settled an additional 202 Engle progeny cases for approximately $8,100 in the aggregate.
Notwithstanding the comprehensive nature of the Engle progeny settlements, 39 plaintiffs’ claims remain pending in state court. Therefore, the Company and Liggett may still be subject to periodic adverse judgments which could have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows.
Judgments Paid in Engle Progeny Cases.
As of March 31, 2021, Liggett had paid in the aggregate $40,111, including interest and attorneys’ fees, to satisfy the judgments in the following Engle progeny cases: Lukacs, Campbell, Douglas, Clay, Tullo, Ward, Rizzuto, Lambert, Buchanan, and Santoro.
Maryland Cases
Liggett was a defendant in 16 multi-defendant personal injury cases in Maryland alleging claims arising from asbestos and tobacco exposure (“synergy cases”). In July 2016, the Court of Appeals (Maryland’s highest court) ruled that joinder of tobacco and asbestos cases may be possible in certain circumstances, but plaintiffs must demonstrate at the trial court level how such cases may be joined while providing appropriate safeguards to prevent embarrassment, delay, expense or prejudice to defendants and “the extent to which, if at all, the special procedures applicable to asbestos cases should extend to tobacco companies.” The Court of Appeals remanded these issues to be determined at the trial court level. In June 2017, the trial court issued an order dismissing all synergy cases against the tobacco defendants, including Liggett, without prejudice. Plaintiffs may seek appellate review or file new cases against the tobacco companies.
Liggett Only Cases  
There are currently five cases where Liggett is the sole defendant: Cowart and Clay are Individual Actions and Tumin, Forbing and Jones, are Engle progeny cases. It is possible that cases where Liggett is the only defendant could increase as a result of the remaining Engle progeny cases and newly filed Individual Actions.
Upcoming Trials
As of March 31, 2021, there was one Engle progeny case (Rearick) and six Individual Actions (Baron, Clark, Cupp, Feld, Geist, and Mendez) scheduled for trial through March 31, 2022, where Liggett (and/or the Company) is a named defendant. Trial dates are subject to change and additional cases could be set for trial during this time.
Class Actions
As of March 31, 2021, two actions were pending for which either a class had been certified or plaintiffs were seeking class certification where Liggett is a named defendant. Other cigarette manufacturers are also named in these two cases.
Plaintiffs’ allegations of liability in class action cases are based on various theories of recovery, including negligence, gross negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, nuisance, breach of express and implied warranties, breach of special duty, conspiracy, concert of action, violation of deceptive trade practice laws and consumer protection statutes and claims under the federal and state anti-racketeering statutes. Plaintiffs in the class actions seek various forms of relief, including compensatory and punitive damages, treble/multiple damages and other statutory damages
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and penalties, creation of medical monitoring and smoking cessation funds, disgorgement of profits, and injunctive and equitable relief.
Defenses raised in these cases include, among others, lack of proximate cause, individual issues predominate, assumption of the risk, comparative fault and/or contributory negligence, statute of limitations and federal preemption.
In November 1997, in Young v. American Tobacco Co., a purported personal injury class action was commenced on behalf of plaintiff and all similarly situated residents in Louisiana who, though not themselves cigarette smokers, allege they were exposed to secondhand smoke from cigarettes that were manufactured by the defendants, including Liggett, and suffered injury as a result of that exposure. The plaintiffs seek to recover an unspecified amount of compensatory and punitive damages. No class certification hearing has been held. A stay order entered on March 16, 2016 stays the case pending completion of the smoking cessation program ordered by the court in Scott v. The American Tobacco Co.
In February 1998, in Parsons v. AC & S Inc., a purported class action was commenced on behalf of all West Virginia residents who allegedly have claims arising from their exposure to cigarette smoke and asbestos fibers. The operative complaint seeks to recover unspecified compensatory and punitive damages on behalf of the putative class. The case is stayed as a result of the December 2000 bankruptcy of three of the defendants.
Health Care Cost Recovery Actions
As of March 31, 2021, one Health Care Cost Recovery Action was pending against Liggett, Crow Creek Sioux Tribe v. American Tobacco Company, a South Dakota case filed in 1997, where the plaintiff seeks to recover damages from Liggett and other cigarette manufacturers based on various theories of recovery as a result of alleged sales of tobacco products to minors. The case is dormant.
The claims asserted in health care cost recovery actions vary, but can include the equitable claim of indemnity, common law claims of negligence, strict liability, breach of express and implied warranty, breach of special duty, fraud, negligent misrepresentation, conspiracy, public nuisance, claims under state and federal statutes governing consumer fraud, antitrust, deceptive trade practices and false advertising, and claims under RICO. Although no specific damage amounts are typically pleaded, it is possible that requested damages might be in the billions of dollars. In these cases, plaintiffs typically assert equitable claims that the tobacco industry was “unjustly enriched” by their payment of health care costs allegedly attributable to smoking and seek reimbursement of those costs. Relief sought by some, but not all, plaintiffs include punitive damages, multiple damages and other statutory damages and penalties, injunctions prohibiting alleged marketing and sales to minors, disclosure of research, disgorgement of profits, funding of anti-smoking programs, additional disclosure of nicotine yields, and payment of attorney and expert witness fees.
Department of Justice Lawsuit
In September 1999, the United States government commenced litigation against Liggett and other cigarette manufacturers in the United States District Court for the District of Columbia. The action sought to recover, among other things, an unspecified amount of health care costs paid and to be paid by the federal government for smoking-related illnesses allegedly caused by the fraudulent and tortious conduct of defendants. In August 2006, the trial court entered a Final Judgment against each of the cigarette manufacturing defendants, except Liggett. The judgment was affirmed on appeal. As a result, the cigarette manufacturing defendants, other than Liggett, are now subject to the trial court’s Final Judgment which ordered, among other things, the issuance of “corrective statements” in various media regarding the adverse health effects of smoking, the addictiveness of smoking and nicotine, the lack of any significant health benefit from smoking “low tar” or “lights” cigarettes, defendants’ manipulation of cigarette design to ensure optimum nicotine delivery and the adverse health effects of exposure to environmental tobacco smoke.
MSA and Other State Settlement Agreements
In March 1996, March 1997 and March 1998, Liggett entered into settlements of smoking-related litigation with 45 states and territories. The settlements released Liggett from all smoking-related claims made by those states and territories, including claims for health care cost reimbursement and claims concerning sales of cigarettes to minors.
In November 1998, Philip Morris, R.J. Reynolds and two other companies (the “Original Participating Manufacturers” or “OPMs”) and Liggett and Vector Tobacco (together with any other tobacco product manufacturer that becomes a signatory, the “Subsequent Participating Manufacturers” or “SPMs”) (the OPMs and SPMs are hereinafter referred to jointly as “PMs”) entered into the Master Settlement Agreement (the “MSA”) with 46 states, the District of Columbia, Puerto Rico, Guam, the United States Virgin Islands, American Samoa and the Northern Mariana Islands (collectively, the “Settling States”) to settle
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the asserted and unasserted health care cost recovery and certain other claims of the Settling States. The MSA received final judicial approval in each Settling State.
As a result of the MSA, the Settling States released Liggett and Vector Tobacco from:
all claims of the Settling States and their respective political subdivisions and other recipients of state health care funds, relating to: (i) past conduct arising out of the use, sale, distribution, manufacture, development, advertising and marketing of tobacco products; (ii) the health effects of, the exposure to, or research, statements or warnings about, tobacco products; and
all monetary claims of the Settling States and their respective subdivisions and other recipients of state health care funds relating to future conduct arising out of the use of, or exposure to, tobacco products that have been manufactured in the ordinary course of business.
The MSA restricts tobacco product advertising and marketing within the Settling States and otherwise restricts the activities of PMs. Among other things, the MSA prohibits the targeting of youth in the advertising, promotion or marketing of tobacco products; bans the use of cartoon characters in all tobacco advertising and promotion; limits each PM to one tobacco brand name sponsorship during any 12-month period; bans all outdoor advertising, with certain limited exceptions; prohibits payments for tobacco product placement in various media; bans gift offers based on the purchase of tobacco products without sufficient proof that the intended recipient is an adult; prohibits PMs from licensing third parties to advertise tobacco brand names in any manner prohibited under the MSA; and prohibits PMs from using as a tobacco product brand name any nationally recognized non-tobacco brand or trade name or the names of sports teams, entertainment groups or individual celebrities.
The MSA also requires PMs to affirm corporate principles to comply with the MSA and to reduce underage use of tobacco products and imposes restrictions on lobbying activities conducted on behalf of PMs. In addition, the MSA provides for the appointment of an independent auditor to calculate and determine the amounts of payments owed pursuant to the MSA.
Under the payment provisions of the MSA, PMs are required to make annual payments of $9,000,000 (subject to applicable adjustments, offsets and reductions including a “Non-Participating Manufacturers Adjustment” or “NPM Adjustment”). These annual payments are allocated based on unit volume of domestic cigarette shipments. The payment obligations under the MSA are the several, and not joint, obligation of each PM and are not the responsibility of any parent or affiliate of a PM.
Liggett has no 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 no payment obligations under the MSA except to the extent its market share exceeds a market share exemption of approximately 0.28% of total cigarettes sold in the United States. Liggett and Vector Tobacco’s domestic shipments accounted for approximately 4.1% of the total cigarettes sold in the United States in 2020. If Liggett’s or Vector Tobacco’s market share exceeds their respective market share exemption in a given year, then on April 15 of the following year, Liggett and/or Vector Tobacco, as the case may be, must pay on each excess unit an amount equal (on a per-unit basis) to that due from the OPMs for that year. On December 30, 2020, Liggett and Vector Tobacco pre-paid $143,000 of their approximate $178,000 2020 MSA obligation, the balance of which was paid in April 2021, subject to applicable disputes or adjustments.
Certain MSA Disputes
NPM Adjustment.  Liggett and Vector Tobacco contend that they are entitled to an NPM Adjustment for each year from 2003 - 2020. The NPM Adjustment is a potential adjustment to annual MSA payments, available when PMs suffer a market share loss to NPMs for a particular year and an economic consulting firm selected pursuant to the MSA determines (or the parties agree) that the MSA was a “significant factor contributing to” that loss. A Settling State that has “diligently enforced” its qualifying escrow statute in the year in question may be able to avoid its allocable share of the NPM Adjustment. For 2003 - 2020, Liggett and Vector Tobacco, as applicable, disputed that they owed the Settling States the NPM Adjustments as calculated by the independent auditor. As permitted by the MSA, Liggett and Vector Tobacco either paid subject to dispute, withheld payment, or paid into a disputed payment account, the amounts associated with these NPM Adjustments.
    In June 2010, after the PMs prevailed in 48 of 49 motions to compel arbitration, the parties commenced the arbitration for the 2003 NPM Adjustment. That arbitration concluded in September 2013. It was followed by various challenges filed in state courts by states that did not prevail in the arbitration. Those challenges resulted in reductions, but not elimination of, the amounts awarded.
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    The PMs settled most of the disputed NPM Adjustment years with 37 states representing approximately 75% of the MSA share for 2003 - 2022. The 2004 NPM Adjustment arbitration commenced in 2016, with the final individual state hearing scheduled to occur in October 2021 and a second phase addressing the effect of the settlements to start thereafter. The parties have also selected an arbitration panel to address the NPM Adjustments for 2005-2007, and, in April 2021, that panel is set to issue a Case Management Order setting a schedule for the arbitration.
As a result of the settlement and arbitration award described above, Liggett and Vector Tobacco reduced cost of sales for years 2013 - 2020 by $54,382 and by $1,675 for the three months ended March 31, 2021. Liggett and Vector Tobacco may be entitled to further adjustments. As of March 31, 2021, Liggett and Vector Tobacco had accrued approximately $13,200 related to the disputed amounts withheld from the non-settling states for 2004 - 2010, which may be subject to payment, with interest, if Liggett and Vector Tobacco lose the disputes for those years. As of March 31, 2021, there remains approximately $40,700 in the disputed payments account relating to Liggett and Vector Tobacco’s 2011 - 2019 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 four 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