VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(
Dollars in Thousands, Except Per Share Amounts
)
Unaudited
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
December 31,
2018
|
ASSETS:
|
|
|
|
Current assets:
|
|
|
|
Cash and cash equivalents
|
$
|
312,638
|
|
|
$
|
584,581
|
|
Investment securities at fair value
|
134,652
|
|
|
131,569
|
|
Accounts receivable - trade, net
|
36,440
|
|
|
34,246
|
|
Inventories
|
101,977
|
|
|
90,997
|
|
Restricted assets
|
5,412
|
|
|
4,477
|
|
Other current assets
|
36,242
|
|
|
26,351
|
|
Total current assets
|
627,361
|
|
|
872,221
|
|
Property, plant and equipment, net
|
85,641
|
|
|
86,736
|
|
Investments in real estate, net
|
26,777
|
|
|
26,220
|
|
Long-term investments (of which $54,202 and $54,628 were carried at fair value)
|
66,768
|
|
|
66,259
|
|
Investments in real estate ventures
|
138,393
|
|
|
141,105
|
|
Operating lease right of use assets
|
124,723
|
|
|
—
|
|
Restricted assets
|
6,316
|
|
|
6,306
|
|
Goodwill and other intangible assets, net
|
266,065
|
|
|
266,611
|
|
Prepaid pension costs
|
24,179
|
|
|
23,869
|
|
Other assets
|
62,933
|
|
|
60,177
|
|
Total assets
|
$
|
1,429,156
|
|
|
$
|
1,549,504
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIENCY:
|
|
|
|
Current liabilities:
|
|
|
|
Current portion of notes payable and long-term debt
|
$
|
41,080
|
|
|
$
|
256,134
|
|
Current portion of fair value of derivatives embedded within convertible debt
|
—
|
|
|
6,635
|
|
Current payments due under the Master Settlement Agreement
|
73,809
|
|
|
36,561
|
|
Current portion of employee benefits
|
875
|
|
|
875
|
|
Income taxes payable, net
|
9,701
|
|
|
5,252
|
|
Litigation accruals
|
3,404
|
|
|
310
|
|
Current operating lease liability
|
20,414
|
|
|
—
|
|
Other current liabilities
|
153,334
|
|
|
179,153
|
|
Total current liabilities
|
302,617
|
|
|
484,920
|
|
Notes payable, long-term debt and other obligations, less current portion
|
1,387,945
|
|
|
1,386,697
|
|
Fair value of derivatives embedded within convertible debt
|
21,075
|
|
|
24,789
|
|
Non-current employee benefits
|
61,684
|
|
|
61,288
|
|
Deferred income taxes, net
|
39,823
|
|
|
37,411
|
|
Non-current operating lease liability
|
128,999
|
|
|
—
|
|
Payments due under the Master Settlement Agreement
|
16,383
|
|
|
16,383
|
|
Litigation accruals
|
19,027
|
|
|
21,794
|
|
Other liabilities
|
41,704
|
|
|
63,588
|
|
Total liabilities
|
2,019,257
|
|
|
2,096,870
|
|
Commitments and contingencies (Note 9)
|
|
|
|
Stockholders' deficiency:
|
|
|
|
Preferred stock, par value $1.00 per share, 10,000,000 shares authorized
|
—
|
|
|
—
|
|
Common stock, par value $0.10 per share, 250,000,000 shares authorized,140,899,065 and 140,914,642 shares issued and outstanding
|
14,090
|
|
|
14,092
|
|
Accumulated deficit
|
(580,581
|
)
|
|
(542,169
|
)
|
Accumulated other comprehensive loss
|
(24,098
|
)
|
|
(19,982
|
)
|
Total Vector Group Ltd. stockholders' deficiency
|
(590,589
|
)
|
|
(548,059
|
)
|
Non-controlling interest
|
488
|
|
|
693
|
|
Total stockholders' deficiency
|
(590,101
|
)
|
|
(547,366
|
)
|
Total liabilities and stockholders' deficiency
|
$
|
1,429,156
|
|
|
$
|
1,549,504
|
|
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
|
|
March 31,
|
|
2019
|
|
2018
|
Revenues:
|
|
|
|
Tobacco*
|
$
|
256,756
|
|
|
$
|
267,116
|
|
Real estate
|
164,168
|
|
|
161,850
|
|
Total revenues
|
420,924
|
|
|
428,966
|
|
|
|
|
|
Expenses:
|
|
|
|
Cost of sales:
|
|
|
|
Tobacco*
|
177,303
|
|
|
184,962
|
|
Real estate
|
108,717
|
|
|
109,313
|
|
Total cost of sales
|
286,020
|
|
|
294,275
|
|
|
|
|
|
Operating, selling, administrative and general expenses
|
92,314
|
|
|
89,076
|
|
Litigation settlement and judgment income
|
—
|
|
|
(2,469
|
)
|
Operating income
|
42,590
|
|
|
48,084
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
Interest expense
|
(37,520
|
)
|
|
(45,947
|
)
|
Change in fair value of derivatives embedded within convertible debt
|
10,349
|
|
|
10,567
|
|
Equity in losses from real estate ventures
|
(2,439
|
)
|
|
(6,560
|
)
|
Equity in earnings from investments
|
1,362
|
|
|
1,162
|
|
Net gains (losses) recognized on investment securities
|
4,773
|
|
|
(3,340
|
)
|
Other, net
|
2,667
|
|
|
1,646
|
|
Income before provision for income taxes
|
21,782
|
|
|
5,612
|
|
Income tax expense
|
6,749
|
|
|
1,948
|
|
|
|
|
|
Net income
|
15,033
|
|
|
3,664
|
|
|
|
|
|
Net (income) loss attributed to non-controlling interest
|
(80
|
)
|
|
3,547
|
|
|
|
|
|
Net income attributed to Vector Group Ltd.
|
$
|
14,953
|
|
|
$
|
7,211
|
|
|
|
|
|
Per basic common share:
|
|
|
|
|
|
|
|
Net income applicable to common shares attributed to Vector Group Ltd.
|
$
|
0.09
|
|
|
$
|
0.04
|
|
|
|
|
|
Per diluted common share:
|
|
|
|
|
|
|
|
Net income applicable to common shares attributed to Vector Group Ltd.
|
$
|
0.08
|
|
|
$
|
0.04
|
|
*
Revenues and cost of sales include federal excise taxes of
$104,633
and
$112,801
, 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
|
|
March 31,
|
|
2019
|
|
2018
|
|
|
Net income
|
$
|
15,033
|
|
|
$
|
3,664
|
|
|
|
|
|
Net unrealized gains (losses) on investment securities available for sale:
|
|
|
|
Change in net unrealized gains (losses)
|
377
|
|
|
(692
|
)
|
Net unrealized (gains) losses reclassified into net income
|
(33
|
)
|
|
595
|
|
Net unrealized gains (losses) on investment securities available for sale
|
344
|
|
|
(97
|
)
|
|
|
|
|
|
Net change in pension-related amounts
|
|
|
|
Amortization of loss
|
457
|
|
|
442
|
|
Net change in pension-related amounts
|
457
|
|
|
442
|
|
|
|
|
|
Other comprehensive income
|
801
|
|
|
345
|
|
|
|
|
|
Income tax effect on:
|
|
|
|
Change in net unrealized gains (losses) on investment securities
|
(104
|
)
|
|
189
|
|
Net unrealized (gains) losses reclassified into net income on investment securities
|
9
|
|
|
(163
|
)
|
Pension-related amounts
|
(125
|
)
|
|
(121
|
)
|
Income tax provision on other comprehensive income
|
(220
|
)
|
|
(95
|
)
|
|
|
|
|
Other comprehensive income, net of tax
|
581
|
|
|
250
|
|
|
|
|
|
Comprehensive income
|
15,614
|
|
|
3,914
|
|
|
|
|
|
Comprehensive (income) loss attributed to non-controlling interest
|
(80
|
)
|
|
3,547
|
|
Comprehensive income attributed to Vector Group Ltd.
|
$
|
15,534
|
|
|
$
|
7,461
|
|
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
|
|
|
|
|
|
|
Additional Paid-In
|
|
|
|
Accumulated
Other Comprehensive
|
|
Non-controlling
|
|
|
|
Common Stock
|
|
|
Accumulated
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Loss
|
|
Interest
|
|
Total
|
Balance as of January 1, 2019
|
140,914,642
|
|
|
$
|
14,092
|
|
|
$
|
—
|
|
|
$
|
(542,169
|
)
|
|
$
|
(19,982
|
)
|
|
$
|
693
|
|
|
$
|
(547,366
|
)
|
Impact of adoption of new accounting standards
|
—
|
|
|
—
|
|
|
—
|
|
|
3,147
|
|
|
(4,697
|
)
|
|
—
|
|
|
(1,550
|
)
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
14,953
|
|
|
—
|
|
|
80
|
|
|
15,033
|
|
Total other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
581
|
|
|
—
|
|
|
581
|
|
Distributions and dividends on common stock ($0.40 per share)
|
—
|
|
|
—
|
|
|
(2,264
|
)
|
|
(56,512
|
)
|
|
—
|
|
|
—
|
|
|
(58,776
|
)
|
Surrender of shares in connection with restricted stock vesting
|
(15,577
|
)
|
|
(2
|
)
|
|
(172
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(174
|
)
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
2,436
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,436
|
|
Distributions to non-controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(285
|
)
|
|
(285
|
)
|
Balance as of March 31, 2019
|
140,899,065
|
|
|
$
|
14,090
|
|
|
$
|
—
|
|
|
$
|
(580,581
|
)
|
|
$
|
(24,098
|
)
|
|
$
|
488
|
|
|
$
|
(590,101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2018
|
134,365,424
|
|
|
$
|
13,437
|
|
|
$
|
—
|
|
|
$
|
(414,785
|
)
|
|
$
|
(12,571
|
)
|
|
$
|
82,159
|
|
|
$
|
(331,760
|
)
|
Impact of adoption of new accounting standards
|
—
|
|
|
—
|
|
|
—
|
|
|
1,094
|
|
|
(6,036
|
)
|
|
(7,915
|
)
|
|
(12,857
|
)
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
7,211
|
|
|
—
|
|
|
(3,547
|
)
|
|
3,664
|
|
Total other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
250
|
|
|
—
|
|
|
250
|
|
Distributions and dividends on common stock ($0.38 per share)
|
—
|
|
|
—
|
|
|
(2,384
|
)
|
|
(53,516
|
)
|
|
—
|
|
|
—
|
|
|
(55,900
|
)
|
Effect of stock dividend*
|
6,718,271
|
|
|
672
|
|
|
—
|
|
|
(672
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
2,384
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,384
|
|
Balance as of March 31, 2018
|
141,083,695
|
|
|
$
|
14,109
|
|
|
$
|
—
|
|
|
$
|
(460,668
|
)
|
|
$
|
(18,357
|
)
|
|
$
|
70,697
|
|
|
$
|
(394,219
|
)
|
*
Represents the effect of the
September 27, 2018
stock dividend on the
first quarter
2018
common-stock activity.
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
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
March 31,
2019
|
|
March 31,
2018
|
Net cash provided by operating activities
|
$
|
19,726
|
|
|
$
|
40,714
|
|
Cash flows from investing activities:
|
|
|
|
Sale of investment securities
|
7,759
|
|
|
2,357
|
|
Maturities of investment securities
|
11,308
|
|
|
8,112
|
|
Purchase of investment securities
|
(20,623
|
)
|
|
(4,364
|
)
|
Investments in real estate ventures
|
(871
|
)
|
|
(533
|
)
|
Distributions from investments in real estate ventures
|
1,134
|
|
|
219
|
|
Increase in cash surrender value of life insurance policies
|
(238
|
)
|
|
(36
|
)
|
Increase in restricted assets
|
(7
|
)
|
|
(4
|
)
|
Capital expenditures
|
(3,825
|
)
|
|
(3,987
|
)
|
Repayments of notes receivable
|
—
|
|
|
32
|
|
Purchase of subsidiaries
|
(668
|
)
|
|
—
|
|
Pay downs of investment securities
|
258
|
|
|
446
|
|
Investments in real estate, net
|
(641
|
)
|
|
(355
|
)
|
Net cash (used in) provided by investing activities
|
(6,414
|
)
|
|
1,887
|
|
Cash flows from financing activities:
|
|
|
|
Repayments of debt
|
(230,466
|
)
|
|
(490
|
)
|
Borrowings under revolver
|
94,400
|
|
|
55,170
|
|
Repayments on revolver
|
(87,420
|
)
|
|
(61,728
|
)
|
Dividends and distributions on common stock
|
(60,459
|
)
|
|
(57,187
|
)
|
Distributions to non-controlling interest
|
(285
|
)
|
|
—
|
|
Net cash used in financing activities
|
(284,230
|
)
|
|
(64,235
|
)
|
Net decrease in cash, cash equivalents and restricted cash
|
(270,918
|
)
|
|
(21,634
|
)
|
Cash, cash equivalents and restricted cash, beginning of period
|
591,729
|
|
|
310,937
|
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
320,811
|
|
|
$
|
289,303
|
|
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. (“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, 2018
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.
|
|
(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. The Company’s stock dividends are recorded as stock splits and given retroactive effect to earnings per share for all periods presented.
|
|
(c)
|
Earnings Per Share (“EPS”)
:
|
Information concerning the Company’s common stock has been adjusted to give retroactive effect to the
5%
stock dividend distributed to Company stockholders on
September 27, 2018
. All per share amounts and references to share amounts have been updated to reflect the retrospective effect of the stock dividend.
Net income
for purposes of determining basic EPS was as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2019
|
|
2018
|
Net income attributed to Vector Group Ltd.
|
$
|
14,953
|
|
|
$
|
7,211
|
|
Income attributed to participating securities
|
(2,003
|
)
|
|
(1,772
|
)
|
Net income applicable to common shares attributed to Vector Group Ltd.
|
$
|
12,950
|
|
|
$
|
5,439
|
|
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
|
|
March 31,
|
|
2019
|
|
2018
|
Net income attributed to Vector Group Ltd.
|
$
|
14,953
|
|
|
$
|
7,211
|
|
Income attributable to 7.5% Variable Interest Senior Convertible Notes
|
(1,246
|
)
|
|
—
|
|
Income attributed to participating securities
|
(2,003
|
)
|
|
(1,772
|
)
|
Net income applicable to common shares attributed to Vector Group Ltd.
|
$
|
11,704
|
|
|
$
|
5,439
|
|
Basic and diluted EPS were calculated using the following common shares:
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2019
|
|
2018
|
Weighted-average shares for basic EPS
|
139,493,555
|
|
|
139,288,460
|
|
Plus incremental shares related to convertible debt
|
2,776,775
|
|
|
—
|
|
Plus incremental shares related to stock options and non-vested restricted stock
|
14,670
|
|
|
338,591
|
|
Weighted-average shares for diluted EPS
|
142,285,000
|
|
|
139,627,051
|
|
The following non-vested restricted stock and shares issuable upon the conversion of convertible debt were outstanding during the
three months ended March 31, 2019
and
2018
, but were not included in the computation of diluted EPS because the impact of the per share expense associated with the restricted stock were 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,
|
|
2019
|
|
2018
|
Weighted-average shares of non-vested restricted stock
|
1,340,781
|
|
|
—
|
|
Weighted-average expense per share
|
$
|
18.82
|
|
|
$
|
—
|
|
Weighted-average number of shares issuable upon conversion of debt
|
10,901,963
|
|
|
28,819,626
|
|
Weighted-average conversion price
|
$
|
21.28
|
|
|
$
|
16.96
|
|
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
|
|
(d)
|
Fair Value of Derivatives Embedded within Convertible Debt
:
|
The Company has estimated the fair value of the embedded derivatives based principally on the results of a valuation model. A readily determinable fair value of the embedded derivatives is not available. The estimated fair value of the derivatives embedded within the convertible debt is based principally on the present value of future dividend payments expected to be received by the convertible debt holders over the term of the debt. The discount rate applied to the future cash flows is estimated based on a spread in the yield of the Company’s debt when compared to risk-free securities with the same duration. The valuation model assumes future dividend payments by the Company and utilizes interest rates and credit spreads for secured to unsecured debt, unsecured to subordinated debt and subordinated debt to preferred stock to determine the fair value of the derivatives embedded within the convertible debt. The valuation also considers other items, including current and future dividends and the volatility of Vector’s stock price. At
March 31, 2019
, the range of estimated fair values of the Company’s embedded derivatives was between
$21,022
and
$21,125
. The Company recorded the fair value of its embedded derivatives at the approximate midpoint of the range at
$21,075
as of
March 31, 2019
. At
December 31, 2018
, the range of estimated fair values of the Company’s embedded derivatives was between
$31,371
and
$31,519
. The Company recorded the fair value of its embedded derivatives at the midpoint of the range at
$31,424
as of
December 31, 2018
. The estimated fair value of the Company’s embedded derivatives could change significantly based on future market conditions. (See Note
8
.)
|
|
(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 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.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Other, net consisted of:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2019
|
|
2018
|
Interest and dividend income
|
$
|
3,208
|
|
|
$
|
1,922
|
|
Net periodic benefit cost other than the service costs
|
(541
|
)
|
|
(253
|
)
|
Other expense
|
—
|
|
|
(23
|
)
|
Other, net
|
$
|
2,667
|
|
|
$
|
1,646
|
|
|
|
(g)
|
Other Current Liabilities
:
|
Other current liabilities consisted of:
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
Accounts payable
|
$
|
11,704
|
|
|
$
|
13,144
|
|
Accrued promotional expenses
|
30,909
|
|
|
37,940
|
|
Accrued excise and payroll taxes payable, net
|
12,710
|
|
|
14,612
|
|
Accrued interest
|
27,571
|
|
|
38,673
|
|
Commissions payable
|
18,199
|
|
|
12,975
|
|
Accrued salary and benefits
|
13,352
|
|
|
30,228
|
|
Contract liabilities
|
7,824
|
|
|
—
|
|
Allowance for sales returns
|
7,318
|
|
|
6,935
|
|
Other current liabilities
|
23,747
|
|
|
24,646
|
|
Total other current liabilities
|
$
|
153,334
|
|
|
$
|
179,153
|
|
|
|
(h)
|
Goodwill and Other Intangible Assets, Net
:
|
The components of “Goodwill and other intangible assets, net” were as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
December 31,
2018
|
Goodwill
|
$
|
78,008
|
|
|
$
|
77,568
|
|
|
|
|
|
Indefinite life intangibles:
|
|
|
|
Intangible asset associated with benefit under the MSA
|
107,511
|
|
|
107,511
|
|
Trademark - Douglas Elliman
|
80,000
|
|
|
80,000
|
|
|
|
|
|
Intangibles with a finite life, net
|
546
|
|
|
1,532
|
|
|
|
|
|
Total goodwill and other intangible assets, net
|
$
|
266,065
|
|
|
$
|
266,611
|
|
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
|
|
(i)
|
Reconciliation of Cash, Cash Equivalents and Restricted Cash
:
|
The components of “Cash, cash equivalents and restricted cash” in the Statement of Cash Flows were as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
December 31,
2018
|
Cash and cash equivalents
|
$
|
312,638
|
|
|
$
|
584,581
|
|
Restricted cash and cash equivalents included in current restricted assets
|
3,719
|
|
|
2,697
|
|
Restricted cash and cash equivalents included in non-current restricted assets
|
4,454
|
|
|
4,451
|
|
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows
|
$
|
320,811
|
|
|
$
|
591,729
|
|
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.
(j)
New Accounting Pronouncements
:
Accounting Standards Updates (“ASU”) adopted in
2019
:
In July 2018, the FASB issued ASU No. 2018-09, Codification Improvements (“ASU 2018-09”). This standard does not prescribe any new accounting guidance, but instead makes minor improvements and clarifications of several different FASB Accounting Standards Codification areas based on comments and suggestions made by various stakeholders. Certain updates were applicable immediately while others were effective for the Company’s fiscal year beginning January 1, 2019. Adoption of this update did not have a material impact on the Company’s condensed consolidated financial statements.
In February 2018, the FASB issued ASU No. 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”), which allows for stranded tax effects in accumulated other comprehensive income resulting from the Tax Act to be reclassified to retained earnings. The Company adopted ASU 2018-02 effective January 1, 2019. The reclassification from the adoption of this standard resulted in a decrease of
$4,697
to accumulated deficit and an increase of
$4,697
to accumulated other comprehensive loss.
In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which provides guidance for accounting for leases. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or on a straight-line basis over the term of the lease. Accounting for lessors remains largely unchanged from current U.S. GAAP. In July 2018, the FASB issued ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11 “Leases (Topic 842): Targeted Improvements” (ASU 2018-11). ASU 2018-10 clarifies certain areas within ASU 2016-02. Prior to ASU 2018-11, a modified retrospective transition was required for financing or operating leases existing at or entered into after the beginning of the earliest comparative period presented in the financial statements. ASU 2018-11 allows entities an additional transition method to the existing requirements whereby an entity could adopt the provisions of ASU 2016-02 by recognizing a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption without adjustment to the financial statements for periods prior to adoption. ASU 2018-11 also allows a practical expedient that permits lessors to not separate non-lease components from the associated lease component if certain conditions are present. In December 2018, the FASB also issued ASU 2018-20, Leases (Topic 842): Narrow-Scope Improvements for Lessors, which requires lessors to exclude lessor costs paid directly to a third party by lessees from lease revenues and expenses, provides an election for lessors to exclude sales taxes and other similar taxes collected from lessees from consideration in the contract, and clarifies lessors accounting for variable payments related to lease and nonlease components. ASU 2016-02, ASU 2018-10, ASU 2018-11 and ASU 2018-20 was effective for the Company’s fiscal year beginning January 1, 2019 and subsequent interim periods.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
On January 1, 2019, the Company adopted ASU No. 2016-02- Leases (Topic 842) applying the modified retrospective method and the option presented under ASU 2018-11 to transition only active leases as of January 1, 2019 with a cumulative effect adjustment as of that date. See Note
3
- Leases, for additional accounting policy and transition disclosures.
ASUs to be adopted in future periods:
In October 2018, the FASB issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. The guidance requires indirect interests held through related parties under common control arrangements be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The Company is currently evaluating the impact of the new guidance on our condensed consolidated financial statements.
In October 2018, the FASB issued ASU No. 2018-16, Inclusion of the Secured Overnight Financing Rate (“SOFR”) Overnight Index Swap (“OIS”) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes (“ASU 2018-16”
)
, which amends ASC 815, Derivatives and Hedging. This ASU adds the OIS rate based on SOFR to the list of permissible benchmark rates for hedge accounting purposes. The amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Adoption of ASU 2018-16 will be on a prospective basis for qualifying new or redesignated hedging relationships entered into on or after the date of adoption. The Company is currently assessing the impact the adoption of ASU 2018-16 will have on the Company’s condensed consolidated financial statements.
In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact the adoption of ASU 2018-15 will have on the Company’s condensed consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”). ASU 2018-14 eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The ASU also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. ASU 2018-14 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. Early adoption is permitted. The adoption of ASU 2018-14 will impact financial statement disclosure with no impact on operating results.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which is designed to improve the effectiveness of disclosures by removing, modifying and adding disclosures related to fair value measurements. The ASU eliminates disclosures such as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. The ASU also adds new disclosure requirements for Level 3 measurements. ASU No. 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The adoption of ASU 2018-13 will impact financial statement disclosure with no impact on operating results.
Revenue Recognition Accounting Pronouncement Adoption
On January 1, 2018, the Company adopted Topic 606 applying the modified retrospective method. The following practical expedients and optional disclosure exemptions available under Topic 606 have been applied:
|
|
1.
|
The Company applied the optional exemption in paragraph 606-10-50-14 of Topic 606, and has not disclosed the amount of the transaction price allocated to the remaining performance obligations for the Real Estate property management business because the contracts to provide property management services are typically annual contracts.
|
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
|
|
2.
|
The Company applied the optional exemption in paragraph 606-10-50-14A of Topic 606, and has not disclosed the amount of the transaction price allocated to the remaining performance obligations for the Real Estate development marketing business because the transaction prices in these contracts are comprised entirely of variable consideration based on the ultimate selling price of each unit in the subject property.
|
Revenue Recognition Policies
Revenue is measured based on a consideration specified in a contract with a customer less any sales incentives. Revenue is recognized when (a) an enforceable contract with a customer exists, that has commercial substance, and collection of substantially all consideration for services is probable; and (b) the performance obligations to the customer are satisfied either over time or at a point in time.
Tobacco sales:
Revenue from cigarette sales, which include federal excise taxes billed to customers, are recognized upon shipment of cigarettes when control has passed to the customer. Average collection terms for Tobacco sales range between three and twelve days from the time that the cigarettes are shipped to the customer. The Company records a liability for goods estimated to be returned in other current liabilities and the associated receivable for anticipated federal excise tax refunds in other current assets on the condensed consolidated balance sheet. The liability for returned goods is based principally on sales volumes and historical return rates. The estimated costs of sales incentives, including customer incentives and trade promotion activities, are based principally on historical experience and are accounted for as reductions in Tobacco revenue. Expected payments for sales incentives are included in other current liabilities on the Company’s condensed consolidated balance sheet. The Company accounts for shipping and handling costs as fulfillment costs as part of cost of sales.
Real estate sales: R
eal estate commissions and other payments earned by the Company’s real estate brokerage businesses are recognized as revenue when the real estate sale is completed or lease agreement is executed, which is the point in time that the performance obligation is satisfied. Any commission and other payments received in advance are deferred until the satisfaction of the performance obligation. Corresponding agent commission expenses, including any advance commission or other direct expense payments, are deferred and recognized as cost of sales concurrently with related revenues.
The Company’s Real Estate revenue contracts with customers do not have multiple material performance obligations to customers under Topic 606, except for contracts in the Company’s development marketing business. Contracts in the development marketing business provide the Company with the exclusive right to sell units in a subject property for a commission fee per unit sold calculated as a percentage of the sales price of each unit. Accordingly, a performance obligation exists for each unit in the development marketing property under contract, and a portion of the total contract transaction price is allocated to and recognized at the time each unit is sold.
The total contract transaction price is allocated to each unit in the subject property and recognized when the performance obligation, i.e. the sale of each unit, is satisfied. Accordingly, the transaction price allocated to the remaining performance obligations for the development marketing business represents variable consideration allocated entirely to wholly unsatisfied performance obligations.
Under development marketing service arrangements, dedicated staff are required for a subject property and these costs are typically reimbursed from the customer through advance payments that are recoupable from future commission earnings. Advance payments received and associated direct costs paid are deferred, allocated to each unit in the subject property, and recognized at the time of the completed sale of each unit.
Development marketing service arrangements also include direct fulfillment costs incurred in advance of the satisfaction of the performance obligation. The Company capitalizes costs incurred in fulfilling a contract with a customer if the fulfillment costs 1) relate directly to an existing contract or anticipated contract, 2) generate or enhance resources that will be used to satisfy performance obligations in the future, and 3) are expected to be recovered. These costs are amortized over the estimated customer relationship period which is the contract term. The Company uses an amortization method that is consistent with the pattern of transfer of goods or services to its customers by allocating these costs to each unit in the subject property and expensing these costs as each unit sold is closed over the contract.
Commission revenue is recognized at the time the performance obligation is met for commercial leasing contracts, which is when the lease agreement is executed, as there are no further performance obligations, including any amounts of future payments under extended payment terms.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Property management revenue arrangements consist of providing operational and administrative services to manage a subject property. Fees for these services are typically billed and collected monthly. Property management service fees are recognized as revenue over time using the output method as the performance obligations under the customer arrangement are satisfied each month.
Title insurance commission fee revenue is earned when the sale of the title insurance policy is completed, which corresponds to the point in time when the underlying real estate sale is completed, which is when the performance obligation is satisfied.
Disaggregation of Revenue
In the following table, revenue is disaggregated by major product line for the Tobacco segment:
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2019
|
|
2018
|
Tobacco Segment Revenues:
|
|
|
|
|
Core Discount Brands - PYRAMID, GRAND PRIX, LIGGETT SELECT, EVE and EAGLE 20’s
|
|
$
|
233,106
|
|
|
$
|
241,531
|
|
Other Brands
|
|
23,650
|
|
|
25,585
|
|
Total tobacco revenues
|
|
$
|
256,756
|
|
|
$
|
267,116
|
|
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, 2019
|
|
|
New York City
|
|
Northeast
|
|
Southeast
|
|
West
|
|
Total
|
Real Estate Segment Revenues
:
|
|
|
|
|
|
|
|
|
|
|
Commission brokerage income
|
|
$
|
65,679
|
|
|
$
|
31,111
|
|
|
$
|
22,971
|
|
|
$
|
18,529
|
|
|
$
|
138,290
|
|
Development marketing
|
|
11,386
|
|
|
—
|
|
|
2,630
|
|
|
7
|
|
|
14,023
|
|
Property management revenue
|
|
8,167
|
|
|
184
|
|
|
—
|
|
|
—
|
|
|
8,351
|
|
Title fees
|
|
—
|
|
|
1,233
|
|
|
—
|
|
|
—
|
|
|
1,233
|
|
Total Douglas Elliman Realty revenue
|
|
85,232
|
|
|
32,528
|
|
|
25,601
|
|
|
18,536
|
|
|
161,897
|
|
Other real estate revenues
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,271
|
|
|
2,271
|
|
Total real estate revenues
|
|
$
|
85,232
|
|
|
$
|
32,528
|
|
|
$
|
25,601
|
|
|
$
|
20,807
|
|
|
$
|
164,168
|
|
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
|
New York City
|
|
Northeast
|
|
Southeast
|
|
West
|
|
Total
|
Real Estate Segment Revenues
:
|
|
|
|
|
|
|
|
|
|
|
Commission brokerage income
|
|
$
|
60,408
|
|
|
$
|
32,678
|
|
|
$
|
24,398
|
|
|
$
|
21,412
|
|
|
$
|
138,896
|
|
Development marketing
|
|
10,610
|
|
|
123
|
|
|
293
|
|
|
194
|
|
|
11,220
|
|
Property management revenue
|
|
8,138
|
|
|
200
|
|
|
—
|
|
|
—
|
|
|
8,338
|
|
Title fees
|
|
—
|
|
|
989
|
|
|
—
|
|
|
—
|
|
|
989
|
|
Total Douglas Elliman Realty revenue
|
|
79,156
|
|
|
33,990
|
|
|
24,691
|
|
|
21,606
|
|
|
159,443
|
|
Other real estate revenues
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,407
|
|
|
2,407
|
|
Total real estate revenues
|
|
$
|
79,156
|
|
|
$
|
33,990
|
|
|
$
|
24,691
|
|
|
$
|
24,013
|
|
|
$
|
161,850
|
|
Contract Balances
The following table provides information about contracts assets and contract liabilities from development marketing and commercial leasing contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
January 1, 2019
|
Receivables, which are included in accounts receivable - trade, net
|
$
|
3,175
|
|
|
$
|
2,050
|
|
Contract assets, net, which are included in other current assets
|
9,329
|
|
|
9,264
|
|
Payables, which are included in other current liabilities
|
1,921
|
|
|
1,082
|
|
Contract liabilities, which are included in other current liabilities
|
7,824
|
|
|
7,071
|
|
Contract assets, net, which are included in other assets
|
18,024
|
|
|
15,794
|
|
Contract liabilities, which are included in other liabilities
|
32,376
|
|
|
30,445
|
|
Receivables and payables relate to commission receivables and commissions payable from the Real Estate commercial leasing contracts for which the performance obligation has been satisfied, have extended payment terms and are expected to be received and paid in the next
twelve
months. Receivables decreased
$1,125
for the
three
-month period ended
March 31, 2019
primarily due to revenue accrued as performance obligations are satisfied of
$1,551
, offset by cash collections. Correspondingly, payables increased
$839
primarily due to additional expense accruals as performance obligations are satisfied of
$1,119
, offset by cash payments.
Contract assets increased by
$2,295
during the
three months ended March 31, 2019
due to
$3,794
of payments made for direct fulfillment costs incurred in advance of the satisfaction of the performance obligations for Real Estate development marketing contracts, offset by costs recognized for units closed during the quarter.
Contract liabilities relate to payments received in advance of the performance obligations being satisfied under the contract for the Real Estate development marketing and are recognized as revenue at the points in time when the Company performs under the contract. Performance obligations related to the Real Estate development marketing contracts are considered satisfied when each unit is closed. Development marketing projects tend to span
4
to
6
years from the time the Company enters into the contract with the developer to the time that all of the sales of the units in a subject property are closed. The timing for sales closings are dependent upon several external factors outside the Company’s control, including but not limited to, economic factors, seller and buyer actions, construction timing and other real estate market factors. Accordingly, all contract liabilities and contract costs associated with development marketing are considered long-term until closing dates for unit sales are scheduled. As of
March 31, 2019
, the Company estimates approximately
$7,824
of contract liabilities will be recognized as revenue within the next twelve months.
Contract liabilities increased by
$2,684
during the
three months ended March 31, 2019
due to
$5,219
of advance payments received from customer prior to the satisfaction of performance obligations for Real Estate development marketing contracts,
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
offset by revenue recognized for units sold during the quarter. The Company recognized revenue of
$1,514
and
$951
for the
three months ended March 31, 2019 and 2018
, respectively, that were included in the contract liabilities balances at
January 1, 2019
and
January 1, 2018
, respectively.
Topic 606 requires an entity to disclose the revenue recognized in the reporting period from performance obligations satisfied (or partially satisfied) in previous periods (for example, due to changes in transaction price). There was
no
revenue recognized relating to performance obligations satisfied or partially satisfied in prior periods for the
three months ended March 31, 2019 and 2018
, respectively.
Leasing Accounting Pronouncement Adoption
On January 1, 2019, the Company adopted ASU No. 2016-02- Leases (Topic 842) applying the modified retrospective method and the option presented under ASU 2018-11 to transition only active leases as of January 1, 2019 with a cumulative effect adjustment as of that date. All comparative periods prior to January 1, 2019 retain the financial reporting and disclosure requirements of ASC 840. The Company elected the package of practical expedients permitted under the transition guidance within the new standard. The package of three expedients includes: 1) the ability to carry forward the historical lease classification, 2) the elimination of the requirement to reassess whether existing or expired agreements contain leases, and 3) the elimination of the requirement to reassess initial direct costs. The Company also elected the practical expedient related to short-term leases without purchase options reasonably certain to exercise, allowing it to exclude leases with terms of less than twelve (12) months from capitalization for all asset classes. The Company did not elect the hindsight practical expedient when determining the lease terms. The adoption of the new standard resulted in the recording of right-of-use (“ROU”) assets and lease liabilities of
$128,890
and
$153,676
, respectively, as of January 1, 2019. The difference between the ROU assets and lease liabilities reflects the reclassification of historical deferred rent balances of approximately
$22,881
, and tenant improvement receivable of
$355
as adjustments to the ROU asset balances, and an adjustment that increased accumulated deficit by
$1,550
to recognize the impairment in ROU assets for asset groups previously identified as being impaired. The standard did not materially impact the Company’s consolidated net earnings and had no impact on cash flows. The new standard had no material impact on liquidity and had no impact on the Company’s debt-covenant compliance under its current debt agreements.
Leasing Policies
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets and lease liabilities on the Company’s balance sheets. Finance leases are included in investments in real estate, net, property, plant and equipment and current and long-term portions of notes payable and long-term debt on the Company’s balance sheets.
ROU assets represent the Company’s right to use an underlying asset for the duration of the lease term. Lease liabilities represent the Company’s obligation to make lease payments as determined by the lease agreement. Lease liabilities are recorded at commencement for the net present value of future lease payments over the lease term. The discount rate used is generally the Company’s estimated incremental borrowing rate unless the lessor’s implicit rate is readily determinable. Discount rates are calculated periodically to estimate the rate the Company would pay to borrow the funds necessary to obtain an asset of similar value, over a similar term, with a similar security. ROU assets are recorded and recognized at commencement for the lease liability amount, initial direct costs incurred and is reduced for lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term. Finance lease cost is recognized on a straight line basis over the shorter of the useful life of the asset and the lease term.
The Company has lease agreements with lease and non-lease components; the Company has elected the accounting policy to combine lease and non-lease components for all underlying asset classes.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Leases
The Company has operating and finance leases for corporate and sales offices, and certain vehicles and equipment. The leases have remaining lease terms of
one
year to
15
years, some of which include options to extend for up to
5
years, and some of which include options to terminate the leases within
one year
. However, the Company in general is not reasonably certain to exercise options to renew or terminate, and therefore renewal and termination options are not considered in the lease term or the ROU asset and lease liability balances. The Company’s lease population includes purchase options on equipment leases that are included in the lease payments when reasonably certain to be exercised. The Company’s lease population does not include any residual value guarantees. The Company’s lease population does not contain any material restrictive covenants.
The Company has leases with variable payments, most commonly in the form of Common Area Maintenance (“CAM”) and tax charges which are based on actual costs incurred. These variable payments were excluded from the ROU asset and lease liability balances since they are not fixed or in-substance fixed payments. Variable payments are expensed as incurred.
The components of lease expense were as follows:
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2019
|
Operating lease cost
|
$
|
8,875
|
|
Short-term lease cost
|
234
|
|
Variable lease cost
|
792
|
|
|
|
Finance lease cost:
|
|
Amortization of right-of-use assets
|
56
|
|
Interest on lease liabilities
|
3
|
|
Total lease cost
|
$
|
9,960
|
|
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2019
|
Cash paid for amounts included in measurement of lease liabilities:
|
|
Operating cash flows from operating leases
|
$
|
9,001
|
|
Operating cash flows from finance leases
|
3
|
|
Financing cash flows from finance leases
|
54
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
Operating leases
|
356
|
|
Finance leases
|
—
|
|
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,
|
|
|
2019
|
|
Operating leases:
|
|
|
Operating lease right-of-use assets
|
$
|
124,723
|
|
|
|
|
|
Current operating lease liability
|
$
|
20,414
|
|
|
Non-current operating lease liability
|
128,999
|
|
|
Total operating lease liabilities
|
$
|
149,413
|
|
|
|
|
|
Finance leases:
|
|
|
Investments in real estate, net
|
$
|
178
|
|
(1)
|
|
|
|
Property, plant and equipment, at cost
|
$
|
183
|
|
|
Accumulated amortization
|
(149
|
)
|
|
Property and equipment, net
|
$
|
34
|
|
|
|
|
|
Current portion of notes payable and long-term debt
|
$
|
181
|
|
|
Notes payable, long-term debt and other obligations, less current portion
|
27
|
|
|
Total finance lease liabilities
|
$
|
208
|
|
|
|
|
|
Weighted average remaining lease term:
|
|
|
Operating leases
|
8.51
|
|
|
Finance leases
|
1.10
|
|
|
|
|
|
Weighted average discount rate:
|
|
|
Operating leases
|
11.21
|
%
|
|
Finance leases
|
4.97
|
%
|
|
|
|
(1)
|
Included in Investments in real estate, net on the condensed consolidated balance sheet are financing lease equipment, at cost of
$729
and accumulated amortization of
$551
as of March 31, 2019.
|
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
As of March 31, 2019, maturities of lease liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance
Leases
|
Year Ending December 31:
|
|
|
|
|
|
Remainder of 2019
|
$
|
27,019
|
|
|
$
|
158
|
|
2020
|
30,852
|
|
|
54
|
|
2021
|
28,260
|
|
|
1
|
|
2022
|
25,390
|
|
|
—
|
|
2023
|
23,753
|
|
|
—
|
|
2024
|
18,674
|
|
|
|
Thereafter
|
85,807
|
|
|
—
|
|
Total lease payments
|
239,755
|
|
|
213
|
|
Less imputed interest
|
(90,342
|
)
|
|
(5
|
)
|
Total
|
$
|
149,413
|
|
|
$
|
208
|
|
Under ASC 840,
Leases
, future minimum lease payments under noncancelable operating leases as of December 31, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease
Commitments
|
|
Sublease
Rentals
|
|
Net
|
Year Ending December 31:
|
|
|
|
|
|
|
|
|
2019
|
$
|
35,973
|
|
|
$
|
69
|
|
|
$
|
35,904
|
|
2020
|
29,917
|
|
|
—
|
|
|
29,917
|
|
2021
|
27,592
|
|
|
—
|
|
|
27,592
|
|
2022
|
25,185
|
|
|
—
|
|
|
25,185
|
|
2023
|
23,589
|
|
|
—
|
|
|
23,589
|
|
Thereafter
|
104,126
|
|
|
—
|
|
|
104,126
|
|
Total
|
$
|
246,382
|
|
|
$
|
69
|
|
|
$
|
246,313
|
|
The Company has one lease for office space wherein the lessor is an affiliate of a significant shareholder of the Company. This lease represents
$1,521
of the ROU asset balances and
$1,577
of lease liability balances as of
March 31, 2019
. The rent expense for this lease was approximated
$115
for the
three
months ended
March 31, 2019
.
As of
March 31, 2019
, the Company had an additional operating lease for office space, that has not yet commenced, of
$657
in undiscounted lease payments. The operating lease will commence in the second quarter of 2019 with lease terms of
10
years.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Inventories consisted of:
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
December 31,
2018
|
Leaf tobacco
|
$
|
50,266
|
|
|
$
|
42,917
|
|
Other raw materials
|
3,119
|
|
|
3,750
|
|
Work-in-process
|
2,266
|
|
|
1,931
|
|
Finished goods
|
67,864
|
|
|
63,937
|
|
Inventories at current cost
|
123,515
|
|
|
112,535
|
|
LIFO adjustments
|
(21,538
|
)
|
|
(21,538
|
)
|
|
$
|
101,977
|
|
|
$
|
90,997
|
|
All of the Company’s inventories at
March 31, 2019
and
December 31, 2018
are reported under the LIFO method. The
$21,538
LIFO adjustment as of
March 31, 2019
decreases the current cost of inventories by
$14,932
for Leaf tobacco,
$219
for Other raw materials,
$25
for Work-in-process and
$6,362
for Finished goods. The
$21,538
LIFO adjustment as of
December 31, 2018
decreased the current cost of inventories by
$14,932
for Leaf tobacco,
$219
for Other raw materials,
$25
for Work-in-process and
$6,362
for Finished goods.
Liggett enters into purchase commitments with third-party providers for leaf tobacco. The future quantities of leaf tobacco and prices are established at the date of the commitments. At
March 31, 2019
, Liggett had tobacco purchase commitments of approximately
$3,858
. Liggett has a single source supply agreement for reduced ignition propensity cigarette paper through 2019.
Each period, the Company capitalizes in inventory the portion of its MSA liability that relates to cigarettes shipped to public warehouses but not sold. The amount of capitalized MSA cost in “Finished goods” inventory was
$16,892
and
$16,001
at
March 31, 2019
and
December 31, 2018
, respectively. Federal excise tax in inventory was
$26,555
and
$26,419
at
March 31, 2019
and
December 31, 2018
, respectively.
|
|
5
.
|
INVESTMENT SECURITIES AT FAIR VALUE
|
Investment securities at fair value consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
Debt securities available for sale
|
$
|
88,605
|
|
|
$
|
84,367
|
|
Equity securities at fair value
|
46,047
|
|
|
47,202
|
|
Total investment securities at fair value
|
$
|
134,652
|
|
|
$
|
131,569
|
|
Net gains (losses) recognized on investment securities
were as follows:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2019
|
|
2018
|
Net gains (losses) recognized on equity securities
|
$
|
4,740
|
|
|
$
|
(2,745
|
)
|
Net gains (losses) recognized on debt securities available for sale
|
36
|
|
|
(9
|
)
|
Impairments on debt securities available for sale
|
(3
|
)
|
|
(586
|
)
|
Net gains (losses) recognized on investment securities
|
$
|
4,773
|
|
|
$
|
(3,340
|
)
|
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Sales of investment securities totaled
$7,759
and
$2,357
and proceeds from early redemptions by issuers totaled
$11,566
and
$8,558
for the
three
months ended
March 31, 2019
and
2018
, respectively, mainly from the sales and redemptions of Corporate securities and U.S. Government securities.
(a) Debt Securities Available for Sale
The components of debt securities available for sale at
March 31, 2019
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
Marketable debt securities
|
$
|
88,093
|
|
|
$
|
512
|
|
|
$
|
—
|
|
|
$
|
88,605
|
|
Total debt securities available for sale
|
$
|
88,093
|
|
|
$
|
512
|
|
|
$
|
—
|
|
|
$
|
88,605
|
|
The table below summarizes the maturity dates of debt securities available for sale at
March 31, 2019
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Type:
|
Fair Value
|
|
Under 1 Year
|
|
1 Year up to 5 Years
|
|
More than 5 Years
|
U.S. Government securities
|
$
|
24,275
|
|
|
$
|
12,662
|
|
|
$
|
11,613
|
|
|
$
|
—
|
|
Corporate securities
|
43,110
|
|
|
10,694
|
|
|
32,416
|
|
|
—
|
|
U.S. mortgage-backed securities
|
4,132
|
|
|
489
|
|
|
3,643
|
|
|
—
|
|
Commercial mortgage-backed securities
|
397
|
|
|
33
|
|
|
364
|
|
|
—
|
|
Commercial paper
|
13,180
|
|
|
13,180
|
|
|
—
|
|
|
—
|
|
Index-linked U.S. bonds
|
2,354
|
|
|
2,354
|
|
|
—
|
|
|
—
|
|
Foreign fixed-income securities
|
1,157
|
|
|
652
|
|
|
505
|
|
|
—
|
|
Total debt securities available for sale by maturity dates
|
$
|
88,605
|
|
|
$
|
40,064
|
|
|
$
|
48,541
|
|
|
$
|
—
|
|
The components of debt securities available for sale at
December 31, 2018
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
Marketable debt securities
|
$
|
84,199
|
|
|
$
|
168
|
|
|
$
|
—
|
|
|
$
|
84,367
|
|
Total debt securities available for sale
|
$
|
84,199
|
|
|
$
|
168
|
|
|
$
|
—
|
|
|
$
|
84,367
|
|
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, 2019
and
December 31, 2018
, 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
|
|
March 31,
|
|
2019
|
|
2018
|
Gross realized gains on sales
|
$
|
38
|
|
|
$
|
—
|
|
Gross realized losses on sales
|
(2
|
)
|
|
(9
|
)
|
Net gains (losses) recognized on debt securities available for sale
|
$
|
36
|
|
|
$
|
(9
|
)
|
|
|
|
|
Gross realized losses on other-than-temporary impairments
|
$
|
(3
|
)
|
|
$
|
(586
|
)
|
|
|
|
|
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) Equity Securities at Fair Value
Equity securities at fair value consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
Marketable equity securities
|
$
|
24,387
|
|
|
$
|
26,010
|
|
Mutual funds invested in fixed income securities
|
21,660
|
|
|
21,192
|
|
Total equity securities at fair value
|
$
|
46,047
|
|
|
$
|
47,202
|
|
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, 2019
and
2018
, respectively:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2019
|
|
2018
|
Net gains (losses) recognized on equity securities
(1)
|
$
|
4,740
|
|
|
$
|
(2,745
|
)
|
Less: Net gains recognized on equity securities sold
(2)
|
132
|
|
|
130
|
|
Net unrealized gains (losses) recognized on equity securities still held at the reporting date
|
$
|
4,608
|
|
|
$
|
(2,875
|
)
|
|
|
|
|
|
|
(1)
|
Includes
$3,559
and
$1,731
of net gains recognized on equity securities at fair value that qualify for the net asset value (“NAV”) practical expedient during the
three months ended March 31, 2019
and
2018
, respectively. These equity securities are included in the “Long-term investments” line item on the condensed consolidated balance sheet and are further discussed in Note
6
.
|
|
|
(2)
|
Includes
$434
of gains recognized on sales of equity securities at fair value that qualify for the NAV practical expedient during the
three months ended March 31, 2019
. These equity securities are included in the “Long-term investments” line item on the condensed consolidated balance sheet and are further discussed in Note
6
.
|
The Company’s marketable equity securities and mutual funds invested in fixed-income 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.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
(c) 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 an investment in the common stock of a reinsurance company at
March 31, 2019
and
December 31, 2018
, respectively. The total carrying value of this investment was
$5,000
and was included in “Other assets” on the condensed consolidated balance sheet at
March 31, 2019
and
December 31, 2018
, respectively.
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, 2019
and
2018
, respectively.
|
|
6
.
|
LONG-TERM INVESTMENTS
|
Long-term investments consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
Equity securities at fair value that qualify for the NAV practical expedient
|
$
|
54,202
|
|
|
$
|
54,628
|
|
Equity-method investments
|
12,566
|
|
|
11,631
|
|
|
$
|
66,768
|
|
|
$
|
66,259
|
|
(a) Equity Securities at Fair Value That Qualify for the NAV Practical Expedient
The estimated fair value of the Company’s equity securities at fair value that qualify for the NAV practical expedient was provided by the partnerships based on the indicated market values of the underlying assets or investment portfolio. The investments in these investment partnerships are illiquid and the ultimate realization of these investments is subject to the performance of the underlying partnership and its management by the general partners. In accordance with Subtopic 820-10, these investments are not classified under the fair value hierarchy disclosed in Note
12
because they are investments measured at fair value using the NAV practical expedient.
The Company redeemed
25%
of
one
of its investments that qualify for the NAV practical expedient during March 2019. The Company recorded
$3,984
of in-transit redemptions from the proceeds at
March 31, 2019
.
(b) Equity-Method Investments:
Equity-method investments consisted of the following:
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
December 31, 2018
|
Indian Creek Investors LP (“Indian Creek”)
|
$
|
1,353
|
|
|
$
|
1,167
|
|
Boyar Value Fund (“Boyar”)
|
9,041
|
|
|
8,384
|
|
Ladenburg Thalmann Financial Services Inc. (“LTS”)
|
2,172
|
|
|
2,080
|
|
Castle Brands, Inc. (“Castle”)
|
—
|
|
|
—
|
|
|
$
|
12,566
|
|
|
$
|
11,631
|
|
At
March 31, 2019
, the Company’s ownership percentages in Indian Creek, Boyar, LTS and Castle were
12.58%
,
34.38%
,
10.20%
and
7.64%
, respectively. The Company accounted for its Indian Creek and Boyar interests as equity-method investments because the Company’s ownership percentage meets the threshold for equity-method accounting. The Company accounted for its LTS and Castle interests as equity-method investments because the Company has the ability to exercise significant influence over their operating and financial policies.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
The fair value of the investment in Boyar, based on the quoted market price as of
March 31, 2019
, was
$9,041
, equal to its carrying value. At
March 31, 2019
, the aggregate fair values of the LTS and Castle investments, based on the quoted market price, were
$42,991
and
$9,027
, respectively.
The Company received cash distributions of
$427
and
$414
from the Company’s equity-method investments for the
three
months ended
March 31, 2019
and
2018
, respectively. The Company recognized equity in earnings from equity-method investments of
$1,362
and
$1,162
for the
three
months ended
March 31, 2019
and
2018
, respectively. The Company has suspended its recognition of equity in losses from Castle to the extent such losses exceed its basis.
If it is determined that an other-than-temporary decline in fair value exists in equity-method investments, the Company records an impairment charge with respect to such investment in its condensed consolidated statements of operations. The Company will continue to perform additional assessments to determine the impact, if any, on the Company’s condensed consolidated financial statements. Thus, future impairment charges may occur.
The equity-method investments are carried on the condensed consolidated balance sheet at cost under the equity method of accounting. The fair values disclosed above for Boyar, LTS and Castle would be classified as Level 1 under the fair value hierarchy disclosed in Note
12
if such assets were recorded on the condensed consolidated balance sheet at fair value. The 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 estimated fair value of the Company’s investment in Indian Creek represents the NAV per share and was provided by the partnership based on the indicated market value of the underlying assets or investment portfolio. The investment is illiquid and its ultimate realization is subject to the performance of the underlying partnership and its management by the general partners. In accordance with Subtopic 820-10, this investment would not be classified under the fair value hierarchy disclosed in Note
12
if the asset was recorded on the condensed consolidated balance sheet at fair value because it is measured at fair value using the NAV practical expedient.
Investments in real estate ventures:
New Valley holds equity investments in various real estate projects domestically and internationally. The majority of New Valley’s investment in real estate ventures were located in the New York City Standard Metropolitan Statistical Area (“SMSA”). New Valley aggregates the disclosure of its investments in real estate ventures by property type and operating characteristics.
The components of “Investments in real estate ventures” were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Range of Ownership
(1)
|
|
March 31, 2019
|
|
December 31, 2018
|
Condominium and Mixed Use Development:
|
|
|
|
|
|
New York City SMSA
|
3.1% - 49.5%
|
|
$
|
63,570
|
|
|
$
|
65,007
|
|
All other U.S. areas
|
15.0% - 48.5%
|
|
31,858
|
|
|
31,392
|
|
|
|
|
95,428
|
|
|
96,399
|
|
Hotels:
|
|
|
|
|
|
New York City SMSA
|
5.2% - 18.4%
|
|
14,462
|
|
|
15,782
|
|
International
|
49.0%
|
|
1,848
|
|
|
2,334
|
|
|
|
|
16,310
|
|
|
18,116
|
|
Commercial:
|
|
|
|
|
|
New York City SMSA
|
49.0%
|
|
1,739
|
|
|
1,867
|
|
All other U.S. areas
|
1.6%
|
|
7,345
|
|
|
7,053
|
|
|
|
|
9,084
|
|
|
8,920
|
|
|
|
|
|
|
|
Other:
|
15.0% - 50.0%
|
|
17,571
|
|
|
17,670
|
|
Investments in real estate ventures
|
|
|
$
|
138,393
|
|
|
$
|
141,105
|
|
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
______________________
(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:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
Condominium and Mixed Use Development:
|
|
|
|
New York City SMSA
|
$
|
500
|
|
|
$
|
533
|
|
|
500
|
|
|
533
|
|
Hotels:
|
|
|
|
New York City SMSA
|
172
|
|
|
—
|
|
|
172
|
|
|
—
|
|
|
|
|
|
Other:
|
199
|
|
|
—
|
|
Total contributions
|
$
|
871
|
|
|
$
|
533
|
|
New Valley contributed its proportionate share of additional capital along with contributions by the other investment partners during the
three months ended
March 31, 2019
and
March 31, 2018
. 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,
|
|
2019
|
|
2018
|
Condominium and Mixed Use Development:
|
|
|
|
New York City SMSA
|
$
|
571
|
|
|
$
|
2,868
|
|
|
571
|
|
|
2,868
|
|
Apartment Buildings:
|
|
|
|
All other U.S. areas
|
—
|
|
|
201
|
|
|
—
|
|
|
201
|
|
Hotels:
|
|
|
|
New York City SMSA
|
784
|
|
|
—
|
|
|
784
|
|
|
—
|
|
Commercial:
|
|
|
|
New York City SMSA
|
6
|
|
|
—
|
|
All other U.S. areas
|
58
|
|
|
215
|
|
|
64
|
|
|
215
|
|
|
|
|
|
Other
|
1,098
|
|
|
18
|
|
Total distributions
|
$
|
2,517
|
|
|
$
|
3,302
|
|
Of the distributions received by New Valley from its investment in real estate ventures,
$1,383
and
$3,083
were from distributions of earnings for the
three months ended
March 31, 2019
and
March 31, 2018
, respectively, and
$1,134
and
$219
were a return of capital for the
three months ended
March 31, 2019
and
March 31, 2018
, respectively. Distributions from earnings are
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
included in cash from operations in the Condensed Consolidating Statements of Cash Flows, while distributions that are returns of capital are included in cash flows from investing activities in the Condensed Consolidating Statements of Cash Flows.
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,
|
|
2019
|
|
2018
|
Condominium and Mixed Use Development:
|
|
|
|
New York City SMSA
|
$
|
(2,106
|
)
|
|
$
|
(3,462
|
)
|
All other U.S. areas
|
(108
|
)
|
|
(505
|
)
|
|
(2,214
|
)
|
|
(3,967
|
)
|
Apartment Buildings:
|
|
|
|
All other U.S. areas
|
—
|
|
|
(1,580
|
)
|
|
—
|
|
|
(1,580
|
)
|
Hotels:
|
|
|
|
New York City SMSA
|
(708
|
)
|
|
(814
|
)
|
International
|
(486
|
)
|
|
(425
|
)
|
|
(1,194
|
)
|
|
(1,239
|
)
|
Commercial:
|
|
|
|
New York City SMSA
|
(121
|
)
|
|
(267
|
)
|
All other U.S. areas
|
292
|
|
|
230
|
|
|
171
|
|
|
(37
|
)
|
|
|
|
|
Other:
|
798
|
|
|
263
|
|
Equity in losses from real estate ventures
|
$
|
(2,439
|
)
|
|
$
|
(6,560
|
)
|
As part of the Company’s ongoing assessment of the carrying values of its investments in real estate ventures, the Company determined that the fair value of a New York City SMSA
C
ondominium and Mixed Use Development venture was less than its carrying value as of
March 31, 2018
. 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
$7,474
of which
$6,354
was attributed to the Company for the three months ended
March 31, 2018
.
Investment in Real Estate Ventures Entered into during 2019:
In February 2019, New Valley invested
$500
for an approximate
37%
interest in 352 6th, LLC. The joint venture plans to develop a condominium complex. The venture is a variable interest entity; however, New Valley is not the primary beneficiary. New Valley accounts for this investment under the equity method of accounting. New Valley's maximum exposure to loss as a result of its investment in 352 6th, LLC was
$506
at
March 31, 2019
.
VIE Consideration:
The Company has determined that New Valley is the primary beneficiary of
two
real estate ventures because it controls the activities that most significantly impact economic performance of each of the
two
real estate ventures. Consequently, New Valley consolidates these variable interest entities (“VIEs”).
The carrying amount of the consolidated assets of the VIEs was
$976
and
$1,387
as of
March 31, 2019
and
December 31, 2018
, respectively. Those assets are owned by the VIEs, not the Company. Neither of the
two
consolidated VIEs had recourse liabilities as of
March 31, 2019
and
December 31, 2018
. A VIE’s assets can only be used to settle obligations of that VIE. The VIEs are not guarantors 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 variable interest entities 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.
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, 2019
|
Condominium and Mixed Use Development:
|
|
New York City SMSA
|
$
|
68,492
|
|
All other U.S. areas
|
44,358
|
|
|
112,850
|
|
Hotels:
|
|
New York City SMSA
|
14,462
|
|
International
|
1,848
|
|
|
16,310
|
|
Commercial:
|
|
New York City SMSA
|
1,739
|
|
All other U.S. areas
|
7,345
|
|
|
9,084
|
|
|
|
Other:
|
32,350
|
|
Total maximum exposure to loss
|
$
|
170,594
|
|
New Valley capitalized
$1,315
of interest costs into the carrying value of its ventures whose projects were currently under development for the
three months ended March 31, 2019
. New Valley capitalized
$2,209
of interest costs into the carrying value of its venture whose projects were currently under development for the three months ended
March 31, 2018
.
Douglas Elliman has been engaged by the developers as the sole broker or the co-broker for several of the real estate ventures that New Valley owns an interest. Douglas Elliman earned gross commissions of approximately
$3,118
and
$3,759
from these projects for the
three
months ended
March 31, 2019
and
March 31, 2018
, respectively.
Combined Financial Statements for Unconsolidated Subsidiaries:
The following summarized financial data for certain unconsolidated subsidiaries that meet certain thresholds pursuant to SEC Regulation S-X Rule 210.10-01(b) includes information for the 215 Chrystie Street investment. New Valley has elected a one-month lag reporting period for the investment.
Hotels:
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2019
|
|
2018
|
Income Statement
|
|
|
|
Revenue
|
$
|
13,421
|
|
|
$
|
82,947
|
|
Cost of sales
|
—
|
|
|
53,851
|
|
Other expenses
|
19,395
|
|
|
20,692
|
|
(Loss) income from continuing operations
|
$
|
(5,974
|
)
|
|
$
|
8,404
|
|
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:
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
December 31,
2018
|
Escena, net
|
$
|
10,086
|
|
|
$
|
10,170
|
|
Sagaponack
|
16,691
|
|
|
16,050
|
|
Investments in real estate, net
|
$
|
26,777
|
|
|
$
|
26,220
|
|
Escena.
The assets of “Escena, net” were as follows:
|
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
December 31,
2018
|
Land and land improvements
|
$
|
8,910
|
|
|
$
|
8,910
|
|
Building and building improvements
|
1,900
|
|
|
1,900
|
|
Other
|
2,197
|
|
|
2,162
|
|
|
13,007
|
|
|
12,972
|
|
Less accumulated depreciation
|
(2,921
|
)
|
|
(2,802
|
)
|
|
$
|
10,086
|
|
|
$
|
10,170
|
|
New Valley recorded operating income of
$686
and
$800
for the
three
months ended
March 31, 2019
and
2018
, respectively, from Escena.
Investment in Sagaponack.
In April 2015, New Valley invested
$12,502
in a residential real estate project located in Sagaponack, NY. The project is wholly owned and the balances of the project are included in the condensed consolidated financial statements of the Company. As of
March 31, 2019
, the assets of Sagaponack consisted of land and land improvements of
$16,691
.
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,
2019
|
|
December 31,
2018
|
Vector:
|
|
|
|
6.125% Senior Secured Notes due 2025
|
$
|
850,000
|
|
|
$
|
850,000
|
|
10.5% Senior Notes due 2026
|
325,000
|
|
|
325,000
|
|
7.5% Variable Interest Senior Convertible Notes due 2019, net of unamortized discount of $0 and $3,359*
|
—
|
|
|
226,641
|
|
5.5% Variable Interest Senior Convertible Debentures due 2020, net of unamortized discount of $24,300 and $29,465*
|
207,700
|
|
|
202,535
|
|
Liggett:
|
|
|
|
Revolving credit facility
|
35,435
|
|
|
28,381
|
|
Term loan under credit facility
|
2,335
|
|
|
2,409
|
|
Equipment loans
|
667
|
|
|
1,039
|
|
Other
|
30,346
|
|
|
30,440
|
|
Notes payable, long-term debt and other obligations
|
1,451,483
|
|
|
1,666,445
|
|
Less:
|
|
|
|
Debt issuance costs
|
(22,458
|
)
|
|
(23,614
|
)
|
Total notes payable, long-term debt and other obligations
|
1,429,025
|
|
|
1,642,831
|
|
Less:
|
|
|
|
Current maturities
|
(41,080
|
)
|
|
(256,134
|
)
|
Amount due after one year
|
$
|
1,387,945
|
|
|
$
|
1,386,697
|
|
______________________
*
The fair value of the derivatives embedded within the
7.5%
Variable Interest Senior Convertible Notes (
$0
at
March 31, 2019
and
$6,635
at
December 31, 2018
, respectively) and the
5.5%
Variable Interest Senior Convertible Debentures (
$21,075
at
March 31, 2019
and
$24,789
at
December 31, 2018
, respectively), is separately classified as a derivative liability in the condensed consolidated balance sheets.
6.125%
Senior Secured Notes due 2025 — Vector
:
As of
March 31, 2019
, the Company was in compliance with all debt covenants related to its
6.125%
Senior Secured Notes due 2025.
10.5%
Senior Notes due 2026 — Vector
:
On November 2, 2018, the Company completed the sale of
$325,000
of its
10.5%
Senior Notes due 2026 (“
10.5%
Senior Notes”) in a private offering that is exempt from registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), to qualified institutional buyers in accordance with Rule 144A of the Securities Act. There are no registration rights associated with the notes, and the Company does not intend to offer notes registered under the Securities Act in exchange for the
10.5%
Senior Notes or file a registration statement with respect to the
10.5%
Senior Notes. The aggregate net proceeds from the sale of the
10.5%
Senior Notes were approximately
$315,000
after deducting underwriting discounts, commissions, fees and offering expenses.
The Company will pay cash interest at a rate of
10.5%
per year, payable semi-annually on May 1 and November 1 of each year, beginning on May 1, 2019. Interest will accrue from November 2, 2018. The
10.5%
Senior Notes mature on November 1, 2026. Interest on overdue principal and interest, if any, will accrue at a rate that is
1%
higher than the then applicable interest rate on the
10.5%
Senior Notes. The Company will make each interest payment to the holders of record on the immediately preceding April 15 and October 15. The Company may redeem some or all of the
10.5%
Senior Notes at any time prior to November 1, 2021 at a make-whole redemption price. On or after November 1, 2021, the Company may redeem some or all of the
10.5%
Senior Notes at redemption prices set forth in the indenture, plus accrued and unpaid interest, if any, to the redemption date. In addition, any time prior to November 1, 2021, the Company may redeem up to
40%
of the aggregate outstanding amount of the
10.5%
Senior Notes with the net proceeds of certain equity offerings at
110.5%
of the aggregate principal amount of the
10.5%
Senior
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Notes, plus accrued and unpaid interest, if any, to the redemption date, if at least
60%
of the aggregate principal amount of the
10.5%
Senior Notes originally issued remains outstanding after such redemption, and the redemption occurs within
90
of the closing of such equity offering. In the event of a change of control, as defined in the indenture, each holder of the
10.5%
Senior Notes will have the right to require the Company to make an offer to repurchase some or all of its
10.5%
Senior Notes at a repurchase price equal to
101%
of the aggregate principal amount of the
10.5%
Senior Notes plus accrued and unpaid interest to the date of purchase. If the Company sells certain assets and does not apply the proceeds as required pursuant to the indenture, it must offer to repurchase the
10.5%
Senior Notes at the prices listed in the indenture.
The
10.5%
Senior Notes are 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, and by DER Holdings LLC, through which the Company indirectly owns a
100.00%
interest in Douglas Elliman. The
10.5%
Senior Notes are the Company’s general senior unsecured obligations, and are
pari passu
in right of payment with all of the Company’s existing and future senior indebtedness and senior in right of payment to all of our future subordinated indebtedness. The
10.5%
Senior Notes are effectively subordinated in right of payment to all of our existing and future indebtedness that is secured by assets of the Company or assets of the Guarantors, to the extent of the value of the assets securing such indebtedness. The
10.5%
Senior Notes are structurally subordinated to all of the liabilities and preferred stock of any of our subsidiaries that do not guarantee the notes. Each guarantee of the
10.5%
Senior Notes are the general obligation of the Guarantor and are
pari passu
in right of payment with all other senior indebtedness of such Guarantor, including the indebtedness of Liggett Group and Maple under their Credit Agreement with Wells Fargo. Each guarantee of the
10.5%
Senior Notes are senior in right of payment to all future subordinated indebtedness of the Guarantor, if any.
The indenture contains covenants that limit the Company and each Guarantor’s ability to, among other things: (i) incur additional indebtedness; (ii) pay dividends or make other distributions, including dividends, repurchases or redemptions of its equity interests; (iii) prepay, redeem or repurchase its subordinated indebtedness; (iv) make investments; (v) sell assets; (vi) incur certain liens; (vii) enter into agreements restricting its subsidiaries’ ability to pay dividends; (viii) enter into transactions with affiliates; and (ix) consolidate, merge or sell all or substantially all of its assets. These covenants are subject to a number of important exceptions and qualifications, as described in the indenture.
As of
March 31, 2019
, the Company was in compliance with all debt covenants related to its
10.5%
Senior Notes due 2026.
7.5%
Variable Interest Senior Convertible Notes due 2019 — Vector
:
In January 2019, the Company paid
$230,000
of principal and
$8,102
of accrued interest as full payment of its
7.5%
Convertible Notes that matured on January 15, 2019.
Revolving Credit Facility and Term Loan Under Credit Facility — Liggett
:
As of
March 31, 2019
, a total of
$37,770
was outstanding under the revolving and term loan portions of the credit facility. The total outstanding balance under the revolving and term loan portions of the credit facility was classified as current debt as of
March 31, 2019
. Availability, as determined under the facility, was approximately
$20,500
based on eligible collateral at
March 31, 2019
. As of
March 31, 2019
, the Company’s applicable subsidiaries were in compliance with all debt covenants under this revolving and term loan facility.
Non-Cash Interest Expense — Vector
:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2019
|
|
2018
|
Amortization of debt discount, net
|
$
|
8,528
|
|
|
$
|
18,193
|
|
Amortization of debt issuance costs
|
1,185
|
|
|
2,681
|
|
|
$
|
9,713
|
|
|
$
|
20,874
|
|
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Fair Value of Notes Payable and Long-Term Debt
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
Value
|
|
Value
|
|
Value
|
|
Value
|
Senior Notes
|
$
|
1,175,000
|
|
|
$
|
1,060,943
|
|
|
$
|
1,175,000
|
|
|
$
|
1,034,500
|
|
Variable Interest Senior Convertible Debt
|
207,700
|
|
|
235,190
|
|
|
429,176
|
|
|
468,704
|
|
Liggett and other
|
68,783
|
|
|
68,773
|
|
|
62,269
|
|
|
62,255
|
|
Notes payable and long-term debt
|
$
|
1,451,483
|
|
(1)
|
$
|
1,364,906
|
|
|
$
|
1,666,445
|
|
(1)
|
$
|
1,565,459
|
|
______________________
(1)
The carrying value does not include the carrying value of the embedded derivative. See Note
12
.
Notes payable and long-term debt are carried on the condensed consolidated balance sheet 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 sheet 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 valuation methodologies including the evaluation of the Company’s credit risk as described in the Company’s Form 10-K. The Company used a derived price based upon quoted market prices and trade activity as of
March 31, 2019
to determine the fair value of its publicly-traded notes and debentures. The carrying value of the revolving credit facility and term loan is equal to the 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.
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, 2019
and
2018
, Liggett incurred tobacco product liability legal expenses and costs totaling
$1,463
and
$1,508
, respectively. The tobacco product liability legal expenses and costs are included in the operating, selling, administrative and general expenses and litigation settlement and judgment expense line items in the Condensed Consolidated Statements of Operations. 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.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
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, 2019
, to obtain a stay of the judgment pending the appeal of the
Santoro
case, Liggett had secured
$535
in 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 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.
Individual Actions
As of
March 31, 2019
, there were
33
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 or the individual cases pending in West Virginia state court as part of a consolidated action. The following table lists the number of Individual Actions by state:
|
|
|
|
State
|
|
Number
of Cases
|
Florida
|
|
22
|
Illinois
|
|
4
|
New York
|
|
2
|
Louisiana
|
|
2
|
West Virginia
|
|
2
|
Ohio
|
|
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
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
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, 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 have been affirmed on appeal and satisfied by the defendants. Many have been overturned on appeal. As of
March 31, 2019
,
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. In certain cases, the judgments were entered jointly and severally with other defendants and Liggett may face the risk that one or more co-defendants decline or otherwise fail to participate in the bonding required for an appeal or to pay their proportionate or jury-allocated share of a judgment. As a result, under certain circumstances, Liggett may have to pay more than its proportionate share of any bonding or judgment related amounts. Except as discussed in this Note 9, management is unable to estimate the possible loss or range of loss from the remaining
Engle
progeny cases as there are currently multiple defendants in 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 of
$48,000
to be paid in installments over
14 years
starting in February 2015. In exchange, the claims of these plaintiffs were dismissed with prejudice against the Company and Liggett. The Company’s future payments will be approximately
$3,400
per annum through 2028, with a cost of living increase beginning in 2021.
In December 2016, the Company and Liggett entered into an agreement with
124
Engle
progeny plaintiffs and their counsel. Pursuant to the terms of this settlement, Liggett agreed to pay
$17,650
,
$14,000
of which was paid in December 2016 with the balance paid in December 2017. As a result of this settlement, the Company recorded a charge of
$17,650
in the fourth quarter of 2016.
In June 2017, Liggett entered into an agreement to settle
nine
cases (eight
Engle
progeny cases and one Individual Action) for
$1,400
and in September 2017 Liggett entered into an agreement to settle
20
Engle
progeny cases for
$4,100
. As of
March 31, 2019
, Liggett (and in certain cases the Company) had, on an individual basis, settled an additional
185
Engle
progeny cases for approximately
$7,600
in the aggregate.
Notwithstanding the comprehensive nature of the
Engle
Progeny Settlements, approximately
70
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.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Judgments Paid in Engle Progeny Cases
.
As of
March 31, 2019
, Liggett had paid in the aggregate
$39,773
, including interest and attorneys’ fees, to satisfy the judgments in the following
Engle
progeny cases:
Lukacs
,
Campbell
,
Douglas
,
Clay,
Tullo, Ward, Rizzuto, Lambert
and
Buchanan
. An adverse verdict against Liggett for
$160
in
Santoro
is currently on appeal.
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 is currently
one
case pending where Liggett is the sole defendant:
Cowart
, a Florida Individual Action where there has been no recent activity. 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 Cases.
Class Actions
As of
March 31, 2019
,
three
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 actions.
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.
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. The 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.
Although not technically a class action, in
In Re: Tobacco Litigation (Personal Injury Cases)
, a West Virginia state court consolidated approximately
750
individual smoker actions that were pending prior to 2001 for trial of certain “common” issues. Liggett was severed from trial of the consolidated action. In May 2013, the jury rejected all but
one
of the plaintiffs’ claims against the non-Liggett defendants, finding in favor of plaintiffs on the claim that ventilated filter cigarettes between 1964 and July 1, 1969 should have included instructions on how to use them. The court entered judgment in October 2013, dismissing all claims against the non-Liggett defendants except the ventilated filter claim on behalf of
30
plaintiffs. Subsequently, these claims were settled by the non-Liggett defendants.
In May 2016
,
the trial court ruled that the case could proceed against Liggett, notwithstanding the outcome of the first phase of the trial against the non-Liggett defendants. In December 2017, the court ordered plaintiffs’ counsel to confirm all
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
remaining plaintiffs with claims against Liggett. The court further agreed that it would entertain a renewed motion by Liggett regarding the impact of the final judgment in favor of co-defendants on the claims against Liggett and whether those claims are barred by the doctrine of collateral estoppel. In 2017 Liggett moved to dismiss a number of plaintiffs’ claims on various grounds. The court granted the motions as to approximately
25
plaintiffs and reserved ruling as to other claims until additional discovery is provided by plaintiffs. The Phase I Common Issues trial is set starting August 12, 2019. It is currently estimated that Liggett could be a defendant in approximately
55
individual cases.
Health Care Cost Recovery Actions
As of
March 31, 2019
,
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.
Upcoming Trials
As of
March 31, 2019
, there were
three
Individual Actions and
two
Engle
Progeny cases scheduled for trial through March 31, 2020, 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.
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
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
4.0%
of the total cigarettes sold in the United States in 2018. 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 28, 2018, Liggett and Vector Tobacco pre-paid
$132,500
of their approximate
$166,000
2018 MSA obligation, the balance of which was paid in April 2019, 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 - 2018. 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 - 2018, 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 arbitration for the 2004 NPM Adjustment started in 2016, and hearings in that arbitration are underway. A separate proceeding in state court is underway for one state that appealed an order compelling arbitration (New Mexico).
The PMs have now settled most of the disputed NPM Adjustment years with
37
states representing approximately
75%
of the MSA share. In January 2019, Montana sent a demand letter to the PMs seeking the return of amounts withheld or paid into the disputed payments escrow account (plus interest) for the NPM Adjustment years 2005 - 2016. Any amounts purportedly due
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
from Liggett to Montana are immaterial. The 2004 arbitration and separate court proceedings continue for states with which the PMs have not settled.
As a result of the settlements and arbitration award described above, Liggett and Vector Tobacco reduced cost of sales in the aggregate by
$32,840
for years 2013 - 2018. Liggett and Vector Tobacco may be entitled to further adjustments. As of
March 31, 2019
, Liggett and Vector Tobacco had accrued approximately
$13,400
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, 2019
, there remains approximately
$27,300
in the disputed payments account relating to Liggett and Vector Tobacco’s 2011 - 2017 NPM Adjustment disputes with the non-settling states.
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’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
four
states were eliminated. With respect to all non-economic obligations under the previous settlements, Liggett believes it is entitled to the most favorable provisions as between the MSA and each state’s respective settlement with the other major tobacco companies. Therefore, Liggett’s non-economic obligations to all states and territories are now defined by the MSA.
In 2003, as a result of a dispute with Minnesota regarding its settlement agreement, Liggett agreed to pay
$100
a year in any year cigarettes manufactured by Liggett are sold in that state. Further, the Attorneys General for Florida, Mississippi and Texas advised Liggett that they believed Liggett had failed to make payments under the respective settlement agreements with those states. In 2010, Liggett settled with Florida and agreed to pay
$1,200
and to make further annual payments of
$250
for a period of
21
years, starting in March 2011, with the payments from year
12
forward being subject to an inflation adjustment.
In January 2016, the Attorney General for Mississippi filed a motion in Chancery Court in Jackson County, Mississippi to enforce the March 1996 settlement agreement alleging that Liggett owes Mississippi at least
$27,000
in damages (including interest), and
$20,000
in punitive damages and attorneys’ fees. In April 2017, the Chancery Court ruled that the settlement agreement should be enforced and referred the matter to a Special Master for further proceedings to determine the amount of damages, if any, to be awarded. In May 2017, Liggett filed a Petition for Interlocutory Appeal to the Mississippi Supreme Court, which was denied.
Liggett filed a demand for arbitration regarding two specific issues and
moved in Chancery Court to compel arbitration and stay the proceedings pending before the Special Master. In June 2018, the Chancery Court granted Liggett’s motion to compel arbitration and stayed the proceedings before the Special Master pending completion of the arbitration. On March 21, 2019, the arbitration panel issued its decision on the two specific issues before it: (i) the panel ruled in favor of Liggett, finding
that the
$294,000
of proceeds from Eve Holdings’ 1999 brand sale should not be included in Liggett’s pre-tax income, which would reduce the amount of compensatory damages, if any, that would be due to Mississippi;
and (ii) ruled in favor of Mississippi on the remaining issue, finding that compensatory damages to Mississippi, if any, would be based on
0.5%
of Liggett’s annual pre-tax income for the term of the settlement agreement. The matter will now proceed to the next phase of the proceeding before the designated Special Master to address damages, if any. Liggett continues to believe that the April 2017 Chancery Court order is in error because the most favored nations provision in the settlement agreement eliminated all of Liggett’s payment obligations to Mississippi, and Liggett intends to appeal that order, as may be necessary, after the Special Master phase of the case concludes.
Liggett may be required to make additional payments to Mississippi and Texas which could have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows.
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 those requirements will not be able to be met. An unfavorable outcome of a pending smoking-related case could encourage the commencement of additional litigation. Except as discussed in this Note
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
9
, management is unable to estimate the loss or range of loss that could result from an unfavorable outcome of the cases pending against Liggett or the costs of defending such cases and as a result has not provided any amounts in its consolidated financial statements for unfavorable outcomes.
The tobacco industry is subject to a wide range of laws and regulations regarding the marketing, sale, taxation and use of tobacco products imposed by local, state and federal governments. There have been a number of restrictive regulatory actions, adverse legislative and political decisions and other unfavorable developments concerning cigarette smoking and the tobacco industry. These developments may negatively affect the perception of potential triers of fact with respect to the tobacco industry, possibly to the detriment of certain pending litigation, and may prompt the commencement of additional litigation or legislation.
It is possible that the Company’s consolidated financial position, results of operations and cash flows could be materially adversely affected by an unfavorable outcome in any of the smoking-related litigation.
The activity in the Company’s accruals for the MSA and tobacco litigation for the
three months ended
March 31, 2019
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, 2019
|
$
|
36,561
|
|
|
$
|
310
|
|
|
$
|
36,871
|
|
|
$
|
16,383
|
|
|
$
|
21,794
|
|
|
$
|
38,177
|
|
Expenses
|
36,358
|
|
|
—
|
|
|
36,358
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Change in MSA obligations capitalized as inventory
|
890
|
|
|
—
|
|
|
890
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Payments
|
—
|
|
|
(250
|
)
|
|
(250
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Reclassification to/(from) non-current liabilities
|
—
|
|
|
3,338
|
|
|
3,338
|
|
|
—
|
|
|
(3,338
|
)
|
|
(3,338
|
)
|
Interest on withholding
|
—
|
|
|
6
|
|
|
6
|
|
|
—
|
|
|
571
|
|
|
571
|
|
Balance as of March 31, 2019
|
$
|
73,809
|
|
|
$
|
3,404
|
|
|
$
|
77,213
|
|
|
$
|
16,383
|
|
|
$
|
19,027
|
|
|
$
|
35,410
|
|
The activity in the Company’s accruals for the MSA and tobacco litigation for the
three months ended
March 31, 2018
were 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, 2018
|
$
|
12,385
|
|
|
$
|
260
|
|
|
$
|
12,645
|
|
|
$
|
21,479
|
|
|
$
|
19,840
|
|
|
$
|
41,319
|
|
Expenses
|
38,142
|
|
|
—
|
|
|
38,142
|
|
|
—
|
|
|
—
|
|
|
—
|
|
NPM Settlement adjustment
|
(595
|
)
|
|
—
|
|
|
(595
|
)
|
|
(2,895
|
)
|
|
—
|
|
|
(2,895
|
)
|
Change in MSA obligations capitalized as inventory
|
147
|
|
|
—
|
|
|
147
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Payments
|
—
|
|
|
(250
|
)
|
|
(250
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Reclassification to/(from) non-current liabilities
|
32
|
|
|
218
|
|
|
250
|
|
|
(32
|
)
|
|
(218
|
)
|
|
(250
|
)
|
Interest on withholding
|
—
|
|
|
12
|
|
|
12
|
|
|
—
|
|
|
514
|
|
|
514
|
|
Balance as of March 31, 2018
|
$
|
50,111
|
|
|
$
|
240
|
|
|
$
|
50,351
|
|
|
$
|
18,552
|
|
|
$
|
20,136
|
|
|
$
|
38,688
|
|
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
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 effect on the capital expenditures, results of operations or competitive position of Liggett or Vector Tobacco.
Liggett and the Company have received three separate demands for indemnification from Altria Client Services, on behalf of Philip Morris, relating to lawsuits alleging smokers’ use of L&M cigarettes. The indemnification demands are purportedly issued in connection with Eve Holdings’ 1999 sale of certain brands to Philip Morris.
Liggett Vector Brands entered into an agreement with a subsidiary of the Convenience Distribution Association to support a program to permit certain tobacco distributors to secure, on reasonable terms, tax stamp bonds required by state and local governments for the distribution of cigarettes. Under the agreement, Liggett Vector Brands has agreed to pay a portion of losses incurred by the surety under the bond program, with a maximum loss exposure of
$500
. The Company believes the fair value of Liggett Vector Brands’ obligation under the agreement was immaterial at
March 31, 2019
.
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 is 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
.
|
EMPLOYEE BENEFIT PLANS
|
The following table summarizes key information related to the Company’s pension plans and other postretirement benefits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Postretirement Benefits
|
|
Three Months Ended
|
|
Three Months Ended
|
|
March 31,
|
|
March 31,
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Service cost — benefits earned during the period
|
$
|
133
|
|
|
$
|
147
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Interest cost on projected benefit obligation
|
1,215
|
|
|
1,122
|
|
|
87
|
|
|
82
|
|
Expected return on assets
|
(1,219
|
)
|
|
(1,393
|
)
|
|
—
|
|
|
—
|
|
Amortization of prior service cost
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Amortization of net loss (gain)
|
501
|
|
|
452
|
|
|
(44
|
)
|
|
(10
|
)
|
Net expense
|
$
|
630
|
|
|
$
|
328
|
|
|
$
|
44
|
|
|
$
|
73
|
|
The service cost component of net periodic benefit expense (income) is recorded in Operating, selling, administrative and general expenses in the condensed consolidated statements of income while the other components are recorded in Other, net.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
The Company’s effective income tax rate is based on expected income, statutory rates, valuation allowances against deferred tax assets, and any tax planning opportunities available to the Company. For interim financial reporting, the Company estimates the annual effective income tax rate based on full year projections and applies the annual effective income tax rate against year-to-date pretax income (loss) to record
income tax expense
, 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, a valuation allowance being established for interest expense that is not deductible, and state taxes.
The Company’s
income tax expense
consisted of the following:
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31,
|
|
2019
|
|
2018
|
Income before provision for income taxes
|
$
|
21,782
|
|
|
$
|
5,612
|
|
Income tax expense using estimated annual effective income tax rate
|
6,863
|
|
|
2,056
|
|
Impact of discrete items, net
|
(114
|
)
|
|
(108
|
)
|
Income tax expense
|
$
|
6,749
|
|
|
$
|
1,948
|
|
The discrete items for the
three
months ended
March 31, 2019
and 2018 is related to an income tax deduction for stock-based compensation.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
|
|
12
.
|
INVESTMENTS AND FAIR VALUE MEASUREMENTS
|
The Company’s financial assets and liabilities subject to fair value measurements were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of March 31, 2019
|
|
|
Description
|
|
Total
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Total Gains (Losses)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Money market funds
(1)
|
|
$
|
222,559
|
|
|
$
|
222,559
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
(1)
|
|
39,100
|
|
|
—
|
|
|
39,100
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
(2)
|
|
2,171
|
|
|
—
|
|
|
2,171
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds securing legal bonds
(2)
|
|
535
|
|
|
535
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities at fair value
|
|
|
|
|
|
|
|
|
|
|
Equity securities at fair value
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities
|
|
24,387
|
|
|
24,387
|
|
|
—
|
|
|
—
|
|
|
|
Mutual funds invested in fixed-income securities
|
|
21,660
|
|
|
21,660
|
|
|
—
|
|
|
—
|
|
|
|
Total equity securities at fair value
|
|
46,047
|
|
|
46,047
|
|
|
—
|
|
|
—
|
|
|
|
Debt securities available for sale
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities
|
|
24,275
|
|
|
—
|
|
|
24,275
|
|
|
—
|
|
|
|
Corporate securities
|
|
43,110
|
|
|
—
|
|
|
43,110
|
|
|
—
|
|
|
|
U.S. government and federal agency
|
|
4,132
|
|
|
—
|
|
|
4,132
|
|
|
—
|
|
|
|
Commercial mortgage-backed securities
|
|
397
|
|
|
—
|
|
|
397
|
|
|
—
|
|
|
|
Commercial paper
|
|
13,180
|
|
|
—
|
|
|
13,180
|
|
|
—
|
|
|
|
Index-linked U.S. bonds
|
|
2,354
|
|
|
—
|
|
|
2,354
|
|
|
—
|
|
|
|
Foreign fixed-income securities
|
|
1,157
|
|
|
—
|
|
|
1,157
|
|
|
—
|
|
|
|
Total debt securities available for sale
|
|
88,605
|
|
|
—
|
|
|
88,605
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities at fair value
|
|
134,652
|
|
|
46,047
|
|
|
88,605
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
|
|
|
|
|
|
|
|
Equity securities at fair value that qualify for the NAV practical expedient
(3)
|
|
54,202
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Total
|
|
$
|
453,219
|
|
|
$
|
269,141
|
|
|
$
|
129,876
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Fair value of contingent liability
|
|
$
|
6,258
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,258
|
|
|
|
Fair value of derivatives embedded within convertible debt
|
|
21,075
|
|
|
—
|
|
|
—
|
|
|
21,075
|
|
|
|
Total
|
|
$
|
27,333
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
27,333
|
|
|
|
|
|
(1)
|
Amounts included in Cash and cash equivalents on the condensed consolidated balance sheet, except for
$3,719
that is included in current restricted assets and
$3,910
that is included in non-current restricted assets.
|
|
|
(2)
|
Amounts included in current restricted assets and non-current restricted assets on the condensed consolidated balance sheet.
|
|
|
(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, 2018
|
|
|
Description
|
|
Total
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Total Gains (Losses)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
Money market funds
(1)
|
|
$
|
448,560
|
|
|
$
|
448,560
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper
(1)
|
|
46,062
|
|
|
—
|
|
|
46,062
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
(2)
|
|
2,251
|
|
|
—
|
|
|
2,251
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds securing legal bonds
(2)
|
|
535
|
|
|
535
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities at fair value
|
|
|
|
|
|
|
|
|
|
|
Equity securities at fair value
|
|
|
|
|
|
|
|
|
|
|
Marketable equity securities
|
|
26,010
|
|
|
26,010
|
|
|
—
|
|
|
—
|
|
|
|
Mutual funds invested in fixed-income securities
|
|
21,192
|
|
|
21,192
|
|
|
—
|
|
|
—
|
|
|
|
Total equity securities at fair value
|
|
47,202
|
|
|
47,202
|
|
|
—
|
|
|
—
|
|
|
|
Debt securities available for sale
|
|
|
|
|
|
|
|
|
|
|
U.S. government securities
|
|
28,514
|
|
|
—
|
|
|
28,514
|
|
|
—
|
|
|
|
Corporate securities
|
|
41,733
|
|
|
—
|
|
|
41,733
|
|
|
—
|
|
|
|
U.S. government and federal agency
|
|
4,369
|
|
|
—
|
|
|
4,369
|
|
|
—
|
|
|
|
Commercial mortgage-backed securities
|
|
401
|
|
|
—
|
|
|
401
|
|
|
—
|
|
|
|
Commercial paper
|
|
5,870
|
|
|
—
|
|
|
5,870
|
|
|
—
|
|
|
|
Index-linked U.S. bonds
|
|
2,330
|
|
|
—
|
|
|
2,330
|
|
|
—
|
|
|
|
Foreign fixed-income securities
|
|
1,150
|
|
|
—
|
|
|
1,150
|
|
|
—
|
|
|
|
Total debt securities available for sale
|
|
84,367
|
|
|
—
|
|
|
84,367
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities at fair value
|
|
131,569
|
|
|
47,202
|
|
|
84,367
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
|
|
|
|
|
|
|
|
Equity securities at fair value that qualify for the NAV practical expedient
(3)
|
|
54,628
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Total
|
|
$
|
683,605
|
|
|
$
|
496,297
|
|
|
$
|
132,680
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
Fair value of contingent liability
|
|
$
|
6,304
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,304
|
|
|
|
Fair value of derivatives embedded within convertible debt
|
|
31,424
|
|
|
—
|
|
|
—
|
|
|
31,424
|
|
|
|
Total
|
|
$
|
37,728
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
37,728
|
|
|
|
|
|
(1)
|
Amounts included in Cash and cash equivalents on the condensed consolidated balance sheet, except for
$2,570
that is included in current restricted assets and
$3,910
that is included in non-current restricted assets.
|
|
|
(2)
|
Amounts included in current restricted assets and non-current restricted assets on the condensed consolidated balance sheet.
|
|
|
(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
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
prices of securities that are thinly traded, quoted prices for identical or similar assets in markets that are not active or inputs other than quoted prices such as interest rates and yield curves.
The long-term investments are based on NAV per share provided by the partnerships based on the indicated market value of the underlying assets or investment portfolio. In accordance with Subtopic 820-10, these investments are not classified under the fair value hierarchy disclosed above because they are measured at fair value using the NAV practical expedient.
The fair value of derivatives embedded within convertible debt was derived using a valuation model. These derivatives have been classified as Level 3. The valuation model assumes future dividend payments by the Company and utilizes interest rates and credit spreads based upon the implied credit spread of the
5.5%
Convertible Notes due 2020 to determine the fair value of the derivatives embedded within the convertible debt. The changes in fair value of derivatives embedded within convertible debt are presented on the condensed consolidated statements of operations.
The fair value of the Level 3 contingent liability was derived using a Monte Carlo valuation model. As part of the acquisition of the
29.41%
non-controlling interest in Douglas Elliman, New Valley entered into a four-year payout agreement that requires it to pay the sellers a portion of the fair value in excess of the purchase price of Douglas Elliman should a sale of a controlling interest in Douglas Elliman occur.
The contingent liability is recorded within “
Other liabilities
” in the condensed consolidated balance sheet, and any change in fair value will be recorded in “
Other, net
” within the condensed consolidated statements of operations. The value of the contingent liability is calculated using the outstanding payable owed to the sellers and the estimated fair value of Douglas Elliman. The liability is contingent upon the sale of a controlling interest in Douglas Elliman by the Company prior to October 1, 2022.
The unobservable inputs related to the valuations of the Level 3 assets and liabilities were as follows at
March 31, 2019
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
|
|
Fair Value at
|
|
|
|
|
|
|
|
|
March 31,
2019
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range (Actual)
|
|
|
|
|
|
|
|
|
|
Fair value of derivatives embedded within convertible debt
|
|
$
|
21,075
|
|
|
Discounted cash flow
|
|
Assumed annual stock dividend
|
|
5
|
%
|
|
|
|
|
|
|
Assumed annual cash dividend
|
|
$
|
1.60
|
|
|
|
|
|
|
|
Stock price
|
|
$
|
10.79
|
|
|
|
|
|
|
|
Convertible trading price (as a percentage of par value)
|
|
101.38
|
%
|
|
|
|
|
|
|
Volatility
|
|
25.48
|
%
|
|
|
|
|
|
|
Risk-free rate
|
|
Term structure of US Treasury Securities
|
|
|
|
|
|
|
Implied credit spread
|
|
7.5% - 8.5% (8.0%)
|
|
|
|
|
|
|
|
|
|
|
Fair value of contingent liability
|
|
$
|
6,258
|
|
|
Monte Carlo simulation model
|
|
Estimated fair value of the Douglas Elliman reporting unit
|
|
$
|
320,000
|
|
|
|
|
|
|
|
Risk-free rate for a 4-year term
|
|
2.19
|
%
|
|
|
|
|
|
|
Leverage-adjusted equity volatility of peer firms
|
|
30.42
|
%
|
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
The unobservable inputs related to the valuations of the Level 3 assets and liabilities were as follows at
December 31, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
|
|
Fair Value at
|
|
|
|
|
|
|
|
|
December 31,
2018
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range (Actual)
|
|
|
|
|
|
|
|
|
|
Fair value of derivatives embedded within convertible debt
|
|
$
|
31,424
|
|
|
Discounted cash flow
|
|
Assumed annual stock dividend
|
|
5
|
%
|
|
|
|
|
|
|
Assumed annual cash dividend
|
|
$
|
1.60
|
|
|
|
|
|
|
|
Stock price
|
|
$
|
9.73
|
|
|
|
|
|
|
|
Convertible trading price (as a percentage of par value)
|
|
100.31
|
%
|
|
|
|
|
|
|
Volatility
|
|
20.39
|
%
|
|
|
|
|
|
|
Risk-free rate
|
|
Term structure of US Treasury Securities
|
|
|
|
|
|
|
Implied credit spread
|
|
8.0% - 9.0% (8.5%)
|
|
|
|
|
|
|
|
|
|
|
Fair value of contingent liability
|
|
$
|
6,304
|
|
|
Monte Carlo simulation model
|
|
Estimated fair value of the Douglas Elliman reporting unit
|
|
$
|
320,000
|
|
|
|
|
|
|
|
Risk-free rate for a 4-year term
|
|
2.45
|
%
|
|
|
|
|
|
|
Leverage-adjusted equity volatility of peer firms
|
|
30.22
|
%
|
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
no
nonrecurring nonfinancial assets subject to fair value measurements as of
March 31, 2019
and
2018
, respectively.
The Company’s business segments for the
three months ended March 31, 2019 and 2018
were Tobacco and Real Estate. The Tobacco segment consisted of the manufacture and sale of conventional cigarettes. The Real Estate segment included the Company’s investment in New Valley LLC, which includes Douglas Elliman, Escena, Sagaponack and investments in real estate ventures. The accounting policies of the segments are the same as those described in the summary of significant accounting policies.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Financial information for the Company’s operations before taxes and non-controlling interests for the
three months ended March 31, 2019 and 2018
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
|
|
Corporate
|
|
|
|
Tobacco
|
|
Estate
|
|
and Other
|
|
Total
|
Three months ended March 31, 2019
|
|
|
|
|
|
|
|
Revenues
|
$
|
256,756
|
|
|
$
|
164,168
|
|
|
$
|
—
|
|
|
$
|
420,924
|
|
Operating income (loss)
|
60,144
|
|
|
(10,409
|
)
|
|
(7,145
|
)
|
|
42,590
|
|
Equity in losses from real estate ventures
|
—
|
|
|
(2,439
|
)
|
|
—
|
|
|
(2,439
|
)
|
Depreciation and amortization
|
1,957
|
|
|
2,501
|
|
|
250
|
|
|
4,708
|
|
Capital expenditures
|
1,638
|
|
|
2,187
|
|
|
—
|
|
|
3,825
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2018
|
|
|
|
|
|
|
|
Revenues
|
$
|
267,116
|
|
|
$
|
161,850
|
|
|
$
|
—
|
|
|
$
|
428,966
|
|
Operating income (loss)
|
63,411
|
|
(1)
|
(8,760
|
)
|
(2)
|
(6,567
|
)
|
|
48,084
|
|
Equity in losses from real estate ventures
|
—
|
|
|
(6,560
|
)
|
|
—
|
|
|
(6,560
|
)
|
Depreciation and amortization
|
2,037
|
|
|
2,289
|
|
|
261
|
|
|
4,587
|
|
Capital expenditures
|
911
|
|
|
3,071
|
|
|
5
|
|
|
3,987
|
|
|
|
(1)
|
Operating income includes
$3,490
of income from a settlement of a long-standing dispute related to the Master Settlement Agreement.
|
|
|
(2)
|
Operating income includes
$2,469
of litigation settlement and judgment income.
|
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited