VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
ASSETS:
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
540,363
|
|
|
$
|
371,341
|
|
|
Investment securities at fair value
|
88,643
|
|
|
129,641
|
|
|
Accounts receivable - trade, net
|
32,760
|
|
|
36,959
|
|
|
Inventories
|
98,609
|
|
|
98,762
|
|
|
Other current assets
|
38,363
|
|
|
44,911
|
|
|
Total current assets
|
798,738
|
|
|
681,614
|
|
|
Property, plant and equipment, net
|
77,617
|
|
|
82,160
|
|
|
Investments in real estate, net
|
28,876
|
|
|
28,317
|
|
|
Long-term investment securities at fair value
|
33,232
|
|
|
45,781
|
|
|
Investments in real estate ventures
|
115,377
|
|
|
131,556
|
|
|
Operating lease right-of-use assets
|
148,662
|
|
|
149,578
|
|
|
Goodwill and other intangible assets, net
|
207,659
|
|
|
265,993
|
|
|
Other assets
|
121,586
|
|
|
120,090
|
|
|
Total assets
|
$
|
1,531,747
|
|
|
$
|
1,505,089
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIENCY:
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Current portion of notes payable and long-term debt
|
$
|
8,853
|
|
|
$
|
209,269
|
|
|
Current portion of fair value of derivatives embedded within convertible debt
|
—
|
|
|
4,999
|
|
|
Current payments due under the Master Settlement Agreement
|
102,125
|
|
|
34,116
|
|
|
Income taxes payable, net
|
36,831
|
|
|
5,138
|
|
|
Current operating lease liability
|
18,268
|
|
|
18,294
|
|
|
Other current liabilities
|
332,034
|
|
|
189,317
|
|
|
Total current liabilities
|
498,111
|
|
|
461,133
|
|
|
Notes payable, long-term debt and other obligations, less current portion
|
1,398,194
|
|
|
1,397,216
|
|
|
Non-current employee benefits
|
61,025
|
|
|
67,853
|
|
|
Deferred income taxes, net
|
12,438
|
|
|
33,695
|
|
|
Non-current operating lease liability
|
159,296
|
|
|
156,963
|
|
|
Payments due under the Master Settlement Agreement
|
18,130
|
|
|
17,275
|
|
|
Other liabilities
|
53,757
|
|
|
55,970
|
|
|
Total liabilities
|
2,200,951
|
|
|
2,190,105
|
|
|
Commitments and contingencies (Note 9)
|
|
|
|
|
Stockholders' deficiency:
|
|
|
|
|
Preferred stock, par value $1 per share, 10,000,000 shares authorized
|
—
|
|
|
—
|
|
|
Common stock, par value $0.1 per share, 250,000,000 shares authorized, 153,484,477 and 148,084,900 shares issued and outstanding
|
15,348
|
|
|
14,808
|
|
|
Accumulated deficit
|
(663,723
|
)
|
|
(678,464
|
)
|
|
Accumulated other comprehensive loss
|
(20,829
|
)
|
|
(21,808
|
)
|
|
Total Vector Group Ltd. stockholders' deficiency
|
(669,204
|
)
|
|
(685,464
|
)
|
|
Non-controlling interest
|
—
|
|
|
448
|
|
|
Total stockholders' deficiency
|
(669,204
|
)
|
|
(685,016
|
)
|
|
Total liabilities and stockholders' deficiency
|
$
|
1,531,747
|
|
|
$
|
1,505,089
|
|
The accompanying notes are an integral part of the condensed consolidated financial statements.
VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Tobacco*
|
$
|
312,510
|
|
|
$
|
294,501
|
|
|
$
|
599,579
|
|
|
$
|
551,257
|
|
|
Real estate
|
133,250
|
|
|
243,931
|
|
|
300,669
|
|
|
408,099
|
|
|
Total revenues
|
445,760
|
|
|
538,432
|
|
|
900,248
|
|
|
959,356
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Cost of sales:
|
|
|
|
|
|
|
|
|
Tobacco*
|
214,067
|
|
|
204,461
|
|
|
411,357
|
|
|
381,764
|
|
|
Real estate
|
90,818
|
|
|
163,713
|
|
|
204,151
|
|
|
272,430
|
|
|
Total cost of sales
|
304,885
|
|
|
368,174
|
|
|
615,508
|
|
|
654,194
|
|
|
|
|
|
|
|
|
|
|
|
Operating, selling, administrative and general expenses
|
71,064
|
|
|
93,359
|
|
|
161,581
|
|
|
185,673
|
|
|
Litigation settlement and judgment expense
|
53
|
|
|
655
|
|
|
53
|
|
|
655
|
|
|
Impairments of goodwill and intangible assets
|
—
|
|
|
—
|
|
|
58,252
|
|
|
—
|
|
|
Restructuring charges
|
2,961
|
|
|
—
|
|
|
2,961
|
|
|
—
|
|
|
Operating income
|
66,797
|
|
|
76,244
|
|
|
61,893
|
|
|
118,834
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
Interest expense
|
(29,358
|
)
|
|
(32,753
|
)
|
|
(64,985
|
)
|
|
(70,273
|
)
|
|
Change in fair value of derivatives embedded within convertible debt
|
1,669
|
|
|
3,788
|
|
|
4,999
|
|
|
14,137
|
|
|
Equity in earnings (losses) from investments
|
2,207
|
|
|
(1,685
|
)
|
|
52,359
|
|
|
(323
|
)
|
|
Equity in (losses) earnings from real estate ventures
|
(12,260
|
)
|
|
6,391
|
|
|
(18,765
|
)
|
|
3,952
|
|
|
Other, net
|
7,635
|
|
|
4,781
|
|
|
(3,020
|
)
|
|
12,221
|
|
|
Income before provision for income taxes
|
36,690
|
|
|
56,766
|
|
|
32,481
|
|
|
78,548
|
|
|
Income tax expense
|
10,916
|
|
|
17,459
|
|
|
9,938
|
|
|
24,208
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
25,774
|
|
|
39,307
|
|
|
22,543
|
|
|
54,340
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributed to non-controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
(80
|
)
|
|
|
|
|
|
|
|
|
|
|
Net income attributed to Vector Group Ltd.
|
$
|
25,774
|
|
|
$
|
39,307
|
|
|
$
|
22,543
|
|
|
$
|
54,260
|
|
|
|
|
|
|
|
|
|
|
|
Per basic common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common shares attributed to Vector Group Ltd.
|
$
|
0.17
|
|
|
$
|
0.25
|
|
|
$
|
0.14
|
|
|
$
|
0.34
|
|
|
|
|
|
|
|
|
|
|
|
Per diluted common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income applicable to common shares attributed to Vector Group Ltd.
|
$
|
0.16
|
|
|
$
|
0.25
|
|
|
$
|
0.14
|
|
|
$
|
0.33
|
|
* Revenues and cost of sales include federal excise taxes of $121,170, $119,943, $234,309, and $224,576, respectively.
The accompanying notes are an integral part of the condensed consolidated financial statements.
VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in Thousands)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
Net income
|
$
|
25,774
|
|
|
$
|
39,307
|
|
|
$
|
22,543
|
|
|
$
|
54,340
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains on investment securities available for sale:
|
|
|
|
|
|
|
|
|
Change in net unrealized gains (losses)
|
644
|
|
|
346
|
|
|
(20
|
)
|
|
723
|
|
|
Net unrealized (gains) losses reclassified into net income
|
(70
|
)
|
|
(4
|
)
|
|
433
|
|
|
(37
|
)
|
|
Net unrealized gains on investment securities available for sale
|
574
|
|
|
342
|
|
|
413
|
|
|
686
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in pension-related amounts
|
|
|
|
|
|
|
|
|
Amortization of loss
|
463
|
|
|
491
|
|
|
927
|
|
|
948
|
|
|
Net change in pension-related amounts
|
463
|
|
|
491
|
|
|
927
|
|
|
948
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
1,037
|
|
|
833
|
|
|
1,340
|
|
|
1,634
|
|
|
|
|
|
|
|
|
|
|
|
Income tax effect on:
|
|
|
|
|
|
|
|
|
Change in net unrealized gains (losses) on investment securities
|
(174
|
)
|
|
(94
|
)
|
|
6
|
|
|
(198
|
)
|
|
Net unrealized (gains) losses reclassified into net income on investment securities
|
19
|
|
|
1
|
|
|
(117
|
)
|
|
10
|
|
|
Pension-related amounts
|
(125
|
)
|
|
(135
|
)
|
|
(250
|
)
|
|
(260
|
)
|
|
Income tax provision on other comprehensive income
|
(280
|
)
|
|
(228
|
)
|
|
(361
|
)
|
|
(448
|
)
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, net of tax
|
757
|
|
|
605
|
|
|
979
|
|
|
1,186
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
26,531
|
|
|
39,912
|
|
|
23,522
|
|
|
55,526
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributed to non-controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
(80
|
)
|
|
Comprehensive income attributed to Vector Group Ltd.
|
$
|
26,531
|
|
|
$
|
39,912
|
|
|
$
|
23,522
|
|
|
$
|
55,446
|
|
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 April 1, 2020
|
148,084,900
|
|
|
$
|
14,808
|
|
|
$
|
—
|
|
|
$
|
(712,221
|
)
|
|
$
|
(21,586
|
)
|
|
$
|
—
|
|
|
$
|
(718,999
|
)
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
25,774
|
|
|
—
|
|
|
—
|
|
|
25,774
|
|
|
Total other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
757
|
|
|
—
|
|
|
757
|
|
|
Distributions and dividends on common stock ($0.20 per share)
|
—
|
|
|
—
|
|
|
(54,244
|
)
|
|
22,644
|
|
|
—
|
|
|
—
|
|
|
(31,600
|
)
|
|
Restricted stock grant
|
405,000
|
|
|
41
|
|
|
(41
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Surrender of shares in connection with restricted stock vesting
|
(5,423
|
)
|
|
(1
|
)
|
|
(61
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(62
|
)
|
|
Issuance of common stock, net of offering costs
|
5,000,000
|
|
|
500
|
|
|
52,063
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
52,563
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
2,283
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,283
|
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
80
|
|
|
—
|
|
|
—
|
|
|
80
|
|
|
Balance as of June 30, 2020
|
153,484,477
|
|
|
$
|
15,348
|
|
|
$
|
—
|
|
|
$
|
(663,723
|
)
|
|
$
|
(20,829
|
)
|
|
$
|
—
|
|
|
$
|
(669,204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 April 1, 2019
|
140,899,065
|
|
|
$
|
14,090
|
|
|
$
|
—
|
|
|
$
|
(580,581
|
)
|
|
$
|
(24,098
|
)
|
|
$
|
488
|
|
|
$
|
(590,101
|
)
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
39,307
|
|
|
—
|
|
|
—
|
|
|
39,307
|
|
|
Total other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
605
|
|
|
—
|
|
|
605
|
|
|
Distributions and dividends on common stock ($0.38 per share)
|
—
|
|
|
—
|
|
|
(2,285
|
)
|
|
(56,512
|
)
|
|
—
|
|
|
—
|
|
|
(58,797
|
)
|
|
Restricted stock grant
|
60,000
|
|
|
6
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Surrender of shares in connection with restricted stock vesting
|
(5,165
|
)
|
|
(1
|
)
|
|
(47
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(48
|
)
|
|
Effect of 2019 stock dividend*
|
7,047,695
|
|
|
705
|
|
|
—
|
|
|
(705
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
2,338
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,338
|
|
|
Balance as of June 30, 2019
|
148,001,595
|
|
|
$
|
14,800
|
|
|
$
|
—
|
|
|
$
|
(598,491
|
)
|
|
$
|
(23,493
|
)
|
|
$
|
488
|
|
|
$
|
(606,696
|
)
|
* Represents the effect of the September 27, 2019 stock dividend on the second quarter 2019 common-stock activity.
The accompanying notes are an integral part of the condensed consolidated financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vector Group Ltd. Stockholders' Deficiency
|
|
|
|
|
|
|
|
Additional Paid-In
|
|
|
|
Accumulated
Other Comprehensive
|
|
Non-controlling
|
|
|
|
|
Common Stock
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
Loss
|
|
Interest
|
|
Total
|
|
Balance as of January 1, 2020
|
148,084,900
|
|
|
$
|
14,808
|
|
|
$
|
—
|
|
|
$
|
(678,464
|
)
|
|
$
|
(21,808
|
)
|
|
$
|
448
|
|
|
$
|
(685,016
|
)
|
|
Impact of adoption of new accounting standards
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,263
|
)
|
|
—
|
|
|
—
|
|
|
(2,263
|
)
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
22,543
|
|
|
—
|
|
|
—
|
|
|
22,543
|
|
|
Total other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
979
|
|
|
—
|
|
|
979
|
|
|
Distributions and dividends on common stock ($0.40 per share)
|
—
|
|
|
—
|
|
|
(56,502
|
)
|
|
(5,619
|
)
|
|
—
|
|
|
—
|
|
|
(62,121
|
)
|
|
Restricted stock grant
|
405,000
|
|
|
41
|
|
|
(41
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Surrender of shares in connection with restricted stock vesting
|
(5,423
|
)
|
|
(1
|
)
|
|
(61
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(62
|
)
|
|
Issuance of common stock, net of offering costs
|
5,000,000
|
|
|
500
|
|
|
52,063
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
52,563
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
4,541
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,541
|
|
|
Distributions to non-controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(448
|
)
|
|
(448
|
)
|
|
Other
|
—
|
|
|
—
|
|
|
—
|
|
|
80
|
|
|
—
|
|
|
—
|
|
|
80
|
|
|
Balance as of June 30, 2020
|
153,484,477
|
|
|
$
|
15,348
|
|
|
$
|
—
|
|
|
$
|
(663,723
|
)
|
|
$
|
(20,829
|
)
|
|
$
|
—
|
|
|
$
|
(669,204
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
—
|
|
|
—
|
|
|
—
|
|
|
54,260
|
|
|
—
|
|
|
80
|
|
|
54,340
|
|
|
Total other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,186
|
|
|
—
|
|
|
1,186
|
|
|
Distributions and dividends on common stock ($0.76 per share)
|
—
|
|
|
—
|
|
|
(4,550
|
)
|
|
(113,024
|
)
|
|
—
|
|
|
—
|
|
|
(117,574
|
)
|
|
Restricted stock grant
|
60,000
|
|
|
6
|
|
|
(6
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Surrender of shares in connection with restricted stock vesting
|
(20,742
|
)
|
|
(3
|
)
|
|
(218
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(221
|
)
|
|
Effect of 2019 stock dividend*
|
7,047,695
|
|
|
705
|
|
|
—
|
|
|
(705
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
4,774
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,774
|
|
|
Distributions to non-controlling interest
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(285
|
)
|
|
(285
|
)
|
|
Balance as of June 30, 2019
|
148,001,595
|
|
|
$
|
14,800
|
|
|
$
|
—
|
|
|
$
|
(598,491
|
)
|
|
$
|
(23,493
|
)
|
|
$
|
488
|
|
|
$
|
(606,696
|
)
|
* Represents the effect of the September 27, 2019 stock dividend on the second quarter 2019 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
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Six Months Ended
|
|
|
June 30,
2020
|
|
June 30,
2019
|
|
Net cash provided by operating activities
|
$
|
341,329
|
|
|
$
|
98,102
|
|
|
Cash flows from investing activities:
|
|
|
|
|
Sale of investment securities
|
19,555
|
|
|
12,942
|
|
|
Maturities of investment securities
|
31,574
|
|
|
28,610
|
|
|
Purchase of investment securities
|
(16,867
|
)
|
|
(44,222
|
)
|
|
Proceeds from sale or liquidation of long-term investments
|
23,407
|
|
|
—
|
|
|
Purchase of long-term investments
|
(5,238
|
)
|
|
—
|
|
|
Investments in real estate ventures
|
(3,858
|
)
|
|
(21,908
|
)
|
|
Distributions from investments in real estate ventures
|
5,172
|
|
|
23,200
|
|
|
Increase in cash surrender value of life insurance policies
|
(751
|
)
|
|
(789
|
)
|
|
Decrease in restricted assets
|
87
|
|
|
668
|
|
|
Proceeds from sale of fixed assets
|
—
|
|
|
8
|
|
|
Capital expenditures
|
(6,242
|
)
|
|
(6,320
|
)
|
|
Purchase of subsidiaries
|
—
|
|
|
(668
|
)
|
|
Pay downs of investment securities
|
415
|
|
|
545
|
|
|
Investments in real estate, net
|
(679
|
)
|
|
(1,153
|
)
|
|
Net cash provided by (used in) investing activities
|
46,575
|
|
|
(9,087
|
)
|
|
Cash flows from financing activities:
|
|
|
|
|
Proceeds from issuance of debt
|
531
|
|
|
—
|
|
|
Deferred financing costs
|
—
|
|
|
(33
|
)
|
|
Repayments of debt
|
(172,467
|
)
|
|
(230,771
|
)
|
|
Borrowings under revolver
|
130,641
|
|
|
172,224
|
|
|
Repayments on revolver
|
(165,593
|
)
|
|
(169,727
|
)
|
|
Dividends and distributions on common stock
|
(63,478
|
)
|
|
(118,748
|
)
|
|
Distributions to non-controlling interest
|
(448
|
)
|
|
(285
|
)
|
|
Proceeds from issuance of Vector stock
|
52,563
|
|
|
—
|
|
|
Other
|
5
|
|
|
—
|
|
|
Net cash used in financing activities
|
(218,246
|
)
|
|
(347,340
|
)
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
169,658
|
|
|
(258,325
|
)
|
|
Cash, cash equivalents and restricted cash, beginning of period
|
379,476
|
|
|
591,729
|
|
|
Cash, cash equivalents and restricted cash, end of period
|
$
|
549,134
|
|
|
$
|
333,404
|
|
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, 2019 filed with the Securities and Exchange Commission (“SEC”). The consolidated results of operations for interim periods should not be regarded as necessarily indicative of the results that may be expected for the entire year.
Certain reclassifications have been made to the 2019 financial information to conform to the 2020 presentation.
|
|
|
|
(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. On November 5, 2019, the Company announced that its board of directors decided that the Company will no longer pay an annual stock dividend.
|
|
|
|
(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, 2019. 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
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net income attributed to Vector Group Ltd.
|
$
|
25,774
|
|
|
$
|
39,307
|
|
|
$
|
22,543
|
|
|
$
|
54,260
|
|
|
Income attributed to participating securities
|
(707
|
)
|
|
(2,027
|
)
|
|
(1,268
|
)
|
|
(4,029
|
)
|
|
Net income applicable to common shares attributed to Vector Group Ltd.
|
$
|
25,067
|
|
|
$
|
37,280
|
|
|
$
|
21,275
|
|
|
$
|
50,231
|
|
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Net income for purposes of determining diluted EPS was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net income attributed to Vector Group Ltd.
|
$
|
25,774
|
|
|
$
|
39,307
|
|
|
$
|
22,543
|
|
|
$
|
54,260
|
|
|
Income attributable to 5.5% Variable Interest Senior Convertible Notes
|
(375
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Income attributable to 7.5% Variable Interest Senior Convertible Notes
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,246
|
)
|
|
Income attributed to participating securities
|
(707
|
)
|
|
(2,027
|
)
|
|
(1,268
|
)
|
|
(4,029
|
)
|
|
Net income applicable to common shares attributed to Vector Group Ltd.
|
$
|
24,692
|
|
|
$
|
37,280
|
|
|
$
|
21,275
|
|
|
$
|
48,985
|
|
Basic and diluted EPS were calculated using the following common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Weighted-average shares for basic EPS
|
149,379,306
|
|
|
146,509,025
|
|
|
148,189,710
|
|
|
146,490,322
|
|
|
Plus incremental shares related to convertible debt
|
1,379,454
|
|
|
—
|
|
|
—
|
|
|
1,449,753
|
|
|
Plus incremental shares related to stock options and non-vested restricted stock
|
88,100
|
|
|
12,082
|
|
|
85,701
|
|
|
14,242
|
|
|
Weighted-average shares for diluted EPS
|
150,846,860
|
|
|
146,521,107
|
|
|
148,275,411
|
|
|
147,954,317
|
|
The following non-vested restricted stock and shares issuable upon the conversion of convertible debt were outstanding during the three and six months ended June 30, 2020 and 2019, 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
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Weighted-average shares of non-vested restricted stock
|
625,122
|
|
|
1,407,820
|
|
|
625,122
|
|
|
1,407,820
|
|
|
Weighted-average expense per share
|
$
|
19.54
|
|
|
$
|
17.92
|
|
|
$
|
19.54
|
|
|
$
|
17.92
|
|
|
Weighted-average number of shares issuable upon conversion of debt
|
—
|
|
|
11,447,061
|
|
|
4,874,072
|
|
|
11,447,061
|
|
|
Weighted-average conversion price
|
$
|
—
|
|
|
$
|
20.27
|
|
|
$
|
20.27
|
|
|
$
|
20.27
|
|
In response to the current novel coronavirus pandemic (“COVID-19”), the Company's Real Estate segment, including Douglas Elliman, has commenced a restructuring by realigning its administrative support function and office locations as well as adjusting its business model to more efficiently serve its clients. This included a reduction of staff by approximately 25% at Douglas Elliman.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
The following table summarizes amounts expensed for the three and six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2020
|
|
Six Months Ended June 30, 2020
|
|
Cash Charges:
|
|
|
|
|
Employee severance and benefits
|
$
|
1,599
|
|
|
$
|
1,599
|
|
|
Other restructuring expenses
|
218
|
|
|
218
|
|
|
|
1,817
|
|
|
1,817
|
|
|
Non-Cash:
|
|
|
|
|
Loss on fixed assets associated with consolidation of sales offices
|
1,144
|
|
|
1,144
|
|
|
|
1,144
|
|
|
1,144
|
|
|
|
|
|
|
|
Total restructuring charges
|
$
|
2,961
|
|
|
$
|
2,961
|
|
|
|
|
|
|
All amounts expensed for the three and six months ended June 30, 2020 are included as Restructuring charges in the Company’s condensed consolidated statements of operations and are all attributable to the Company’s Real Estate segment.
Severance and benefits expensed for the three and six months ended June 30, 2020 relate entirely to a reduction in administrative positions.
The following table presents the activity under the Real Estate segment restructuring plan for the six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Severance and Benefits
|
|
Other
|
|
Non-Cash Loss on Fixed Assets
|
|
Total
|
|
Accrual balance as of January 1, 2020
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Restructuring charges
|
|
1,599
|
|
|
218
|
|
|
1,144
|
|
|
2,961
|
|
|
Utilized
|
|
(1,239
|
)
|
|
—
|
|
|
(1,144
|
)
|
|
(2,383
|
)
|
|
Accrual balance as of June 30, 2020
|
|
$
|
360
|
|
|
$
|
218
|
|
|
$
|
—
|
|
|
$
|
578
|
|
|
|
|
|
(e)
|
Investments in Real Estate Ventures:
|
In accounting for its investments in real estate ventures, the Company identified its participation in Variable Interest Entities (“VIE”), which are defined as (a) entities in which the equity investment at risk is not sufficient to finance its activities without additional subordinated financial support; (b) as a group, the equity investors at risk lack 1) the power to direct the activities of a legal entity that most significantly impact the entity’s economic performance, 2) the obligation to absorb the expected losses of the entity, or 3) the right to receive the expected residual returns of the entity; or (c) as a group, the equity investors have voting rights that are not proportionate to their economic interests and the entity’s activities involve or are conducted on behalf of an investor with a disproportionately small voting interest.
The Company’s interest in VIEs is primarily in the form of equity ownership. The Company examines specific criteria and uses judgment when determining if the Company is the primary beneficiary of a VIE. Factors considered include risk and reward sharing, experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and 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,
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
any unfunded capital commitments to the VIE, and, in some cases, guarantees in connection with debt on the specific project. The Company’s maximum exposure to loss in its investment in consolidated VIEs is limited to its investment, which is the carrying value of the investment net of the non-controlling interest. Creditors of the consolidated VIEs have no recourse to the general credit of the primary beneficiary.
On a quarterly basis, the Company evaluates its investments in real estate ventures to determine if there are indicators of impairment. If so, the Company further investigates to determine if an impairment has occurred and whether such impairment is considered temporary or other than temporary. The Company believes that the assessment of temporary or other-than-temporary impairment is facts-and-circumstances driven.
Other, net consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Interest and dividend income
|
$
|
968
|
|
|
$
|
3,139
|
|
|
$
|
3,648
|
|
|
$
|
6,347
|
|
|
Net gains (losses) recognized on investment securities
|
4,781
|
|
|
2,315
|
|
|
(7,459
|
)
|
|
7,088
|
|
|
Net periodic benefit cost other than the service costs
|
(454
|
)
|
|
(575
|
)
|
|
(909
|
)
|
|
(1,116
|
)
|
|
Other income (expense)
|
2,340
|
|
|
(98
|
)
|
|
1,700
|
|
|
(98
|
)
|
|
Other, net
|
$
|
7,635
|
|
|
$
|
4,781
|
|
|
$
|
(3,020
|
)
|
|
$
|
12,221
|
|
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Other assets consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31, 2019
|
|
Restricted assets
|
$
|
4,004
|
|
|
$
|
5,241
|
|
|
Prepaid pension costs
|
32,207
|
|
|
31,686
|
|
|
Equity-method investments
|
14,817
|
|
|
15,942
|
|
|
Contract assets, net
|
25,957
|
|
|
18,443
|
|
|
Other assets
|
44,601
|
|
|
48,778
|
|
|
Total other assets
|
$
|
121,586
|
|
|
$
|
120,090
|
|
|
|
|
|
(h)
|
Other Current Liabilities:
|
Other current liabilities consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31, 2019
|
|
Accounts payable
|
$
|
12,232
|
|
|
$
|
10,222
|
|
|
Accrued promotional expenses
|
44,254
|
|
|
35,900
|
|
|
Accrued excise and payroll taxes payable, net
|
149,758
|
|
|
18,653
|
|
|
Accrued interest
|
31,623
|
|
|
35,756
|
|
|
Commissions payable
|
22,225
|
|
|
18,378
|
|
|
Accrued salary and benefits
|
15,407
|
|
|
29,464
|
|
|
Contract liabilities
|
7,830
|
|
|
9,358
|
|
|
Allowance for sales returns
|
8,191
|
|
|
7,785
|
|
|
Other current liabilities
|
40,514
|
|
|
23,801
|
|
|
Total other current liabilities
|
$
|
332,034
|
|
|
$
|
189,317
|
|
|
|
|
|
(i)
|
Reconciliation of Cash, Cash Equivalents and Restricted Cash:
|
The components of “Cash, cash equivalents and restricted cash” in the condensed consolidated statements of cash flows were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Cash and cash equivalents
|
$
|
540,363
|
|
|
$
|
371,341
|
|
|
Restricted cash and cash equivalents included in other current assets
|
6,310
|
|
|
4,423
|
|
|
Restricted cash and cash equivalents included in other assets
|
2,461
|
|
|
3,712
|
|
|
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows
|
$
|
549,134
|
|
|
$
|
379,476
|
|
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.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
(j) New Accounting Pronouncements:
Accounting Standards Updates (“ASU”) adopted in 2020:
In October 2018, the Financial Accounting Standards Board (“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. Adoption of this update did not have a material impact 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. Adoption of this update did not have a material impact on the Company’s condensed consolidated financial statements.
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 impacted financial statement disclosure and had no impact on operating results.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), sets forth a current expected credit loss model that changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. Subsequent updates were released in November 2018 (ASU No. 2018-19), November 2019 (ASU No. 2019-10 and 2019-11) and February 2020 (ASU No. 2020-02) that provided additional guidance on this Topic. This guidance is effective for fiscal years beginning after December 15, 2019.
The ASU introduces a new accounting model, the Current Expected Credit Losses model (CECL), which requires earlier recognition of credit losses and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses for notes and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. This model replaced the previous impairment models in U.S. GAAP, which generally required that a loss be incurred before it is recognized. The new standard applies to receivables arising from revenue transactions such as contract assets and accounts receivables. The adoption of this standard resulted in an increase in stockholders’ deficiency of $2,263, net of tax, attributed to commercial real estate term loans allowance for credit losses of $3,100 as of January 1, 2020.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. Under the amendments of the ASU, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The amendments in this update are effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. This guidance was adopted on January 1, 2020, on a prospective basis. The Company applied the new guidance to evaluate its goodwill during the first quarter of 2020. As a result, a goodwill impairment charge of $46,252 was recorded as the Company's estimated fair value of a reporting unit was less than its book value.
ASUs to be adopted in future periods:
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”).
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
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. The Company does not plan to early adopt. The adoption of ASU 2018-14 will impact financial statement disclosure with no impact on operating results.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This update simplifies various aspects related to accounting for income taxes, removes certain exceptions to the general principles in Accounting Standards Codification (“ASC”) 740, and clarifies and amends existing guidance to improve consistent application. ASU No. 2019-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the effect the standard will have on its condensed consolidated financial statements and related disclosures.
In January 2020, the FASB issued ASU No. 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”). The new standard clarifies the interaction of accounting for the transition into and out of the equity method. The new standard also clarifies the accounting for measuring certain purchased options and forward contracts to acquire investments. The ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted, including early adoption in an interim period. The Company is currently evaluating the effect the standard will have on its condensed consolidated financial statements and related disclosures.
In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). This ASU is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. This guidance is effective for all entities for contract modifications beginning March 12, 2020 and can be applied prospectively through December 31, 2022. The Company has not yet determined the extent to which it will utilize these expedients and exceptions should a modification occur. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements.
2. REVENUE RECOGNITION
Disaggregation of Revenue
In the following table, revenue is disaggregated by major product line for the Tobacco segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
|
June 30,
|
|
June 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Tobacco Segment Revenues:
|
|
|
|
|
|
|
|
|
|
Core Discount Brands - EAGLE 20’s, PYRAMID, GRAND PRIX, LIGGETT SELECT, and EVE
|
|
$
|
283,951
|
|
|
$
|
267,277
|
|
|
$
|
542,166
|
|
|
$
|
500,383
|
|
|
Other Brands
|
|
28,559
|
|
|
27,224
|
|
|
57,413
|
|
|
50,874
|
|
|
Total tobacco revenues
|
|
$
|
312,510
|
|
|
$
|
294,501
|
|
|
$
|
599,579
|
|
|
$
|
551,257
|
|
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
In the following table, revenue is disaggregated by major services line and primary geographical market for the Real Estate segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2020
|
|
|
|
New York City
|
|
Northeast
|
|
Southeast
|
|
West
|
|
Total
|
|
Real Estate Segment Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Commission and other brokerage income - existing home sales
|
|
$
|
35,861
|
|
|
$
|
35,631
|
|
|
$
|
23,232
|
|
|
$
|
20,024
|
|
|
$
|
114,748
|
|
|
Commission and other brokerage income - development marketing
|
|
5,173
|
|
|
—
|
|
|
2,747
|
|
|
586
|
|
|
8,506
|
|
|
Property management revenue
|
|
8,617
|
|
|
215
|
|
|
—
|
|
|
—
|
|
|
8,832
|
|
|
Title fees
|
|
474
|
|
|
369
|
|
|
—
|
|
|
—
|
|
|
843
|
|
|
Total Douglas Elliman revenue
|
|
50,125
|
|
|
36,215
|
|
|
25,979
|
|
|
20,610
|
|
|
132,929
|
|
|
Other real estate revenues
|
|
—
|
|
|
—
|
|
|
—
|
|
|
321
|
|
|
321
|
|
|
Total real estate revenues
|
|
$
|
50,125
|
|
|
$
|
36,215
|
|
|
$
|
25,979
|
|
|
$
|
20,931
|
|
|
$
|
133,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2019
|
|
|
|
New York City
|
|
Northeast
|
|
Southeast
|
|
West
|
|
Total
|
|
Real Estate Segment Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Commission and other brokerage income - existing home sales
|
|
$
|
104,301
|
|
|
$
|
39,880
|
|
|
$
|
31,324
|
|
|
$
|
31,653
|
|
|
$
|
207,158
|
|
|
Commission and other brokerage income - development marketing
|
|
22,718
|
|
|
—
|
|
|
436
|
|
|
22
|
|
|
23,176
|
|
|
Property management revenue
|
|
10,048
|
|
|
170
|
|
|
—
|
|
|
—
|
|
|
10,218
|
|
|
Title fees
|
|
1,869
|
|
|
471
|
|
|
—
|
|
|
60
|
|
|
2,400
|
|
|
Total Douglas Elliman revenue
|
|
138,936
|
|
|
40,521
|
|
|
31,760
|
|
|
31,735
|
|
|
242,952
|
|
|
Other real estate revenues
|
|
—
|
|
|
—
|
|
|
—
|
|
|
979
|
|
|
979
|
|
|
Total real estate revenues
|
|
$
|
138,936
|
|
|
$
|
40,521
|
|
|
$
|
31,760
|
|
|
$
|
32,714
|
|
|
$
|
243,931
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
|
New York City
|
|
Northeast
|
|
Southeast
|
|
West
|
|
Total
|
|
Real Estate Segment Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Commission and other brokerage income - existing home sales
|
|
$
|
85,970
|
|
|
$
|
70,355
|
|
|
$
|
53,410
|
|
|
$
|
45,724
|
|
|
$
|
255,459
|
|
|
Commission and other brokerage income - development marketing
|
|
13,624
|
|
|
—
|
|
|
9,469
|
|
|
668
|
|
|
23,761
|
|
|
Property management revenue
|
|
17,179
|
|
|
432
|
|
|
—
|
|
|
—
|
|
|
17,611
|
|
|
Title fees
|
|
1,067
|
|
|
632
|
|
|
—
|
|
|
—
|
|
|
1,699
|
|
|
Total Douglas Elliman revenue
|
|
117,840
|
|
|
71,419
|
|
|
62,879
|
|
|
46,392
|
|
|
298,530
|
|
|
Other real estate revenues
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,139
|
|
|
2,139
|
|
|
Total real estate revenues
|
|
$
|
117,840
|
|
|
$
|
71,419
|
|
|
$
|
62,879
|
|
|
$
|
48,531
|
|
|
$
|
300,669
|
|
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2019
|
|
|
|
New York City
|
|
Northeast
|
|
Southeast
|
|
West
|
|
Total
|
|
Real Estate Segment Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
Commission and other brokerage income - existing home sales
|
|
$
|
169,980
|
|
|
$
|
70,991
|
|
|
$
|
54,295
|
|
|
$
|
50,182
|
|
|
$
|
345,448
|
|
|
Commission and other brokerage income - development marketing
|
|
34,104
|
|
|
—
|
|
|
3,066
|
|
|
29
|
|
|
37,199
|
|
|
Property management revenue
|
|
18,215
|
|
|
354
|
|
|
—
|
|
|
—
|
|
|
18,569
|
|
|
Title fees
|
|
2,663
|
|
|
910
|
|
|
60
|
|
|
—
|
|
|
3,633
|
|
|
Total Douglas Elliman revenue
|
|
224,962
|
|
|
72,255
|
|
|
57,421
|
|
|
50,211
|
|
|
404,849
|
|
|
Other real estate revenues
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,250
|
|
|
3,250
|
|
|
Total real estate revenues
|
|
$
|
224,962
|
|
|
$
|
72,255
|
|
|
$
|
57,421
|
|
|
$
|
53,461
|
|
|
$
|
408,099
|
|
Contract Balances
The following table provides information about contracts assets and contract liabilities from development marketing and commercial leasing contracts with customers:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Receivables, which are included in accounts receivable - trade, net
|
$
|
1,532
|
|
|
$
|
2,129
|
|
|
Contract assets, net, which are included in other current assets
|
5,296
|
|
|
8,766
|
|
|
Payables, which are included in other current liabilities
|
1,084
|
|
|
1,663
|
|
|
Contract liabilities, which are included in other current liabilities
|
7,830
|
|
|
9,358
|
|
|
Contract assets, net, which are included in other assets
|
25,957
|
|
|
18,443
|
|
|
Contract liabilities, which are included in other liabilities
|
32,125
|
|
|
29,045
|
|
The Company recognized revenue of $3,921 and $6,658 for the three and six months ended June 30, 2020, that were included in the contract liabilities balances at December 31, 2019. There was no revenue recognized relating to performance obligations satisfied or partially satisfied in prior periods for the three and six months ended June 30, 2020 and 2019, respectively.
|
|
|
|
3.
|
CURRENT EXPECTED CREDIT LOSSES
|
On January 1, 2020, the Company adopted ASU No. 2016-13, which sets forth a current expected credit loss model that changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.
ASU 2016-13 introduces a new accounting model, the Current Expected Credit Losses model (CECL), which requires earlier recognition of credit losses and additional disclosures related to credit risk. The Company adopted this guidance using the modified retrospective approach, as required, and has not adjusted prior period comparative information and will continue to disclose the prior period financial information in accordance with the previous guidance. The adoption of this standard resulted in an increase in stockholders’ deficiency of $2,263 net of tax, attributed to commercial real estate term loans allowance for credit losses of $3,100 as of January 1, 2020.
Tobacco receivables: Average collection terms for Tobacco sales range between three and twelve days from the time that the cigarettes are shipped to the customer. Based on Tobacco historical and ongoing cash collections from customers, an estimated credit loss in accordance with ASU 2016-13 was not required for these trade receivables as of January 1, 2020 and June 30, 2020.
Real estate broker agent receivables: Douglas Elliman Realty is exposed to credit losses for various amounts due from real estate agents, which are included in Other current assets on the condensed consolidated balance sheets, net of an allowance for credit losses. The Company historically estimated its allowance for credit losses on receivables from agents based on an evaluation of aging, agent sales in pipeline, any security, specific exposures, and historical experience of collections from the individual
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
agents. Based on the Company’s historical credit losses on receivables from agents, current and expected future market trends (such as the current and expected impact of COVID-19 on the real estate market), it was determined that the requirements of Topic 326 did not result in a material impact on the Company’s allowance for credit losses as of January 1, 2020 of $6,132. The Company estimated that the credit losses for these receivables were $7,361 at June 30, 2020.
Term loan receivables: New Valley periodically provides term loans to commercial real estate developers, which are included in Other assets on the condensed consolidated balance sheets. New Valley had two loans with a total amortized cost basis of $15,534 and $15,276, including accrued interest receivable of $6,034 and $5,776 at June 30, 2020 and December 31, 2019, respectively, and have maturities in 2021 and beyond. The loans are secured by guarantees and given their risk profiles are evaluated individually. As New Valley does not have internal historical loss information by which to evaluate the risk of credit losses, external market data measuring default risks on high yield loans as of each measurement date was utilized to estimate reserves for credit losses on these loans. Pursuant to the requirements of Topic 326, New Valley’s expected credit loss estimate was $3,100 as of January 1, 2020 and $3,532 as of June 30, 2020, which reflects the significant current and expected decline in market conditions as of June 30, 2020 due to the impact of COVID-19 on the real estate market.
The adoption of this standard did not have a material impact on the debt securities available for sale portfolio.
The following is the rollforward of the allowance for credit losses for the six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1,
2020
|
|
Current Period Provision
|
|
Write-offs
|
|
Recoveries
|
|
June 30,
2020
|
|
Allowance for credit losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate broker agent receivables
|
$
|
6,132
|
|
|
$
|
1,270
|
|
(1)
|
$
|
41
|
|
|
$
|
—
|
|
|
7,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Valley term loan receivables
|
3,100
|
|
|
432
|
|
(2)
|
—
|
|
|
—
|
|
|
3,532
|
|
______________________
(1) The bad debt expense related to the real estate broker agent receivables is included in Operating, selling, administrative and general expenses on the condensed consolidated statements of operations.
(2) The credit losses related to the New Valley term loan receivables are included in Other, net on the condensed consolidated statements of operations.
Leases
The Company has operating and finance leases for corporate and sales offices, and certain vehicles and equipment. The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Operating lease cost
|
$
|
9,356
|
|
|
$
|
9,630
|
|
|
$
|
18,780
|
|
|
$
|
18,505
|
|
|
Short-term lease cost
|
389
|
|
|
279
|
|
|
790
|
|
|
513
|
|
|
Variable lease cost
|
588
|
|
|
898
|
|
|
1,155
|
|
|
1,690
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
Amortization
|
39
|
|
|
63
|
|
|
77
|
|
|
119
|
|
|
Interest on lease liabilities
|
4
|
|
|
4
|
|
|
7
|
|
|
7
|
|
|
Total lease cost
|
$
|
10,376
|
|
|
$
|
10,874
|
|
|
$
|
20,809
|
|
|
$
|
20,834
|
|
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 30,
|
|
|
2020
|
|
2019
|
|
Cash paid for amounts included in measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
$
|
11,953
|
|
|
$
|
18,440
|
|
|
Operating cash flows from finance leases
|
7
|
|
|
7
|
|
|
Financing cash flows from finance leases
|
69
|
|
|
113
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
|
Operating leases
|
9,076
|
|
|
13,061
|
|
|
Finance leases
|
60
|
|
|
123
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
Operating leases:
|
|
|
|
|
Operating lease right-of-use assets
|
$
|
148,662
|
|
|
$
|
149,578
|
|
|
|
|
|
|
|
Current operating lease liability
|
$
|
18,268
|
|
|
$
|
18,294
|
|
|
Non-current operating lease liability
|
159,296
|
|
|
156,963
|
|
|
Total operating lease liabilities
|
$
|
177,564
|
|
|
$
|
175,257
|
|
|
|
|
|
|
|
Finance leases:
|
|
|
|
|
Investments in real estate, net (1)
|
$
|
84
|
|
|
$
|
88
|
|
|
|
|
|
|
|
Property, plant and equipment, at cost
|
$
|
127
|
|
|
$
|
127
|
|
|
Accumulated amortization
|
(32
|
)
|
|
(19
|
)
|
|
Property and equipment, net
|
$
|
95
|
|
|
$
|
108
|
|
|
|
|
|
|
|
Current portion of notes payable and long-term debt
|
$
|
61
|
|
|
$
|
86
|
|
|
Notes payable, long-term debt and other obligations, less current portion
|
124
|
|
|
108
|
|
|
Total finance lease liabilities
|
$
|
185
|
|
|
$
|
194
|
|
|
|
|
|
|
|
Weighted average remaining lease term:
|
|
|
|
|
Operating leases
|
8.35
|
|
|
8.46
|
|
|
Finance leases
|
3.10
|
|
|
3.01
|
|
|
|
|
|
|
|
Weighted average discount rate:
|
|
|
|
|
Operating leases
|
9.48
|
%
|
|
10.75
|
%
|
|
Finance leases
|
7.68
|
%
|
|
8.61
|
%
|
|
|
|
|
(1)
|
Included in Investments in real estate, net on the condensed consolidated balance sheets are financing lease equipment, at cost of $822 and $762 and accumulated amortization of $738 and $674 as of June 30, 2020 and December 31, 2019, respectively.
|
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
As of June 30, 2020, maturities of lease liabilities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
Finance
Leases
|
|
Period Ending December 31:
|
|
|
|
|
|
|
Remainder of 2020
|
$
|
15,374
|
|
|
$
|
39
|
|
|
2021
|
38,992
|
|
|
66
|
|
|
2022
|
34,772
|
|
|
61
|
|
|
2023
|
31,516
|
|
|
35
|
|
|
2024
|
25,902
|
|
|
8
|
|
|
2025
|
20,980
|
|
|
—
|
|
|
Thereafter
|
96,668
|
|
|
—
|
|
|
Total lease payments
|
264,204
|
|
|
209
|
|
|
Less imputed interest
|
(86,640
|
)
|
|
(24
|
)
|
|
Total
|
$
|
177,564
|
|
|
$
|
185
|
|
As of June 30, 2020, the Company had $870 in undiscounted lease payments relating to additional operating leases for office space and equipment that have not yet commenced. The operating leases will commence in the third and fourth quarter of 2020 with lease terms ranging from 1.5 years to 5 years.
Due to the business disruptions and challenges severely affecting the global economy caused by the COVID-19 pandemic, lessors may provide rent deferrals and other lease concessions to lessees. While the lease modification guidance in Topic 842 addresses routine changes to lease terms resulting from negotiations between the lessee and the lessor, this guidance does not contemplate concessions being so rapidly executed to address the sudden liquidity constraints of some lessees arising from the COVID-19 pandemic and restrictions intended to prevent its spread.
In April 2020, the FASB staff issued a question and answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of the COVID-19 pandemic. Under existing lease guidance, the Company would have to determine, on a lease by lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows the Company, if certain criteria have been met, to bypass the lease by lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances.
The Company entered into rent deferral concession agreements during the three months ended June 30, 2020, with approximately half of its existing landlords. The agreements varied on the timing of repayment but all agreements required repayment of the deferrals over the remaining lease terms. The Company elected to treat these deferrals agreements as lease modifications and the existing lease liabilities were remeasured with a corresponding adjustment to the ROU asset on the effective date of the modification.
The Lease Modification Q&A’s future impact to the Company’s condensed consolidated financial statements is dependent upon the extent of any lease concessions granted to the Company or its subsidiaries as a result of the COVID-19 pandemic in future periods and the elections made by the Company at the time of entering into such concessions.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Inventories consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Leaf tobacco
|
$
|
48,482
|
|
|
$
|
44,516
|
|
|
Other raw materials
|
4,564
|
|
|
4,669
|
|
|
Work-in-process
|
532
|
|
|
333
|
|
|
Finished goods
|
66,970
|
|
|
71,183
|
|
|
Inventories at current cost
|
120,548
|
|
|
120,701
|
|
|
LIFO adjustments
|
(21,939
|
)
|
|
(21,939
|
)
|
|
|
$
|
98,609
|
|
|
$
|
98,762
|
|
All of the Company’s inventories at June 30, 2020 and December 31, 2019 are reported under the LIFO method. The $21,939 LIFO adjustment as of June 30, 2020 decreases the current cost of inventories by $15,210 for Leaf tobacco, $183 for Other raw materials, $24 for Work-in-process and $6,522 for Finished goods. The $21,939 LIFO adjustment as of December 31, 2019 decreased the current cost of inventories by $15,210 for Leaf tobacco, $182 for Other raw materials, $24 for Work-in-process and $6,523 for Finished goods.
The amount of capitalized MSA cost in “Finished goods” inventory was $20,801 and $20,472 at June 30, 2020 and December 31, 2019, respectively. Federal excise tax capitalized in inventory was $27,663 and $27,676 at June 30, 2020 and December 31, 2019, respectively.
At June 30, 2020, Liggett had tobacco purchase commitments of approximately $18,799. Liggett has a single source supply agreement for reduced ignition propensity cigarette paper through 2022.
Investment securities consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31, 2019
|
|
Debt securities available for sale
|
$
|
54,885
|
|
|
$
|
83,445
|
|
|
|
|
|
|
|
Equity securities at fair value:
|
|
|
|
|
Marketable equity securities
|
11,091
|
|
|
23,819
|
|
|
Mutual funds invested in debt securities
|
22,667
|
|
|
22,377
|
|
|
Long-term investment securities at fair value (1)
|
33,232
|
|
|
45,781
|
|
|
Total equity securities at fair value
|
66,990
|
|
|
91,977
|
|
|
|
|
|
|
|
Total investment securities at fair value
|
121,875
|
|
|
175,422
|
|
|
Less:
|
|
|
|
|
Long-term investment securities at fair value
|
33,232
|
|
|
45,781
|
|
|
Current investment securities at fair value
|
88,643
|
|
|
129,641
|
|
|
|
|
|
|
|
Equity-method investments
|
$
|
14,817
|
|
|
$
|
15,942
|
|
(1) These assets are measured at net asset value (“NAV”) as a practical expedient under ASC 820.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Net gains (losses) recognized on investment securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net gains (losses) recognized on equity securities
|
$
|
4,711
|
|
|
$
|
2,311
|
|
|
$
|
(7,026
|
)
|
|
$
|
7,051
|
|
|
Net gains (losses) recognized on debt securities available for sale
|
70
|
|
|
6
|
|
|
(47
|
)
|
|
42
|
|
|
Impairment expense
|
—
|
|
|
(2
|
)
|
|
(386
|
)
|
|
(5
|
)
|
|
Net gains (losses) recognized on investment securities
|
$
|
4,781
|
|
|
$
|
2,315
|
|
|
$
|
(7,459
|
)
|
|
$
|
7,088
|
|
(a) Debt Securities Available for Sale
The components of debt securities available for sale at June 30, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Marketable debt securities
|
$
|
53,741
|
|
|
$
|
1,144
|
|
|
$
|
—
|
|
|
$
|
54,885
|
|
The table below summarizes the maturity dates of debt securities available for sale at June 30, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment Type:
|
Fair Value
|
|
Under 1 Year
|
|
1 Year up to 5 Years
|
|
More than 5 Years
|
|
U.S. Government securities
|
$
|
12,754
|
|
|
$
|
8,761
|
|
|
$
|
3,993
|
|
|
$
|
—
|
|
|
Corporate securities
|
37,145
|
|
|
22,570
|
|
|
14,575
|
|
|
—
|
|
|
U.S. mortgage-backed securities
|
4,984
|
|
|
3,134
|
|
|
1,850
|
|
|
—
|
|
|
Commercial mortgage-backed securities
|
2
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
Total debt securities available for sale by maturity dates
|
$
|
54,885
|
|
|
$
|
34,467
|
|
|
$
|
20,418
|
|
|
$
|
—
|
|
The components of debt securities available for sale at December 31, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Marketable debt securities
|
$
|
82,714
|
|
|
$
|
731
|
|
|
$
|
—
|
|
|
$
|
83,445
|
|
There were no available-for-sale debt securities with continuous unrealized losses for less than 12 months and 12 months or greater at June 30, 2020 and December 31, 2019, respectively.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Gross realized gains and losses on debt securities available for sale were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Gross realized gains on sales
|
$
|
72
|
|
|
$
|
9
|
|
|
$
|
170
|
|
|
$
|
47
|
|
|
Gross realized losses on sales
|
(2
|
)
|
|
(3
|
)
|
|
(217
|
)
|
|
(5
|
)
|
|
Net gains (losses) recognized on debt securities available for sale
|
$
|
70
|
|
|
$
|
6
|
|
|
$
|
(47
|
)
|
|
$
|
42
|
|
|
|
|
|
|
|
|
|
|
|
Impairment expense
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
(386
|
)
|
|
$
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
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
The following is a summary of unrealized and realized net gains and losses recognized in net income on equity securities at fair value during the three and six months ended June 30, 2020 and 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Net gains (losses) recognized on equity securities
|
$
|
4,711
|
|
|
$
|
2,311
|
|
|
$
|
(7,026
|
)
|
|
$
|
7,051
|
|
|
Less: Net gains (losses) recognized on equity securities sold
|
601
|
|
|
278
|
|
|
(17
|
)
|
|
410
|
|
|
Net unrealized gains (losses) recognized on equity securities still held at the reporting date
|
$
|
4,110
|
|
|
$
|
2,033
|
|
|
$
|
(7,009
|
)
|
|
$
|
6,641
|
|
|
|
|
|
|
|
|
|
|
The Company’s marketable equity securities and mutual funds invested in debt securities are classified as Level 1 under the fair value hierarchy disclosed in Note 12. Their fair values are based on quoted prices for identical assets in active markets or inputs that are based upon quoted prices for similar instruments in active markets.
The Company received cash distributions of $23,510 and recorded $2,148 of in-transit redemptions as of June 30, 2020 related to its long-term investment securities at fair value. The Company classified $23,407 of these distributions as investing cash inflows for the six months ended June 30, 2020. The remaining distributions were classified as operating cash inflows.
(c) Equity-Method Investments:
Equity-method investments consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31, 2019
|
|
Mutual fund and hedge funds
|
$
|
14,817
|
|
|
$
|
15,509
|
|
|
Ladenburg Thalmann Financial Services Inc. (“LTS”)
|
—
|
|
|
433
|
|
|
|
$
|
14,817
|
|
|
$
|
15,942
|
|
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
At June 30, 2020, the Company’s ownership percentages in the mutual fund and hedge funds accounted for under the equity method ranged from 7.10% to 35.75%. The Company’s ownership percentage in these investments meets the threshold for equity-method accounting.
In November 2019, LTS entered into an Agreement and Plan of Merger with Advisor Group whereby each LTS common share would be converted into the right to receive $3.50 per common share. On February 14, 2020, the merger was completed and the Company received proceeds of $53,169 in exchange for the Company’s 15,191,205 common shares of LTS. The Company also tendered 240,000 shares of LTS 8% Series A Cumulative Redeemable Preferred Stock (Liquidation Preference $25.00 Per Share) for redemption and received an additional $6,009 in March 2020. At the closing of the transaction, the Company’s Executive Vice President resigned as Chairman, President and Chief Executive Officer of LTS, and the Company’s management agreement with LTS was terminated.
Equity in earnings (losses) from investments were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Mutual fund and hedge funds
|
$
|
2,207
|
|
|
$
|
(230
|
)
|
|
$
|
(693
|
)
|
|
$
|
612
|
|
|
LTS
|
—
|
|
|
(1,480
|
)
|
|
53,052
|
|
|
(985
|
)
|
|
Other
|
—
|
|
|
25
|
|
|
—
|
|
|
50
|
|
|
Equity in earnings (losses) from investments
|
$
|
2,207
|
|
|
$
|
(1,685
|
)
|
|
$
|
52,359
|
|
|
$
|
(323
|
)
|
The Company received cash distributions of $53,484 (including the $53,169 received by the Company in exchange for the Company’s 15,191,205 common shares of LTS) and $855 from the Company’s equity-method investments for the six months ended June 30, 2020 and 2019, respectively. The Company classified its cash distributions of $53,484 and $855 as operating activities on the condensed consolidated statements of cash flows for the six months ended June 30, 2020 and June 30, 2019, respectively.
(d) Equity Securities Without Readily Determinable Fair Values That Do Not Qualify for the NAV Practical Expedient
Equity securities without readily determinable fair values that do not qualify for the NAV practical expedient consisted of investments in the common stock of a reinsurance company and membership units of a commercial real estate limited liability company at June 30, 2020 and December 31, 2019, respectively. Membership units of a real estate limited liability company were also included in the balance as of December 31, 2019. The total carrying value of these investments was $5,200 as of June 30, 2020 and $6,200 as of December 31, 2019, and was included in “Other assets” on the condensed consolidated balance sheets. No impairment or other adjustments related to observable price changes in orderly transactions for identical or similar investments were identified for the three and six months ended June 30, 2020 and 2019, respectively.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
7. NEW VALLEY LLC
Investments in real estate ventures:
The components of “Investments in real estate ventures” were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of Ownership (1)
|
|
June 30, 2020
|
|
December 31, 2019
|
|
Condominium and Mixed Use Development:
|
|
|
|
|
|
|
New York City Standard Metropolitan Statistical Area (“SMSA”)
|
3.1% - 49.5%
|
|
$
|
42,851
|
|
|
$
|
51,078
|
|
|
All other U.S. areas
|
15.0% - 77.8%
|
|
47,172
|
|
|
55,842
|
|
|
|
|
|
90,023
|
|
|
106,920
|
|
|
Hotels:
|
|
|
|
|
|
|
New York City SMSA
|
1.0% - 18.4%
|
|
3,107
|
|
|
2,462
|
|
|
International
|
49.0%
|
|
1,610
|
|
|
2,161
|
|
|
|
|
|
4,717
|
|
|
4,623
|
|
|
Commercial:
|
|
|
|
|
|
|
New York City SMSA
|
49.0%
|
|
2,076
|
|
|
1,852
|
|
|
All other U.S. areas
|
1.6%
|
|
7,567
|
|
|
7,634
|
|
|
|
|
|
9,643
|
|
|
9,486
|
|
|
|
|
|
|
|
|
|
Other:
|
15.0% - 49.0%
|
|
10,994
|
|
|
10,527
|
|
|
Investments in real estate ventures
|
|
|
$
|
115,377
|
|
|
$
|
131,556
|
|
______________________
(1) The Range of Ownership reflects New Valley’s estimated current ownership percentage. New Valley’s actual ownership percentage as well as the percentage of earnings and cash distributions may ultimately differ as a result of a number of factors including potential dilution, financing or admission of additional partners.
Contributions:
The components of New Valley’s contributions to its investments in real estate ventures were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 30,
|
|
|
2020
|
|
2019
|
|
Condominium and Mixed Use Development:
|
|
|
|
|
New York City SMSA
|
$
|
1,169
|
|
|
$
|
21,537
|
|
|
All other U.S. areas
|
2,161
|
|
|
—
|
|
|
|
3,330
|
|
|
21,537
|
|
|
Apartment Buildings:
|
|
|
|
|
All other U.S. areas
|
76
|
|
|
—
|
|
|
|
76
|
|
|
—
|
|
|
|
|
|
|
|
Hotels:
|
|
|
|
|
New York City SMSA
|
—
|
|
|
172
|
|
|
|
—
|
|
|
172
|
|
|
|
|
|
|
|
Other:
|
452
|
|
|
199
|
|
|
Total contributions
|
$
|
3,858
|
|
|
$
|
21,908
|
|
For ventures where New Valley previously held an investment, New Valley contributed its proportionate share of additional capital along with contributions by the other investment partners during the six months ended June 30, 2020 and June 30, 2019. New Valley’s direct investment percentage for these ventures did not significantly change.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Distributions:
The components of distributions received by New Valley from its investments in real estate ventures were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
June 30,
|
|
|
2020
|
|
2019
|
|
Condominium and Mixed Use Development:
|
|
|
|
|
New York City SMSA
|
$
|
1,735
|
|
|
$
|
571
|
|
|
All other U.S. areas
|
5,214
|
|
|
1,279
|
|
|
|
6,949
|
|
|
1,850
|
|
|
Apartment Buildings:
|
|
|
|
|
All other U.S. areas
|
—
|
|
|
3
|
|
|
|
—
|
|
|
3
|
|
|
Hotels:
|
|
|
|
|
New York City SMSA
|
—
|
|
|
21,572
|
|
|
|
—
|
|
|
21,572
|
|
|
Commercial:
|
|
|
|
|
New York City SMSA
|
3
|
|
|
9
|
|
|
All other U.S. areas
|
52
|
|
|
129
|
|
|
|
55
|
|
|
138
|
|
|
|
|
|
|
|
Other
|
23
|
|
|
1,697
|
|
|
Total distributions
|
$
|
7,027
|
|
|
$
|
25,260
|
|
Of the distributions received by New Valley from its investment in real estate ventures, $1,855 and $2,060 were from distributions of earnings for the six months ended June 30, 2020 and 2019, respectively, and $5,172 and $23,200 were a return of capital for the six months ended June 30, 2020 and 2019, respectively. Distributions from earnings are 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.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Equity in (Losses) Earnings from Real Estate Ventures:
New Valley recognized equity in (losses) earnings from real estate ventures as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Condominium and Mixed Use Development:
|
|
|
|
|
|
|
|
|
New York City SMSA
|
$
|
(5,104
|
)
|
|
$
|
(1,120
|
)
|
|
$
|
(8,451
|
)
|
|
$
|
(3,226
|
)
|
|
All other U.S. areas (1)
|
(6,489
|
)
|
|
(2,258
|
)
|
|
(9,288
|
)
|
|
(2,366
|
)
|
|
|
(11,593
|
)
|
|
(3,378
|
)
|
|
(17,739
|
)
|
|
(5,592
|
)
|
|
Apartment Buildings:
|
|
|
|
|
|
|
|
|
All other U.S. areas
|
(76
|
)
|
|
3
|
|
|
(76
|
)
|
|
3
|
|
|
|
(76
|
)
|
|
3
|
|
|
(76
|
)
|
|
3
|
|
|
Hotels:
|
|
|
|
|
|
|
|
|
New York City SMSA (1)
|
(542
|
)
|
|
8,942
|
|
|
(649
|
)
|
|
8,234
|
|
|
International
|
(90
|
)
|
|
122
|
|
|
(551
|
)
|
|
(364
|
)
|
|
|
(632
|
)
|
|
9,064
|
|
|
(1,200
|
)
|
|
7,870
|
|
|
Commercial:
|
|
|
|
|
|
|
|
|
New York City SMSA
|
301
|
|
|
384
|
|
|
227
|
|
|
263
|
|
|
All other U.S. areas
|
(264
|
)
|
|
79
|
|
|
(15
|
)
|
|
371
|
|
|
|
37
|
|
|
463
|
|
|
212
|
|
|
634
|
|
|
|
|
|
|
|
|
|
|
|
Other:
|
4
|
|
|
239
|
|
|
38
|
|
|
1,037
|
|
|
Equity in (losses) earnings from real estate ventures
|
$
|
(12,260
|
)
|
|
$
|
6,391
|
|
|
$
|
(18,765
|
)
|
|
$
|
3,952
|
|
______________________
(1) The Company recognized a liability, classified in Other current liabilities, of $2,498 as a result of recording equity in losses in excess of the joint ventures' carrying value.
During the six months ended June 30, 2019, New Valley’s Park Lane joint venture sold 80.0% of its interest in the Park Lane Hotel, a hotel located in the New York City SMSA. New Valley recognized equity in earnings of $10,328 from the sale and received distributions of $20,788 for the six months ended June 30, 2019. The sale reduced New Valley’s direct ownership percentage of the Park Lane Hotel from 5.2% to 1.0%. New Valley continues to account for its investment in the joint venture under the equity method of accounting because its ownership percentage in its direct investment continues to meet the threshold for equity method accounting.
As part of the Company’s ongoing assessment of the carrying values of its investments in real estate ventures, the Company determined that the fair value of a New York City SMSA Condominium and Mixed Use Development venture was less than its carrying value as of June 30, 2020. The Company determined that the impairment was other than temporary. The Company recorded an impairment charge as a component of equity in losses from real estate ventures of $3,784 for the three and six months ended June 30, 2020.
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 three New York City SMSA and one All other U.S. areas Condominium and Mixed Use Development ventures were less than their carrying value as of June 30, 2019. The Company determined that the impairment was other than temporary. The Company recorded an impairment charge as a component of equity in earnings from real estate ventures of $3,866 for the three and six months ended June 30, 2019.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
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 $0 and $897 as of June 30, 2020 and December 31, 2019, respectively. Those assets are owned by the VIEs, not the Company. Neither of the two consolidated VIEs had recourse liabilities as of June 30, 2020 and December 31, 2019. 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.
For the remaining investments in real estate ventures, New Valley determined that the entities were VIEs but New Valley was not the primary beneficiary. Therefore, New Valley’s investment in such real estate ventures has been accounted for under the equity method of accounting.
Maximum Exposure to Loss:
New Valley’s maximum exposure to loss from its investments in real estate ventures consisted of the net carrying value of the venture adjusted for any future capital commitments and/or guarantee arrangements. The maximum exposure to loss was as follows:
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
Condominium and Mixed Use Development:
|
|
|
New York City SMSA
|
$
|
42,851
|
|
|
All other U.S. areas
|
47,172
|
|
|
|
90,023
|
|
|
Hotels:
|
|
|
New York City SMSA
|
3,107
|
|
|
International
|
1,610
|
|
|
|
4,717
|
|
|
Commercial:
|
|
|
New York City SMSA
|
2,076
|
|
|
All other U.S. areas
|
7,567
|
|
|
|
9,643
|
|
|
|
|
|
Other:
|
24,641
|
|
|
Total maximum exposure to loss
|
$
|
129,024
|
|
New Valley capitalized $1,004 and $2,257 of interest costs into the carrying value of its ventures whose projects were currently under development for the three and six months ended June 30, 2020. New Valley capitalized $1,688 and $3,003 of interest costs into the carrying value of its ventures whose projects were currently under development for the three and six months ended June 30, 2019.
Douglas Elliman is engaged by certain developers as a broker for several of the real estate ventures that New Valley invests in. Douglas Elliman earned gross commissions of approximately $7,698 and $11,223 from these projects for the six months ended June 30, 2020 and 2019, 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 West Hollywood Edition investment. New Valley has elected a one-month lag reporting period for the investment.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Condominium and Mixed Use Development:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Income Statement
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
1,830
|
|
|
$
|
—
|
|
|
$
|
33,409
|
|
|
$
|
—
|
|
|
Cost of goods sold
|
—
|
|
|
—
|
|
|
22,100
|
|
|
—
|
|
|
Other expenses
|
14,013
|
|
|
6
|
|
|
31,926
|
|
|
75
|
|
|
Loss from continuing operations
|
$
|
(12,183
|
)
|
|
$
|
(6
|
)
|
|
$
|
(20,617
|
)
|
|
$
|
(75
|
)
|
Investments in Real Estate, net:
The components of “Investments in real estate, net” were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Escena, net
|
$
|
9,852
|
|
|
$
|
9,972
|
|
|
Sagaponack
|
19,024
|
|
|
18,345
|
|
|
Investments in real estate, net
|
$
|
28,876
|
|
|
$
|
28,317
|
|
Escena. The assets of “Escena, net” were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Land and land improvements
|
$
|
8,911
|
|
|
$
|
8,910
|
|
|
Building and building improvements
|
1,926
|
|
|
1,926
|
|
|
Other
|
1,673
|
|
|
1,659
|
|
|
|
12,510
|
|
|
12,495
|
|
|
Less accumulated depreciation
|
(2,658
|
)
|
|
(2,523
|
)
|
|
|
$
|
9,852
|
|
|
$
|
9,972
|
|
New Valley recorded operating losses of $629 and $354 for the three months ended June 30, 2020 and 2019, respectively, from Escena. New Valley recorded operating losses of $272 and operating income of $332 for the six months ended June 30, 2020 and 2019, respectively, from Escena. Escena is a master planned community, golf course, and club house in Palm Springs, California.
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 June 30, 2020 and December 31, 2019, the assets of Sagaponack consisted of land and land improvements of $19,024 and $18,345, respectively.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
|
|
|
|
8.
|
NOTES PAYABLE, LONG-TERM DEBT AND OTHER OBLIGATIONS
|
Notes payable, long-term debt and other obligations consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
December 31,
2019
|
|
Vector:
|
|
|
|
|
6.125% Senior Secured Notes due 2025
|
$
|
850,000
|
|
|
$
|
850,000
|
|
|
10.5% Senior Notes due 2026, net of unamortized discount of $3,221 and $3,392
|
551,779
|
|
|
551,608
|
|
|
5.5% Variable Interest Senior Convertible Debentures due 2020, net of unamortized discount of $0 and $5,276*
|
—
|
|
|
164,334
|
|
|
Liggett:
|
|
|
|
|
Revolving credit facility
|
—
|
|
|
34,952
|
|
|
Equipment loans
|
143
|
|
|
347
|
|
|
Other
|
28,033
|
|
|
30,146
|
|
|
Notes payable, long-term debt and other obligations
|
1,429,955
|
|
|
1,631,387
|
|
|
Less:
|
|
|
|
|
Debt issuance costs
|
(22,908
|
)
|
|
(24,902
|
)
|
|
Total notes payable, long-term debt and other obligations
|
1,407,047
|
|
|
1,606,485
|
|
|
Less:
|
|
|
|
|
Current maturities
|
(8,853
|
)
|
|
(209,269
|
)
|
|
Amount due after one year
|
$
|
1,398,194
|
|
|
$
|
1,397,216
|
|
______________________
* The fair value of the derivatives embedded within the 5.5% Variable Interest Senior Convertible Debentures ($4,999 at December 31, 2019), is separately classified as a derivative liability in the condensed consolidated balance sheets.
6.125% Senior Secured Notes due 2025 — Vector:
As of June 30, 2020, 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:
As of June 30, 2020, the Company was in compliance with all debt covenants related to its 10.5% Senior Notes due 2026.
5.5% Variable Interest Senior Convertible Debentures due 2020 — Vector:
In April 2020, the Company paid $169,610 of principal as full payment of its 5.5% Variable Interest Senior Convertible Debentures due 2020, which matured on April 15, 2020.
Revolving Credit Agreement — Liggett:
As of June 30, 2020, there was no outstanding balance due under the Third Amended and Restated Credit Agreement (the “Credit Agreement”), all of which was classified as current debt as of June 30, 2020. Availability, as determined under the Credit Agreement, was approximately $60,000 based on eligible collateral at June 30, 2020. As of June 30, 2020, the Company’s applicable subsidiaries were in compliance with all debt covenants under the Credit Agreement.
Other:
Other Notes Payable consist primarily of $27,500 of notes payable issued by New Valley. On December 31, 2018, New Valley acquired the remaining 29.41% interest in Douglas Elliman for a total purchase price of $40,000, which included $10,000 of cash paid and the remaining $30,000 of notes payable to the sellers. Interest on the outstanding principal balance of the notes accrued at the mid-term applicable federal rate (“AFR”) in effect as of December 31, 2018 until January 1, 2020 and thereafter is adjusted to the then-current AFR on each payment date. Principal and interest is payable in installments through October 1, 2022. $2,500
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
of principal has been repaid through June 30, 2020 and the remaining principal is due to be repaid as follows: (1) $2,500 in the remainder of 2020; (2) $12,500 in 2021; and (3) $12,500 in 2022.
Non-Cash Interest Expense — Vector:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Amortization of debt discount, net
|
$
|
847
|
|
|
$
|
5,447
|
|
|
$
|
5,447
|
|
|
$
|
13,972
|
|
|
Amortization of debt issuance costs
|
889
|
|
|
1,053
|
|
|
2,047
|
|
|
2,238
|
|
|
|
$
|
1,736
|
|
|
$
|
6,500
|
|
|
$
|
7,494
|
|
|
$
|
16,210
|
|
Fair Value of Notes Payable and Long-Term Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2020
|
|
December 31, 2019
|
|
|
Carrying
|
|
Fair
|
|
Carrying
|
|
Fair
|
|
|
Value
|
|
Value
|
|
Value
|
|
Value
|
|
Senior Notes
|
$
|
1,401,779
|
|
|
$
|
1,380,787
|
|
|
$
|
1,401,608
|
|
|
$
|
1,409,920
|
|
|
Variable Interest Senior Convertible Debt
|
—
|
|
|
—
|
|
|
164,334
|
|
|
176,289
|
|
|
Liggett and other
|
28,176
|
|
|
28,188
|
|
|
65,445
|
|
|
65,456
|
|
|
Notes payable and long-term debt
|
$
|
1,429,955
|
|
|
$
|
1,408,975
|
|
|
$
|
1,631,387
|
|
(1)
|
$
|
1,651,665
|
|
______________________
(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 sheets at amortized cost. The fair value determinations disclosed above are classified as Level 2 under the fair value hierarchy disclosed in Note 12 if such liabilities were recorded on the condensed consolidated balance 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 June 30, 2020 to determine the fair value of its publicly-traded notes and debentures. The carrying value of the revolving credit facility is equal to fair value. The fair value of the equipment loans and other obligations was determined by calculating the present value of the required future cash flows. However, considerable judgment is required to develop the estimates of fair value and, accordingly, the estimate presented herein is not necessarily indicative of the amount that could be realized in a current market exchange.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Tobacco-Related Litigation:
Overview. Since 1954, Liggett and other United States cigarette manufacturers have been named as defendants in numerous direct, third-party and purported class actions predicated on the theory that cigarette manufacturers should be liable for damages alleged to have been caused by cigarette smoking or by exposure to secondary smoke from cigarettes. The cases have generally fallen into the following categories: (i) smoking and health cases alleging personal injury brought on behalf of individual plaintiffs (“Individual Actions”); (ii) lawsuits by individuals requesting the benefit of the Engle ruling (“Engle progeny cases”); (iii) smoking and health cases primarily alleging personal injury or seeking court-supervised programs for ongoing medical monitoring, as well as cases alleging that use of the terms “lights” and/or “ultra lights” constitutes a deceptive and unfair trade practice, common law fraud or violation of federal law, purporting to be brought on behalf of a class of individual plaintiffs (“Class Actions”); and (iv) health care cost recovery actions brought by various foreign and domestic governmental plaintiffs and non-governmental plaintiffs seeking reimbursement for health care expenditures allegedly caused by cigarette smoking and/or disgorgement of profits (“Health Care Cost Recovery Actions”). The future financial impact of the risks and expenses of litigation are not quantifiable. For the six months ended June 30, 2020 and 2019, Liggett incurred tobacco product liability legal expenses and costs totaling $3,191 and $3,737, 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.
Bonds. Although Liggett has been able to obtain required bonds or relief from bonding requirements in order to prevent plaintiffs from seeking to collect judgments while adverse verdicts are on appeal, there remains a risk that such relief may not be obtainable in all cases. This risk has been reduced given that a majority of states now limit the dollar amount of bonds or require no bond at all. As of June 30, 2020, to obtain a stay of the judgment pending the appeal of the Santoro case, Liggett secured a $535 supersedeas bond.
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
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
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 June 30, 2020, there were 54 Individual Actions pending against Liggett, where one or more individual plaintiffs allege injury resulting from cigarette smoking, addiction to cigarette smoking or exposure to secondary smoke and seek compensatory and, in some cases, punitive damages. These cases do not include the remaining Engle progeny cases. The following table lists the number of Individual Actions by state:
|
|
|
|
|
|
|
State
|
|
Number
of Cases
|
|
Florida
|
|
37
|
|
Illinois
|
|
9
|
|
Nevada
|
|
5
|
|
Louisiana
|
|
2
|
|
Massachusetts
|
|
1
|
The plaintiffs’ allegations of liability in cases in which individuals seek recovery for injuries allegedly caused by cigarette smoking are based on various theories of recovery, including negligence, gross negligence, breach of special duty, strict liability, fraud, concealment, misrepresentation, design defect, failure to warn, breach of express and implied warranties, conspiracy, aiding and abetting, concert of action, unjust enrichment, common law public nuisance, property damage, invasion of privacy, mental anguish, emotional distress, disability, shock, indemnity, violations of deceptive trade practice laws, the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”), state RICO statutes and antitrust statutes. In many of these cases, in addition to compensatory damages, plaintiffs also seek other forms of relief including treble/multiple damages, medical monitoring, disgorgement of profits and punitive damages. Although alleged damages often are not determinable from a complaint, and the law governing the pleading and calculation of damages varies from state to state and jurisdiction to jurisdiction, compensatory and punitive damages have been specifically pleaded in a number of cases, sometimes in amounts ranging into the hundreds of millions and even billions of dollars.
Defenses raised in Individual Actions include lack of proximate cause, assumption of the risk, comparative fault and/or contributory negligence, lack of design defect, statute of limitations, statute of repose, equitable defenses such as “unclean hands” and lack of benefit, failure to state a claim and federal preemption.
Engle Progeny Cases
In May 1994, the Engle case was filed as a class action against Liggett and others in Miami-Dade County, Florida. The class consisted of all Florida residents who, by November 21, 1996, “have suffered, presently suffer or have died from diseases and medical conditions caused by their addiction to cigarette smoking.” A trial was held and the jury returned a verdict adverse to the defendants (approximately $145,000,000 in punitive damages, including $790,000 against Liggett). Following an appeal to the Third District Court of Appeal, the Florida Supreme Court in July 2006 decertified the class on a prospective basis and affirmed the appellate court’s reversal of the punitive damages award. Former class members had until January 2008 to file individual lawsuits. As a result, Liggett and the Company, and other cigarette manufacturers, were sued in thousands of Engle progeny cases in both federal and state courts in Florida. Although the Company was not named as a defendant in the Engle case, it was named as a defendant in substantially all of the Engle progeny cases where Liggett was named as a defendant.
Cautionary Statement About Engle Progeny Cases. Since 2009, judgments have been entered against Liggett and other cigarette manufacturers in Engle progeny cases. A number of the judgments were affirmed on appeal and satisfied by the defendants. Many were overturned on appeal. As of June 30, 2020, 25 Engle progeny cases where Liggett was a defendant at trial resulted in verdicts.
There have been 16 verdicts returned in favor of the plaintiffs and nine in favor of Liggett. In five of the cases, punitive damages were awarded against Liggett. Several of the adverse verdicts were overturned on appeal and new trials were ordered. In certain cases, the judgments were entered jointly and severally with other defendants and Liggett may face the risk that one or more co-defendants decline or otherwise fail to participate in the bonding required for an appeal or to pay their proportionate or jury-allocated share of a judgment. As a result, under certain circumstances, Liggett may have to pay more than its proportionate share of any bonding or judgment related amounts. Except as discussed in this Note 9, management is unable to estimate the
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
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.
Liggett subsequently entered into two separate agreements with a total of 152 Engle progeny plaintiffs where Liggett paid a total of $23,150 to settle their claims. On an individual basis, Liggett settled an additional 201 Engle progeny cases for approximately $8,100 in the aggregate. Two of these settlements occurred in the second quarter of 2020.
Notwithstanding the comprehensive nature of the Engle Progeny Settlements, 42 plaintiffs’ claims remain pending in state court. Therefore, the Company and Liggett may still be subject to periodic adverse judgments which could have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows.
Judgments Paid in Engle Progeny Cases.
As of June 30, 2020, 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 $265 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 are currently two cases where Liggett is the sole defendant: Cowart, a Florida Individual Action, and Tumin, an Engle progeny case. It is possible that cases where Liggett is the only defendant could increase as a result of the remaining Engle progeny cases and newly filed Individual Actions.
Class Actions
As of June 30, 2020, two actions were pending for which either a class had been certified or plaintiffs were seeking class certification where Liggett is a named defendant. Other cigarette manufacturers are also named in these two cases.
Plaintiffs’ allegations of liability in class action cases are based on various theories of recovery, including negligence, gross negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, nuisance, breach of express and implied warranties, breach of special duty, conspiracy, concert of action, violation of deceptive trade practice laws and consumer protection statutes and claims under the federal and state anti-racketeering statutes. Plaintiffs in the class actions seek various forms of relief, including compensatory and punitive damages, treble/multiple damages and other statutory damages 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.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
In November 1997, in Young v. American Tobacco Co., a purported personal injury class action was commenced on behalf of plaintiff and all similarly situated residents in Louisiana who, though not themselves cigarette smokers, allege they were exposed to secondhand smoke from cigarettes that were manufactured by the defendants, including Liggett, and suffered injury as a result of that exposure. The plaintiffs seek to recover an unspecified amount of compensatory and punitive damages. No class certification hearing has been held. A stay order entered on March 16, 2016 stays the case pending completion of the smoking cessation program ordered by the court in Scott v. The American Tobacco Co.
In February 1998, in Parsons v. AC & S Inc., a purported class action was commenced on behalf of all West Virginia residents who allegedly have claims arising from their exposure to cigarette smoke and asbestos fibers. The operative complaint seeks to recover unspecified compensatory and punitive damages on behalf of the putative class. The case is stayed as a result of the December 2000 bankruptcy of three of the defendants.
Health Care Cost Recovery Actions
As of June 30, 2020, 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 June 30, 2020, there were three Individual Actions and one Engle progeny case scheduled for trial through June 30, 2021, 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
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
and unasserted health care cost recovery and certain other claims of the Settling States. The MSA received final judicial approval in each Settling State.
As a result of the MSA, the Settling States released Liggett and Vector Tobacco from:
|
|
|
|
•
|
all claims of the Settling States and their respective political subdivisions and other recipients of state health care funds, relating to: (i) past conduct arising out of the use, sale, distribution, manufacture, development, advertising and marketing of tobacco products; (ii) the health effects of, the exposure to, or research, statements or warnings about, tobacco products; and
|
|
|
|
|
•
|
all monetary claims of the Settling States and their respective subdivisions and other recipients of state health care funds relating to future conduct arising out of the use of, or exposure to, tobacco products that have been manufactured in the ordinary course of business.
|
The MSA restricts tobacco product advertising and marketing within the Settling States and otherwise restricts the activities of PMs. Among other things, the MSA prohibits the targeting of youth in the advertising, promotion or marketing of tobacco products; bans the use of cartoon characters in all tobacco advertising and promotion; limits each PM to one tobacco brand name sponsorship during any 12-month period; bans all outdoor advertising, with certain limited exceptions; prohibits payments for tobacco product placement in various media; bans gift offers based on the purchase of tobacco products without sufficient proof that the intended recipient is an adult; prohibits PMs from licensing third parties to advertise tobacco brand names in any manner prohibited under the MSA; and prohibits PMs from using as a tobacco product brand name any nationally recognized non-tobacco brand or trade name or the names of sports teams, entertainment groups or individual celebrities.
The MSA also requires PMs to affirm corporate principles to comply with the MSA and to reduce underage use of tobacco products and imposes restrictions on lobbying activities conducted on behalf of PMs. In addition, the MSA provides for the appointment of an independent auditor to calculate and determine the amounts of payments owed pursuant to the MSA.
Under the payment provisions of the MSA, PMs are required to make annual payments of $9,000,000 (subject to applicable adjustments, offsets and reductions including a “Non-Participating Manufacturers Adjustment” or “NPM Adjustment”). These annual payments are allocated based on unit volume of domestic cigarette shipments. The payment obligations under the MSA are the several, and not joint, obligation of each PM and are not the responsibility of any parent or affiliate of a PM.
Liggett has no payment obligations under the MSA except to the extent its market share exceeds a market share exemption of approximately 1.65% of total cigarettes sold in the United States. Vector Tobacco has no payment obligations under the MSA except to the extent its market share exceeds a market share exemption of approximately 0.28% of total cigarettes sold in the United States. Liggett and Vector Tobacco’s domestic shipments accounted for approximately 4.0% of the total cigarettes sold in the United States in 2019. If Liggett’s or Vector Tobacco’s market share exceeds their respective market share exemption in a given year, then on April 15 of the following year, Liggett and/or Vector Tobacco, as the case may be, must pay on each excess unit an amount equal (on a per-unit basis) to that due from the OPMs for that year. On December 30, 2019, Liggett and Vector Tobacco pre-paid $140,000 of their approximate $169,000 2019 MSA obligation, the balance of which was paid in April 2020, 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 - 2019. 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 - 2019, 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.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
The PMs settled most of the disputed NPM Adjustment years with 37 states representing approximately 75% of the MSA share. The 2004 NPM Adjustment arbitration started in 2016 and separate court proceedings continue for states with which the PMs have not settled.
As a result of the settlement charge and arbitration award described above, Liggett and Vector Tobacco reduced cost of sales for years 2013 - 2019 by $48,032. Liggett and Vector Tobacco may be entitled to further adjustments. As of June 30, 2020, 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 June 30, 2020, there remains approximately $41,500 in the disputed payments account relating to Liggett and Vector Tobacco’s 2011 - 2019 NPM Adjustment disputes with the non-settling states. If Liggett and Vector Tobacco lose the disputes for all or any of those years, pursuant to the MSA, no interest would be due on the amounts paid into the disputed payment account.
Other State Settlements. The MSA replaced Liggett’s prior settlements with all states and territories except for Florida, Mississippi, Texas and Minnesota. Each of these four states, prior to the effective date of the MSA, negotiated and executed settlement agreements with each of the other major tobacco companies, separate from those settlements reached previously with Liggett. Except as described below, Liggett’s agreements with these states remain in full force and effect. These states’ settlement agreements with Liggett contained most favored nation provisions which could reduce Liggett’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 (the “1996 Agreement”) alleging that Liggett owes Mississippi at least $27,000 in compensatory damages and additional amounts for interest, punitive damages and attorneys’ fees. In April 2017, the Chancery Court ruled that the 1996 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 June 2018, the Chancery Court granted Liggett’s motion to compel arbitration as to two issues concerning damages and stayed the proceedings before the Special Master pending completion of the arbitration. In March 2019, the arbitration panel issued its final arbitration award on the two issues before it: (i) the panel ruled in favor of Liggett, finding that the $294,000 of proceeds from Eve Holdings’ 1999 brand sale should not be included in Liggett’s pre-tax income; and (ii) ruled in favor of Mississippi on the remaining issue, finding that compensatory 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. Following confirmation of the arbitration award, Mississippi voluntarily dismissed with prejudice its claims for punitive damages and attorneys’ fees.
In July 2019, the parties stipulated that the unpaid principal (exclusive of interest) purportedly due from Liggett to Mississippi pursuant to the 1996 Agreement (from inception through 2019) is approximately $15,500, subject to Liggett’s right to litigate and/or appeal the enforceability of the 1996 Agreement (and all issues other than the calculation of such principal amount). In September 2019, the Special Master held a hearing regarding the state’s claim for approximately $17,500 in prejudgment interest as well as post-judgment interest in amounts to be determined. A decision is pending. Liggett continues to believe that the April 2017 Chancery Court order is in error because the most favored nations provision in the 1996 Agreement eliminated all of Liggett’s payment obligations to Mississippi, and it reserved all rights to appeal this and other issues at the conclusion of the case. In the event Liggett appeals an adverse judgment, the posting of a bond may be required.
Liggett may be required to make additional payments to Mississippi and Texas which could have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
Cautionary Statement
Management is not able to reasonably predict the outcome of the litigation pending or threatened against Liggett or the Company. Litigation is subject to many uncertainties. Liggett has been found liable in multiple Engle progeny cases and Individual Actions, several of which were affirmed on appeal and satisfied by Liggett. It is possible that other cases could be decided unfavorably against Liggett and that Liggett will be unsuccessful on appeal. Liggett may attempt to settle particular cases if it believes it is in its best interest to do so.
Management cannot predict the cash requirements related to any future defense costs, settlements or judgments, including cash required to bond any appeals, and there is a risk that Liggett may not be able to meet those requirements. An unfavorable outcome of a pending smoking-related case could encourage the commencement of additional litigation. Except as discussed in this Note 9, management is unable to estimate the loss or range of loss that could result from an unfavorable outcome of the cases pending against Liggett or the costs of defending such cases and as a result has not provided any amounts in its consolidated financial statements for unfavorable outcomes.
The tobacco industry is subject to a wide range of laws and regulations regarding the marketing, sale, taxation and use of tobacco products imposed by local, state and federal governments. There have been a number of restrictive regulatory actions, adverse legislative and political decisions and other unfavorable developments concerning cigarette smoking and the tobacco industry. These developments may negatively affect the perception of potential triers of fact with respect to the tobacco industry, possibly to the detriment of certain pending litigation, and may prompt the commencement of additional litigation or legislation.
It is possible that the Company’s consolidated financial position, results of operations and cash flows could be materially adversely affected by an unfavorable outcome in any of the smoking-related litigation.
The activity in the Company’s accruals for the MSA and tobacco litigation for the six months ended June 30, 2020 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
Non-Current Liabilities
|
|
|
Payments due under Master Settlement Agreement
|
|
Litigation Accruals
|
|
Total
|
|
Payments due under Master Settlement Agreement
|
|
Litigation Accruals
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2020
|
$
|
34,116
|
|
|
$
|
4,249
|
|
|
$
|
38,365
|
|
|
$
|
17,275
|
|
|
$
|
20,594
|
|
|
$
|
37,869
|
|
|
Expenses
|
96,215
|
|
|
28
|
|
|
96,243
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Change in MSA obligations capitalized as inventory
|
(137
|
)
|
|
—
|
|
|
(137
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Payments
|
(27,214
|
)
|
|
(4,324
|
)
|
|
(31,538
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Reclassification to/(from) non-current liabilities
|
(855
|
)
|
|
3,252
|
|
|
2,397
|
|
|
855
|
|
|
(3,252
|
)
|
|
(2,397
|
)
|
|
Interest on withholding
|
—
|
|
|
238
|
|
|
238
|
|
|
—
|
|
|
932
|
|
|
932
|
|
|
Balance as of June 30, 2020
|
$
|
102,125
|
|
|
$
|
3,443
|
|
|
$
|
105,568
|
|
|
$
|
18,130
|
|
|
$
|
18,274
|
|
|
$
|
36,404
|
|
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
The activity in the Company’s accruals for the MSA and tobacco litigation for the six months ended June 30, 2019 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, 2019
|
$
|
36,561
|
|
|
$
|
310
|
|
|
$
|
36,871
|
|
|
$
|
16,383
|
|
|
$
|
21,794
|
|
|
$
|
38,177
|
|
|
Expenses
|
80,128
|
|
|
655
|
|
|
80,783
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Change in MSA obligations capitalized as inventory
|
1,813
|
|
|
—
|
|
|
1,813
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Payments
|
(31,959
|
)
|
|
(355
|
)
|
|
(32,314
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Reclassification to/(from) non-current liabilities
|
(892
|
)
|
|
3,338
|
|
|
2,446
|
|
|
892
|
|
|
(3,338
|
)
|
|
(2,446
|
)
|
|
Interest on withholding
|
—
|
|
|
95
|
|
|
95
|
|
|
—
|
|
|
1,076
|
|
|
1,076
|
|
|
Balance as of June 30, 2019
|
$
|
85,651
|
|
|
$
|
4,043
|
|
|
$
|
89,694
|
|
|
$
|
17,275
|
|
|
$
|
19,532
|
|
|
$
|
36,807
|
|
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.
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.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
|
|
|
|
10.
|
GOODWILL AND OTHER INTANGIBLE ASSETS
|
The components of Goodwill and other intangible assets, net were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
Impairment Losses
|
|
Amortization
|
|
June 30,
2020
|
|
Goodwill
|
|
$
|
78,008
|
|
|
$
|
(46,252
|
)
|
|
$
|
—
|
|
|
$
|
31,756
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite life intangibles:
|
|
|
|
|
|
|
|
|
|
Intangible asset associated with benefit under the MSA
|
|
107,511
|
|
|
—
|
|
|
—
|
|
|
107,511
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademark - Douglas Elliman
|
|
80,000
|
|
|
(12,000
|
)
|
|
—
|
|
|
68,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles with a finite life, net
|
|
474
|
|
|
—
|
|
|
(82
|
)
|
|
392
|
|
|
|
|
|
|
|
|
|
|
|
|
Total goodwill and other intangible assets, net
|
|
$
|
265,993
|
|
|
$
|
(58,252
|
)
|
|
$
|
(82
|
)
|
|
$
|
207,659
|
|
Goodwill is evaluated for impairment annually or whenever the Company identifies certain triggering events or circumstances that would more likely than not reduce the fair value of a reporting unit below its carrying amount. Events or circumstances that might indicate an interim evaluation is warranted include, among other things, unexpected adverse business conditions, macro and reporting unit specific economic factors (for example, interest rate and foreign exchange rate fluctuations, and loss of key personnel), supply costs, unanticipated competitive activities, and acts by governments and courts.
During the first quarter of 2020, the Company determined that a triggering event occurred related to the Douglas Elliman reporting unit due to a decline in sales and profitability projections for the reporting unit driven by the COVID-19 pandemic and related economic disruption. The Company utilized third-party valuation specialists to prepare a quantitative assessment of goodwill and trademark intangible asset related to Douglas Elliman.
For the goodwill testing, the Company utilized an income approach (a discounted cash flows “DCF” method) to estimate the fair value of the Douglas Elliman business. The estimated fair value of the trademark indefinite-life intangible asset related to the Douglas Elliman brand name was determined using an approach that values the Company’s cash savings from having a royalty-free license compared to the market rate it would pay for access to use the trade name.
The third-party quantitative assessments of the goodwill and trademark intangible asset reflected management’s assumptions regarding revenue growth rates, economic and market trends including current expectations of deterioration resulting from the COVID-19 pandemic, changes to cost structures and other expectations about the anticipated short-term and long-term operating results of Douglas Elliman. The quantitative assessments resulted in impairment charges to goodwill of $46,262 and to the trademark intangible asset of $12,000 during the three months ended March 31, 2020. If the Company fails to achieve the financial projections used in the quantitative assessments of fair value or the impacts of COVID-19 are more severe than expected, additional impairment charges could result in future periods, and such impairment charges could be material.
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 to record income tax expense, adjusted for discrete items, if any. The Company refines annual estimates as new information becomes available. The Company’s tax rate does not bear a relationship to statutory tax rates due to permanent differences, which are primarily related to nondeductible compensation, and state taxes.
The Company’s income tax expense consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
Income before provision for income taxes
|
$
|
36,690
|
|
|
$
|
56,766
|
|
|
$
|
32,481
|
|
|
$
|
78,548
|
|
|
Income tax expense using estimated annual effective income tax rate
|
10,896
|
|
|
17,566
|
|
|
9,647
|
|
|
24,319
|
|
|
Changes in effective tax rates
|
(12
|
)
|
|
(110
|
)
|
|
—
|
|
|
—
|
|
|
Impact of discrete items, net
|
32
|
|
|
3
|
|
|
291
|
|
|
(111
|
)
|
|
Income tax expense
|
$
|
10,916
|
|
|
$
|
17,459
|
|
|
$
|
9,938
|
|
|
$
|
24,208
|
|
The discrete items for the three months ended June 30, 2020 primarily relates to income tax expense on the changes in value of certain contingent consideration partially offset by income tax benefit related to stock-based compensation. The discrete items for the six months ended June 30, 2020 relate to income tax benefits on the goodwill and trademark impairment charges, changes in value of certain contingent consideration and stock-based compensation partially offset by the income tax expense related to the equity in earnings from investments associated with the one-time gain on sale of LTS. The discrete items for the three and six months ended June 30, 2019 related to an income tax benefit for stock-based compensation.
On March 27, 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act into law. The Act includes several significant tax and payroll-related provisions for corporations, including the usage of net operating losses, bonus depreciation, interest expense, and certain payroll benefits. The Company continues to evaluate the impact this Act will have on its financial statements and required disclosures.
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 June 30, 2020
|
|
Description
|
|
Total
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Money market funds (1)
|
|
$
|
455,669
|
|
|
$
|
455,669
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper (1)
|
|
53,463
|
|
|
—
|
|
|
53,463
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit (2)
|
|
2,106
|
|
|
—
|
|
|
2,106
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds securing legal bonds (2)
|
|
535
|
|
|
535
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities at fair value
|
|
|
|
|
|
|
|
|
|
Equity securities at fair value
|
|
|
|
|
|
|
|
|
|
Marketable equity securities
|
|
11,091
|
|
|
11,091
|
|
|
—
|
|
|
—
|
|
|
Mutual funds invested in debt securities
|
|
22,667
|
|
|
22,667
|
|
|
—
|
|
|
—
|
|
|
Total equity securities at fair value
|
|
33,758
|
|
|
33,758
|
|
|
—
|
|
|
—
|
|
|
Debt securities available for sale
|
|
|
|
|
|
|
|
|
|
U.S. government securities
|
|
12,754
|
|
|
—
|
|
|
12,754
|
|
|
—
|
|
|
Corporate securities
|
|
37,145
|
|
|
—
|
|
|
37,145
|
|
|
—
|
|
|
U.S. government and federal agency
|
|
4,984
|
|
|
—
|
|
|
4,984
|
|
|
—
|
|
|
Commercial mortgage-backed securities
|
|
2
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
Total debt securities available for sale
|
|
54,885
|
|
|
—
|
|
|
54,885
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities at fair value
|
|
88,643
|
|
|
33,758
|
|
|
54,885
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
|
|
|
|
|
|
|
Long-term investment securities at fair value (3)
|
|
33,232
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
$
|
633,648
|
|
|
$
|
489,962
|
|
|
$
|
110,454
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Fair value of contingent liability
|
|
$
|
1,317
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,317
|
|
|
Total
|
|
$
|
1,317
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,317
|
|
|
|
|
|
(1)
|
Amounts included in Cash and cash equivalents on the condensed consolidated balance sheet, except for $6,310 that is included in Other current assets and $1,907 that is included in Other assets.
|
|
|
|
|
(2)
|
Amounts included in current restricted assets and non-current restricted assets on the condensed consolidated balance 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, 2019
|
|
Description
|
|
Total
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Money market funds (1)
|
|
$
|
307,655
|
|
|
$
|
307,655
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper (1)
|
|
47,328
|
|
|
—
|
|
|
47,328
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit (2)
|
|
2,193
|
|
|
—
|
|
|
2,193
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds securing legal bonds (2)
|
|
535
|
|
|
535
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities at fair value
|
|
|
|
|
|
|
|
|
|
Equity securities at fair value
|
|
|
|
|
|
|
|
|
|
Marketable equity securities
|
|
23,819
|
|
|
23,819
|
|
|
—
|
|
|
—
|
|
|
Mutual funds invested in debt securities
|
|
22,377
|
|
|
22,377
|
|
|
—
|
|
|
—
|
|
|
Total equity securities at fair value
|
|
46,196
|
|
|
46,196
|
|
|
—
|
|
|
—
|
|
|
Debt securities available for sale
|
|
|
|
|
|
|
|
|
|
U.S. government securities
|
|
14,660
|
|
|
—
|
|
|
14,660
|
|
|
—
|
|
|
Corporate securities
|
|
54,413
|
|
|
—
|
|
|
54,413
|
|
|
—
|
|
|
U.S. government and federal agency
|
|
6,816
|
|
|
—
|
|
|
6,816
|
|
|
—
|
|
|
Commercial mortgage-backed securities
|
|
382
|
|
|
—
|
|
|
382
|
|
|
—
|
|
|
Commercial paper
|
|
5,887
|
|
|
—
|
|
|
5,887
|
|
|
—
|
|
|
Index-linked U.S. bonds
|
|
779
|
|
|
—
|
|
|
779
|
|
|
—
|
|
|
Foreign fixed-income securities
|
|
508
|
|
|
—
|
|
|
508
|
|
|
—
|
|
|
Total debt securities available for sale
|
|
83,445
|
|
|
—
|
|
|
83,445
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities at fair value
|
|
129,641
|
|
|
46,196
|
|
|
83,445
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
|
|
|
|
|
|
|
Long-term investment securities at fair value (3)
|
|
45,781
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
|
$
|
533,133
|
|
|
$
|
354,386
|
|
|
$
|
132,966
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Fair value of contingent liability
|
|
$
|
3,147
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,147
|
|
|
Fair value of derivatives embedded within convertible debt
|
|
4,999
|
|
|
—
|
|
|
—
|
|
|
4,999
|
|
|
Total
|
|
$
|
8,146
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,146
|
|
|
|
|
|
(1)
|
Amounts included in Cash and cash equivalents on the condensed consolidated balance sheet, except for $4,423 that is included in current restricted assets and $3,160 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 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.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
The long-term investments are based on NAV per share provided by the partnerships based on the indicated market value of the underlying assets or investment portfolio. In accordance with Subtopic 820-10, these investments are not classified under the fair value hierarchy disclosed above because they are measured at fair value using the NAV practical expedient.
The unobservable inputs related to the valuations of the Level 3 assets and liabilities were as follows at June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
|
|
|
Fair Value at
|
|
|
|
|
|
|
|
|
|
June 30,
2020
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range (Actual)
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of contingent liability
|
|
$
|
1,317
|
|
|
Monte Carlo simulation model
|
|
Estimated fair value of the Douglas Elliman reporting unit
|
|
$
|
169,000
|
|
|
|
|
|
|
|
|
Risk-free rate for a 2.50 year term
|
|
0.17
|
%
|
|
|
|
|
|
|
|
Leverage-adjusted equity volatility of peer firms
|
|
64.78
|
%
|
The unobservable inputs related to the valuations of the Level 3 assets and liabilities were as follows at December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quantitative Information about Level 3 Fair Value Measurements
|
|
|
|
Fair Value at
|
|
|
|
|
|
|
|
|
|
December 31,
2019
|
|
Valuation Technique
|
|
Unobservable Input
|
|
Range (Actual)
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of derivatives embedded within convertible debt
|
|
$
|
4,999
|
|
|
Discounted cash flow
|
|
Assumed annual stock dividend
|
|
5
|
%
|
|
|
|
|
|
|
|
Assumed remaining cash dividends - Q4 2019 and Q1 2020
|
|
$0.40/$0.20
|
|
|
|
|
|
|
|
|
Stock price
|
|
$
|
13.39
|
|
|
|
|
|
|
|
|
Convertible trading price (as a percentage of par value)
|
|
103.94
|
%
|
|
|
|
|
|
|
|
Volatility
|
|
36.94
|
%
|
|
|
|
|
|
|
|
Risk-free rate
|
|
Term structure of US Treasury Securities
|
|
|
|
|
|
|
|
Implied credit spread
|
|
1.0% - 3.0% (2.0%)
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of contingent liability
|
|
$
|
3,147
|
|
|
Monte Carlo simulation model
|
|
Estimated fair value of the Douglas Elliman reporting unit
|
|
$
|
271,500
|
|
|
|
|
|
|
|
|
Risk-free rate for a 3-year term
|
|
1.61
|
%
|
|
|
|
|
|
|
|
Leverage-adjusted equity volatility of peer firms
|
|
35.56
|
%
|
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 June 30, 2020 and December 31, 2019, respectively, except for investments in real estate ventures that were impaired as of June 30, 2020 and December 31, 2019.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
The Company’s investments in real estate ventures subject to nonrecurring fair value measurements are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using:
|
|
|
|
Three Months Ended June 30, 2020
|
|
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Description
|
|
Impairment Charge
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Investments in real estate ventures
|
|
$
|
3,784
|
|
|
$
|
1,980
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,980
|
|
The Company estimated the fair value of its investments in real estate ventures using observable inputs such as market pricing based on recent events, however, significant judgment was required to select certain inputs from observed market data. The decrease in the investments in real estate ventures was attributed to the decline in the projected sales prices of the respective real estate venture. The $3,784 of impairment charges were included in equity in losses from real estate ventures for the three months June 30, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using:
|
|
|
|
Year Ended December 31,
2019
|
|
|
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs
(Level 2)
|
|
Significant Unobservable Inputs
(Level 3)
|
|
Description
|
|
Impairment Charge
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
Investments in real estate ventures
|
|
$
|
39,757
|
|
|
$
|
18,335
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
18,335
|
|
The Company estimated the fair value of its investments in real estate ventures using observable inputs such as market pricing based on recent events, however, significant judgment was required to select certain inputs from observed market data. The decrease in the investments in real estate ventures was attributed to the decline in the projected sales prices and the duration of the estimated sell out of the respective real estate ventures. The $39,757 of impairment charges were included in equity in losses from real estate ventures for the year ended December 31, 2019.
The Company’s business segments for the three and six months ended June 30, 2020 and 2019 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, 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 and six months ended June 30, 2020 and 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
|
|
Corporate
|
|
|
|
|
Tobacco
|
|
Estate
|
|
and Other
|
|
Total
|
|
Three months ended June 30, 2020
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
312,510
|
|
|
$
|
133,250
|
|
|
$
|
—
|
|
|
$
|
445,760
|
|
|
Operating income (loss)
|
79,309
|
|
(1)
|
(6,875
|
)
|
(2)
|
(5,637
|
)
|
|
66,797
|
|
|
Equity in losses from real estate ventures
|
—
|
|
|
(12,260
|
)
|
|
—
|
|
|
(12,260
|
)
|
|
Depreciation and amortization
|
2,000
|
|
|
2,198
|
|
|
214
|
|
|
4,412
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, 2019
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
294,501
|
|
|
$
|
243,931
|
|
|
$
|
—
|
|
|
$
|
538,432
|
|
|
Operating income (loss)
|
68,651
|
|
(3)
|
14,453
|
|
|
(6,860
|
)
|
|
76,244
|
|
|
Equity in earnings from real estate ventures
|
—
|
|
|
6,391
|
|
|
—
|
|
|
6,391
|
|
|
Depreciation and amortization
|
1,950
|
|
|
2,024
|
|
|
250
|
|
|
4,224
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2020
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
599,579
|
|
|
$
|
300,669
|
|
|
$
|
—
|
|
|
$
|
900,248
|
|
|
Operating income (loss)
|
148,495
|
|
(4)
|
(74,350
|
)
|
(5)
|
(12,252
|
)
|
|
61,893
|
|
|
Equity in losses from real estate ventures
|
—
|
|
|
(18,765
|
)
|
|
—
|
|
|
(18,765
|
)
|
|
Depreciation and amortization
|
4,042
|
|
|
4,511
|
|
|
434
|
|
|
8,987
|
|
|
Capital expenditures
|
2,973
|
|
|
3,249
|
|
|
20
|
|
|
6,242
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30, 2019
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
551,257
|
|
|
$
|
408,099
|
|
|
$
|
—
|
|
|
$
|
959,356
|
|
|
Operating income (loss)
|
128,795
|
|
(6)
|
4,044
|
|
|
(14,005
|
)
|
|
118,834
|
|
|
Equity in earnings from real estate ventures
|
—
|
|
|
3,952
|
|
|
—
|
|
|
3,952
|
|
|
Depreciation and amortization
|
3,907
|
|
|
4,525
|
|
|
500
|
|
|
8,932
|
|
|
Capital expenditures
|
2,753
|
|
|
3,567
|
|
|
—
|
|
|
6,320
|
|
|
|
|
|
|
|
|
|
|
(1) Operating income includes $53 of litigation settlement and judgment expense.
(2) Operating loss includes $2,961 of restructuring charges.
(3) Operating income includes $655 of litigation settlement and judgment expense.
(4) Operating income includes $53 of litigation settlement and judgment expense.
(5) Operating loss includes $58,252 of impairment charges related to the impairments of goodwill and intangible assets and $2,961 of restructuring charges.
(6) Operating income includes $655 of litigation settlement and judgment expense.
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(Dollars in Thousands, Except Per Share Amounts)
Unaudited