Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended March 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

VECTOR GROUP LTD.

(Exact name of registrant as specified in its charter)


Delaware	1-5759	65-0949535
(State or other jurisdiction of incorporation	Commission File Number	(I.R.S. Employer Identification No.)
incorporation or organization)

4400 Biscayne Boulevard

Miami, Florida 33137

305-579-8000

(Address, including zip code and telephone number, including area code,

of the principal executive offices)

Securities Registered Pursuant to 12(b) of the Act:


Title of each class:	Trading	Name of each exchange
	Symbol(s)	on which registered:
Common stock, par value $0.10 per share	VGR	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

x Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

☒

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging Growth Company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes x No

At May 6, 2022, Vector Group Ltd. had 154,938,177 shares of common stock outstanding.

VECTOR GROUP LTD.

FORM 10-Q

TABLE OF CONTENTS


			Page
PART I. FINANCIAL INFORMATION

Item 1. Vector Group Ltd. Condensed Consolidated Financial Statements (Unaudited):

Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021			2

Condensed Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021			3

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021			4

Condensed Consolidated Statements of Stockholders' Deficiency for the three months ended March 31, 2022 and 2021			5

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021			6

Notes to Condensed Consolidated Financial Statements			7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			35

Item 3. Quantitative and Qualitative Disclosures About Market Risk			49

Item 4. Controls and Procedures			49

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			50

Item 1A. Risk Factors			50

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			51

Item 6. Exhibits			52

SIGNATURE			53

VECTOR GROUP LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands, Except Per Share Amounts)

Unaudited


	March 31, 2022		December 31, 2021
ASSETS:
Current assets:
Cash and cash equivalents	$	238,305	$	193,411
Investment securities at fair value	133,338		146,687

Accounts receivable - trade, net	29,885		16,067
Inventories	97,991		94,615
Income taxes receivable, net	—		10,948

Other current assets	8,103		10,075
Total current assets	507,622		471,803
Property, plant and equipment, net	36,079		36,883
Investments in real estate, net	9,039		9,098
Long-term investments (includes $31,057 and $32,089 at fair value)	49,799		53,073
Investments in real estate ventures	111,503		105,062

Operating lease right-of-use assets	10,133		10,972
Intangible assets	107,511		107,511
Other assets	80,884		76,685
Total assets	$	912,570	$	871,087
LIABILITIES AND STOCKHOLDERS' DEFICIENCY:
Current liabilities:
Current portion of notes payable and long-term debt	$	76	$	79

Current payments due under the Master Settlement Agreement	68,591		11,886


Income taxes payable, net	3,462		—

Current operating lease liability	3,860		3,838

Other current liabilities	139,961		149,487
Total current liabilities	215,950		165,290
Notes payable, long-term debt and other obligations, less current portion	1,399,631		1,398,591

Non-current employee benefits	69,164		68,970
Deferred income taxes, net	31,307		34,768
Non-current operating lease liability	7,885		8,853
Payments due under the Master Settlement Agreement	11,116		13,224

Other liabilities	18,169		22,944
Total liabilities	1,753,222		1,712,640
Commitments and contingencies (Note 9)
Stockholders' deficiency:
Preferred stock, par value $1 per share, 10,000,000 shares authorized	—		—
Common stock, par value $0.1 per share, 250,000,000 shares authorized, 154,938,177 and 153,959,427 shares issued and outstanding	15,494		15,396
Additional paid-in capital	12,183		11,172
Accumulated deficit	(852,863)		(852,398)
Accumulated other comprehensive loss	(15,466)		(15,723)

Total Vector Group Ltd. stockholders' deficiency	(840,652)		(841,553)


Total liabilities and stockholders' deficiency	$	912,570	$	871,087

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

VECTOR GROUP LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands, Except Per Share Amounts)

Unaudited


	Three Months Ended
	March 31,
		2022		2021
Revenues:
Tobacco*		$	309,048	$	268,463
Real estate		2,994		2,525

Total revenues		312,042		270,988

Expenses:
Cost of sales:
Tobacco*		211,537		164,031
Real estate		1,278		876

Total cost of sales		212,815		164,907

Operating, selling, administrative and general expenses		24,029		30,101
Litigation settlement and judgment expense		72		5



Operating income		75,126		75,975

Other income (expenses):
Interest expense		(25,098)		(28,721)
Loss on extinguishment of debt		—		(21,362)

Equity in (losses) earnings from investments		(2,242)		577
Equity in (losses) earnings from real estate ventures		(1,877)		1,589
Other, net		(1,145)		2,706
Income before provision for income taxes		44,764		30,764
Income tax expense		12,222		9,214
Income from continuing operations		32,542		21,550
Income from discontinued operations, net of income taxes		—		10,407
Net income		$	32,542	$	31,957









Per basic common share:

Net income from continuing operations applicable to common shares		$	0.21	$	0.14
Net income from discontinued operations applicable to common shares		—		0.06
Net income applicable to common shares		$	0.21	$	0.20

Per diluted common share:

Net income from continuing operations applicable to common shares		$	0.21	$	0.14
Net income from discontinued operations applicable to common shares		—		0.06
Net income applicable to common shares		$	0.21	$	0.20

* Revenues and cost of sales include federal excise taxes of $116,079, and $97,714 for the three months ended March 31, 2022 and 2021, respectively.

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

VECTOR GROUP LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in Thousands)

Unaudited


	Three Months Ended
	March 31,
		2022		2021

Net income		$	32,542	$	31,957

Net unrealized losses on investment securities available for sale:
Change in net unrealized losses		(1,222)		(182)
Net unrealized losses (gains) reclassified into net income		1,165		(41)
Net unrealized losses on investment securities available for sale		(57)		(223)



Net change in pension-related amounts:


Amortization of loss		404		482


Other comprehensive income		347		259

Income tax effect on:
Change in net unrealized losses on investment securities		316		49
Net unrealized losses (gains) reclassified into net income on investment securities		(301)		11



Pension-related amounts		(105)		(130)
Income tax provision on other comprehensive income		(90)		(70)

Other comprehensive income, net of tax		257		189

Comprehensive income		$	32,799	$	32,146

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
	Common Stock					Accumulated
	Shares	Amount		Capital		Deficit		Loss		Total
Balance as of January 1, 2022	153,959,427	$	15,396	$	11,172	$	(852,398)	$	(15,723)	$	(841,553)

Net income	—	—		—		32,542		—		32,542






Total other comprehensive income	—	—		—		—		257		257

Dividends on common stock ($0.20 per share)	—	—		—		(31,767)		—		(31,767)
Restricted stock grants	1,070,000	107		(107)		—		—		—

Surrender of shares in connection with restricted stock vesting	(91,250)	(9)		(1,029)		—		—		(1,038)












Stock-based compensation	—	—		2,147		—		—		2,147






Other	—	—		—		(1,240)		—		(1,240)

Balance as of March 31, 2022	154,938,177	$	15,494	$	12,183	$	(852,863)	$	(15,466)	$	(840,652)


	Vector Group Ltd. Stockholders' Deficiency
				Additional Paid-In				Accumulated Other Comprehensive
	Common Stock					Accumulated
	Shares	Amount		Capital		Deficit		Loss		Total
Balance as of January 1, 2021	153,324,629	$	15,332	$	—	$	(653,945)	$	(21,074)	$	(659,687)

Net income	—	—		—		31,957		—		31,957






Total other comprehensive income	—	—		—		—		189		189

Dividends on common stock ($0.20 per share)	—	—		—		(31,618)		—		(31,618)
Restricted stock grant	870,000	87		(87)		—		—		—















Stock-based compensation	—	—		2,660		—		—		2,660





Balance as of March 31, 2021	154,194,629	$	15,419	$	2,573	$	(653,606)	$	(20,885)	$	(656,499)

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

VECTOR GROUP LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

Unaudited


	Three Months Ended
	March 31,
	2022		2021
Net cash provided by operating activities	$	74,796	$	78,364
Cash flows from investing activities:
Sale of investment securities	16,933		10,228
Maturities of investment securities	21,105		13,968
Purchase of investment securities	(27,231)		(38,441)
Proceeds from sale or liquidation of long-term investments	—		4,389



Purchase of long-term investments	(1,000)		(5,813)
Investments in real estate ventures	(8,488)		(8,087)
Distributions from investments in real estate ventures	3,310		7,577
Increase in cash surrender value of life insurance policies	(765)		(564)
Increase in restricted assets	—		(3)


Capital expenditures	(1,222)		(1,931)



Paydowns of investment securities	63		172


Net cash provided by (used in) investing activities	2,705		(18,505)
Cash flows from financing activities:
Proceeds from issuance of debt	—		875,000
Deferred financing costs	—		(20,000)
Repayments of debt	(11)		(853,158)
Borrowings under revolving credit facility	67,298		259
Repayments on revolving credit facility	(67,298)		(259)
Dividends on common stock	(31,658)		(32,273)





Other	(938)		(21)
Net cash used in financing activities	(32,607)		(30,452)
Net increase in cash, cash equivalents and restricted cash	44,894		29,407
Cash, cash equivalents and restricted cash, beginning of period	194,849		365,677
Cash, cash equivalents and restricted cash, end of period	$	239,743	$	395,084

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 LLC (“Vector Tobacco”), Liggett Vector Brands LLC (“Liggett Vector Brands”), New Valley LLC (“New Valley”) and other less significant subsidiaries. New Valley includes the accounts of 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, 2021 filed with the Securities and Exchange Commission (“SEC”). The consolidated results of operations for interim periods should not be regarded as necessarily indicative of the results that may be expected for the entire year.

(b)Distributions and Dividends on Common Stock:

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

(c)Earnings Per Share (“EPS”):

Net income for purposes of determining basic and diluted EPS for discontinued operations and net income available to common stockholders was as follows:


	Three Months Ended
	March 31,
		2022		2021
Net income from continuing operations		$	32,542	$	21,550
Net income from discontinued operations		—		10,407
Net income		32,542		31,957
Income from continuing operations attributable to participating securities		(983)		(776)
Net income applicable to common shares		$	31,559	$	31,181

Net income for purposes of determining basic and diluted EPS for continuing operations applicable to common shares was as follows:


	Three Months Ended
	March 31,
		2022		2021
Net income from continuing operations		$	32,542	$	21,550
Income from continuing operations attributable to participating securities		(983)		(754)
Net income available to common stockholders		$	31,559	$	20,796

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

Basic and diluted EPS for continuing and discontinued operations were calculated using the following common shares:


	Three Months Ended
	March 31,
		2022	2021
Weighted-average shares for basic EPS		152,586,900	152,249,440

Plus incremental shares related to stock options and non-vested restricted stock		158,353	134,650
Weighted-average shares for diluted EPS		152,745,253	152,384,090

It may not be possible to recalculate EPS attributable to common stockholders by adjusting EPS from continuing operations by EPS from discontinued operations as each amount is calculated independently.

The following non-vested restricted stock was outstanding during the three months ended March 31, 2022 and 2021, but was not included in the computation of diluted EPS because the impact of the per share expense associated with the restricted stock was greater than the average market price of the common shares during the respective periods.


	Three Months Ended
	March 31,
		2022		2021


Weighted-average shares of non-vested restricted stock		—		97,222
Weighted-average expense per share		$	—	$	14.31

(d)Other, net:

Other, net consisted of:


	Three Months Ended
	March 31,
		2022		2021

Interest and dividend income		$	450	$	534






Net (losses) gains recognized on investment securities		(3,039)		2,415
Net periodic benefit cost other than the service costs		(236)		(244)


Other income		1,680		1
Other, net		$	(1,145)	$	2,706

(e)Other Assets:

Other assets consisted of:


	March 31, 2022		December 31, 2021
Restricted assets	$	1,551	$	1,551
Prepaid pension costs	44,866		44,585
Other assets	34,467		30,549
Total other assets	$	80,884	$	76,685

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

(f)Other Current Liabilities:

Other current liabilities consisted of:


	March 31, 2022		December 31, 2021
Accounts payable	$	7,453	$	9,443
Accrued promotional expenses	57,610		55,647
Accrued excise and payroll taxes payable, net	21,375		22,919
Accrued interest	32,667		30,676
Accrued salaries and benefits	4,042		13,982
Allowance for sales returns	6,063		6,669
Other current liabilities	10,751		10,151
Total other current liabilities	$	139,961	$	149,487

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

The components of “Cash, cash equivalents and restricted cash” in the condensed consolidated statements of cash flows were as follows:


	March 31, 2022		December 31, 2021
Cash and cash equivalents	$	238,305	$	193,411

Restricted cash and cash equivalents included in other assets	1,438		1,438
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	239,743	$	194,849

(h)Related Party Transactions:

Agreements with Douglas Elliman. The Company received $1,050 under the Transition Services Agreement and $491 under the Aircraft Lease Agreement during the three months ended March 31, 2022.

Real estate venture investments. Douglas Elliman has been engaged by the developers as the sole broker or the co-broker for several of the real estate development projects that New Valley owns an interest in through its real estate venture investments. Douglas Elliman had gross commissions of approximately $900 and $2,357 from these projects for the three months ended March 31, 2022 and 2021, respectively.

(i)New Accounting Pronouncements:

ASUs to be adopted in future periods:

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The ASU requires that an acquirer recognize and measure contract assets and contract liabilities in a business combination in accordance with Topic 606. The ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

2. REVENUE RECOGNITION

Disaggregation of Revenue

The Company disaggregates revenues by segment.

Tobacco. Tobacco segment revenues are not disaggregated because all revenues are generated from the discount segment of the U.S. cigarette industry.

Real Estate. Real Estate segment revenues are disaggregated in the table below.


	Three Months Ended
	March 31,
	2022		2021
Real Estate Segment Revenues
Sales on facilities primarily from Escena	$	2,969	$	1,625
Revenues from investments in real estate	25		900
Total real estate revenues	$	2,994	$	2,525

3. LEASES

The Company has operating and finance leases for corporate and sales offices, and certain vehicles and equipment. The components of lease expense were as follows:


	Three Months Ended
	March 31,
		2022		2021
Operating lease cost		$	1,125	$	1,166
Short-term lease cost		103		91
Variable lease cost		56		52

Finance lease cost:
Amortization		14		16
Interest on lease liabilities		2		3
Total lease cost		$	1,300	$	1,328

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

Supplemental cash flow information related to leases was as follows:


	Three Months Ended
	March 31,
	2022		2021
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases	$	1,235	$	1,266
Operating cash flows from finance leases	2		3
Financing cash flows from finance leases	14		15

Right-of-use assets obtained in exchange for lease obligations:
Operating leases	—		7
Finance leases	—		—

As of March 31, 2022, the Company had $120 in undiscounted lease payments relating to operating leases for equipment that have not yet commenced. The operating leases will commence in the second half of 2022 with lease terms ranging between 2 and 3 years.

4. DISCONTINUED OPERATIONS

On December 29, 2021, the Company completed the distribution to its stockholders (including Vector common stock underlying outstanding stock options awards and restricted stock awards) of the common stock of Douglas Elliman Inc. (the “Distribution”).

There were no assets or liabilities of discontinued operations of Douglas Elliman as of March 31, 2022 or December 31, 2021.

The financial results of Douglas Elliman through the completion of the Distribution are presented as income from discontinued operations, net of income taxes on the Company’s condensed consolidated statements of operations. The following table presents financial results of Douglas Elliman for the periods prior to the completion of the Distribution:


	Three Months Ended March 31,
	2022		2021
	(Dollars in thousands)
Revenues:
Real estate	$	—	$	272,776

Expenses:
Cost of sales	—		198,635

Operating, selling, administrative and general expenses	—		59,913



Operating income	—		14,228

Other income (expenses):
Interest expense	—		(30)

Other, net	—		48
Pretax income from discontinued operations	—		14,246
Income tax expense	—		3,839
Income from discontinued operations	$	—	$	10,407

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

The following table presents the information regarding certain components of cash flows from discontinued operations:


	Three Months Ended March 31,
	2022		2021
	(Dollars in thousands)
Depreciation and amortization	$	—	$	2,123
Non-cash lease expense	—		4,487



Capital expenditures	—		(597)

5. INVENTORIES

Inventories consisted of:


	March 31, 2022		December 31, 2021
Leaf tobacco	$	40,483	$	38,825
Other raw materials	9,115		7,560
Work-in-process	692		2,639

Finished goods	66,328		64,218

Inventories at current cost	116,618		113,242
LIFO adjustments	(18,627)		(18,627)
	$	97,991	$	94,615

All of the Company’s inventories at March 31, 2022 and December 31, 2021 are reported under the LIFO method. The $18,627 LIFO adjustment as of March 31, 2022 reduced the current cost of inventories by $12,128 for Leaf tobacco, $829 for Other raw materials, $18 for Work-in-process and $5,652 for Finished goods. The $18,627 LIFO adjustment as of December 31, 2021 reduced the current cost of inventories by $12,128 for Leaf tobacco, $829 for Other raw materials, $18 for Work-in-process and $5,652 for Finished goods.

The amount of capitalized Master Settlement Agreement (“MSA”) cost in “Finished goods” inventory was $20,971 and $20,450 at March 31, 2022 and December 31, 2021, respectively. Federal excise tax capitalized in inventory was $26,021 and $25,160 at March 31, 2022 and December 31, 2021, respectively.

At March 31, 2022, Liggett had tobacco purchase commitments of approximately $8,293. Liggett has a single-source supply agreement for reduced ignition propensity cigarette paper through December 2022.

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

6. INVESTMENT SECURITIES

Investment securities consisted of the following:


	March 31, 2022		December 31, 2021
Debt securities available for sale	$	91,838	$	103,906


Equity securities at fair value:
Marketable equity securities	18,962		19,560
Mutual funds invested in debt securities	22,538		23,221
Long-term investment securities at fair value (1)	31,057		32,089
Total equity securities at fair value	72,557		74,870

Total investment securities at fair value	164,395		178,776
Less:
Long-term investment securities at fair value (1)	31,057		32,089
Current investment securities at fair value	$	133,338	$	146,687

Long-term investment securities at fair value (1)	$	31,057	$	32,089
Equity-method investments	18,742		20,984
Total long-term investments	$	49,799	$	53,073

Equity securities at cost (2)	$	6,200	$	5,200

(1) These assets are measured at net asset value (“NAV”) as a practical expedient under ASC 820.

(2) These assets are without readily determinable fair values that do not qualify for the NAV practical expedient and are included in Other assets on the condensed consolidated balance sheets.

Net (losses) gains recognized on investment securities were as follows:


	Three Months Ended
	March 31,
		2022		2021
Net (losses) gains recognized on equity securities		$	(1,874)	$	2,374
Net gains recognized on debt securities available for sale		—		55

Impairment expense		(1,165)		(14)




Net (losses) gains recognized on investment securities		$	(3,039)	$	2,415

(a) Debt Securities Available for Sale:

The components of debt securities available for sale at March 31, 2022 were as follows:


	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value


Marketable debt securities	$	91,827	$	11	$	—	$	91,838

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

The table below summarizes the maturity dates of debt securities available for sale at March 31, 2022.


Investment Type:	Fair Value		Under 1 Year		1 Year up to 5 Years		More than 5 Years
U.S. Government securities	$	5,585	$	4,805	$	780	$	—
Corporate securities	55,324		30,317		25,007		—
U.S. mortgage-backed securities	19,173		1,793		17,380		—


Commercial paper	10,540		10,540		—		—

Foreign fixed-income securities	1,216		1,216		—		—

Total debt securities available for sale by maturity dates	$	91,838	$	48,671	$	43,167	$	—

The components of debt securities available for sale at December 31, 2021 were as follows:


	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value


Marketable debt securities	$	103,838	$	68	$	—	$	103,906

There were no available-for-sale debt securities with continuous unrealized losses for less than 12 months and 12 months or greater at March 31, 2022 and December 31, 2021, respectively.

Gross realized gains and losses on debt securities available for sale were as follows:


	Three Months Ended
	March 31,
		2022		2021
Gross realized gains on sales		$	1	$	56
Gross realized losses on sales		(1)		(1)
Net gains recognized on debt securities available for sale		$	—	$	55

Impairment expense		$	(1,165)	$	(14)

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 losses and gains recognized in net income on equity securities at fair value during the three and three months ended March 31, 2022 and 2021, respectively:


	Three Months Ended
	March 31,
		2022		2021
Net (losses) gains recognized on equity securities		$	(1,874)	$	2,374
Less: Net gains recognized on equity securities sold		293		169
Net unrealized (losses) gains recognized on equity securities still held at the reporting date		$	(2,167)	$	2,205

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

The Company’s mutual funds invested in debt securities are classified as Level 1 under the fair value hierarchy disclosed in Note 11. Their fair values are based on quoted prices for identical assets in active markets or inputs that are based upon quoted prices for similar instruments in active markets. The Company has unfunded commitments of $514 related to long-term investment securities at fair value as of March 31, 2022.

The Company received cash distributions of $202 and $4,389 related to its long-term investment securities at fair value for the three months ended March 31, 2022 and 2021, respectively. The Company classified the $202 distributions as operating cash inflows for the three months ended March 31, 2022 and the $4,389 distributions as investing cash inflows for the three months ended March 31, 2021.

Equity-method investments consisted of the following:


	March 31, 2022		December 31, 2021
Mutual fund and hedge funds	$	18,742	$	20,984

At March 31, 2022, the Company’s ownership percentages in the mutual fund and hedge funds accounted for under the equity method ranged from 6.45% to 37.70%. The Company’s ownership percentage in these investments meets the threshold for equity-method accounting.

Equity in (losses) earnings from investments were:


	Three Months Ended
	March 31,
		2022		2021
Mutual fund and hedge funds		$	(2,242)	$	577

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

Equity securities without readily determinable fair values that do not qualify for the NAV practical expedient consisted of investments in various limited liability companies at March 31, 2022 and December 31, 2021, respectively. The total carrying value of these investments was $6,200 as of March 31, 2022 and $5,200 as of December 31, 2021, and was included in “Other assets” on the condensed consolidated balance sheets. No impairment or other adjustments related to observable price changes in orderly transactions for identical or similar investments were identified for the three months ended March 31, 2022 and 2021, respectively.

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

7. NEW VALLEY LLC

Investments in real estate ventures:

The components of “Investments in real estate ventures” were as follows:


	Range of Ownership (1)	March 31, 2022		December 31, 2021
Condominium and Mixed Use Development:
New York City Standard Metropolitan Statistical Area (“SMSA”)	4.2% - 37.0%	$	21,266	$	22,654
All other U.S. areas	19.6% - 89.1%	60,359		57,485
		81,625		80,139
Apartment Buildings:

All other U.S. areas	50.0%	11,391		11,900
		11,391		11,900
Hotels:
New York City SMSA	0.4% - 12.3%	1,347		1,635
International	49.0%	1,259		1,522
		2,606		3,157
Commercial:
New York City SMSA	49.0%	8,070		—
All other U.S. areas	1.6%	7,444		7,290
		15,514		7,290

Other:	15.0% - 49.0%	367		2,576
Investments in real estate ventures		$	111,503	$	105,062

_____________________________

(1) The Range of Ownership reflects New Valley’s estimated current ownership percentage. New Valley’s actual ownership percentage as well as the percentage of earnings and cash distributions may ultimately differ as a result of a number of factors including potential dilution, financing or admission of additional partners.

Contributions:

The components of New Valley’s contributions to its investments in real estate ventures were as follows:


	Three Months Ended
	March 31,
	2022		2021
Condominium and Mixed Use Development:
New York City SMSA	$	369	$	180
All other U.S. areas	—		6,661
	369		6,841





Hotels:
New York City SMSA	49		1,246

	49		1,246
Commercial:
New York City SMSA	8,070		—

	8,070		—


Total contributions	$	8,488	$	8,087

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

For ventures where New Valley previously held an investment, New Valley contributed its proportionate share of additional capital along with contributions by the other investment partners during the three months ended March 31, 2022 and March 31, 2021. New Valley’s direct investment percentage for these ventures did not significantly change.

Distributions:

The components of distributions received by New Valley from its investments in real estate ventures were as follows:


	Three Months Ended
	March 31,
	2022		2021
Condominium and Mixed Use Development:
New York City SMSA	$	900	$	—
All other U.S. areas	—		2,833
	900		2,833
Apartment Buildings:

All other U.S. areas	200		4,608
	200		4,608




Commercial:

All other U.S. areas	218		136
	218		136

Other	2,725		—
Total distributions	$	4,043	$	7,577

Of the distributions received by New Valley from its investment in real estate ventures, $733 were from distributions of earnings for the three months ended March 31, 2022, and $3,310 and $7,577 were a return of capital for the three months ended March 31, 2022 and 2021, respectively. Distributions from earnings are included in cash from operations in the condensed consolidated statements of cash flows, while distributions from return of capital are included in cash flows from investing activities in the condensed consolidated statements of cash flows.

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

Equity in Earnings (losses) from Real Estate Ventures:

New Valley recognized equity in (losses) earnings from real estate ventures as follows:


	Three Months Ended
	March 31,
		2022		2021
Condominium and Mixed Use Development:
New York City SMSA		$	(1,216)	$	(1,505)
All other U.S. areas		(482)		(41)
		(1,698)		(1,546)
Apartment Buildings:

All other U.S. areas		(309)		4,608
		(309)		4,608
Hotels:
New York City SMSA		(494)		(462)
International		(263)		(506)
		(757)		(968)
Commercial:
New York City SMSA		—		122
All other U.S. areas		372		93
		372		215

Other:		515		(720)
Equity in (losses) earnings from real estate ventures		$	(1,877)	$	1,589

VIE Consideration:

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

The carrying amount of the consolidated assets of the VIE was $0 at both March 31, 2022 and December 31, 2021. Those assets are owned by the VIE, not the Company. The consolidated VIE had no recourse liabilities as of March 31, 2022 and December 31, 2021. A VIE’s assets can only be used to settle the obligations of that VIE. The VIE is not a guarantor of the Company’s senior notes and other debts payable.

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

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

Maximum Exposure to Loss:

New Valley’s maximum exposure to loss from its investments in real estate ventures consisted of the net carrying value of the venture adjusted for any future capital commitments and/or guarantee arrangements. The maximum exposure to loss was as follows:


	March 31, 2022
Condominium and Mixed Use Development:
New York City SMSA	$	21,266
All other U.S. areas	60,359
	81,625
Apartment Buildings:

All other U.S. areas	11,391
	11,391
Hotels:
New York City SMSA	1,347
International	1,259
	2,606
Commercial:
New York City SMSA	8,070
All other U.S. areas	7,444
	15,514

Other	367
Total maximum exposure to loss	$	111,503

New Valley capitalized $3,716 and $430 of interest costs into the carrying value of its ventures whose projects were currently under development for three months ended March 31, 2022 and 2021, respectively.

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

Pursuant to Rule 4-08(g), the following summarized financial data for unconsolidated subsidiaries includes information for the following: Other (Witkoff GP Partners).

Other:


	Three Months Ended
	March 31,
	2022		2021
Income Statement
Revenue	$	—	$	21
Other expenses	2,829		300,829
Loss from continuing operations	$	(2,829)	$	(300,808)

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

Investments in Real Estate, net:

The components of “Investments in real estate, net” were as follows:


	March 31, 2022		December 31, 2021
Escena, net	$	9,039	$	9,098


Investments in real estate, net	$	9,039	$	9,098

Escena. The assets of “Escena, net” were as follows:


	March 31, 2022		December 31, 2021
Land and land improvements	$	8,520	$	8,520
Building and building improvements	1,926		1,926
Other	1,636		1,643
	12,082		12,089
Less accumulated depreciation	(3,043)		(2,991)
	$	9,039	$	9,098

New Valley recorded operating income of $1,239 and $370 for the three months ended March 31, 2022 and 2021, respectively, from Escena. Escena is a master planned community, golf course, and club house in Palm Springs, California. In April 2022, New Valley sold Escena and received approximately $15,300 in net cash proceeds. The Company will account for the transaction in its condensed consolidated statement of operations for the three months ended June 30, 2022.

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

Notes payable, long-term debt and other obligations consisted of:


	March 31, 2022		December 31, 2021
Vector:
5.75% Senior Secured Notes due 2029	$	875,000	$	875,000

10.5% Senior Notes due 2026, net of unamortized discount of $2,543 and $2,647	552,457		552,353

Liggett:
Revolving credit facility	24		24

Equipment loans	58		64
Other	24		32
Notes payable, long-term debt and other obligations	1,427,563		1,427,473
Less:
Debt issuance costs	(27,856)		(28,803)
Total notes payable, long-term debt and other obligations	1,399,707		1,398,670
Less:
Current maturities	(76)		(79)
Amount due after one year	$	1,399,631	$	1,398,591

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

5.75% Senior Secured Notes due 2029 — Vector:

As of March 31, 2022, the Company was in compliance with all debt covenants related to its 5.75% Senior Secured Notes due 2029.

6.125% Senior Secured Notes due 2025 — Vector:

On February 1, 2021, the 6.125% Senior Secured Notes due 2025 were redeemed in full and the Company recorded a loss on the extinguishment of debt of $21,362 for the three months ended March 31, 2021, including $13,013 of premium and $8,349 of other costs and non-cash interest expense related to the recognition of previously unamortized deferred finance costs.

10.5% Senior Notes due 2026 — Vector:

As of March 31, 2022, the Company was in compliance with all debt covenants related to its 10.5% Senior Notes due 2026.

Revolving Credit Agreement — Liggett:

As of March 31, 2022, there was $24 outstanding balance due under the Credit Agreement. Availability, as determined under the Credit Agreement, was approximately $83,500 based on eligible collateral at March 31, 2022. As of March 31, 2022, Liggett, Maple, and Vector Tobacco were in compliance with all debt covenants under the Credit Agreement.

Non-Cash Interest Expense — Vector:


	Three Months Ended
	March 31,
		2022		2021
Amortization of debt discount, net		$	105	$	94
Amortization of debt issuance costs		998		893
Loss on extinguishment of 6.125% Senior Secured Notes		—		8,349


		$	1,103	$	9,336

Fair Value of Notes Payable and Long-Term Debt:


	March 31, 2022				December 31, 2021
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
Senior Notes	$	1,427,457	$	1,361,869	$	1,427,353	$	1,426,176

Liggett and other	106		108		120		124
Notes payable and long-term debt	$	1,427,563	$	1,361,977	$	1,427,473	$	1,426,300

Notes payable and long-term debt are carried on the condensed consolidated balance sheets at amortized cost. The fair value determinations disclosed above are classified as Level 2 under the fair value hierarchy disclosed in Note 11 if such liabilities were recorded on the condensed consolidated balance sheets at fair value. The estimated fair value of the Company’s notes payable and long-term debt has been determined by the Company using available market information and appropriate valuation methodologies including the evaluation of the Company’s credit risk. The Company used a derived price based upon quoted market prices and trade activity as of March 31, 2022 to determine the fair value of its publicly-traded notes and debentures. The carrying value of the revolving credit facility is equal to fair value. The fair value of the equipment loans and other obligations was determined by calculating the present value of the required future cash flows. However, considerable judgment is required to develop the estimates of fair value and, accordingly, the estimate presented herein is not necessarily indicative of the amount that could be realized in a current market exchange.

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

9. CONTINGENCIES

Tobacco-Related Litigation:

Overview. Since 1954, Liggett and other United States cigarette manufacturers have been named as defendants in numerous direct, third-party and purported class actions predicated on the theory that cigarette manufacturers should be liable for damages alleged to have been caused by cigarette smoking or by exposure to secondary smoke from cigarettes. The cases have generally fallen into the following categories: (i) smoking and health cases alleging personal injury brought on behalf of individual plaintiffs (“Individual Actions”); (ii) lawsuits by individuals requesting the benefit of the Engle ruling (“Engle progeny cases”); (iii) smoking and health cases primarily alleging personal injury or seeking court-supervised programs for ongoing medical monitoring, as well as cases alleging that use of the terms “lights” and/or “ultra lights” constitutes a deceptive and unfair trade practice, common law fraud or violation of federal law, purporting to be brought on behalf of a class of individual plaintiffs (“Class Actions”); and (iv) health care cost recovery actions brought by various foreign and domestic governmental plaintiffs and non-governmental plaintiffs seeking reimbursement for health care expenditures allegedly caused by cigarette smoking and/or disgorgement of profits (“Health Care Cost Recovery Actions”). The future financial impact of the risks and expenses of litigation are not quantifiable. For the three months ended March 31, 2022 and 2021, Liggett incurred tobacco product liability legal expenses and costs totaling $1,645 and $1,525 respectively. Legal defense costs are expensed as incurred.

Litigation is subject to uncertainty and it is possible that there could be adverse developments in pending cases. With the commencement of new cases, the defense costs and the risks relating to the unpredictability of litigation increase. Management reviews on a quarterly basis with counsel all pending litigation and evaluates the probability of a loss being incurred and whether an estimate can be made of the possible loss or range of loss that could result from an unfavorable outcome. An unfavorable outcome or settlement of pending tobacco-related litigation could encourage the commencement of additional litigation. Damages awarded in tobacco-related litigation can be significant.

Bonds. Although Liggett has been able to obtain required bonds or relief from bonding requirements in order to prevent plaintiffs from seeking to collect judgments while adverse verdicts are on appeal, there remains a risk that such relief may not be obtainable in all cases. This risk has been reduced given that a majority of states now limit the dollar amount of bonds or require no bond at all. As of March 31, 2022, Liggett had no outstanding bonds.

In June 2009, Florida amended its existing bond cap statute by adding a $200,000 bond cap that applies to all Florida tobacco litigation in the aggregate and establishes individual bond caps in amounts that vary depending on the number of judgments in effect at a given time. The maximum amount of any such bond for an appeal in the Florida state courts will be no greater than $5,000. In several cases, plaintiffs challenged the constitutionality of the bond cap statute, but to date the courts have upheld the constitutionality of the statute. It is possible that the Company’s consolidated financial position, results of operations, and cash flows could be materially adversely affected by an unfavorable outcome of such challenges.

Accounting Policy. The Company and its subsidiaries record provisions in their consolidated financial statements for pending litigation when they determine that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. At the present time, while it is reasonably possible that an unfavorable outcome in a case may occur, except as discussed in this Note 9: (i) management has concluded that it is not probable that a loss has been incurred in any of the pending tobacco-related cases; or (ii) management is unable to reasonably estimate the possible loss or range of loss that could result from an unfavorable outcome of any of the pending tobacco-related cases and, therefore, management has not provided any amounts in the condensed consolidated financial statements for unfavorable outcomes, if any.

Although Liggett has generally been successful in managing the litigation filed against it, litigation is subject to uncertainty and significant challenges remain, including with respect to the remaining Engle progeny cases. There can be no assurances that Liggett’s past litigation experience will be representative of future results. Judgments have been entered against Liggett in the past, in Individual Actions and Engle progeny cases, and several of those judgments were affirmed on appeal and satisfied by Liggett. It is possible that the consolidated financial position, results of operations and cash flows of the Company could be materially adversely affected by an unfavorable outcome or settlement of any of the remaining smoking-related litigation. Liggett believes, and has been so advised by counsel, that it has valid defenses to the litigation pending against it, as well as valid bases for appeal of adverse verdicts. All such cases are and will continue to be vigorously defended. Liggett has entered into settlement discussions in individual cases or groups of cases where Liggett has determined it was in its best interest to do so, and it may continue to do so in the future. As cases proceed through the appellate process, the Company will consider accruals on a case-by-case basis if an unfavorable outcome becomes probable and the amount can be reasonably estimated.

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

Individual Actions

As of March 31, 2022, there were 61 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						30
Illinois						14
Nevada						5
New Mexico						4
Hawaii						4
Louisiana						2
Massachusetts						1
South Carolina						1

The plaintiffs’ allegations of liability in cases in which individuals seek recovery for injuries allegedly caused by cigarette smoking are based on various theories of recovery, including negligence, gross negligence, breach of special duty, strict liability, fraud, concealment, misrepresentation, design defect, failure to warn, breach of express and implied warranties, conspiracy, aiding and abetting, concert of action, unjust enrichment, common law public nuisance, property damage, invasion of privacy, mental anguish, emotional distress, disability, shock, indemnity, violations of deceptive trade practice laws, the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”), state RICO statutes and antitrust statutes. In many of these cases, in addition to compensatory damages, plaintiffs also seek other forms of relief including treble/multiple damages, medical monitoring, disgorgement of profits and punitive damages. Although alleged damages often are not determinable from a complaint, and the law governing the pleading and calculation of damages varies from state to state and jurisdiction to jurisdiction, compensatory and punitive damages have been specifically pleaded in a number of cases, sometimes in amounts ranging into the hundreds of millions and even billions of dollars.

Defenses raised in Individual Actions include lack of proximate cause, assumption of the risk, comparative fault and/or contributory negligence, lack of design defect, statute of limitations, statute of repose, equitable defenses such as “unclean hands” and lack of benefit, failure to state a claim and federal preemption.

Engle Progeny Cases

In May 1994, the Engle case was filed as a class action against Liggett and others in Miami-Dade County, Florida. The class consisted of all Florida residents who, by November 21, 1996, “have suffered, presently suffer or have died from diseases and medical conditions caused by their addiction to cigarette smoking.” A trial was held and the jury returned a verdict adverse to the defendants (approximately $145,000,000 in punitive damages, including $790,000 against Liggett). Following an appeal to the Third District Court of Appeal, the Florida Supreme Court in July 2006 decertified the class on a prospective basis and affirmed the appellate court’s reversal of the punitive damages award. Former class members had until January 2008 to file individual lawsuits. As a result, Liggett and the Company, and other cigarette manufacturers, were sued in thousands of Engle progeny cases in both federal and state courts in Florida.

Cautionary Statement About Engle Progeny Cases. Since 2009, judgments have been entered against Liggett and other cigarette manufacturers in Engle progeny cases. A number of the judgments were affirmed on appeal and satisfied by the defendants. Many were overturned on appeal. As of March 31, 2022, 25 Engle progeny cases, where Liggett was a defendant at trial, resulted in verdicts.

There have been 16 verdicts returned in favor of the plaintiffs and 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 faces 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

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

estimate the possible loss or range of loss from the remaining Engle progeny cases as there are currently multiple defendants in each case, except as discussed herein and, in most cases, discovery has not occurred or is limited. As a result, the Company lacks information about whether plaintiffs are in fact Engle class members, the relevant smoking history, the nature of the alleged injury and the availability of various defenses, among other things. Further, plaintiffs typically do not specify the amount of their demand for damages.

Engle Progeny Settlements.

In October 2013, the Company and Liggett entered into a settlement with approximately 4,900 Engle progeny plaintiffs and their counsel. Pursuant to the terms of the settlement, Liggett agreed to pay a total of approximately $110,000, with $61,600 paid in an initial lump sum and the balance to be paid in installments over 14 years starting in February 2015. The Company’s future payments will be approximately $3,600 per annum through 2028, including an annual cost of living increase that began in 2021. In exchange, the claims of these plaintiffs were dismissed with prejudice against the Company and Liggett.

Liggett subsequently entered into two separate settlement agreements with a total of 152 Engle progeny plaintiffs where Liggett paid a total of $23,150. On an individual basis, Liggett settled an additional 207 Engle progeny cases for approximately $8,200 in the aggregate. Three of those settlements occurred in the first quarter of 2022.

Notwithstanding the comprehensive nature of the Engle progeny settlements, 25 plaintiffs’ claims remain pending in state court. Therefore, the Company and Liggett may still be subject to periodic adverse judgments which could have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows.

Judgments Paid in Engle Progeny Cases.

As of March 31, 2022, Liggett paid in the aggregate $40,111, including interest and attorneys’ fees, to satisfy the judgments in the following Engle progeny cases: Lukacs, Campbell, Douglas, Clay, Tullo, Ward, Rizzuto, Lambert, Buchanan, and Santoro.

Liggett Only Cases

There are currently five cases where Liggett is the sole defendant: Cowart and Baluja are Individual Actions and Tumin, Forbing, and Alvarez are Engle progeny cases. It is possible that cases where Liggett is the only defendant could increase as a result of the remaining Engle progeny cases and newly filed Individual Actions.

Upcoming Trials

As of March 31, 2022, there were eight Individual Actions (Camacho, Geist, Harcourt, Johnson, Lane, Mendez, Rowan, and Sweet) scheduled for trial through March 31, 2023, where Liggett is a named defendant. Trial dates are subject to change and additional cases could be set for trial during this time.

Maryland Cases

Liggett was a defendant in 16 multi-defendant personal injury cases in Maryland alleging claims arising from asbestos and tobacco exposure (“synergy cases”). In June 2017, after the Court of Appeals (Maryland’s highest court) ruled that joinder of tobacco and asbestos cases may be possible in certain circumstances and then remanded the case, the trial court dismissed all synergy cases against the tobacco company defendants, including Liggett, without prejudice. At some point, Plaintiffs may seek appellate review or file new cases against the tobacco companies.

Class Actions

As of March 31, 2022, 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.

In November 1997, in Young v. American Tobacco Co., a purported class action was brought on behalf of plaintiff and all similarly situated residents in Louisiana who, though not themselves cigarette smokers, allege they were exposed to and suffered injury from secondhand smoke from cigarettes. The plaintiffs seek an unspecified amount of compensatory and punitive damages. The case has been stayed since March 2016 pending completion of the smoking cessation program ordered by the court in Scott v. The American Tobacco Co.

In February 1998, in Parsons v. AC & S Inc., a purported class action was brought on behalf of plaintiff and all West Virginia residents who allegedly have claims arising from their exposure to cigarette smoke and asbestos fibers and seeks compensatory and punitive damages. The case has been stayed since December 2000 as a result of bankruptcy petitions filed by three co-defendants.

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

Plaintiffs’ allegations of liability in class action cases are based on various theories of recovery, including negligence, gross negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, nuisance, breach of express and implied warranties, breach of special duty, conspiracy, concert of action, violation of deceptive trade practice laws and consumer protection statutes and claims under the federal and state anti-racketeering statutes. Plaintiffs in the class actions seek various forms of relief, including compensatory and punitive damages, treble/multiple damages and other statutory damages and penalties, creation of medical monitoring and smoking cessation funds, disgorgement of profits, and injunctive and equitable relief.

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.

Health Care Cost Recovery Actions

As of March 31, 2022, one Health Care Cost Recovery Action was pending against Liggett 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 have asserted equitable claims that the tobacco industry was “unjustly enriched” by their payment of health care costs allegedly attributable to smoking and seek reimbursement of those costs. Relief sought by some, but not all, plaintiffs include punitive damages, multiple damages and other statutory damages and penalties, injunctions prohibiting alleged marketing and sales to minors, disclosure of research, disgorgement of profits, funding of anti-smoking programs, additional disclosure of nicotine yields, and payment of attorney and expert witness fees.

Department of Justice Lawsuit

In September 1999, the United States government commenced litigation against Liggett and other cigarette manufacturers in the United States District Court for the District of Columbia. The action sought to recover, among other things, an unspecified amount of health care costs paid and to be paid by the federal government for smoking-related illnesses allegedly caused by the fraudulent and tortious conduct of defendants. In August 2006, the trial court entered a Final Judgment against each of the cigarette manufacturing defendants, except Liggett. The judgment was affirmed on appeal. As a result, the cigarette manufacturing defendants, other than Liggett, are now subject to the trial court’s Final Judgment which ordered, among other things, the issuance of “corrective statements” in various media regarding the adverse health effects of smoking, the addictiveness of smoking and nicotine, the lack of any significant health benefit from smoking “low tar” or “lights” cigarettes, defendants’ manipulation of cigarette design to ensure optimum nicotine delivery and the adverse health effects of exposure to environmental tobacco smoke.

MSA and Other State Settlement Agreements

In March 1996, March 1997 and March 1998, Liggett entered into settlements of smoking-related litigation with 45 states and territories. The settlements released Liggett from all smoking-related claims made by those states and territories, including claims for health care cost reimbursement and claims concerning sales of cigarettes to minors.

In November 1998, Philip Morris, R.J. Reynolds and two other companies (the “Original Participating Manufacturers” or “OPMs”) and Liggett and Vector Tobacco (together with any other tobacco product manufacturer that becomes a signatory, the “Subsequent Participating Manufacturers” or “SPMs”) (the OPMs and SPMs are hereinafter referred to jointly as “PMs”) entered into the Master Settlement Agreement (the “MSA”) with 46 states, the District of Columbia, Puerto Rico, Guam, the United States Virgin Islands, American Samoa and the Northern Mariana Islands (collectively, the “Settling States”) to settle the asserted and unasserted health care cost recovery and certain other claims of the Settling States. The MSA received final judicial approval in each Settling State.

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

As a result of the MSA, the Settling States released Liggett and Vector Tobacco from:

•all claims of the Settling States and their respective political subdivisions and other recipients of state health care funds, relating to: (i) past conduct arising out of the use, sale, distribution, manufacture, development, advertising and marketing of tobacco products; (ii) the health effects of, the exposure to, or research, statements or warnings about, tobacco products; and

•all monetary claims of the Settling States and their respective subdivisions and other recipients of state health care funds relating to future conduct arising out of the use of, or exposure to, tobacco products that have been manufactured in the ordinary course of business.

The MSA restricts tobacco product advertising and marketing within the Settling States and otherwise restricts the activities of PMs. Among other things, the MSA prohibits the targeting of youth in the advertising, promotion or marketing of tobacco products; bans the use of cartoon characters in all tobacco advertising and promotion; limits each PM to 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, obligations of each PM and are not the responsibility of any parent or affiliate of a PM.

Liggett has no payment obligations under the MSA except to the extent its market share exceeds a market share exemption of approximately 1.65% of total cigarettes sold in the United States. Vector Tobacco has no payment obligations under the MSA except to the extent its market share exceeds a market share exemption of approximately 0.28% of total cigarettes sold in the United States. Liggett and Vector Tobacco’s domestic shipments accounted for approximately 4.1% of the total cigarettes sold in the United States in 2021. If Liggett’s or Vector Tobacco’s market share exceeds their respective market share exemption in a given year, then on April 15 of the following year, Liggett and/or Vector Tobacco, as the case may be, must pay on each excess unit an amount equal (on a per-unit basis) to that due from the OPMs for that year. On December 30, 2021, Liggett and Vector Tobacco pre-paid $169,500 of their approximate $179,000 2021 MSA obligation, the balance of which was paid in April 2022, subject to applicable disputes or adjustments.

Certain MSA Disputes

NPM Adjustment. Liggett and Vector Tobacco contend that they are entitled to an NPM Adjustment for each year from 2003 - 2021. The NPM Adjustment is a potential adjustment to annual MSA payments, available when PMs suffer a market share loss to NPMs for a particular year and an economic consulting firm selected pursuant to the MSA determines (or the parties agree) that the MSA was a “significant factor contributing to” that loss. A Settling State that has “diligently enforced” its qualifying escrow statute in the year in question may be able to avoid its allocable share of the NPM Adjustment. For 2003 - 2021, Liggett and Vector Tobacco, as applicable, disputed that they owed the Settling States the NPM Adjustments as calculated by the independent auditor. As permitted by the MSA, Liggett and Vector Tobacco either paid subject to dispute, withheld payment, or paid into a disputed payment account, the amounts associated with these NPM Adjustments.

In June 2010, after the PMs prevailed in 48 of 49 motions to compel arbitration, the parties commenced the arbitration for the 2003 NPM Adjustment. That arbitration concluded in September 2013. It was followed by various challenges filed in state courts by states that did not prevail in the arbitration. Those challenges resulted in reductions, but not elimination of, the amounts awarded. Since then, the PMs have settled the NPM Adjustment dispute with 39 states representing approximately 80% of the MSA allocable share.

The 2004 NPM Adjustment arbitration commenced in 2016, with the arbitration panel issuing interim decisions on most individual states in September 2021, finding two of them liable for the NPM Adjustment; the final individual state hearing was held in February 2022; and a second phase addressing the effect of the settlements on recovery of the NPM Adjustment to start

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

thereafter. The parties have selected an arbitration panel to address the NPM Adjustments for 2005-2007, and are engaged in discovery, with a common hearing set for July 2022 and individual state hearings likely to start in the third quarter of 2022.

As a result of the settlements described above, Liggett and Vector Tobacco reduced cost of sales for three months ended March 31, 2022 and 2021 by $4,781 and $1,675 respectively. Liggett and Vector Tobacco may be entitled to further adjustments. As of March 31, 2022, Liggett and Vector Tobacco had accrued approximately $11,100 related to the disputed amounts withheld from the non-settling states for 2004 - 2010, which may be subject to payment, with interest, if Liggett and Vector Tobacco lose the disputes for those years. As of March 31, 2022, there remains approximately $49,800 in the disputed payments account relating to Liggett and Vector Tobacco’s 2011 - 2020 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 March 2022 forward being subject to an inflation adjustment.

Mississippi Litigation. In January 2016, the Attorney General for Mississippi filed a motion in Chancery Court in Jackson County, Mississippi to enforce the March 1996 settlement agreement among Liggett, Mississippi and other states (the “1996 Agreement”) alleging that Liggett owes Mississippi at least $27,000 in compensatory damages and interest. In April 2017, the Chancery Court ruled, over Liggett’s objections, that the 1996 Agreement should be enforced as Mississippi claims and referred the matter first to arbitration and then to a Special Master for further proceedings to determine the amount of damages, if any, to be awarded. In April 2021, following confirmation of the final arbitration award, the parties stipulated that the unpaid principal (exclusive of interest) purportedly due from Liggett to Mississippi pursuant to the 1996 Agreement was approximately $16,700, subject to Liggett’s right to litigate and/or appeal the enforceability of the 1996 Agreement (and all issues other than the calculation of the principal amount allegedly due).

In September 2019, the Special Master held a hearing regarding Mississippi’s claim for pre- and post-judgment interest. In August 2021, the Special Master issued a final report with proposed findings and recommendations that pre-judgment interest, in the amount of approximately $18,800, is due from Liggett from April 2005 - August 3, 2021. In April 2022, the Mississippi Chancery Court affirmed the Special Master’s findings. Additional interest amounts will accrue if the judgment is not overturned on appeal. Liggett continues to assert 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 has 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 will likely be required.

Liggett may be required to make additional payments to Mississippi and/or Texas which could have a material adverse effect on the Company’s consolidated financial position, results of operations and cash flows.

Cautionary Statement

Management is not able to reasonably predict the outcome of the litigation pending or threatened against Liggett or the Company. Litigation is subject to many uncertainties. Liggett has been found liable in multiple Engle progeny cases and Individual Actions, several of which were affirmed on appeal and satisfied by Liggett. It is possible that other cases could be decided unfavorably against Liggett and that Liggett will be unsuccessful on appeal. Liggett may attempt to settle particular cases if it believes it is in its best interest to do so.

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

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 condensed consolidated financial statements for unfavorable outcomes.

The tobacco industry is subject to a wide range of laws and regulations regarding the marketing, sale, taxation and use of tobacco products imposed by local, state and federal governments. There have been a number of restrictive regulatory actions, adverse legislative and political decisions and other unfavorable developments concerning cigarette smoking and the tobacco industry. These developments may negatively affect the perception of potential triers of fact with respect to the tobacco industry, possibly to the detriment of certain pending litigation, and may prompt the commencement of additional litigation or legislation.

It is possible that the Company’s consolidated financial position, results of operations and cash flows could be materially adversely affected by an unfavorable outcome in any of the smoking-related litigation.

The activity in the Company’s accruals for the MSA and tobacco litigation for the three months ended March 31, 2022 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, 2022	$	11,886	$	3,918	$	15,804	$	13,224	$	17,680	$	30,904
Expenses	56,199		72		56,271		—		—		—
NPM Settlement adjustment	(15)		—		(15)		(2,108)		—		(2,108)
Change in MSA obligations capitalized as inventory	521		—		521		—		—		—
Payments	—		(3,917)		(3,917)		—		—		—
Reclassification to/(from) non-current liabilities	—		3,566		3,566		—		(3,566)		(3,566)
Interest on withholding	—		124		124		—		472		472
Balance as of March 31, 2022	$	68,591	$	3,763	$	72,354	$	11,116	$	14,586	$	25,702

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

The activity in the Company’s accruals for the MSA and tobacco litigation for the three months ended March 31, 2021 was as follows:


	Current Liabilities						Non-Current Liabilities
	Payments due under Master Settlement Agreement		Litigation Accruals		Total		Payments due under Master Settlement Agreement		Litigation Accruals		Total

Balance as of January 1, 2021	$	38,767	$	3,967	$	42,734	$	17,933	$	19,268	$	37,201
Expenses	34,121		5		34,126		—		—		—

Change in MSA obligations capitalized as inventory	148		—		148		—		—		—
Payments	—		(4,065)		(4,065)		—		—		—
Reclassification to/(from) non-current liabilities	—		3,351		3,351		—		(3,351)		(3,351)
Interest on withholding	—		197		197		—		418		418
Balance as of March 31, 2021	$	73,036	$	3,455	$	76,491	$	17,933	$	16,335	$	34,268

Other Matters:

Liggett’s and Vector Tobacco’s management are unaware of any material environmental conditions affecting their existing facilities. Liggett’s and Vector Tobacco’s management believe that current operations are conducted in material compliance with all environmental laws and regulations and other laws and regulations governing cigarette manufacturers. Compliance with federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material impact on the capital expenditures, results of operations or competitive position of Liggett or Vector Tobacco.

Liggett and the Company have received three separate demands for indemnification from Altria Client Services, on behalf of Philip Morris, relating to lawsuits alleging smokers’ use of L&M cigarettes. The indemnification demands are purportedly issued in connection with Eve Holdings’ 1999 sale of certain trademarks to Philip Morris.

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. INCOME TAXES

The Company’s effective income tax rate is based on expected income, statutory rates, valuation allowances against deferred tax assets, and any tax planning opportunities available to the Company. For interim financial reporting, the Company estimates the annual effective income tax rate based on full year projections and applies the annual effective income tax rate against year-to-date pretax income to record income tax expense, adjusted for discrete items, if any. The Company refines annual estimates as new information becomes available. The Company’s tax rate does not bear a relationship to statutory tax rates due to permanent differences, which are primarily related to nondeductible compensation and state taxes.

The Company’s income tax expense consisted of the following:


	Three Months Ended
	March 31,
		2022		2021
Income before provision for income taxes		$	44,764	$	30,764
Income tax expense using estimated annual effective income tax rate		12,222		9,214









Income tax expense		$	12,222	$	9,214

There are no discrete items for the three months ended March 31, 2022 or the three months ended March 31, 2021.

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

11. INVESTMENTS AND FAIR VALUE MEASUREMENTS

The Company’s financial assets and liabilities subject to fair value measurements were as follows:


	Fair Value Measurements as of March 31, 2022
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (1)	$	153,948	$	153,948	$	—	$	—

Commercial paper (1)	43,002		—		43,002		—

Certificates of deposit (2)	110		—		110		—



Investment securities at fair value
Equity securities at fair value
Marketable equity securities	18,962		18,962		—		—
Mutual funds invested in debt securities	22,538		22,538		—		—
Total equity securities at fair value	41,500		41,500		—		—
Debt securities available for sale
U.S. government securities	5,585		—		5,585		—
Corporate securities	55,324		—		55,324		—
U.S. government and federal agency	19,173		—		19,173		—


Commercial paper	10,540		—		10,540		—

Foreign fixed-income securities	1,216		—		1,216		—

Total debt securities available for sale	91,838		—		91,838		—

Total investment securities at fair value	133,338		41,500		91,838		—

Long-term investments
Long-term investment securities at fair value (3)	31,057		—		—		—

Total	$	361,455	$	195,448	$	134,950	$	—

Liabilities:
Fair value of contingent liability	$	965	$	—	$	—	$	965

Total	$	965	$	—	$	—	$	965

(1) Amounts included in Cash and cash equivalents on the condensed consolidated balance sheets.

(2) Amounts included in current restricted assets and non-current restricted assets on the condensed consolidated balance sheets.

(3) In accordance with Subtopic 820-10, investments that are measured at fair value using the NAV practical expedient are not classified in the fair value hierarchy.

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited


	Fair Value Measurements as of December 31, 2021
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (1)	$	130,583	$	130,583	$	—	$	—

Commercial paper (1)	24,426				24,426		—

Certificates of deposit (2)	110				110		—

VGR

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