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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, 2020

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 4, 2020, Vector Group Ltd. had 148,084,900 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, 2020 and December 31, 2019
 
 
Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019
 
 
Condensed Consolidated Statements of Comprehensive (Loss) Income for the three months ended March 31, 2020 and 2019
 
 
Condensed Consolidated Statements of Stockholders' Deficiency for the three months ended March 31, 2020 and 2019
 
 
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019
 
 
Notes to Condensed Consolidated Financial Statements
 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
 
Item 4. Controls and Procedures
 
 
PART II. OTHER INFORMATION
 
 
 
Item 1. Legal Proceedings
 
 
Item 1A. Risk Factors
 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 
Item 6. Exhibits
 
 
SIGNATURE


1

VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
Unaudited

 
March 31,
2020
 
December 31,
2019
ASSETS:
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
467,264

 
$
371,341

Investment securities at fair value
103,875

 
129,641

Accounts receivable - trade, net
39,453

 
36,959

Inventories
105,324

 
98,762

Other current assets
37,951

 
44,911

Total current assets
753,867

 
681,614

Property, plant and equipment, net
80,334

 
82,160

Investments in real estate, net
28,646

 
28,317

Long-term investments (of which $34,417 and $45,781 were carried at fair value)
47,129

 
61,723

Investments in real estate ventures
124,867

 
131,556

Operating lease right of use assets
144,630

 
149,578

Goodwill and other intangible assets, net
207,699

 
265,993

Other assets
107,649

 
104,148

Total assets
$
1,494,821

 
$
1,505,089

LIABILITIES AND STOCKHOLDERS' DEFICIENCY:
 
 
 
Current liabilities:
 
 
 
   Current portion of notes payable and long-term debt
$
203,537

 
$
209,269

   Current portion of fair value of derivatives embedded within convertible debt
1,669

 
4,999

 Current payments due under the Master Settlement Agreement
77,285

 
34,116

Income taxes payable, net
21,992

 
5,138

Current operating lease liability
18,098

 
18,294

Other current liabilities
192,740

 
189,317

Total current liabilities
515,321

 
461,133

Notes payable, long-term debt and other obligations, less current portion
1,395,617

 
1,397,216

Non-current employee benefits
60,711

 
67,853

Deferred income taxes, net
16,400

 
33,695

Non-current operating lease liability
152,113

 
156,963

Payments due under the Master Settlement Agreement
17,275

 
17,275

Other liabilities
56,383

 
55,970

Total liabilities
2,213,820

 
2,190,105

Commitments and contingencies (Note 10)

 

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, 148,084,900 and 148,084,900 shares issued and outstanding
14,808

 
14,808

Accumulated deficit
(712,221
)
 
(678,464
)
Accumulated other comprehensive loss
(21,586
)
 
(21,808
)
Total Vector Group Ltd. stockholders' deficiency
(718,999
)
 
(685,464
)
Non-controlling interest

 
448

Total stockholders' deficiency
(718,999
)
 
(685,016
)
Total liabilities and stockholders' deficiency
$
1,494,821

 
$
1,505,089


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

2



VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Amounts)
Unaudited

 
Three Months Ended
 
March 31,
 
2020
 
2019
Revenues:
 
 
 
   Tobacco*
$
287,069

 
$
256,756

   Real estate
167,419

 
164,168

       Total revenues
454,488

 
420,924

 
 
 
 
Expenses:
 
 
 
 Cost of sales:
 
 
 
   Tobacco*
197,290

 
177,303

   Real estate
113,333

 
108,717

       Total cost of sales
310,623

 
286,020

 
 
 
 
Operating, selling, administrative and general expenses
90,517

 
92,314

Impairments of goodwill and intangible assets
58,252

 

Operating (loss) income
(4,904
)
 
42,590

 
 
 
 
Other income (expenses):
 
 
 
Interest expense
(35,627
)
 
(37,520
)
Change in fair value of derivatives embedded within convertible debt
3,330

 
10,349

Equity in earnings from investments
50,152

 
1,362

Equity in losses from real estate ventures
(6,505
)
 
(2,439
)
Other, net
(10,655
)
 
7,440

(Loss) income before provision for income taxes
(4,209
)
 
21,782

Income tax (benefit) expense
(978
)
 
6,749

 
 
 
 
Net (loss) income
(3,231
)
 
15,033

 
 
 
 
Net income attributed to non-controlling interest

 
(80
)
 
 
 
 
Net (loss) income attributed to Vector Group Ltd.
$
(3,231
)
 
$
14,953

 
 
 
 
Per basic common share:
 
 
 
 
 
 
 
Net (loss) income applicable to common shares attributed to Vector Group Ltd.
$
(0.03
)
 
$
0.09

 
 
 
 
Per diluted common share:
 
 
 
 
 
 
 
Net (loss) income applicable to common shares attributed to Vector Group Ltd.
$
(0.03
)
 
$
0.08

                                      

* Revenues and cost of sales include federal excise taxes of $113,139, and $104,633, respectively.


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

3




VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(Dollars in Thousands)
Unaudited
 
Three Months Ended
 
March 31,
 
2020
 
2019
 
 
Net (loss) income
$
(3,231
)
 
$
15,033

 
 
 
 
Net unrealized (losses) gains on investment securities available for sale:
 
 
 
Change in net unrealized (losses) gains
(664
)
 
377

Net unrealized losses (gains) reclassified into net (loss) income
503

 
(33
)
Net unrealized (losses) gains on investment securities available for sale
(161
)
 
344

 


 
 
Net change in pension-related amounts
 
 
 
Amortization of loss
464

 
457

Net change in pension-related amounts
464

 
457

 
 
 
 
Other comprehensive income
303

 
801

 
 
 
 
Income tax effect on:
 
 
 
Change in net unrealized (losses) gains on investment securities
180

 
(104
)
Net unrealized losses (gains) reclassified into net (loss) income on investment securities
(136
)
 
9

Pension-related amounts
(125
)
 
(125
)
Income tax provision on other comprehensive income
(81
)
 
(220
)
 
 
 
 
Other comprehensive income, net of tax
222

 
581

 
 
 
 
Comprehensive (loss) income
(3,009
)
 
15,614

 
 
 
 
Comprehensive income attributed to non-controlling interest

 
(80
)
Comprehensive (loss) income attributed to Vector Group Ltd.
$
(3,009
)
 
$
15,534


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

4



VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIENCY
(Dollars in Thousands, Except Share Amounts)
Unaudited
 
Vector Group Ltd. Stockholders' Deficiency
 
 
 
 
 
 
Additional Paid-In
 
 
 
Accumulated
Other Comprehensive
 
Non-controlling
 
 
 
Common Stock
 
 
Accumulated
 
 
 
 
 
Shares
 
Amount
 
Capital
 
Deficit
 
Loss
 
Interest
 
Total
Balance as of January 1, 2020
148,084,900

 
$
14,808

 
$

 
$
(678,464
)
 
$
(21,808
)
 
$
448

 
$
(685,016
)
Impact of adoption of new accounting standards

 

 

 
(2,263
)
 

 

 
(2,263
)
Net loss

 

 

 
(3,231
)
 

 

 
(3,231
)
Total other comprehensive income

 

 

 

 
222

 

 
222

Distributions and dividends on common stock ($0.20 per share)

 

 
(2,258
)
 
(28,263
)
 

 

 
(30,521
)
Stock-based compensation

 

 
2,258

 

 

 

 
2,258

Distributions to non-controlling interest

 

 

 

 

 
(448
)
 
(448
)
Balance as of March 31, 2020
148,084,900

 
$
14,808

 
$

 
$
(712,221
)
 
$
(21,586
)
 
$

 
$
(718,999
)
 
Vector Group Ltd. Stockholders' Deficiency
 
 
 
 
 
 
Additional Paid-In
 
 
 
Accumulated
Other Comprehensive
 
Non-controlling
 
 
 
Common Stock
 
 
Accumulated
 
 
 
 
 
Shares
 
Amount
 
Capital
 
Deficit
 
Loss
 
Interest
 
Total
Balance as of January 1, 2019
140,914,642

 
$
14,092

 
$

 
$
(542,169
)
 
$
(19,982
)
 
$
693

 
$
(547,366
)
Impact of adoption of new accounting standards

 

 

 
3,147

 
(4,697
)
 

 
(1,550
)
Net income

 

 

 
14,953

 

 
80

 
15,033

Total other comprehensive income

 

 

 

 
581

 

 
581

Distributions and dividends on common stock ($0.38 per share)

 

 
(2,264
)
 
(56,512
)
 

 

 
(58,776
)
Surrender of shares in connection with restricted stock vesting
(15,577
)
 
(2
)
 
(172
)
 

 

 

 
(174
)
Effect of 2019 stock dividend*
7,044,953

 
704

 

 
(704
)
 

 

 

Stock-based compensation

 

 
2,436

 

 

 

 
2,436

Distributions to non-controlling interest

 

 

 

 

 
(285
)
 
(285
)
Balance as of March 31, 2019
147,944,018

 
$
14,794

 
$

 
$
(581,285
)
 
$
(24,098
)
 
$
488

 
$
(590,101
)
                        
*    Represents the effect of the September 27, 2019 stock dividends on the first quarter 2019 common-stock activity.
The accompanying notes are an integral part of the condensed consolidated financial statements.

5



VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
Unaudited

 
Three Months Ended
 
Three Months Ended
 
March 31,
2020
 
March 31,
2019
Net cash provided by operating activities
$
115,309

 
$
19,726

Cash flows from investing activities:
 
 
 
Sale of investment securities
16,672

 
7,759

Maturities of investment securities
15,616

 
11,308

Purchase of investment securities
(15,798
)
 
(20,623
)
Proceeds from sale or liquidation of long-term investments
19,544

 

Purchase of long-term investments
(5,238
)
 

Investments in real estate ventures
(673
)
 
(871
)
Distributions from investments in real estate ventures
1,036

 
1,134

Increase in cash surrender value of life insurance policies
(258
)
 
(238
)
Decrease (increase) in restricted assets
93

 
(7
)
Capital expenditures
(4,888
)
 
(3,825
)
Purchase of subsidiaries

 
(668
)
Pay downs of investment securities
202

 
258

Investments in real estate, net
(340
)
 
(641
)
Net cash provided by (used in) investing activities
25,968

 
(6,414
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of debt
36

 

Repayments of debt
(2,638
)
 
(230,466
)
Borrowings under revolver
126,603

 
94,400

Repayments on revolver
(137,056
)
 
(87,420
)
Dividends and distributions on common stock
(32,074
)
 
(60,459
)
Distributions to non-controlling interest
(448
)
 
(285
)
Net cash used in financing activities
(45,577
)
 
(284,230
)
Net increase (decrease) in cash, cash equivalents and restricted cash
95,700

 
(270,918
)
Cash, cash equivalents and restricted cash, beginning of period
379,476

 
591,729

Cash, cash equivalents and restricted cash, end of period
$
475,176

 
$
320,811


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

6

VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)
Basis of Presentation:
The condensed consolidated financial statements of Vector Group Ltd. (the “Company” or “Vector”) include the accounts of Liggett Group LLC (“Liggett”), Vector Tobacco Inc. (“Vector Tobacco”), Liggett Vector Brands LLC (“Liggett Vector Brands”), New Valley LLC (“New Valley”) and other less significant subsidiaries. New Valley includes the accounts of Douglas Elliman Realty, LLC (“Douglas Elliman”) and other less significant subsidiaries. All significant intercompany balances and transactions have been eliminated.
Liggett and Vector Tobacco are engaged in the manufacture and sale of cigarettes in the United States. Liggett Vector Brands coordinates Liggett and Vector Tobacco’s sales and marketing efforts. Certain references to “Liggett” refer to the Company’s tobacco operations, including the business of Liggett and Vector Tobacco, unless otherwise specified. New Valley is engaged in the real estate business.
The unaudited, interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and, in management’s opinion, contain all adjustments, consisting only of normal recurring items, necessary for a fair statement of the results for the periods presented. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 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.

(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 (loss) income for purposes of determining basic EPS was as follows:

 
Three Months Ended
 
March 31,
 
2020
 
2019
Net (loss) income attributed to Vector Group Ltd.
$
(3,231
)
 
$
14,953

Income attributed to participating securities
(561
)
 
(2,003
)
Net (loss) income applicable to common shares attributed to Vector Group Ltd.
$
(3,792
)
 
$
12,950




7

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


Net (loss) income for purposes of determining diluted EPS was as follows:

 
Three Months Ended
 
March 31,
 
2020
 
2019
Net (loss) income attributed to Vector Group Ltd.
$
(3,231
)
 
$
14,953

Income attributable to 7.5% Variable Interest Senior Convertible Notes

 
(1,246
)
Income attributed to participating securities
(561
)
 
(2,003
)
Net (loss) income applicable to common shares attributed to Vector Group Ltd.
$
(3,792
)
 
$
11,704



 
Basic and diluted EPS were calculated using the following common shares:

 
Three Months Ended
 
March 31,
 
2020
 
2019
Weighted-average shares for basic EPS
147,000,114

 
146,468,233

Plus incremental shares related to convertible debt

 
2,915,614

Plus incremental shares related to stock options and non-vested restricted stock
83,603

 
15,403

Weighted-average shares for diluted EPS
147,083,717

 
149,399,250



The following non-vested restricted stock and shares issuable upon the conversion of convertible debt were outstanding during the three months ended March 31, 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
 
March 31,
 
2020
 
2019
  Weighted-average shares of non-vested restricted stock
625,122

 
1,407,820

  Weighted-average expense per share
$
19.54

 
$
17.92

  Weighted-average number of shares issuable upon conversion of debt
8,368,690

 
11,447,061

  Weighted-average conversion price
$
20.27

 
$
20.27





8

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


(d)
Fair Value of Derivatives Embedded within Convertible Debt:

The Company has estimated the fair value of the embedded derivatives based principally on the results of a valuation model. A readily determinable fair value of the embedded derivatives is not available. The estimated fair value of the derivatives embedded within the convertible debt is based principally on the present value of future dividend payments expected to be received by the convertible debt holders over the term of the debt. The discount rate applied to the future cash flows is estimated based on a spread in the yield of the Company’s debt when compared to risk-free securities with the same duration. The valuation model assumes future dividend payments by the Company and utilizes interest rates and credit spreads for secured to unsecured debt, unsecured to subordinated debt and subordinated debt to preferred stock to determine the fair value of the derivatives embedded within the convertible debt. The valuation also considers other items, including current and future dividends and the volatility of Vector’s stock price. At March 31, 2020, the range of estimated fair values of the Company’s embedded derivatives was between $1,668 and $1,670. The Company recorded the fair value of its embedded derivatives at the approximate midpoint of the range at $1,669 as of March 31, 2020. At December 31, 2019, the range of estimated fair values of the Company’s embedded derivatives was between $4,993 and $5,005. The Company recorded the fair value of its embedded derivatives at the midpoint of the range at $4,999 as of December 31, 2019. (See Note 9.)

(e)
Investments in Real Estate Ventures:
In accounting for its investments in real estate ventures, the Company identified its participation in Variable Interest Entities (“VIE”), which are defined as (a) entities in which the equity investment at risk is not sufficient to finance its activities without additional subordinated financial support; (b) as a group, the equity investors at risk lack 1) the power to direct the activities of a legal entity that most significantly impact the entity’s economic performance, 2) the obligation to absorb the expected losses of the entity, or 3) the right to receive the expected residual returns of the entity; or (c) as a group, the equity investors have voting rights that are not proportionate to their economic interests and the entity’s activities involve or are conducted on behalf of an investor with a disproportionately small voting interest.
The Company’s interest in VIEs is primarily in the form of equity ownership. The Company examines specific criteria and uses judgment when determining if the Company is the primary beneficiary of a VIE. Factors considered include risk and reward sharing, experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions, representation on a VIE’s executive committee, existence of unilateral kick-out rights exclusive of protective rights or voting rights and level of economic disproportionality between the Company and its other partner(s).
Accounting guidance requires the consolidation of VIEs in which the Company is the primary beneficiary. The guidance requires consolidation of VIEs that an enterprise has a controlling financial interest. A controlling financial interest will have both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company’s maximum exposure to loss in its investments in unconsolidated VIEs is limited to its investment in the VIE, any unfunded capital commitments to the VIE, and, in some cases, guarantees in connection with debt on the specific project. The Company’s maximum exposure to loss in its investment in consolidated VIEs is limited to its investment, which is the carrying value of the investment net of the non-controlling interest. Creditors of the consolidated VIEs have no recourse to the general credit of the primary beneficiary.
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.



9

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


(f)
Other, Net:

Other, net consisted of:
 
Three Months Ended
 
March 31,
 
2020
 
2019
Interest and dividend income
$
2,680

 
$
3,208

Net (losses) gains recognized on investment securities
(12,240
)
 
4,773

Net periodic benefit cost other than the service costs
(455
)
 
(541
)
Other expense
(640
)
 

Other, net
$
(10,655
)
 
$
7,440



(g)
Other Assets:

Other assets consisted of:
 
March 31, 2020
 
December 31, 2019
Restricted assets
$
5,251

 
$
5,241

Prepaid pension costs
31,946

 
31,686

Other assets
70,452

 
67,221

Total other assets
$
107,649

 
$
104,148



(h)
Other Current Liabilities:
Other current liabilities consisted of:
 
March 31, 2020
 
December 31, 2019
Accounts payable
$
13,355

 
$
10,222

Accrued promotional expenses
40,106

 
35,900

Accrued excise and payroll taxes payable, net
28,488

 
18,653

Accrued interest
35,113

 
35,756

Commissions payable
17,800

 
18,378

Accrued salary and benefits
11,653

 
29,464

Contract liabilities
4,547

 
9,358

Allowance for sales returns
8,444

 
7,785

Other current liabilities
33,234

 
23,801

Total other current liabilities
$
192,740

 
$
189,317







10

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


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

The components of “Cash, cash equivalents and restricted cash” in the condensed consolidated statements of cash flows were as follows:
 
March 31,
2020
 
December 31,
2019
Cash and cash equivalents
$
467,264

 
$
371,341

Restricted cash and cash equivalents included in other current assets
4,198

 
4,423

Restricted cash and cash equivalents included in other assets
3,714

 
3,712

Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows
$
475,176

 
$
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.
 
(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. 2016-13Financial 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

11

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


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”). 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 this guidance to determine the impact it may have on its condensed consolidated financial statements.

In March 2020, the FASB issued ASU No. 2020-03, Codification Improvements to Financial Instruments (“ASU 2020-03”). This ASU improves and clarifies various financial instruments topics, including the CECL standard issued in 2016 (described above). The ASU includes seven different issues that describe the areas of improvement and the related amendments to U.S. GAAP, that are intended to make the standards easier to understand and apply by eliminating inconsistencies and providing clarifications. The amendments have different effective dates. The amendments related to Issue 1, Issue 2, Issue 4, and Issue 5 were effective upon issuance of this update. The amendments related to Issue 3, Issue 6 and Issue 7 were effective for the Company beginning on January 1, 2020. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements.

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

12

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. This guidance is effective for all entities beginning March 12, 2020 and can be applied prospectively through December 31, 2022. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements.
   
2.
REVENUE RECOGNITION

Revenue Recognition Policies
Revenue is measured based on a consideration specified in a contract with a customer less any sales incentives. Revenue is recognized when (a) an enforceable contract with a customer exists, that has commercial substance, and collection of substantially all consideration for services is probable; and (b) the performance obligations to the customer are satisfied either over time or at a point in time.
Tobacco sales: Revenue from cigarette sales, which include federal excise taxes billed to customers, is recognized upon shipment of cigarettes when control has passed to the customer. Average collection terms for Tobacco sales range between three and twelve days from the time that the cigarettes are shipped to the customer. The Company records a liability for goods estimated to be returned in other current liabilities and the associated receivable for anticipated federal excise tax refunds in other current assets on the condensed consolidated balance sheet. The liability for returned goods is based principally on sales volumes and historical return rates. The estimated costs of sales incentives, including customer incentives and trade promotion activities, are based principally on historical experience and are accounted for as reductions in Tobacco revenue. Expected payments for sales incentives are included in other current liabilities on the Company’s condensed consolidated balance sheet. The Company accounts for shipping and handling costs as fulfillment costs as part of cost of sales.
Real estate sales: Real estate commissions and other payments earned by the Company’s real estate brokerage businesses are recognized as revenue when the real estate sale is completed or lease agreement is executed, which is the point in time that the performance obligation is satisfied. Any commission and other payments received in advance are deferred until the satisfaction of the performance obligation. Corresponding agent commission expenses, including any advance commission or other direct expense payments, are deferred and recognized as cost of sales concurrently with related revenues.
The Company’s Real Estate revenue contracts with customers do not have multiple material performance obligations to customers under ASC Topic 606, except for contracts in the Company’s development marketing business. Contracts in the development marketing business provide the Company with the exclusive right to sell units in a subject property for a commission fee per unit sold calculated as a percentage of the sales price of each unit. Accordingly, a performance obligation exists for each unit in the development marketing property under contract, and a portion of the total contract transaction price is allocated to and recognized at the time each unit is sold.
The total contract transaction price is allocated to each unit in the subject property and recognized when the performance obligation, i.e. the sale of each unit, is satisfied. Accordingly, the transaction price allocated to the remaining performance obligations for the development marketing business represents variable consideration allocated entirely to wholly unsatisfied performance obligations.
Under development marketing service arrangements, dedicated staff are required for a subject property and these costs are typically reimbursed from the customer through advance payments that are recoupable from future commission earnings. Advance payments received and associated direct costs paid are deferred, allocated to each unit in the subject property, and recognized at the time of the completed sale of each unit.
Development marketing service arrangements also include direct fulfillment costs incurred in advance of the satisfaction of the performance obligation. The Company capitalizes costs incurred in fulfilling a contract with a customer if the fulfillment costs 1) relate directly to an existing contract or anticipated contract, 2) generate or enhance resources that will be used to satisfy performance obligations in the future, and 3) are expected to be recovered. These costs are amortized over the estimated customer relationship period which is the contract term. The Company uses an amortization method that is consistent with the pattern of transfer of goods or services to its customers by allocating these costs to each unit in the subject property and expensing these costs as each unit sold is closed over the contract.
Commission revenue is recognized at the time the performance obligation is met for commercial leasing contracts, which is when the lease agreement is executed, as there are no further performance obligations, including any amounts of future payments under extended payment terms.

13

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


Property management revenue arrangements consist of providing operational and administrative services to manage a subject property. Fees for these services are typically billed and collected monthly. Property management service fees are recognized as revenue over time using the output method as the performance obligations under the customer arrangement are satisfied each month.
Title insurance commission fee revenue is earned when the sale of the title insurance policy is completed, which corresponds to the point in time when the underlying real estate sale is completed, which is when the performance obligation is satisfied.
Disaggregation of Revenue
In the following table, revenue is disaggregated by major product line for the Tobacco segment:
 
 
Three Months Ended
 
 
March 31,
 
 
2020
 
2019
Tobacco Segment Revenues:
 
 
 
 
Core Discount Brands - EAGLE 20’s, PYRAMID, GRAND PRIX, LIGGETT SELECT, and EVE
 
$
258,215

 
$
233,106

Other Brands
 
28,854

 
23,650

Total tobacco revenues
 
$
287,069

 
$
256,756

In the following table, revenue is disaggregated by major services line and primary geographical market for the Real Estate segment:

 
 
Three Months Ended March 31, 2020
 
 
New York City
 
Northeast
 
Southeast
 
West
 
Total
Real Estate Segment Revenues:
 
 
 
 
 
 
 
 
 
 
Commission and other brokerage income - existing home sales
 
$
50,109

 
$
34,724

 
$
30,178

 
$