SEC Filing | Vector Group LTD.

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vgr-20230630

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 June 30, 2023

☐ 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 August 2, 2023, Vector Group Ltd. had 155,933,020 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 June 30, 2023 and December 31, 2022			2

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022			3

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2023 and 2022			4

Condensed Consolidated Statements of Stockholders' Deficiency for the three and six months ended June 30, 2023 and 2022			5

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022			7

Notes to Condensed Consolidated Financial Statements			9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			32

Item 3. Quantitative and Qualitative Disclosures About Market Risk			50

Item 4. Controls and Procedures			50

PART II. OTHER INFORMATION

Item 1. Legal Proceedings			51

Item 1A. Risk Factors			51

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

Item 5. Other Information			52

Item 6. Exhibits			53

SIGNATURE			54

VECTOR GROUP LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands, Except Per Share Amounts)

Unaudited


	June 30, 2023		December 31, 2022
ASSETS:
Current assets:
Cash and cash equivalents	$	330,323	$	224,580
Investment securities at fair value	116,131		116,436

Accounts receivable - trade, net	34,496		40,677
Inventories	98,716		92,448
Income taxes receivable, net	10,935		8,454

Other current assets	37,458		9,770
Total current assets	628,059		492,365
Property, plant and equipment, net	44,049		39,580

Long-term investments (includes $27,911 and $28,919 at fair value)	44,752		44,959
Investments in real estate ventures	121,417		121,117

Operating lease right-of-use assets	8,801		7,742
Intangible assets	107,511		107,511
Other assets	78,634		95,317
Total assets	$	1,033,223	$	908,591
LIABILITIES AND STOCKHOLDERS' DEFICIENCY:
Current liabilities:
Current portion of notes payable and long-term debt	$	27	$	22,065

Current payments due under the Master Settlement Agreement	135,651		14,838

Current operating lease liability	3,847		3,551
Other current liabilities	155,738		135,170
Total current liabilities	295,263		175,624
Notes payable, long-term debt and other obligations, less current portion	1,384,323		1,390,261

Non-current employee benefits	64,744		63,216
Deferred income taxes, net	53,312		51,034
Non-current operating lease liability	6,036		5,469
Payments due under the Master Settlement Agreement	9,170		11,116

Other liabilities	17,500		19,748
Total liabilities	1,830,348		1,716,468
Commitments and contingencies (Note 7)
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, 155,934,987 and 154,840,902 shares issued and outstanding	15,593		15,484
Additional paid-in capital	6,054		5,092
Accumulated deficit	(803,069)		(812,380)
Accumulated other comprehensive loss	(15,703)		(16,073)

Total Vector Group Ltd. stockholders' deficiency	(797,125)		(807,877)


Total liabilities and stockholders' deficiency	$	1,033,223	$	908,591

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

VECTOR GROUP LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Thousands, Except Per Share Amounts)

Unaudited


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Revenues:
Tobacco*	$	365,662	$	374,312	$	699,807	$	683,360
Real estate	—		12,890		—		15,884

Total revenues	365,662		387,202		699,807		699,244

Expenses:
Cost of sales:
Tobacco*	248,984		265,189		481,270		476,726
Real estate	—		6,049		—		7,327

Total cost of sales	248,984		271,238		481,270		484,053

Operating, selling, administrative and general expenses	26,930		25,196		54,222		49,225
Litigation settlement and judgment expense	18,105		57		18,375		129



Operating income	71,643		90,711		145,940		165,837

Other income (expenses):
Interest expense	(27,124)		(30,724)		(54,598)		(55,822)
Loss on extinguishment of debt	(40)		—		(181)		—

Equity in earnings (losses) from investments	959		(2,311)		800		(4,553)
Equity in earnings (losses) from real estate ventures	2,954		(460)		1,061		(2,337)
Other, net	4,791		(3,094)		8,411		(4,239)
Income before provision for income taxes	53,183		54,122		101,433		98,886
Income tax expense	15,094		14,969		28,603		27,191
Net income	$	38,089	$	39,153	$	72,830	$	71,695

Per basic common share:

Net income applicable to common shares	$	0.24	$	0.25	$	0.46	$	0.46

Per diluted common share:

Net income applicable to common shares	$	0.24	$	0.25	$	0.46	$	0.45

* Revenues and cost of sales include federal excise taxes of $126,750, $137,884, $244,568, and $253,963 for the three and six months ended June 30, 2023 and 2022, respectively.

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

VECTOR GROUP LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Dollars in Thousands)

Unaudited


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022

Net income	$	38,089	$	39,153	$	72,830	$	71,695

Net unrealized (losses) gains on investment securities available for sale:
Change in net unrealized losses	(237)		(671)		(426)		(1,893)
Net unrealized losses reclassified into net income	211		665		435		1,830
Net unrealized (losses) gains on investment securities available for sale	(26)		(6)		9		(63)



Net change in pension-related amounts:


Amortization of loss	244		404		490		808
Net change in pension-related amounts	244		404		490		808

Other comprehensive income	218		398		499		745

Income tax effect on:
Change in net unrealized losses on investment securities	60		172		109		488
Net unrealized losses reclassified into net income on investment securities	(54)		(171)		(112)		(472)



Pension-related amounts	(63)		(104)		(126)		(209)
Income tax provision on other comprehensive income	(57)		(103)		(129)		(193)

Other comprehensive income, net of tax	161		295		370		552

Comprehensive income	$	38,250	$	39,448	$	73,200	$	72,247

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 April 1, 2023	155,976,547	$	15,598	$	3,897	$	(809,403)	$	(15,864)	$	(805,772)

Net income	—	—		—		38,089		—		38,089


Total other comprehensive income	—	—		—		—		161		161

Dividends on common stock ($0.20 per share)	—	—		—		(31,755)		—		(31,755)


Withholding of shares as payment of payroll tax liabilities in connection with restricted stock vesting	(41,560)	(5)		(488)		—		—		(493)












Stock-based compensation	—	—		2,645		—		—		2,645








Balance as of June 30, 2023	155,934,987	$	15,593	$	6,054	$	(803,069)	$	(15,703)	$	(797,125)


	Vector Group Ltd. Stockholders' Deficiency
				Additional Paid-In				Accumulated Other Comprehensive
	Common Stock					Accumulated
	Shares	Amount		Capital		Deficit		Loss		Total
Balance as of April 1, 2022	154,938,177	$	15,494	$	12,183	$	(852,863)	$	(15,466)	$	(840,652)

Net income	—	—		—		39,153		—		39,153






Total other comprehensive income	—	—		—		—		295		295

Dividends on common stock ($0.20 per share)	—	—		—		(31,759)		—		(31,759)


Withholding of shares as payment of payroll tax liabilities in connection with restricted stock vesting	(42,048)	(4)		(515)		—		—		(519)













Stock-based compensation	—	—		2,570		—		—		2,570




Reallocation of distribution of Douglas Elliman	—	—		(11,172)		11,172		—		—

Balance as of June 30, 2022	154,896,129	$	15,490	$	3,066	$	(834,297)	$	(15,171)	$	(830,912)

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


	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, 2023	154,840,902	$	15,484	$	5,092	$	(812,380)	$	(16,073)	$	(807,877)

Net income	—	—		—		72,830		—		72,830






Total other comprehensive income	—	—		—		—		370		370

Dividends on common stock ($0.40 per share)	—	—		—		(63,519)		—		(63,519)
Restricted stock grants	1,290,000	129		(129)		—		—		—

Withholding of shares as payment of payroll tax liabilities in connection with restricted stock vesting	(238,981)	(25)		(3,127)		—		—		(3,152)
Withholding of shares as payment of payroll tax liabilities in connection with exercise of stock options	(1,012,249)	(101)		(12,532)		—		—		(12,633)








Exercise of stock options	1,055,315	106		11,999		—		—		12,105


Stock-based compensation	—	—		4,751		—		—		4,751








Balance as of June 30, 2023	155,934,987	$	15,593	$	6,054	$	(803,069)	$	(15,703)	$	(797,125)


	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	—	—		—		71,695		—		71,695






Total other comprehensive income	—	—		—		—		552		552

Dividends on common stock ($0.40 per share)	—	—		—		(63,526)		—		(63,526)
Restricted stock grants	1,070,000	107		(107)		—		—		—

Withholding of shares as payment of payroll tax liabilities in connection with restricted stock vesting	(133,298)	(13)		(1,544)		—		—		(1,557)













Stock-based compensation	—	—		4,717		—		—		4,717




Reallocation of distribution of Douglas Elliman	—	—		(11,172)		11,172		—		—
Other	—	—		—		(1,240)		—		(1,240)
Balance as of June 30, 2022	154,896,129	$	15,490	$	3,066	$	(834,297)	$	(15,171)	$	(830,912)

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

VECTOR GROUP LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

Unaudited


	Six Months Ended
	June 30,
	2023		2022
Cash flows from operating activities:
Net income	$	72,830	$	71,695
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	3,423		3,643
Non-cash stock-based expense	4,751		4,717

Loss on extinguishment of debt	181		—


Deferred income taxes	2,227		1,410

Distributions from investments	—		248


Equity in (earnings) losses from investments	(800)		4,553
Net (gains) losses on investment securities	(207)		7,169

Equity in (earnings) losses from real estate ventures	(1,061)		2,337
Distributions from real estate ventures	3,954		2,726

Non-cash interest expense	1,392		2,360
Non-cash lease expense	1,710		1,676







Changes in assets and liabilities:
Receivables	6,316		(13,713)
Inventories	(6,268)		1,196
Accounts payable and accrued liabilities	(1,028)		(4,210)
Payments due under the Master Settlement Agreement	118,868		122,251
Litigation accruals	18,643		(2,578)



Other assets and liabilities, net	(6,713)		5,731
Net cash provided by operating activities	$	218,218	$	211,211

VECTOR GROUP LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)


	Six Months Ended
	June 30,
	2023		2022
Cash flows from investing activities:
Sale of investment securities	$	9,505	$	21,011
Maturities of investment securities	39,764		36,357
Purchase of investment securities	(48,726)		(39,000)
Proceeds from sale or liquidation of long-term investments	—		1,101



Purchase of long-term investments	(5,088)		(1,000)
Investments in real estate ventures	(5,281)		(10,456)
Distributions from investments in real estate ventures	4,109		3,641
Increase in cash surrender value of life insurance policies	(1,109)		(1,282)
Increase in restricted assets	(18)		—
Issuance of notes receivable	—		(10)

Capital expenditures	(7,790)		(2,911)



Paydowns of investment securities	65		114


Net cash (used in) provided by investing activities	(14,569)		7,565
Cash flows from financing activities:


Repurchase and repayments of debt	(8,412)		(17)
Borrowings under revolving credit facility	87,429		67,373
Repayments on revolving credit facility	(109,460)		(67,375)
Dividends on common stock	(63,200)		(63,327)




Withholding of shares as payment of payroll tax liabilities in connection with restricted stock vesting and exercise of stock options	(3,680)		—
Other	—		(938)
Net cash used in financing activities	(97,323)		(64,284)
Net increase in cash, cash equivalents and restricted cash	106,326		154,492
Cash, cash equivalents and restricted cash, beginning of period	250,374		194,849
Cash, cash equivalents and restricted cash, end of period	$	356,700	$	349,341

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. 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, 2022 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 and net income for the respective fiscal year. Any amounts exceeding retained earnings and net income 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 applicable to common shares was as follows:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Net income	$	38,089	$	39,153	$	72,830	$	71,695
Income attributable to participating securities	(1,043)		(1,249)		(1,973)		(2,226)
Net income available to common stockholders	$	37,046	$	37,904	$	70,857	$	69,469

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


	Three Months Ended		Six Months Ended
	June 30,		June 30,
	2023	2022	2023	2022
Weighted-average shares for basic EPS	153,214,347	152,700,134	153,114,197	152,643,830

Incremental shares related to stock options and non-vested restricted stock	109,203	263,362	129,085	210,230
Weighted-average shares for diluted EPS	153,323,550	152,963,496	153,243,282	152,854,060

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

(d)Other, net:

Other, net consisted of:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022

Interest and dividend income	$	4,916	$	935	$	8,851	$	1,385






Net gains (losses) recognized on investment securities	213		(4,130)		207		(7,169)
Net periodic benefit cost other than the service costs	(339)		(237)		(678)		(473)


Other income	1		338		31		2,018
Other, net	$	4,791	$	(3,094)	$	8,411	$	(4,239)

(e)Other Assets:

Other assets consisted of:


	June 30, 2023		December 31, 2022
Restricted assets	$	1,591	$	25,907
Prepaid pension costs	39,334		38,100
Other assets	37,709		31,310
Total other assets	$	78,634	$	95,317

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:


	June 30, 2023		December 31, 2022
Accounts payable	$	7,187	$	6,351
Accrued promotional expenses	57,120		56,645
Accrued excise and payroll taxes payable, net	16,683		17,160
Accrued interest	30,305		30,451
Accrued salaries and benefits	5,619		9,614
Allowance for sales returns	10,004		7,526
Other current liabilities	28,820		7,423
Total other current liabilities	$	155,738	$	135,170

(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:


	June 30, 2023		December 31, 2022
Cash and cash equivalents	$	330,323	$	224,580
Restricted cash and cash equivalents included in other current assets	24,899		—
Restricted cash and cash equivalents included in other assets	1,478		25,794
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	356,700	$	250,374

(h)Related Party Transactions:

Agreements with Douglas Elliman. The Company received $1,050 and $2,100 under the Transition Services Agreement and $734 and $1,296 under the Aircraft Lease Agreement for the three and six months ended June 30, 2023 and $686 and $1,177 for the three and six months ended June 30, 2022, respectively.

The Company has agreed to indemnify Douglas Elliman for certain tax matters under the Tax Disaffiliation Agreement. The Company recorded Other expense of $553 in its condensed consolidated statement of operations for the three and six months ended June 30, 2022 related to the tax indemnification.

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 from these projects of approximately $0 and $842 for the three and six months ended June 30, 2023 and $201 and $1,101 for the three and six months ended June 30, 2022, respectively.

(i)New Accounting Pronouncements:

Accounting Standards Updates (“ASUs”) adopted in 2023:

In October 2021, the Financial Accounting Standards Board (“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. Adoption of this update did not have a material impact on the Company’s condensed consolidated financial statements.

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

SEC Proposed Rules

On March 21, 2022, the SEC proposed rule changes that would require registrants to provide certain climate-related information in their registration statements and annual reports. The proposed rules would require information about a registrant's climate-related risks that are reasonably likely to have a material impact on its business, results of operations, or financial condition. The required information about climate-related risks would also include disclosure of a registrant's greenhouse gas emissions, which have become a commonly used metric to assess a registrant's exposure to such risks. In addition, under the proposed rules, certain climate-related financial metrics would be required in a registrant's audited financial statements. The Company is currently evaluating the impact of the proposed rule changes.

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. The Real Estate segment includes the Company’s investment in New Valley, investments in real estate ventures and, prior to April 2022, when Escena was sold, included investments in real estate. After the sale of Escena, the Company has no revenues from its real estate segment.


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Real Estate Segment Revenues
Sales on facilities located on investments in real estate	$	—	$	290	$	—	$	3,259
Revenues from investments in real estate	—		12,600		—		12,625
Total real estate revenues	$	—	$	12,890	$	—	$	15,884

3. INVENTORIES

Inventories consisted of:


	June 30, 2023		December 31, 2022
Leaf tobacco	$	46,020	$	39,893
Other raw materials	11,232		8,808
Work-in-process	589		798

Finished goods	66,128		64,865

Inventories at current cost	123,969		114,364
LIFO adjustments:
Leaf tobacco	(17,248)		(15,213)
Other raw materials	(1,470)		(1,220)
Work-in-process	(25)		(25)
Finished goods	(6,510)		(5,458)
Total LIFO adjustments	(25,253)		(21,916)
	$	98,716	$	92,448

All of the Company’s inventories at June 30, 2023 and December 31, 2022 are reported under the LIFO method.

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

The amount of capitalized Master Settlement Agreement (“MSA”) cost in “Finished goods” inventory was $23,050 and $23,084 at June 30, 2023 and December 31, 2022, respectively. Federal excise tax capitalized in inventory was $25,237 and $26,423 at June 30, 2023 and December 31, 2022, respectively.

At June 30, 2023, Liggett had tobacco purchase commitments of approximately $34,695. Liggett has a single-source supply agreement for reduced ignition propensity cigarette paper through December 2025.

4. INVESTMENT SECURITIES

Investment securities consisted of the following:


	June 30, 2023		December 31, 2022
Debt securities available for sale	$	80,865	$	81,643


Equity securities at fair value:
Marketable equity securities	12,785		12,724
Mutual funds invested in debt securities	22,481		22,069
Long-term investment securities at fair value (1)	27,911		28,919
Total equity securities at fair value	63,177		63,712

Total investment securities at fair value	144,042		145,355
Less:
Long-term investment securities at fair value (1)	27,911		28,919
Current investment securities at fair value	$	116,131	$	116,436

Long-term investment securities at fair value (1)	$	27,911	$	28,919
Equity-method investments	16,841		16,040
Total long-term investments	$	44,752	$	44,959

Equity securities and other long-term investments at cost (2)	$	7,755	$	2,755

(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.

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Net gains (losses) recognized on equity securities	$	424	$	(3,465)	$	642	$	(5,339)
Net gains (losses) recognized on debt securities available for sale	1		6		(179)		6

Impairment expense	(212)		(671)		(256)		(1,836)




Net gains (losses) recognized on investment securities	$	213	$	(4,130)	$	207	$	(7,169)

(a) Debt Securities Available for Sale:

The components of debt securities available for sale at June 30, 2023 were as follows:


	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value


Marketable debt securities	$	80,846	$	19	$	—	$	80,865

The table below summarizes the maturity dates of debt securities available for sale at June 30, 2023.


Investment Type:	Fair Value		Under 1 Year		1 Year up to 5 Years		More than 5 Years
U.S. government securities	$	797	$	797	$	—	$	—
Corporate securities	24,595		16,833		7,762		—
U.S. mortgage-backed securities	25,439		18,470		6,915		54


Commercial paper	7,479		7,479		—		—
U.S. treasury bills	22,555		22,555		—		—


Total debt securities available for sale by maturity dates	$	80,865	$	66,134	$	14,677	$	54

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


	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value


Marketable debt securities	$	81,629	$	14	$	—	$	81,643

There were no available-for-sale debt securities with continuous unrealized losses for less than 12 months and 12 months or greater at June 30, 2023 and December 31, 2022, respectively.

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

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


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Gross realized gains on sales	$	1	$	6	$	5	$	7
Gross realized losses on sales	—		(1)		(184)		(1)
Net gains (losses) recognized on debt securities available for sale	$	1	$	5	$	(179)	$	6

Impairment expense	$	(212)	$	(671)	$	(256)	$	(1,836)

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

(b) Equity Securities at Fair Value:

The following is a summary of unrealized and realized net gains and losses recognized in net income on equity securities at fair value during the three and six months ended June 30, 2023 and 2022, respectively:


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Net gains (losses) recognized on equity securities	$	424	$	(3,465)	$	642	$	(5,339)
Less: Net gains recognized on equity securities sold	155		13		271		306
Net unrealized gains (losses) recognized on equity securities still held at the reporting date	$	269	$	(3,478)	$	371	$	(5,645)

The Company’s investments in mutual funds that invest in debt securities are classified as Level 1 under the fair value hierarchy disclosed in Note 9. 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 $426 related to long-term investment securities at fair value as of June 30, 2023.

The Company received no cash distributions for the six months ended June 30, 2023 and $1,349 of cash distributions for the six months ended June 30, 2022. The company recorded $1,900 of in-transit redemptions as of June 30, 2023. The Company classified all cash distributions as investing cash inflows.

Equity-method investments consisted of the following:


	June 30, 2023		December 31, 2022
Mutual fund and hedge funds	$	16,841	$	16,040

At June 30, 2023, the Company’s ownership percentages in the mutual fund and hedge funds accounted for under the equity method ranged from 7.02% to 38.51%. The Company’s ownership percentage in these investments meets the threshold for equity-method accounting.

VECTOR GROUP LTD.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)

Unaudited

Equity in earnings (losses) from investments were:


	Three Months Ended			Six Months Ended
	June 30,			June 30,
	2023		2022	2023	2022
Mutual fund and hedge funds	$	959