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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, 2024

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)
Delaware1-575965-0949535
(State or other jurisdiction of incorporationCommission 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:TradingName of each exchange
Symbol(s)on which registered:
Common stock, par value $0.10 per shareVGRNew 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 filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging 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 April 29, 2024, Vector Group Ltd. had 157,419,093 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, 2024 and December 31, 2023
Condensed Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023
Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2024 and 2023
Condensed Consolidated Statements of Stockholders' Deficiency for the three months ended March 31, 2024 and 2023
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023
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 5. Other Information
Item 6. Exhibits
SIGNATURE

1

VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
Unaudited
March 31,
2024
December 31,
2023
ASSETS:
Current assets:
Cash and cash equivalents$332,593 $268,600 
Investment securities at fair value129,022 110,935 
Accounts receivable - trade, net24,100 26,442 
Inventories106,566 91,959 
Other current assets13,497 11,665 
Total current assets605,778 509,601 
Property, plant and equipment, net43,362 43,380 
Long-term investments (includes $30,461 and $29,402 at fair value)
49,956 46,760 
Investments in real estate ventures113,563 131,497 
Operating lease right-of-use assets11,728 11,017 
Intangible assets107,511 107,511 
Other assets85,379 84,329 
Total assets$1,017,277 $934,095 
LIABILITIES AND STOCKHOLDERS' DEFICIENCY:
Current liabilities:
   Current portion of notes payable and long-term debt$ $8 
Current amounts due under the Master Settlement Agreement74,503 8,812 
Income taxes payable, net15,827 717 
Current operating lease liability4,096 3,706 
Other current liabilities134,573 131,680 
Total current liabilities228,999 144,923 
Notes payable, long-term debt and other obligations, less current portion1,373,024 1,371,811 
Non-current employee benefits67,937 67,111 
Deferred income taxes, net55,642 57,970 
Non-current operating lease liability8,356 8,177 
Amounts due under the Master Settlement Agreement8,208 8,747 
Other liabilities14,175 17,170 
Total liabilities1,756,341 1,675,909 
Commitments and contingencies (Note 6)
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, 157,419,093 and 155,978,020 shares issued and outstanding
15,742 15,598 
Additional paid-in capital11,149 11,384 
Accumulated deficit(753,031)(755,883)
Accumulated other comprehensive loss(12,924)(12,913)
Total Vector Group Ltd. stockholders' deficiency(739,064)(741,814)
Total liabilities and stockholders' deficiency$1,017,277 $934,095 

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,
20242023
Revenues:
   Tobacco*$324,567 $334,145 
Expenses:
 Cost of sales:
   Tobacco*217,901 232,286 
Operating, selling, administrative and general expenses28,694 27,292 
Litigation settlement and judgment expense191 270 
Operating income77,781 74,297 
Other income (expenses):
Interest expense(27,449)(27,474)
Loss on extinguishment of debt (141)
Equity in earnings (losses) from investments2,138 (159)
Equity in losses from real estate ventures(10,721)(1,893)
Other, net6,385 3,620 
Income before provision for income taxes48,134 48,250 
Income tax expense13,334 13,509 
Net income$34,800 $34,741 
Per basic common share:
Net income applicable to common shares$0.22 $0.22 
Per diluted common share:
Net income applicable to common shares$0.22 $0.22 
                                      
* Revenues and cost of sales include federal excise taxes of $105,823 and $117,818 for the three months ended March 31, 2024 and 2023, 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 INCOME
(Dollars in Thousands)
Unaudited
 Three Months Ended
March 31,
 20242023
 
Net income$34,800 $34,741 
Net unrealized (losses) gains on investment securities available for sale:
Change in net unrealized losses(258)(189)
Net unrealized losses reclassified into net income24 224 
Net unrealized (losses) gains on investment securities available for sale(234)35 
Net change in pension-related amounts:
Amortization of loss219 246 
Net change in pension-related amounts219 246 
Other comprehensive (loss) income(15)281 
Income tax effect on:
Change in net unrealized losses on investment securities65 49 
Net unrealized losses reclassified into net income on investment securities(6)(58)
Pension-related amounts(55)(63)
Income tax benefit (provision) on other comprehensive (loss) income4 (72)
Other comprehensive (loss) income, net of tax(11)209 
Comprehensive income$34,789 $34,950 

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-InAccumulated
Other Comprehensive
Common StockAccumulated
SharesAmountCapitalDeficitLossTotal
Balance as of January 1, 2024155,978,020 $15,598 $11,384 $(755,883)$(12,913)$(741,814)
Net income— — — 34,800 — 34,800 
Total other comprehensive loss— — — — (11)(11)
Dividends on common stock ($0.20 per share)
— — — (31,948)— (31,948)
Restricted stock grants1,745,000 175 (175)— —  
Withholding of shares as payment of payroll tax liabilities in connection with restricted stock vesting(303,927)(31)(3,374)— — (3,405)
Stock-based compensation— — 3,314 — — 3,314 
Balance as of March 31, 2024157,419,093 $15,742 $11,149 $(753,031)$(12,924)$(739,064)

Vector Group Ltd. Stockholders' Deficiency
Additional Paid-InAccumulated
Other Comprehensive
Common StockAccumulated
SharesAmountCapitalDeficitLossTotal
Balance as of January 1, 2023154,840,902 $15,484 $5,092 $(812,380)$(16,073)$(807,877)
Net income— — — 34,741 — 34,741 
Total other comprehensive income— — — — 209 209 
Dividends on common stock ($0.20 per share)
— — — (31,764)— (31,764)
Restricted stock grants1,290,000 129 (129)— —  
Withholding of shares as payment of payroll tax liabilities in connection with restricted stock vesting(197,421)(20)(2,639)— — (2,659)
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 options1,055,315 106 11,999 — — 12,105 
Stock-based compensation— — 2,106 — — 2,106 
Balance as of March 31, 2023155,976,547 $15,598 $3,897 $(809,403)$(15,864)$(805,772)

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
March 31,
20242023
Cash flows from operating activities:
Net income$34,800 $34,741 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization1,633 1,692 
Non-cash stock-based expense3,314 2,106 
Loss on extinguishment of debt 141 
Deferred income taxes(2,328)(62)
Equity in (earnings) losses from investments(2,138)159 
Net (gains) losses on investment securities(1,196)6 
Equity in losses from real estate ventures10,721 1,893 
Distributions from real estate ventures258 70 
Non-cash interest expense562 746 
Non-cash lease expense778 835 
Changes in assets and liabilities:
Receivables2,343 10,105 
Inventories(14,607)(8,227)
Accounts payable and accrued liabilities949 141 
Amounts due under the Master Settlement Agreement65,152 66,911 
Litigation accruals39 294 
Other assets and liabilities, net10,048 9,231 
Net cash provided by operating activities$110,328 $120,782 
6


VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)
Three Months Ended
March 31,
20242023
Cash flows from investing activities:
Sale of investment securities$ $9,455 
Maturities of investment securities12,272 18,459 
Purchase of investment securities(30,025)(18,389)
Proceeds from sale or liquidation of long-term investments2,214  
Purchase of long-term investments(2,000) 
Investments in real estate ventures(1,883)(2,920)
Distributions from investments in real estate ventures10,029  
Increase in cash surrender value of life insurance policies(692)(272)
Increase in restricted assets(15)(3)
Capital expenditures(1,565)(5,983)
Paydowns of investment securities21 33 
Net cash (used in) provided by investing activities(11,644)380 
Cash flows from financing activities:
Repurchase and repayments of debt(8)(6,700)
Borrowings under revolving credit facility231 87,294 
Repayments on revolving credit facility(231)(109,329)
Dividends on common stock(31,918)(31,680)
Withholding of shares as payment of payroll tax liabilities in connection with restricted stock vesting and exercise of stock options(3,405)(3,188)
Net cash used in financing activities(35,331)(63,603)
Net increase in cash, cash equivalents and restricted cash63,353 57,559 
Cash, cash equivalents and restricted cash, beginning of period270,106 250,374 
Cash, cash equivalents and restricted cash, end of period$333,459 $307,933 

The accompanying notes are an integral part of the condensed consolidated financial statements.
7

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 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, 2023 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
March 31,
20242023
Net income$34,800 $34,741 
Income attributable to participating securities(882)(930)
Net income available to common stockholders$33,918 $33,811 


Basic and diluted EPS were calculated using the following common shares:
Three Months Ended
March 31,
20242023
Weighted-average shares for basic EPS153,451,264 153,012,937 
Incremental shares related to stock options and non-vested restricted stock193,015 147,499 
Weighted-average shares for diluted EPS153,644,279 153,160,436 

The following non-vested restricted stock was outstanding during the three months ended March 31, 2024 and 2023, respectively, and was not included in the computation of diluted EPS because the impact of the per share expense associated
8

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

with the non-vested restricted stock was greater than the average market price of the common shares during the respective periods.
Three Months Ended
March 31,
20242023
  Weighted-average shares of non-vested restricted stock9,011 366,667 
  Weighted-average expense per share$12.90 $12.90 

(d)Other, net:

Other, net consisted of:
Three Months Ended
March 31,
20242023
Interest and dividend income$5,459 $3,935 
Net gains (losses) recognized on investment securities1,196 (6)
Net periodic benefit cost other than the service costs(268)(339)
Other income(2)30 
Other, net$6,385 $3,620 



(e)Other Assets:

Other assets consisted of:
March 31,
2024
December 31, 2023
Restricted assets$978 $1,619 
Prepaid pension costs46,008 45,292 
Other assets38,393 37,418 
Total other assets$85,379 $84,329 
9

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,
2024
December 31, 2023
Accounts payable$12,286 $6,749 
Accrued promotional expenses47,210 51,146 
Accrued excise and payroll taxes payable, net15,545 13,144 
Accrued interest31,078 30,041 
Accrued salaries and benefits4,341 10,952 
Allowance for sales returns12,943 12,675 
Other current liabilities11,170 6,973 
Total other current liabilities$134,573 $131,680 
(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,
2024
December 31,
2023
Cash and cash equivalents
$332,593 $268,600 
Restricted cash and cash equivalents included in other assets866 1,506 
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows
$333,459 $270,106 
(h)Related Party Transactions:

Agreements with Douglas Elliman. The Company received $1,050 under the Transition Services Agreement and $595 under the Aircraft Lease Agreements for the three months ended March 31, 2024 and $1,050 and $562 for the three months ended March 31, 2023, respectively.
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 $1,224 and $842 for the three months ended March 31, 2024 and 2023, respectively.
(i)New Accounting Pronouncements:    

ASUs to be adopted in future periods:
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures. The ASU requires that all public entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. The ASU is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures. The ASU requires that all public entities improve the reportable segment disclosure primarily through enhanced disclosures about significant segment expenses. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.
10

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

SEC Rule Changes:
On March 6, 2024, the SEC passed rule changes that will require registrants to provide certain climate-related information in their registration statements and annual reports. The rules 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 will also include disclosure of a registrant's greenhouse gas emissions. In addition, the rules will require registrants to present certain climate-related financial metrics in their audited financial statements. On April 4, 2024, the SEC voluntarily stayed the rules pending the resolution of certain legal challenges. The Company is currently evaluating the impact of the rule changes.

2.    INVENTORIES

Inventories consisted of:
March 31,
2024
December 31,
2023
Leaf tobacco$58,480 $46,190 
Other raw materials9,562 9,372 
Work-in-process717 814 
Finished goods68,519 65,295 
Inventories at current cost137,278 121,671 
LIFO adjustments:
Leaf tobacco(20,691)(19,941)
Other raw materials(2,411)(2,411)
Work-in-process(105)(105)
Finished goods(7,505)(7,255)
       Total LIFO adjustments(30,712)(29,712)
$106,566 $91,959 

All inventories as of March 31, 2024 and December 31, 2023 are reported under the LIFO method.

The amount of capitalized Master Settlement Agreement (“MSA”) cost in “Finished goods” inventory was $23,462 and $22,988 as of March 31, 2024 and December 31, 2023, respectively. Federal excise tax capitalized in inventory was $25,156 and $25,151 as of March 31, 2024 and December 31, 2023, respectively.

At March 31, 2024, Liggett had tobacco purchase commitments of approximately $11,641. Liggett has a single-source supply agreement for reduced ignition propensity cigarette paper through December 2025.

11

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

3.    INVESTMENT SECURITIES

Investment securities consisted of the following:
March 31,
2024
December 31, 2023
Debt securities available for sale$91,157 $73,225 
Equity securities at fair value:
Marketable equity securities14,139 14,286 
Mutual funds invested in debt securities23,726 23,424 
Long-term investment securities at fair value (1)
30,461 29,402 
          Total equity securities at fair value68,326 67,112 
Total investment securities at fair value159,483 140,337 
Less:
Long-term investment securities at fair value (1)
30,461 29,402 
Current investment securities at fair value$129,022 $110,935 
Long-term investment securities at fair value (1)
$30,461 $29,402 
Equity-method investments19,495 17,358 
Total long-term investments$49,956 $46,760 
Equity securities and other long-term investments at cost (2)
$7,555 $7,555 
(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 gains (losses) recognized on investment securities were as follows:
Three Months Ended
March 31,
20242023
Net gains recognized on equity securities$1,220 $218 
Net gains (losses) recognized on debt securities available for sale1 (180)
Impairment expense(25)(44)
Net gains (losses) recognized on investment securities$1,196 $(6)
(a) Debt Securities Available for Sale:
The components of debt securities available for sale as of March 31, 2024 were as follows:    
CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Marketable debt securities$91,101 $56 $ $91,157 


12

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 as of March 31, 2024.
Investment Type:Fair ValueUnder 1 Year1 Year up to 5 YearsMore than 5 Years
U.S. government securities$64,074 $38,838 $25,236 $ 
Corporate securities9,327 9,327   
U.S. mortgage-backed securities13,300 13,169 131  
Commercial paper4,456 4,456   
Total debt securities available for sale by maturity dates
$91,157 $65,790 $25,367 $ 

The components of debt securities available for sale at December 31, 2023 were as follows:
CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Marketable debt securities$72,939 $286 $ $73,225 

There were no available-for-sale debt securities with continuous unrealized losses for less than 12 months and 12 months or greater as of March 31, 2024 and December 31, 2023, respectively.

Gross realized gains and losses on debt securities available for sale were as follows:
Three Months Ended
March 31,
20242023
Gross realized gains on sales$1 $4 
Gross realized losses on sales (184)
Net gains (losses) recognized on debt securities available for sale$1 $(180)
Impairment expense$(25)$(44)

Although management 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 recognized in net income on equity securities at fair value during the three months ended March 31, 2024 and 2023, respectively:

Three Months Ended
March 31,
20242023
Net gains recognized on equity securities$1,220 $218 
Less: Net gains recognized on equity securities sold95 116 
Net unrealized gains recognized on equity securities still held at the reporting date$1,125 $102 
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 8. Their fair values are based on quoted prices for identical assets in active markets or inputs that
13

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

are based upon quoted prices for similar instruments in active markets. The Company has unfunded commitments of $303 related to long-term investment securities at fair value as of March 31, 2024.
The Company received $2,214 of cash distributions for the three months ended March 31, 2024 and no cash distributions for the three months ended March 31, 2023. The Company recorded $88 of in-transit redemptions as of March 31, 2024. The Company classified all cash distributions as investing cash inflows.

(c) Equity-Method Investments:

Equity-method investments consisted of the following:
 March 31,
2024
December 31, 2023
Mutual fund and hedge funds$19,495 $17,358 

On March 31, 2024, the Company’s ownership percentages in the mutual fund and hedge funds accounted for under the equity method ranged from 7.84% to 38.92%. The Company’s ownership percentage in these investments meets the threshold for equity-method accounting.

Equity in earnings (losses) from investments were:
Three Months Ended
March 31,
20242023
Mutual fund and hedge funds$2,138 $(159)

(d) Equity Securities and Other Long-Term Investments Without Readily Determinable Fair Values That Do Not Qualify for the NAV Practical Expedient

Equity securities and other long-term investments without readily determinable fair values that do not qualify for the NAV practical expedient consisted of profit participation agreements and investments in various limited liability companies. The total carrying value of these investments without readily determinable fair values that do not qualify for the NAV practical expedient was $7,555 as of March 31, 2024 and December 31, 2023, 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, 2024 and 2023, respectively.

14

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

4. 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, 2024December 31, 2023
Condominium and Mixed-Use Development
4.1% - 77.8%
$91,113 $108,334 
Apartment Buildings
1.5% - 50.0%
6,827 7,791 
Hotels
0.4% - 49.0%
30 138 
Commercial
1.6% - 49.0%
15,593 15,234 
Investments in real estate ventures$113,563 $131,497 
_____________________________
(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 because 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,
20242023
Condominium and Mixed-Use Development$1,577 $2,862 
Apartment Buildings249 58 
Hotels57  
Total contributions$1,883 $2,920 

For ventures where New Valley previously held an investment and made an additional contribution, New Valley contributed its proportionate share of additional capital along with contributions by the other investment partners during the three months ended March 31, 2024 and 2023. New Valley’s direct investment percentage in its existing 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,
20242023
Condominium and Mixed-Use Development$10,029 $ 
Commercial258 70 
Total distributions$10,287 $70 

Of the distributions received by New Valley from its investment in real estate ventures, $258 and $70 were from distributions of earnings for the three months ended March 31, 2024 and 2023, respectively, and $10,029 was a return of capital for the three months ended March 31, 2024. 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.

15

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 from real estate ventures as follows:
Three Months Ended
March 31,
20242023
Condominium and Mixed-Use Development$(9,961)$646 
Apartment Buildings(1,214)(1,199)
Hotels(163)(1,924)
Commercial617 584 
Equity in losses from real estate ventures$(10,721)$(1,893)

The Company recorded impairment expense of $7,030 for the three months ended March 31, 2024. The expense related to two ventures, which were condominium and mixed-use development ventures. The Company recorded impairment expense of $1,202 for the three months ended March 31, 2023, which related to one hotel venture. These ventures were recorded at fair value when the impairment charges were recorded.

VIE Consideration:

The Company has determined that the entities in the real estate ventures were variable interest entities (“VIEs”) and New Valley was not the primary beneficiary. Therefore, New Valley’s investment in such real estate ventures has been accounted for under the equity method of accounting.

Maximum Exposure to Loss:

New Valley’s maximum exposure to loss from its investments in real estate ventures consisted of the net carrying value of the venture adjusted for any future capital commitments and/or guarantee arrangements. The maximum exposure to loss was as follows:
March 31, 2024
Condominium and Mixed-Use Development$91,113 
Apartment Buildings6,827 
Hotels30 
Commercial15,593 
Total maximum exposure to loss$113,563 

New Valley capitalized $1,191 and $1,056 of interest costs into the carrying value of its ventures whose projects were currently under development for the three months ended March 31, 2024 and 2023, respectively.


16

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

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

Notes payable, long-term debt and other obligations consisted of:
March 31,
2024
December 31,
2023
Vector:
5.75% Senior Secured Notes due 2029
$875,000 $875,000 
10.5% Senior Notes due 2026, net of unamortized discount of $1,588 and $1,719
517,104 516,973 
Liggett:
Equipment loans
 8 
Notes payable, long-term debt and other obligations1,392,104 1,391,981 
Less:
Debt issuance costs
(19,080)(20,162)
Total notes payable, long-term debt and other obligations1,373,024 1,371,819 
Less:
Current maturities (8)
Amount due after one year$1,373,024 $1,371,811 

5.75% Senior Secured Notes due 2029 — Vector:
As of March 31, 2024, the Company was in compliance with all debt covenants related to its 5.75% Senior Secured Notes due 2029.
10.5% Senior Notes due 2026 — Vector:
In March 2023, the Company repurchased in the market $6,660 in aggregate principal amount of its 10.5% Senior Notes outstanding and recorded a loss of $141 associated with the repurchase. The 10.5% Senior Notes that were repurchased have been retired.
As of March 31, 2024, the Company was in compliance with all debt covenants related to its 10.5% Senior Notes due 2026.
Revolving Credit Agreement — Liggett:
Liggett, 100 Maple LLC (“Maple”), a subsidiary of Liggett, and Vector Tobacco are party to the Credit Agreement with Wells Fargo, as agent and lender, which provides a maximum credit line of $90,000 and matures on March 22, 2026.
Loans under the Credit Agreement bear interest at a rate equal to, at the borrower’s option, (a) the base rate, (b) Term SOFR for the applicable interest period plus 2.25% or (c) Daily Simple SOFR plus 2.25%, where “SOFR” means the Secured Overnight Financing Rate. The interest rate as of March 31, 2024 was 7.56%. An unused line fee is also payable on the average undrawn commitments at a rate of 0.25%, regardless of the amount borrowed under the facility.
As of March 31, 2024, there was no outstanding balance due under the Credit Agreement. Availability, as determined under the Credit Agreement, was approximately $89,600 based on eligible collateral on March 31, 2024. As of March 31, 2024, Liggett, Maple, and Vector Tobacco were in compliance with all debt covenants under the Credit Agreement.
17

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Non-Cash Interest Expense — Vector:
Three Months Ended
March 31,
20242023
Amortization of debt discount, net$131 $117 
Amortization of debt issuance costs1,133 1,068 
Loss on repurchase of 10.5% Senior Notes
 108 
Total non-cash interest expense$1,264 $1,293 

Fair Value of Notes Payable and Long-Term Debt:
March 31, 2024December 31, 2023
CarryingFairCarryingFair
ValueValueValueValue
5.75% Senior Secured Notes due 2029
$875,000 $810,924 $875,000 $800,126 
10.5% Senior Notes due 2026
517,104 522,422 516,973 522,194 
Liggett and other  8 8 
Notes payable and long-term debt$1,392,104 $1,333,346 $1,391,981 $1,322,328 

Notes payable and long-term debt are recorded on the condensed consolidated balance sheets at amortized cost. The fair value determinations disclosed above would be classified as Level 2 under the fair value hierarchy disclosed in Note 8 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, 2024 to determine the fair value of its publicly traded notes and debentures. The carrying value of the Credit Agreement is equal to fair value. The fair value of the equipment loans 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.



6.    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, 2024 and 2023, Liggett incurred tobacco product liability legal expenses and costs totaling $2,118 and $2,173, respectively. Legal defense costs are expensed as incurred.
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(Dollars in Thousands, Except Per Share Amounts)
Unaudited

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 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, 2024, there are no litigation bonds posted.
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 6: (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. 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. All such cases are and will continue to be vigorously defended. Liggett has entered into settlement discussions in individual cases or groups of cases where Liggett has determined it was in its best interest to do so, and it may continue to do so in the future. As cases proceed through the appellate process, the Company will consider accruals on a case-by-case basis if an unfavorable outcome becomes probable and the amount can be reasonably estimated.
Individual Actions
As of March 31, 2024, there were 85 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:
StateNumber
of Cases
Massachusetts43
Illinois20
Florida8
Nevada4
Oregon4
Louisiana2
New Mexico2
Hawaii 1
California1
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
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(Dollars in Thousands, Except Per Share Amounts)
Unaudited

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, 2024, 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 6, management is unable to estimate the possible loss or range of loss from the remaining Engle progeny cases as there are currently multiple defendants in each case, except as discussed herein and, in most of the remaining 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 $4,000 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 214 Engle progeny cases for approximately $8,400.
As of March 31, 2024, 9 Engle progeny cases, on behalf of 12 plaintiffs, 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.
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(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Judgments Paid in Engle Progeny Cases.
As of March 31, 2024, Liggett paid $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
As of March 31, 2024, there were four cases pending where Liggett is the sole defendant: Cowart, Cunningham and Siler are Individual Actions and Forbing is an Engle progeny case. It is possible that cases where Liggett is the only defendant could increase.
Upcoming Trials
As of March 31, 2024, there were six Individual Actions, (Cain, Gerace, Goodwin, Kanuha, Lane and Malevitis) scheduled for trial through March 31, 2025, where Liggett is a named defendant. Trial dates are subject to change and additional cases could be set for trial during this time.
City of Baltimore
In December 2022, the Mayor and City Council of Baltimore sued Liggett and others, claiming, among other things, that defendants’ failure to use biodegradable filters on their cigarette products resulted in littering by smokers of the city’s streets, sidewalks, beaches, parks, lawns and waterways, which in turn resulted in contamination of the soil and water, increased costs of clean-up and disposal of this litter, as well as the reduction of property values and tourism to the city. Plaintiffs seek compensatory damages, punitive damages, penalties, fines, disgorgement of profits and equitable relief.
Class Actions
As of March 31, 2024, 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.
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, 2024, 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
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(Dollars in Thousands, Except Per Share Amounts)
Unaudited

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.
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.
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 5.6% of the total cigarettes sold in the United States in the first three months of 2024. If Liggett’s or Vector Tobacco’s market share exceeds their respective market share exemption in a given year, then on April 15 of the following year, Liggett and/or Vector Tobacco, as the case may be, must pay on each excess unit an amount equal (on a per-unit basis) to that due from the OPMs for that year. On December 28, 2023, Liggett and Vector Tobacco pre-paid $263,000 of their approximate $277,000 2023 MSA obligation. The remaining balance of $14,489 was paid in April 2024.
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(Dollars in Thousands, Except Per Share Amounts)
Unaudited

Certain MSA Disputes
NPM Adjustment. Liggett and Vector Tobacco contend that they are entitled to an NPM Adjustment for 2003 - 2023. 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 - 2023, 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.
To date, the PMs, have settled the NPM Adjustment dispute with 41 states and territories representing approximately 82% of the MSA allocable share. As a result of the settlements, Liggett and Vector Tobacco reduced cost of sales for the three months ended March 31, 2024 and 2023 by $4,600 and $3,585, respectively. Liggett and Vector Tobacco may be entitled to further adjustments. As of March 31, 2024, Liggett and Vector Tobacco had accrued approximately $8,208 related to the disputed amounts withheld from the non-settling states for 2005 - 2010, which may be subject to payment, with interest, if Liggett and Vector Tobacco lose the disputes for those years.
The 2004 NPM Adjustment arbitration with the non-settling states commenced in 2016, with the arbitration panel finding three states liable for the NPM Adjustment. Two of these states filed motions challenging these determinations and several issues remain to be resolved by the arbitration panels that will affect the final amount of the 2004 NPM Adjustment. Individual state hearings with respect to the NPM Adjustments for 2005 - 2007 are ongoing with the non-settling states.
Other State Settlements. The MSA replaced Liggett’s prior settlements with all states and territories except for Florida, Mississippi, Texas and Minnesota. Each of these four states, prior to the effective date of the MSA, negotiated and executed settlement agreements with each of the other major tobacco companies, separate from those settlements reached previously with Liggett. Except as described below, Liggett’s agreements with these states remain in full force and effect. These states’ settlement agreements with Liggett contained most favored nation provisions which could reduce Liggett’s payment obligations based on subsequent settlements or resolutions by those states with certain other tobacco companies. Beginning in 1999, Liggett determined that, based on settlements or resolutions with U.S. 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 its dispute with Minnesota, Liggett agreed to pay $100 a year in any year cigarettes manufactured by Liggett are sold in that state, through 2022. In 2023, Minnesota and Liggett agreed to amend that agreement with Liggett agreeing to pay $1,000 per year for an additional ten years. In 2010, Liggett resolved the dispute with Florida and agreed to pay $1,200 and to make annual payments of $250 through 2032, with the payments in 2022 through the duration of the agreement subject to an inflation adjustment.
In January 2016, the Attorney General for Mississippi filed a motion in Chancery Court in Jackson County, Mississippi to enforce the March 1996 settlement agreement among Liggett, Mississippi and other states alleging that Liggett owed Mississippi at least $27,000 in compensatory damages, plus interest, attorneys’ fees and punitive damages. In August 2023, Liggett resolved the dispute with Mississippi for payment of $18,000.
Cautionary Statement
Management is not able to reasonably predict the outcome of the litigation pending or threatened against Liggett or the Company. Litigation is subject to many uncertainties. Liggett has been found liable in multiple Engle progeny cases and Individual Actions, several of which were affirmed on appeal and satisfied by Liggett. It is possible that other cases could be decided unfavorably against Liggett and that Liggett will be unsuccessful on appeal. Liggett may attempt to settle particular cases if it believes it is in its best interest to do so.
Management cannot predict the cash requirements related to any future defense costs, settlements or judgments, including cash required to bond any appeals, and there is a risk that Liggett may not be able to meet those requirements. An unfavorable outcome of a pending smoking-related case could encourage the commencement of additional litigation. Except as discussed in this Note 6, 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.
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(Dollars in Thousands, Except Per Share Amounts)
Unaudited

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, 2024 was as follows:
Current LiabilitiesNon-Current Liabilities
Amounts due under Master Settlement AgreementLitigation AccrualsTotalAmounts due under Master Settlement AgreementLitigation AccrualsTotal
Balance as of January 1, 2024$8,812 $351 $9,163 $8,747 $13,885 $22,632 
Expenses
64,056 191 64,247    
NPM Settlement adjustment
(5) (5)(164) (164)
Change in MSA obligations capitalized as inventory
474  474    
Payments
(596)(596)   
Reclassification to/(from) non-current liabilities
375 3,735 4,110 (375)(3,735)(4,110)
Interest on withholding
791 161 952  283 283 
Balance as of March 31, 2024$74,503 $3,842 $78,345 $8,208 $10,433 $18,641 
The activity in the Company’s accruals for the MSA and tobacco litigation for the three months ended March 31, 2023 was as follows:
Current LiabilitiesNon-Current Liabilities
Amounts due under Master Settlement AgreementLitigation AccrualsTotalAmounts due under Master Settlement AgreementLitigation AccrualsTotal
Balance as of January 1, 2023$14,838 $296 $15,134 $11,116 $16,117 $27,233 
Expenses
67,027 270 67,297    
NPM Settlement adjustment
   (311) (311)
Change in MSA obligations capitalized as inventory
195  195    
Payments
 (435)(435)   
Reclassification to/(from) non-current liabilities
1,635 3,707 5,342 (1,635)(3,707)(5,342)
Interest on withholding
 17 17  442 442 
Balance as of March 31, 2023$83,695 $3,855 $87,550 $9,170 $12,852 $22,022 
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(Dollars in Thousands, Except Per Share Amounts)
Unaudited


Other Matters:
Liggett’s and Vector Tobacco’s management are unaware of any material environmental conditions affecting their existing facilities. Liggett’s and Vector Tobacco’s management believe that current operations are conducted in material compliance with all environmental laws and regulations and other laws and regulations governing cigarette manufacturers. Compliance with federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material impact on the capital expenditures, results of operations or competitive position of Liggett or Vector Tobacco.
Over the years, Liggett and the Company have received various 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. It is unclear what, if any, liability the Company may have in connection with these matters.
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.

7.    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,