10-Q


 

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 September 30, 2015
 

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)

 

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, as amended (the “Exchange Act”), 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
x Large accelerated filer
o  Accelerated filer
o  Non-accelerated filer
o  Smaller reporting company
 
 
(Do not check if a smaller reporting company)
 

Indicate by check mark whether the Registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.
o Yes x No

At November 9, 2015, Vector Group Ltd. had 122,592,329 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):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1
VECTOR GROUP LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Amounts)
Unaudited

 
September 30,
2015
 
December 31,
2014
ASSETS:
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
246,347

 
$
326,365

Investment securities available for sale
288,376

 
346,043

Accounts receivable - trade, net
20,112

 
23,328

Inventories
90,695

 
90,323

Income taxes receivable, net
—

 
3,282

Restricted assets
2,834

 
2,595

Other current assets
37,824

 
36,718

Total current assets
686,188

 
828,654

Property, plant and equipment, net
76,367

 
84,112

Real estate held for sale, net
22,963

 
10,643

Long-term investments
53,648

 
40,292

Investments in real estate ventures
194,052

 
163,460

Restricted assets
18,647

 
12,013

Goodwill and other intangible assets, net
265,480

 
269,972

Prepaid pension costs
27,440

 
25,032

Other assets
54,016

 
58,893

Total assets
$
1,398,801

 
$
1,493,071

LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY:
 
 
 
Current liabilities:
 
 
 
   Current portion of notes payable and long-term debt
$
7,957

 
$
52,640

   Current portion of fair value of derivatives embedded within convertible debt
—

 
884

 Current payments due under the Master Settlement Agreement
92,952

 
26,322

   Current portion of employee benefits
931

 
931

Income taxes payable, net
186

 
1,743

Litigation accruals
7,640

 
3,149

Deferred income taxes, net
7,321

 
28,479

Other current liabilities
111,803

 
126,755

Total current liabilities
228,790

 
240,903

Notes payable, long-term debt and other obligations, less current portion
879,690

 
860,711

Fair value of derivatives embedded within convertible debt
149,739

 
168,502

Non-current employee benefits
49,913

 
49,314

Deferred income taxes, net
96,497

 
94,510

Payments due under the Master Settlement Agreement
20,094

 
25,809

Litigation accruals
24,072

 
25,700

Other liabilities
6,833

 
5,570

Total liabilities
1,455,628

 
1,471,019

Commitments and contingencies (Note 7)

 

Stockholders' (deficiency) equity:
 
 
 
Preferred stock, par value $1.00 per share, 10,000,000 shares authorized
—

 
—

Common stock, par value $0.10 per share, 250,000,000 and 250,000,000 shares authorized, 122,592,329 and 118,646,261 shares issued and 122,592,329 and 114,501,014 shares outstanding
12,259

 
11,450

Additional paid-in capital
—

 
—

Accumulated deficit
(163,914
)
 
(90,160
)
Accumulated other comprehensive income
9,868

 
34,540

Treasury shares, at cost, 0 and 4,145,247
—

 
(12,857
)
Total Vector Group Ltd. stockholders' deficiency
(141,787
)
 
(57,027
)
Non-controlling interest
84,960

 
79,079

Total stockholders' (deficiency) equity
(56,827
)
 
22,052

Total liabilities and stockholders' (deficiency) equity
$
1,398,801

 
$
1,493,071


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
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Revenues:
 
 
 
 
 
 
 
   Tobacco*
$
264,170

 
$
264,520

 
$
747,145

 
$
748,468

   Real estate
185,563

 
153,748

 
478,841

 
415,280

   E-Cigarettes
201

 
1,608

 
881

 
9,977

          Total revenues
449,934

 
419,876

 
1,226,867

 
1,173,725

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
   Cost of sales:
 
 
 
 
 
 
 
     Tobacco*
174,418

 
189,728

 
506,315

 
537,667

     Real estate
121,078

 
96,442

 
309,306

 
261,531

     E-Cigarettes
421

 
1,066

 
1,518

 
6,357

        Total cost of sales
295,917

 
287,236

 
817,139

 
805,555

 
 
 
 
 
 
 
 
Operating, selling, administrative and general expenses
79,114

 
69,431

 
232,737

 
200,431

Litigation settlement and judgment expense
3,750

 
225

 
5,843

 
1,725

Restructuring expenses
1,548

 
—

 
1,548

 
—

Operating income
69,605

 
62,984

 
169,600

 
166,014

 
 
 
 
 
 
 
 
Other income (expenses):
 
 
 
 
 
 
 
Interest expense
(32,898
)
 
(44,034
)
 
(96,405
)
 
(123,670
)
Change in fair value of derivatives embedded within convertible debt
7,044

 
7,127

 
18,760

 
7,447

Acceleration of interest expense related to debt conversion
—

 
(994
)
 
—

 
(5,112
)
Equity (loss) income from real estate ventures
(916
)
 
3,258

 
1,278

 
3,002

Equity (loss) income from investments
(579
)
 
829

 
(2,273
)
 
1,462

(Loss) gain on sale of investment securities available for sale
(821
)
 
33

 
12,018

 
(38
)
Impairment of investment securities available for sale
(12,211
)
 
—

 
(12,211
)
 
—

Other, net
133

 
2,466

 
3,554

 
8,167

Income before provision for income taxes
29,357

 
31,669

 
94,321

 
57,272

Income tax expense
13,508

 
11,964

 
37,551

 
21,007

 
 
 
 
 
 
 
 
Net income
15,849

 
19,705

 
56,770

 
36,265

 
 
 
 
 
 
 
 
Net income attributed to non-controlling interest
(3,644
)
 
(4,826
)
 
(5,741
)
 
(10,881
)
 
 
 
 
 
 
 
 
Net income attributed to Vector Group Ltd.
$
12,205

 
$
14,879

 
$
51,029

 
$
25,384

 
 
 
 
 
 
 
 
Per basic common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income applicable to common shares attributed to Vector Group Ltd.
$
0.10

 
$
0.13

 
$
0.42

 
$
0.23

 
 
 
 
 
 
 
 
Per diluted common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income applicable to common shares attributed to Vector Group Ltd.
$
0.10

 
$
0.13

 
$
0.42

 
$
0.23

 
 
 
 
 
 
 
 
Cash distributions and dividends declared per share
$
0.38

 
$
0.36

 
$
1.14

 
$
1.09

                                      

* Revenues and cost of sales include excise taxes of $112,773, $115,323, $319,044 and $327,434, respectively.


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

3



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

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
 
 
 
 
Net income
$
15,849

 
$
19,705

 
$
56,770

 
$
36,265

 
 
 
 
 
 
 
 
Net unrealized (losses) gains on investment securities available for sale:
 
 
 
 
 
 
 
    Change in net unrealized (losses) gains
(50,067
)
 
19,184

 
(43,550
)
 
22,292

    Net unrealized losses (gains) reclassified into net income
9,091

 
(33
)
 
(3,748
)
 
38

Net unrealized (losses) gains on investment securities available for sale
(40,976
)
 
19,151

 
(47,298
)
 
22,330

 
 
 
 
 


 
 
Net unrealized (losses) gains on long-term investments accounted for under the equity method:
 
 
 
 
 
 
 
Change in net unrealized (losses) gains
—

 
(4,694
)
 
1,190

 
3,920

Net unrealized losses reclassified into net income
—

 
—

 
1,624

 
—

Net unrealized (losses) gains on long-term investments accounted for under the equity method
—

 
(4,694
)
 
2,814

 
3,920

 
 
 
 
 
 
 
 
Net change in forward contracts
15

 
16

 
47

 
48

 
 
 
 
 
 
 
 
Net change in pension-related amounts
 
 
 
 
 
 
 
Net loss arising during the year
—

 
—

 
1,607

 
—

Amortization of loss
229

 
147

 
750

 
442

Net change in pension-related amounts
229

 
147

 
2,357

 
442

 
 
 
 
 
 
 
 
Other comprehensive (loss) income
(40,732
)
 
14,620

 
(42,080
)
 
26,740

 
 
 
 
 
 
 
 
Income tax effect on:
 
 
 
 
 
 
 
    Change in net unrealized (losses) gains on investment securities
20,702

 
(7,438
)
 
18,008

 
(9,218
)
    Net unrealized losses (gains) reclassified into net income on investment securities
(3,759
)
 
13

 
1,550

 
(16
)
Change in unrealized (losses) gains on long-term investments accounted for under the equity method
—

 
1,933

 
(484
)
 
(1,621
)
Net unrealized losses reclassified into net income on long-term investments accounted for under the equity method
—

 
—

 
(672
)
 
—

Forward contracts
(6
)
 
(8
)
 
(19
)
 
(20
)
Pension-related amounts
(95
)
 
(105
)
 
(975
)
 
(31
)
Income tax provision on other comprehensive (loss) income
16,842

 
(5,605
)
 
17,408

 
(10,906
)
 
 
 
 
 
 
 
 
Other comprehensive (loss) income, net of tax
(23,890
)
 
9,015

 
(24,672
)
 
15,834

 
 
 
 
 
 
 
 
Comprehensive (loss) income
(8,041
)
 
28,720

 
32,098

 
52,099

 
 
 
 
 
 
 
 
Comprehensive income attributed to non-controlling interest
(3,644
)
 
(4,826
)
 
(5,741
)
 
(10,881
)
Comprehensive (loss) income attributed to Vector Group Ltd.
$
(11,685
)
 
$
23,894

 
$
26,357

 
$
41,218


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) EQUITY
(Dollars in Thousands, Except Per Share Amounts)
Unaudited


 
Vector Group Ltd. Stockholders' (Deficiency) Equity
 
 
 
 
 
 
 
Additional
 
 
 
Accumulated
Other
 
 
 
 
 
 
 
Common Stock
 
Paid-In
 
Accumulated
 
Comprehensive
 
Treasury
 
Non-controlling
 
 
 
Shares
 
Amount
 
Capital
 
Deficit
 
Income
 
Stock
 
Interest
 
Total
Balance, January 1, 2015
114,501,014

 
$
11,450

 
$
—

 
$
(90,160
)
 
$
34,540

 
$
(12,857
)
 
$
79,079

 
$
22,052

Net income
—

 
—

 
—

 
51,029

 
—

 
—

 
5,741

 
56,770

Total other comprehensive loss
—

 
—

 
—

 
—

 
(24,672
)
 
—

 
—

 
(24,672
)
Total comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
—

 
32,098

Distributions and dividends on common stock
—

 
—

 
(16,082
)
 
(124,199
)
 
—

 
—

 
—

 
(140,281
)
Surrender of shares in connection with restricted stock vesting
(83,411
)
 
(8
)
 
(2,075
)
 
—

 
—

 
—

 
—

 
(2,083
)
Effect of stock dividend
5,837,144

 
584

 
—

 
(584
)
 
—

 
—

 
—

 
—

Note conversions, net of taxes $367
2,227,552

 
223

 
25,299

 
—

 
—

 
—

 
—

 
25,522

Cancellation of treasury shares
—

 
—

 
(12,857
)
 
—

 
—

 
12,857

 
—

 
—

Exercise of stock options
110,030

 
10

 
1,311

 
—

 
—

 
—

 
—

 
1,321

Tax benefit of options exercised
—

 
—

 
756

 
—

 
—

 
—

 
—

 
756

Stock-based compensation
—

 
—

 
3,648

 
—

 
—

 
—

 
—

 
3,648

Contributions made by non-controlling interest
—

 
—

 
—

 
—

 
—

 
—

 
704

 
704

Distributions to non-controlling interest
—

 
—

 
—

 
—

 
—

 
—

 
(564
)
 
(564
)
Balance as of September 30, 2015
122,592,329

 
$
12,259

 
$
—

 
$
(163,914
)
 
$
9,868

 
$
—

 
$
84,960

 
$
(56,827
)


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, Except Per Share Amounts)
Unaudited


 
Nine Months Ended
 
Nine Months Ended
 
September 30,
2015
 
September 30,
2014
Net cash provided by operating activities
$
140,018

 
$
100,044

Cash flows from investing activities:
 
 
 
Sale of investment securities
161,029

 
173,046

Maturities of investment securities
2,653

 
517

Purchase of investment securities
(162,845
)
 
(312,919
)
Proceeds from sale or liquidation of long-term investments
182

 
549

Purchase of long-term investments
(10,000
)
 
(12,000
)
Investments in real estate ventures
(43,280
)
 
(29,378
)
Distributions from investments in real estate ventures
11,205

 
5,540

Increase in cash surrender value of life insurance policies
(1,225
)
 
(435
)
Increase in restricted assets
(6,872
)
 
(1,108
)
Issuance of notes receivable
(4,410
)
 
(250
)
Proceeds from sale of fixed assets
3

 
4

Capital expenditures
(7,859
)
 
(20,746
)
Repayments of notes receivable
5,106

 
933

Purchase of subsidiaries
—

 
(250
)
Pay downs of investment securities
5,743

 
690

Proceeds from sale of preferred securities
1,000

 
—

Investments in real estate held for sale
(12,512
)
 
—

Net cash used in investing activities
(62,082
)
 
(195,807
)
Cash flows from financing activities:
 
 
 
Proceeds from issuance of debt
1,519

 
413,918

Deferred financing costs
(624
)
 
(12,360
)
Repayments of debt
(4,968
)
 
(10,305
)
Borrowings under revolver
130,691

 
645,894

Repayments on revolver
(146,655
)
 
(673,866
)
Dividends and distributions on common stock
(139,430
)
 
(122,051
)
Distributions to non-controlling interest
(564
)
 
(4,861
)
Proceeds from exercise of Vector options
1,321

 
4,407

Tax benefit of options exercised
756

 
937

Net cash (used in) provided by financing activities
(157,954
)
 
241,713

Net (decrease) increase in cash and cash equivalents
(80,018
)
 
145,950

Cash and cash equivalents, beginning of period
326,365

 
234,466

Cash and cash equivalents, end of period
$
246,347

 
$
380,416


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

6
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)
Basis of Presentation:

The condensed consolidated financial statements of Vector Group Ltd. (the “Company” or “Vector”) include the accounts of VGR Holding LLC (“VGR Holding”), Liggett Group LLC (“Liggett”), Vector Tobacco Inc. (“Vector Tobacco”), Liggett Vector Brands LLC (“Liggett Vector Brands”), Zoom E-Cigs LLC (“Zoom”), New Valley LLC (“New Valley”) and other less significant subsidiaries. New Valley includes the accounts of Douglas Elliman Realty, LLC (“Douglas Elliman”) and other less significant subsidiaries. All significant intercompany balances and transactions have been eliminated.
Liggett and Vector Tobacco are engaged in the manufacture and sale of cigarettes in the United States. Zoom is engaged in the sale of electronic cigarettes in the United States. 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 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. generally accepted accounting principles 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, 2014 filed with the Securities and Exchange Commission. 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.
Revisions to December 31, 2014 Consolidated Balance Sheet. The Company has revised its December 31, 2014 Consolidated Balance Sheet, which originally presented deferred income tax assets and liabilities (current and noncurrent) on a gross basis, rather than a net basis. The revisions conform to ASC 740-10-45-6 which states all current deferred tax liabilities and assets shall be offset and presented as a single amount and all noncurrent deferred tax liabilities and assets shall be offset and presented as a single amount. The Company assessed the materiality of this error on previously issued financial statements and concluded that the error was immaterial.

The revisions are presented in the table below:

 
 
December 31, 2014
 
 
As Previously Reported
 
Revision
 
As Revised
 
 
 
 
 
 
 
Deferred income taxes
 
$
29,192

 
$
(29,192
)
 
$
—

Total current assets
 
857,846

 
(29,192
)
 
828,654

 
 
 
 
 
 
 
Deferred income taxes
 
51,129

 
(51,129
)
 
—

Total assets
 
$
1,573,392

 
$
(80,321
)
 
$
1,493,071

 
 
 
 
 
 
 
Deferred income taxes, net
 
$
57,671

 
$
(29,192
)
 
$
28,479

Total current liabilities
 
270,095

 
(29,192
)
 
240,903

 
 
 
 
 
 
 
Deferred income taxes, net
 
145,639

 
(51,129
)
 
94,510

Total liabilities
 
1,551,340

 
(80,321
)
 
1,471,019

Total stockholders' equity
 
22,052

 
—

 
22,052

Total liabilities and stockholders' equity
 
$
1,573,392

 
$
(80,321
)
 
$
1,493,071

 
 
 
 
 
 
 


7
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


(b)
Distributions and Dividends on Common Stock:

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

(c)
Revenue Recognition:

Tobacco and E-Cigarettes sales:  Revenues from sales are recognized upon the shipment of finished goods when title and risk of loss have passed to the customer, there is persuasive evidence of an arrangement, the sale price is fixed or determinable and collectibility is reasonably assured. The Company provides an allowance for expected sales returns, net of any related inventory cost recoveries. Certain sales incentives, including promotional price discounts, are classified as reductions of net sales. The Company includes federal excise taxes on tobacco sales in revenues and cost of goods sold. Since the Company’s primary line of business is tobacco, the Company’s financial position and its results of operations and cash flows have been and could continue to be materially adversely affected by significant unit sales volume declines at the Company and industry levels, regulation, litigation and defense costs, increased tobacco costs or reductions in the selling price of cigarettes in the near term.
Real estate sales: Revenue is recognized only when persuasive evidence of an arrangement exists, the price is fixed or determinable, the transaction has been completed and collectibility of the resulting receivable is reasonably assured. Real estate commissions earned by the Company’s real estate businesses are recorded as revenue on a gross basis upon the closing of a real estate transaction as evidenced when the escrow or similar account is closed, the transaction documents have been recorded and funds are distributed to all appropriate parties. Commissions expenses are recognized concurrently with related revenues. Property management fees earned are recorded as revenue when the related services are performed.

(d)
Earnings Per Share (“EPS”):

Information concerning the Company's common stock has been adjusted to give retroactive effect to the 5% stock dividend paid to Company stockholders on September 29, 2015. All per share amounts and references to share amounts have been updated to reflect the retrospective effect of the stock dividends.

Net income for purposes of determining basic and diluted EPS was as follows:

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Net income attributed to Vector Group Ltd.
$
12,205

 
$
14,879

 
$
51,029

 
$
25,384

Expense attributed to participating securities
(360
)
 
(423
)
 
(1,510
)
 
(739
)
Net income attributed to Vector Group Ltd. available to common stockholders
$
11,845

 
$
14,456

 
$
49,519

 
$
24,645


Basic and diluted EPS were calculated using the following shares:

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Weighted-average shares for basic EPS
118,023,224

 
108,374,350

 
117,660,001

 
106,464,835

Plus incremental shares related to stock options and non-vested restricted stock
134,315

 
120,354

 
175,097

 
118,724

Weighted-average shares for diluted EPS
118,157,539

 
108,494,704

 
117,835,098

 
106,583,559



8
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


The following were outstanding during the three and nine months ended September 30, 2015 and 2014, but were not included in the computation of diluted EPS because the effect was anti-dilutive.

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
  Weighted-average number of shares issuable upon
  conversion of debt
24,895,477

 
34,229,687

 
25,186,773

 
32,820,165

  Weighted-average conversion price
$
19.63

 
$
17.49

 
$
19.53

 
$
16.48



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

The Company has estimated the fair market value of the embedded derivatives based principally on the results of a valuation model. The estimated fair value of the derivatives embedded within the convertible debt is based principally on the present value of future dividend payments expected to be received by the convertible debt holders over the term of the debt. The discount rate applied to the future cash flows is estimated based on a spread in the yield of the Company's debt when compared to risk-free securities with the same duration. A readily determinable fair market value of the embedded derivatives is not available. The valuation model assumes future dividend payments by the Company and utilizes interest rates and credit spreads for secured to unsecured debt, unsecured to subordinated debt and subordinated debt to preferred stock to determine the fair value of the derivatives embedded within the convertible debt. The valuation also considers other items, including current and future dividends and the volatility of the Company's stock price. At September 30, 2015, the range of estimated fair market values of the Company's embedded derivatives was between $148,769 and $150,125. The Company recorded the fair market value of its embedded derivatives at the approximate midpoint of the range at $149,739 as of September 30, 2015. At December 31, 2014, the range of estimated fair market values of the Company's embedded derivatives was between $167,593 and $171,215. The Company recorded the fair market value of its embedded derivatives at the midpoint of the range at $169,386 as of December 31, 2014. The estimated fair market value of the Company's embedded derivatives could change significantly based on future market conditions. (See Note 6.)

(f)
Investment in Real Estate Ventures:

The Company's interest in Variable Interest Entities ("VIE") is primarily in the form of equity ownership. The Company examines specific criteria and uses judgment when determining if the Company is the primary beneficiary of a VIE. Factors considered include risk and reward sharing, experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions, representation on a VIE's executive committee, existence of unilateral kick-out rights exclusive of protective rights or voting rights and level of economic disproportionality between the Company and its other partner(s).

Accounting guidance requires the consolidation of VIEs in which the Company is the primary beneficiary. The guidance requires consolidation of VIEs that an enterprise has a controlling financial interest. A controlling financial interest will have both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company's maximum exposure to loss in its investments in unconsolidated VIEs is limited to its investment in the unconsolidated VIEs which is the carrying value. The Company's maximum exposure to loss in its investment in its consolidated VIEs is limited to its investment which is the carrying value of the investment net of the non-controlling interest. Creditors of the consolidated VIEs have no recourse to the general credit of the primary beneficiary.

9
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


(g)
Other Income, Net:

Other income, net consisted of:
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
(Loss) gain on warrants
$
(1,282
)
 
$
991

 
$
(1,765
)
 
$
868

Interest and dividend income
1,578

 
1,476

 
5,185

 
3,665

Accretion of interest income from debt discount on notes receivable
5

 
11

 
79

 
87

Gain on long-term investment
137

 
—

 
361

 
—

Out-of-period adjustment
—

 
—

 
—

 
1,231

Acceleration of closing fee related to termination of Douglas Elliman joint venture
—

 
—

 
—

 
2,335

Provision for loss on real estate held for sale
(229
)
 
—

 
(229
)
 
—

Loss on sale of assets
(75
)
 
—

 
(75
)
 
—

Other expense
(1
)
 
(12
)
 
(2
)
 
(19
)
Other income, net
$
133

 
$
2,466

 
$
3,554

 
$
8,167


The out-of-period adjustment related to a non-accrual of a receivable from Douglas Elliman in the fourth quarter of 2013 and would have increased the Company's gain on acquisition of Douglas Elliman in 2013. The Company assessed the materiality of this error on all previously issued financial statements and concluded that the error was immaterial to all previously issued financial statements. The impact of correcting this error in 2014 was not material to the Company's 2014 consolidated financial statements.


(h)
Other Current Liabilities:
Other current liabilities consisted of:
 
September 30, 2015
 
December 31, 2014
Accounts payable
$
11,966

 
$
10,856

Accrued promotional expenses
20,053

 
20,191

Accrued excise and payroll taxes payable, net
5,034

 
23,172

Accrued interest
16,121

 
28,321

Commissions payable
14,942

 
9,523

Accrued salary and benefits
17,232

 
16,009

Other current liabilities
26,455

 
18,683

Total other current liabilities
$
111,803

 
$
126,755




10
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


(i)
Goodwill and Other Intangible Assets:

The components of “Goodwill and other intangible assets, net” were as follows:
 
 
September 30,
2015
 
December 31,
2014
Goodwill
 
$
70,791

 
$
70,791

 
 
 
 
 
Indefinite life intangibles:
 
 
 
 
Intangible asset associated with benefit under the MSA
 
107,511

 
107,511

Trademark - Douglas Elliman
 
80,000

 
80,000

 
 
 
 
 
Intangibles with a finite life, net
 
7,178

 
11,670

 
 
 
 
 
  Total goodwill and other intangible assets, net
 
$
265,480

 
$
269,972


(j)
Treasury shares:

On September 4, 2015, the Company canceled all of its 4,145,247 treasury shares with a cost basis of $12,857. The Company reduced Additional paid-in-capital in the Condensed Statement of Stockholders' Deficiency by its cost basis in the Treasury Stock.

(k)
New Accounting Pronouncements:

In September 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2015-16, Business Combination (Topic 805): Simplifying the Accounting for Measurement Period Adjustments (“ASU 2015-16”), which requires adjustments to provisional amounts initially recorded in a business combination that are identified during the measurement period to be recognized in the reporting period in which the adjustment amounts are determined. This includes any effect on earnings of changes in depreciation, amortization, or other income effects as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. ASU 2015-15 also requires the disclosure of the nature and amount of measurement-period adjustments recognized in the current period, including separately the amounts in current-period income statement line items that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The guidance is effective for the Company beginning January 1, 2016. The Company will apply the guidance prospectively for all business combinations that occur subsequent to the adoption date.

In August 2015, FASB issued ASU 2015-15, Interest - Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measure of Debt Issuance Costs Associated with Line-of-Credit Arrangements (Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting), which codifies an Securities and Exchange Commission staff announcement that entities are permitted to defer and present debt issuance costs related to line-of-credit arrangement as assets. Given the absence of authoritative guidance within ASU 2015-03 for debt issuance costs related to line-of-credit arrangements, ASU 2015-15 clarifies that the Securities and Exchange Commission staff would not object to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. This guidance is effective immediately and will be applied prospectively to any line-of-credit arrangements entered into subsequent to the effective date.

In April 2015, FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”), which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected. Upon adoption, the Company will apply the new guidance on a retrospective basis and adjust the balance sheet of each individual period presented to reflect the period-specific effects of applying the new guidance. This guidance

11
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


is effective for the Company beginning January 1, 2016. The Company is evaluating the effect that this guidance will have on its consolidated financial statements.

In February 2015, FASB issued ASU 2015-02, Consolidation: Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 amends the consolidation requirements and significantly changes the consolidation analysis required. ASU 2015-02 requires management to reevaluate all legal entities under a revised consolidation model specifically (1) modify the evaluation of whether limited partnership and similar legal entities are Variable Interest Entities (“VIEs”), (2) eliminate the presumption that a general partner should consolidate a limited partnership, (3) affect the consolidation analysis of reporting entities that are involved with VIEs particularly those that have fee arrangements and related party relationships, and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Act of 1940 for registered money market funds. The guidance is effective for the Company beginning January 1, 2016. Early adoption is permitted. The Company is evaluating the effect that this guidance will have on its consolidated financial statements.

In May 2014, FASB issued ASU 2014-9, Revenue from Contracts with Customers (Topic 606), (“ASU 2014-9”). ASU 2014-9 outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. Under the new model, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. As amended by ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date the new standard is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted for annual reporting periods beginning subsequent to December 15, 2016. The new standard is required to be applied retrospectively to each prior reporting period presented or with the cumulative effect of initially applying it recognized at the date of initial application. The Company has not yet selected a transition method and it has not determined the impact of the new standard on its consolidated financial statements.


2.
INVENTORIES

Inventories consist of:
 
September 30,
2015
 
December 31,
2014
Leaf tobacco
$
50,672

 
$
49,948

Other raw materials
4,184

 
3,532

Work-in-process
624

 
879

Finished goods
66,266

 
62,876

E-Cigarettes
106

 
3,079

Inventories at current cost
121,852

 
120,314

LIFO adjustments
(31,157
)
 
(29,991
)
 
$
90,695

 
$
90,323


All of the Company's inventories at September 30, 2015 and December 31, 2014 are reported under the LIFO method. The $31,157 LIFO adjustment as of September 30, 2015 decreases the current cost of inventories by $20,321 for Leaf tobacco, $900 for Other raw materials, $41 for Work-in-Process, $9,887 for Finished goods and $8 for E-Cigarettes. The $29,991 LIFO adjustment as of December 31, 2014 decreased the current cost of inventories by $19,941 for Leaf tobacco, $861 for Other raw materials, $39 for Work-in-Process, $9,054 for Finished goods and $96 for E-Cigarettes.

Liggett enters into purchase commitments for leaf tobacco that will be used entirely for future production. The future quantities of leaf tobacco and prices are established at the date of the commitments. At September 30, 2015, Liggett had tobacco purchase commitments of approximately $14,796. Liggett has a single source supply agreement for fire safe cigarette paper through 2019.


12
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


The Company capitalizes the incremental prepaid cost of the MSA in ending inventory. Each year, the Company capitalizes in inventory that portion of its MSA liability that relates to cigarettes shipped to public warehouses but not sold. The amount of capitalized MSA cost in “Finished goods” inventory was $15,906 and $14,369 at September 30, 2015 and December 31, 2014, respectively.


3.
INVESTMENT SECURITIES AVAILABLE FOR SALE

The components of investment securities available for sale at September 30, 2015 were as follows:

 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Marketable equity securities
$
63,524

 
$
44,623

 
$
(1,171
)
 
$
106,976

Mutual funds invested in fixed income securities
54,864

 
—

 
—

 
54,864

Marketable debt securities
126,080

 
456

 
—

 
126,536

Total investment securities available for sale
$
244,468

 
$
45,079

 
$
(1,171
)
 
$
288,376


The components of investment securities available for sale at December 31, 2014 were as follows:

 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Marketable equity securities
$
63,041

 
$
92,255

 
$
(1,104
)
 
$
154,192

Mutual funds invested in fixed income securities
61,485

 
—

 
(1,659
)
 
59,826

Marketable debt securities
130,311

 
2,630

 
(916
)
 
132,025

Total investment securities available for sale
$
254,837

 
$
94,885

 
$
(3,679
)
 
$
346,043



The table below summarizes the maturity dates of marketable debt securities at September 30, 2015.

Investment Type:
Market Value
 
Under 1 Year
 
1 Year up to 5 Years
 
More than 5 Years
U.S. Government securities
$
35,433

 
$
—

 
$
35,433

 
$
—

Corporate securities
54,741

 
6,917

 
47,565

 
259

U.S. mortgage-backed securities
6,351

 
1,061

 
5,132

 
158

Commercial mortgage-backed securities
14,537

 
6,632

 
1,793

 
6,112

U.S. asset-backed securities
13,360

 
2,342

 
10,343

 
675

Index-linked U.S. bonds
2,114

 
—

 
2,114

 
—

Total marketable debt securities by maturity dates
$
126,536

 
$
16,952

 
$
102,380

 
$
7,204


The available-for-sale investment securities with continuous unrealized losses for less than 12 months and 12 months or greater and their related fair values were as follows:


13
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


 
In loss position for
 
 
 
 
 
Less than 12 months
 
12 months or more
 
 
 
 
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Total Fair Value
 
Total Unrealized Losses
September 30, 2015
 
 
 
 
 
 
 
 
 
 
 
Marketable equity securities
$
9,159

 
$
(1,171
)
 
$
—

 
$
—

 
$
9,159

 
$
(1,171
)
 
$
9,159

 
$
(1,171
)
 
$
—

 
$
—

 
$
9,159

 
$
(1,171
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Marketable equity securities
$
6,599

 
$
(138
)
 
$
3,534

 
$
(966
)
 
$
10,133

 
$
(1,104
)
Mutual funds invested in fixed income securities
59,826

 
(1,659
)
 
—

 
—

 
59,826

 
(1,659
)
Marketable debt securities

 

 

 

 

 

   U.S. Government securities
22,375

 
(18
)
 
—

 
—

 
22,375

 
(18
)
   Corporate securities
30,896

 
(204
)
 
7,224

 
(131
)
 
38,120

 
(335
)
   U.S. mortgage-backed securities
3,370

 
(26
)
 
—

 
—

 
3,370

 
(26
)
   Commercial mortgage-backed securities
11,332

 
(46
)
 
5,176

 
(432
)
 
16,508

 
(478
)
   U.S. asset-backed securities
15,228

 
(29
)
 
—

 
—

 
15,228

 
(29
)
   Index-linked U.S. bonds
2,098

 
(30
)
 
—

 
—

 
2,098

 
(30
)
 
$
151,724

 
$
(2,150
)
 
$
15,934

 
$
(1,529
)
 
$
167,658

 
$
(3,679
)

Unrealized losses from fixed-income securities are primarily attributable to changes in interest rates. Unrealized losses
from equity and debt securities are due to market price movements. The Company believes the unrealized losses associated with the Company's equity securities will be recovered in the future.

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

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Gross realized gains on sales
$
129

 
$
100

 
$
13,601

 
$
151

Gross realized losses on sales
(950
)
 
(67
)
 
(1,583
)
 
(189
)
(Loss) gain on sale of investment securities available for sale

$
(821
)
 
$
33

 
$
12,018

 
$
(38
)
 
 
 
 
 
 
 
 
Gross realized losses on other-than-temporary impairments
$
(12,211
)
 
$
—

 
$
(12,211
)
 
$
—

 

 

 

 


The Company recorded an “Other-than-temporary-impairment” charge of $12,211 during the three and nine months ended September 30, 2015.  The largest component of this charge was $6,895 related to Morgans Hotel Group Co., a company where Vector's President and Chief Executive Officer also serves as Chairman of the Board of Directors.
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 and the funding of claims and obligations to policyholders.

14
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


Proceeds from investment securities sales totaled $42,768 and $124,342 and proceeds from early redemptions by issuers totaled $3,130 and $615 in the three months ended September 30, 2015 and 2014, respectively, mainly from sales of Corporate securities and U.S. Government securities.
Proceeds from investment securities sales totaled $161,029 and $173,046 and proceeds from early redemptions by issuers totaled $8,397 and $1,207 in the nine months ended September 30, 2015 and 2014, respectively, mainly from sales of Corporate securities and U.S. Government securities.

4.
LONG-TERM INVESTMENTS

Long-term investments consisted of the following:
 
September 30, 2015
 
December 31, 2014
Investments accounted at cost
$
42,056

 
$
32,239

Investments accounted under the equity method
11,592

 
8,053

 
$
53,648

 
$
40,292


Long-term investments accounted for at cost are summarized as follows:
 
September 30, 2015
 
December 31, 2014
 
Carrying
 
Fair
 
Carrying
 
Fair
 
Value
 
Value
 
Value
 
Value
Long-term investments
$
41,541

 
$
46,435

 
$
31,541

 
$
38,039

Real estate partnership
515

 
587

 
698

 
1,108

 
$
42,056

 
$
47,022

 
$
32,239

 
$
39,147


The Company accounts for investments which it has significant influence under the equity method. The Company recorded an equity loss of $579 and equity income of $829 for the three months ended September 30, 2015 and September 30, 2014, respectively. The Company recorded an equity loss of $2,273 and equity income of $1,462 for the nine months ended September 30, 2015 and September 30, 2014, respectively. The fair value of the investments in investment companies accounted for under the equity method was approximately $11,592 and $8,053 as of September 30, 2015 and December 31, 2014.

The Company's investments under the equity method contains an investment in the common stock of Boyar Value Fund ("Boyar"). As of September 30, 2015, the Company owned approximately 30% of the outstanding stock of Boyar. The carrying value of the investment based on the quoted market price as of September 30, 2015 was $6,984. Ladenburg Thalmann Fund Management, LLC, an indirect subsidiary of Ladenburg Thalmann Financial Services Inc. is the manager of Boyar.


5.
NEW VALLEY LLC
Residential Brokerage Business Acquisition. New Valley is engaged in the real estate business and is seeking to acquire additional real estate properties and operating companies. The Company owns a 70.59% interest in Douglas Elliman and the condensed consolidated financial statements of the Company include the account balances of Douglas Elliman.
Investments in real estate ventures.  New Valley also holds equity investments in various real estate projects domestically and internationally. The components of “Investments in real estate ventures” were as follows:

15
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


 
September 30,
2015
 
December 31,
2014
 
 
 
 
Milanosesto Holdings (Sesto Holdings)
$
5,037

 
$
5,037

Land Development
5,037

 
5,037

 
 
 
 
10 Madison Square Park West (1107 Broadway)
9,522

 
6,383

The Marquand
13,900

 
12,000

11 Beach Street
11,928

 
12,328

20 Times Square (701 Seventh Avenue)
13,095

 
12,481

111 Murray Street
16,114

 
27,319

357 West (160 Leroy Street)
1,950

 
1,467

PUBLIC Chrystie House (Chrystie Street)
5,297

 
3,300

The Dutch (25-19 43rd Avenue)
980

 
733

Queens Plaza (23-10 Queens Plaza South)
14,732

 
11,082

87 Park (8701 Collins Avenue)
5,654

 
6,144

125 Greenwich Street
11,193

 
9,308

West Hollywood Edition (9040 Sunset Boulevard)
5,604

 
5,604

76 Eleventh Avenue
17,000

 
—

Monad Terrace
6,438

 
—

Condominium and Mixed Use Development
133,407

 
108,149

 
 
 
 
Maryland Portfolio
1,377

 
3,234

ST Portfolio
16,881

 
15,283

Apartment Buildings
18,258

 
18,517

 
 
 
 
Park Lane Hotel
19,373

 
19,341

Hotel Taiwana
7,337

 
7,629

Coral Beach and Tennis Club
3,023

 
2,816

Hotels
29,733

 
29,786

 
 
 
 
The Plaza at Harmon Meadow
5,638

 
—

Commercial
5,638

 
—

 
 
 
 
Other
1,979

 
1,971

 
 
 
 
Investments in real estate ventures
$
194,052

 
$
163,460

 
Condominium and Mixed-Use Development:
Condominium and mixed-use development investments range in ownership percentage from 5% to 49.5%. New Valley recorded net equity income of $248 and $923 for the three and nine months ended September 30, 2015, respectively. The $923 equity income for the nine months ended September 30, 2015 was primarily related to New Valley's proportionate share of the Marquand’s equity earnings from the sale of five units offset by equity losses from the other condominiums and mixed-use development projects. New Valley recorded equity income of $5,090 and $7,389 for the three and nine months ended September 30, 2014, respectively. The Company recorded $5,000 of equity income related to its proportionate share of the Marquand’s equity earnings from the sale of approximately 40% of its units during the quarter and $2,254 of equity income primarily related to the

16
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


sale of a commercial unit at 10 Madison Square Park West for the nine months ended September 30, 2014.
During the nine months ended September 30, 2015, New Valley made capital contributions totaling $35,776 related to ventures where New Valley previously held an investment, primarily at 10 Madison Square Park West, Queens Plaza and 125 Greenwich Street, and the new ventures 76 Eleventh Avenue and Monad Terrace. For ventures where New Valley previously held an investment, New Valley contributed its proportionate share of additional capital along with contributions by the other investment partners. New Valley's direct investment percentage did not change. During the nine months ended September 30, 2014, New Valley made capital contributions totaling $27,225 primarily related to 111 Murray Street, Queens Plaza and 125 Greenwich Street. New Valley contributed its proportionate share of additional capital along with contributions by the other investment partners. New Valley's investment percentages did not change.
In May 2015, New Valley purchased a 5.1% interest in 76 Eleventh Avenue for $17,000. The joint venture related to 76 Eleventh Avenue is a variable interest entity, however, New Valley is not the primary beneficiary. New Valley accounts for its interest in the joint venture under the equity method of accounting. New Valley's maximum exposure to loss as a result of its investment in 76 Eleventh Avenue as of September 30, 2015 is $17,000.
In May and June 2015, New Valley purchased a 31.3% interest in Monad Terrace for $6,200. The joint venture related to Monad Terrace is a variable interest entity, however, New Valley is not the primary beneficiary of the joint venture. New Valley accounts for its interest in the joint venture under the equity method of accounting. New Valley's maximum exposure to loss as a result of its investment in Monad Terrace as of September 30, 2015 is $6,438.
During the nine months ended September 30, 2015, New Valley received distributions of $11,441 primarily related to a return of capital from 111 Murray Street. The return of capital primarily resulted from the admittance of a new limited partner in 111 Murray Street. The admittance of the new limited partner reduced New Valley's interest in the overall joint venture from 25% to 9.5%. New Valley recognized equity income of $344 as a result of the transaction, offsetting the equity loss of $344 recognized during the year. During the nine months ended September 30, 2014, New Valley received distributions of $4,547 primarily related to 10 Madison Square Park West, 125 Greenwich Street, 11 Beach Street and 20 Times Square.
New Valley's maximum exposure to loss, net of non-controlling interest, as a result of its investments in condominium and mixed-use developments was $130,027 at September 30, 2015.

Apartment Buildings:
Apartment building investments range in ownership percentage from 7.6% to 16.3%. New Valley recorded an equity loss of $72 for the three months ended September 30, 2015 and equity income of $1,730 for the nine months ended September 30, 2015, respectively, primarily related to the ST Portfolio apartment portfolio. In 2015, ST Portfolio sold one (Phoenix, Arizona) of its three remaining Class A multi-family buildings and the proceeds were used to retire debt. New Valley recorded equity losses of $87 and $251 for the three and nine months ended September 30, 2014, respectively, primarily related to equity losses of ST Portfolio. New Valley received distributions of $1,989 and $375 during the nine months ended September 30, 2015 and 2014, respectively, primarily related to NV Maryland. New Valley's maximum exposure to loss as a result of its investment in apartment buildings was $18,258 at September 30, 2015.

Hotels:
Hotel investments range in ownership percentage from 5% to 49%. New Valley recorded equity losses of $1,323 and $2,330 for the three and nine months ended September 30, 2015, respectively, related to hotel operations. New Valley recorded equity losses of $2,053 and $4,222 for the three and nine months ended September 30, 2014, respectively. New Valley made capital contributions totaling $2,277 for the nine months ended September 30, 2015, primarily related to Coral Beach and Tennis Club and Park Lane Hotel. New Valley made capital contributions totaling $1,973 for the nine months ended September 30, 2014, primarily related to Coral Beach. New Valley's maximum exposure to loss as a result of its investments in hotels was $29,733 at September 30, 2015.

17
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited



Commercial:
Commercial ventures include a contribution by New Valley of $5,931 for a 49% interest in a joint venture which purchased a shopping center, The Plaza at Harmon Meadow, in New Jersey at the end of March 2015. The joint venture is a variable interest entity, however, New Valley is not the primary beneficiary of the joint venture. New Valley will account for its interest in the joint venture under the equity method of accounting. New Valley recorded equity income of $20 and $47 for the three and nine months ended September 30, 2015 related to shopping center rental operations. New Valley received distributions totaling $340 for the nine months ended September 30, 2015, related to Harmon Meadow. New Valley's maximum exposure to loss as a result of its investments in commercial ventures was $5,638 at September 30, 2015.

Other:
Other investments in real estate ventures relate to an investment in a mortgage company and an insurance company partially owned by Douglas Elliman.

Real Estate Held for Sale:
The components of “Real estate held for sale, net” were as follows:
 
September 30,
2015
 
December 31,
2014
Escena, net
$
10,451

 
$
10,643

Sagaponack
12,512

 
—

            Real estate held for sale, net
$
22,963

 
$
10,643


Escena.  The assets of “Escena, net” are as follows:
 
September 30,
2015
 
December 31,
2014
Land and land improvements
$
8,902

 
$
8,953

Building and building improvements
1,873

 
1,865

Other
1,596

 
1,568

 
12,371

 
12,386

Less accumulated depreciation
(1,920
)
 
(1,743
)
 
$
10,451

 
$
10,643


New Valley recorded operating losses of $779 and $804 for the three months ended September 30, 2015 and 2014, respectively, from Escena. New Valley recorded operating losses of $227 and $571 for the nine months ended September 30, 2015 and 2014, respectively, from Escena.


18
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


Investment in Indian Creek. In March 2013, New Valley invested $7,616 for an 80% interest in Timbo LLC (“Indian Creek”) which owns a residential real estate project located on Indian Creek, Florida. As a result of the 80% ownership interest, the consolidated financial statements of the Company included the balances of Indian Creek.
 
In May 2014, the Indian Creek property was sold for $14,400 and New Valley received a distribution of approximately $7,100. New Valley recognized income of approximately $2,400 from the sale for the nine months ended September 30, 2014.

Investment in Sagaponack. In April 2015, New Valley has invested $12,502 in a residential real estate project located in Sagaponack, NY. The project is wholly owned and the balances of the project are included in the consolidated financial statements of the Company. As of September 30, 2015, the assets of Sagaponack consist of land and land improvements of $12,512.

6.
NOTES PAYABLE, LONG-TERM DEBT AND OTHER OBLIGATIONS

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

 
September 30,
2015
 
December 31,
2014
Vector:
 
 
 
7.75% Senior Secured Notes due 2021, including premium of $8,337 and $9,275
$
608,337

 
$
609,275

6.75% Variable Interest Senior Convertible Note due 2015
—

 
25,000

7.5% Variable Interest Senior Convertible Notes due 2019, net of unamortized discount of $136,365 and $146,634*
93,635

 
83,366

5.5% Variable Interest Senior Convertible Debentures due 2020, net of unamortized discount of $89,454 and $98,831*
169,296

 
159,919

Liggett:
 
 
 
Revolving credit facility
1,803

 
17,767

Term loan under credit facility
3,368

 
3,589

Equipment loans
10,919

 
13,966

Other
289

 
469

Total notes payable, long-term debt and other obligations
887,647

 
913,351

Less:
 
 
 
Current maturities
(7,957
)
 
(52,640
)
Amount due after one year
$
879,690

 
$
860,711

______________________
* The fair value of the derivatives embedded within the 6.75% Variable Interest Senior Convertible Note ($0 at September 30, 2015 and $884 at December 31, 2014, respectively), the 7.5% Variable Interest Senior Convertible Notes ($75,788 at September 30, 2015 and $87,638 at December 31, 2014, respectively) and the 5.5% Variable Interest Senior Convertible Debentures ($73,951 at September 30, 2015 and $80,864 at December 31, 2014, respectively), is separately classified as a derivative liability in the condensed consolidated balance sheets.

6.75% Variable Interest Senior Convertible Note due 2015 - Vector:
On February 3, 2015, the holder of the 6.75% Variable Interest Senior Convertible Note due 2015, converted the remaining $25,000 principal balance of the $50,000 Note into 2,338,930 of the Company's common shares. The debt conversion resulted in a reduction of debt and an increase to equity in the amount of $25,000.

Revolving Credit Facility and Term Loan Under Credit Facility - Liggett:

As of September 30, 2015, a total of $5,171 was outstanding under the revolving and term loan portions of the credit facility. Availability, as determined under the facility, was approximately $52,915 based on eligible collateral at September 30, 2015.


19
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


Shares of Common Stock per $1,000 Principal Amount due on Convertible Notes:

The conversion rates for all convertible debt outstanding as of September 30, 2015 and December 31, 2014, are summarized below:
 
September 30, 2015
 
December 31, 2014
 
Conversion Price
 
Shares per $1,000
 
Conversion Price
 
Shares per $1,000
 
 
 
 
 
 
 
 
6.75% Variable Interest Senior Convertible Note due 2014
$
—

 
—

 
$
10.69

 
93.5572

7.5% Variable Interest Senior Convertible Notes due 2019
$
15.98

 
62.5743

 
$
15.98

 
62.5743

5.5% Variable Interest Senior Convertible Debentures due 2020
$
24.64

 
40.5891

 
$
24.64

 
40.5891


Non-Cash Interest Expense - Vector:

 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
2015
 
2014
 
2015
 
2014
Amortization of debt discount, net
$
6,868

 
$
14,277

 
$
18,708

 
$
41,180

Amortization of deferred finance costs
1,085

 
1,147

 
3,073

 
2,910

Accelerated interest expense on 6.75% Variable Interest Senior Convertible Note converted
—

 
—

 
—

 
3,679

Accelerated interest expense on 6.75% Variable Interest Senior Convertible Exchange Notes converted
—

 
994

 
—

 
1,433


$
7,953

 
$
16,418

 
$
21,781

 
$
49,202


Fair Value of Notes Payable and Long-Term Debt:

 
September 30, 2015
 
December 31, 2014
 
Carrying
 
Fair
 
Carrying
 
Fair
 
Value
 
Value
 
Value
 
Value
Notes payable and long-term debt
$
887,647

(1)
$