Document


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended June 30, 2017
 

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
o  Emerging Growth Company
 
 
(Do not check if a smaller reporting 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.
o Yes x No

At August 3, 2017, Vector Group Ltd. had 128,742,114 shares of common stock outstanding.

 



VECTOR GROUP LTD.

FORM 10-Q

TABLE OF CONTENTS

 
Page
PART I. FINANCIAL INFORMATION
 
 
 
Item 1. Vector Group Ltd. Condensed Consolidated Financial Statements (Unaudited):
 
 
 
Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016
 
 
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2017 and 2016
 
 
Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2017 and 2016
 
 
Condensed Consolidated Statements of Stockholders' Deficiency for the six months ended June 30, 2017
 
 
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2017 and 2016
 
 
Notes to Condensed Consolidated Financial Statements
 
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
 
Item 4. Controls and Procedures
 
 
PART II. OTHER INFORMATION
 
 
 
Item 1. Legal Proceedings
 
 
Item 1A. Risk Factors
 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
 
Item 6. Exhibits
 
 
SIGNATURE


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

 
June 30,
2017
 
December 31,
2016
ASSETS:
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
410,409

 
$
393,530

Investment securities available for sale
146,223

 
156,903

Accounts receivable - trade, net
25,479

 
18,801

Inventories
87,979

 
89,834

Income taxes receivable, net
8,178

 
16,110

Restricted assets
8,797

 
7,330

Other current assets
29,458

 
22,955

Total current assets
716,523

 
705,463

Property, plant and equipment, net
80,994

 
80,448

Investments in real estate, net
23,675

 
23,640

Long-term investments
75,171

 
53,197

Investments in real estate ventures
201,356

 
221,258

Restricted assets
3,754

 
3,986

Goodwill and other intangible assets, net
261,189

 
261,918

Prepaid pension costs
22,882

 
22,273

Other assets
34,742

 
31,852

Total assets
$
1,420,286

 
$
1,404,035

LIABILITIES AND STOCKHOLDERS' DEFICIENCY:
 
 
 
Current liabilities:
 
 
 
   Current portion of notes payable and long-term debt
$
20,941

 
$
39,508

 Current payments due under the Master Settlement Agreement
68,039

 
16,192

   Current portion of employee benefits
937

 
937

Litigation accruals
5,371

 
3,659

Other current liabilities
145,825

 
135,852

Total current liabilities
241,113

 
196,148

Notes payable, long-term debt and other obligations, less current portion
1,158,877

 
1,132,943

Fair value of derivatives embedded within convertible debt
95,627

 
112,332

Non-current employee benefits
59,384

 
58,958

Deferred income taxes, net
85,176

 
93,085

Payments due under the Master Settlement Agreement
23,642

 
22,257

Litigation accruals
23,574

 
27,513

Other liabilities
17,414

 
14,071

Total liabilities
1,704,807

 
1,657,307

Commitments and contingencies (Note 7)

 

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

 
—

Common stock, par value $0.10 per share, 250,000,000 shares authorized,128,934,081 and 127,739,481 shares issued and outstanding
12,893

 
12,774

Accumulated deficit
(368,140
)
 
(333,529
)
Accumulated other comprehensive loss
(12,606
)
 
(11,245
)
Total Vector Group Ltd. stockholders' deficiency
(367,853
)
 
(332,000
)
Non-controlling interest
83,332

 
78,728

Total stockholders' deficiency
(284,521
)
 
(253,272
)
Total liabilities and stockholders' deficiency
$
1,420,286

 
$
1,404,035


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
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
Revenues
 
 
 
 
 
 
 
   Tobacco*
$
272,177

 
$
255,498

 
$
529,631

 
$
476,513

   Real estate
199,812

 
182,765

 
357,566

 
342,512

   E-cigarettes
—

 
10

 
—

 
48

          Total Revenues
471,989

 
438,273

 
887,197

 
819,073

 
 
 
 
 
 
 
 
Expenses:
 
 
 
 
 
 
 
 Cost of sales:
 
 
 
 
 
 
 
   Tobacco*
186,907

 
168,607

 
362,661

 
305,345

   Real estate
127,987

 
115,017

 
228,156

 
214,695

   E-cigarettes
—

 
7

 
—

 
13

       Total cost of sales
314,894

 
283,631

 
590,817

 
520,053

 
 
 
 
 
 
 
 
Operating, selling, administrative and general expenses
83,183

 
83,922

 
167,952

 
163,750

Litigation settlement and judgment expense
102

 
—

 
1,687

 
2,350

Restructuring charges
—

 
—

 
—

 
41

Operating income
73,810

 
70,720

 
126,741

 
132,879

 
 
 
 
 
 
 
 
Other income (expenses):
 
 
 
 
 
 
 
Interest expense
(46,691
)
 
(36,369
)
 
(92,912
)
 
(67,089
)
Loss on extinguishment of debt
—

 
—

 
(34,110
)
 
—

Change in fair value of derivatives embedded within convertible debt
8,134

 
7,416

 
16,705

 
17,110

Equity in earnings from real estate ventures
15,291

 
2,813

 
26,404

 
2,306

Equity in (losses) earnings from investments
(1,459
)
 
1,089

 
(2,520
)
 
(582
)
Gain on sale of investment securities available for sale
37

 
139

 
187

 
706

Impairment of investment securities available for sale
(87
)
 
(49
)
 
(126
)
 
(4,862
)
Other, net
1,338

 
581

 
2,997

 
1,628

Income before provision for income taxes
50,373

 
46,340

 
43,366

 
82,096

Income tax expense
18,827

 
19,003

 
16,045

 
33,366

 
 
 
 
 
 
 
 
Net income
31,546

 
27,337

 
27,321

 
48,730

 
 
 
 
 
 
 
 
Net income attributed to non-controlling interest
(4,735
)
 
(3,322
)
 
(4,737
)
 
(5,377
)
 
 
 
 
 
 
 
 
Net income attributed to Vector Group Ltd.
$
26,811

 
$
24,015

 
$
22,584

 
$
43,353

 
 
 
 
 
 
 
 
Per basic common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income applicable to common share attributed to Vector Group Ltd.
$
0.20

 
$
0.19

 
$
0.16

 
$
0.34

 
 
 
 
 
 
 
 
Per diluted common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income applicable to common share attributed to Vector Group Ltd.
$
0.20

 
$
0.19

 
$
0.16

 
$
0.34

 
 
 
 
 
 
 
 
Dividends declared per share
$
0.40

 
$
0.38

 
$
0.80

 
$
0.76

                                      

* Revenues and cost of sales include federal excise taxes of $115,194, $106,861, $224,562 and $197,707, 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
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
 
 
 
 
Net income
$
31,546

 
$
27,337

 
$
27,321

 
$
48,730

 
 
 
 
 
 
 
 
Net unrealized losses on investment securities available for sale:
 
 
 
 
 
 
 
Change in net unrealized losses
(3,043
)
 
(820
)
 
(3,219
)
 
(5,454
)
Net unrealized losses (gains) reclassified into net income
50

 
(90
)
 
(61
)
 
4,156

Net unrealized losses on investment securities available for sale
(2,993
)
 
(910
)
 
(3,280
)
 
(1,298
)
 
 
 
 
 


 
 
Net change in forward contracts
1

 
9

 
2

 
18

 
 
 
 
 
 
 
 
Net change in pension-related amounts -
 
 
 
 
 
 
 
Amortization of loss
489

 
445

 
977

 
890

Net change in pension-related amounts
489

 
445

 
977

 
890

 
 
 
 
 
 
 
 
Other comprehensive loss
(2,503
)
 
(456
)
 
(2,301
)
 
(390
)
 
 
 
 
 
 
 
 
Income tax effect on:
 
 
 
 
 
 
 
Change in net unrealized losses on investment securities
1,235

 
337

 
1,311

 
2,245

Net unrealized losses (gains) reclassified into net income on investment securities
(20
)
 
37

 
25

 
(1,708
)
Forward contracts
1

 
(4
)
 
—

 
(7
)
Pension-related amounts
(198
)
 
(183
)
 
(396
)
 
(366
)
Income tax benefit on other comprehensive loss
1,018

 
187

 
940

 
164

 
 
 
 
 
 
 
 
Other comprehensive loss, net of tax
(1,485
)
 
(269
)
 
(1,361
)
 
(226
)
 
 
 
 
 
 
 
 
Comprehensive income
30,061

 
27,068

 
25,960

 
48,504

 
 
 
 
 
 
 
 
Comprehensive income attributed to non-controlling interest
(4,735
)
 
(3,322
)
 
(4,737
)
 
(5,377
)
Comprehensive income attributed to Vector Group Ltd.
$
25,326

 
$
23,746

 
$
21,223

 
$
43,127


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

4


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


 
Vector Group Ltd. Stockholders' Deficiency
 
 
 
 
 
 
Additional Paid-In
 
 
 
Accumulated
Other Comprehensive
 
Non-controlling
 
 
 
Common Stock
 
 
Accumulated
 
 
 
 
 
Shares
 
Amount
 
Capital
 
Deficit
 
Loss
 
Interest
 
Total
Balance as of January 1, 2017
127,739,481

 
$
12,774

 
$
—

 
$
(333,529
)
 
$
(11,245
)
 
$
78,728

 
$
(253,272
)
Net income
—

 
—

 
—

 
22,584

 
—

 
4,737

 
27,321

Total other comprehensive loss
—

 
—

 
—

 
—

 
(1,361
)
 
—

 
(1,361
)
Total comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
25,960

Distributions and dividends on common stock
—

 
—

 
(49,139
)
 
(57,195
)
 
—

 
—

 
(106,334
)
Issuance of common stock
2,000,000

 
200

 
43,030

 
—

 
—

 
—

 
43,230

Cancellation of shares under share lending agreement
(805,400
)
 
(81
)
 
81

 
—

 
—

 
—

 
—

Stock-based compensation
—

 
—

 
6,028

 
—

 
—

 
—

 
6,028

Distributions to non-controlling interest
—

 
—

 
—

 
—

 
—

 
(133
)
 
(133
)
Balance as of June 30, 2017
128,934,081

 
$
12,893

 
$
—

 
$
(368,140
)
 
$
(12,606
)
 
$
83,332

 
$
(284,521
)


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

 
Six Months Ended
 
Six Months Ended
 
June 30,
2017
 
June 30,
2016
Net cash provided by operating activities
$
117,611

 
$
78,825

Cash flows from investing activities:
 
 
 
Sale of investment securities
22,396

 
67,033

Maturities of investment securities
93,368

 
343

Purchase of investment securities
(109,891
)
 
(56,691
)
Proceeds from sale or liquidation of long-term investments
466

 
1,000

Purchase of long-term investments
(26,000
)
 
(50
)
Investments in real estate ventures
(8,454
)
 
(11,806
)
Distributions from investments in real estate ventures
23,338

 
17,983

Increase in cash surrender value of life insurance policies
(854
)
 
(393
)
(Increase) decrease in restricted assets
(1,235
)
 
2,674

Issuance of notes receivable
(1,500
)
 
—

Proceeds from sale of fixed assets
75

 
5

Capital expenditures
(8,346
)
 
(7,615
)
Pay downs of investment securities
1,620

 
4,926

Investments in real estate, net
(205
)
 
(81
)
Net cash (used in) provided by investing activities
(15,222
)
 
17,328

Cash flows from financing activities:
 
 
 
Proceeds from issuance of debt
850,020

 
243,282

Deferred financing costs
(19,200
)
 
(6,600
)
Repayments of debt
(836,145
)
 
(2,917
)
Borrowings under revolver
110,979

 
89,695

Repayments on revolver
(129,479
)
 
(80,223
)
Dividends and distributions on common stock
(104,750
)
 
(97,846
)
Contributions from non-controlling interest
—

 
248

Distributions to non-controlling interest
(165
)
 
(7,422
)
Proceeds from issuance of Vector common stock
43,230

 
—

Net cash (used in) provided by financing activities
(85,510
)
 
138,217

Net increase in cash and cash equivalents
16,879

 
234,370

Cash and cash equivalents, beginning of period
393,530

 
240,368

Cash and cash equivalents, end of period
$
410,409

 
$
474,738


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

6
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)
Basis of Presentation:
The condensed consolidated financial statements of Vector Group Ltd. (the “Company” or “Vector”) include the accounts of Liggett Group LLC (“Liggett”), Vector Tobacco Inc. (“Vector Tobacco”), Liggett Vector Brands LLC (“Liggett Vector Brands”), 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 (“U.S. GAAP”) for interim financial information and, in management's opinion, contain all adjustments, consisting only of normal recurring items, necessary for a fair statement of the results for the periods presented. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016 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.
(b)
Distributions and Dividends on Common Stock:

The Company records distributions on its common stock as dividends in its condensed consolidated statement of stockholders' deficiency to the extent of retained earnings. Any amounts exceeding retained earnings are recorded as a reduction to additional paid-in capital to the extent paid-in-capital is available and then to accumulated deficit. The Company’s stock dividends are recorded as stock splits and given retroactive effect to earnings per share for all periods presented.

(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 (e.g. federal excise taxes). 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 brokerage 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 and rental commissions earned are recorded as revenue when the related services are performed and the earnings process is complete.

(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, 2016. All per share amounts and references to share amounts have been updated to reflect the retrospective effect of the stock dividends.


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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


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

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
Net income attributed to Vector Group Ltd.
$
26,811

 
$
24,015

 
$
22,584

 
$
43,353

Income attributed to participating securities
(1,501
)
 
(784
)
 
(2,984
)
 
(1,417
)
Net income available to common shares attributed to Vector Group Ltd.
$
25,310

 
$
23,231

 
$
19,600

 
$
41,936



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

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
Weighted-average shares for basic EPS
126,180,511

 
123,969,150

 
125,876,144

 
123,965,476

Plus incremental shares related to stock options and non-vested restricted stock
354,577

 
248,165

 
317,563

 
226,155

Weighted-average shares for diluted EPS
126,535,088

 
124,217,315

 
126,193,707

 
124,191,631


The following were outstanding during the three and six months ended June 30, 2017 and 2016, but were not included in the computation of diluted EPS because the effect was anti-dilutive.

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
  Weighted-average number of shares issuable upon
  conversion of debt
26,140,250

 
26,140,251

 
26,140,250

 
26,140,251

  Weighted-average conversion price
$
18.70

 
$
18.70

 
$
18.70

 
$
18.70



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

The Company has estimated the fair value of the embedded derivatives based principally on the results of a valuation model. A readily determinable fair value of the embedded derivatives is not available. The estimated fair value of the derivatives embedded within the convertible debt is based principally on the present value of future dividend payments expected to be received by the convertible debt holders over the term of the debt. The discount rate applied to the future cash flows is estimated based on a spread in the yield of the Company's debt when compared to risk-free securities with the same duration. The valuation model assumes future dividend payments by the Company and utilizes interest rates and credit spreads for secured to unsecured debt, unsecured to subordinated debt and subordinated debt to preferred stock to determine the fair value of the derivatives embedded within the convertible debt. The valuation also considers other items, including current and future dividends and the volatility of Vector's stock price. At June 30, 2017, the range of estimated fair values of the Company's embedded derivatives was between $95,256 and $96,300. The Company recorded the fair value of its embedded derivatives at the approximate midpoint of the range at $95,627 as of June 30, 2017. At December 31, 2016, the range of estimated fair values of the Company's embedded derivatives was between $111,653 and $113,090. The Company recorded the fair value of its embedded derivatives at the midpoint of the range at $112,332 as of December 31, 2016. The estimated fair value of the Company's embedded derivatives could change significantly based on future market conditions. (See Note 6.)


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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


(f)
Investments in Real Estate Ventures:
In accounting for its Investments in real estate ventures, the Company identified its participation in Variable Interest Entities (“VIE”), which are defined as entities in which the equity investors at risk have not provided enough equity at risk to finance its activities without additional subordinated support or the equity investors (1) cannot directly or indirectly make decisions about the entity’s activities through their voting rights or similar rights; (2) do not have the obligation to absorb the expected losses of the entity; (3) do not have the right to receive the expected residual returns of the entity; or (4) have voting rights that are not proportionate to their economic interests and the entity’s activities involve or are conducted on behalf of an investor with a disproportionately small voting interest.
The Company's interest in VIEs is primarily in the form of equity ownership. The Company examines specific criteria and uses judgment when determining if the Company is the primary beneficiary of a VIE. Factors considered include risk and reward sharing, experience and financial condition of other partner(s), voting rights, involvement in day-to-day capital and operating decisions, representation on a VIE's executive committee, existence of unilateral kick-out rights exclusive of protective rights or voting rights and level of economic disproportionality between the Company and its other partner(s).
Accounting guidance requires the consolidation of VIEs in which the Company is the primary beneficiary. The guidance requires consolidation of VIEs that an enterprise has a controlling financial interest. A controlling financial interest will have both of the following characteristics: (a) the power to direct the activities of a VIE that most significantly impact the VIE's economic performance and (b) the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company's maximum exposure to loss in its investments in unconsolidated VIEs is limited to its investment in the 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.

(g)
Other, Net:

Other, net consisted of:
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
Interest and dividend income
$
1,625

 
$
1,452

 
$
3,370

 
$
2,776

Gain on long-term investment
197

 
—

 
162

 
—

Impairment of long-term investments
(525
)
 
(921
)
 
(525
)
 
(1,203
)
Other income (expense)
41

 
50

 
(10
)
 
55

Other, net
$
1,338

 
$
581

 
$
2,997

 
$
1,628



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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


(h)
Other Current Liabilities:
Other current liabilities consisted of:
 
June 30, 2017
 
December 31, 2016
Accounts payable
$
9,453

 
$
10,573

Accrued promotional expenses
19,857

 
23,763

Accrued excise and payroll taxes payable, net
22,809

 
10,044

Accrued interest
33,130

 
35,449

Commissions payable
14,269

 
6,164

Accrued salary and benefits
20,857

 
26,958

Other current liabilities
25,450

 
22,901

Total other current liabilities
$
145,825

 
$
135,852



(i)
Goodwill and Other Intangible Assets, Net:

The components of “Goodwill and other intangible assets, net” were as follows:
 
 
June 30,
2017
 
December 31,
2016
Goodwill
 
$
70,815

 
$
70,815

 
 
 
 
 
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
 
2,863

 
3,592

 
 
 
 
 
  Total goodwill and other intangible assets, net
 
$
261,189

 
$
261,918



(j)
Subsequent Event:

On July 31, 2017, Douglas Elliman entered into a contract of sale to acquire Los Angeles-based Teles Properties, a California real estate brokerage firm.

(k)
New Accounting Pronouncements:

Accounting Standards Updates (“ASU”) adopted in 2017:

In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). ASU 2016-09 modified U.S. GAAP by requiring the following, among others: (1) all excess tax benefits and tax deficiencies are to be recognized as income tax expense or benefit on the income statement (excess tax benefits are recognized regardless of whether the benefit reduces taxes payable in the current period); (2) excess tax benefits are to be classified along with other income tax cash flows as an operating activity in the statement of cash flows; (3) in the area of forfeitures, an entity can still follow the current U.S. GAAP practice of making an entity-wide accounting policy election to estimate the number of awards that are expected to vest or may instead account for forfeitures when they occur; and (4)

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


classification as a financing activity in the statement of cash flows of cash paid by an employer to the taxing authorities when directly withholding shares for tax withholding purposes. ASU 2016-09 was effective for the Company's fiscal year beginning January 1, 2017, including interim periods. The Company adopted ASU 2016-09 in the first quarter of 2017 and elected to apply this adoption prospectively. See Note 9 for information regarding the impact on the Company's condensed consolidated financial statements.
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40)-Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). ASU 2014-15 provides guidance to U.S. GAAP about management’s responsibility to evaluate whether there is a substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Specifically, ASU 2014-15 (1) defines the term substantial doubt, (2) requires an evaluation of every reporting period including interim periods, (3) provides principles for considering the mitigating effect of management’s plan, (4) requires certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) requires an express statement and other disclosures when substantial doubt is not alleviated, and (6) requires an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this update were effective for annual periods beginning after December 15, 2016 and interim periods within those reporting periods. The adoption of ASU 2014-15 did not change the Company’s conclusion of its ability to continue as a going concern.

ASUs to be adopted in future periods:

In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-07”). ASU 2017-07 provides guidance that require an employer to report the service cost component separate from the other components of net benefit pension costs. The employer is required to report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside the subtotal of income from operations, if one is presented. If a separate line item is not used, the line item used in the income statement must be disclosed. The amendments of this ASU are effective for annual reporting periods beginning after December 15, 2017 and interim periods within those years. Early adoption is permitted as of the beginning of an annual period for which financial statements (interim or annual) have not been issued or made available for issuance. Other than the revised statement of operations presentation, the adoption of ASU 2017-07 is not expected to have a material impact on the Company's condensed consolidated financial statements. The Company does not plan to early adopt ASU 2017-07.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) (“ASU 2016-18”). ASU 2016-18 provides guidance on the classification of restricted cash to be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts on the statement of cash flows. This pronouncement is effective for reporting periods beginning after December 15, 2017 using a retrospective adoption method and early adoption is permitted. The Company is currently assessing the impact the adoption of ASU 2016-18 will have on the Company’s condensed consolidated financial statements and does not plan to early adopt ASU 2016-18.
In August 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 is intended to reduce diversity in practice on how certain cash receipts and payments are presented and classified in the statement of cash flows. The standard provides guidance in a number of situations including, among others, settlement of zero-coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, and distributions received from equity method investees. ASU 2016-15 also provides guidance for classifying cash receipts and payments that have aspects of more than one class of cash flows. ASU 2016-15 is effective for the Company's fiscal year beginning January 1, 2018. Early adoption is permitted. The standard requires application using a retrospective transition method. The Company is currently assessing the impact the adoption of ASU 2016-15 will have on the Company’s condensed consolidated financial statements and does not plan to early adopt ASU 2016-15.
In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”). ASU 2016-08 does not change the core principle of the guidance stated in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), (“ASU 2014-9”), instead, the amendments in this ASU are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations and whether an entity reports revenue on a gross or net basis. ASU 2016-08 will have the same effective date and transition requirements as the new revenue standard issued in ASU 2014-09. In May 2014, FASB issued ASU 2014-9 that outlines a new, single comprehensive model for entities to use in accounting for revenue arising from contracts with customers

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


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, 2017, with early adoption permitted for annual reporting periods beginning subsequent to December 15, 2016. The Company currently anticipates it will present the cumulative effect of initially applying the new standard at the date of initial application, however, this expectation may change following the completion of the Company's evaluation of the impact of this guidance on the Company's condensed consolidated financial statements and related disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (“ASU 2016-02”), which provides guidance for accounting for leases. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or on a straight line basis over the term of the lease. Accounting for lessors remains largely unchanged from current U.S. GAAP. ASU 2016-02 will be effective for the Company’s fiscal year beginning January 1, 2019 and subsequent interim periods. The Company is currently evaluating the impact the adoption of ASU 2016-02 will have on the Company's condensed consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”). ASU 2016-01 modifies how entities measure equity investments and present changes in the fair value of financial liabilities. Under the new guidance, entities will have to measure equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income unless the investments qualify for the new practicality exception. A practicality exception will apply to those equity investments that do not have a readily determinable fair value and do not qualify for the practical expedient to estimate fair value under ASC 820, Fair Value Measurements, and as such these investments may be measured at cost. ASU 2016-01 will be effective for the Company’s fiscal year beginning January 1, 2018 and subsequent interim periods. The Company is currently evaluating the impact the adoption of ASU 2016-01 will have on the Company’s condensed consolidated financial statements.


2.
INVENTORIES

Inventories consist of:
 
June 30,
2017
 
December 31,
2016
Leaf tobacco
$
40,378

 
$
46,253

Other raw materials
3,438

 
3,733

Work-in-process
390

 
633

Finished goods
69,010

 
65,052

Inventories at current cost
113,216

 
115,671

LIFO adjustments
(25,237
)
 
(25,837
)
 
$
87,979

 
$
89,834


All of the Company's inventories at June 30, 2017 and December 31, 2016 are reported under the LIFO method. The $25,237 LIFO adjustment as of June 30, 2017 decreases the current cost of inventories by $17,633 for Leaf tobacco, $213 for Other raw materials, $29 for Work-in-process and $7,362 for Finished goods. The $25,837 LIFO adjustment as of December 31, 2016 decreased the current cost of inventories by $17,632 for Leaf tobacco, $214 for Other raw materials, $29 for Work-in-process and $7,962 for Finished goods.

Liggett enters into purchase commitments with third-party providers for leaf tobacco. The future quantities of leaf tobacco and prices are established at the date of the commitments. At June 30, 2017, Liggett had tobacco purchase commitments of approximately $21,463. Liggett has a single source supply agreement for reduced ignition propensity cigarette paper through 2019.


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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


Each period, 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 $17,689 and $17,364 at June 30, 2017 and December 31, 2016, respectively. Federal excise tax in inventory was $28,949 and $25,888 at June 30, 2017 and December 31, 2016.


3.
INVESTMENT SECURITIES AVAILABLE FOR SALE

The components of investment securities available for sale at June 30, 2017 were as follows:

 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Marketable equity securities
$
35,425

 
$
12,427

 
$
(55
)
 
$
47,797

Mutual funds invested in fixed income securities
20,734

 
141

 
—

 
20,875

Marketable debt securities
77,201

 
350

 
—

 
77,551

Total investment securities available for sale
$
133,360

 
$
12,918

 
$
(55
)
 
$
146,223


The components of investment securities available for sale at December 31, 2016 were as follows:

 
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair
Value
Marketable equity securities
$
34,956

 
$
16,141

 
$
(254
)
 
$
50,843

Mutual funds invested in fixed income securities
20,507

 
81

 
(6
)
 
20,582

Marketable debt securities
85,297

 
181

 
—

 
85,478

Total investment securities available for sale
$
140,760

 
$
16,403

 
$
(260
)
 
$
156,903



The table below summarizes the maturity dates of marketable debt securities at June 30, 2017.

Investment Type:
Market Value
 
Under 1 Year
 
1 Year up to 5 Years
 
More than 5 Years
U.S. Government securities
$
28,527

 
$
—

 
$
28,527

 
$
—

Corporate securities
40,128

 
7,766

 
32,362

 
—

U.S. mortgage-backed securities
5,648

 
—

 
26

 
5,622

Commercial mortgage-backed securities
440

 
—

 
—

 
440

Index-linked U.S. bonds
2,307

 
—

 
2,307

 
—

Foreign fixed-income securities
501

 
—

 
501

 
—

Total marketable debt securities by maturity dates
$
77,551

 
$
7,766

 
$
63,723

 
$
6,062



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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


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:

 
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
June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
Marketable equity securities
$
5,945

 
$
(55
)
 
$
—

 
$
—

 
$
5,945

 
$
(55
)
 
$
5,945

 
$
(55
)
 
$
—

 
$
—

 
$
5,945

 
$
(55
)
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
Marketable equity securities
$
5,746

 
$
(254
)
 
$
—

 
$
—

 
$
5,746

 
$
(254
)
Mutual funds invested in fixed income securities
10,253

 
(6
)
 
—

 
—

 
10,253

 
(6
)
 
$
15,999

 
$
(260
)
 
$
—

 
$
—

 
$
15,999

 
$
(260
)

Unrealized losses from mutual funds invested in fixed-income securities are primarily attributable to changes in interest rates. Unrealized losses from equity securities are due to market price movements. The Company believes the unrealized losses associated with the Company's mutual funds and 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
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
Gross realized gains on sales
$
90

 
$
206

 
$
295

 
$
955

Gross realized losses on sales
(53
)
 
(67
)
 
(108
)
 
(249
)
Gains on sale of investment securities available for sale
$
37

 
$
139

 
$
187

 
$
706

 
 
 
 
 
 
 
 
Gross realized losses on other-than-temporary impairments
$
(87
)
 
$
(49
)
 
$
(126
)
 
$
(4,862
)
 

 

 

 


The Company recorded an “Other-than-temporary impairment” charge of $87 and $126 during the three and six months ended June 30, 2017, respectively. The Company recorded an “Other-than-temporary impairment” charge of $49 and $4,862 during the three and six months ended June 30, 2016, respectively. The largest component of the charge for the six months ended June 30, 2016 was $4,772 related to an investment in the common stock of Morgans Hotel Group Co. (“MHGC”), a company where Vector's President and Chief Executive Officer served as Chairman of the Board of Directors until December 1, 2016 when MHGC merged with another company. As a result, the common shares of MHGC ceased to be outstanding.
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.
Proceeds from investment securities sales totaled $22,396 and $67,033 and proceeds from early redemptions by issuers totaled $94,988 and $5,269 in the six months ended June 30, 2017 and 2016, respectively, mainly from the sales and redemptions of Corporate securities and U.S. Government securities.

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


4.
LONG-TERM INVESTMENTS

Long-term investments consisted of the following:
 
June 30, 2017
 
December 31, 2016
Investments accounted at cost
$
60,450

 
$
35,476

Investments accounted for under the equity method
14,721

 
17,721

 
$
75,171

 
$
53,197


(a) Cost-Method Investments:

Long-term investments accounted at cost consisted of the following:

 
June 30, 2017
 
December 31, 2016
 
Carrying
 
Fair
 
Carrying
 
Fair
 
Value
 
Value
 
Value
 
Value
Investment partnerships
$
60,450

 
$
68,857

 
$
34,975

 
$
40,569

Real estate partnership
—

 
—

 
501

 
494

 
$
60,450

 
$
68,857

 
$
35,476

 
$
41,063



The principal business of the investment partnerships is investing in investment securities. The estimated fair value of the investment partnerships was provided by the partnerships based on the indicated market values of the underlying assets or investment portfolio. The investments in these investment partnerships are illiquid and the ultimate realization of these investments is subject to the performance of the underlying partnership and its management by the general partners. In the future, the Company may invest in other investments, including limited partnerships, real estate investments, equity securities, debt securities, derivatives and certificates of deposit, depending on risk factors and potential rates of return.
If it is determined that an other-than-temporary decline in fair value exists in long-term investments, the Company records an impairment charge with respect to such investment in its consolidated statements of operations. The Company will continue to perform additional assessments to determine the impact, if any, on the Company’s condensed consolidated financial statements. Thus, future impairment charges may occur.
The Company has accounted for these investments using the cost method of accounting because the investments did not meet the requirements for equity method accounting.
The Company invested $25,000 in five new investments and made an additional contribution of $1,000 to one of its existing investments during the six months ended June 30, 2017. There were no cash contributions during the six months ended June 30, 2016. The Company received cash distributions of $663 and $1,000 from the Company's investments in long-term investments under the cost method for the six months ended June 30, 2017 and 2016, respectively.
The long-term investments are carried on the condensed consolidated balance sheet at cost. The fair value determination disclosed above would be classified as Level 3 under fair value hierarchy disclosed in Note 10 if such assets were recorded on the consolidated balance sheet at fair value. The fair value determinations disclosed above were based on company assumptions, and information obtained from the partnerships based on the indicated market values of the underlying assets of their investment portfolio.


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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited



(b) Equity-Method Investments:

Long-term investments accounted for under the equity method consisted of the following:
 
June 30,
2017
 
December 31, 2016
Indian Creek Investors LP ("Indian Creek")
$
3,209

 
$
5,248

Boyar Value Fund ("Boyar")
8,328

 
7,816

Ladenburg Thalmann Financial Services Inc. ("LTS")
3,184

 
4,657

Castle Brands, Inc. ("Castle")
—

 
—

 
$
14,721

 
$
17,721



At June 30, 2017, the Company's ownership percentages in Indian Creek, Boyar, LTS and Castle were 20.09%, 32.18%, 7.79% and 7.96%, respectively. The Company accounted for its Indian Creek and Boyar interests as equity-method investments because the Company's ownership percentage meets the threshold for equity-method accounting. The Company accounted for its LTS and Castle interests as equity-method investments because the Company has the ability to exercise significant influence over their operating and financial policies.
The value of Boyar, based on the quoted market price as of June 30, 2017, was $8,328, equal to its carrying value. Ladenburg Thalmann Fund Management, LLC, an indirect subsidiary of LTS, is the manager of Boyar.
At June 30, 2017, the aggregate values of the LTS and Castle investments based on the quoted market price were $37,067 and $21,794, respectively.
The principal business of Indian Creek is investing in investment securities. Fair value approximates carrying value. The estimated fair value of the investment partnership was provided by the partnership based on the indicated market values of the underlying assets or investment portfolio. The investment in the investment partnership is illiquid and the ultimate realization of the investment is subject to the performance of the underlying partnership and its management by the general partners.
The Company received cash distributions of $480 and $572 from the Company's investments in long-term investments under the equity method for the six months ended June 30, 2017 and 2016, respectively. The Company recognized equity in losses from investments under the equity method of $1,459 for the three months ended June 30, 2017 and equity in earnings from investments under the equity method of $1,089 for the three months ended June 30, 2016. The Company recognized equity in losses from investments under the equity method of $2,520 and $582 for the six months ended June 30, 2017 and 2016, respectively. The Company has suspended its recognition of equity in losses from Castle to the extent such losses exceed its basis.
If it is determined that an other-than-temporary decline in fair value exists in long-term investments, the Company records an impairment charge with respect to such investment in its condensed consolidated statements of operations. The Company will continue to perform additional assessments to determine the impact, if any, on the Company’s condensed consolidated financial statements. Thus, future impairment charges may occur.
The long-term investments are carried on the condensed consolidated balance sheet at cost under the equity method of accounting. The fair value determination disclosed above would be classified as Level 3 under fair value hierarchy disclosed in Note 10 if such assets were recorded on the condensed consolidated balance sheet at fair value.

5.
NEW VALLEY LLC

Investments in real estate ventures:

New Valley also holds equity investments in various real estate projects. The majority of New Valley's investment in real estate ventures were located in the New York City Standard Metropolitan Statistical Area ("SMSA"). New Valley aggregated the disclosure of its investments in real estate ventures by property type and operating characteristics.


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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


The components of “Investments in real estate ventures” were as follows:
 
Range of Ownership
 
June 30, 2017
 
December 31, 2016
Condominium and Mixed Use Development:
 
 
 
 
 
            New York City SMSA
3.1% - 49.5%
 
$
128,168

 
$
131,770

            All other U.S. areas
3.0% - 48.5%
 
26,615

 
40,950

 
 
 
154,783

 
172,720

Apartment Buildings:
 
 
 
 
 
            All other U.S. areas
7.6% - 16.3%
 
7,458

 
8,287

 
 
 
7,458

 
8,287

Hotels:
 
 
 
 
 
            New York City SMSA
5.2%
 
22,226

 
21,895

            International
49.0%
 
2,501

 
3,037

 
 
 
24,727

 
24,932

Commercial:
 
 
 
 
 
            New York City SMSA
49.0%
 
2,820

 
3,290

            All other U.S. areas
2.1%
 
9,844

 
10,000

 
 
 
12,664

 
13,290

 
 
 
 
 
 
Other
50.0%
 
1,724

 
2,029

Investments in real estate ventures
 
 
$
201,356

 
$
221,258


Contributions:

New Valley made contributions to its investments in real estate ventures as follows:
 
Six Months Ended June 30,
 
2017
 
2016
Condominium and Mixed Use Development:
 
 
 
            New York City SMSA
$
675

 
$
1,259

            All other U.S. areas
6,242

 
7,542

 
6,917

 
8,801

Hotels:
 
 
 
            New York City SMSA
1,537

 
2,515

            International
—

 
490

 
1,537

 
3,005

 
 
 
 
Total contributions
$
8,454

 
$
11,806


New Valley contributed its proportionate share of additional capital along with contributions by the other investment partners during the six months ended June 30, 2017 and June 30, 2016. New Valley did not elect to make certain capital contributions to Monad Terrace. This resulted in a change in ownership percentage from 24.3% to 22.2%. For other ventures where New Valley previously held an investment, New Valley contributed its proportionate share of additional capital along with contributions by the other investors. New Valley's direct investment percentage for these ventures did not change. 

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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


Distributions:

New Valley received distributions from its investments in real estate ventures as follows:
 
Six Months Ended June 30,
 
2017
 
2016
Condominium and Mixed Use Development:
 
 
 
            New York City SMSA
$
31,280

 
$
9,940

            All other U.S. areas
17,949

 
10,045

 
49,229

 
19,985

Apartment Buildings:
 
 
 
            All other U.S. areas
182

 
8,707

 
182

 
8,707

Hotels:
 
 
 
            International
239

 
—

 
239

 
—

Commercial:
 
 
 
            New York City SMSA
101

 
235

            All other U.S. areas
92

 
—

 
193

 
235

 
 
 
 
Other
1,150

 
1,049

Total distributions
$
50,993

 
$
29,976


Of the distributions received by New Valley from its investment in real estate ventures, $27,655 and $11,993 were from distributions of earnings for the six months ended June 30, 2017 and June 30, 2016, respectively, and $23,338 and $17,983 were a return of capital for the six months ended June 30, 2017 and June 30, 2016, respectively. Distributions from earnings are included in cash from operations in the Condensed Consolidating Statements of Cash Flows, while distributions that are returns of capital are included in cash flows from investing activities in the Condensed Consolidating Statements of Cash Flows.

18
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 earnings (losses) from real estate ventures as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2017
 
2016
 
2017
 
2016
Condominium and Mixed Use Development:
 
 
 
 
 
 
 
            New York City SMSA
$
17,116

 
$
3,279

 
$
29,296

 
$
2,610

            All other U.S. areas
(863
)
 
(317
)
 
(1,155
)
 
(831
)
 
16,253

 
2,962

 
28,141

 
1,779

Apartment Buildings:
 
 
 
 
 
 
 
            All other U.S. areas
(724
)
 
1,630

 
(647
)
 
2,146

 
(724
)
 
1,630

 
(647
)
 
2,146

Hotels:
 
 
 
 
 
 
 
            New York City SMSA
(519
)
 
(494
)
 
(1,206
)
 
(1,074
)
            International
254

 
305

 
(296
)
 
230

 
(265
)
 
(189
)
 
(1,502
)
 
(844
)
Commercial:
 
 
 
 
 
 
 
            New York City SMSA
(124
)
 
(1,744
)
 
(369
)
 
(1,532
)
            All other U.S. areas
(64
)
 
—

 
(64
)
 
—

 
(188
)
 
(1,744
)
 
(433
)
 
(1,532
)
 
 
 
 
 
 
 
 
Other
215

 
154

 
845

 
757

Equity in earnings from real estate ventures
$
15,291

 
$
2,813

 
$
26,404

 
$
2,306


Investment in Real Estate Ventures Entered into during 2017:

In March 2017, New Valley invested $1,170 for an approximate 3.0% interest in Witkoff GP Partners LLC. The purpose of the joint venture is to use contributed capital to invest in other real estate ventures. New Valley has invested an additional $4,286 as of June 30, 2017. The venture is a variable interest entity; however, New Valley is not the primary beneficiary. New Valley accounts for this investment under the equity method of accounting. New Valley's maximum exposure to loss as a result of its investment in Witkoff GP Partners LLC was $5,463 at June 30, 2017. New Valley has committed to contribute up to an additional $14,544 to the venture.

In April 2017, New Valley invested $402 for an approximate 9.8% interest in New Brookland East LLC. The joint venture plans to develop a condominium complex.  The venture is a variable interest entity; however, New Valley is not the primary beneficiary. New Valley accounts for this investment under the equity method of accounting. New Valley's maximum exposure to loss as a result of its investment in New Brookland East LLC was $410 at June 30, 2017.

VIE Consideration:

The Company has determined that New Valley is the primary beneficiary of two real state ventures because it controls the activities that most significantly impact economic performance of each of the two real estate ventures. Consequently, New Valley consolidates these variable interest entities ("VIEs").

The carrying amount of the consolidated assets of the VIEs was  $14,533 and $14,385 as of  June 30, 2017 and December 31, 2016, respectively. Those assets are owned by the VIEs, not the Company. Neither of the two consolidated VIEs had recourse liabilities as of June 30, 2017 and December 31, 2016. A VIE's assets can only be used to settle obligations of that VIE. The VIEs are not guarantors of the Company's senior notes and other debts payable.


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

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


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

Maximum Exposure to Loss:

New Valley's maximum exposure to loss was as follows:
 
June 30, 2017
Condominium and Mixed Use Development:
 
            New York City SMSA
$
129,745

            All other U.S. areas
32,377

 
162,122

Apartment Buildings:
 
            All other U.S. areas
7,458

 
7,458

Hotels:
 
            New York City SMSA
22,226

            International
2,501

 
24,727

Commercial:
 
            New York City SMSA
2,820

            All other U.S. areas
9,844

 
12,664

Other
1,724

Total maximum exposure to loss
$
208,695


For the six months ended June 30, 2017, New Valley recognized $3,766 of interest expense that was previously capitalized into the carrying value of its ventures. For the six months ended June 30, 2016, New Valley capitalized $4,836 of interest expense into the carrying value of its ventures whose projects were currently under development.

Douglas Elliman has been engaged by the developers as the sole broker or the co-broker for several of the real estate ventures that New Valley owns an interest. Douglas Elliman earned gross commissions of approximately $5,371 and $8,079 from these projects for the six months ended June 30, 2017 and June 30, 2016, respectively.

Combined Financial Statements for Unconsolidated Subsidiaries:
Pursuant to Rule 10-01(b), the following summarized financial data for unconsolidated subsidiaries includes information for the 10 Madison Square West Condominium and Mixed Use Development. New Valley has elected a one-month lag reporting period for 10 Madison Square West.

20
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited



Condominium and Mixed Use Development:

 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2017
 
2016
 
2017
 
2016
Income Statement
 
 
 
 
 
 
 
Revenue
$
102,039

 
$
196,658

 
$
162,364

 
$
258,584

Cost of sales
49,037

 
122,911

 
101,879

 
155,714

Other expenses
1,512

 
1,151

 
3,093

 
1,436

Income from continuing operations
$
51,490

 
$
72,596

 
$
57,392

 
$
101,434



Investments in Real Estate, net:

The components of “Investments in real estate, net” were as follows:
 
June 30,
2017
 
December 31,
2016
Escena, net
$
10,622

 
$
10,792

Sagaponack
13,053

 
12,848

            Investments in real estate, net
$
23,675

 
$
23,640


Escena.  The assets of “Escena, net” were as follows:
 
June 30,
2017
 
December 31,
2016
Land and land improvements
$
8,907

 
$
8,907

Building and building improvements
1,879

 
1,878

Other
2,058

 
2,028

 
12,844

 
12,813

Less accumulated depreciation
(2,222
)
 
(2,021
)
 
$
10,622

 
$
10,792


New Valley recorded operating losses of $345 and $299 for the three months ended June 30, 2017 and 2016, respectively, from Escena. New Valley recorded operating income of $207 and $209 for the six months ended June 30, 2017 and 2016, respectively, from Escena.

Investment in Sagaponack. In April 2015, New Valley 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 condensed consolidated financial statements of the Company. As of June 30, 2017, the assets of Sagaponack consisted of land and land improvements of $13,053.


21
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


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

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

 
June 30,
2017
 
December 31,
2016
Vector:
 
 
 
7.75% Senior Secured Notes due 2021, including premium of $13,954
$
—

 
$
848,954

6.125% Senior Secured Notes due 2025
850,000

 
—

7.5% Variable Interest Senior Convertible Notes due 2019, net of unamortized discount of $91,396 and $108,480*
138,604

 
121,520

5.5% Variable Interest Senior Convertible Debentures due 2020, net of unamortized discount of $62,852 and $71,247*
195,898

 
187,503

Liggett:
 
 
 
Revolving credit facility
18,810

 
37,163

Term loan under credit facility
2,852

 
2,999

Equipment loans
3,474

 
4,519

Other
512

 
591

Notes payable, long-term debt and other obligations
1,210,150

 
1,203,249

Less:
 
 
 
Debt issuance costs
(30,332
)
 
(30,798
)
Total notes payable, long-term debt and other obligations
1,179,818

 
1,172,451

Less:
 
 
 
Current maturities
(20,941
)
 
(39,508
)
Amount due after one year
$
1,158,877

 
$
1,132,943

______________________
* The fair value of the derivatives embedded within the 7.5% Variable Interest Senior Convertible Notes ($42,489 at June 30, 2017 and $52,899 at December 31, 2016, respectively) and the 5.5% Variable Interest Senior Convertible Debentures ($53,138 at June 30, 2017 and $59,433 at December 31, 2016, respectively), is separately classified as a derivative liability in the condensed consolidated balance sheets.
Senior Secured Notes - Vector:

7.75% Senior Secured Notes due 2021 - Vector:
In February 2013, the Company issued $450,000 of its 7.75% Senior Secured Notes due 2021. The aggregate net proceeds from the issuance of the 7.75% Senior Secured Notes were approximately $438,250 after deducting offering expenses. On April 15, 2014, the Company completed the sale of an additional $150,000 principal amount of its 7.75% Senior Secured Notes due 2021 for a price of 106.75%. The Company received net proceeds of approximately $158,670 after deducting underwriting discounts, commissions, fees and offering expenses. On May 9, 2016, the Company completed the sale of an additional $235,000 principal amount of its 7.75% Senior Secured Notes due 2021 for a price of 103.5%. The Company received net proceeds of approximately $236,900 after deducting underwriting discounts, commissions, fees and offering expenses.
The 7.75% Senior Secured Notes paid interest on a semi-annual basis at a rate of 7.75% per year and had a maturity date of February 15, 2021. The 7.75% Senior Secured Notes were guaranteed subject to certain customary automatic release provisions on a joint and several basis by all of the 100% owned domestic subsidiaries of the Company that are engaged in the conduct of the Company’s cigarette businesses. In addition, some of the guarantees were collateralized by second priority or first priority security interests in certain collateral of some of the subsidiary guarantors, including their common stock, pursuant to security and pledge agreements.
On January 27, 2017, the Company completed the sale of $850,000 of its 6.125% Senior Secured Notes due 2025 in a private offering to qualified institutional investors in accordance with Rule 144A of the Securities Act of 1933. The Company used the net cash proceeds from the 6.125% Senior Secured Notes offering, together with the proceeds of the concurrent sale of 2,000,000 of its common shares, to redeem all of the Company’s outstanding 7.75% Senior Secured Notes due 2021 and to satisfy and discharge the indenture governing the existing 7.75% Senior Secured Notes due 2021.

22
VECTOR GROUP LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(Dollars in Thousands, Except Per Share Amounts)
Unaudited


On February 26, 2017, the Company retired the outstanding $835,000 principal amount of its 7.75% Senior Secured Notes at a premium of 103.875%, plus accrued and unpaid interest. The Company accounted for the redemption of the 7.75% senior secured notes as an extinguishment of the debt. The Company incurred a loss on the extinguishment of debt of $34,110 for the six months ended June 30, 2017, which is comprised of $32,356 of redemption premium and tender offer costs as well as net non-cash charges of $1,754.

6.125% Senior Secured Notes due 2025 — Vector:
The aggregate net proceeds from the sale of the 6.125% Senior Secured Notes were approximately $831,100 after deducting underwriting discounts, commissions, fees and offering expenses. The 6.125% Senior Secured Notes pay interest on a semi-annual basis at a rate of 6.125% per year and mature on February 1, 2025. Prior to February 1, 2020, the Company may redeem some or all of the 6.125% Senior Secured Notes at any time at a make-whole redemption price and, thereafter, the Company may redeem some or all of the 6.125% Senior Secured Notes at a premium that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. In the event of a change of control, as defined in the indenture governing the 6.125% Senior Secured Notes, each holder of the 6.125% Senior Secured Notes may require the Company to repurchase some or all of its 6.125% Senior Secured Notes at a repurchase price equal to 101% of their aggregate principal amount plus accrued and unpaid interest, if any, to the date of purchase. If the Company sells certain assets and does not apply the proceeds as required pursuant to the indenture, it must offer to repurchase the 6.125% Senior Secured Notes at the prices listed in the indenture.
The 6.125% Senior Secured Notes are guaranteed subject to certain customary automatic release provisions on a joint and several basis by all of the wholly-owned domestic subsidiaries of the Company that are engaged in the conduct of the Company’s cigarette businesses. (See Note 12.) In addition, some of the guarantees are collateralized by first priority or second priority security interests in certain assets of some of the subsidiary guarantors, including their common stock, pursuant to security and pledge agreements.
The indenture contains covenants that restrict the payment of dividends by the Company if the Company's consolidated earnings before interest, taxes, depreciation and amortization, as defined in the indenture, for the most recently ended four full quarters is less than $75,000. The indenture also restricts the incurrence of debt if the Company's Leverage Ratio and its Secured Leverage Ratio, as defined in the indenture, exceed 3.0 and 1.5, respectively. The Company's Leverage Ratio is defined in the indenture as the ratio of the Company's and the guaranteeing subsidiaries' total debt less the fair market value of the Company's cash, investments in marketable securities and long-term investments to Consolidated EBITDA, as defined in the indenture. The Company's Secured Leverage Ratio is defined in the indenture in the same manner as the Leverage Ratio, except that secured indebtedness is substituted for indebtedness. As of June 30, 2017, the Company was in compliance with all debt covenants.
Variable Interest Senior Convertible Debt — Vector:

Share Lending Agreement:

In connection with the offering of its 2019 Convertible Notes in November 2012, the Company lent Jefferies & Company (“Jefferies”), the underwriter for the offering, shares of the Company’s common stock under the Share Lending Agreement. As of June 30, 2017, 774,479 shares were outstanding on the Share Lending Agreement. The fair value of the outstanding shares was $16,512. During the six months ended June 30, 2017, 805,400 shares were returned but no cash was exchanged. The issuance costs associated with the Share Lending Agreement were presented on the balance sheet as a direct deduction from the face amount of the related debt. The unamortized amount of these issuance costs was $1,803 and $2,140 at June 30, 2017 and December 31, 2016, respectively.


23
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 June 30, 2017 and December 31, 2016, are summarized below:
 
June 30, 2017
 
December 31, 2016
 
Conversion Price
 
Shares per $1,000
 
Conversion Price
 
Shares per $1,000
 
 
 
 
 
 
 
 
7.5% Variable Interest Senior Convertible Notes due 2019
$
15.22

 
65.7030

 
$
15.22

 
65.7030

5.5% Variable Interest Senior Convertible Debentures due 2020
$
23.46

 
42.6185

 
$
23.46

 
42.6185


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

As of June 30, 2017, a total of $21,662 was outstanding under the revolving and term loan portions of the credit facility. Availability, as determined under the facility, was approximately $28,700 based on eligible collateral at June 30, 2017.

Non-Cash Interest Expense and Loss on Extinguishment of Debt - Vector:

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2017
 
2016
 
2017
 
2016
Amortization of debt discount, net
$
13,426

 
$
8,653

 
$
25,262

 
$
16,609

Amortization of debt issuance costs
2,233

 
1,401

 
4,233

 
2,569

Loss on extinguishment of 7.75% Senior Secured Notes
—

 
—

 
1,754

(1)
—


$
15,659

 
$
10,054

 
$
31,249

 
$
19,178

______________________
(1) The non-cash loss on extinguishment of the 7.75% Senior Secured Notes is a component of the $34,110 loss on the extinguishment of debt.


Fair Value of Notes Payable and Long-Term Debt:

 
June 30, 2017
 
December 31, 2016
 
Carrying
 
Fair
 
Carrying
 
Fair
 
Value
 
Value
 
Value
 
Value
Notes payable and long-term debt