(in thousands of dollars, except per share amounts)
Overview
We are a holding company and are primarily engaged in two business areas:
•Tobacco: the manufacture and sale of cigarettes in
•Real Estate: the real estate investment business through our subsidiary,New Valley LLC , which (i) has interests in numerous real estate projects acrossthe United States and (ii) is seeking to acquire or invest in additional real estate properties or projects.
Cigarettes from our tobacco subsidiaries are produced in 100 length, style and wrapper combinations. Liggett’s current brand portfolio includes:
•Eagle 20's •Pyramid •Montego
• Grand Prix, Liggett Select,
The discount segment is a challenging marketplace, with consumers having less brand loyalty and placing greater emphasis on price. Liggett's competition is divided into two segments. The first segment consists of the three largest manufacturers of cigarettes inthe United States :Philip Morris USA Inc. , which is owned by Altria Group, Inc.,RJ Reynolds Tobacco Company , which is owned by British American Tobacco Plc, andITG Brands LLC , which is owned by Imperial Brands Plc. These three manufacturers, while primarily premium cigarette-based companies, also produce and sell discount cigarettes. The second segment of competition is comprised of a group of smaller manufacturers and importers, most of which sell deep discount cigarettes.
See section 1. “Business” for a detailed overview and description of our principal businesses.
The financial results ofDouglas Elliman through the distribution date are presented as income (loss) from discontinued operations, net of income taxes on our consolidated statements of operations and are not included in our results from continuing operations discussed below. See Note 6.
COVID-19 pandemic and current business and industry trends
The COVID-19 pandemic continues to evolve and disrupt normal activities in many segments of theU.S. economy even as COVID-19 vaccines have been and continue to be administered. Many uncertainties continue to surround the pandemic, including risks associated with the timing and extent of vaccine administration and the impact of COVID-19 variants, the duration of the pandemic and the length of immunity. The following provides a summary of our actions in our two segments - Tobacco and Real Estate - since COVID-19 was declared a pandemic inMarch 2020 . Impact of COVID-19 on Tobacco Segment. We believe many tobacco consumers have had incremental discretionary spending availability during the COVID-19 pandemic as a result of a variety of factors, including federal government stimulus payments and enhanced unemployment benefit payments enacted in response to the COVID-19 pandemic, and lower non-tobacco discretionary spending due to stay-at-home practices. Although our Tobacco segment has not experienced a material adverse impact to date from the COVID-19 pandemic, there is continued uncertainty as to how the COVID-19 pandemic (including vaccine administration and the impact of variants as well as changes in COVID-19-related restrictions and guidelines) may impact tobacco consumers in the future. The majority 32 -------------------------------------------------------------------------------- Table of Contents of retail stores in which our tobacco products are sold, including convenience stores, have been deemed to be essential businesses by authorities and have remained open. Our management also continues to monitor the macroeconomic risks of the COVID-19 pandemic and its effect on tobacco consumer purchasing behaviors, including the mix of between premium and discount brand purchases. Our Montego brand is priced in the deep discount category and our other brands are primarily priced in the traditional discount category. To date, we have not experienced any material disruptions to our supply or distribution chains and have not experienced any material adverse effects associated with governmental actions to restrict consumer movement or business operations. However, our suppliers and members of our distribution chain may be subject to government action requiring facility closures, vaccine mandates, remote working protocols and labor shortages. We continue to monitor the risk that a supplier, a distributor or any other entity within our supply and distribution chain closes temporarily or permanently. Impact of COVID-19 on Real Estate Segment. New Valley has investments in multiple real estate ventures and properties in theNew York metropolitan area, which had a carrying value of$24,289 atDecember 31, 2021 . Published reports and data indicate that theNew York metropolitan area was initially impacted more than any other area inthe United States . Consequently, various governmental agencies in theNew York metropolitan area and in other markets where New Valley invests, instituted quarantines, "pause" orders, "shelter-in-place" rules, restrictions on travel and restrictions on the types of businesses that could operate. These restrictions adversely impacted New Valley's investment's ability to conduct business during the year endedDecember 31, 2020 and, in particular fromMarch 2020 toOctober 2020 .
There remain significant uncertainties related to the COVID-19 pandemic, including the impact of COVID-19 variants, the duration of the pandemic, and the duration of immunity. See “Risk Factors”.
RECENT DEVELOPMENTS
Spin-off of Douglas Elliman Inc. OnDecember 29, 2021 , at11:59 p.m. ,New York City time, we completed the distribution to our stockholders (including Vector common stock underlying outstanding stock option awards and restricted stock awards) of the common stock of Douglas Elliman. Each holder of Vector common stock received one share of Douglas Elliman's common stock for every two shares of Vector common stock (including Vector common stock underlying outstanding stock option awards and restricted stock awards) held of record as of the close of business,New York City time, onDecember 20, 2021 (the "Spin-off"). In the Spin-off, an aggregate of 77,720,159 shares of Douglas Elliman's common stock were issued, with fractional shares converted to cash and paid to applicable Vector stockholders. We incurred significant costs in connection with the Spin-off. These costs include fees for third-party advisory, consulting, legal and professional services, as well as other items that are incremental and one-time in nature. We expensed$10,468 for the year endedDecember 31, 2021 . We also recorded expenses of$4,317 associated with the acceleration of stock compensation in connection with the Spin-off The expenses are reflected in operating, selling, administrative and general expenses. For the three years endedDecember 31, 2021 , the financial results of Douglas Elliman through the date of the Distribution are presented as income (loss) from discontinued operations, net of income taxes on our consolidated statements of operations and are not included in our results from continuing operations discussed below. See Note 6. Issuance of Senior Secured Notes due 2029. InJanuary 2021 , we issued$875,000 in aggregate principal of our 5.75% Senior Secured Notes due 2029 ("5.75% Senior Secured Notes") in a private offering that is exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), to qualified institutional buyers in accordance with Rule 144A under the Securities Act and to persons outsidethe United States in compliance with Regulation S under the Securities Act. The 5.75% Senior Secured Notes pay interest on a semi-annual basis at a rate of 5.75% per year and mature onFebruary 1, 2029 . Prior toFebruary 1, 2024 , we may redeem some or all of the 5.75% Senior Secured Notes at any time at a make-whole redemption price and, thereafter, we may redeem some or all of the 5.75% Senior Secured Notes at a premium that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. The aggregate net proceeds from the issuance of the 5.75% Senior Secured Notes were approximately$855,500 after deducting offering expenses. We used the net proceeds of the issuance, together with cash on hand, to redeem all of our outstanding 6.125% Senior Secured Notes due 2025, including accrued interest and any premium thereon, and to pay fees and expenses in connection with the offering of the 5.75% Senior Secured Notes.
Liggett Credit Facility. At
The existing credit agreement has been amended to, among other things, (i) add Vector Tobacco as a borrower under the updated credit agreement, (ii) extend the term of the credit to
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the maximum line of credit thereunder from
Montego. SinceAugust 2020 , Liggett has expanded the distribution of its Montego deep discount brand into a total 35 states. Montego was Liggett's third-largest brand for the year endedDecember 31, 2021 . Prior toAugust 2020 , Montego was sold in select targeted markets in four states. Montego's volume represented approximately 16% of Liggett's unit volume for the year endedDecember 31, 2021 compared to approximately 6% for the year endedDecember 31, 2020 .
Recent Developments in Tobacco Litigation
The cigarette industry continues to be challenged on numerous fronts. New cases continue to be commenced against Liggett and other cigarette manufacturers. Liggett could be subjected to substantial liabilities and bonding requirements from litigation relating to cigarette products. Adverse litigation outcomes could have a negative impact on our ability to operate due to their impact on cash flows. It is possible that there could be adverse developments in pending cases including the certification of additional class actions. An unfavorable outcome or settlement of pending tobacco-related litigation could encourage the commencement of additional litigation. In addition, an unfavorable outcome in any tobacco-related litigation could have a material adverse effect on our consolidated financial position, results of operations or cash flows. Liggett could face difficulties in obtaining a bond to stay execution of a judgment pending appeal. Mississippi Dispute. InJanuary 2016 , the Attorney General forMississippi filed a motion inChancery Court inJackson County, Mississippi to enforce theMarch 1996 settlement agreement (the "1996 Agreement") alleging that Liggett owesMississippi at least$27,000 in compensatory damages and interest. InApril 2017 , theChancery Court ruled, over Liggett's objections, that the 1996 Agreement should be enforced asMississippi claims and referred the matter first to arbitration and then to a Special Master for further proceedings to determine the amount of damages, if any, to be awarded. InApril 2021 , following confirmation of the final arbitration award, the parties stipulated that the unpaid principal (exclusive of interest) purportedly due from Liggett toMississippi pursuant to the 1996 Agreement was approximately$16,700 , subject to Liggett's right to litigate and/or appeal the enforceability of the 1996 Agreement (and all issues other than the calculation of the principal amount allegedly due). InSeptember 2019 , the Special Master held a hearing regardingMississippi's claim for pre- and post-judgment interest. InAugust 2021 , the Special Master issued a final report with proposed findings and recommendations that pre-judgment interest, in the amount of approximately$18,800 , is due from Liggett fromApril 2005 -August 3, 2021 . Liggett filed formal objections to the final report inMississippi Chancery Court . A ruling is pending. If theMississippi Chancery Court rejects Liggett's objections and enters final judgment adopting the Special Master's findings and recommendations, additional interest amounts will accrue if the judgment is not overturned on appeal. Liggett continues to assert that theApril 2017 Chancery Court order is in error because the most favored nations provision in the 1996 Agreement eliminated all of Liggett's payment obligations toMississippi , and has reserved all rights to appeal this and other issues at the conclusion of the case. In the event Liggett appeals an adverse judgment, the posting of a bond will likely be required. Liggett may be required to make additional payments toMississippi which could have a material adverse effect on our consolidated financial position, results of operations and cash flows.
See “Laws and Regulations” in Section 7 of the MD&A for further information on litigation.
Critical Accounting Policies General. The preparation of financial statements in conformity with accounting principles generally accepted inthe United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Significant estimates subject to material changes in the near term include impairment charges, valuation of intangible assets, promotional accruals, actuarial assumptions of pension plans, deferred tax liabilities, settlement accruals, valuation of investments, including other-than-temporary impairments to such investments, and litigation and defense costs. Actual results could differ from those estimates. Revenue Recognition. Revenue is measured based on a consideration specified in a contract with a customer and excludes any sales incentives. Revenue is recognized when (a) an enforceable contract with a customer exists, that has commercial substance, and collection of substantially all consideration for services is probable; and (b) the performance obligations to the customer are satisfied either over time or at a point in time. Revenue from cigarette sales, which include federal excise taxes billed to customers, are recognized upon shipment of cigarettes when control has passed to the customer. Average collection terms for Tobacco sales range between three and twelve 34
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days from the time cigarettes are shipped to the customer. We record a liability
for goods estimated to be returned in other current liabilities and the
associated receivable for anticipated federal excise tax refunds in other
current assets on the consolidated balance sheets. The allowance for returned
goods is based principally on sales volumes and historical return rates. The
estimated costs of sales incentives, including customer incentives and trade
promotion activities, are based principally on historical experience and are
accounted for as reductions in Tobacco revenue. Expected payments for sales
incentives are included in other current liabilities on our consolidated balance
sheets. We account for shipping and handling costs as fulfillment costs as part
of cost of sales.
Revenue from facilities primarily relates to Escena and consists of revenues
from food and beverage sales, fees charged for gameplay and the sale of golf
related equipment and apparel. Revenue is recognized at the time of sale.
Revenue from investments in real estate is recognized from land and building
sales at the time of the closing of a sale, which is typically when cash is due,
the performance obligation is satisfied as the title to and possession of the
real estate asset are transferred to the buyer and we have no further
obligations or involvement in the real estate asset.
Leases. Under Accounting Standards Committee ("ASC") 842, we determine if an
arrangement is a lease at contract inception. At lease commencement, we record
and recognize right-of-use ("ROU") assets for the lease liability amount and
initial direct costs incurred, offset by lease incentives received. We record
lease liabilities for the net present value of future lease payments over the
lease term. The discount rate we use is generally our estimated incremental
borrowing rate unless the lessor's implicit rate is readily determinable. We
calculate discount rates periodically to estimate the rate we would pay to
borrow the funds necessary to obtain an asset of similar value, over a similar
term, with a similar security. The lease terms may include options to extend or
terminate the lease when it is reasonably certain that we will exercise that
option. We recognize operating lease expense on a straight-line basis over the
lease term. We recognize finance lease cost on a straight-line basis over the
shorter of the useful life of the asset and the lease term. Operating leases are
included in operating lease ROU assets and lease liabilities on the consolidated
balance sheets. Finance leases are included in investments in real estate, net,
property, plant and equipment and current and long-term portions of notes
payable and long-term debt on the consolidated balance sheets.
Contingencies. We record Liggett's product liability legal expenses and other
litigation costs as operating, selling, administrative and general expenses as
those costs are incurred. As discussed in Note 15 to our consolidated financial
statements, legal proceedings regarding Liggett's tobacco products are pending
or threatened in various jurisdictions against Liggett and us.
We record provisions in our consolidated financial statements for pending
litigation when we determine that an unfavorable outcome is probable and the
amount of loss can be reasonably estimated. At the present time, while it is
reasonably possible that an unfavorable outcome in a case may occur, except as
discussed in Note 15 to our consolidated financial statements and discussed
below related to the 16 cases where an adverse verdict was entered against
Liggett: (i) management has concluded that it is not probable that a loss has
been incurred in any of the pending tobacco-related cases; or (ii) management is
unable to reasonably estimate the possible loss or range of loss that could
result from an unfavorable outcome of any of the pending tobacco-related cases
and, therefore, management has not provided any amounts in the consolidated
financial statements for unfavorable outcomes, if any. Legal defense costs are
expensed as incurred.
Although Liggett has generally been successful in managing litigation in the
past, litigation is subject to uncertainty and significant challenges remain,
particularly with respect to the Engle progeny cases.
A reader of this Form 10-K should not infer from the absence of any reserve in
our consolidated financial statements that we will not be subject to significant
tobacco-related liabilities in the future. Litigation is subject to many
uncertainties, and it is possible that our consolidated financial position,
results of operations or cash flows could be materially adversely affected by an
unfavorable outcome in any such tobacco-related litigation.
There may be several other proceedings, lawsuits and claims pending against us
and certain of our consolidated subsidiaries unrelated to tobacco or tobacco
product liability. We are of the opinion that the liabilities, if any,
ultimately resulting from such other proceedings, lawsuits and claims should not
materially affect our financial position, results of operations or cash flows.
Master Settlement Agreement. As discussed in Note 15 to our consolidated
financial statements, Liggett and Vector Tobacco are participants in the Master
Settlement Agreement ("MSA"). Liggett and Vector Tobacco have no payment
obligations under the MSA except to the extent their market shares exceed
approximately 1.65% and 0.28%, respectively, of total cigarettes sold in the
United States . Their obligations, and the related expense charges under the MSA,
are subject to adjustments based upon, among other things, the volume of
cigarettes sold by Liggett and Vector Tobacco, their relative market shares and
inflation. Since relative market shares are based on cigarette shipments, the
best estimate of the allocation of charges under the MSA is recorded in cost of
goods sold as the products are shipped. Settlement expenses under the MSA
recorded in the accompanying consolidated statements of operations were $171,058
for 2021, $175,837 for 2020 and $165,471 for 2019.
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Adjustments to these estimates are recognized in the period when the change becomes probable and the amount can be reasonably estimated.
Stock-Based Compensation. Our stock-based compensation uses a fair-value-based method to recognize non-cash compensation expense for share-based transactions. Under the fair value recognition provisions, we recognize stock-based compensation net of an estimated forfeiture rate and only recognize compensation cost for those shares expected to vest on a straight-line basis over the requisite service period of the award. We recognized stock-based compensation expense of$849 ,$1,428 and$1,923 in 2021, 2020 and 2019, respectively, related to the amortization of stock option awards and$13,949 ,$7,546 and$7,705 , respectively, related to the amortization of restricted stock grants. As ofDecember 31, 2021 and 2020, there was$381 and$1,229 , respectively, of total unrecognized cost related to employee stock options and$10,627 and$12,081 , respectively, of total unrecognized cost related to restricted stock grants. See Note 14 to our consolidated financial statements. Employee Benefit Plans. The determination of our net pension and other postretirement benefit income or expense is dependent on our selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions include, among others, the discount rate, expected long-term rate of return on plan assets and rates of increase in compensation and healthcare costs. We determine discount rates by using a quantitative analysis that considers the prevailing prices of investment grade bonds and the anticipated cash flow from our two qualified defined benefit plans and our postretirement medical and life insurance plans. These analyses construct a hypothetical bond portfolio whose cash flow from coupons and maturities match the annual projected cash flows from our pension and retiree health plans. As ofDecember 31, 2021 , our benefit obligations were computed assuming a discount rate between 1.80% - 2.85%. As ofDecember 31, 2021 , our service cost was computed assuming a discount rate of 1.40% - 2.55%. In determining our expected rate of return on plan assets, we consider input from our external advisors and historical returns based on the expected long-term rate of return which is the weighted average of the target asset allocation of each individual asset class. Our actual 10-year annual rate of return on our pension plan assets was 7.74%, 6.91% and 7.59% for the years endedDecember 31, 2021 , 2020 and 2019, respectively, and our actual five-year annual rate of return on our pension plan assets was 7.86%, 7.51% and 5.41% for the years endedDecember 31, 2021 , 2020 and 2019, respectively. In computing expense for the year endedDecember 31, 2022 , we will use an assumption of a 3.5% annual rate of return on our pension plan assets. In accordance with GAAP, actual results that differ from our assumptions are accumulated and amortized over future periods and therefore, generally affect our recognized income or expense in such future periods. While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our future net pension and other postretirement benefit income or expense. Net pension expense for defined benefit pension plans and other postretirement expense was$1,390 ,$4,210 and$2,834 for the years endedDecember 31, 2021 , 2020 and 2019, respectively, and we currently anticipate benefit expense will be approximately$1,358 for 2022. In contrast, our funding obligations under the pension plans are governed by the Employee Retirement Income Security Act ("ERISA"). To comply with ERISA's minimum funding requirements, we do not currently anticipate that we will be required to make any funding to the tax qualified pension plans for the pension plan year beginning onJanuary 1, 2022 and ending onDecember 31, 2022 .Long-Term Investments and Impairments. AtDecember 31, 2021 , our long-term investments were comprised of$32,089 of equity securities at fair value that qualify for the net asset value ("NAV") practical expedient and$20,984 of long-term investments that were accounted for under the equity method. Our investments in equity securities at fair value that qualify for the NAV practical expedient consisted primarily of investment partnerships investing in investment securities. 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. The estimated fair value of these investments was provided by the partnerships based on the indicated market values of the underlying assets or investment portfolio. Our investments accounted for under the equity method included interests in partnerships in which we have the ability to exercise significant influence over their operating and financial policies. The estimated fair value of the investments is either provided by the partnerships based on the indicated market values of the underlying assets or is calculated internally based on the number of shares owned and the equity in earnings or losses and interest income we recognize on the investment. Gains are recognized when realized in our consolidated statement of operations. Losses are recognized as realized or upon the determination of the occurrence of an other-than-temporary decline in fair value. Pursuant to the amendments provided by ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities ("ASU 2016-01"), our long-term investments that qualify for the NAV practical expedient are measured at fair value with changes in fair value recognized in net income. Therefore, impairment analyses for these investments are no longer warranted. AtDecember 31, 2021 , we also had$5,200 of investments in various limited liability companies that were classified as equity securities without readily determinable fair values that do not qualify for the NAV practical expedient. The investments are included in "Other assets" on the consolidated balance sheets and are valued at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment. On a quarterly basis, we evaluate our investments to determine if there are indicators of impairment. If so, we also make a determination of whether there is an impairment and if it is considered temporary or other than temporary. We believe that the assessment of 36
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temporary or other-than-temporary impairment is facts-and-circumstances driven. The impairment indicators that are taken into consideration as part of our analysis include (a) a significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee, (b) a significant adverse change in the regulatory, economic, or technological environment of the investee, (c) a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates, and (d) factors that raise significant concerns about the investee's ability to continue as a going concern, such as negative cash flows from operations, working capital deficiencies, or noncompliance with statutory capital requirements or debt covenants. Current Expected Credit Losses. OnJanuary 1, 2020 , we adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, therefore, our measurement of credit losses for most financial assets and certain other instruments has been modified as discussed in Note 3 to our consolidated financial statements.
• Tobacco receivables: average collection times for tobacco sales vary between three and twelve days from the time the cigarettes are shipped to the customer. Based on Tobacco’s historical and ongoing cash collections from customers, an estimated credit loss in accordance with ASU 2016-13 has not been recorded for these trade receivables as of
•Term loan receivables: New Valley provides term loans to real estate developers, which are included in Other assets on the consolidated balance sheets. The loans are secured by guarantees and are evaluated individually. Because New Valley does not have internal historical loss information by which to evaluate the risk of credit losses, external market data measuring default risks on high yield loans as of each measurement date was utilized to estimate reserves for credit losses on these loans. New Valley's expected credit loss estimate was$3,100 as of adoption (January 1, 2020 ). New Valley's expected credit loss estimate was$15,928 as ofDecember 31, 2021 . Intangible Assets. Intangible assets with indefinite lives are not amortized, but instead are tested for impairment on an annual basis, or whenever events or changes in business circumstances indicate the carrying value of the assets may not be recoverable. Our intangible asset associated with the benefit under the MSA is related to Vector Tobacco. The fair value of the intangible asset associated with the benefit under the MSA is determined using discounted cash flows. This approach involves two steps: (i) estimating future cash savings due to the payment exemption under the MSA and (ii) discounting the resulting cash flow savings to determine fair value. This fair value is then compared with the carrying value of the intangible asset associated with the benefit under the MSA. To the extent that the carrying amount exceeds the implied fair value of the intangible asset, an impairment loss is recognized. We performed its impairment test for the year endedDecember 31, 2021 and no impairment was noted. Income Taxes. The application of income tax law is inherently complex. Laws and regulations in this area are voluminous and are often ambiguous. As such, we are required to make many subjective assumptions and judgments regarding our income tax exposures. Interpretations of and guidance surrounding income tax laws and regulations change over time and, as a result, changes in our subjective assumptions and judgments may materially affect amounts recognized in our consolidated financial statements.
See Note 13 to our consolidated financial statements for additional information regarding our accounting for income taxes and uncertain tax positions.
Operating results
The following discussion provides an assessment of our results of operations, capital resources and liquidity and should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this report. The consolidated financial statements include the accounts of Liggett, Vector Tobacco,Liggett Vector Brands , New Valley, and other less significant subsidiaries. Our business segments were Tobacco and Real Estate for the three years endedDecember 31, 2021 , 2020 and 2019. The Tobacco segment consists of the manufacture and sale of cigarettes.The Real Estate segment includes our investment inNew Valley , which includes Escena and investments in real estate ventures. The accounting policies of the segments are the same as those described in the summary of significant accounting policies and can be found in Note 1 to our consolidated financial statements. 37
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Year Ended December 31,
2021 2020 2019
(Dollars in thousands)
Revenues:
Tobacco $ 1,202,497 $ 1,204,501 $ 1,114,840
Real Estate 18,203 24,181 4,763
Total revenues $ 1,220,700 $ 1,228,682 $ 1,119,603
Operating income (loss):
Tobacco $ 360,317 (1) $ 319,536 (2) $ 261,630 (3)
Real Estate 4,066 (610) 550
Corporate and Other (43,944) (4) (24,498) (5) (27,565)
Total operating income $ 320,439 $ 294,428 $ 234,615
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(1)Operating income includes $211 of litigation settlement and judgment expense
and $2,722 received from a litigation settlement associated with the MSA (which
reduced cost of sales).
(2) Operating income includes
(3) Operating income includes
(4)Operating loss includes transaction charges of$10,468 and accelerated stock compensation of$4,317 related to the spin-off of Douglas Elliman; and$910 of gain on sale of assets.
(5) Operating loss includes
2021 Compared to 2020
Revenues. Total revenues were$1,220,700 for the year endedDecember 31, 2021 compared to$1,228,682 for the year endedDecember 31, 2020 . The$7,982 (0.6%) decline in revenues was due to a$2,004 decline in Tobacco revenues related to lower unit volume, partially offset by increases in net pricing and a$5,978 decline in Real Estate revenues, primarily related to the absence of the$20,500 sale of an investment in real estate located inSagaponack, NY , offset by the$12,850 sale of investments in real estate in the current period. Cost of sales. Total cost of sales was$769,542 for the year endedDecember 31, 2021 compared to$819,602 for the year endedDecember 31, 2020 . The$50,060 (6.1%) decline in cost of sales was due to a$37,889 decline in Tobacco cost of sales related to decreased sales volume and a$12,171 decline in Real Estate cost of sales. Expenses. Operating expenses were$130,719 for the year endedDecember 31, 2021 compared to$114,652 for the year endedDecember 31, 2020 . The$16,067 (14.0%) increase was due to a$19,446 increase in Corporate and Other expense and a$1,517 increase in Real Estate expenses. This was offset by a$4,896 decline in Tobacco expenses for the year endedDecember 31, 2021 . The increase in Corporate and Other expense included transaction charges of$10,468 related to the spin-off of Douglas Elliman. Operating income. Operating income was$320,439 for the year endedDecember 31, 2021 compared to$294,428 for the year endedDecember 31, 2020 , an increase of$26,011 (8.8%). Tobacco operating income increased by$40,781 and Real Estate operating income increased by$4,676 . This was offset by an increased Corporate and Other operating loss of$19,446 . Other expenses. Other expenses were$110,478 and$113,385 for the years endedDecember 31, 2021 and 2020, respectively. For the year endedDecember 31, 2021 , other expenses primarily consisted of interest expense of$112,728 and loss on extinguishment of debt of$21,362 . This was offset by equity in earnings from real estate ventures of$10,250 , other income of$10,687 , and equity in earnings from investments of$2,675 . For the year endedDecember 31, 2020 , other expenses primarily consisted of interest expense of$121,278 , equity in losses from real estate ventures of$44,728 , and other expenses of$8,646 . This was offset by income of equity in earnings from investments of$56,268 and$4,999 from changes in fair value of derivatives embedded within convertible debt.
Earnings before provision for income taxes. Earnings before income taxes were
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Income tax expense. Income tax expense was$62,807 for the year endedDecember 31, 2021 compared to income tax expense of$54,121 for the year endedDecember 31, 2020 . Our income tax rates for the years endedDecember 31, 2021 and 2020 do not bear a customary relationship to statutory income tax rates as a result of the impact of nondeductible expenses, state income taxes, changes in valuation allowances, and excess tax benefits on stock-based compensation.
The tobacco.
Tobacco revenues. Liggett increased the list price of Eagle 20's, Pyramid, Liggett Select, Eve andGrand Prix by$0.15 per pack inJanuary 2022 ,$0.15 per pack inSeptember 2021 ,$0.14 per pack inJune 2021 ,$0.14 per pack inJanuary 2021 ,$0.13 per pack inNovember 2020 ,$0.11 per pack inJune 2020 , and$0.08 per pack inFebruary 2020 . Liggett increased the list price of Montego by$0.10 per pack inJanuary 2022 . All of our Tobacco sales were in the discount category in 2021 and 2020. For the year endedDecember 31, 2021 , Tobacco revenues were$1,202,497 compared to$1,204,501 for the year endedDecember 31, 2020 . Revenues declined by$2,004 (0.2%) due to declines in unit sales volume offset by a favorable price variance for the year endedDecember 31, 2021 . The decline in sales volume (535.5 million units) resulted in an unfavorable variance of$70,378 , while the higher selling prices resulted in a favorable price variance of$68,374 . Tobacco cost of sales. The major components of our Tobacco cost of sales were as follows: Year Ended December 31, 2021 2020 Manufacturing overhead, raw materials and labor$ 121,424 $ 128,091 Federal excise taxes 434,695 461,532 FDA expense 23,832 24,842 MSA expense, net of market share exemption 171,058 (1) 175,837 Customer shipping and handling 7,006 5,602 Total cost of sales$ 758,015 $ 795,904
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(1)Includes
The Tobacco segment's MSA expense is included in cost of sales. Under the terms of the MSA, we have no payment obligations except to the extent that our tobacco subsidiaries' market share of theU.S. cigarette market exceeds 1.92%. The calculation of this benefit from the MSA is an estimate based on taxable unit shipments of cigarettes in theU.S. As ofDecember 31, 2021 , we estimate taxable shipments in theU.S. decreased by approximately 7.3% in 2021. Our annual MSA liability changes by approximately$1,800 for each percentage change in the estimated shipment volumes in the U.S. market. For the year endedDecember 31, 2021 , the estimated decrease in taxable shipments in conjunction with the annual MSA inflation adjustment decreased the value of Liggett's market share exemption compared to the prior year end and, thus, increased cost of sales by$495 . Tobacco gross profit was$444,482 for the year endedDecember 31, 2021 compared to$408,597 for the year endedDecember 31, 2020 , an increase of$35,885 (8.8%). The increase in gross profit for the year endedDecember 31, 2021 was primarily attributable to increased pricing on the Eagle 20's and Pyramid brands offset by declines in volume and increased cost of sales per unit. For the year endedDecember 31, 2021 , Eagle 20's remains Liggett's primary low cost cigarette brand and its percentage of Liggett's total unit volume sales has declined from approximately 62% for the year endedDecember 31, 2020 to approximately 57% for the year endedDecember 31, 2021 . Pyramid, Liggett's second largest brand, declined from approximately 23% of total unit volume sales for the year endedDecember 31, 2020 to approximately 20% for the year endedDecember 31, 2021 . Montego, Liggett's third largest brand, increased from approximately 6% of total unit volume sales for the year endedDecember 31, 2020 to approximately 16% for the year endedDecember 31, 2021 . As a percentage of revenue (excluding Federal Excise Taxes), Tobacco gross profit increased from 55.0% in the 2020 period to 57.9% in the 2021 period primarily as a result of price increases partially offset by a continued shift in sales volume to the lower-priced Montego brand. Tobacco expenses. Tobacco operating, selling, general and administrative expenses, excluding settlements and judgments, were$83,954 for the year endedDecember 31, 2021 compared to$88,724 for the year endedDecember 31, 2020 . The$4,770 (5.4%) decline is primarily due to declines in professional fees and expenses associated withColorado's minimum price legislation partially offset by higher sales and marketing expenses related to the return to pre-pandemic business activities. Tobacco product liability legal expenses, including settlements and judgments, were$6,436 and$6,476 for the years endedDecember 31, 2021 and 2020, respectively. 39
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Tobacco operating income. Tobacco operating income was$360,317 for the year endedDecember 31, 2021 compared to$319,536 for the year endedDecember 31, 2020 . The increase of$40,781 (12.8%) was primarily attributable to higher gross profit margins, as discussed above, and declines in operating, selling, general and administrative expenses. Real Estate. Real Estate revenues. Real Estate revenues were$18,203 and$24,181 for the years endedDecember 31, 2021 and 2020, respectively. Real Estate revenues declined by$5,978 (24.7%), which was primarily related to the absence of the$20,500 sale of an investment in real estate located inSagaponack, NY in the prior period, offset by the$12,850 sale of investments in real estate in the current period.
Real estate revenue and cost of sales are as follows:
Year EndedDecember 31, 2021 2020 Real Estate Revenues: Revenues from investments in real estate 12,850
20,500
Sales on facilities primarily from Escena 5,353 3,681 Total real estate revenues$ 18,203 $ 24,181 Real Estate Cost of Sales: Cost of sales from investments in real estate 7,508
20,488
Cost of sales on facilities primarily from Escena 4,019
3,210
Total real estate cost of sales$ 11,527
Real Estate cost of sales. Real Estate cost of sales were$11,527 and$23,698 for the years endedDecember 31, 2021 and 2020, respectively. Real Estate cost of sales declined by$12,171 , primarily related to the absence of the$20,488 cost of sales of an investment in real estate located inSagaponack, NY in the prior period, offset by the$7,508 cost of sales of investments in real estate in the current period.
Real estate expenses. Real estate expenditure was
Profit (loss) from real estate operations.
for the year ended
Corporate and others.
Corporate and other loss. The operating loss at the corporate segment was$43,944 for the year endedDecember 31, 2021 compared to$24,498 for the same period in 2020. The increase of$19,446 was primarily due to transaction charges of$10,468 and accelerated stock compensation of$4,317 related to the Spin-off for the year endedDecember 31, 2021 .
2020 vs. 2019
Revenues. Total revenues were$1,228,682 for the year endedDecember 31, 2020 compared to$1,119,603 for the year endedDecember 31, 2019 . The$109,079 (9.7%) increase in revenues was due to a$89,661 increase in Tobacco revenues related to an increase in both unit volume and net pricing and a$19,418 increase in Real Estate revenues, primarily related to the$20,500 sale of an investment in real estate located inSagaponack, NY . Cost of sales. Total cost of sales was$819,602 for the year endedDecember 31, 2020 compared to$774,885 for the year endedDecember 31, 2019 . The$44,717 (5.8%) increase in cost of sales was due to a$24,774 increase in Tobacco cost of sales related to increased sales volume and higher MSA expense and a$19,943 increase in Real Estate cost of sales, which was primarily an investment in real estate located inSagaponack, NY . Expenses. Operating expenses were$114,652 for the year endedDecember 31, 2020 compared to$110,103 for the year endedDecember 31, 2019 . The$4,549 (4.1%) increase was due to a$6,981 increase in Tobacco expenses and a$635 increase in Real Estate expenses for the year endedDecember 31, 2020 . This was offset by a$3,067 decline in Corporate and Other expense, including gain on sale of assets of$2,283 . 40
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Operating income. Operating income was$294,428 for the year endedDecember 31, 2020 compared to$234,615 for the year endedDecember 31, 2019 , an increase of$59,813 (25.5%). Tobacco operating income increased by$57,906 and Corporate and Other operating loss declined by$3,067 , while Real Estate operating income declined by$1,160 . Other expenses. Other expenses were$113,385 and$109,600 for the years endedDecember 31, 2020 and 2019, respectively. For the year endedDecember 31, 2020 , other expenses primarily consisted of interest expense of$121,278 , equity in losses from real estate ventures of$44,728 , and other expenses of$8,646 . This was offset by equity in earnings from investments of$56,268 and income of$4,999 from changes in the fair value of derivatives embedded within convertible debt. For the year endedDecember 31, 2019 , other expenses primarily consisted of interest expense of$137,543 , loss on extinguishment of debt of$4,301 and equity in losses from real estate ventures of$27,760 . This was offset by income of$26,425 from changes in fair value of derivatives embedded within convertible debt, equity in earnings from investments of$17,000 and other income of$16,579 .
Earnings before provision for income taxes. Earnings before income taxes were
Income tax expense. Income tax expense was$54,121 for the year endedDecember 31, 2020 compared to$31,085 for the year endedDecember 31, 2019 . Our income tax rates for the years endedDecember 31, 2020 and 2019 do not bear a customary relationship to statutory income tax rates as a result of the impact of nondeductible expenses, state income taxes, changes in valuation allowances, and excess tax benefits on stock-based compensation.
The tobacco.
Tobacco revenues. Liggett increased the list price of Eagle 20's by$0.13 per pack inNovember 2020 ,$0.11 per pack inJune 2020 ,$0.08 per pack inFebruary 2020 ,$0.08 per pack inOctober 2019 , and$0.11 per pack inFebruary 2019 . Liggett also increased the list price of Pyramid, Liggett Select, Eve andGrand Prix by$0.13 per pack inNovember 2020 ,$0.11 per pack inJune 2020 ,$0.08 per pack inFebruary 2020 ,$0.08 per pack inOctober 2019 ,$0.06 per pack inJune 2019 , and$0.11 per pack inFebruary 2019 . All of our Tobacco sales were in the discount category in 2020 and 2019. For the year endedDecember 31, 2020 , Tobacco revenues were$1,204,501 compared to$1,114,840 for the year endedDecember 31, 2019 . Revenues increased by$89,661 (8.0%) due to increases in unit sales volume and the average selling price of our brands for the year endedDecember 31, 2020 . The higher selling prices resulted in a favorable price variance of$65,348 and the increase in sales volume (195.6 million units) resulted in a favorable variance of$24,313 . We believe a competitor's announcement of a price increase inDecember 2020 , as well as the prospect of increased restrictions and lockdowns associated with the COVID-19 pandemic, resulted in increased fourth quarter sales volumes and elevated wholesale inventories as ofDecember 31, 2020 . Tobacco cost of sales. The major components of our Tobacco cost of sales were as follows: Year Ended December 31, 2020 2019 Manufacturing overhead, raw materials and labor$ 128,091 $ 123,654 Federal excise taxes 461,532 451,256 FDA expense 24,842 24,947 MSA expense, net of market share exemption 175,837 (1) 165,471 Customer shipping and handling 5,602 5,802 Total cost of sales$ 795,904 $ 771,130
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(1)Includes
The Tobacco segment's MSA expense is included in cost of sales. Under the terms of the MSA, we have no payment obligations except to the extent that our tobacco subsidiaries' market share of theU.S. cigarette market exceeds 1.92%. The calculation of this benefit from the MSA is an estimate based on taxable unit shipments of cigarettes in theU.S. As ofDecember 31, 2020 , we estimated taxable shipments in theU.S. increased by approximately 1.0% in 2020. In 2020, our annual MSA liability changed by approximately$1,700 for each percentage change in the estimated shipment volumes in the U.S. market. For the year endedDecember 31, 2020 , the estimated increase in taxable shipments in conjunction with the annual MSA inflation adjustment increased the value of Liggett's market share exemption compared to the prior year end and, thus, decreased cost of sales by$7,731 . Similar to some other consumer product categories, cigarette industry volumes outperformed 41
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recent historical trends and benefited from increased consumer demand related to changes in underlying cigarette purchasing and consumption patterns associated with the pandemic. Tobacco gross profit was$408,597 for the year endedDecember 31, 2020 compared to$343,710 for the year endedDecember 31, 2019 , an increase of$64,887 (18.9%). The increase in gross profit for the year endedDecember 31, 2020 was primarily attributable to increased pricing on the Eagle 20's and Pyramid brands and increased Eagle 20's volume. For the year endedDecember 31, 2020 , Eagle 20's remains Liggett's primary low-cost cigarette brand and its percentage of Liggett's total unit volume sales has increased from approximately 60% for the year endedDecember 31, 2019 to approximately 62% for the year endedDecember 31, 2020 . Pyramid, Liggett's second largest brand, declined from approximately 27% of total unit volume sales for the year endedDecember 31, 2019 to approximately 23% for the year endedDecember 31, 2020 . As a percentage of revenue (excluding Federal Excise Taxes), Tobacco gross profit increased from 51.8% in the 2019 period to 55.0% in the 2020 period primarily as a result of price increases partially offset by a continued shift in sales volume to the lower-priced Eagle 20's brand. Tobacco expenses. Tobacco operating, selling, general and administrative expenses, excluding settlements and judgments, were$88,724 for the year endedDecember 31, 2020 compared to$81,090 for the year endedDecember 31, 2019 . The$7,634 (9.4%) increase is primarily due to increased professional fees and expenses associated withColorado's minimum price legislation. Tobacco product liability legal expenses, including settlements and judgments, were$6,476 and$7,363 for the years endedDecember 31, 2020 and 2019, respectively. Tobacco operating income. Tobacco operating income was$319,536 for the year endedDecember 31, 2020 compared to$261,630 for the year endedDecember 31, 2019 . The increase of$57,906 (22.1%) was primarily attributable to higher gross profit margins, as discussed above, and was partially offset by increased operating, selling, general and administrative expenses.
Immovable.
Real Estate revenues. Real Estate revenues were$24,181 and$4,763 for the years endedDecember 31, 2020 and 2019, respectively. Real Estate revenues increased by$19,418 , which was primarily related to the$20,500 sale of an investment in real estate located inSagaponack, NY .
Real estate revenue and cost of sales are as follows:
Year Ended December 31,
2020 2019
Real Estate Revenues:
Revenues from investments in real estate $ 20,500 $ -
Sales on facilities primarily from Escena 3,681 4,763
Total real estate revenues $ 24,181 $ 4,763
Real Estate Cost of Sales:
Cost of sales from investments in real estate $ 20,488 $ -
Cost of sales on facilities primarily from Escena 3,210
3,755
Total real estate cost of sales$ 23,698
Real Estate cost of sales. Real Estate cost of sales were$23,698 and$3,755 for the years endedDecember 31, 2020 and 2019, respectively. Real Estate cost of sales increased by$19,943 , primarily related to$20,488 from the sale of an investment in real estate located inSagaponack, NY .
Real estate expenses. Real estate expenditure was
Real Estate operating (loss) income.The Real Estate segment had operating loss of$610 for the year endedDecember 31, 2020 and operating income of$550 for the year endedDecember 31, 2019 .The Real Estate segment's operating loss was primarily related to declines in operations at the Escena facility. 42
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Corporate and others.
Corporate and other loss. The operating loss at the corporate segment was$24,498 for the year endedDecember 31, 2020 compared to$27,565 for the same period in 2019. The decline of$3,067 was primarily due to the$2,283 gain on the sale of assets and decreased administrative costs related to professional fees and travel expenses for the year endedDecember 31, 2020 . 43
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Summary of real estate investments
We own and seek to acquire investment interests in various domestic and international real estate projects through debt and equity investments. Our real estate investments primarily include the following projects as ofDecember 31, 2021 : (Dollars in Thousands. Area and Unit Information in Ones) Future Capital Commit- Projected Number of Cumulative Carrying Value ments from Residential Lots, ProjectedNet Cash Earnings as of New Valley Units and/or Hotel Construction Start Projected Location Date ofInitial Investment Percentage Owned (1) Invested (Losses)12/31/2021 (2) Projected Residential and/orHotel Area Projected Commercial Space Rooms Date Construction End Date Master planned community, golf course, and club house in Palm 667 R Lots Escena, net Springs, CAMarch 2008 100%$ (1,826) $ 10,924 $ 9,098 - 450 Acres 450 H N/A N/A Townhome A (11 Beach Street )TriBeCa ,Manhattan, NY November 2020 100% 22 (22) - - 6,169 SF 1 R N/A Completed Investments in real estate, net$ (1,804) $ 10,902 $ 9,098 $ - Investments in real estate ventures:111 Murray Street TriBeCa ,Manhattan, NY May 2013 9.5% 6,819 (4,414) 2,405 - 330,000 SF 1,700 SF 157 RSeptember 2014 Completed 87 Park (8701 Collins Avenue )Miami Beach, FL December 2013 23.1% (6,485) 6,485 - - 160,000 SF TBD 70 ROctober 2015 Completed125 Greenwich Street Financial District ,Manhattan, NY August 2014 13.4% 7,992 (7,992) - - 306,000 SF 16,000 SF 273 RMarch 2015 TBD West Hollywood Edition (9040 Sunset 20 R Boulevard)West Hollywood, CA October 2014 48.5% 17,188 (17,188) - - 210,000 SF - 190 HMay 2015 CompletedMonad Terrace (1300 West Ave )Miami Beach, FL May 2015 19.6% 7,635 (7,635) - - 160,000 SF - 59 RMay 2016 Completed Takanasee (805 Ocean Ave )Long Branch, NJ December 2015 22.8% 6,144 (5,588) 556 - 63,000 SF - 13 RJune 2017 TBD Brookland (15 East 19th St )Brooklyn, NY April 2017 9.8% 402 (11) 391 - 24,000 SF - 33 RAugust 2017 Completed Dime (209 Havemeyer St )Brooklyn, NY November 2017 16.5% 9,145 (3,791) 5,354 - 100,000 SF 150,000 177 R
May 2017 Completed352 6th Avenue Brooklyn, NY February 2019 37.0% (416) 416 - - 5,200 SF - 0 4 RSeptember 2019 Completed
April 2019 16.9% 10,692 (2,808) 7,884 - 8,741 SF 76,919 SF 15 RJuly 2021 May 2023 Five Park (500 Alton Road )Miami Beach, FL September 2019 38.9% 18,098 1,209 19,307 - 472,000 SF 15,000 SF 291 RApril 2020 February 2024 9 DeKalb Avenue Brooklyn, NY April 2019 4.2% 5,000 1,065 6,065 - 450,000 SF 120,000 SF 540 RMarch 2019 February 2023 Natura Miami, FL December 2019 77.8% 7,354 5,036 12,390 - 460,000 SF - 460 RDecember 2019 November 2022 Townhome B (11 Beach Street )TriBeCa ,Manhattan, NY November 2020 46.7% (594) 594 - - 4,752 SF - 1 R N/A CompletedRitz-Carlton Villas (4701 Meridian Avenue)Miami Beach, FL December 2020 50.0% 4,109 (125) 3,984 - 58,000 SF - 15 ROctober 2020 August 2022 2000 N. Atlantic Ave. Daytona Beach, FL November 2021 50.0% 1,882 37 1,919 - TBD TBD TBD SocietyNashville (915 Division St)Nashville, TN November 2021 89.1% 19,500 384 19,884 - 320,000 SF 8,000 SF 472 RMay 2022 July 2024 Condominium and Mixed Use Development$ 114,465 $ (34,326) $ 80,139 $ - Maryland Portfolio PrimarilyBaltimore County, MD July 2012 7.6% (17,583) 17,583 - - N/A N/A 245 R N/A N/ARiverchase Landing Hoover, AL October 2021 50.0% 11,900 - 11,900 - 746,000 SF N/A 468 R N/A N/A Apartment Buildings$ (5,683) $ 17,583 $ 11,900 $ -Park Lane Hotel (36 Central Park South )Central Park South ,Manhattan, NY November 2013 1.0%$ 8,682 $ (7,626) $ 1,056 - 446,000 SF - 628 H N/A N/A215 Chrystie Street (4)Lower East Side ,Manhattan, NY December 2012 12.3% (1,533) 1,533 - - 246,000 SF - 367 HJune 2014 CompletedCoral Beach and Tennis Club Coral Beach,Bermuda December 2013 49.0% 6,048 (4,526) 1,522 - 52 Acres - 101 H N/A N/A 587 H ParkerNew York (119 W 56th St ) Midtown,Manhattan, NY July 2019 0.4% 1,000 (421) 579 - 470,000 SF - 99 RMay 2020 December 2022 Hotels$ 14,197 $ (11,040) $ 3,157 $ -The Plaza at Harmon Meadow Secaucus, NJ March 2015 49.0%$ 4,200 $ (4,200) $ - $ - - - 219,000 SF - - N/A N /A Wynn Las Vegas RetailLas Vegas, NV December 2016 1.6% 4,163 3,127 7,290 - - - 160,000 SF - - N/A N/A Commercial$ 8,363 $ (1,073) $ 7,290 $ -Witkoff GP Partners (3) MultipleMarch 2017 15.0%$ 11,154 $ (9,620) $ 1,534 $ - N/A N/A N/A N/A N/A1 QPS Tower (23-10 Queens Plaza South )Long Island City, NY December 2012 45.4% (14,406) 14,406 - - N/A N/A N/AMarch 2014 CompletedWitkoff EB-5 Capital Partners MultipleSeptember 2018 49.0% 516 526 1,042 - N/A N/A N/A N/A N/A Diverse Real Estate Portfolio$ (2,736) $ 5,312 $ 2,576 $ - Investment in real estate ventures$ 128,606 $ (23,544) $ 105,062 $ - Total Carrying Value$ 126,802 $ (12,642) $ 114,160 $ -
(1) Ownership percentage reflects our estimated current ownership percentage. Our actual percentage of ownership as well as the percentage of earnings and cash distributions may ultimately differ due to a number of factors, including potential dilution, financing or admission of additional partners.
44 -------------------------------------------------------------------------------- Table of Contents (2) This column only represents capital commitments required under the various joint venture agreements. However, many of the operating agreements provide for the operating partner to call capital. If a joint venture partner, such as New Valley, declines to fund the capital call, then the partner's ownership percentage could either be diluted or, in some situations, the character of a funding member's contribution would be converted from a capital contribution to a member loan. (3)The Witkoff GP Partners venture includes a$1,534 investment in500 Broadway , a Condominium andMixed Use Development inSanta Monica, CA. TBD -To be R - Residential N/A - Not applicable SF - Square feet H - Hotel rooms determined Units R Lots - Residential lots New Valley capitalizes net interest expense into the carrying value of its ventures whose projects were under development. Net capitalized interest costs included in Carrying Value as ofDecember 31, 2021 were$8,658 . This amount is included in the "Cumulative Earnings (Losses)" column in the table above. During the year endedDecember 31, 2021 , New Valley capitalized$2,669 of interest costs and utilized (reversed)$1,489 of previously capitalized interest in connection with the recognition of equity in (losses) earnings, gains and liquidations from various ventures. 45 -------------------------------------------------------------------------------- Table of Contents Liquidity and Capital Resources
Cash and cash equivalents from continuing and discontinued operations decreased by
Cash provided by continuing and discontinued operations was$255,219 ,$267,547 and$124,071 in 2021, 2020 and 2019, respectively. The decline of cash provided by continuing and discontinued operations in 2021 compared to 2020 related primarily to increased MSA payments in 2021 in connection with tax planning strategies, increased income tax payments in 2021, the payment of a redemption premium in 2021 to retire our 6.125% Senior Secured Notes due 2025 and the absence of distributions from long-term investments, which were associated with the sale of LTS in 2020. These items were partially offset by an increase in operating income in 2021 from 2020. The increase in 2020 compared to 2019 related primarily to an increase in operating income, increased distributions from long-term investments, which were associated with the sale of LTS, and the proceeds from the sale of an investment in real estate located inSagaponack, NY and, in connection with tax planning strategies, a deferral of a portion our MSA payments from 2020 to 2021. Cash used in investing activities from continuing and discontinued operations was$61,970 and$23,099 in 2021 and 2019, respectively, and cash provided by investing activities from continuing and discontinued operations was$7,341 in 2020. Our investment philosophy is to maximize return on investments using a reasonable expectation for return. For example, we expect our investment returns to exceed the comparable return on cash or short-termU.S. Treasury Bills when investing in equity and debt securities and to exceed our weighted-average cost of capital when investing in non-consolidated real estate businesses and making capital expenditures. In 2021, cash used in investing activities from continuing operations comprised the purchase of investment securities of$124,080 , investments in real estate ventures of$49,463 , capital expenditures of$13,506 , the purchase of long-term investments of$14,316 , an increase in the cash surrender value of corporate-owned life insurance policies of$1,219 , the purchase of subsidiaries of$500 , and an increase in restricted assets of$5 . These items were offset by maturities of investment securities of$71,505 , sale of investment securities of$45,627 , distributions from investments in real estate ventures of$11,936 , proceeds from the sale or liquidation of long-term investments of$11,509 , pay downs of investment securities of$525 , and proceeds from the sale of fixed assets of$17 . In 2020, cash provided by investing activities from continuing operations comprised the maturities of investment securities of$61,230 , proceeds from the sale or liquidation of long-term investments of$32,572 , the sale of investment securities of$30,458 , distributions from investments in real estate ventures of$18,818 , the proceeds from the sale of fixed assets of$5,162 , cash acquired in purchase of subsidiary of$2,760 , pay downs of investment securities of$812 , and the decrease in restricted assets of$436 . These items were offset by the purchase of investment securities of$99,871 , capital expenditures of$19,063 , investments in real estate ventures of$14,922 , the purchase of long-term investments of$9,687 , purchase of subsidiaries of$722 , and an increase in the cash surrender value of corporate-owned life insurance policies of$642 . In 2019, cash used in investing activities from continuing operations comprised the purchase of investment securities of$87,766 , investments in real estate ventures of$52,529 , capital expenditures of$12,575 , the purchase of long-term investments of$9,223 , investments in real estate, net of$2,295 , an increase in the cash surrender value of corporate-owned life insurance policies of$719 , and the purchase of subsidiaries of$380 . These items were offset by maturities of investment securities of$68,859 , distributions from investments in real estate ventures of$41,300 , the sale of investment securities of$21,879 , proceeds from the sale or liquidation of long-term investments of$8,256 , pay downs of investment securities of$1,083 , a decrease in restricted assets of$994 , and the proceeds from the sale of fixed assets of$17 . Cash used in financing activities from continuing and discontinued operations was$364,077 ,$288,687 and$313,225 in 2021, 2020, and 2019, respectively. In 2021, cash used in financing activities from continuing and discontinued operations comprised repayments of debt of$862,973 , dividends and distributions on common stock of$131,798 , tax withholdings related to net share settlements of stock option exercise of$13,145 , payment of deferred financing costs of$20,109 , cash distributed in the Spin-off of$212,571 , and other of$130 . These items were offset by proceeds from debt issuance of$875,000 , contributions from non-controlling interest of$1,625 , and net borrowings of debt under the Liggett Credit Agreement described below of$24 . In 2020, cash used in financing activities from continuing operations comprised repayments of debt of$174,989 , dividends and distributions on common stock of$128,231 , net repayments of debt under the Liggett Credit Agreement of$34,952 , tax withholdings related to net share settlements of stock option exercise of$2,630 , and distributions to non-controlling interest of$448 . These items were offset by proceeds from the issuance of common stock of$52,563 . In 2019, cash used in financing activities from continuing operations comprised repayments of debt of$293,419 , dividends and distributions on common stock of$238,249 , payment of deferred financing costs of$9,802 , tax withholdings related to net share settlements of stock option exercise of$5,415 , distributions to non-controlling interest of$286 and other of$216 . These factors were offset by proceeds of debt issuance of$230,000 associated with the issuance of an additional amount of our 10.5% Senior Notes due 2026 inNovember 2019 , and net borrowings of debt under the Liggett Credit Agreement described below of$4,162 . We have significant liquidity commitments in 2022 at the corporate level (not including our tobacco and real estate operations) that require the use of existing cash resources. These include cash interest expense of approximately$108,600 , dividends on our outstanding common shares of approximately$127,500 , which is based on an assumed quarterly cash dividend of$0.20 per share, and other corporate expenses and taxes. 46
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In order to meet these liquidity requirements as well as other liquidity needs in the normal course of business, we have in the past used cash flows from operations as well as existing cash and cash equivalents, which have, in the past, been generated from operations, monetization of investments and proceeds from debt issuances. Should these resources be insufficient to meet upcoming liquidity needs, we may also liquidate investment securities and other long-term investments, or, if available, draw on Liggett's credit facility. While there are actions we can take to reduce our liquidity needs, there can be no assurance that such measures will be successful. As ofDecember 31, 2021 , we had cash and cash equivalents of$193,411 (including$14,899 of cash at Liggett), and investment securities, carried at$178,776 (see Note 7 to our consolidated financial statements). As ofDecember 31, 2021 , our investments in real estate ventures were carried at$105,062 and our investments in real estate, net were carried at$9,098 . Limitation of interest expense deductible for income taxes. Since 2018, the amount of interest expense that is deductible in the computation of income tax liability has been limited to a percentage of adjusted taxable income, as defined by applicable law. In 2019 and 2020, the amount of deductible interest expense was limited to 50% of taxable income before interest, depreciation and amortization and, in 2021, the amount will be limited to 30% of taxable income before interest, depreciation and amortization. Beginning in 2022, the amount is limited to 30% of taxable income before interest. However, interest expense allocable to a designated excepted trade or business is not subject to limitation. One such excepted trade or business is any electing real property trade or business, for which portions of our real estate businesses may qualify. If any interest expense is disallowed, we are permitted to carry forward the disallowed interest expense indefinitely. As a result of interest expense that is allocated to our real estate businesses (from the holding company) not being subject to the limitation, all of our interest expense to date has been tax deductible; however, after the Spin-off, the allocation of interest expense to our real estate business will decline. Without the benefit of such an excepted trade or business, a portion of our interest expense in future years may not be deductible, which may increase the after-tax cost of any new debt financings as well as the refinancing of our existing debt. Tobacco Litigation. As ofDecember 31, 2021 , 16 verdicts were entered in Engle progeny cases against Liggett. Several of these verdicts have been affirmed on appeal and have been satisfied by Liggett. Liggett has paid$40,111 , including interest and attorney's fees, to satisfy the judgments entered against it. It is possible that additional cases could be decided unfavorably. Notwithstanding the comprehensive nature of the Engle Progeny Settlements of more than 5,200 cases, approximately 28 plaintiffs' claims remain outstanding. Therefore, we and Liggett may still be subject to periodic adverse judgments that could have a material adverse effect on our consolidated financial position, results of operations and cash flows.
In addition, Liggett may be required to make additional payments for
which could have a material adverse effect on our consolidated financial condition, results of operations and cash flows. See Recent Developments in Dispute.
Management cannot predict the cash requirements related to any future settlements or judgments, including cash required to bond any appeals, and there is a risk that those requirements will not be able to be met. Management is unable to make a reasonable estimate of the amount or range of loss that could result from an unfavorable outcome of the cases pending against Liggett or the costs of defending such cases. It is possible that our consolidated financial position, results of operations or cash flows could be materially adversely affected by an unfavorable outcome in any such tobacco-related litigation.
Vector.
6.125% Senior Secured Notes. OnFebruary 1, 2021 , the 6.125% Senior Secured Notes due 2025 were redeemed in full and we recorded a loss on the extinguishment of debt of$21,362 for the year endedDecember 31, 2021 , including$13,014 of premium and$8,348 of other costs and non-cash interest expense related to the recognition of previously unamortized deferred finance costs. 5.75% Senior Secured Notes due 2029. OnJanuary 28, 2021 , we completed the sale of$875,000 in aggregate principal amount of our 5.75% Senior Secured Notes due 2029 ("5.75% Senior Secured Notes") to qualified institutional buyers and non-U.S. persons in a private offering pursuant to the exemptions from the registration requirements of the Securities Act of 1933 (the "Securities Act") contained in Rule 144A and Regulation S thereunder. The aggregate net cash proceeds from the sale of the 5.75% Senior Secured Notes were approximately$855,500 after deducting the initial purchaser's discount and estimated expenses and fees in connection with the offering. We used the net cash proceeds from the 5.75% Senior Secured Notes offering, together with cash on hand, to redeem all of our outstanding 6.125% Senior Secured Notes due 2025, including accrued interest and premium thereon, onJanuary 28, 2021 . The 5.75% Senior Secured Notes pay interest on a semi-annual basis at a rate of 5.75% per year and mature on the earlier ofFebruary 1, 2029 and the date that is 91 days before the final stated maturity date of our 10.5% Senior Notes due 2026 ("10.5% Senior Notes") if such 10.5% Senior Notes have not been repurchased and cancelled or refinanced by such date. Prior toFebruary 1, 2024 , we may redeem some or all of the 5.75% Senior Secured Notes at any time at a make-whole redemption price. On or afterFebruary 1, 2024 , we may redeem some or all of the 5.75% Senior Secured Notes at a premium that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. In addition, any time prior toFebruary 1, 2024 , we may redeem up to 40% of the aggregate outstanding amount of the 5.75% Senior Secured Notes with the net proceeds 47
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of certain equity offerings at 105.75% of the aggregate principal amount of the 5.75% Senior Secured Notes, plus accrued and unpaid interest, if any, to the redemption date, if at least 60% of the aggregate principal amount of the 5.75% Senior Secured Notes originally issued remains outstanding after such redemption, and the redemption occurs within 90 days of the closing of such equity offering. In the event of a change of control, as defined in the indenture governing the 5.75% Senior Secured Notes (the "2029 Indenture"), each holder of the 5.75% Senior Secured Notes may require us to repurchase some or all of its 5.75% 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 we sell certain assets and do not apply the proceeds as required pursuant to the 2029 Indenture, we must offer to repurchase the 5.75% Senior Secured Notes at the prices listed in the 2029 Indenture. The 5.75% Senior Secured Notes are fully and unconditionally guaranteed, subject to certain customary automatic release provisions, on a joint and several basis by all of our wholly-owned domestic subsidiaries that are engaged in the conduct of our cigarette businesses, which subsidiaries, as of the issuance date of the 5.75% Senior Secured Notes, were also guarantors under our outstanding 10.5% Senior Notes. The 5.75% Senior Secured Notes are not guaranteed byNew Valley LLC , or any of our subsidiaries engaged in our real estate business conducted through our subsidiary,New Valley LLC . The guarantees provided by certain of the guarantors are secured by first priority or second priority security interests in certain collateral of such guarantors pursuant to security and pledge agreements, subject to certain permitted liens and exceptions as further described in the 2029 Indenture and the security documents relating thereto.Vector Group Ltd does not provide any security for the 5.75% Senior Secured Notes. The 2029 Indenture contains covenants that restrict the payment of dividends if our consolidated earnings before interest, taxes, depreciation and amortization ("Consolidated EBITDA"), as defined in the 2029 Indenture, for the most recently ended four full quarters is less than$75,000 . The 2029 Indenture also restricts the incurrence of debt if our Leverage Ratio and our Secured Leverage Ratio, each as defined in the 2029 Indenture, exceed 3.0 to 1.0 and 1.5 to 1.0, respectively. Our Leverage Ratio is defined in the 2029 Indenture as the ratio of our and our guaranteeing subsidiaries' total debt less the fair market value of our cash, investment securities and long-term investments to Consolidated EBITDA, as defined in the 2029 Indenture. Our Secured Leverage Ratio is defined in the 2029 Indenture in the same manner as the Leverage Ratio, except that secured indebtedness is substituted for indebtedness. The following table summarizes the requirements of these financial test and the extent to which we would have satisfied these requirements had the 2029 Indenture been in effect as ofDecember 31, 2021 . Indenture December 31, Covenant Requirement 2021
Consolidated EBITDA, as defined
Leverage ratio, as defined
<3.0 to 1 2.50 to 1 Secured leverage ratio, as defined <1.5 to 1 1.17 to 1
From
10.5% Senior Notes due 2026. OnNovember 2, 2018 andNovember 18, 2019 , we sold$325,000 and$230,000 , respectively, in aggregate principal amount of our 10.5% Senior Notes to qualified institutional buyers and non-U.S. persons pursuant to the exemptions from the registration requirements of the Securities Act contained in Rule 144A and Regulation S thereunder. The aggregate net proceeds from the 2018 sale of the 10.5% Senior Notes and the 2019 sale of the 10.5% Senior Notes were approximately$315,000 and$220,400 , respectively, after deducting underwriting discounts, commissions, fees and offering expenses. We used the net cash proceeds from the 2018 issuance of our 10.5% Senior Notes to retire the principal amount of, plus accrued and unpaid interest on, our 7.5% Variable Interest Senior Convertible Notes due 2019, and for general corporate purposes. We used the net cash proceeds from the 2019 issuance of our 10.5% Senior Notes to retire the principal amount of, plus accrued and unpaid interest on, our 5.5% Variable Interest Senior Convertible Notes due 2020. The 10.5% Senior Notes pay interest on a semi-annual basis at a rate of 10.5% per year and mature onNovember 1, 2026 . Prior toNovember 1, 2021 , we may redeem some or all of the 10.5% Senior Notes at any time at a make-whole redemption price. On or afterNovember 1, 2021 , we may redeem some or all of the 10.5% Senior Notes at a premium that will decrease over time, plus accrued and unpaid interest, if any, to the redemption date. In addition, any time prior toNovember 1, 2021 , we may redeem up to 40% of the aggregate outstanding amount of the 10.5% Senior Notes with the net proceeds of certain equity offerings at 110.5% of the aggregate principal amount of the 10.5% Senior Notes, plus accrued and unpaid interest, if any, to the redemption date, if at least 60% of the aggregate principal amount of the 10.5% Senior Notes originally issued remains outstanding after such redemption, and the redemption occurs within 90 days of the closing of such equity offering. In the event of a change of control, as defined in the indenture governing the 10.5% Senior Notes (the "2026 Indenture"), each holder of the 10.5% Senior Notes may require us to make an offer to repurchase some or all of our 10.5% Senior 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 we sells certain assets and does not apply the proceeds as required pursuant to the 2026 Indenture, we must offer to repurchase the 10.5% Senior Notes at the prices listed in the 2026 Indenture. 48
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The 10.5% Senior Notes were fully and unconditionally guaranteed subject to certain customary automatic release provisions on a joint and several basis by all of our wholly-owned domestic subsidiaries that are engaged in the conduct of our cigarette businesses, and, prior to the Spin-off, byDER Holdings LLC , through which we indirectly owned a 100% interest in Douglas Elliman as ofDecember 31, 2021 . In connection with the Spin-off, the guarantee byDER Holdings LLC was released.DER Holdings LLC did not guarantee our 5.75% Senior Secured Notes. The 2026 Indenture contains covenants that restrict the payment of dividends and certain other distributions subject to certain exceptions, including exceptions for (1) dividends and other distributions in an amount up to 50% of our consolidated net income, plus certain specified proceeds received by us, if no event of default has occurred, and we are in compliance with a Fixed Charge Coverage Ratio (as defined in the 2026 Indenture) of at least 2.0 to 1.0, and (2) dividends and other distributions in an unlimited amount, if no event of default has occurred and we are in compliance with a Net Leverage Ratio (as defined in the 2026 Indenture) no greater than 4.0 to 1.0. As a result, absent an event of default, we can pay dividends if the Net Leverage ratio is below 4.0 to 1.0, regardless of the value of the Fixed Charge Coverage Ratio at the time. The 2026 Indenture also restricts our ability to incur debt if our Fixed Charge Coverage Ratio is less than 2.0 to 1.0, and restricts our ability to secure debt to the extent doing so would cause our Secured Leverage Ratio (as defined in the 2026 Indenture) to exceed 3.75 to 1.0, unless the 10.5% Senior Notes are secured on an equal and ratable basis. Our Fixed Charge Coverage Ratio is defined in the 2026 Indenture as the ratio of our Consolidated EBITDA to our Fixed Charges (each as defined in the 2026 Indenture). Our Net Leverage Ratio is defined in the 2026 Indenture as the ratio of our and our guaranteeing subsidiaries' total debt less our cash, cash equivalents, and the fair market value of our investment securities, long-term investments, investments in real estate, net, and investments in real estate ventures, to Consolidated EBITDA, as defined in the 2026 Indenture. Our Secured Leverage Ratio is defined in the 2026 Indenture as the ratio of our and our guaranteeing subsidiaries' total secured debt, to Consolidated EBITDA, as defined in the 2026 Indenture. The following table summarizes the requirements of these financial test and the extent to which we satisfied these requirements as ofDecember 31, 2021 . Indenture December
31,
Covenant Requirement 2021
Fixed charge coverage ratio, as defined >2.0 to 1 3.18 to 1 Net leverage ratio, as defined
<4.0 to 1 2.59 to 1 Secured leverage ratio, as defined <3.75 to 1 2.46 to 1
From
Guarantor Summarized Financial Information.Vector Group Ltd. (the "Issuer") and its wholly-owned domestic subsidiaries that are engaged in the conduct of its cigarette business (the "Subsidiary Guarantors") have filed a shelf registration statement for the offering of debt and equity securities on a delayed or continuous basis and we are including this condensed consolidating financial information in connection therewith. Any such debt securities may be issued by us and guaranteed by our Subsidiary Guarantors. New Valley and any of its subsidiaries (the "Nonguarantor Subsidiaries") will not guarantee any such debt securities. Both the Subsidiary Guarantors and the Nonguarantor Subsidiaries are wholly-owned by the Issuer. The Condensed Consolidating Balance Sheets as ofDecember 31, 2021 and the related Condensed Consolidating Statements of Operations for the year endedDecember 31, 2021 of the Issuer, Subsidiary Guarantors and the Nonguarantor Subsidiaries are set forth in Exhibit 99.2. Presented herein are the Summarized Combined Balance Sheets as ofDecember 31, 2021 andDecember 31, 2020 and the related Summarized Combined Statements of Operations for the year endedDecember 31, 2021 for the Issuer and the Subsidiary Guarantors (collectively, the "Obligor Group "). The summarized combined financial information is presented after the elimination of: (i) intercompany transactions and balances among theObligor Group , and (ii) equity in earnings from and investments in the Nonguarantor Subsidiaries. 49 -------------------------------------------------------------------------------- Table of Contents Summarized Combined Balance Sheets: December 31, December 31, 2021 2020 Assets: Current assets$ 487,797 $ 515,082 Current assets of discontinued operations - - Noncurrent assets 274,292 264,041 Noncurrent assets of discontinued operations - - Intercompany receivables from Nonguarantor Subsidiaries 1,832 2,040 Liabilities: Current liabilities 194,097 180,406 Current liabilities of discontinued operations - 12,719 Noncurrent liabilities 1,536,792 1,508,793 Noncurrent liabilities of discontinued operations - 12,500
Summary Combined Statements of Results:
Year Ended
December 31,
2021
Revenues $ 1,202,557
Cost of sales 758,015
Operating income 316,615
Net income from continuing operations 137,891
Liggett funding. Liggett has not entered into any equipment finance deals in 2021, 2020 and 2019.
Liggett Credit Facility. In
OnOctober 31, 2019 , Liggett and Maple amended the Credit Agreement to, among other things, update the borrowing base to adjust the advance rates in respect of eligible inventory and add certain eligible real property. OnMarch 22, 2021 , Liggett, Maple and Vector Tobacco entered into Amendment No. 4 and Joinder to the Credit Agreement with Wells Fargo. The Credit Agreement was amended to, among other things, (i) add Vector Tobacco as a borrower under the Credit Agreement, (ii) extend the maturity of the Credit Agreement toMarch 22, 2026 , and (iii) increase the amount of the maximum credit line thereunder from$60,000 to$90,000 . SinceOctober 31, 2019 , all borrowings under the Credit Agreement have been limited to a borrowing base equal to the sum of (I) the lesser of 85% of eligible trade receivables less certain reserves and$15,000 ; plus (II) 80% of the value of eligible inventory consisting of packaged cigarettes; plus (III) the designated percentage of the value of eligible inventory consisting of leaf tobacco (i.e., 65% of Liggett's eligible cost of inventory consisting of leaf tobacco less certain reserves or 85% of the net orderly liquidation value of eligible inventory); plus (IV) the lesser of (a) the real property subline amount or (b) 60% of the fair market value of eligible real property. The obligations under the Credit Agreement are collateralized on a first priority basis by all inventories, receivables and certain other personal property of Liggett and Maple, a mortgage on Liggett's manufacturing facility and certain real property of Maple, subject to certain permitted liens. 50
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The term of the Credit Agreement expires onMarch 22, 2026 . Loans under the Credit Agreement bear interest at a rate equal to LIBOR plus 2.25%. The interest rate applicable to this Credit Agreement atDecember 31, 2021 was 2.35%. The Credit Agreement, as amended, permitted the guaranty of the 6.125% Senior Secured Notes due 2025, and permits the guaranty of the 5.75% Senior Secured Notes and the 10.5% Senior Notes, by each of Liggett, Maple and Vector Tobacco. Wells Fargo, Liggett, Maple, Vector Tobacco and the collateral agent for the holders of the 5.75% Senior Secured Notes have entered into an intercreditor agreement, pursuant to which the liens of such collateral agent on the assets that are subject to the Credit Agreement are subordinated to the liens of Wells Fargo on such assets. The Credit Agreement contains customary affirmative and negative covenants, including covenants that limit Liggett's, Maple's, Vector Tobacco's and their subsidiaries' ability to incur, create or assume certain indebtedness, to incur or assume certain liens, to purchase, hold or acquire certain investments, to declare or make certain dividends and distributions and to engage in certain mergers, consolidations and asset sales. The Credit Agreement also requires the Company to comply with specified financial covenants, including that Liggett's earnings before interest, taxes, depreciation and amortization, as defined under the Credit Agreement, on a trailing twelve month basis, shall not be less than$150,000 if Liggett's excess availability, as defined under the Credit Agreement, is less than$30,000 . The covenants also require that annual capital expenditures, as defined under the Credit Agreement (before a maximum carryover amount of$10,000 ), shall not exceed$20,000 during any fiscal year. The Credit Agreement also contains customary events of default. Liggett was in compliance with these covenants as ofDecember 31, 2021 . As ofDecember 31, 2021 , there was$24 in outstanding balance under the Credit Agreement. Availability, as determined under the Credit Agreement, was$80,771 based on eligible collateral atDecember 31, 2021 . Anticipated Liquidity Obligations. We and our subsidiaries have significant indebtedness and debt service obligations. As ofDecember 31, 2021 , we and our subsidiaries had total outstanding indebtedness of$1,430,120 . Of this amount$875,000 comprised of the outstanding amount under our 5.75% Senior Secured Notes due 2029, and$555,000 comprised of the outstanding amount under our 10.5% Senior Notes due 2026. There is a risk that we will not be able to generate sufficient funds to repay our debt. If we cannot service our fixed charges, it would have a material adverse effect on our business and results of operations.
We believe that our cigarette business is a positive cash flow generating unit and will continue to be able to maintain operations without any significant liquidity issues.
In order to meet the above liquidity requirements as well as other anticipated liquidity needs in the normal course of business, we had cash and cash equivalents of approximately$193,400 , investment securities at fair value of approximately$178,800 and availability under Liggett's credit facility of approximately$81,000 as ofDecember 31, 2021 . Management currently anticipates that these amounts, as well as expected cash flows from our operations, proceeds from public and/or private debt and equity financing to the extent available, management fees and other payments from subsidiaries should be sufficient to meet our liquidity needs over the next 12 months. We continue to evaluate our capital structure and current market conditions related to our capital structure. Depending on market conditions, we may utilize our cash, investment securities and long-term investments to repurchase our 10.5% Senior Notes due 2026 in open-market purchases or privately negotiated transactions. There can be no assurance that we would be able to continue to issue debt at a lower interest rate than our historical borrowing levels in the future and, in the event we pursue any capital markets activities, our ability to complete any debt or equity offering would be subject to market conditions. Furthermore, we may access the capital markets to refinance our 10.5% Senior Notes due 2026. We can presently redeem such bonds at price of 105.25% and the redemption price declines to 102.625% onNovember 1, 2022 and 100% onNovember 1, 2023 . There can be no assurance that we would be able to continue to issue debt at a lower interest rate than our historical borrowing levels in the future and, in the event we pursue any capital markets activities, our ability to complete any debt or equity offering would be subject to market conditions.
We may acquire or seek to acquire additional operating businesses through merger, asset purchase, stock acquisition or other means, or to make other investments, which may limit our otherwise available cash.
The total amount of unrecognized tax benefits was$1,653 as ofJanuary 1, 2021 and increased$556 during the year endedDecember 31, 2021 , primarily due to accruals for state tax audits offset by the expiration of various state statutes of limitations and settlements. The total amount of unrecognized tax benefits was$1,647 as ofJanuary 1, 2020 and increased$6 during the year endedDecember 31, 2020 , primarily due to accruals for state tax audits offset by the expiration of various state statutes of limitations. 51 -------------------------------------------------------------------------------- Table of Contents Off-Balance Sheet Arrangements We have various agreements in which we may be obligated to indemnify the other party with respect to certain matters. Generally, these indemnification clauses are included in contracts arising in the normal course of business under which we customarily agree to hold the other party harmless against losses arising from a breach of representations related to such matters as title to assets sold and licensed or certain intellectual property rights. In addition, in connection with the Spin-off, we agreed to indemnify Douglas Elliman for losses arising out of Vector's business or incurred in our provision of services to Douglas Elliman under the Transition Services Agreement. Payment by us under such indemnification clauses is generally conditioned on the other party making a claim that is subject to challenge by us and dispute resolution procedures specified in the particular contract. Further, our obligations under these arrangements may be limited in terms of time and/or amount, and in some instances, we may have recourse against third parties for certain payments made by us. It is not possible to predict the maximum potential amount of future payments under these indemnification agreements due to the conditional nature of our obligations and the unique facts of each particular agreement. Historically, payments made by us under these agreements have not been material. As ofDecember 31, 2021 , we were not aware of any indemnification agreements that would or are reasonably expected to have a current or future material adverse impact on our financial position, results of operations or cash flows.
From
We have a leaf inventory management program whereby, among other things, we are committed to purchase certain quantities of leaf tobacco. The purchase commitments are for quantities not in excess of anticipated requirements and are at prices, including carrying costs, established at the commitment date. AtDecember 31, 2021 , Liggett had tobacco purchase commitments of approximately$13,289 . We have a single source supply agreement for reduced ignition propensity cigarette paper through 2022.
Future commitments to purchase machinery and equipment from Liggett have been
Market risk
We are exposed to market risks principally from fluctuations in interest rates, foreign currency exchange rates and equity prices. We seek to minimize these risks through our regular operating and financing activities and our long-term investment strategy. Our market risk management procedures cover all market risk sensitive financial instruments. As ofDecember 31, 2021 , there was an outstanding balance of$24 on the Liggett Credit Facility which also has variable interest rates. As ofDecember 31, 2021 , we had no interest rate caps or swaps. Based on a hypothetical 100 basis point increase or decrease in interest rates (1%), our annual interest expense could increase or decrease by approximately$0 .
We held available-for-sale debt securities totaling
On a quarterly basis, we evaluate our debt securities available for sale and equity securities without readily determinable fair values that do not qualify for the NAV practical expedient to determine whether an impairment has occurred. If so, we also make a determination if such impairment is considered temporary or other-than-temporary. We believe that the assessment of temporary or other-than-temporary impairment is facts-and-circumstances driven. The impairment indicators that are taken into consideration as part of our analysis include (a) a significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the investee, (b) a significant adverse change in the regulatory, economic, or technological environment of the investee, (c) a significant adverse change in the general market condition of either the geographical area or the industry in which the investee operates, and (d) factors that raise significant concerns about the investee's ability to continue as a going concern, such as negative cash flows from operations, working capital deficiencies, or noncompliance with statutory capital requirements or debt covenants.
Equity Price Risk
As ofDecember 31, 2021 , we held various investments in equity securities with a total fair value of$74,870 , of which$42,781 represents equity securities at fair value and$32,089 represents long-term investment securities at fair value. The latter securities represent long-term investments in various investment partnerships. These investments are illiquid and their ultimate realization is subject to the performance of the underlying entities. See Note 7 to our consolidated financial statements for more details on equity securities at fair value and long-term investment securities at fair value. The impact to our consolidated statement of operations related to equity securities fluctuates based on changes in their fair value. We record changes in the fair value of equity securities in net income. To the extent that we continue to hold equity securities, our operating results may fluctuate significantly. Based on our equity securities held as ofDecember 31, 2021 , a 52
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hypothetical 10% decline in the price of these equity securities would reduce the fair value of the investments and therefore our net income by approximately
New Accounting Pronouncements
Refer to Note 1, Summary of Significant Accounting Policies, to our Consolidated Financial Statements for additional information on new accounting pronouncements.
Legislation, Regulation, Taxation and Litigation
Inthe United States , tobacco products are subject to substantial and increasing legislation, regulation, taxation, and litigation, which have a negative effect on revenue and profitability. The cigarette industry continues to be challenged on numerous fronts. The industry faces increased pressure from anti-smoking groups and continued smoking and health litigation, the effects of which, at this time, we are unable to quantify. Product liability litigation, particularly inFlorida in the Engle progeny cases, continues to adversely affect the cigarette industry. See Item 1. "Business - Legislation and Regulation", Item 1A. "Risk Factors", Item 3. "Legal Proceedings" and Note 15 to our consolidated financial statements, which contain a description of litigation. 53
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS In addition to historical information, this report contains "forward-looking statements" within the meaning of the federal securities law. Forward-looking statements include information relating to our intent, belief or current expectations, primarily with respect to, but not limited to: •economic outlook, •capital expenditures, •cost reduction, •competition,
• legislation and regulations,
•cash flows, •operating performance, •litigation, and
• related industry developments (including trends affecting our business, financial condition and results of operations).
We identify forward-looking statements in this report by using words or phrases such as “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may be”, ” aim”, “plan”, “seek”, “predict”, “project” and “will” and similar words or expressions or their negatives.
The forward-looking information involves important risks and uncertainties that could cause our actual results, performance or achievements to differ materially from our anticipated results, performance or achievements expressed or implied by the forward-looking statements. Factors that could cause actual results to differ materially from those suggested by the forward-looking statements include, without limitation, the following:
• general economic and market conditions and any changes thereto, whether due to acts of war and terrorism or otherwise,
• government regulations and policies,
•adverse changes in global, national, regional and local economic and market conditions, including those related to pandemics and health crises, such as the outbreak of COVID-19,
• significant changes in the price, availability or quality of tobacco, other raw materials or components, including as a result of the COVID-19 pandemic,
•potential dilution to our holders of or common stock as a result of issuances of additional shares of common stock to fund our financial obligations and other financing activities,
• the impacts of the Tax Cuts and Jobs Act of 2017, including the deductibility of interest charges and the impact of markets on our Real Estate segment,
• effects of industrial competition,
• the impact of business combinations, including acquisitions and divestitures, both internally for us and externally in the tobacco industry,
•impact of legislation on our results of operations and product costs, i.e. the impact of federal legislation providing for regulation of tobacco products by FDA,
• impact of substantial increases in federal, state and local excise taxes,
•uncertainty related to product liability and other tobacco-related litigations including the Engle progeny cases pending inFlorida and other individual and class action cases where certain plaintiffs have alleged compensatory and punitive damage amounts ranging into the hundreds of million and even billions of dollars; and,
•potential additional payment obligations for us under the MSA and other state settlement agreements.
Further information on the risks and uncertainties to our business include the risk factors discussed above under Item 1A. "Risk Factors" and in "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there is a risk that these expectations will not be achieved and that any deviations could be material. Forward-looking statements speak only as of the date they are made.
54 -------------------------------------------------------------------------------- Table of Contents ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Market Risk” is incorporated herein by reference.
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