The condensed consolidated financial statements of Vector Group Ltd. (the “Company” or “Vector”) include the accounts of Liggett Group LLC (“Liggett”), Vector Tobacco Inc. (“Vector Tobacco”), Liggett Vector Brands LLC (“Liggett Vector Brands”), New Valley LLC (“New Valley”) and other less significant subsidiaries. New Valley includes the accounts of Douglas Elliman Realty, LLC (“Douglas Elliman”) and other less significant subsidiaries. All significant intercompany balances and transactions have been eliminated.

Liggett and Vector Tobacco are engaged in the manufacture and sale of cigarettes in the United States. Liggett Vector Brands coordinates Liggett and Vector Tobacco’s sales and marketing efforts. Certain references to “Liggett” refer to the Company’s tobacco operations, including the business of Liggett and Vector Tobacco, unless otherwise specified. New Valley is engaged in the real estate business.

The unaudited, interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and, in management’s opinion, contain all adjustments, consisting only of normal recurring items, necessary for a fair statement of the results for the periods presented. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission (“SEC”). The consolidated results of operations for interim periods should not be regarded as necessarily indicative of the results that may be expected for the entire year.

The Company records distributions on its common stock as dividends in its condensed consolidated statement of stockholders’ deficiency to the extent of retained earnings. Any amounts exceeding retained earnings are recorded as a reduction to additional paid-in capital to the extent paid-in-capital is available and then to accumulated deficit. The Company’s stock dividends are recorded as stock splits and given retroactive effect to earnings per share for all periods presented. On November 5, 2019, the Company announced that its board of directors decided that the Company will no longer pay an annual stock dividend.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Net income attributed to Vector Group Ltd.	$	38,139	$	36,008	$	60,682	$	90,268
Income attributed to participating securities	(708)		(2,023)		(1,976)		(6,052)
Net income applicable to common shares attributed to Vector Group Ltd.	$	37,431	$	33,985	$	58,706	$	84,216


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019
Net income attributed to Vector Group Ltd.	$	38,139	$	36,008	$	60,682	$	90,268

Income attributable to 7.5% Variable Interest Senior Convertible Notes	—		—		—		(1,246)
Income attributed to participating securities	(708)		(2,023)		(1,976)		(6,052)
Net income applicable to common shares attributed to Vector Group Ltd.	$	37,431	$	33,985	$	58,706	$	82,970


	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2020	2019	2020	2019
Weighted-average shares for basic EPS	152,216,118	146,703,766	149,541,642	146,562,252
Plus incremental shares related to convertible debt	—	—	—	961,191
Plus incremental shares related to stock options and non-vested restricted stock	8,470	32,374	32,007	13,782
Weighted-average shares for diluted EPS	152,224,588	146,736,140	149,573,649	147,537,225

The following non-vested restricted stock and shares issuable upon the conversion of convertible debt were outstanding during the three and nine months ended September 30, 2020 and 2019, but were not included in the computation of diluted EPS because the impact of the per share expense associated with the restricted stock were greater than the average market price of the common shares during the respective periods and the common shares issuable under the convertible debt were anti-dilutive to EPS.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019


Weighted-average shares of non-vested restricted stock	612,538		1,012,285		555,918		1,274,549
Weighted-average expense per share	$	18.29	$	18.03	$	19.54	$	17.95
Weighted-average number of shares issuable upon conversion of debt	—		11,447,061		3,237,522		11,447,061
Weighted-average conversion price	$	—	$	20.27	$	20.27	$	20.27

In response to the current novel coronavirus pandemic (“COVID-19”), the Company's Real Estate segment, including Douglas Elliman, has commenced a restructuring by realigning its administrative support function and office locations as well as adjusting its business model to more efficiently serve its clients. This included a reduction of staff by approximately 25% at Douglas Elliman.


	Three Months Ended September 30, 2020		Nine Months Ended September 30, 2020
Cash Charges:
Employee severance and benefits	$	186	$	1,785

Other restructuring expenses	64		282
	250		2,067
Non-Cash:
Loss on fixed assets associated with consolidation of sales offices	70		1,214
	70		1,214

Total restructuring charges	$	320	$	3,281

All amounts expensed for the three and nine months ended September 30, 2020 are included as Restructuring charges in the Company’s condensed consolidated statements of operations and are all attributable to the Company’s Real Estate segment.


	Employee Severance and Benefits		Other		Non-Cash Loss on Fixed Assets		Total
Accrual balance as of January 1, 2020	$	—	$	—	$	—	$	—
Restructuring charges	1,785		282		1,214		3,281
Utilized	(1,735)		(282)		(1,214)		(3,231)

Accrual balance as of September 30, 2020	$	50	$	—	$	—	$	50

In accounting for its investments in real estate ventures, the Company identified its participation in Variable Interest Entities (“VIE”), which are defined as (a) entities in which the equity investment at risk is not sufficient to finance its activities without additional subordinated financial support; (b) as a group, the equity investors at risk lack 1) the power to direct the activities of a legal entity that most significantly impact the entity’s economic performance, 2) the obligation to absorb the expected losses of the entity, or 3) the right to receive the expected residual returns of the entity; or (c) as a group, the equity investors have voting rights that are not proportionate to their economic interests and the entity’s activities involve or are conducted on behalf of an investor with a disproportionately small voting interest.

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

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

The Company’s maximum exposure to loss in its investments in unconsolidated VIEs is limited to its investment in the VIE, any unfunded capital commitments to the VIE, and, in some cases, guarantees in connection with debt on the specific project. The Company’s maximum exposure to loss in its investment in consolidated VIEs is limited to its investment, which is the carrying value of the investment net of the non-controlling interest. Creditors of the consolidated VIEs have no recourse to the general credit of the primary beneficiary.

On a quarterly basis, the Company evaluates its investments in real estate ventures to determine if there are indicators of impairment. If so, the Company further investigates to determine if an impairment has occurred and whether such impairment is considered temporary or other than temporary. The Company believes that the assessment of temporary or other-than-temporary impairment is facts-and-circumstances driven.


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2020		2019		2020		2019

Interest and dividend income	$	1,251	$	3,083	$	5,331	$	9,430






Net gains (losses) recognized on investment securities	2,516		(1,487)		(4,943)		5,601
Net periodic benefit cost other than the service costs	(452)		(576)		(1,361)		(1,692)


Credit loss expense	(8,576)		—		(9,008)		—
Other income	165		1,203		1,865		1,105
Other, net	$	(5,096)	$	2,223	$	(8,116)	$	14,444


	September 30, 2020		December 31, 2019
Restricted assets	$	4,008	$	5,241
Prepaid pension costs	32,467		31,686
Equity-method investments	16,240		15,942
Contract assets, net	26,083		18,443
Other assets	36,250		48,778
Total other assets	$	115,048	$	120,090


	September 30, 2020		December 31, 2019
Accounts payable	$	11,962	$	10,222
Accrued promotional expenses	45,966		35,900
Accrued excise and payroll taxes payable, net	2,817		18,653
Accrued interest	33,159		35,756
Commissions payable	28,972		18,378
Accrued salary and benefits	19,059		29,464
Contract liabilities	9,725		9,358
Allowance for sales returns	7,857		7,785
Other current liabilities	34,511		23,801
Total other current liabilities	$	194,028	$	189,317


	September 30, 2020		December 31, 2019
Cash and cash equivalents	$	451,071	$	371,341
Restricted cash and cash equivalents included in other current assets	7,224		4,423
Restricted cash and cash equivalents included in other assets	2,461		3,712
Total cash, cash equivalents, and restricted cash shown in the condensed consolidated statements of cash flows	$	460,756	$	379,476

Amounts included in current restricted assets and non-current restricted assets represent cash and cash equivalents required to be deposited into escrow for bonds required to appeal adverse product liability judgments, amounts required for letters of credit related to office leases, and certain deposit requirements for banking arrangements. The restrictions related to the appellate bonds will remain in place until the appeal process has been completed. The restrictions related to the letters of credit will remain in place for the duration of the respective lease. The restrictions related to the banking arrangements will remain in place for the duration of the arrangement.

In March 2020, the Securities and Exchange Commission (“SEC”) adopted final rules that amend the financial disclosure requirement for guarantors of registered debt securities in Rule 3-10 of Regulation S-X. The new Rule 13-01 of Regulation S-X amends and streamlines the disclosures required by guarantors and issuers of guaranteed securities. Among other things, the new disclosures may be located outside the financial statements. The new rule is effective January 4, 2021, and early adoption is permitted. The Company elected to early adopt the new rule on September 30, 2020. Accordingly, the revised condensed consolidating financial information is presented in Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations.

In October 2018, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2018-17, Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities. The guidance requires indirect interests

held through related parties under common control arrangements be considered on a proportional basis for determining whether fees paid to decision makers and service providers are variable interests. The guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Adoption of this update did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other Internal Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The amendments in this update align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted. Adoption of this update did not have a material impact on the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which is designed to improve the effectiveness of disclosures by removing, modifying and adding disclosures related to fair value measurements. The ASU eliminates disclosures such as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy. The ASU also adds new disclosure requirements for Level 3 measurements. ASU No. 2018-13 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The adoption of ASU 2018-13 impacted financial statement disclosure and had no impact on operating results.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), sets forth a current expected credit loss model that changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. Subsequent updates were released in November 2018 (ASU No. 2018-19), November 2019 (ASU No. 2019-10 and 2019-11) and February 2020 (ASU No. 2020-02) that provided additional guidance on this Topic. This guidance is effective for fiscal years beginning after December 15, 2019.

The ASU introduces a new accounting model, the Current Expected Credit Losses model (CECL), which requires earlier recognition of credit losses and additional disclosures related to credit risk. The CECL model utilizes a lifetime expected credit loss measurement objective for the recognition of credit losses for notes and other receivables at the time the financial asset is originated or acquired. The expected credit losses are adjusted each period for changes in expected lifetime credit losses. This model replaced the previous impairment models in U.S. GAAP, which generally required that a loss be incurred before it is recognized. The new standard applies to receivables arising from revenue transactions such as contract assets and accounts receivables. The adoption of this standard resulted in an increase in stockholders’ deficiency of $2,263, net of tax, attributed to commercial real estate term loans allowance for credit losses of $3,100 as of January 1, 2020.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount. Under the amendments of the ASU, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The amendments in this update are effective for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. This guidance was adopted on January 1, 2020, on a prospective basis. The Company applied the new guidance to evaluate its goodwill during the first quarter of 2020. As a result, a goodwill impairment charge of $46,252 was recorded as the Company's estimated fair value of a reporting unit was less than its book value.

In August 2018, the FASB issued ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans (“ASU 2018-14”). ASU 2018-14 eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The ASU also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. ASU 2018-14 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. The Company will adopt for the period

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This update simplifies various aspects related to accounting for income taxes, removes certain exceptions to the general principles in Accounting Standards Codification (“ASC”) 740, and clarifies and amends existing guidance to improve consistent application. ASU No. 2019-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020. Early adoption is permitted. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements and related disclosures.

In January 2020, the FASB issued ASU No. 2020-01, Investments-Equity Securities (Topic 321), Investments-Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) (“ASU 2020-01”). The new standard clarifies the interaction of accounting for the transition into and out of the equity method. The new standard also clarifies the accounting for measuring certain purchased options and forward contracts to acquire investments. The ASU is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted, including early adoption in an interim period. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU No. 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”). This ASU is intended to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. This guidance is effective for all entities for contract modifications beginning March 12, 2020 and can be applied prospectively through December 31, 2022. The Company has not yet determined the extent to which it will utilize these expedients and exceptions should a modification occur. The Company is currently evaluating the impact of the new guidance on its condensed consolidated financial statements.