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Revenue Recognition

3 Months Ended

Mar. 31, 2018

Revenue from Contract with Customer [Abstract]

REVENUE RECOGNITION

Revenue Recognition Accounting Pronouncement Adoption

On January 1, 2018, the Company adopted Topic 606 applying the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported under the FASB Accounting Standard Codification Topic 605 (“Topic 605”) in effect for the prior periods and are, therefore, not comparative.

The following practical expedients and optional disclosure exemptions available under Topic 606 have been applied:


1.	The Company applied the practical expedient in paragraph 606-10-65-1(h) of Topic 606, and did not restate contracts that were completed as of the date of initial application i.e. January 1, 2018.


2.	The Company applied the practical expedient in paragraph 606-10-65-1(f)(4) of Topic 606, and did not separately evaluate the effects of contract modifications. Instead, the Company reflected the aggregate effect of all the modifications that occurred before the initial application date, i.e. January 1, 2018.


3.	The Company applied the optional exemption in paragraph 606-10-50-14 of Topic 606, and has not disclosed the amount of the transaction price allocated to the remaining performance obligations for the Real Estate property management business because the contracts to provide property management services are typically annual contracts and provide cancellation rights to customers.

The Company applied the optional exemption in paragraph 606-10-50-14A of Topic 606, and has not disclosed the amount of the transaction price allocated to the remaining performance obligations for the Real Estate development marketing business because the transaction prices in these contracts are comprised entirely of variable consideration based on the ultimate selling price of each unit in the subject property. The total contract transaction price is allocated to each unit in the subject property and recognized when the performance obligation, i.e. the sale of each unit, is satisfied. Accordingly, the transaction price allocated to the remaining performance obligations for the development marketing business represents variable consideration allocated entirely to wholly unsatisfied performance obligations.

The details of the significant changes and quantitative impact of the changes resulting in the adoption of Topic 606 are set out below.

Tobacco: The adoption of the new revenue standard had no impact on the timing of Tobacco revenue recognition. However, certain amounts previously classified as revenue, cost of sales and operating, selling, administrative and general expenses in the condensed consolidated statement of operations are classified differently beginning January 1, 2018. Certain amounts previously classified as other current liabilities on the condensed consolidated balance sheet as of January 1, 2018 and March 31, 2018 were also reclassified.

Upon adoption of the new revenue standard, the Company elected to account for shipping and handling expenses that occur after the customer has obtained control of cigarettes as a fulfillment activity in cost of sales. Prior to the adoption of Topic 606, these costs were recorded as operating, selling, administrative and general expenses. In addition, the Company determined that payments to customers attributed to the sharing of sales data that were previously presented as operating, selling, administrative and general expenses do not constitute a distinct service under the new standard and are now presented as a reduction in Tobacco revenue.

Prior to the adoption of Topic 606, the Company’s allowance for expected sales returns, net of expected federal excise tax recoveries was presented in other current liabilities. Changes in the allowance for expected returns were reflected as a change in Tobacco revenue. Upon adoption of Topic 606, the Company records an allowance for goods estimated to be returned in other current liabilities and an associated receivable for anticipated federal excise tax refunds in other current assets on the condensed consolidated balance sheet. Changes in the liability for sales returns continue to be reflected in Tobacco revenue, while changes in the receivable associated with expected federal excise tax refunds on returns are reflected in Tobacco cost of sales.

Real Estate. Certain services and advanced payments in the Company’s Real Estate development marketing business do not meet the requirements for revenue recognition as a separate performance obligation. Accordingly, these revenues, previously recognized, have been deferred under the new standard until the performance obligation is met. In addition, certain direct fulfillment

costs in its Real Estate development marketing business that were previously expensed upon payment, have now been deferred under the new standard until the performance obligation is met. Certain expense reimbursements, previously recorded as a reduction of operating expense, are now presented as revenue under Topic 606 as the Company is the principal in the related transaction.

Some real estate brokerage commercial leasing contracts specify extended payment terms for commission payments. Under Topic 606, revenue is recognized at the time the performance obligation is satisfied, including any amounts of future payments for extended payment terms. Accordingly, these future payments, previously recognized as revenue upon receipt, have been accrued under the new standard when the performance obligation is satisfied.

Impacts on Financial Statements on January 1, 2018:

The Company recorded an adjustment of $21,695 due to the cumulative impact of adopting Topic 606 which resulted in an increase to opening stockholders’ deficiency, allocated to increases in accumulated deficit and decreases in non-controlling interest as of January 1, 2018. The following tables summarize the impacts of Topic 606 adoption on the Company’s condensed consolidated balance sheet as of January 1, 2018.




	As Previously Reported			Adjustments							As Revised
	December 31, 2017			Tobacco			Real Estate				January 1, 2018
ASSETS:
Accounts receivable - trade, net	$	29,481		$	—		$	4,514		⁽²⁾	$	33,995
Other current assets	21,121			2,525		⁽¹⁾	623			⁽³⁾	24,269
Total current assets	613,709			2,525			5,137				621,371
Other assets	36,786			—			3,740			⁽³⁾	40,526
Total assets	$	1,328,278		$	2,525		$	8,877			$	1,339,680
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY:
Other current liabilities	$	157,123		$	2,525	⁽¹⁾	$	7,806		⁽²⁾⁽⁴⁾	$	167,454
Total current liabilities	204,639			2,525			7,806				214,970
Deferred income taxes, net	58,801			—			(5,217		)	⁽⁵⁾	53,584
Other liabilities	22,380			—			27,983			⁽⁴⁾	50,363
Total liabilities	1,660,038			2,525			30,572				1,693,135
Accumulated deficit	(414,785		)	—			(13,780		)		(428,565		)
Total Vector Group Ltd. stockholders' deficiency	(413,919		)	—			(13,780		)	⁽⁶⁾	(427,699		)
Non-controlling interest	82,159			—			(7,915		)	⁽⁶⁾	74,244
Total stockholders' deficiency	(331,760		)	—			(21,695		)		(353,455		)
Total liabilities and stockholders' deficiency	$	1,328,278		$	2,525		$	8,877			$	1,339,680

⁽¹⁾

Adjustments to other current assets and other current liabilities for $2,525 relates to the presentation as a receivable the component of the allowance for sales returns representing the federal excise tax refunds expected for future returned product as a receivable in other current assets, which was previously presented as a reduction to the allowance for sales returns liability in other current liabilities.


⁽²⁾	Adjustments of $4,514 to accounts receivable and $3,139 to other current liabilities relate to commission receivables and commissions payable from the Real Estate commercial leasing contracts for which the performance obligation has been satisfied, have extended payment terms and are expected to be received and paid in the next twelve-months.


⁽³⁾	Adjustments of $623 to other current assets and $3,740 to other assets represents the current and noncurrent portions, respectively, of deferred contract costs relating to direct fulfillment costs incurred in advance of the satisfaction of performance obligations for Development Marketing arrangements.


⁽⁴⁾	Adjustments of $4,667 to other current liabilities and $27,983 to other liabilities relate to the current and long term portions, respectively, of contract liabilities representing payments received from customers in advance of the performance obligations being satisfied under contracts for Real Estate development marketing.


⁽⁵⁾	Adjustment reflects the tax effect of the adoption of Topic 606 which was estimated to result in a decrease in net deferred income tax liability of $5,217 based on a recalculation of the income tax provision using the current annual effective tax rate of approximately 38.10% and the Company’s deferred rate of approximately 27.46%.


⁽⁶⁾	The allocation of the net impact of the adoption of Topic 606 between accumulated deficit and non-controlling interest is based on relative ownership interest of 70.59% and 29.41%, respectively.

Impacts on Financial Statements at March 31, 2018:

The following table compares the reported condensed consolidated balance sheet as of March 31,2018, to the pro-forma amounts had the previous guidance been in effect:



	As Reported			Pro forma as if the previous accounting guidance were in effect			Increase/(Decrease)

ASSETS:
Accounts receivable - trade, net	$	23,321		$	18,666		$	4,655		⁽¹⁾
Income taxes receivable, net	3,576			4,606			(1,030		)	⁽⁶⁾
Other current assets	28,320			25,208			3,112			⁽²⁾⁽³⁾
Total current assets	571,684			564,947			6,737
Other assets	46,749			42,270			4,479			⁽⁴⁾
Total assets	$	1,299,122		$	1,287,906		$	11,216
LIABILITIES AND STOCKHOLDERS' DEFICIENCY:							—
Other current liabilities	$	131,407		$	120,731		$	10,676		^(1)(2)(4)
Total current liabilities	404,337			393,661			10,676
Deferred income taxes, net	48,421			54,070			(5,649		)	⁽⁵⁾
Other liabilities	53,285			22,578			30,707			⁽⁴⁾
Total liabilities	1,693,341			1,657,607			35,734
Stockholders' deficiency:							—
Accumulated deficit	(459,996		)	(444,048		)	(15,948		)	⁽⁶⁾
Total Vector Group Ltd. stockholders' deficiency	(464,916		)	(448,968		)	(15,948		)
Non-controlling interest	70,697			79,267			(8,570		)	⁽⁶⁾
Total stockholders' deficiency	(394,219		)	(369,701		)	(24,518		)
Total liabilities and stockholders' deficiency	$	1,299,122		$	1,287,906		$	11,216


⁽¹⁾	Adjustments of $4,655 to accounts receivable and $3,333 to other current liabilities relate to commission receivables and commissions payable from the Real Estate commercial leasing contracts for which the performance obligation has been satisfied, have extended payment terms and are expected to be received and paid in the next twelve-months.


⁽²⁾	Adjustments to other current assets and other current liabilities for $2,390 relates to the presentation of the component of the allowance for sales returns representing the federal excise tax refunds expected for future returned product as a receivable in other current assets, which was previously presented as a reduction to the allowance for sales returns liability in other current liabilities.


⁽³⁾	Adjustments of $722 to other current assets and $4,479 to other assets represents the current and noncurrent portions, respectively, of deferred contract costs relating to direct fulfillment costs incurred in advance of the satisfaction of performance obligations for Development Marketing arrangements.


⁽⁴⁾	Adjustments of $4,953 to other current liabilities and $30,707 to other liabilities relate to the current and long term portions, respectively, of contract liabilities representing payments received from customers in advance of the performance obligations being satisfied under contracts for Real Estate development marketing.


⁽⁵⁾	Adjustments reflect the tax effect of the adoption of Topic 606 based on a recalculation of the income tax provision using the current annual effective tax rate of approximately 38.10% and the Company’s deferred rate approximately 27.46%.


⁽⁶⁾	The allocation of the net impact of the adoption of Topic 606 between accumulated deficit and non-controlling interest is based on relative ownership interest of 70.59% and 29.41%, respectively.

The following table compares the reported condensed consolidated statement of operations for the three months ended March 31, 2018, to the pro-forma amounts had the previous guidance been in effect:



	As Reported		Pro forma as if the previous accounting guidance were in effect		Increase/(Decrease)
Revenues:
Tobacco	$	267,116	$	267,489	$	(373	)
Real estate	161,850		163,805		(1,955		)
Total revenues	428,966		431,294		(2,328		)	⁽¹⁾

Expenses:
Cost of sales:
Tobacco	184,962		183,475		1,487
Real estate	109,313		108,674		639
Total cost of sales	294,275		292,149		2,126			⁽²⁾

Operating, selling, administrative and general expenses	89,076		91,305		(2,229		)	⁽³⁾
Operating income	48,084		50,309		(2,225		)
Other income (expenses):
Income before provision for income taxes	5,612		7,837		(2,225		)
Income tax expense	1,948		2,546		(598		)	⁽⁴⁾

Net income	3,664		5,291		(1,627		)

Net loss attributed to non-controlling interest	3,547		2,892		655

Net income attributed to Vector Group Ltd.	$	7,211	$	8,183	$	(972	)

Per basic common share:

Net income applicable to common share attributed to Vector Group Ltd.	$	0.04	$	0.05

Per diluted common share:

Net income applicable to common share attributed to Vector Group Ltd.	$	0.04	$	0.05

⁽¹⁾

The impact to revenue for the three months ended March 31, 2018 was a decrease of $2,328 primarily due to a $2,751 decrease to revenue from the Real Estate Development Marketing business representing advance payments for services and commissions that are deferred since they do not constitute satisfied performance obligations under Topic 606, and which would have been previously recognized as revenue upon receipt.


⁽²⁾	The impact to cost of sales was an increase of $2,126 primarily related to the reclassification of $1,352 of Tobacco shipping and handling costs from operating, selling, administrative and general expenses to costs of sales as a result of adopting Topic 606.


⁽³⁾	The impact to operating, selling, administrative and general expenses was a decrease of $2,229 primarily due to:


•	The reclassification of $1,352 Tobacco shipping and handling costs to cost of sales,


•	The deferral of $1,212 of direct costs in the Real Estate Development Marketing business related to performance obligations not satisfied as discussed above, offset by the amortization of previously deferred contract costs of $374.


⁽⁴⁾	The net impact of the adoption of Topic 606 was estimated to result in a decrease in income taxes of $598 based on a recalculation of the income tax provision using the current annual effective tax rate of approximately 38.10% and the Company’s deferred rate approximately 27.46%.

The adoption of the standard did not have a material impact to the Company’s condensed consolidated statement of cash flows for the three months ended March 31, 2018.

Revenue Recognition Policies

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.

Tobacco sales: Prior to the adoption of Topic 606 revenues from cigarette sales, which included federal excise taxes billed to customers, were recognized upon the shipment of finished goods when title and risk of loss had passed to the customer, there was persuasive evidence of an arrangement, the sale price was fixed or determinable and collectability was reasonably assured. The Company provided an allowance for expected sales returns, net of any related cost recoveries (e.g. federal excise taxes). Certain sales incentives, including promotional price discounts, were presented as reductions of net sales. Shipping and handling fees related to sales transactions were recorded as operating, selling, administrative and general expenses.

After the adoption of Topic 606, 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 days from the time that the cigarettes are shipped to the customer. The Company records an allowance 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 condensed consolidated balance sheet. 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 the Company’s condensed consolidated balance sheet. The Company accounts for shipping and handling costs as fulfillment costs as part of cost of sales.

Real estate sales: Prior to the adoption of Topic 606, revenue was recognized only when persuasive evidence of an arrangement existed, the price was fixed or determinable, the transaction had been completed and collectability of the resulting receivable was reasonably assured. Real estate commissions earned by the Company’s real estate brokerage businesses were recorded as revenue upon the closing of a real estate sale or leasing transaction, as evidenced when the escrow or similar account was closed, the transaction documents have been recorded and funds were distributed to all appropriate parties. Agents’ commissions expense was recognized as cost of sales concurrently with related revenues. Property management fees were recorded as revenue when the related services were performed and the earnings process was complete. Title insurance commission fee revenue is earned when the sale of the title insurance policy is completed, which corresponds to the point in time when the underlying real estate sale transaction closes and the payment is received.

After the adoption of Topic 606, real estate commissions earned by the Company’s real estate brokerage businesses are recognized as revenue at the point in time that the real estate sale is completed or lease agreement is executed, which is the point in time that the performance obligation is satisfied. Any commission and other payments received in advance are deferred until the satisfaction of the performance obligation. Corresponding agent commission expenses, including any advance commission or other direct expense payments, are deferred and recognized as cost of sales concurrently with related revenues. The accounting for these commissions and other brokerage income under Topic 606 are largely consistent with the previous accounting for these transactions under Topic 605, except for customer arrangements in the development marketing business and extended payments terms that exist in some commercial leasing contracts.

The Company’s Real Estate revenue contracts with customers do not have multiple material performance obligations to customers under Topic 606, except for contracts in the Company’s development marketing business. Contracts in the development marketing business provide the Company with the exclusive right to sell units in a subject property for a commission fee per unit sold calculated as a percentage of the sales price of each unit. Accordingly, a performance obligation exists for each unit in the development marketing property under contract, and a portion of the total contract transaction price is allocated to and recognized at the time each unit is sold.

Under development marketing service arrangements, dedicated administrative staff are required for a subject property and these costs are typically reimbursed from the customer through advance payments that sometimes are recoupable from future commission earnings. Advance payments received and associated direct costs paid are deferred, allocated to each unit in the subject property, and recognized consistent with the pattern of value transferred to the customer, which is at the time of the completed sale of each unit. Under Topic 605 any advance payments received that were non-refundable were recognized as revenue when

received. Similarly, under Topic 605 any non-refundable advance payments made of commission expenses and other direct costs were expensed when paid.

Development marketing service arrangements also include direct fulfillment costs incurred in advance of the satisfaction of the performance obligation. The Company capitalizes costs incurred in fulfilling a contract with a customer if the fulfillment costs 1) relate directly to an existing contract or anticipated contract, 2) generate or enhance resources that will be used to satisfy performance obligations in the future, and 3) are expected to be recovered. These costs are amortized over the estimated customer relationship period which is the contract term. The Company uses an amortization method that is consistent with the pattern of transfer of goods or services to its customers by allocating these costs to each unit the subject property and expensing these costs as each unit is sold. Under Topic 605, these direct costs were expensed as incurred.

Revenue is recognized at the time the performance obligation is met for commercial leasing contracts, which is when the lease agreement is executed, as there are no further performance obligations, including any amounts of future payments under extended payment terms. Under Topic 605, these future payments were recognized as revenue upon receipt because collectibility might not have been reasonably assured at the time the performance obligation was met.

Property management revenue arrangements consist of providing operational and administrative services to manage a subject property. Fees for these services are typically billed and collected monthly. Property management service fees are recognized as revenue over time using the output method as the performance obligations under the customer arrangement are satisfied each month, which are largely consistent with the accounting practices under Topic 605.

Disaggregation of Revenue

In the following table, revenue is disaggregated by major product line for the Tobacco segment:



	Three Months Ended
	March 31, 2018		March 31, 2017
Tobacco Segment Revenues:
Core Discount Brands - Pyramid, Grand Prix, Liggett Select, Eve and EAGLE 20’s	$	241,531	$	227,572
Other Brands	25,585		29,882
Total tobacco revenues	$	267,116	$	257,454

In the following table, revenue is disaggregated by major services line and primary geographical market for the Real Estate segment:



	Three Months Ended March 31, 2018
	Total		New York City		Northeast		Southeast		West
Real Estate Segment Revenues:
Commission and other brokerage income	$	138,896	$	60,408	$	32,678	$	24,398	$	21,412
Development marketing	11,220		10,610		123		293		194
Property management income	8,338		8,138		200		—		—
Title fees	989		—		989		—		—
Total Douglas Elliman Realty revenue	159,443		79,156		33,990		24,691		21,606
Other real estate revenues	2,407		—		—		—		2,407
Total real estate revenues	$	161,850	$	79,156	$	33,990	$	24,691	$	24,013



	Three Months Ended March 31, 2017
	Total		New York City		Northeast		Southeast		West
Real Estate Segment Revenues:
Commission and other brokerage income	$	134,504	$	80,819	$	23,630	$	22,928	$	7,127
Development marketing	12,389		9,014		79		3,095		201
Property management income	7,783		7,613		170		—		—
Title fees	861		—		861		—		—
Total Douglas Elliman Realty revenue	155,537		97,446		24,740		26,023		7,328
Other real estate revenues	2,217		—		—		—		2,217
Total real estate revenues	$	157,754	$	97,446	$	24,740	$	26,023	$	9,545

The majority of the Company’s consolidated revenues are recognized at point in time. A small portion of revenues from contracts with customers are earned by providing services, such as property management, and these performance obligations are satisfied over time.

Contract Balances

The following table provides information about receivables, contracts assets, and contract liabilities from contracts with customers:




	March 31, 2018		At Adoption

Receivables, which are included in accounts receivable, net	$	4,655	$	4,514
Contract costs, net, which are included in other current assets	722		623
Payables, which are included in other current liabilities	3,333		3,139
Contract liabilities, which are included in other current liabilities	4,953		4,667
Contract costs, net, which are included in other assets	4,479		3,740
Contract liabilities, which are included in other liabilities	30,707		27,983

Receivables and payables relate to commission receivables and commissions payable from the Real Estate commercial leasing contracts for which the performance obligation has been satisfied, have extended payment terms and are expected to be received and paid in the next twelve-months.

Contract costs relate to direct fulfillment costs incurred in advance of the satisfaction of the performance obligation for Development Marketing arrangements. The Company capitalizes costs incurred in fulfilling a contract with a customer if the fulfillment costs 1) relate directly to an existing contract or anticipated contract, 2) generate or enhance resources that will be used to satisfy performance obligations in the future, and 3) are expected to be recovered. These costs are amortized over the estimated customer relationship period consistent with the pattern of transfer of goods or services to its customers.

Contract liabilities relate to payments received in advance of the performance obligations being satisfied under the contract for the Real Estate development marketing and are recognized as revenue at the points in time when the Company performs under the contract. Performance obligations related to the Real Estate development marketing contracts are considered satisfied when each unit is closed. Development marketing projects tend to span 4 to 6 years from the time the Company enters into the contract with the developer to the time that all of the sales of the units in a subject property are closed. The timing for sales closings are dependent upon several external factors outside the Company’s control, including but not limited to, economic factors, seller and buyer actions, construction timing and other real estate market factors. Accordingly, all contract liabilities and contract costs associated with development marketing are considered long-term until closing dates for unit sales are scheduled. As of March 31, 2018, the Company estimates approximately $4,950 of contract liabilities will be recognized as revenue within the next twelve months.

Contract liabilities increased by $3,010 during the three months ended March 31, 2018 due to $3,961 of advance payments received from customer prior to the satisfaction of performance obligations for Real Estate development marketing contracts, offset by revenue recognized for units sold during the quarter. Revenue recognized during the current reporting period that was included in the contract liabilities balance at January 1, 2018 was $951.

Topic 606 requires an entity to disclose the revenue recognized in the reporting period from performance obligations satisfied (or partially satisfied) in previous periods (for example, due to changes in transaction price). For the three months ended March 31, 2018, there was no revenue recognized relating to performance obligations satisfied or partially satisfied in prior periods.