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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2018

Net income for purposes of determining basic and diluted EPS

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



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Net income attributed to Vector Group Ltd.	$	12,002		$	19,264		$	37,031		$	41,848
Income attributed to participating securities	(1,722		)	(1,496		)	(5,186		)	(4,480		)
Net income applicable to common shares attributed to Vector Group Ltd.	$	10,280		$	17,768		$	31,845		$	37,368

Basic and diluted EPS calculation shares

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



	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2018	2017	2018	2017
Weighted-average shares for basic EPS	139,486,936	139,287,231	139,359,798	138,949,907
Plus incremental shares related to stock options and non-vested restricted stock	25,038	140,692	176,819	266,567
Weighted-average shares for diluted EPS	139,511,974	139,427,923	139,536,617	139,216,474

Outstanding shares not included in the computation of diluted EPS

The following were outstanding during the three and nine months ended September 30, 2018 and 2017, but were not included in the computation of diluted EPS because the effect was anti-dilutive.



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2018		2017		2018		2017
Weighted-average number of shares issuable upon conversion of debt	28,819,625		28,819,625		28,819,625		28,819,625
Weighted-average conversion price	$	16.96	$	16.96	$	16.96	$	16.96

Schedule of other income (loss), net

Other, net consisted of:



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2018			2017			2018			2017
Interest and dividend income	$	2,466		$	1,826		$	6,533		$	5,196
Gain on long-term investment	—			—			—			162
Net periodic benefit cost other than the service costs	(254		)	(490		)	(761		)	(1,470		)
Impairment of debt securities available for sale	(161		)	(53		)	(972		)	(179		)
Impairment of long-term investments	—			—			—			(525		)
Other (expense) income	(3		)	91			(39		)	268
Other, net	$	2,048		$	1,374		$	4,761		$	3,452

Schedule of other current liabilities

Other current liabilities consisted of:



	September 30, 2018		December 31, 2017
Accounts payable	$	12,158	$	18,552
Accrued promotional expenses	32,282		30,691
Accrued excise and payroll taxes payable, net	777		11,946
Accrued interest	20,124		33,138
Commissions payable	16,475		14,320
Accrued salary and benefits	24,304		29,639
Contract liabilities	8,043		—
Allowance for sales returns	6,945		5,632
Other current liabilities	19,301		13,205
Total other current liabilities	$	140,409	$	157,123

Schedule of goodwill and other intangible assets, net

The components of “Goodwill and other intangible assets, net” were as follows:



	September 30, 2018		December 31, 2017
Goodwill	$	77,568	$	77,059

Indefinite life intangibles:
Intangible asset associated with benefit under the MSA	107,511		107,511
Trademark - Douglas Elliman	80,000		80,000

Intangibles with a finite life, net	1,954		3,138

Total goodwill and other intangible assets, net	$	267,033	$	267,708

Schedule of components of cash, cash equivalents and restricted cash

The components of “Cash, cash equivalents and restricted cash” in the Statement of Cash Flows were as follows:



	September 30, 2018		December 31, 2017
Cash and cash equivalents	$	363,719	$	301,353
Restricted cash and cash equivalents included in current restricted assets	2,762		9,081
Restricted cash and cash equivalents included in non-current restricted assets	4,448		503
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	370,929	$	310,937

Schedule of new accounting pronouncements



	Three Months Ended							Nine Months Ended
	September 30, 2017							September 30, 2017
	As Previously Reported		Adoption of ASU 2017-07			As Revised		As Previously Reported		Adoption of ASU 2017-07			As Revised
Operating, selling, administrative and general expenses	$	83,172	$	(490	)	$	82,682	$	251,124	$	(1,470	)	$	249,654
Operating income	59,233		490			59,723		185,974		1,470			187,444
Other, net	1,864		(490		)	1,374		4,922		(1,470		)	3,452
Income before provision for income taxes	$	26,950	$	—		$	26,950	$	70,316	$	—		$	70,316



	Nine Months Ended
	September 30, 2017
	As Previously Reported			Adoption of ASU 2016-18		As Revised
Decrease in restricted assets	$	(3,541	)	$	5,653	$	2,112
Net cash used in investing activities	(51,425		)	5,653		(45,772		)
Net increase in cash, cash equivalents and restricted cash	2,530			5,653		8,183
Cash, cash equivalents and restricted cash, beginning of period	393,530			5,048		398,578
Cash, cash equivalents and restricted cash, end of period	396,060			10,701		406,761

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 Company’s deferred rate of approximately 27.26%.


⁽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 September 30, 2018:

The following table compares the reported condensed consolidated balance sheet as of September 30, 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	$	27,918		$	25,945		$	1,973		⁽¹⁾
Other current assets	45,671			41,938			3,733			⁽²⁾⁽³⁾
Total current assets	661,668			655,962			5,706
Other assets	52,076			47,808			4,268			⁽³⁾
Total assets	$	1,346,874		$	1,336,900		$	9,974
LIABILITIES AND STOCKHOLDERS' DEFICIENCY:
Income taxes payable, net	$	5,079		$	4,256		$	823		⁽⁶⁾
Other current liabilities	140,409			128,982			11,427			^(1)(2)(4)
Total current liabilities	524,096			511,846			12,250
Deferred income taxes, net	51,587			57,162			(5,575		)	⁽⁵⁾
Other liabilities	52,730			25,416			27,314			⁽⁴⁾
Total liabilities	1,819,324			1,785,335			33,989
Stockholders' deficiency:							—
Accumulated deficit	(541,202		)	(525,647		)	(15,555		)	⁽⁶⁾
Total Vector Group Ltd. stockholders' deficiency	(544,830		)	(529,275		)	(15,555		)
Non-controlling interest	72,380			80,840			(8,460		)	⁽⁶⁾
Total stockholders' deficiency	(472,450		)	(448,435		)	(24,015		)
Total liabilities and stockholders' deficiency	$	1,346,874		$	1,336,900		$	9,974


⁽¹⁾	Adjustments of $1,973 to accounts receivable and $1,295 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 $2,089 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 $1,644 to other current assets and $4,268 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 $8,043 to other current liabilities and $27,314 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 estimated annual effective tax rate of approximately 35.49% and the Company’s deferred rate approximately 27.26%.


⁽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 September 30, 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	$	302,009		$	302,483		$	(474	)
Real estate	211,860			208,861			2,999
Total revenues	513,869			511,344			2,525			⁽¹⁾

Expenses:
Cost of sales:
Tobacco	219,769			218,030			1,739
Real estate	140,533			140,603			(70		)
Total cost of sales	360,302			358,633			1,669			⁽²⁾

Operating, selling, administrative and general expenses	87,549			89,933			(2,384		)	⁽³⁾
Operating income	66,018			62,778			3,240
Income before provision for income taxes	29,714			26,474			3,240
Income tax expense	14,686			13,740			946			⁽⁴⁾

Net income	15,028			12,734			2,294

Net income attributed to non-controlling interest	(3,026		)	(2,073		)	(953		)

Net income attributed to Vector Group Ltd.	$	12,002		$	10,661		$	1,341

Per basic common share:

Net income applicable to common share attributed to Vector Group Ltd.	$	0.07		$	0.06

Per diluted common share:

Net income applicable to common share attributed to Vector Group Ltd.	$	0.07		$	0.05

⁽¹⁾

The impact to revenue for the three months ended September 30, 2018 was an increase of $2,525 primarily due to $8,428 in revenue recognized for performance obligations satisfied in the current period for a significant number of property sale closings that occurred in the Real Estate Development Marketing business, offset by $5,454 in advance commission and reimbursable services payments received in the current period that are deferred since they do not constitute satisfied performance obligations under Topic 606. Commission payments for these businesses would have been previously recognized as revenue upon receipt. Additionally, certain incentive payments to customers of the Tobacco business, approximating $574 for the period, that were previously classified as operating, selling, administrative and general expenses are now classified as a reduction in revenue under Topic 606. Also, the change in federal excise tax receivable component of the sales returns reserve, approximating $100 for the period, that was previously presented as a net impact to cost of sales of the Tobacco business is now presented on a gross basis as an adjustment to revenue.


⁽²⁾	The impact to cost of sales was an increase of $1,669 primarily related to the reclassification of $1,639 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 $2,384 primarily due to:


•	The reclassification of $1,639 Tobacco shipping and handling costs to cost of sales,


•	The reclassification of $574 incentive payments to customers to revenue for the Tobacco business,


⁽⁴⁾	The net impact of the adoption of Topic 606 was estimated to result in an increase in income taxes of $946 based on a recalculation of the income tax provision using the estimated annual effective tax rate of approximately 35.49% and the Company’s deferred rate approximately 27.26%.

The following table compares the reported condensed consolidated statement of operations for the nine months ended September 30, 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	$	843,958		$	845,116		$	(1,158	)
Real estate	580,365			585,194			(4,829		)
Total revenues	1,424,323			1,430,310			(5,987		)	⁽¹⁾

Expenses:
Cost of sales:
Tobacco	597,492			592,747			4,745
Real estate	389,851			391,695			(1,844		)
Total cost of sales	987,343			984,442			2,901			⁽²⁾

Operating, selling, administrative and general expenses	262,961			269,994			(7,033		)	⁽³⁾
Operating income	175,963			177,818			(1,855		)
Income before provision for income taxes	67,082			68,937			(1,855		)
Income tax expense	29,394			29,859			(465		)	⁽⁴⁾

Net income	37,688			39,078			(1,390		)

Net income attributed to non-controlling interest	(657		)	(1,202		)	545

Net income attributed to Vector Group Ltd.	$	37,031		$	37,876		$	(845	)

Per basic common share:

Net income applicable to common share attributed to Vector Group Ltd.	$	0.23		$	0.23

Per diluted common share:

Net income applicable to common share attributed to Vector Group Ltd.	$	0.23		$	0.23

⁽¹⁾

The impact to revenue for the nine months ended September 30, 2018 was a decrease of $5,987 primarily due to $3,973 of commission revenue payments received in the current period for the Real Estate Commercial Leasing business relating to performance obligations satisfied and accrued for in prior periods under Topic 606, and $15,551 in advance commission and reimbursable services payments received in the current period for the Real Estate Development Marketing business that are deferred since they do not constitute satisfied performance obligations under Topic 606. These decreases were offset by $14,697 in revenue recognized for performance obligations satisfied in the current period. Commission payments for these businesses would have been previously recognized as revenue upon receipt. Additionally, certain incentive payments to customers of the Tobacco business, approximating $1,594 for the period, that were previously classified as operating, selling, administrative and general expenses are now classified as a reduction in revenue under Topic 606. Also, the change in federal excise tax receivable component of the sales returns reserve, approximating $436 for the period, that was previously presented as a net impact to cost of sales of the Tobacco business is now presented on a gross basis as an adjustment to revenue.

⁽²⁾

The impact to cost of sales was an increase of $2,901 primarily related to the reclassification of $4,309 of Tobacco shipping and handling costs from operating, selling, administrative and general expenses to costs of sales as a result of adopting Topic 606, offset by a $1,844 decrease from the Real Estate business related primarily to commission expense payments made in the current period that relate to performance obligations satisfied and accrued for in prior periods or deferred until the performance obligation is satisfied.


⁽³⁾	The impact to operating, selling, administrative and general expenses was a decrease of $7,033 primarily due to:


•	The reclassification of $4,309 Tobacco shipping and handling costs to cost of sales,


•	The reclassification of $1,594 incentive payments to customers to revenue for the Tobacco business,


•	The deferral of $2,547 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 $998.


•	The reclassification of $419 of reimbursable service payments to revenue related to the Real Estate Development Marketing business.


⁽⁴⁾	The net impact of the adoption of Topic 606 was estimated to result in an increase in income taxes of $465 based on a recalculation of the income tax provision using the estimated annual effective tax rate of approximately 35.49% and the Company’s deferred rate approximately 27.26%.