CONDENSED CONSOLIDATING FINANCIAL INFORMATION

The accompanying condensed consolidating financial information has been prepared and presented pursuant to Securities and Exchange Commission Regulation S-X, Rule 3-10, “Financial Statements of Guarantors and Issuers of Guaranteed Securities Registered or Being Registered.” Each of the subsidiary guarantors are 100% owned, directly or indirectly, by the Company, and all guarantees are joint and several and subject to certain automatic release provisions. Relief from the financial statement requirements under Rule 3-10 is being provided because the Company's guarantee release provisions are considered customary. Such release provisions are as follows:


•	the sale or other disposition of all or substantially all of the assets or all of the capital stock of any subsidiary guarantor; and


•	the satisfaction of the requirements for legal defeasance or the satisfaction and discharge of the indenture.

The Company's investments in its consolidated subsidiaries are presented under the equity method of accounting.

The indenture of the 7.75% Senior Secured Notes contains covenants that restrict the payment of dividends by the Company if the Company's consolidated earnings before interest, taxes, depreciation and amortization, as defined in the indenture, for the most recently ended four full quarters is less than $75,000 and the indenture also restricts the incurrence of debt if the Company's Leverage Ratio and its Secured Leverage Ratio, as defined in the indenture, exceed 3.0 and 1.5, respectively.

At March 31, 2015, management believed that the Company was in compliance with all covenants under the indentures of the 7.75% Senior Secured Notes.

CONDENSED CONSOLIDATING BALANCE SHEETS



				March 31, 2015
						Subsidiary					Consolidated
	Parent/			Subsidiary		Non-		Consolidating			Vector Group
	Issuer			Guarantors		Guarantors		Adjustments			Ltd.
ASSETS:
Current assets:
Cash and cash equivalents	$	155,176		$	26,104	$	89,292	$	—		$	270,572
Investment securities available for sale	286,256			66,555		—		—			352,811
Accounts receivable - trade, net	—			12,633		5,459		—			18,092
Intercompany receivables	894			10		—		(904		)	—
Inventories	—			99,058		—		—			99,058
Deferred income taxes	23,429			4,628		—		—			28,057
Income taxes receivable, net	20,738			—		—		(13,937		)	6,801
Restricted assets	—			807		1,414		—			2,221
Other current assets	876			7,760		34,753		—			43,389
Total current assets	487,369			217,555		130,918		(14,841		)	821,001
Property, plant and equipment, net	2,411			58,967		20,915		—			82,293
Real estate held for sale, net	—			—		10,592		—			10,592
Long-term investments accounted for at cost	36,540			—		588		—			37,128
Long-term investments accounted for under the equity method	8,031			—		—		—			8,031
Investments in real estate ventures	—			—		170,780		—			170,780
Investments in consolidated subsidiaries	511,101			—		—		(511,101		)	—
Restricted assets	1,708			17,612		—		—			19,320
Deferred income taxes	36,170			7,806		5,619		—			49,595
Goodwill and other intangible assets, net	—			107,511		161,010		—			268,521
Prepaid pension costs	—			25,833		—		—			25,833
Other assets	44,004			11,548		2,277		—			57,829
Total assets	$	1,127,334		$	446,832	$	502,699	$	(525,942	)	$	1,550,923
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of notes payable and long-term debt	$	—		$	20,520	$	344	$	—		$	20,864
Current portion of fair value of derivatives embedded within convertible debt	—			—		—		—			—
Current portion of employee benefits	—			931		—		—			931
Accounts payable	1,088			6,382		7,289		—			14,759
Intercompany payables	—			—		904		(904		)	—
Accrued promotional expenses	—			17,196		—		—			17,196
Income taxes payable, net	—			15,458		232		(13,937		)	1,753
Accrued excise and payroll taxes payable, net	—			20,561		8		—			20,569
Litigation accruals and current payments due under the Master Settlement Agreement	—			54,890		—		—			54,890
Deferred income taxes	43,630			14,969		—		—			58,599
Accrued interest	16,121			—		—		—			16,121
Other current liabilities	4,298			11,246		22,472		—			38,016
Total current liabilities	65,137			162,153		31,249		(14,841		)	243,698
Notes payable, long-term debt and other obligations, less current portion	858,187			9,927		19		—			868,133
Fair value of derivatives embedded within convertible debt	162,039			—		—		—			162,039
Non-current employee benefits	33,112			16,392		—		—			49,504
Deferred income taxes	61,031			41,414		44,687		—			147,132
Other liabilities, primarily litigation accruals and payments due under the Master Settlement Agreement	887			48,881		4,303		—			54,071
Total liabilities	1,180,393			278,767		80,258		(14,841		)	1,524,577
Commitments and contingencies
Stockholders' (deficiency) equity attributed to Vector Group Ltd.	(53,059		)	168,065		343,036		(511,101		)	(53,059		)
Non-controlling interest	—			—		79,405		—			79,405
Total stockholders' (deficiency) equity	(53,059		)	168,065		422,441		(511,101		)	26,346
Total liabilities and stockholders' equity	$	1,127,334		$	446,832	$	502,699	$	(525,942	)	$	1,550,923

CONDENSED CONSOLIDATING BALANCE SHEETS



				December 31, 2014
						Subsidiary					Consolidated
	Parent/			Subsidiary		Non-		Consolidating			Vector Group
	Issuer			Guarantors		Guarantors		Adjustments			Ltd.
ASSETS:
Current assets:
Cash and cash equivalents	$	211,751		$	9,724	$	104,890	$	—		$	326,365
Investment securities available for sale	278,010			68,033		—		—			346,043
Accounts receivable - trade, net	—			18,024		5,304		—			23,328
Intercompany receivables	795			267		—		(1,062		)	—
Inventories	—			90,323		—		—			90,323
Deferred income taxes	24,541			4,651		—		—			29,192
Income taxes receivable, net	1,055			463		21		1,743			3,282
Restricted assets	—			1,181		1,414		—			2,595
Other current assets	899			9,133		26,686		—			36,718
Total current assets	517,051			201,799		138,315		681			857,846
Property, plant and equipment, net	2,648			61,149		20,315		—			84,112
Real estate held for sale, net	—			—		10,643		—			10,643
Long-term investments accounted for at cost	31,541			—		698		—			32,239
Long-term investments accounted for under the equity method	8,053			—		—		—			8,053
Investments in real estate ventures	—			—		163,460		—			163,460
Investments in consolidated subsidiaries	518,963			—		—		(518,963		)	—
Restricted assets	1,707			10,306		—		—			12,013
Deferred income taxes	37,117			8,393		5,619		—			51,129
Goodwill and other intangible assets, net	—			107,511		162,461		—			269,972
Prepaid pension costs	—			25,032		—		—			25,032
Other assets	45,904			10,743		2,246		—			58,893
Total assets	$	1,162,984		$	424,933	$	503,757	$	(518,282	)	$	1,573,392
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of notes payable and long-term debt	$	25,000		$	27,248	$	392	$	—		$	52,640
Current portion of fair value of derivatives embedded within convertible debt	884			—		—		—			884
Current portion of employee benefits	—			931		—		—			931
Accounts payable	1,295			2,676		6,885		—			10,856
Intercompany payables	—			—		1,062		(1,062		)	—
Accrued promotional expenses	—			20,191		—		—			20,191
Income taxes payable, net	—			—		—		1,743			1,743
Accrued excise and payroll taxes payable, net	—			23,172		—		—			23,172
Litigation accruals and current payments due under the Master Settlement Agreement	—			29,471		—		—			29,471
Deferred income taxes	41,993			15,678		—		—			57,671
Accrued interest	28,321			—		—		—			28,321
Other current liabilities	7,037			12,638		24,540		—			44,215
Total current liabilities	104,530			132,005		32,879		681			270,095
Notes payable, long-term debt and other obligations, less current portion	852,560			8,120		31		—			860,711
Fair value of derivatives embedded within convertible debt	168,502			—		—		—			168,502
Non-current employee benefits	32,842			16,472		—		—			49,314
Deferred income taxes	60,656			40,694		44,289		—			145,639
Other liabilities, primarily litigation accruals and payments due under the Master Settlement Agreement	921			51,775		4,383		—			57,079
Total liabilities	1,220,011			249,066		81,582		681			1,551,340
Commitments and contingencies
Stockholders' (deficiency) equity attributed to Vector Group Ltd.	(57,027		)	175,867		343,096		(518,963		)	(57,027		)
Non-controlling interest	—			—		79,079		—			79,079
Total stockholders' (deficiency) equity	(57,027		)	175,867		422,175		(518,963		)	22,052
Total liabilities and stockholders' equity	$	1,162,984		$	424,933	$	503,757	$	(518,282	)	$	1,573,392

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS



				Three Months Ended March 31, 2015
							Subsidiary						Consolidated
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.
Revenues	$	—		$	228,623		$	132,256		$	(119	)	$	360,760
Expenses:
Cost of sales	—			157,660			84,358			—			242,018
Operating, selling, administrative and general expenses	6,957			21,337			45,769			(119		)	73,944
Litigation settlement and judgment expense	—			843			—			—			843
Management fee expense	—			2,562			—			(2,562		)	—
Operating (loss) income	(6,957		)	46,221			2,129			2,562			43,955
Other income (expenses):
Interest expense	(30,754		)	(991		)	(1		)	—			(31,746		)
Change in fair value of derivatives embedded within convertible debt	6,460			—			—			—			6,460
Equity income from real estate ventures	—			—			338			—			338
Equity loss on long-term investments	(37		)	—			—			—			(37		)
(Loss) gain on sale of investment securities available for sale	(146		)	13,175			—			—			13,029
Equity income in consolidated subsidiaries	35,994			—			—			(35,994		)	—
Management fee income	2,562			—			—			(2,562		)	—
Other, net	1,024			320			552			—			1,896
Income before provision for income taxes	8,146			58,725			3,018			(35,994		)	33,895
Income tax benefit (expense)	12,810			(24,181		)	(1,308		)	—			(12,679		)
Net income	20,956			34,544			1,710			(35,994		)	21,216
Net income attributed to non-controlling interest	—			—			(260		)	—			(260		)
Net income attributed to Vector Group Ltd.	20,956			34,544			1,450			(35,994		)	20,956
Comprehensive income attributed to non-controlling interest	—			—			(260		)	—			(260		)
Comprehensive income attributed to Vector Group Ltd.	$	22,955		$	33,656		$	1,450		$	(35,106	)	$	22,955

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS



				Three Months Ended March 31, 2014
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.
Revenues	$	—		$	239,192		$	108,044		$	—		$	347,236
Expenses:
Cost of sales	—			171,713			67,324			—			239,037
Operating, selling, administrative and general expenses	6,283			21,685			36,009			—			63,977
Litigation judgment expense	—			1,500									1,500
Management fee expense	—			2,467			—			(2,467		)	—
Operating (loss) income	(6,283		)	41,827			4,711			2,467			42,722
Other income (expenses):
Interest expense	(34,782		)	(955		)	(34		)	318			(35,453		)
Change in fair value of derivatives embedded within convertible debt	(1,650		)	—			—			—			(1,650		)
Acceleration of interest expense related to debt conversion	(3,679		)	—			—			—			(3,679		)
Equity income from real estate ventures	—			—			1,552			—			1,552
Loss on sale of investment securities available for sale	(53		)	—			—			—			(53		)
Equity income on long-term investments	906			—			—			—			906
Equity income in consolidated subsidiaries	28,667			—			—			(28,667		)	—
Management fee income	2,467			—			—			(2,467		)	—
Other, net	698			260			1,486			(318		)	2,126
(Loss) income before provision for income taxes	(13,709		)	41,132			7,715			(28,667		)	6,471
Income tax benefit (expense)	17,238			(16,639		)	(3,541		)	—			(2,942		)
Net income	3,529			24,493			4,174			(28,667		)	3,529
Comprehensive income attributed to non-controlling interest	—			—			(949		)	—			(949		)
Comprehensive income attributed to Vector Group Ltd.	$	7,888		$	25,195		$	3,225		$	(28,420	)	$	7,888

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS



				Three Months Ended March 31, 2015
							Subsidiary						Consolidated
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.
Net cash (used in) provided by operating activities	$	(1,451	)	$	58,885		$	(4,122	)	$	(45,484	)	$	7,828
Cash flows from investing activities:
Sale of investment securities	61,123			14,415			—			—			75,538
Purchase of investment securities	(66,152		)	(1,476		)	—			—			(67,628		)
Proceeds from sale or liquidation of long-term investments	—			—			110			—			110
Purchase of long-term investments	(5,000		)	—			—			—			(5,000		)
Investments in real estate ventures	—			—			(7,816		)	—			(7,816		)
Increase in cash surrender value of life insurance policies	(558		)	(48		)	—			—			(606		)
Increase in restricted assets	(1		)	(6,932		)	—			—			(6,933		)
Investments in subsidiaries	(1,969		)	—			—			1,969			—
Proceeds from sale of fixed assets	—			3			—			—			3
Capital expenditures	—			(956		)	(2,200		)	—			(3,156		)
Repayments of notes receivable	1,106			—			—			—			1,106
Pay downs of investment securities	1,594			—			—			—			1,594
Net cash (used in) provided by investing activities	(9,857		)	5,006			(9,906		)	1,969			(12,788		)
Cash flows from financing activities:
Deferred financing costs	—			(585		)	—			—			(585		)
Repayments of debt	—			(1,797		)	(60		)	—			(1,857		)
Borrowings under revolver	—			107,668			—			—			107,668
Repayments on revolver	—			(110,792		)	—			—			(110,792		)
Capital contributions received	—			1,950			19			(1,969		)	—
Intercompany dividends paid	—			(43,955		)	(1,529		)	45,484			—
Dividends and distributions on common stock	(46,350		)	—			—			—			(46,350		)
Proceeds from exercise of Vector options	809			—			—			—			809
Tax benefit of options exercised	274			—			—			—			274
Net cash used in financing activities	(45,267		)	(47,511		)	(1,570		)	43,515			(50,833		)
Net (decrease) increase in cash and cash equivalents	(56,575		)	16,380			(15,598		)	—			(55,793		)
Cash and cash equivalents, beginning of period	211,751			9,724			104,890			—			326,365
Cash and cash equivalents, end of period	$	155,176		$	26,104		$	89,292		$	—		$	270,572

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS



				Three Months Ended March 31, 2014
							Subsidiary						Consolidated
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.
Net cash (used in) provided by operating activities	$	(36,859	)	$	1,776		$	1,880		$	(5,881	)	$	(39,084	)
Cash flows from investing activities:
Sale of investment securities	35,009			—			—			—			35,009
Purchase of investment securities	(36,763		)	—			—			—			(36,763		)
Purchase of long-term investments	(1,000		)	—			—			—			(1,000		)
Investments in real estate ventures	—			—			(4,068		)	—			(4,068		)
Distributions from investment in real estate ventures	—			—			2,575			—			2,575
Increase in cash surrender value of life insurance policies	—			(47		)	—			—			(47		)
Decrease (increase) in restricted assets	300			(1		)	(689		)	—			(390		)
Issuance of notes receivable	(35,000		)	—			—			35,000			—
Repayments of notes receivable	10,933			—			—			(10,000		)	933
Investments in subsidiaries	(7,081		)	—			—			7,081			—
Capital expenditures	—			(4,551		)	(1,873		)	—			(6,424		)
Net cash used in investing activities	(33,602		)	(4,599		)	(4,055		)	32,081			(10,175		)
Cash flows from financing activities:
Proceeds from issuance of debt	258,750			36,758			—			(35,000		)	260,508
Deferred financing costs	(8,210		)	—			—			—			(8,210		)
Repayments of debt	—			(12,120		)	(95		)	10,000			(2,215		)
Borrowings under revolver	—			196,842			—			—			196,842
Repayments on revolver	—			(211,520		)	—			—			(211,520		)
Capital contributions received	—			350			6,731			(7,081		)	—
Intercompany dividends paid	—			—			(5,881		)	5,881			—
Dividends and distributions on common stock	(40,865		)	—			—			—			(40,865		)
Proceeds from exercise of Vector options	1,385			—			—			—			1,385
Tax benefits from of options exercised	344			—			—			—			344
Net cash provided by financing activities	211,404			10,310			755			(26,200		)	196,269
Net increase (decrease) in cash and cash equivalents	140,943			7,487			(1,420		)	—			147,010
Cash and cash equivalents, beginning of period	151,342			11,812			71,312			—			234,466
Cash and cash equivalents, end of period	$	292,285		$	19,299		$	69,892		$	—		$	381,476