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 June 30, 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



				June 30, 2015
						Subsidiary					Consolidated
	Parent/			Subsidiary		Non-		Consolidating			Vector Group
	Issuer			Guarantors		Guarantors		Adjustments			Ltd.
ASSETS:
Current assets:
Cash and cash equivalents	$	111,503		$	24,020	$	102,800	$	—		$	238,323
Investment securities available for sale	277,483			65,094		—		—			342,577
Accounts receivable - trade, net	—			12,471		5,551		—			18,022
Intercompany receivables	1,744			—		—		(1,744		)	—
Inventories	—			98,576		—		—			98,576
Income taxes receivable, net	2,343			—		—		(2,343		)	—
Restricted assets	—			910		1,414		—			2,324
Other current assets	910			7,078		37,248		—			45,236
Total current assets	393,983			208,149		147,013		(4,087		)	745,058
Property, plant and equipment, net	2,177			57,228		20,043		—			79,448
Real estate held for sale, net	—			—		23,043		—			23,043
Long-term investments	45,669			—		550		—			46,219
Investments in real estate ventures	—			—		199,026		—			199,026
Investments in consolidated subsidiaries	563,658			—		—		(563,658		)	—
Restricted assets	3,034			17,186		—		—			20,220
Goodwill and other intangible assets, net	—			107,511		159,489		—			267,000
Prepaid pension costs	—			26,635		—		—			26,635
Other assets	42,810			11,701		1,683		—			56,194
Total assets	$	1,051,331		$	428,410	$	550,847	$	(567,745	)	$	1,462,843
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of notes payable and long-term debt	$	—		$	5,788	$	286	$	—		$	6,074
Current portion of employee benefits	—			931		—		—			931
Intercompany payables	—			405		1,339		(1,744		)	—
Income taxes payable, net	78			5,985		3		(2,343		)	3,723
Litigation accruals and current payments due under the Master Settlement Agreement	—			66,103		—		—			66,103
Deferred income taxes, net	18,734			9,588		—		—			28,322
Other current liabilities	34,318			54,264		36,941		—			125,523
Total current liabilities	53,130			143,064		38,569		(4,087		)	230,676
Notes payable, long-term debt and other obligations, less current portion	864,399			8,583		17		—			872,999
Fair value of derivatives embedded within convertible debt	156,783			—		—		—			156,783
Non-current employee benefits	33,381			16,324		—		—			49,705
Deferred income taxes, net	24,155			34,560		39,465		—			98,180
Other liabilities, primarily litigation accruals and payments due under the Master Settlement Agreement	2,469			49,460		4,237		—			56,166
Total liabilities	1,134,317			251,991		82,288		(4,087		)	1,464,509
Commitments and contingencies
Stockholders' (deficiency) equity attributed to Vector Group Ltd.	(82,986		)	176,419		387,239		(563,658		)	(82,986		)
Non-controlling interest	—			—		81,320		—			81,320
Total stockholders' (deficiency) equity	(82,986		)	176,419		468,559		(563,658		)	(1,666		)
Total liabilities and stockholders' equity	$	1,051,331		$	428,410	$	550,847	$	(567,745	)	$	1,462,843

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
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	492,510			197,148		138,315		681			828,654
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	39,594			—		698		—			40,292
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
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	$	1,101,326		$	411,889	$	498,138	$	(518,282	)	$	1,493,071
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
Intercompany payables	—			—		1,062		(1,062		)	—
Income taxes payable, net	—			—		—		1,743			1,743
Litigation accruals and current payments due under the Master Settlement Agreement	—			29,471		—		—			29,471
Deferred income taxes, net	17,452			11,027		—		—			28,479
Other current liabilities	36,653			58,677		31,425		—			126,755
Total current liabilities	79,989			127,354		32,879		681			240,903
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, net	23,539			32,301		38,670		—			94,510
Other liabilities, primarily litigation accruals and payments due under the Master Settlement Agreement	921			51,775		4,383		—			57,079
Total liabilities	1,158,353			236,022		75,963		681			1,471,019
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	$	1,101,326		$	411,889	$	498,138	$	(518,282	)	$	1,493,071

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS



				Three Months Ended June 30, 2015
							Subsidiary						Consolidated
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.
Revenues	$	—		$	255,291		$	161,022		$	(140	)	$	416,173
Expenses:
Cost of sales	—			175,334			103,870			—			279,204
Operating, selling, administrative and general expenses	6,937			22,555			50,327			(140		)	79,679
Litigation settlement and judgment expense	—			1,250			—			—			1,250
Management fee expense	—			2,563			—			(2,563		)	—
Operating (loss) income	(6,937		)	53,589			6,825			2,563			56,040
Other income (expenses):
Interest expense	(30,880		)	(879		)	(2		)	—			(31,761		)
Change in fair value of derivatives embedded within convertible debt	5,256			—			—			—			5,256
Equity income from real estate ventures	—			—			1,856			—			1,856
Equity loss on long-term investments	(1,657		)	—			—			—			(1,657		)
Loss on sale of investment securities available for sale	(190		)	—			—			—			(190		)
Equity income in consolidated subsidiaries	35,754			—			—			(35,754		)	—
Management fee income	2,563			—			—			(2,563		)	—
Other, net	896			200			429			—			1,525
Income before provision for income taxes	4,805			52,910			9,108			(35,754		)	31,069
Income tax benefit (expense)	13,063			(21,226		)	(3,201		)	—			(11,364		)
Net income	17,868			31,684			5,907			(35,754		)	19,705
Net income attributed to non-controlling interest	—			—			(1,837		)	—			(1,837		)
Net income attributed to Vector Group Ltd.	17,868			31,684			4,070			(35,754		)	17,868
Comprehensive income attributed to non-controlling interest	—			—			(1,837		)	—			(1,837		)
Comprehensive income attributed to Vector Group Ltd.	$	15,087		$	31,933		$	4,070		$	(36,003	)	$	15,087

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS



				Three Months Ended June 30, 2014
							Subsidiary						Consolidated
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.
Revenues	$	—		$	253,125		$	153,488		$	—		$	406,613
Expenses:
Cost of sales	—			181,517			97,765			—			279,282
Operating, selling, administrative and general expenses	4,933			22,190			39,900			—			67,023
Management fee expense	—			2,468			—			(2,468		)	—
Operating (loss) income	(4,933		)	46,950			15,823			2,468			60,308
Other income (expenses):
Interest expense	(43,190		)	(1,284		)	(3		)	294			(44,183		)
Change in fair value of derivatives embedded within convertible debt	1,970			—			—			—			1,970
Acceleration of interest expense related to debt conversion	(439		)	—			—			—			(439		)
Equity loss from real estate ventures	—			—			(1,808		)	—			(1,808		)
Equity loss on long-term investments	(273		)	—			—			—			(273		)
Loss on sale of investment securities available for sale	(18		)	—			—			—			(18		)
Equity income in consolidated subsidiaries	32,408			—			—			(32,408		)	—
Management fee income	2,468			—			—			(2,468		)	—
Other, net	1,068			224			2,577			(294		)	3,575
(Loss) income before provision for income taxes	(10,939		)	45,890			16,589			(32,408		)	19,132
Income tax benefit (expense)	18,864			(19,716		)	(5,249		)	—			(6,101		)
Net income	7,925			26,174			11,340			(32,408		)	13,031
Net income attributed to non-controlling interest	—			—			(5,106		)	—			(5,106		)
Net income attributed to Vector Group Ltd.	7,925			26,174			6,234			(32,408		)	7,925
Comprehensive income attributed to non-controlling interest	—			—			(5,106		)	—			(5,106		)
Comprehensive income attributed to Vector Group Ltd.	$	9,436		$	25,464		$	6,234		$	(31,698	)	$	9,436

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS



				Six Months Ended June 30, 2015
							Subsidiary						Consolidated
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.
Revenues	$	—		$	483,914		$	293,278		$	(259	)	$	776,933
Expenses:
Cost of sales	—			332,994			188,228			—			521,222
Operating, selling, administrative and general expenses	13,894			43,892			96,096			(259		)	153,623
Litigation settlement and judgment expense	—			2,093			—			—			2,093
Management fee expense	—			5,125			—			(5,125		)	—
Operating (loss) income	(13,894		)	99,810			8,954			5,125			99,995
Other income (expenses):
Interest expense	(61,634		)	(1,870		)	(3		)	—			(63,507		)
Change in fair value of derivatives embedded within convertible debt	11,716			—			—			—			11,716
Equity income from real estate ventures	—			—			2,194			—			2,194
Equity loss on long-term investments	(1,694		)	—			—			—			(1,694		)
(Loss) gain on sale of investment securities available for sale	(336		)	13,175			—			—			12,839
Equity income in consolidated subsidiaries	71,748			—			—			(71,748		)	—
Management fee income	5,125			—			—			(5,125		)	—
Other, net	1,920			520			981			—			3,421
Income before provision for income taxes	12,951			111,635			12,126			(71,748		)	64,964
Income tax benefit (expense)	25,873			(45,407		)	(4,509		)	—			(24,043		)
Net income	38,824			66,228			7,617			(71,748		)	40,921
Net income attributed to non-controlling interest	—			—			(2,097		)	—			(2,097		)
Net income attributed to Vector Group Ltd.	38,824			66,228			5,520			(71,748		)	38,824
Comprehensive income attributed to non-controlling interest	—			—			(2,097		)	—			(2,097		)
Comprehensive income attributed to Vector Group Ltd.	$	38,042		$	65,589		$	5,520		$	(71,109	)	$	38,042

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS



				Six Months Ended June 30, 2014
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.
Revenues	$	—		$	492,317		$	261,532		$	—		$	753,849
Expenses:
Cost of sales	—			353,230			165,089			—			518,319
Operating, selling, administrative and general expenses	11,216			43,875			75,909			—			131,000
Litigation judgment expense	—			1,500			—			—			1,500
Management fee expense	—			4,935			—			(4,935		)	—
Operating (loss) income	(11,216		)	88,777			20,534			4,935			103,030
Other income (expenses):
Interest expense	(77,972		)	(2,239		)	(37		)	612			(79,636		)
Change in fair value of derivatives embedded within convertible debt	320			—			—			—			320
Acceleration of interest expense related to debt conversion	(4,118		)	—			—			—			(4,118		)
Equity loss from real estate ventures	—			—			(256		)	—			(256		)
Loss on sale of investment securities available for sale	(71		)	—			—			—			(71		)
Equity income on long-term investments	633			—			—			—			633
Equity income in consolidated subsidiaries	60,126			—			—			(60,126		)	—
Management fee income	4,935			—			—			(4,935		)	—
Other, net	1,766			484			4,063			(612		)	5,701
(Loss) income before provision for income taxes	(25,597		)	87,022			24,304			(60,126		)	25,603
Income tax benefit (expense)	36,102			(36,355		)	(8,790		)	—			(9,043		)
Net income	10,505			50,667			15,514			(60,126		)	16,560
Net income attributed to non-controlling interest	—			—			(6,055		)	—			(6,055		)
Net income attributed to Vector Group Ltd.	10,505			50,667			9,459			(60,126		)	10,505
Comprehensive income attributed to non-controlling interest	—			—			(6,055		)	—			(6,055		)
Comprehensive income attributed to Vector Group Ltd.	$	17,324		$	50,659		$	9,459		$	(60,118	)	$	17,324

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS



				Six Months Ended June 30, 2015
							Subsidiary						Consolidated
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.
Net cash provided by operating activities	$	42,679		$	99,159		$	13,057		$	(71,010	)	$	83,885
Cash flows from investing activities:
Sale of investment securities	103,846			14,415			—			—			118,261
Maturities of investment securities	1,737			—			—			—			1,737
Purchase of investment securities	(112,119		)	(1,476		)	—			—			(113,595		)
Proceeds from sale or liquidation of long-term investments	—			—			148			—			148
Purchase of long-term investments	(5,000		)	—			—			—			(5,000		)
Investments in real estate ventures	—			—			(34,857		)	—			(34,857		)
Increase in cash surrender value of life insurance policies	(717		)	(401		)	—			—			(1,118		)
Increase in restricted assets	(1,327		)	(6,607		)	—			—			(7,934		)
Issuance of notes receivable	—			—			(4,410		)	—			(4,410		)
Investments in subsidiaries	(42,808		)	—			—			42,808			—
Proceeds from sale of fixed assets	—			3			—			—			3
Capital expenditures	—			(2,350		)	(3,029		)	—			(5,379		)
Repayments of notes receivable	1,106			—			—			—			1,106
Pay downs of investment securities	3,530			—			—			—			3,530
Proceeds from sale of preferred securities	—			—			1,000			—			1,000
Investments in real estate held for sale, net	—			—			(12,502		)	—			(12,502		)
Net cash (used in) provided by investing activities	(51,752		)	3,584			(53,650		)	42,808			(59,010		)
Cash flows from financing activities:
Proceeds from issuance of debt	—			22			—			—			22
Deferred financing costs	—			(625		)	—			—			(625		)
Repayments of debt	—			(3,254		)	(120		)	—			(3,374		)
Borrowings under revolver	—			126,727			—			—			126,727
Repayments on revolver	—			(144,492		)	—			—			(144,492		)
Capital contributions received	—			2,250			40,558			(42,808		)	—
Intercompany dividends paid	—			(69,075		)	(1,935		)	71,010			—
Dividends and distributions on common stock	(92,778		)	—			—			—			(92,778		)
Distributions to non-controlling interest	—			—			—			—			—
Proceeds from exercise of Vector options	1,219			—			—			—			1,219
Tax benefit of options exercised	384			—			—			—			384
Net cash (used in) provided by financing activities	(91,175		)	(88,447		)	38,503			28,202			(112,917		)
Net (decrease) increase in cash and cash equivalents	(100,248		)	14,296			(2,090		)	—			(88,042		)
Cash and cash equivalents, beginning of period	211,751			9,724			104,890			—			326,365
Cash and cash equivalents, end of period	$	111,503		$	24,020		$	102,800		$	—		$	238,323

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS



				Six Months Ended June 30, 2014
							Subsidiary						Consolidated
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.
Net cash provided by operating activities	$	17,374		$	46,294		$	32,279		$	(41,952	)	$	53,995
Cash flows from investing activities:
Sale of investment securities	49,296			—			—			—			49,296
Purchase of investment securities	(108,859		)	(1,560		)	—			—			(110,419		)
Proceeds from sale or liquidation of long-term investments	500			—			49			—			549
Purchase of long-term investments	(7,000		)	—			—			—			(7,000		)
Investments in real estate ventures	—			—			(12,534		)	—			(12,534		)
Purchase of subsidiaries	—			—			(250		)	—			(250		)
Distributions from investment in real estate ventures	—			—			3,539			—			3,539
Increase in cash surrender value of life insurance policies	—			(395		)	—			—			(395		)
Decrease (increase) in restricted assets	299			19			(689		)	—			(371		)
Issuance of notes receivable	(35,000		)	—			(250		)	35,000			(250		)
Repayments of notes receivable	35,933			—			—			(35,000		)	933
Proceeds from sale of fixed assets	—			4			—			—			4
Investments in subsidiaries	(25,267		)	—			—			25,267			—
Capital expenditures	(11		)	(6,563		)	(3,570		)	—			(10,144		)
Net cash used in investing activities	(90,109		)	(8,495		)	(13,705		)	25,267			(87,042		)
Cash flows from financing activities:
Proceeds from issuance of debt	408,750			40,166			—			(35,000		)	413,916
Deferred financing costs	(12,360		)	—			—			—			(12,360		)
Repayments of debt	—			(39,293		)	(3,758		)	35,000			(8,051		)
Borrowings under revolver	—			429,188			—			—			429,188
Repayments on revolver	—			(437,736		)	—			—			(437,736		)
Capital contributions received	—			3,150			22,117			(25,267		)	—
Intercompany dividends paid	—			(30,000		)	(11,952		)	41,952			—
Dividends and distributions on common stock	(80,963		)	—			—			—			(80,963		)
Distributions to non-controlling interest	—			—			(3,075		)	—			(3,075		)
Proceeds from exercise of Vector options	3,405			—			—			—			3,405
Tax benefit of options exercised	680			—			—			—			680
Net cash provided by (used in) financing activities	319,512			(34,525		)	3,332			16,685			305,004
Net increase in cash and cash equivalents	246,777			3,274			21,906			—			271,957
Cash and cash equivalents, beginning of period	151,342			11,812			71,312			—			234,466
Cash and cash equivalents, end of period	$	398,119		$	15,086		$	93,218		$	—		$	506,423