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 September 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



				September 30, 2015
						Subsidiary					Consolidated
	Parent/			Subsidiary		Non-		Consolidating			Vector Group
	Issuer			Guarantors		Guarantors		Adjustments			Ltd.
ASSETS:
Current assets:
Cash and cash equivalents	$	94,546		$	26,842	$	124,959	$	—		$	246,347
Investment securities available for sale	242,529			45,847		—		—			288,376
Accounts receivable - trade, net	—			12,099		8,013		—			20,112
Intercompany receivables	1,083			—		—		(1,083		)	—
Inventories	—			90,695		—		—			90,695
Deferred income taxes	—			1,939		—		(1,939		)	—
Income taxes receivable, net	11,822			—		—		(11,822		)	—
Restricted assets	—			1,420		1,414		—			2,834
Other current assets	912			5,103		31,809		—			37,824
Total current assets	350,892			183,945		166,195		(14,844		)	686,188
Property, plant and equipment, net	1,944			55,133		19,290		—			76,367
Real estate held for sale, net	—			—		22,963		—			22,963
Long-term investments	53,132			—		516		—			53,648
Investments in real estate ventures	—			—		194,052		—			194,052
Investments in consolidated subsidiaries	525,652			—		—		(525,652		)	—
Restricted assets	1,709			16,938		—		—			18,647
Goodwill and other intangible assets, net	—			107,511		157,969		—			265,480
Prepaid pension costs	—			27,440		—		—			27,440
Other assets	40,528			11,790		1,698		—			54,016
Total assets	$	973,857		$	402,757	$	562,683	$	(540,496	)	$	1,398,801
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of notes payable and long-term debt	$	—		$	7,731	$	226	$	—		$	7,957
Current portion of employee benefits	—			931		—		—			931
Intercompany payables	—			—		1,083		(1,083		)	—
Income taxes payable, net	—			12,005		3		(11,822		)	186
Litigation accruals and current payments due under the Master Settlement Agreement	—			100,592		—		—			100,592
Deferred income taxes, net	9,260			—		—		(1,939		)	7,321
Other current liabilities	24,329			41,751		45,723		—			111,803
Total current liabilities	33,589			163,010		47,035		(14,844		)	228,790
Notes payable, long-term debt and other obligations, less current portion	871,268			8,407		15		—			879,690
Fair value of derivatives embedded within convertible debt	149,739			—		—		—			149,739
Non-current employee benefits	33,651			16,262		—		—			49,913
Deferred income taxes, net	24,862			35,905		35,730		—			96,497
Other liabilities, primarily litigation accruals and payments due under the Master Settlement Agreement	2,535			44,356		4,108		—			50,999
Total liabilities	1,115,644			267,940		86,888		(14,844		)	1,455,628
Commitments and contingencies
Stockholders' (deficiency) equity attributed to Vector Group Ltd.	(141,787		)	134,817		390,835		(525,652		)	(141,787		)
Non-controlling interest	—			—		84,960		—			84,960
Total stockholders' (deficiency) equity	(141,787		)	134,817		475,795		(525,652		)	(56,827		)
Total liabilities and stockholders' (deficiency) equity	$	973,857		$	402,757	$	562,683	$	(540,496	)	$	1,398,801

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' (deficiency) equity	$	1,101,326		$	411,889	$	498,138	$	(518,282	)	$	1,493,071

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS



				Three Months Ended September 30, 2015
							Subsidiary						Consolidated
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.
Revenues	$	—		$	264,480		$	185,563		$	(109	)	$	449,934
Expenses:
Cost of sales	—			174,839			121,078			—			295,917
Operating, selling, administrative and general expenses	6,372			20,712			52,139			(109		)	79,114
Litigation settlement and judgment expense	—			3,750			—			—			3,750
Management fee expense	—			2,562			—			(2,562		)	—
Restructuring expenses	—			1,548			—			—			1,548
Operating (loss) income	(6,372		)	61,069			12,346			2,562			69,605
Other income (expenses):
Interest expense	(31,609		)	(1,288		)	(1		)	—			(32,898		)
Change in fair value of derivatives embedded within convertible debt	7,044			—			—			—			7,044
Equity loss from real estate ventures	—			—			(916		)	—			(916		)
Equity loss from investments	(579		)	—			—			—			(579		)
Loss on sale of investment securities available for sale	(821		)	—			—			—			(821		)
Impairment of investment securities available for sale	(4,224		)	(7,987		)	—			—			(12,211		)
Equity income in consolidated subsidiaries	32,335			—			—			(32,335		)	—
Management fee income	2,562			—			—			(2,562		)	—
Other, net	(61		)	(111		)	305			—			133
(Loss) income before provision for income taxes	(1,725		)	51,683			11,734			(32,335		)	29,357
Income tax benefit (expense)	13,930			(24,043		)	(3,395		)	—			(13,508		)
Net income	12,205			27,640			8,339			(32,335		)	15,849
Net income attributed to non-controlling interest	—			—			(3,644		)	—			(3,644		)
Net income attributed to Vector Group Ltd.	12,205			27,640			4,695			(32,335		)	12,205
Comprehensive income attributed to non-controlling interest	—			—			(3,644		)	—			(3,644		)
Comprehensive (loss) income attributed to Vector Group Ltd.	$	(11,685	)	$	18,484		$	4,695		$	(23,179	)	$	(11,685	)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS



				Three Months Ended September 30, 2014
							Subsidiary						Consolidated
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.
Revenues	$	—		$	266,328		$	153,748		$	(200	)	$	419,876
Expenses:
Cost of sales	—			190,794			96,442			—			287,236
Operating, selling, administrative and general expenses	6,099			22,395			41,137			(200		)	69,431
Litigation settlement and judgment expense	—			225			—			—			225
Management fee expense	—			2,467			—			(2,467		)	—
Operating (loss) income	(6,099		)	50,447			16,169			2,467			62,984
Other income (expenses):
Interest expense	(43,005		)	(1,026		)	(3		)	—			(44,034		)
Change in fair value of derivatives embedded within convertible debt	7,127			—			—			—			7,127
Acceleration of interest expense related to debt conversion	(994		)	—			—			—			(994		)
Equity income from real estate ventures	—			—			3,258			—			3,258
Equity income from investments	829			—			—			—			829
Gain on sale of investment securities available for sale	33			—			—			—			33
Equity income in consolidated subsidiaries	36,428			—			—			(36,428		)	—
Management fee income	2,467			—			—			(2,467		)	—
Other, net	1,936			296			234			—			2,466
(Loss) income before provision for income taxes	(1,278		)	49,717			19,658			(36,428		)	31,669
Income tax benefit (expense)	16,157			(21,491		)	(6,630		)	—			(11,964		)
Net income	14,879			28,226			13,028			(36,428		)	19,705
Net income attributed to non-controlling interest	—			—			(4,826		)	—			(4,826		)
Net income attributed to Vector Group Ltd.	14,879			28,226			8,202			(36,428		)	14,879
Comprehensive income attributed to non-controlling interest	—			—			(4,826		)	—			(4,826		)
Comprehensive income attributed to Vector Group Ltd.	$	23,894		$	28,367		$	8,202		$	(36,569	)	$	23,894

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS



				Nine Months Ended September 30, 2015
							Subsidiary						Consolidated
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.
Revenues	$	—		$	748,394		$	478,841		$	(368	)	$	1,226,867
Expenses:
Cost of sales	—			507,833			309,306			—			817,139
Operating, selling, administrative and general expenses	20,266			64,604			148,235			(368		)	232,737
Litigation settlement and judgment expense	—			5,843			—			—			5,843
Management fee expense	—			7,687			—			(7,687		)	—
Restructuring expenses	—			1,548			—			—			1,548
Operating (loss) income	(20,266		)	160,879			21,300			7,687			169,600
Other income (expenses):
Interest expense	(93,243		)	(3,158		)	(4		)	—			(96,405		)
Change in fair value of derivatives embedded within convertible debt	18,760			—			—			—			18,760
Equity income from real estate ventures	—			—			1,278			—			1,278
Equity loss from investments	(2,273		)	—			—			—			(2,273		)
(Loss) gain on sale of investment securities available for sale	(1,157		)	13,175			—			—			12,018
Impairment of investment securities available for sale	(4,224		)	(7,987		)	—			—			(12,211		)
Gain on liquidation of long-term investment	—			—			—			—			—
Equity income in consolidated subsidiaries	104,083			—			—			(104,083		)	—
Management fee income	7,687			—			—			(7,687		)	—
Other, net	1,859			409			1,286			—			3,554
Income before provision for income taxes	11,226			163,318			23,860			(104,083		)	94,321
Income tax benefit (expense)	39,803			(69,450		)	(7,904		)	—			(37,551		)
Net income	51,029			93,868			15,956			(104,083		)	56,770
Net income attributed to non-controlling interest	—			—			(5,741		)	—			(5,741		)
Net income attributed to Vector Group Ltd.	51,029			93,868			10,215			(104,083		)	51,029
Comprehensive income attributed to non-controlling interest	—			—			(5,741		)	—			(5,741		)
Comprehensive income attributed to Vector Group Ltd.	$	26,357		$	84,073		$	10,215		$	(94,288	)	$	26,357

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS



				Nine Months Ended September 30, 2014
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.
Revenues	$	—		$	758,645		$	415,280		$	(200	)	$	1,173,725
Expenses:
Cost of sales	—			544,024			261,531			—			805,555
Operating, selling, administrative and general expenses	17,315			66,270			117,046			(200		)	200,431
Litigation settlement and judgment expense	—			1,725			—			—			1,725
Management fee expense	—			7,402			—			(7,402		)	—
Operating (loss) income	(17,315		)	139,224			36,703			7,402			166,014
Other income (expenses):
Interest expense	(120,977		)	(3,265		)	(40		)	612			(123,670		)
Change in fair value of derivatives embedded within convertible debt	7,447			—			—			—			7,447
Acceleration of interest expense related to debt conversion	(5,112		)	—			—			—			(5,112		)
Equity income from real estate ventures	—			—			3,002			—			3,002
Loss on sale of investment securities available for sale	(38		)	—			—			—			(38		)
Equity income from investments	1,462			—			—			—			1,462
Equity income in consolidated subsidiaries	96,554			—			—			(96,554		)	—
Management fee income	7,402			—			—			(7,402		)	—
Other, net	3,702			780			4,297			(612		)	8,167
(Loss) income before provision for income taxes	(26,875		)	136,739			43,962			(96,554		)	57,272
Income tax benefit (expense)	52,259			(57,846		)	(15,420		)	—			(21,007		)
Net income	25,384			78,893			28,542			(96,554		)	36,265
Net income attributed to non-controlling interest	—			—			(10,881		)	—			(10,881		)
Net income attributed to Vector Group Ltd.	25,384			78,893			17,661			(96,554		)	25,384
Comprehensive income attributed to non-controlling interest	—			—			(10,881		)	—			(10,881		)
Comprehensive income attributed to Vector Group Ltd.	$	41,218		$	79,026		$	17,661		$	(96,687	)	$	41,218

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS



				Nine Months Ended September 30, 2015
							Subsidiary						Consolidated
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.
Net cash provided by operating activities	$	84,832		$	168,095		$	31,660		$	(144,569	)	$	140,018
Cash flows from investing activities:
Sale of investment securities	146,614			14,415			—			—			161,029
Maturities of investment securities	2,653			—			—			—			2,653
Purchase of investment securities	(156,521		)	(6,324		)	—			—			(162,845		)
Proceeds from sale or liquidation of long-term investments	—			—			182			—			182
Purchase of long-term investments	(10,000		)	—			—			—			(10,000		)
Investments in real estate ventures	—			—			(43,280		)	—			(43,280		)
Distributions from investments in real estate ventures	—			—			11,205			—			11,205
Increase in cash surrender value of life insurance policies	(766		)	(459		)	—			—			(1,225		)
Increase in restricted assets	(2		)	(6,870		)	—			—			(6,872		)
Issuance of notes receivable	—			—			(4,410		)	—			(4,410		)
Investments in subsidiaries	(53,511		)	—			—			53,511			—
Proceeds from sale of fixed assets	—			3			—			—			3
Capital expenditures	—			(3,305		)	(4,554		)	—			(7,859		)
Repayments of notes receivable	1,106			—			4,000			—			5,106
Pay downs of investment securities	5,743			—			—			—			5,743
Proceeds from sale of preferred securities	—			—			1,000			—			1,000
Investments in real estate held for sale	—			—			(12,512		)	—			(12,512		)
Net cash used in investing activities	(64,684		)	(2,540		)	(48,369		)	53,511			(62,082		)
Cash flows from financing activities:
Proceeds from issuance of debt	—			1,519			—			—			1,519
Deferred financing costs	—			(624		)	—			—			(624		)
Repayments of debt	—			(4,786		)	(182		)	—			(4,968		)
Borrowings under revolver	—			130,691			—			—			130,691
Repayments on revolver	—			(146,655		)	—			—			(146,655		)
Capital contributions received	—			5,633			47,878			(53,511		)	—
Intercompany dividends paid	—			(134,215		)	(10,354		)	144,569			—
Dividends and distributions on common stock	(139,430		)	—			—			—			(139,430		)
Distributions to non-controlling interest	—			—			(564		)	—			(564		)
Proceeds from exercise of Vector options	1,321			—			—			—			1,321
Tax benefit of options exercised	756			—			—			—			756
Net cash (used in) provided by financing activities	(137,353		)	(148,437		)	36,778			91,058			(157,954		)
Net (decrease) increase in cash and cash equivalents	(117,205		)	17,118			20,069			—			(80,018		)
Cash and cash equivalents, beginning of period	211,751			9,724			104,890			—			326,365
Cash and cash equivalents, end of period	$	94,546		$	26,842		$	124,959		$	—		$	246,347

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS



				Nine Months Ended September 30, 2014
							Subsidiary						Consolidated
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.
Net cash provided by operating activities	$	23,189		$	98,319		$	53,475		$	(74,939	)	$	100,044
Cash flows from investing activities:
Sale of investment securities	173,046			—			—			—			173,046
Maturities of investment securities	517			—			—			—			517
Purchase of investment securities	(310,934		)	(1,985		)	—			—			(312,919		)
Proceeds from sale or liquidation of long-term investments	500			—			49			—			549
Purchase of long-term investments	(12,000		)	—			—			—			(12,000		)
Investments in real estate ventures	—			—			(29,378		)	—			(29,378		)
Purchase of subsidiaries	—			—			(250		)	—			(250		)
Distributions from investments in real estate ventures	—			—			5,540			—			5,540
Increase in cash surrender value of life insurance policies	—			(435		)	—			—			(435		)
Decrease (increase) in restricted assets	188			(607		)	(689		)	—			(1,108		)
Issuance of notes receivable	(35,000		)	—			(250		)	35,000			(250		)
Repayments of notes receivable	35,933			—			—			(35,000		)	933
Pay downs of investment securities	690			—			—			—			690
Proceeds from sale of fixed assets	—			4			—			—			4
Investments in subsidiaries	(49,834		)	—			—			49,834			—
Capital expenditures	(11		)	(15,121		)	(5,614		)	—			(20,746		)
Net cash used in investing activities	(196,905		)	(18,144		)	(30,592		)	49,834			(195,807		)
Cash flows from financing activities:
Proceeds from issuance of debt	408,750			40,168			—			(35,000		)	413,918
Deferred financing costs	(12,360		)	—			—			—			(12,360		)
Repayments of debt	—			(41,485		)	(3,820		)	35,000			(10,305		)
Borrowings under revolver	—			645,894			—			—			645,894
Repayments on revolver	—			(673,866		)	—			—			(673,866		)
Capital contributions received	—			10,800			39,034			(49,834		)	—
Intercompany dividends paid	—			(54,000		)	(20,939		)	74,939			—
Dividends and distributions on common stock	(122,051		)	—			—			—			(122,051		)
Distributions to non-controlling interest	—			—			(4,861		)	—			(4,861		)
Proceeds from exercise of Vector options	4,407			—			—			—			4,407
Tax benefit of options exercised	937			—			—			—			937
Net cash provided by (used in) financing activities	279,683			(72,489		)	9,414			25,105			241,713
Net increase in cash and cash equivalents	105,967			7,686			32,297			—			145,950
Cash and cash equivalents, beginning of period	151,342			11,812			71,312			—			234,466
Cash and cash equivalents, end of period	$	257,309		$	19,498		$	103,609		$	—		$	380,416