Condensed Consolidating Financial Information | CONDENSED CONSOLIDATING FINANCIAL INFORMATION The following condensed consolidating financial information has been prepared and presented pursuant to Securities and Exchange Commission (“SEC”) Regulation S-X, Rule 3-10, “Financial Statements of Guarantors and Affiliates Whose Securities Collateralize an Issue Registered or Being Registered.” Each of the subsidiary guarantors is 100% owned, directly or indirectly, by the Company, and all guarantees are full and unconditional and joint and several. The Company’s investments in its consolidated subsidiaries are presented under the equity method of accounting. The Company and the guarantors have filed a shelf registration statement for the offering of debt securities on a delayed or continuous basis and the Company is filing this condensed consolidating financial information in connection therewith. Any such debt securities may be issued by the Company and guaranteed by the guarantors, but any such debt securities would not be guaranteed by any of the Company’s subsidiaries engaged in the real estate businesses conducted through its subsidiary New Valley. Presented herein are Condensed Consolidating Balance Sheets as of September 30, 2017 and December 31, 2016 , the related Condensed Consolidating Statements of Operations for the three and nine months ended September 30, 2017 and 2016 , and the related Condensed Consolidating Statements of Cash Flows for the nine months ended September 30, 2017 and 2016 of Vector Group Ltd. (Parent/Issuer), the guarantor subsidiaries (Subsidiary Guarantors) and the subsidiaries that are not guarantors (Subsidiary Non-Guarantors). CONDENSED CONSOLIDATING BALANCE SHEETS September 30, 2017 Subsidiary Consolidated Parent/ Subsidiary Non- Consolidating Vector Group Issuer Guarantors Guarantors Adjustments Ltd. ASSETS: Current assets: Cash and cash equivalents $ 205,577 $ 88,245 $ 102,238 $ — $ 396,060 Investment securities available for sale 122,007 32,638 — — 154,645 Accounts receivable - trade, net — 10,080 7,975 — 18,055 Intercompany receivables 21,027 — — (21,027 ) — Inventories — 84,587 — — 84,587 Income taxes receivable, net 3,437 — — (3,437 ) — Restricted assets — 4,309 7,209 — 11,518 Other current assets 577 3,389 31,101 — 35,067 Total current assets 352,625 223,248 148,523 (24,464 ) 699,932 Property, plant and equipment, net 752 43,663 39,179 — 83,594 Investments in real estate, net — — 23,742 — 23,742 Long-term investments 74,476 — — — 74,476 Investments in real estate ventures — — 210,089 — 210,089 Investments in consolidated subsidiaries 496,729 — — (496,729 ) — Restricted assets 1,497 1,986 — — 3,483 Goodwill and other intangible assets, net — 107,511 160,668 — 268,179 Prepaid pension costs — 23,186 — — 23,186 Other assets 7,896 12,362 2,965 — 23,223 Total assets $ 933,975 $ 411,956 $ 585,166 $ (521,193 ) $ 1,409,904 LIABILITIES AND STOCKHOLDERS' DEFICIENCY: Current liabilities: Current portion of notes payable and long-term debt $ — $ 8,001 $ 431 $ — $ 8,432 Current portion of employee benefits — 937 — — 937 Intercompany payables — 754 20,273 (21,027 ) — Income taxes payable, net — 14,068 1,532 (3,437 ) 12,163 Litigation accruals and current payments due under the Master Settlement Agreement — 118,834 — — 118,834 Other current liabilities 31,835 53,232 42,769 — 127,836 Total current liabilities 31,835 195,826 65,005 (24,464 ) 268,202 Notes payable, long-term debt and other obligations, less current portion 1,171,509 3,891 510 — 1,175,910 Fair value of derivatives embedded within convertible debt 86,190 — — — 86,190 Non-current employee benefits 44,130 15,470 — — 59,600 Deferred income taxes, net 1,655 32,704 37,424 — 71,783 Other liabilities, primarily litigation accruals and payments due under the Master Settlement Agreement 1,376 44,717 20,300 — 66,393 Total liabilities 1,336,695 292,608 123,239 (24,464 ) 1,728,078 Commitments and contingencies Stockholders' (deficiency) equity attributed to Vector Group Ltd. (402,720 ) 119,348 377,381 (496,729 ) (402,720 ) Non-controlling interest — — 84,546 — 84,546 Total stockholders' (deficiency) equity (402,720 ) 119,348 461,927 (496,729 ) (318,174 ) Total liabilities and stockholders' deficiency $ 933,975 $ 411,956 $ 585,166 $ (521,193 ) $ 1,409,904 CONDENSED CONSOLIDATING BALANCE SHEETS December 31, 2016 Subsidiary Consolidated Parent/ Subsidiary Non- Consolidating Vector Group Issuer Guarantors Guarantors Adjustments Ltd. ASSETS: Current assets: Cash and cash equivalents $ 279,815 $ 14,798 $ 98,917 $ — $ 393,530 Investment securities available for sale 121,016 35,887 — — 156,903 Accounts receivable - trade, net — 11,775 7,026 — 18,801 Intercompany receivables 22,789 — — (22,789 ) — Inventories — 89,834 — — 89,834 Income taxes receivable, net 18,387 — — (2,277 ) 16,110 Restricted assets — 6,416 914 — 7,330 Other current assets 517 4,428 18,010 — 22,955 Total current assets 442,524 163,138 124,867 (25,066 ) 705,463 Property, plant and equipment, net 1,134 48,314 31,000 — 80,448 Investments in real estate, net — — 23,640 — 23,640 Long-term investments 52,308 388 501 — 53,197 Investments in real estate ventures — — 221,258 — 221,258 Investments in consolidated subsidiaries 501,659 — — (501,659 ) — Restricted assets 1,728 2,258 — — 3,986 Goodwill and other intangible assets, net — 107,511 154,407 — 261,918 Prepaid pension costs — 22,273 — — 22,273 Other assets 7,534 12,118 12,200 — 31,852 Total assets $ 1,006,887 $ 356,000 $ 567,873 $ (526,725 ) $ 1,404,035 LIABILITIES AND STOCKHOLDERS' DEFICIENCY: Current liabilities: Current portion of notes payable and long-term debt $ — $ 39,333 $ 175 $ — $ 39,508 Current portion of employee benefits — 937 — — 937 Intercompany payables — 24 22,765 (22,789 ) — Income taxes payable, net — 1,089 1,188 (2,277 ) — Litigation accruals and current payments due under the Master Settlement Agreement — 19,851 — — 19,851 Other current liabilities 47,968 49,492 38,392 — 135,852 Total current liabilities 47,968 110,726 62,520 (25,066 ) 196,148 Notes payable, long-term debt and other obligations, less current portion 1,127,180 5,372 391 — 1,132,943 Fair value of derivatives embedded within convertible debt 112,332 — — — 112,332 Non-current employee benefits 42,818 16,140 — — 58,958 Deferred income taxes, net 7,420 40,136 45,529 — 93,085 Other liabilities, primarily litigation accruals and payments due under the Master Settlement Agreement 1,169 49,861 12,811 — 63,841 Total liabilities 1,338,887 222,235 121,251 (25,066 ) 1,657,307 Commitments and contingencies Stockholders' (deficiency) equity attributed to Vector Group Ltd. (332,000 ) 133,765 367,894 (501,659 ) (332,000 ) Non-controlling interest — — 78,728 — 78,728 Total stockholders' (deficiency) equity (332,000 ) 133,765 446,622 (501,659 ) (253,272 ) Total liabilities and stockholders' deficiency $ 1,006,887 $ 356,000 $ 567,873 $ (526,725 ) $ 1,404,035 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Three Months Ended September 30, 2017 Subsidiary Consolidated Parent/ Subsidiary Non- Consolidating Vector Group Issuer Guarantors Guarantors Adjustments Ltd. Revenues $ — $ 293,884 $ 190,860 $ (119 ) $ 484,625 Expenses: Cost of sales — 207,800 130,316 — 338,116 Operating, selling, administrative and general expenses 8,431 18,253 56,607 (119 ) 83,172 Litigation settlement and judgment expense — 4,104 — — 4,104 Management fee expense — 2,767 — (2,767 ) — Operating (loss) income (8,431 ) 60,960 3,937 2,767 59,233 Other income (expenses): Interest expense (42,420 ) (804 ) (10 ) — (43,234 ) Change in fair value of derivatives embedded within convertible debt 9,437 — — — 9,437 Equity in losses from real estate ventures — — (47 ) — (47 ) Equity in losses from investments (296 ) (7 ) — — (303 ) Gain on sale of investment securities available for sale 96 — — — 96 Impairment of investment securities available for sale (53 ) — — — (53 ) Equity in earnings in consolidated subsidiaries 38,291 — — (38,291 ) — Management fee income 2,767 — — (2,767 ) — Other, net 1,069 435 317 — 1,821 Income before provision for income taxes 460 60,584 4,197 (38,291 ) 26,950 Income tax benefit (expense) 18,804 (23,895 ) (1,381 ) — (6,472 ) Net income 19,264 36,689 2,816 (38,291 ) 20,478 Net income attributed to non-controlling interest — — (1,214 ) — (1,214 ) Net income attributed to Vector Group Ltd. $ 19,264 $ 36,689 $ 1,602 $ (38,291 ) $ 19,264 Comprehensive income attributed to non-controlling interest $ — $ — $ (1,214 ) $ — $ (1,214 ) Comprehensive income attributed to Vector Group Ltd. $ 19,908 $ 36,889 $ 1,602 $ (38,491 ) $ 19,908 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Three Months Ended September 30, 2016 Subsidiary Consolidated Parent/ Subsidiary Non- Consolidating Vector Group Issuer Guarantors Guarantors Adjustments Ltd. Revenues $ — $ 274,297 $ 184,936 $ (129 ) $ 459,104 Expenses: Cost of sales — 186,353 117,089 — 303,442 Operating, selling, administrative and general expenses 8,726 18,658 59,043 (129 ) 86,298 Management fee expense — 2,662 — (2,662 ) — Operating (loss) income (8,726 ) 66,624 8,804 2,662 69,364 Other income (expenses): Interest expense (36,531 ) (827 ) (7 ) — (37,365 ) Change in fair value of derivatives embedded within convertible debt 6,112 — — — 6,112 Equity in earnings from real estate ventures — — 1,022 — 1,022 Equity in losses from investments (1,485 ) (41 ) — — (1,526 ) Gain on sale of investment securities available for sale 142 — — — 142 Impairment of investment securities available for sale (54 ) — — — (54 ) Equity in earnings in consolidated subsidiaries 49,447 — — (49,447 ) — Management fee income 2,662 — — (2,662 ) — Other, net 1,205 259 (136 ) — 1,328 Income before provision for income taxes 12,772 66,015 9,683 (49,447 ) 39,023 Income tax benefit (expense) 10,403 (21,289 ) (2,430 ) — (13,316 ) Net income 23,175 44,726 7,253 (49,447 ) 25,707 Net income attributed to non-controlling interest — — (2,532 ) — (2,532 ) Net income attributed to Vector Group Ltd. $ 23,175 $ 44,726 $ 4,721 $ (49,447 ) $ 23,175 Comprehensive income attributed to non-controlling interest $ — $ — $ (2,532 ) $ — $ (2,532 ) Comprehensive income attributed to Vector Group Ltd. $ 24,858 $ 46,197 $ 4,721 $ (50,918 ) $ 24,858 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Nine Months Ended September 30, 2017 Subsidiary Consolidated Parent/ Subsidiary Non- Consolidating Vector Group Issuer Guarantors Guarantors Adjustments Ltd. Revenues $ — $ 823,754 $ 548,426 $ (358 ) $ 1,371,822 Expenses: Cost of sales — 570,461 358,472 — 928,933 Operating, selling, administrative and general expenses 27,894 54,690 168,898 (358 ) 251,124 Litigation settlement and judgment expense — 5,791 — — 5,791 Management fee expense — 8,301 — (8,301 ) — Operating (loss) income (27,894 ) 184,511 21,056 8,301 185,974 Other income (expenses): Interest expense (133,650 ) (2,474 ) (22 ) — (136,146 ) Change in fair value of derivatives embedded within convertible debt 26,142 — — — 26,142 Loss on extinguishment of debt (34,110 ) — — — (34,110 ) Equity in earnings from real estate ventures — — 26,357 — 26,357 Equity in losses from investments (2,787 ) (36 ) — — (2,823 ) Gain on sale of investment securities available for sale 283 — — — 283 Impairment of investment securities available for sale (179 ) — — — (179 ) Equity in earnings in consolidated subsidiaries 136,570 — — (136,570 ) — Management fee income 8,301 — — (8,301 ) — Other, net 2,688 1,132 998 — 4,818 (Loss) income before provision for income taxes (24,636 ) 183,133 48,389 (136,570 ) 70,316 Income tax benefit (expense) 66,484 (71,300 ) (17,701 ) — (22,517 ) Net income 41,848 111,833 30,688 (136,570 ) 47,799 Net income attributed to non-controlling interest — — (5,951 ) — (5,951 ) Net income attributed to Vector Group Ltd. $ 41,848 $ 111,833 $ 24,737 $ (136,570 ) $ 41,848 Comprehensive income attributed to non-controlling interest $ — $ — $ (5,951 ) $ — $ (5,951 ) Comprehensive income attributed to Vector Group Ltd. $ 41,131 $ 110,382 $ 24,737 $ (135,119 ) $ 41,131 CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS Nine Months Ended September 30, 2016 Subsidiary Consolidated Parent/ Subsidiary Non- Consolidating Vector Group Issuer Guarantors Guarantors Adjustments Ltd. Revenues $ — $ 751,087 $ 527,448 $ (358 ) $ 1,278,177 Expenses: Cost of sales — 491,711 331,784 — 823,495 Operating, selling, administrative and general expenses 26,941 55,874 167,591 (358 ) 250,048 Litigation settlement and judgment expense — 2,350 — — 2,350 Management fee expense — 7,987 — (7,987 ) — Restructuring charges — 41 — — 41 Operating (loss) income (26,941 ) 193,124 28,073 7,987 202,243 Other income (expenses): Interest expense (101,811 ) (2,629 ) (14 ) — (104,454 ) Change in fair value of derivatives embedded within convertible debt 23,222 — — — 23,222 Equity in earnings from real estate ventures — — 3,328 — 3,328 Gain on sale of investment securities available for sale 457 391 — — 848 Impairment of investment securities available for sale (144 ) (4,772 ) — — (4,916 ) Equity in losses from investments (2,043 ) (65 ) — — (2,108 ) Equity in earnings in consolidated subsidiaries 131,498 — — (131,498 ) — Management fee income 7,987 — — (7,987 ) — Other, net 1,512 740 704 — 2,956 Income before provision for income taxes 33,737 186,789 32,091 (131,498 ) 121,119 Income tax benefit (expense) 32,791 (69,582 ) (9,891 ) — (46,682 ) Net income 66,528 117,207 22,200 (131,498 ) 74,437 Net income attributed to non-controlling interest — — (7,909 ) — (7,909 ) Net income attributed to Vector Group Ltd. $ 66,528 $ 117,207 $ 14,291 $ (131,498 ) $ 66,528 Comprehensive income attributed to non-controlling interest $ — $ — $ (7,909 ) $ — $ (7,909 ) Comprehensive income attributed to Vector Group Ltd. $ 67,985 $ 118,700 $ 14,291 $ (132,991 ) $ 67,985 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 2017 Subsidiary Consolidated Parent/ Subsidiary Non- Consolidating Vector Group Issuer Guarantors Guarantors Adjustments Ltd. Net cash provided by operating activities $ 91,858 $ 231,182 $ 43,131 $ (159,728 ) $ 206,443 Cash flows from investing activities: Sale of investment securities 23,066 — — — 23,066 Maturities of investment securities 94,858 — — — 94,858 Purchase of investment securities (120,362 ) — — — (120,362 ) Proceeds from sale or liquidation of long-term investments 500 — 466 — 966 Purchase of long-term investments (26,500 ) — — — (26,500 ) Investments in real estate ventures — — (20,830 ) — (20,830 ) Acquisition of a business — — (6,569 ) — (6,569 ) Distributions from investments in real estate ventures — — 23,338 — 23,338 Increase in cash surrender value of life insurance policies (371 ) (460 ) — — (831 ) Decrease (increase) in restricted assets 231 2,379 (6,151 ) — (3,541 ) Issuance of notes receivable — — (1,633 ) — (1,633 ) Investments in subsidiaries (20,245 ) — — 20,245 — Proceeds from sale of fixed assets — 75 — — 75 Capital expenditures (31 ) (2,682 ) (12,545 ) — (15,258 ) Pay downs of investment securities 2,153 — — — 2,153 Investments in real estate, net — — (357 ) — (357 ) Net cash used in investing activities (46,701 ) (688 ) (24,281 ) 20,245 (51,425 ) Cash flows from financing activities: Proceeds from issuance of debt 850,000 — 21 — 850,021 Deferred financing costs (19,200 ) — — — (19,200 ) Repayments of debt (835,000 ) (1,465 ) (135 ) — (836,600 ) Borrowings under revolver — 121,521 — — 121,521 Repayments on revolver — (152,870 ) — — (152,870 ) Capital contributions received — 550 19,695 (20,245 ) — Intercompany dividends paid — (124,783 ) (34,945 ) 159,728 — Dividends and distributions on common stock (158,425 ) — — — (158,425 ) Distributions to non-controlling interest — — (165 ) — (165 ) Proceeds from issuance of Vector common stock 43,230 — — — 43,230 Net cash used in financing activities (119,395 ) (157,047 ) (15,529 ) 139,483 (152,488 ) Net (decrease) increase in cash and cash equivalents (74,238 ) 73,447 3,321 — 2,530 Cash and cash equivalents, beginning of period 279,815 14,798 98,917 — 393,530 Cash and cash equivalents, end of period $ 205,577 $ 88,245 $ 102,238 $ — $ 396,060 CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS Nine Months Ended September 30, 2016 Subsidiary Consolidated Parent/ Subsidiary Non- Consolidating Vector Group Issuer Guarantors Guarantors Adjustments Ltd. Net cash provided by operating activities $ 87,016 $ 136,255 $ 54,807 $ (156,635 ) $ 121,443 Cash flows from investing activities: Sale of investment securities 76,514 4,721 — — 81,235 Maturities of investment securities 4,343 — — — 4,343 Purchase of investment securities (90,106 ) — — — (90,106 ) Proceeds from sale or liquidation of long-term investments 1,000 — — — 1,000 Purchase of long-term investments — — (50 ) — (50 ) Investments in real estate ventures — — (23,358 ) — (23,358 ) Investments in real estate, net — — (130 ) — (130 ) Distributions from investments in real estate ventures — — 23,041 — 23,041 Increase in cash surrender value of life insurance policies — (451 ) — — (451 ) (Increase) decrease in restricted assets (11 ) 8,126 500 — 8,615 Repayments of notes receivable — — 4,410 — 4,410 Pay downs of investment securities 7,842 — — — 7,842 Proceeds from sale of fixed assets — 32 13 — 45 Investments in subsidiaries (1,103 ) — — 1,103 — Capital expenditures (33 ) (5,619 ) (13,505 ) — (19,157 ) Net cash (used in) provided by investing activities (1,554 ) 6,809 (9,079 ) 1,103 (2,721 ) Cash flows from financing activities: Proceeds from issuance of debt 243,225 — 395 — 243,620 Deferred financing costs (6,600 ) — — — (6,600 ) Repayments of debt — (4,602 ) (96 ) — (4,698 ) Borrowings under revolver — 104,826 — — 104,826 Repayments on revolver — (94,644 ) — — (94,644 ) Capital contributions received — 700 403 (1,103 ) — Intercompany dividends paid — (116,785 ) (39,850 ) 156,635 — Dividends and distributions on common stock (147,270 ) — — — (147,270 ) Contributions from non-controlling interest — — 248 — 248 Distributions to non-controlling interest — — (9,508 ) — (9,508 ) Proceeds from exercise of Vector options 398 — — — 398 Tax benefit of options exercised 412 — — — 412 Net cash provided by (used in) financing activities 90,165 (110,505 ) (48,408 ) 155,532 86,784 Net increase (decrease) in cash and cash equivalents 175,627 32,559 (2,680 ) — 205,506 Cash and cash equivalents, beginning of period 111,470 12,375 116,523 — 240,368 Cash and cash equivalents, end of period $ 287,097 $ 44,934 $ 113,843 $ — $ 445,874 |