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Document and Entity Information - USD ($) $ in Millions	12 Months Ended
Dec. 31, 2010	Feb. 25, 2011	Jun. 30, 2010
Document and Entity Information [Abstract]
Entity Registrant Name	VECTOR GROUP LTD
Entity Central Index Key	0000059440
Document Type	10-K
Document Period End Date	Dec. 31, 2010
Amendment Flag	false
Document Fiscal Year Focus	2010
Document Fiscal Period Focus	FY
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Public Float			$ 649
Entity Common Stock, Shares Outstanding		74,997,348

Consolidated Balance Sheets - USD ($) $ in Thousands	12 Months Ended
Consolidated Balance Sheets - USD ($) $ in Thousands	Dec. 31, 2010	Dec. 31, 2009
Current assets:
Cash and cash equivalents	$ 299,825	$ 209,454
Investment securities available for sale	78,754	51,743
Accounts receivable - trade	1,849	8,098
Inventories	107,079	98,486
Deferred income taxes	31,786	14,154
Restricted assets	2,661	3,138
Other current assets	4,809	4,135
Total current assets	526,763	389,208
Property, plant and equipment, net	55,412	42,986
Investment in Escena, net	13,354	13,244
Long-term investments accounted for at cost	46,033	50,323
Long-term investments accounted for under the equity method	10,954	0
Investments in non-consolidated real estate businesses	80,416	49,566
Investments in townhomes	16,275	0
Restricted assets	8,694	4,835
Deferred income taxes	37,828	39,838
Intangible asset	107,511	107,511
Prepaid pension costs	13,935	8,994
Other assets	32,420	29,037
Total assets	949,595	735,542
Current liabilities:
Current portion of notes payable and long-term debt	51,345	21,889
Fair value of derivatives embedded within convertible debt	480	0
Current portion of employee benefits	1,014	1,029
Accounts payable	9,027	4,355
Accrued promotional expenses	14,327	12,745
Income taxes payable, net	11,617	19,924
Accrued excise and payroll taxes payable, net	18,523	24,093
Settlement accruals	48,071	18,803
Deferred income taxes	36,963	17,254
Accrued interest	20,824	13,840
Other current liabilities	14,681	15,076
Total current liabilities	226,872	149,008
Notes payable, long-term debt and other obligations, less current portion	506,052	334,920
Fair value of derivatives embedded within convertible debt	141,012	153,016
Non-current employee benefits	38,742	34,247
Deferred income taxes	51,815	45,120
Other liabilities	31,336	23,913
Total liabilities	$ 995,829	$ 740,224
Commitments and contingencies
Stockholders' deficiency:
Preferred stock, par value $1.00 per share, 10,000,000 shares authorized	$ 0	$ 0
Common stock, par value $0.10 per share, 150,000,000 shares authorized, 78,349,590 and 74,510,595 shares issued and 74,939,284 and 71,262,684 shares outstanding	7,494	7,126
Additional paid-in capital	0	15,928
Accumulated deficit	(45,327)	0
Accumulated other comprehensive income (loss)	4,456	(14,879)
Less: 3,410,306 and 3,247,911 shares of common stock in treasury, at cost	(12,857)	(12,857)
Total stockholders' deficiency	(46,234)	(4,682)
Total liabilities and stockholders' deficiency	$ 949,595	$ 735,542

Consolidated Statement of Stockholders' Equity (Deficiency) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2008
Statement [Line Items]
Beginning Balance	$ (4,682)	$ 33,605	$ 100,852
Net income	54,084	24,806	60,504
Change in net loss and prior service cost, net of taxes	2,938	6,232	(30,989)
Forward contract adjustments, net of taxes	42	34	35
Unrealized gain on long-term investment securities accounted for under the equity method, net of income taxes	669		(399)
Change in net unrealized gain on investment securities, net of taxes	27,607
Net unrealized gains reclassified into net income, net of income taxes	(11,921)
Unrealized gain on investment securities, net of taxes	15,686	4,097	(12,263)
Total other comprehensive income	19,335	10,363	(43,616)
Total comprehensive income	73,419	35,169	16,888
Pension adjustment			(314)
Distributions and dividends on common stock	(118,135)	(112,583)	(105,762)
Restricted stock grant		50
Surrender of shares in connection with restricted stock vesting	(1,040)
Tax benefit of options exercised	269	9,162	18,304
Exercise of stock options	1,265	1,144	87
Surrender of shares in connection with option exercise		(2,314)
Amortization of deferred compensation	2,670	3,642	3,550
Beneficial conversion feature of notes payable, net of taxes		27,443
Ending Balance	(46,234)	(4,682)	33,605
Common Stock
Statement [Line Items]
Beginning Balance	$ 7,126	$ 6,601	$ 6,036
Beginning Balance, Shares	71,262,684	66,014,070	60,361,068
Restricted stock grant	$ 5	$ 50
Restricted stock grant, Shares	50,000	500,000
Surrender of shares in connection with restricted stock vesting	$ (5)
Surrender of shares in connection with restricted stock vesting, Shares	(51,941)
Effect of stock dividend	$ 357	$ 333	$ 314
Effect of stock dividend, Shares	3,567,023	3,326,623	3,142,760
Exercise of stock options	$ 11	$ 158	$ 251
Exercise of stock options, Shares	111,518	1,582,074	2,510,242
Surrender of shares in connection with option exercise		$ (16)
Surrender of shares in connection with option exercise, Shares		(160,083)
Ending Balance	$ 7,494	$ 7,126	$ 6,601
Ending Balance, Shares	74,939,284	71,262,684	66,014,070
Additional Paid-In Capital
Statement [Line Items]
Beginning Balance	$ 15,928	$ 65,103	$ 89,494
Distributions and dividends on common stock	(19,081)	(88,110)	(46,081)
Restricted stock grant	(5)
Surrender of shares in connection with restricted stock vesting	(1,035)
Tax benefit of options exercised	269	9,162	18,304
Exercise of stock options	1,254	986	(164)
Surrender of shares in connection with option exercise		(2,298)
Amortization of deferred compensation	2,670	3,642	3,550
Beneficial conversion feature of notes payable, net of taxes		27,443
Ending Balance	0	15,928	65,103
Deficit
Statement [Line Items]
Beginning Balance	0	0	0
Net income	54,084	24,806	60,504
Pension adjustment			(509)
Distributions and dividends on common stock	(99,054)	(24,473)	(59,681)
Effect of stock dividend	(357)	(333)	(314)
Ending Balance	(45,327)	0	0
Other Comprehensive Income (Loss)
Statement [Line Items]
Beginning Balance	(14,879)	(25,242)	18,179
Change in net loss and prior service cost, net of taxes	2,938	6,232	(30,989)
Forward contract adjustments, net of taxes	42	34	35
Unrealized gain on long-term investment securities accounted for under the equity method, net of income taxes	669		(399)
Change in net unrealized gain on investment securities, net of taxes	27,607
Net unrealized gains reclassified into net income, net of income taxes	(11,921)
Unrealized gain on investment securities, net of taxes	15,686	4,097	(12,263)
Pension adjustment			195
Ending Balance	4,456	(14,879)	(25,242)
Treasury Stock
Statement [Line Items]
Beginning Balance	(12,857)	(12,857)	(12,857)
Ending Balance	$ (12,857)	$ (12,857)	$ (12,857)

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2008
Cash flows from operating activities:
Net income	$ 54,084	$ 24,806	$ 60,504
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	10,790	10,398	10,057
Non-cash stock-based expense	2,704	3,642	3,550
Non-cash portion of restructuring and impairment charges		100	53
Loss on extinguishment of debt		18,573
Gain on sale of assets	74	127
Deferred income taxes	1,225	(110,183)	432
Provision for loss on mortgage receivable		5,000	4,000
Provision for loss on non-consolidated real estate businesses		3,500	3,500
Provision for loss on long-term investments accounted for at cost			21,900
(Income) loss on long-term investments accounted under the equity method	(2,604)		568
Gain on sale of marketable securities	(19,869)
Provision for loss on marketable securities			3,000
Equity income in non-consolidated real estate businesses	(23,963)	(15,213)	(24,399)
Distributions from non-consolidated real estate businesses	12,212	6,466	8,462
Premium on issuance of debt	3,450
Non-cash interest expense (income)	1,082	51,209	(11,907)
Changes in assets and liabilities:
Receivables	6,249	1,408	(6,393)
Inventories	(8,593)	(5,905)	(5,756)
Change in book overdraft			198
Accounts payable and accrued liabilities	35,560	4,035	11,850
Cash payments on restructuring liabilities	(179)	(902)	(154)
Other assets and liabilities, net	(5,218)	8,606	11,800
Net cash provided by operating activities	67,004	5,667	91,265
Cash flows from investing activities:
Proceeds from sale of businesses and assets	187	41	452
Proceeds from sale or maturity of investment securities	28,587	78
Purchase of investment securities	(9,394)	(12,427)	(6,411)
Proceeds from sale or liquidation of long-term investments	1,002	2,254	8,334
Purchase of long-term investments	(5,062)	(51)	(51)
Purchase of mortgage receivable	(13,462)		(21,704)
Purchase of other minority equity interests			(4,250)
(Increase) decrease in restricted assets	(1,100)	1,720	(411)
Investments in non-consolidated real estate businesses	(24,645)	(474)	(22,000)
Distributions from non-consolidated real estate businesses	3,539	6,730	19,393
Issuance of notes receivable	(930)
Cash acquired in Aberdeen consolidation	473
Capital expenditures	(23,391)	(3,848)	(6,309)
Increase in cash surrender value of life insurance policies	(936)	(839)	(938)
Net cash used in investing activities	(45,132)	(6,816)	(33,895)
Cash flows from financing activities:
Proceeds from issuance of debt	185,714	118,805	2,831
Repayments of debt	(14,539)	(6,179)	(6,329)
Deferred financing charges	(5,077)	(5,573)	(137)
Borrowings under revolver	1,034,924	749,474	531,251
Repayments on revolver	(1,016,598)	(751,607)	(526,518)
Distributions on common stock	(117,459)	(115,778)	(103,870)
Proceeds from exercise of Vector options	1,265	1,194	86
Tax benefit of options exercised	269	9,162	18,304
Net cash provided by (used in) financing activities	68,499	(502)	(84,382)
Net increase (decrease) in cash and cash equivalents	90,371	(1,651)	(27,012)
Cash and cash equivalents, beginning of year	209,454	211,105	238,117
Cash and cash equivalents, end of year	$ 299,825	$ 209,454	$ 211,105

Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2010

Summary of Significant Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation:

The consolidated financial statements of Vector Group Ltd. (the “Company” or “Vector”) include the accounts of VGR Holding LLC (“VGR Holding”), Liggett Group LLC (“Liggett”), Vector Tobacco Inc. (“Vector Tobacco”), Liggett Vector Brands Inc. (“Liggett Vector Brands”), New Valley LLC (“New Valley”) and other less significant subsidiaries. All significant intercompany balances and transactions have been eliminated.

Liggett and Vector Tobacco are engaged in the manufacture and sale of cigarettes in the United States. New Valley is engaged in the real estate business and is seeking to acquire additional operating companies and real estate properties.

Certain reclassifications have been made to the 2008 and 2009 financial information to conform to the 2010 presentation.

(b) Estimates and Assumptions:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Significant estimates subject to material changes in the near term include restructuring and impairment charges, inventory valuation, deferred tax assets, allowance for doubtful accounts, promotional accruals, sales returns and allowances, actuarial assumptions of pension plans, the estimated fair value of embedded derivative liabilities, settlement accruals, restructuring, valuation of investments, including other than temporary impairments to such investments, accounting for investments in equity securities, and litigation and defense costs. Actual results could differ from those estimates.

(c) Cash and Cash Equivalents:

For purposes of the statements of cash flows, cash includes cash on hand, cash on deposit in banks and cash equivalents, comprised of short-term investments which have an original maturity of 90 days or less. Interest on short-term investments is recognized when earned. The Company places its cash and cash equivalents with large commercial banks. The Federal Deposit Insurance Corporation (“FDIC”) and Securities Investor Protection Corporation (“SIPC”) insure these balances, up to $250 and $500, respectively. Substantially all of the Company’s cash balances at December 31, 2010 are uninsured.

(d) Financial Instruments:

The carrying value of cash and cash equivalents, restricted assets and short-term loans approximate their fair value.

The carrying amounts of short-term debt reported in the consolidated balance sheets approximate fair value. The fair value of long-term debt for the years ended December 31, 2010 and 2009 was estimated based on current market quotations.

As required by authoritative guidance, derivatives embedded within the Company’s convertible debt are recognized on the Company’s balance sheet and are stated at estimated fair value at each reporting period. Changes in the fair value of the embedded derivatives are reflected quarterly as “Changes in fair value of derivatives embedded within convertible debt.”

The estimated fair values for financial instruments presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair values.

(e) Investment Securities:

The Company classifies investments in debt and marketable equity securities as available for sale. Investments classified as available for sale are carried at fair value, with net unrealized gains and losses included as a separate component of stockholders’ equity. The cost of securities sold is determined based on average cost. Investments in marketable equity securities represent less than a 20 percent interest in the investees and the Company does not exercise significant influence over such entities.

Gains are recognized when realized in the Company’s consolidated statements of operations. Losses are recognized as realized or upon the determination of the occurrence of an other-than-temporary decline in fair value. The Company’s policy is to review its securities on a periodic basis to evaluate whether any security has experienced an other-than-temporary decline in fair value. If it is determined that an other-than-temporary decline exists in one of the Company’s marketable securities, it is the Company’s policy to record an impairment charge with respect to such investment in the Company’s consolidated statements of operations. The Company recorded a loss related to other-than-temporary declines in the fair value of its marketable equity securities of $500, $0 and $3,018 for the years ended December 31, 2010, 2009 and 2008, respectively.

(f) Significant Concentrations of Credit Risk:

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and trade receivables. The Company places its temporary cash in money market securities (investment grade or better) with what management believes are high credit quality financial institutions.

Liggett’s customers are primarily candy and tobacco distributors, the military and large grocery, drug and convenience store chains. No single retail customer represented more than 10% of Liggett’s revenues in 2010, 2009 and 2008. Concentrations of credit risk with respect to trade receivables are generally limited due to the large number of customers, located primarily throughout the United States, comprising Liggett’s customer base. Ongoing credit evaluations of customers’ financial condition are performed and, generally, no collateral is required. Liggett maintains reserves for potential credit losses and such losses, in the aggregate, have generally not exceeded management’s expectations.

(g) Accounts Receivable:

Accounts receivable-trade are recorded at their net realizable value.

The allowance for doubtful accounts and cash discounts was $239 and $354 at December 31, 2010 and 2009, respectively.

(h) Inventories:

Tobacco inventories are stated at the lower of cost or market and are determined primarily by the last-in, first-out (LIFO) method at Liggett and Vector Tobacco. Although portions of leaf tobacco inventories may not be used or sold within one year because of the time required for aging, they are included in current assets, which is common practice in the industry. It is not practicable to determine the amount that will not be used or sold within one year.

(i) Restricted Assets:

Current restricted assets of $2,661 and $3,138 at December 31, 2010 and 2009, respectively, consist primarily of certificates of deposits and supersedeas bonds. Long-term restricted assets of $8,694 and $4,835 at December 31, 2010 and 2009, respectively, consist primarily of certificates of deposit which collateralize letters of credit, supersedeas bonds and deposits on long-term debt. The certificates of deposit mature at various dates from February 2011 to January 2012.

(j) Property, Plant and Equipment:

Property, plant and equipment are stated at cost. Property, plant and equipment are depreciated using the straight-line method over the estimated useful lives of the respective assets, which are 20 to 30 years for buildings and 3 to 10 years for machinery and equipment.

Repairs and maintenance costs are charged to expense as incurred. The costs of major renewals and betterments are capitalized. The cost and related accumulated depreciation of property, plant and equipment are removed from the accounts upon retirement or other disposition and any resulting gain or loss is reflected in operations.

(k) Investment in Non-Consolidated Real Estate Businesses:

In accounting for its investment in non-consolidated real estate businesses, the Company identified its participation in Variable Interest Entities (“VIE”), which are defined as entities in which the equity investors have not provided enough equity to finance its activities or the equity investors (1) cannot directly or indirectly make decisions about the entity’s activities through their voting rights or similar rights; (2) do not have the obligation to absorb the expected losses of the entity; (3) do not have the right to receive the expected residual returns of the entity; or (4) have voting rights that are not proportionate to their economic interests and the entity’s activities involve or are conducted on behalf of an investor with a disproportionately small voting interest.

New Valley accounts for its interest in Douglas Elliman Realty LLC on the equity method because the entity neither meets the definition of a VIE nor is New Valley the entity’s primary beneficiary, as defined in authoritative guidance.

New Valley Oaktree Chelsea Eleven LLC, Sesto Holdings S.r.l. and Fifty Third-Five meet the definition of a VIE, New Valley is not the primary beneficiary of these entities, as defined in authoritative guidance. In August 2010, New Valley became the primary beneficiary of Aberdeen Townhomes LLC, and as a result, the consolidated financial statements of the Company now include the account balances of Aberdeen Townhomes LLC as of December 31, 2010.

(l) Intangible Assets:

The Company reviews intangible assets for impairment annually or whenever events or changes in business circumstances indicate that the carrying amount of the intangible assets may not be fully recoverable. Indefinite life intangible assets as of December 31, 2010 and 2009, consisted of $107,511. This intangible asset relates to the exemption of The Medallion Company (“Medallion”), acquired in April 2002, under the Master Settlement Agreement, which states payments under the MSA continue in perpetuity. As a result, the Company believes it will realize the benefit of the exemption for the foreseeable future.

Other intangible assets, included in other assets, consisting of trademarks and patent rights, are amortized using the straight-line method over 10-12 years and had no net book value at December 31, 2010 and 2009, respectively.

(m) Impairment of Long-Lived Assets:

The Company reviews long-lived assets for impairment annually or whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. The Company performs undiscounted operating cash flow analyses to determine if impairment exists. If impairment is determined to exist, any related impairment loss is calculated based on fair value of the asset on the basis of discounted cash flow. Impairment losses on assets to be disposed of, if any, are based on the estimated proceeds to be received, less costs of disposal.

(n) Pension, Postretirement and Postemployment Benefits Plans:

The cost of providing retiree pension benefits, health care and life insurance benefits is actuarially determined and accrued over the service period of the active employee group. The Company recognizes the funded status of each defined benefit pension plan, retiree health care and other postretirement benefit plans and postemployment benefit plans on the balance sheet. The Company changed its measurement date for the funded status of the plans from September 30 to December 31 in 2008. (See Note 9.)

(o) Stock Options:

The Company accounts for employee stock compensation plans by measuring compensation cost for share-based payments at fair value. In September 2010, the Company’s Chief Executive Officer delivered 51,941 shares of common stock in payment of income and payroll taxes in connection with the vesting of restricted shares. In September 2009, the Company’s Chairman delivered 2,226,503 shares of common stock in payment of the exercise price in connection with the exercise of an employee stock option for 3,379,948 shares. In November 2009, four executive officers of the Company delivered 897,194 shares of common stock in payment of the exercise price and income and payroll taxes in connection with the exercise of employee stock options for 1,188,668 shares. In June 2008, the Company’s Chairman delivered 1,516,925 shares of common stock in payment of the exercise price in connection with the exercise of an employee stock option for 4,275,845 shares. The Company immediately cancelled the shares delivered in these transactions.

(p) Income Taxes:

The Company follows authoritative guidance for accounting for uncertainty in income taxes which requires an entity to recognize the financial statement impact of a tax position when it is more likely than not that the position will be sustained upon examination. If the tax position meets the more-likely-than-not recognition threshold, the tax effect is recognized at the largest amount of the benefit that is greater than 50% likely of being realized upon ultimate settlement. The guidance requires that a liability created for unrecognized deferred tax benefits shall be presented as a liability and not combined with deferred tax liabilities or assets.

The Company accounts for income taxes under the liability method and records deferred taxes for the impact of temporary differences between the amounts of assets and liabilities recognized for financial reporting purposes and the amounts recognized for tax purposes as well as tax credit carryforwards and loss carryforwards. These deferred taxes are measured by applying currently enacted tax rates. A valuation allowance reduces deferred tax assets when it is deemed more likely than not that some portion or all of the deferred tax assets will not be realized. A current tax provision is recorded for income taxes currently payable.

(q) Distributions and Dividends on Common Stock:

The Company records distributions on its common stock as dividends in its consolidated statement of stockholders’ equity to the extent of retained earnings. Any amounts exceeding retained earnings are recorded as a reduction to additional paid-in-capital. The Company’s stock dividends are recorded as stock splits and given retroactive effect to earnings per share for all years presented.

(r) Revenue Recognition:

Sales: Revenues from sales are recognized upon the shipment of finished goods when title and risk of loss have passed to the customer, there is persuasive evidence of an arrangement, the sale price is determinable and collectibility is reasonably assured. The Company provides an allowance for expected sales returns, net of any related inventory cost recoveries. Certain sales incentives, including buydowns, are classified as reductions of net sales. The Company’s accounting policy is to include federal excise taxes in revenues and cost of goods sold. Such revenues and cost of goods sold totaled $538,328, $377,771 and $168,170 for the years ended December 31, 2010, 2009 and 2008, respectively. Since the Company’s primary line of business is tobacco, the Company’s financial position and its results of operations and cash flows have been and could continue to be materially adversely affected by significant unit sales volume declines, litigation and defense costs, increased tobacco costs or reductions in the selling price of cigarettes in the near term.

Shipping and Handling Fees and Costs: Shipping and handling fees related to sales transactions are neither billed to customers nor recorded as revenue. Shipping and handling costs, which were $5,323 in 2010, $4,059 in 2009 and $4,509 in 2008 are recorded as operating, selling, administrative and general expenses.

(s) Advertising and Research and Development:

Advertising costs, which are expensed as incurred and included within operating, selling, administration and general expenses, were $2,970, $3,159 and $3,282 for the years ended December 31, 2010, 2009 and 2008, respectively.

Research and development costs are expensed as incurred and included within operating, selling, administration and general expenses, and were $1,582, $2,533 and $3,988 for the years ended December 31, 2010, 2009 and 2008, respectively.

(t) Earnings Per Share:

Information concerning the Company’s common stock has been adjusted to give effect to the 5% stock dividends paid to Company stockholders on September 29, 2010, 2009 and 2008, respectively. The dividends were recorded at par value of $357 in 2010, $333 in 2009 and $314 in 2008 since the Company did not have retained earnings in each of the aforementioned years. In connection with the 5% stock dividends, the Company increased the number of shares subject to outstanding stock options by 5% and reduced the exercise prices accordingly.

For purposes of calculating basic EPS, earnings available to common stockholders for the period are reduced by the contingent interest and the non-cash interest expense associated with the discounts created by the beneficial conversion features and embedded derivatives related to the Company’s convertible debt issued. The convertible debt issued by the Company are participating securities due to the contingent interest feature and had no impact on EPS for the years ended December 31, 2010, 2009 and 2008 as the dividends on the common stock reduced earnings available to common stockholders so there were no unallocated earnings.

As discussed in Note 11, the Company has stock option awards which provide for common stock dividend equivalents at the same rate as paid on the common stock with respect to the shares underlying the unexercised portion of the options. These outstanding options represent participating securities under authoritative guidance. The Company recognizes payments of the dividend equivalent rights ($2,480, net of taxes of $0, $4,342, net of taxes of $1,725, and $4,865, net of taxes of $2,144, for the years ended December 31, 2010, 2009 and 2008, respectively) on these options as reductions in additional paid-in capital on the Company’s consolidated balance sheet. As a result, in its calculation of basic EPS for the years ended December 31, 2010, 2009 and 2008, respectively, the Company has adjusted its net income for the effect of these participating securities as follows:


	2010			2009			2008

Net income	$	54,084		$	24,806		$	60,504
Income attributable to participating securities		(1,146	)		(956	)		(2,783	)

Net income available to common stockholders	$	52,938		$	23,850		$	57,721

Basic EPS is computed by dividing net income available to common stockholders by the weighted-average number of shares outstanding, which includes vested restricted stock.

Diluted EPS includes the dilutive effect of stock options, unvested restricted stock grants and convertible securities. Diluted EPS is computed by dividing net income available to common stockholders by the diluted weighted-average number of shares outstanding, which includes dilutive non-vested restricted stock grants, stock options and convertible securities.

Basic and diluted EPS were calculated using the following shares for the years ended December 31, 2010, 2009 and 2008:


	2010		2009		2008

Weighted-average shares for basic EPS		74,330,955		72,989,289		71,093,920
Plus incremental shares related to stock options and warrants		362,904		69,748		790,732
Plus incremental shares related to convertible debt		—		—		6,530,696

Weighted-average shares for diluted EPS		74,693,899		73,059,037		78,415,348

The following stock options, non-vested restricted stock and shares issuable upon the conversion of convertible debt were outstanding during the years ended December 31, 2010, 2009 and 2008 but were not included in the computation of diluted EPS because the exercise prices of the options and the per share expense associated with the restricted stock were greater than the average market price of the common shares during the respective periods, and the impact of common shares issuable under the convertible debt were anti-dilutive to EPS.


	Year Ended December 31,
	2010		2009		2008

Number of stock options		158,411		1,710,914		567,496

Weighted-average exercise price	$	24.54	$	14.91	$	17.43

Weighted-average shares of non-vested restricted stock		—		166,872		73,438

Weighted-average expense per share	$	—	$	15.50	$	15.99

Weighted-average number of shares issuable upon conversion of debt		17,143,180		15,765,854		7,727,448

Weighted-average conversion price	$	15.61	$	16.06	$	14.48

Diluted EPS are calculated by dividing income by the weighted average common shares outstanding plus dilutive common stock equivalents. The Company’s convertible debt was anti-dilutive in 2009 and 2010. As a result of the dilutive nature in 2008 of the Company’s 3.875% variable interest senior convertible debentures due 2026, the Company adjusted its net income for the effect of these convertible securities for purposes of calculating diluted EPS as follows:


	Year Ended December 31,
	2010			2009			2008

Net income	$	54,084		$	24,806		$	60,504
Income attributable to 3.875% variable interest senior convertible debentures due 2026		—			—			(962	)
Income attributable to participating securities		(1,146	)		(971	)		(2,783	)

Net income for diluted EPS	$	52,938		$	23,835		$	56,759

(u) Comprehensive Income:

Other comprehensive income is a component of stockholders’ equity and includes such items as the unrealized gains and losses on investment securities available for sale, forward contracts and minimum pension liability adjustments. Total comprehensive income was as follows:


	Year Ended December 31,
	2010			2009		2008

Net income	$	54,084		$	24,806	$	60,504
Net unrealized gains (losses) on investment securities available for sale:
Change in net unrealized gains (losses), net of income taxes		27,607			4,097		(14,047	)
Net unrealized (gains) losses reclassified into net income, net of income taxes		(11,921	)		—		1,784

Net unrealized gains (losses) on investment securities available for sale, net of income taxes		15,686			4,097		(12,263	)

Change in net unrealized gains (losses), net of income taxes		669			—		(674	)
Net unrealized losses reclassified into net income, net of income taxes		—			—		275

Net unrealized gains (losses) on long-term investments accounted for under the equity method		669			—		(399	)
Net change in forward contracts		42			34		35
Net change in pension-related amounts, net of income taxes		2,938			6,232		(30,989	)

Comprehensive income	$	73,419		$	35,169	$	16,888

The components of accumulated other comprehensive income (loss), net of income taxes, were as follows:


	December 31,			December 31,			December 31,
	2010			2009			2008

Net unrealized gains on investment securities available for sale, net of income taxes of $14,591, $4,238 and $1,456, respectively	$	21,887		$	6,201		$	2,104
Net unrealized gains on long-term investment accounted for under the equity method, net of income taxes of $446, $0 and $0, respectively		669			—			—
Forward contracts adjustment, net of income taxes of $140, $170 and $195, respectively		(206	)		(248	)		(282	)
Pension-related amounts, net of income taxes of $11,929, $13,513 and $17,408, respectively		(17,894	)		(20,832	)		(27,064	)

Accumulated other comprehensive income (loss)	$	4,456		$	(14,879	)	$	(25,242	)

(v) Fair Value of Derivatives Embedded within Convertible Debt:

The Company has estimated the fair market value of the embedded derivatives based principally on the results of a valuation model. The estimated fair value of the derivatives embedded within the convertible debt is based principally on the present value of future dividend payments expected to be received by the convertible debt holders over the term of the debt. The discount rate applied to the future cash flows is estimated based on a spread in the yield of the Company’s debt when compared to risk-free securities with the same duration; thus, a readily determinable fair market value of the embedded derivatives is not available. The valuation model assumes future dividend payments by the Company and utilizes interest rates and credit spreads for secured to unsecured debt, unsecured to subordinated debt and subordinated debt to preferred stock to determine the fair value of the derivatives embedded within the convertible debt. The valuation also considers other items, including current and future dividends and the volatility of Vector’s stock price. At December 31, 2010, the range of estimated fair market values of the Company’s embedded derivatives was between $138,701 and $144,391. The Company recorded the fair market value of its embedded derivatives at the midpoint of the inputs at $141,492 as of December 31, 2010. At December 31, 2009, the range of estimated fair market values of the Company’s embedded derivatives was between $149,982 and $156,172. The Company recorded the fair market value of its embedded derivatives at the midpoint of the inputs at $153,016 as of December 31, 2009. The estimated fair market value of the Company’s embedded derivatives could change significantly based on future market conditions. (See Note 7.)

(w) Capital and Credit Markets:

The Company has performed additional assessments to determine the impact, if any, of market developments, on the Company’s consolidated financial statements. The Company’s additional assessments have included a review of access to liquidity in the capital and credit markets, counterparty creditworthiness, value of the Company’s investments (including long-term investments, mortgage receivable and employee benefit plans) and macroeconomic conditions. The volatility in capital and credit markets may create additional risks in the upcoming months and possibly years and the Company will continue to perform additional assessments to determine the impact, if any, on the Company’s consolidated financial statements. Thus, future impairment charges may occur.

On a quarterly basis, the Company evaluates its investments to determine whether an impairment has occurred. If so, the Company also makes a determination of whether such impairment is considered temporary or other-than-temporary. The Company believes that the assessment of temporary or other-than-temporary impairment is facts and circumstances driven. However, among the matters that are considered in making such a determination are the period of time the investment has remained below its cost or carrying value, the likelihood of recovery given the reason for the decrease in market value and the Company’s original expected holding period of the investment.

(x) Contingencies:

The Company records Liggett’s product liability legal expenses and other litigation costs as operating, selling, general and administrative expenses as those costs are incurred. As discussed in Note 12, legal proceedings covering a wide range of matters are pending or threatened in various jurisdictions against Liggett and the Company.

The Company and its subsidiaries record provisions in their consolidated financial statements for pending litigation when they determine that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. At the present time, while it is reasonably possible that an unfavorable outcome in a case may occur, except as disclosed in Note 12, (i) management has concluded that it is not probable that a loss has been incurred in any of the pending tobacco-related cases; (ii) management is unable to estimate the possible loss or range of loss that could result from an unfavorable outcome in any of the pending tobacco-related cases; and (iii) accordingly, management has not provided any amounts in the consolidated financial statements for unfavorable outcomes, if any. Legal defense costs are expensed as incurred.

(y) New Accounting Pronouncements:

In June 2009, the Financial Accounting Standards Board (the “FASB”) issued an amendment to the accounting and disclosure requirements for transfers of financial assets. The guidance requires additional disclosures for transfers of financial assets and changes the requirements for derecognizing financial assets. The Company adopted this guidance for interim and annual reporting periods beginning on January 1, 2010. The adoption of this guidance did not impact the Company’s consolidated financial statements.

In June 2009, the FASB issued an amendment to the accounting and disclosure requirements for the consolidation of variable interest entities. The amended guidance eliminates exceptions to consolidating qualifying special purpose entities, contains new criteria for determining the primary beneficiary, and increases the frequency of required reassessments to determine whether a company is the primary beneficiary of a variable interest entity. This guidance also contains a new requirement that any term, transaction, or arrangement that does not have a substantive effect on an entity’s status as a variable interest entity, a company’s power over a variable interest entity, or a company’s obligation to absorb losses or its right to receive benefits of an entity must be disregarded. The elimination of the qualifying special-purpose entity concept and its consolidation exception means more entities will be subject to consolidation assessments and reassessments. The Company adopted this guidance for interim and annual reporting periods beginning on January 1, 2010. The adoption of this guidance did not impact the Company’s consolidated financial statements.

In January 2010, the FASB issued authoritative guidance intended to improve disclosure about fair value measurements. The guidance requires entities to disclose significant transfers in and out of fair value hierarchy levels and the reasons for the transfers and to present information about purchases, sales, issuances, and settlements separately in the reconciliation of fair value measurements using significant unobservable inputs (Level 3). Additionally, the guidance clarifies that a reporting entity should provide fair value measurements for each class of assets and liabilities and disclose the inputs and valuation techniques used for fair value measurements using significant other observable inputs (Level 2) and significant unobservable inputs (Level 3). This guidance is effective for interim and annual periods beginning after December 15, 2009 except for the disclosure about purchases, sales, issuances and settlements in the Level 3 reconciliation, which will be effective for interim and annual periods beginning after December 15, 2010. The Company adopted this authoritative guidance, with the exception of the disclosures about purchases, sales, issuances and settlements in the Level 3 reconciliation. The adoption of this guidance did not impact the Company’s 2010 consolidated financial statements. The remaining disclosures will be added to the Company’s future filings when applicable.

Notes Payable Long Term Debt and Other Obligations

12 Months Ended

Dec. 31, 2010

Notes Payable Long Term Debt and Other Obligations [Abstract]

NOTES PAYABLE, LONG-TERM DEBT AND OTHER OBLIGATIONS


7.	NOTES PAYABLE, LONG-TERM DEBT AND OTHER OBLIGATIONS

Notes payable, long-term debt and other obligations consist of:


	December 31,			December 31,
	2010			2009

Vector:
11% Senior Secured Notes due 2015, net of unamortized discount of $730 and $4,849	$	414,270		$	245,151
6.75% Variable Interest Senior Convertible Note due 2014, net of unamortized discount of $38,353 and $39,755*		11,647			10,245
6.75% Variable Interest Senior Convertible Exchange Notes due 2014, net of unamortized discount of $64,713 and $69,749*		42,817			37,781
3.875% Variable Interest Senior Convertible Debentures due 2026, net of unamortized discount of $83,060 and $83,589*		26,940			26,411
Liggett:
Revolving credit facility		35,710			17,382
Term loan under credit facility		6,222			6,755
Equipment loans		19,030			4,852
V.T. Aviation:
Note payable		—			3,882
VGR Aviation:
Note payable		—			3,687
Other		761			663

Total notes payable, long-term debt and other obligations		557,397			356,809
Less:
Current maturities		(51,345	)		(21,889	)

Amount due after one year	$	506,052		$	334,920


*		The fair value of the derivatives embedded within the 6.75% Variable Interest Convertible Note ($20,219 at December 31, 2010 and $23,890 at December 31, 2009, respectively), the 6.75% Variable Interest Senior Convertible Exchange Notes ($38,324 at December 31, 2010 and $47,552 at December 31, 2009, respectively), and the 3.875% Variable Interest Senior Convertible Debentures ($82,949 at December 31, 2010 and $81,574 at December 31, 2009, respectively) is separately classified as a derivative liability in the condensed consolidated balance sheets.

11% Senior Secured Notes due 2015 — Vector:

The Company has outstanding $415,000 principal amount of its 11% Senior Secured Notes due 2015 (the “Senior Secured Notes”). The Senior Secured Notes were sold in August 2007 ($165,000), September 2009 ($85,000), April 2010 ($75,000) and December 2010 ($90,000) in private offerings to qualified institutional investors in accordance with Rule 144A of the Securities Act of 1933.

In May 2008 and June 2010, the Company completed offers to exchange the Senior Secured Notes then outstanding for an equal amount of newly issued 11% Senior Secured Notes due 2015. The new Senior Secured Notes have substantially the same terms as the original Notes, except that the new Senior Secured Notes have been registered under the Securities Act. The Company agreed to consummate a registered exchange offer for the additional Senior Secured Notes issued in December 2010 within 360 days after the date of their initial issuance. If the Company fails to timely comply with its registration obligations, it will be required to pay additional interest on these notes until it complies. The Company is amortizing the deferred costs and debt discount related to the Senior Secured Notes over the estimated life of the debt.

The Senior Secured Notes pay interest on a semi-annual basis at a rate of 11% per year and mature on August 15, 2015. The Company may redeem some or all of the Senior Secured Notes at any time prior to August 15, 2011 at a make-whole redemption price. On or after August 15, 2011 the Company may redeem some or all of the Senior Secured Notes at a premium that will decrease over time, plus accrued and unpaid interest and liquidated damages, if any, to the redemption date. In the event of a change of control, as defined in the indenture governing the Senior Secured Notes, each holder of the Senior Secured Notes may require the Company to repurchase some or all of its Senior Secured Notes at a repurchase price equal to 101% of their aggregate principal amount plus accrued and unpaid interest and liquidated damages, if any to the date of purchase.

The Senior Secured Notes are fully and unconditionally guaranteed on a joint and several basis by all of the 100% owned domestic subsidiaries of the Company that are engaged in the conduct of the Company’s cigarette businesses. In addition, some of the guarantees are collateralized by second priority or first priority security interests in certain collateral of some of the subsidiary guarantors, including their common stock, pursuant to security and pledge agreements.

Variable Interest Senior Convertible Debt — Vector:

Vector has outstanding three series of variable interest senior convertible debt. All three series of debt pay interest on a quarterly basis at a stated rate plus an additional amount of interest on each payment date. The additional amount is based on the amount of cash dividends paid during the prior three-month period ending on the record date for such interest payment multiplied by the total number of shares of its common stock into which the debt would be convertible on such record date (the “Additional Interest”).

5% Variable Interest Senior Convertible Notes due November 2011:

Between November 2004 and April 2005, the Company sold $111,864 principal amount of its 5% Variable Interest Senior Convertible Notes due November 15, 2011 (the “5% Notes”). In May 2009, the holder of $11,005 principal amount of the 5% Notes exchanged its 5% Notes for $11,775 principal amount of the Company’s 6.75% Variable Interest Senior Convertible Note due 2014 (the “6.75% Note”) as discussed below. In June 2009, certain holders of $99,944 principal amount of the 5% Notes exchanged their 5% Notes for $106,940 principal amount of the Company’s 6.75% Variable Interest Senior Convertible Exchange Notes due 2014 (the “6.75% Exchange Notes”). In November 2009, the Company retired $360 of the remaining $915 principal amount of the 5% Notes for cash and exchanged approximately $555 of the remaining 5% Notes for $593 principal amount of the 6.75% Exchange Notes. As of December 31, 2009, no 5% Notes remained outstanding after these exchanges.

6.75% Variable Interest Senior Convertible Note due 2014:

On May 11, 2009, the Company issued in a private placement the 6.75% Note in the principal amount of $50,000. The purchase price was paid in cash ($38,225) and by tendering $11,005 principal amount of the 5% Notes, valued at 107% of principal amount. The note pays interest (“Total Interest”) on a quarterly basis at a rate of 3.75% per annum plus additional interest, which is based on the amount of cash dividends paid during the prior three-month period ending on the record date for such interest payment multiplied by the total number of shares of its common stock into which the debt will be convertible on such record date. Notwithstanding the foregoing, however, the interest payable on each interest payment date shall be the higher of (i) the Total Interest and (ii) 6.75% per annum. The note is convertible into the Company’s common stock at the holder’s option. The conversion price as of December 31, 2010 of $13.64 per share (approximately 73.3045 shares of common stock per $1,000 principal amount of the note) is subject to adjustment for various events, including the issuance of stock dividends. The note will mature on November 15, 2014. The Company will redeem on May 11, 2014 and at the end of each interest accrual period thereafter an additional amount, if any, of the note necessary to prevent the note from being treated as an “Applicable High Yield Discount Obligation” under the Internal Revenue Code. If a fundamental change (as defined in the note) occurs, the Company will be required to offer to repurchase the note at 100% of its principal amount, plus accrued interest.

The purchaser of the 6.75% Note is an entity affiliated with Dr. Phillip Frost, who reported, after the consummation of the sale, beneficial ownership of approximately 11.7% of the Company’s common stock.

6.75% Variable Interest Senior Convertible Exchange Notes due 2014:

In June 2009, the Company entered into agreements with certain holders of the 5% Notes to exchange their 5% Notes for the Company’s 6.75% Exchange Notes. In June 2009, certain holders of $99,944 principal amount of the 5% Notes exchanged their 5% Notes for $106,940 of the 6.75% Exchange Notes. In November 2009, certain holders of $555 of the 5% Notes exchanged their 5% Notes for $593 of the Company’s 6.75% Exchange Notes.

The Company issued its 6.75% Exchange Notes to the holders in reliance on the exemption from the registration requirements of the Securities Act of 1933, as amended, afforded by Section 3(a)(9) thereof. The notes pay interest (“Total Interest”) on a quarterly basis beginning August 15, 2009 at a rate of 3.75% per annum plus additional interest, which is based on the amount of cash dividends paid during the prior three-month period ending on the record date for such interest payment multiplied by the total number of shares of its common stock into which the debt will be convertible on such record date. Notwithstanding the foregoing, however, the interest payable on each interest payment date shall be the higher of (i) the Total Interest and (ii) 6.75% per annum. The notes are convertible into the Company’s common stock at the holder’s option. The conversion price as of December 31, 2010 of $15.48 per share (approximately 64.6135 shares of common stock per $1,000 principal amount of notes) is subject to adjustment for various events, including the issuance of stock dividends. The notes will mature on November 15, 2014. The Company will redeem on June 30, 2014 and at the end of each interest accrual period thereafter an additional amount, if any, of the notes necessary to prevent the notes from being treated as an “Applicable High Yield Discount Obligation” under the Internal Revenue Code. If a fundamental change (as defined in the indenture) occurs, the Company will be required to offer to repurchase the notes at 100% of their principal amount, plus accrued interest and, under certain circumstances, a “make whole” payment.

3.875% Variable Interest Senior Convertible Debentures due 2026:

In July 2006, the Company sold $110,000 of its 3.875% variable interest senior convertible debentures due 2026 in a private offering to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933.

The debentures pay interest on a quarterly basis at a rate of 3.875% per annum plus Additional Interest (the “Debenture Total Interest”). Notwithstanding the foregoing, however, the interest payable on each interest payment date shall be the higher of (i) the Debenture Total Interest and (ii) 5.75% per annum. The debentures are convertible into the Company’s common stock at the holder’s option. The conversion price at December 31, 2010 was $16.85 per share (approximately 59.3619 shares of common stock per $1,000 principal amount of the note), is subject to adjustment for various events, including the issuance of stock dividends.

The debentures will mature on June 15, 2026. The Company must redeem 10% of the total aggregate principal amount of the debentures outstanding on June 15, 2011. In addition to such redemption amount, the Company will also redeem on June 15, 2011 and at the end of each interest accrual period thereafter an additional amount, if any, of the debentures necessary to prevent the debentures from being treated as an “Applicable High Yield Discount Obligation” under the Internal Revenue Code. The holders of the debentures will have the option on June 15, 2012, June 15, 2016 and June 15, 2021 to require the Company to repurchase some or all of their remaining debentures. The redemption price for such redemptions will equal 100% of the principal amount of the debentures plus accrued interest. If a fundamental change (as defined in the Indenture) occurs, the Company will be required to offer to repurchase the debentures at 100% of their principal amount, plus accrued interest and, under certain circumstances, a “make-whole premium”.

Embedded Derivatives on the Variable Interest Senior Convertible Debt:

The portion of the interest on the Company’s convertible debt which is computed by reference to the cash dividends paid on the Company’s common stock is considered an embedded derivative within the convertible debt, which the Company is required to separately value. In accordance with authoritative guidance on accounting for derivatives and hedging, the Company has bifurcated these embedded derivatives and estimated the fair value of the embedded derivative liability including using a third party valuation. The resulting discount created by allocating a portion of the issuance proceeds to the embedded derivative is then amortized to interest expense over the term of the debt using the effective interest method. Changes to the fair value of these embedded derivatives are reflected quarterly in the Company’s consolidated statements of operations as “Change in fair value of derivatives embedded within convertible debt.” The value of the embedded derivative is contingent on changes in interest rates of debt instruments maturing over the duration of the convertible debt as well as projections of future cash and stock dividends over the term of the debt.

A summary of non-cash interest expense associated with the amortization of the debt discount created by the embedded derivative liability associated with the Company’s variable interest senior convertible debt is as follows:


	Year Ended December 31,
	2010		2009		2008

6.75% note	$	749	$	331	$	—
6.75% exchange notes		3,113		1,210		—
3.875% convertible debentures		575		455		360
5% convertible notes		—		3,394		5,445

Interest expense associated with embedded derivatives	$	4,437	$	5,390	$	5,805

A summary of non-cash changes in fair value of derivatives embedded within convertible debt is as follows:


	Year Ended December 31,
	2010			2009			2008

6.75% note	$	3,671		$	(2,323	)	$	—
6.75% exchange notes		9,228			(3,237	)		—
3.875% convertible debentures		(1,375	)		(29,745	)		16,082
5% convertible notes		—			(620	)		8,255

Gain (loss) on changes in fair value of derivatives embedded within convertible debt	$	11,524		$	(35,925	)	$	24,337

The following table reconciles the fair value of derivatives embedded within convertible debt:


				6.75%			3.875%			5%
	6.75%			Exchange			Convertible			Convertible
	Note			Notes			Debentures			Notes			Total

Balance at January 1, 2008	$	—		$	—		$	67,911		$	33,671		$	101,582
Gain from changes in fair
value of embedded derivatives		—			—			(16,082	)		(8,255	)		(24,337	)

Balance at December 31, 2008		—			—			51,829			25,416			77,245
Issuance of 6.75% Note		21,567			—			—			(2,485	)		19,082
Issuance of 6.75% Exchange Notes		—			44,315			—			(23,551	)		20,764
Loss from changes in fair value of embedded derivatives		2,323			3,237			29,745			620			35,925

Balance at December 31, 2009		23,890			47,552			81,574			—			153,016
(Gain) loss from changes in fair value of embedded derivatives		(3,671	)		(9,228	)		1,375			—			(11,524	)

Balance at December 31, 2010	$	20,219		$	38,324		$	82,949		$	—		$	141,492

Beneficial Conversion Feature on Variable Interest Senior Convertible Debt:

After giving effect to the recording of the embedded derivative liability as a discount to the convertible debt, the Company’s common stock had a fair value at the issuance date of the debt in excess of the conversion price resulting in a beneficial conversion feature. The accounting guidance on debt with conversion and other options requires that the intrinsic value of the beneficial conversion feature be recorded to additional paid-in capital and as a discount on the debt. The discount is then amortized to interest expense over the term of the debt using the effective interest method. The beneficial conversion feature has been recorded, net of income taxes, as an increase to stockholders’ equity.

A summary of non-cash interest expense associated with the amortization of the debt discount created by the beneficial conversion feature on the Company’s variable interest senior convertible debt is as follows:


	Year Ended December 31,
	2010			2009			2008

Amortization of beneficial conversion feature:
6.75% note	$	653		$	289		$	—
6.75% exchange notes		1,923			748			—
3.875% convertible debentures		(46	)		(51	)		(54	)
5% convertible notes		—			1,883			3,017

Interest expense associated with beneficial conversion feature	$	2,530		$	2,869		$	2,963

Unamortized Debt Discount on Variable Interest Senior Convertible Debt:

The following table reconciles unamortized debt discount within convertible debt:


				6.75%			3.875%			5%
	6.75%			Exchange			Convertible			Convertible
	Note			Notes			Debentures			Notes			Total

Balance at January 1, 2008	$	—		$	—		$	84,299		$	48,027		$	132,326
Amortization of embedded derivatives		—			—			(360	)		(5,445	)		(5,805	)
Amortization of beneficial conversion feature		—			—			54			(3,017	)		(2,963	)

Balance at December 31, 2008		—			—			83,993			39,565			123,558
Issuance of convertible notes - embedded derivative		21,567			44,315			—			—			65,882
Issuance of convertible notes - beneficial conversion feature		18,808			27,392			—			—			46,200
Issuance of 6.75% Note-write-off of unamortized debt discount		—			—			—			(3,311	)		(3,311	)
Issuance of 6.75% Exchange Notes-write-off of unamortized debt discount		—			—			—			(30,977	)		(30,977	)
Amortization of embedded derivatives		(331	)		(1,210	)		(455	)		(3,394	)		(5,390	)
Amortization of beneficial conversion feature		(289	)		(748	)		51			(1,883	)		(2,869	)

Balance at December 31, 2009		39,755			69,749			83,589			—			193,093
Amortization of embedded derivatives		(749	)		(3,113	)		(575	)		—			(4,437	)
Amortization of beneficial conversion feature		(653	)		(1,923	)		46			—			(2,530	)

Balance at December 31, 2010	$	38,353		$	64,713		$	83,060		$	—		$	186,126

Loss on Extinguishment of Debt:

The exchange of the 5% Notes for the 6.75% Notes and the 6.75% Exchange Notes qualifies as extinguishment of debt due to the significant change in terms. The loss was $18,573 for the year ended December 31, 2009. A summary of the Company’s loss on the extinguishment of the 5% Notes for the year ended December 31, 2009 is as follows:


				6.75%
	6.75%			Exchange
	Note			Notes			Total

Issuance of additional notes payable	$	770		$	7,034		$	7,804
Termination of embedded derivative		(2,485	)		(23,551	)		(26,036	)
Write-off of deferred finance costs		257			2,260			2,517
Write-off of unamortized debt discount, net		3,311			30,977			34,288

Loss on extinguishment of debt	$	1,853		$	16,720		$	18,573

Revolving Credit Facility — Liggett:

Liggett has a $50,000 credit facility with Wachovia Bank, N.A. (“Wachovia”) under which $35,710 was outstanding at December 31, 2010. Availability as determined under the facility was approximately $294 based on eligible collateral at December 31, 2010. The facility is collateralized by all inventories and receivables of Liggett and a mortgage on Liggett’s manufacturing facility. The facility requires Liggett’s compliance with certain financial and other covenants including a restriction on Liggett’s ability to pay cash dividends unless Liggett’s borrowing availability, as defined, under the facility for the 30-day period prior to the payment of the dividend, and after giving effect to the dividend, is at least $5,000 and no event of default has occurred under the agreement, including Liggett’s compliance with the covenants in the credit facility.

The term of the Wachovia facility expires on March 8, 2012, subject to automatic renewal for additional one-year periods unless a notice of termination is given by Wachovia or Liggett at least 60 days prior to such date or the anniversary of such date. Prime rate loans under the facility bear interest at a rate equal to the prime rate of Wachovia with Eurodollar rate loans bearing interest at a rate of 2.0% above Wachovia’s adjusted Eurodollar rate. The facility contains covenants that provide that Liggett’s earnings before interest, taxes, depreciation and amortization, as defined under the facility, on a trailing twelve month basis, shall not be less than $100,000 if Liggett’s excess availability, as defined, under the facility, is less than $20,000. The covenants also require that annual capital expenditures, as defined under the facility (before a maximum carryover amount of $2,500), shall not exceed $10,000 during any fiscal year. On November 1, 2010, Liggett and Wachovia entered into the credit facility’s Seventh Amendment to permit Liggett to incur Capital Expenditures (as defined in the credit facility) of up to $33,000 solely for the fiscal year ended 2010. The Seventh Amendment is effective as of August 31, 2010.

Equipment Loans — Liggett:

In 2010, Liggett entered into nine financing agreements for a total of $16,634 related to the purchase of equipment. The weighted average interest rate of the outstanding debt is 5.28% per annum and the interest rate on the notes ranges between 2.59% and 6.13%. The debt is payable over 30 to 60 months with an average term of 56 months. Total monthly installments are $297.

Liggett also refinanced $3,575 of debt related to previous equipment purchases. The refinanced debt has an interest rate of 5.95% and is payable in 36 installments of $109. Each of these equipment loans is collateralized by the purchased equipment. In December 2010, Liggett purchased equipment for $8,068 and entered into two financing agreements for a total of $8,068, payable in 60 installments totaling $147. The interest rates on the two notes are 5.63% and 5.69%.

Each of these equipment loans is collateralized by the purchased equipment.

Fair Value of Notes Payable and Long-term Debt:

The estimated fair value of the Company’s notes payable and long-term debt has been determined by the Company using available market information and appropriate valuation methodologies including the evaluation of the Company’s credit risk as described in Note 1. However, considerable judgment is required to develop the estimates of fair value and, accordingly, the estimate presented herein are not necessarily indicative of the amount that could be realized in a current market exchange.


	December 31, 2010				December 31, 2009
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value

Notes payable and long-term debt	$	557,397	$	827,247	$	356,809	$	573,439

Scheduled Maturities:

Scheduled maturities of long-term debt are as follows:


			Unamortized
	Principal		Discount		Net

Year Ending December 31:
2011		51,345		434		50,911
2012		105,793		82,626		23,167
2013		4,375		—		4,375
2014		161,158		103,066		58,092
2015		418,025		730		417,295
Thereafter		3,557		—		3,557

Total	$	744,253	$	186,856	$	557,397

The scheduled maturities of $105,793 (principal amount) in 2012 reflect $99,000 (principal amount), which may be required to be redeemed in 2012 in accordance with the terms of the Company’s 3.875% Variable Interest Senior Convertible Debentures due 2026.

Weighted-Average Interest Rate on Current Maturities of Long-Term Debt:

The weighted-average interest rate on the Company’s current maturities of long-term debt at December 31, 2010 was approximately 11.05%.

Employee Benefit Plans

12 Months Ended

Dec. 31, 2010

Employee Benefit Plans [Abstract]

EMPLOYEE BENEFIT PLANS


9.	EMPLOYEE BENEFIT PLANS

Defined Benefit Plans and Postretirement Plans:

Defined Benefit Plans. The Company sponsors three defined benefit pension plans (two qualified and one non-qualified) covering virtually all individuals who were employed by Liggett on a full-time basis prior to 1994. Future accruals of benefits under these three defined benefit plans were frozen between 1993 and 1995. These benefit plans provide pension benefits for eligible employees based primarily on their compensation and length of service. Contributions are made to the two qualified pension plans in amounts necessary to meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974. The plans’ assets and benefit obligations were measured at December 31, 2010 and 2009, respectively.

The Company also sponsors a Supplemental Retirement Plan (“SERP”) where the Company will pay supplemental retirement benefits to certain key employees, including executive officers of the Company. In January 2006, the Company amended and restated its SERP (the “Amended SERP”), effective January 1, 2005. The amendments to the plan were intended, among other things, to cause the plan to meet the applicable requirements of Section 409A of the Internal Revenue Code. The Amended SERP is intended to be unfunded for tax purposes, and payments under the Amended SERP will be made out of the general assets of the Company. Under the Amended SERP, the benefit payable to a participant at his normal retirement date is a lump sum amount which is the actuarial equivalent of a predetermined annual retirement benefit set by the Company’s board of directors. Normal retirement date is defined as the January 1 following the attainment by the participant of the later of age 60 or the completion of eight years of employment following January 1, 2002 with the Company or a subsidiary.

In connection with the retirement of the Company’s Chairman, he received in July 2009 a payment of $20,860 under the terms of the SERP.

In April 2008, the SERP was amended to provide the Company’s President and Chief Executive Officer with an additional benefit under the SERP equal to a $736 lifetime annuity beginning January 1, 2013. This additional benefit vests in full on January 1, 2013, subject to his remaining continuously employed by the Company through that date, subject to partial vesting for termination of employment under certain circumstances. In addition, in the event of a termination of his employment under the circumstances where he is entitled to severance payments under his employment agreement, he will be credited with an additional 36 months of service towards vesting under the SERP. As a result of the additional benefit granted to him, the President and Chief Executive Officer will be eligible to receive a total lump sum retirement benefit of $20,546 in 2013, an increase of $7,122 over the benefit he would have been entitled to receive under the SERP prior to the amendment, assuming a January 1, 2013 retirement date. The $7,122 increase will be recognized as an expense in the years ended December 31, 2010, 2011 and 2012.

At December 31, 2010, the aggregate lump sum equivalents of the annual retirement benefits payable under the Amended SERP at normal retirement dates occurring during the following years is as follows: 2011 – $0; 2012 – $3,505; 2013 – $20,647; 2014 – $7,232; 2015 – $0 and 2016 to 2020 – $0. In the case of a participant who becomes disabled prior to his normal retirement date or whose service is terminated without cause, the participant’s benefit consists of a pro-rata portion of the full projected retirement benefit to which he would have been entitled had he remained employed through his normal retirement date, as actuarially discounted back to the date of payment. A participant who dies while working for the Company or a subsidiary (and before becoming disabled or attaining his normal retirement date) will be paid an actuarially discounted equivalent of his projected retirement benefit; conversely, a participant who retires beyond his normal retirement date will receive an actuarially increased equivalent of his projected retirement benefit.

Postretirement Medical and Life Plans. The Company provides certain postretirement medical and life insurance benefits to certain employees. Substantially all of the Company’s manufacturing employees as of December 31, 2010 are eligible for postretirement medical benefits if they reach retirement age while working for Liggett or certain affiliates. Retirees are required to fund 100% of participant medical premiums and, pursuant to union contracts, Liggett reimburses approximately 375 hourly retirees, who retired prior to 1991, for Medicare Part B premiums. In addition, the Company provides life insurance benefits to approximately 200 active employees and 475 retirees who reach retirement age and are eligible to receive benefits under one of the Company’s defined benefit pension plans. The Company’s postretirement liabilities are comprised of Medicare Part B and life insurance premiums.

The following table provides a reconciliation of benefit obligations, plan assets and the funded status of the pension plans and other postretirement benefits:


							Other
	Pension Benefits						Postretirement Benefits
	2010			2009			2010			2009

Change in benefit obligation:
Benefit obligation at January 1	$	(142,043	)	$	(156,318	)	$	(9,405	)	$	(8,743	)
Service cost		(1,360	)		(1,319	)		(13	)		(15	)
Interest cost		(8,131	)		(9,385	)		(521	)		(566	)
Plan amendment		(6,055	)		—			—			—
Benefits paid		11,787			32,903			574			596
Expenses paid		479			507			—			—
Actuarial (gain) loss		(3,645	)		(8,431	)		(485	)		(677	)

Benefit obligation at December 31	$	(148,968	)	$	(142,043	)	$	(9,850	)	$	(9,405	)

Change in plan assets:
Fair value of plan assets at January 1	$	125,166		$	111,266		$	—		$	—
Gap period cash flow		—			—			—			—
Actual return on plan assets		19,733			26,085			—			—
Expenses paid		(479	)		(507	)		—			—
Contributions		360			21,225			574			596
Benefits paid		(11,787	)		(32,903	)		(574	)		(596	)

Fair value of plan assets at December 31	$	132,993		$	125,166		$	—		$	—

Funded status at December 31	$	(15,975	)	$	(16,877	)	$	(9,850	)	$	(9,405	)

Amounts recognized in the consolidated balance sheets:
Prepaid pension costs	$	13,935		$	8,994		$	—		$	—
Other accrued liabilities		(347	)		(357	)		(665	)		(680	)
Non-current employee benefit liabilities		(29,563	)		(25,514	)		(9,185	)		(8,725	)

Net amounts recognized	$	(15,975	)	$	(16,877	)	$	(9,850	)	$	(9,405	)


										Other Postretirement
	Pension Benefits									Benefits
	2010			2009			2008			2010			2009			2008

Service cost — benefits earned during the period	$	1,360		$	1,319		$	4,139		$	13		$	15		$	15
Interest cost on projected benefit obligation		8,131			9,385			9,525			521			567			591
Expected return on assets		(8,271	)		(7,817	)		(12,145	)		—			—			—
Prior service cost		—			801			1,402			—			—			—
Time contractual termination benefits		—			(1,808	)		—			—			—			—
Amortization of net loss (gain)		3,376			2,136			98			(129	)		(163	)		(180	)

Net expense	$	4,596		$	4,016		$	3,019		$	405		$	419		$	426

The following table summarizes amounts in accumulated other comprehensive loss that are expected to be recognized as components of net periodic benefit cost for the year ending December 31, 2011.


	Defined		Post-
	Benefit		Retirement
	Pension Plans		Plans			Total

Prior service cost	$	2,018	$	—		$	2,018
Actuarial loss (gain)		789		(88	)		701

As of December 31, 2010, current year accumulated other comprehensive income, before income taxes, consists of the following:


	Defined			Post-
	Benefit			Retirement
	Pension Plans			Plans			Total

Prior year accumulated other
comprehensive income	$	(35,348	)	$	1,003		$	(34,345	)
Amortization of prior service costs		2,018			—			2,018
Effect of settlement		—			—			—
Amortization of gain (loss)		1,358			(130	)		1,228
Net (loss) gain arising during the year		1,762			(485	)		1,277

Current year accumulated other comprehensive (loss) income	$	(30,210	)	$	388		$	(29,822	)

As of December 31, 2010, there was $29,822 of items not yet recognized as a component of net periodic pension benefit, which consisted of future pension benefits of $30,210 associated with the amortization of net loss.

As of December 31, 2010, there was $388 of items not yet recognized as a component of net periodic postretirement benefit, which consisted of future benefits associated with the amortization of net gains.

As of December 31, 2009, current year accumulated other comprehensive income, before income taxes, consisted of the following:


	Defined			Post-
	Benefit			Retirement
	Pension Plans			Plans			Total

Prior year accumulated other
comprehensive income	$	(46,314	)	$	1,842		$	(44,472	)
Amortization of prior service costs		801			—			801
Effect of settlement		(1,808	)		—			(1,808	)
Amortization of gain (loss)		2,136			(163	)		1,973
Net (loss) gain arising during the year		9,837			(676	)		9,161

Current year accumulated other comprehensive (loss) income	$	(35,348	)	$	1,003		$	(34,345	)

As of December 31, 2009, there was $34,345 of items not yet recognized as a component of net periodic pension benefit, which consisted of future pension benefits of $35,348 associated with the amortization of net loss.

As of December 31, 2009, there was $1,003 of items not yet recognized as a component of net periodic postretirement benefit, which consisted of future benefits associated with the amortization of net gains.

As of December 31, 2010, two of the Company’s four defined benefit plans experienced accumulated benefit obligations in excess of plan assets, for which in the aggregate the projected benefit obligation, accumulated benefit obligation and fair value of plan assets were $29,973, $29,973 and $0, respectively. As of December 31, 2009, three of the Company’s four defined benefit plans experienced accumulated benefit obligations in excess of plan assets, for which in the aggregate the projected benefit obligation, accumulated benefit obligation and fair value of plan assets were $90,216, $90,216 and $64,345, respectively.


	Pension Benefits									Other Postretirement Benefits
	2010			2009			2008			2010			2009			2008

Weighted average assumptions:
Discount rates — benefit obligation		5.25	%		5.75	%		6.75	%		5.25	%		5.75	%		6.75	%
Discount rates — service cost		5.75	%		6.75	%		6.25	%		5.75	%		6.75	%		6.25	%
Assumed rates of return on invested assets		7.00	%		7.50	%		7.50	%		—			—			—
Salary increase assumptions		N/A			N/A			N/A			3.00	%		3.00	%		3.00	%

Discount rates were determined by a quantitative analysis examining the prevailing prices of high quality bonds to determine an appropriate discount rate for measuring obligations. The aforementioned analysis analyzes the cash flow from each of the Company’s four benefit plans as well as a separate analysis of the cash flows from the postretirement medical and life insurance plans sponsored by Liggett. The aforementioned analyses then construct a hypothetical bond portfolio whose cash flow from coupons and maturities match the year-by-year, projected benefit cash flow from the respective pension or retiree health plans. The Company uses the lower discount rate derived from the two independent analyses in the computation of the benefit obligation and service cost for each respective retirement liability. The Company uses the discount rate derived from the analysis in the computation of the benefit obligation and service cost for all the plans respective retirement liability.

The Company considers input from its external advisors and historical returns in developing its expected rate of return on plan assets. The expected long-term rate of return is the weighted average of the target asset allocation of each individual asset class. The Company’s actual 10-year annual rate of return on its pension plan assets was 4.8%, 3.0% and 2.5% for the years ended December 31, 2010, 2009 and 2008, respectively, and the Company’s actual five-year annual rate of return on its pension plan assets was 5.7%, 3.5% and 1.2% for the years ended December 31, 2010, 2009 and 2008, respectively.

Gains and losses resulting from changes in actuarial assumptions and from differences between assumed and actual experience, including, among other items, changes in discount rates and changes in actual returns on plan assets as compared to assumed returns. These gains and losses are only amortized to the extent that they exceed 10% of the greater of Projected Benefit Obligation and the fair value of assets. For the year ended December 31, 2010, Liggett used a 16.01-year period for its Hourly Plan and a 17.56-year period for its Salaried Plan to amortize pension fund gains and losses on a straight line basis. Such amounts are reflected in the pension expense calculation beginning the year after the gains or losses occur. The amortization of deferred losses negatively impacts pension expense in the future.

Plan assets are invested employing multiple investment management firms. Managers within each asset class cover a range of investment styles and focus primarily on issue selection as a means to add value. Risk is controlled through a diversification among asset classes, managers, styles and securities. Risk is further controlled both at the manager and asset class level by assigning excess return and tracking error targets. Investment managers are monitored to evaluate performance against these benchmark indices and targets.

Allowable investment types include equity, investment grade fixed income, high yield fixed income, hedge funds and short term investments. The equity fund is comprised of common stocks and mutual funds of large, medium and small companies, which are predominantly U.S. based. The investment grade fixed income fund includes managed funds investing in fixed income securities issued or guaranteed by the U.S. government, or by its respective agencies, mortgage backed securities, including collateralized mortgage obligations, and corporate debt obligations. The high yield fixed income fund includes a fund which invests in non-investment grade corporate debt securities. The hedge funds invest in both equity, including common and preferred stock, and debt obligations, including convertible debentures, of private and public companies. The Company generally utilizes its short term investments, including interest-bearing cash, to pay benefits and to deploy in special situations.

In 2008, the Liggett Employee Benefits Committee temporarily suspended its target asset allocation percentages due to the volatility in the financial markets. Even though such allocation percentages were suspended, investment manager performance versus their respective benchmarks was still monitored on a regular basis. Effective January 1, 2011, the Liggett Employee Benefits Committee has reinstated its target assets allocation to equal 50.0% equity investments, 27.5% investment grade fixed income, 7.5% high yield fixed income, 10.0% alternative investments (including hedge funds and private equity funds) and 5.0% short-term investments, with a rebalancing range of approximately plus or minus 5% around the target asset allocations.

Vector’s defined benefit retirement plan allocations at December 31, 2010 and 2009, by asset category, were as follows:


	Plan Assets at
	December 31,
	2010			2009

Asset category:
Equity securities		51	%		50	%
Investment grade fixed income securities		26	%		26	%
High yield fixed income securities		4	%		2	%
Alternative investments		9	%		8	%
Short-term investments		10	%		14	%

Total		100	%		100	%

The defined benefit plans’ recurring financial assets and liabilities subject to fair value measurements and the necessary disclosures are as follows:


	Fair Value Measurements as of December 31, 2010
			Quoted Prices in
			Active Markets for		Significant Other		Significant
			Identical Assets		Observable Inputs		Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)

Assets:
Insurance contracts	$	2,359	$	—	$	2,359	$	—
Amounts in individually managed investment accounts:
Cash		14,108		14,108		—		—
U.S. equity securities		53,916		53,916		—		—
Common collective trusts		50,631		—		45,722		4,909
Investment partnership		11,996		—		—		11,996

Total	$	133,010	$	68,024	$	48,081	$	16,905


	Fair Value Measurements as of December 31, 2009
			Quoted Prices in
			Active Markets for		Significant Other		Significant
			Identical Assets		Observable Inputs		Unobservable Inputs
Description	Total		(Level 1)		(Level 2)		(Level 3)

Assets:
Insurance contracts	$	2,684	$	—	$	2,684	$	—
Amounts in individually managed investment accounts:
Cash, mutual funds and common stock		71,726		71,726		—		—
Common collective trusts		40,210		—		38,752		1,458
Investment partnership		10,182		—		—		10,182

Total	$	124,802	$	71,726	$	41,436	$	11,640

The fair value determination disclosed above of assets as Level 3 under the fair value hierarchy was determined based on unobservable inputs and were based on company assumptions, and information obtained from the investments based on the indicated market values of the underlying assets of the investment portfolio.

The changes in the fair value of these Level 3 investments as of December 31, 2010 and 2009 were as follows:


	2010			2009

Balance as of January 1	$	11,640		$	15,285
Distributions		(1,107	)		(8,978	)
Contributions		4,000			—
Unrealized loss on long-term investments		2,113			3,913
Realized gain on long-term investments		259			1,420

Balance as of December 31	$	16,905		$	11,640

For 2010 measurement purposes, annual increases in Medicare Part B trends were assumed to equal rates between (5.25)% and 6.8% between 2011 and 2019 and 4.5% after 2019. For 2009 measurement purposes, annual increases in Medicare Part B trends were assumed to equal rates between (7.24)% and 24.69% between 2010 and 2018 and 4.5% after 2018.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A 1% change in assumed health care cost trend rates would have the following effects:


	1% Increase		1% Decrease

Effect on total of service and interest cost components	$	9	$	(8	)
Effect on benefit obligation	$	164	$	(151	)

To comply with ERISA’s minimum funding requirements, the Company does not currently anticipate that it will be required to make any funding to the pension plans for the pension plan year beginning on January 1, 2011 and ending on December 31, 2011. Any additional funding obligation that the Company may have for subsequent years is contingent on several factors and is not reasonably estimable at this time.

Estimated future pension and postretirement medical benefits payments are as follows:


			Postretirement
	Pension		Medical

2011		11,956		666
2012		15,064		734
2013		31,838		696
2014		17,959		691
2015		10,413		694
2016 — 2020		45,989		3,471

Profit Sharing and Other Plans:

The Company maintains 401(k) plans for substantially all U.S. employees which allow eligible employees to invest a percentage of their pre-tax compensation. The Company contributed to the 401(k) plans and expensed $1,068, $1,098 and $1,095 for the years ended December 31, 2010, 2009 and 2008, respectively.

Stock Compensation

12 Months Ended

Dec. 31, 2010

Stock Compensation [Abstract]

STOCK COMPENSATION


11.	STOCK COMPENSATION

The Company grants equity compensation under its Amended and Restated 1999 Long-Term Incentive Plan (the “1999 Plan”). As of December 31, 2010, there were approximately 3,815,336 shares available for issuance under the 1999 Plan.

Stock Options. The Company accounts for stock compensation by valuing unvested stock options granted prior to January 1, 2006 under the fair value method of accounting and expensing this amount in the statement of operations over the stock options’ remaining vesting period.

The Company recognized compensation expense of $1,218, $292 and $186 related to stock options in the years ended December 31, 2010, 2009 and 2008 respectively.

The terms of certain stock options awarded under the 1999 Plan in December 2009 and January 2001 provide for common stock dividend equivalents (at the same rate as paid on the common stock) with respect to the shares underlying the unexercised portion of the options. The Company recognizes payments of the dividend equivalent rights on these options as reductions in additional paid-in capital on the Company’s consolidated balance sheet ($2,480, $4,342 and $4,865 net of taxes, for the years ended December 31, 2010, 2009 and 2008, respectively), which is included as “Distributions on common stock” in the Company’s consolidated statement of changes in stockholders’ equity.

The fair value of option grants is estimated at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including expected stock price characteristics which are significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models do not necessarily provide a reliable single measure of the fair value of stock-based compensation awards.

The assumptions used under the Black-Scholes option pricing model in computing fair value of options are based on the expected option life considering both the contractual term of the option and expected employee exercise behavior, the interest rate associated with U.S. Treasury issues with a remaining term equal to the expected option life and the expected volatility of the Company’s common stock over the expected term of the option. The assumptions used for grants in the years ended December 31, 2010 and 2009 were as follows:


	2010		2009

Risk-free interest rate		2.59%		2.0% – 3.4%
Expected volatility		24.43%		24.97% – 35.93%
Dividend yield		9.75%		0.0%
Expected holding period		4.74 years		4.79 – 10 years
Weighted-average grant date fair value	$	1.03	$	3.58 – $7.40

A summary of employee stock option transactions follows:


						Weighted-Average
						Remaining		Aggregate
	Number of			Weighted-Average		Contractual Term		Intrinsic
	Shares			Exercise Price		(Years)		Value(1)

Outstanding on January 1, 2008		10,326,841		$	8.38		1.8	$	95,238
Granted		—			—
Exercised		(4,498,715	)	$	5.19
Cancelled		(1,547	)	$	28.06

Outstanding on December 31, 2008		5,826,579		$	10.50		1.7	$	13,708
Granted		1,176,000		$	13.40
Exercised		(4,618,558	)	$	9.54
Cancelled		(71,052	)	$	15.95

Outstanding on December 31, 2009		2,312,969		$	13.82		6.6	$	1,947
Granted		105,000		$	15.63
Exercised		(116,271	)	$	10.88
Cancelled		(19	)		—

Outstanding on December 31, 2010		2,301,679		$	14.05		6.0	$	11,208

Options exercisable at:
December 31, 2008		5,427,575
December 31, 2009		1,109,849
December 31, 2010		1,014,298


(1)		The aggregate intrinsic value represents the amount by which the fair value of the underlying common stock ($17.32, $14.00 and $12.97 at December 31, 2010, 2009 and 2008, respectively) exceeds the option exercise price.

Additional information relating to options outstanding at December 31, 2010 follows:


	Options Outstanding						Options Exercisable
			Weighted-Average
	Outstanding		Remaining				Exercisable
Range of	as of		Contractual Life		Weighted-Average		as of		Weighted-Average
Exercise Prices	12/31/2010		(Years)		Exercise Price		12/31/2010		Exercise Price

$0.00 – 8.42		11,637		2.0	$	8.14		11,637	$	8.14
$8.43 – 11.22		—		—		—		—		—
$11.23 – 14.03		1,969,206		6.3	$	13.10		786,825	$	13.10
$14.04 – 16.84		162,425		7.7	$	15.77		57,425	$	15.77
$16.85 – 19.64		6,184		1.1	$	17.86		6,184	$	17.86
$19.65 – 22.45		4,876		0.6	$	21.56		4,876	$	21.56
$22.46 – 25.25		58,944		0.7	$	23.85		58,944	$	23.85
$25.26 – 28.06		88,407		0.7	$	25.64		88,407	$	25.64

		2,301,679		6.0	$	14.05		1,014,298	$	14.98

As of December 31, 2010, there was $4,057 of total unrecognized compensation cost related to unvested stock options. The cost is expected to be recognized over a weighted-average period of approximately three years at December 31, 2010.

As of December 31, 2009, there was $5,171 of total unrecognized compensation cost related to unvested stock options. The cost is expected to be recognized over a weighted-average period of approximately four years at December 31, 2009.

The Company reflects the tax savings resulting from tax deductions in excess of expense reflected in its financial statements as a component of “Cash Flows from Financing Activities.”

Non-qualified options for 105,000 shares of common stock were issued during 2010. The exercise price of the options granted was $15.63 in 2010. The exercise prices of the options granted in 2010 were at the fair value on the dates of the grants.

Non-qualified options for 1,176,000 shares of common stock were issued during 2009. The exercise price of the options granted was $13.40 in 2009. The exercise prices of the options granted in 2009 were at the fair value on the dates of the grants.

No options were granted in 2008.

The Company has elected to use the long-form method under which each award grant is tracked on an employee-by-employee basis and grant-by-grant basis to determine if there is a tax benefit or tax deficiency for such award. The Company then compares the fair value expense to the tax deduction received for each grant and aggregates the benefits and deficiencies to establish its hypothetical APIC Pool.

The Company recognizes windfall tax benefits associated with the exercise of stock options directly to stockholders’ equity only when realized. A windfall tax benefit occurs when the actual tax benefit realized by the Company upon an employee’s disposition of a share-based award exceeds the deferred tax asset, if any, associated with the award that the Company had recorded.

The total intrinsic value of options exercised during the years ended December 31, 2010, 2009 and 2008 was $673, $22,771 and $44,755, respectively. Tax benefits related to option exercises of $267, $9,162 and $18,304 were recorded as increases to stockholders’ equity for the years ended December 31, 2010, 2009 and 2008, respectively.

During 2010, 116,271 options, exercisable at prices ranging from $8.74 to $13.10 per share, were exercised for $1,265 in cash on the date of exercise.

During 2009, 4,604,152 options, exercisable at prices ranging from $9.03 to $13.48 per share, were exercised for $1,144 in cash and the delivery to the Company of 2,955,609 shares of common stock with a fair market value of $42,768, or $13.91, per share on the date of exercise.

During 2008, 4,498,715 options, exercisable at prices ranging from $5.43 to $11.51 per share, were exercised for $87 in cash and the delivery to the Company of 1,444,690 shares of common stock with a fair market value of $24,395, or $16.08, per share on the date of exercise.

Restricted Stock Awards. In 2005, the President of the Company was awarded restricted stock grants of 738,418 shares of the Company’s common stock, pursuant to the 1999 Plan. Pursuant to the restricted share agreements, one-fourth of the shares vested on September 15, 2006, with an additional one-fourth vesting on each of the three succeeding one-year anniversaries of the first vesting date through September 15, 2009. The Company recorded deferred compensation of $11,340 representing the fair market value of the total restricted shares on the dates of grant. The deferred compensation was amortized over the vesting period as a charge to compensation expense. The Company recorded an expense of $1,996 and $2,843 associated with the grants for the years ended December 31, 2009 and 2008, respectively.

In November 2005, the President of Liggett and Liggett Vector Brands was awarded a restricted stock grant of 63,814 shares of the Company’s common stock pursuant to the 1999 Plan. Pursuant to his restricted share agreement, one-fourth of the shares vested on November 1, 2006, with an additional one-fourth vesting on each of the three succeeding one-year anniversaries of the first vesting date through November 1, 2009. The Company recorded deferred compensation of $1,018 representing the fair market value of the restricted shares on the date of grant. The Company recorded an expense of $218 and $254 associated with the grant for each of the years ended December 31, 2009 and 2008, respectively.

In June 2007, the Company granted 12,155 restricted shares of the Company’s common stock pursuant to the 1999 Plan to each of its four outside directors. The shares vested over three years. The Company recognized $792 of expense over the vesting period. The Company recognized expense of $264 for the years ended December 31, 2010, 2009 and 2008, respectively, in connection with this restricted stock award.

In June 2010, the Company granted 10,500 restricted shares of the Company’s common stock pursuant to the 1999 Plan to each of its five outside directors. The shares will vest over three years and the Company will recognize $834 of expense over the vesting period, including $154 of expense for the year ended December 31, 2010.

In April 2009, the President of the Company was awarded a restricted stock grant of 551,250 shares of Vector’s common stock pursuant to the 1999 Plan. Under the terms of the award, one-fifth of the shares vest on September 15, 2010, with an additional one-fifth vesting on each of the four succeeding one-year anniversaries of the first vesting date through September 15, 2014. In the event that his employment with the Company is terminated for any reason other than his death, his disability or a change of control (as defined in this Restricted Share Agreement) of the Company, any remaining balance of the shares not previously vested will be forfeited by him. The fair market value of the restricted shares on the date of grant was $6,467 is being amortized over the vesting period as a charge to compensation expense. The Company recorded an expense of $872 and $872 for the years ended December 31, 2010 and 2009, respectively.

As of December 31, 2010, there was $5,086 of total unrecognized compensation costs related to unvested restricted stock awards. The cost is expected to be recognized over a weighted-average period of approximately two years at December 31, 2010.

As of December 31, 2009, there was $5,705 of total unrecognized compensation costs related to unvested restricted stock awards. The cost is expected to be recognized over a weighted-average period of approximately three years at December 31, 2009.

The Company’s accounting policy is to treat dividends paid on unvested restricted stock as a reduction to additional paid-in capital on the Company’s consolidated balance sheet.

Contingencies

12 Months Ended

Dec. 31, 2010

Contingencies [Abstract]

CONTINGENCIES


12.	CONTINGENCIES

Tobacco-Related Litigation:

Overview

Since 1954, Liggett and other United States cigarette manufacturers have been named as defendants in numerous direct, third-party and purported class actions predicated on the theory that cigarette manufacturers should be liable for damages alleged to have been caused by cigarette smoking or by exposure to secondary smoke from cigarettes. New cases continue to be commenced against Liggett and other cigarette manufacturers. The cases generally fall into the following categories: (i) smoking and health cases alleging personal injury brought on behalf of individual plaintiffs (“Individual Actions”); (ii) smoking and health cases primarily alleging personal injury or seeking court-supervised programs for ongoing medical monitoring, as well as cases alleging the use of the terms “lights” and/or “ultra lights” constitutes a deceptive and unfair trade practice, common law fraud or violation of federal law, purporting to be brought on behalf of a class of individual plaintiffs (“Class Actions”); and (iii) health care cost recovery actions brought by various foreign and domestic governmental plaintiffs and non-governmental plaintiffs seeking reimbursement for health care expenditures allegedly caused by cigarette smoking and/or disgorgement of profits (“Health Care Cost Recovery Actions”). As new cases are commenced, the costs associated with defending these cases and the risks relating to the inherent unpredictability of litigation continue to increase. The future financial impact of the risks and expenses of litigation and the effects of the tobacco litigation settlements discussed below are not quantifiable at this time. For the years ended December 31, 2010, 2009 and 2008, Liggett incurred legal expenses and other litigation costs totaling approximately $23,389 (which includes expense of $16,161 for the Lukacs and Ferlanti judgments described below), $6,000 and $8,800, respectively.

Litigation is subject to uncertainty and it is possible that there could be adverse developments in pending or future cases. An unfavorable outcome or settlement of pending tobacco-related or other litigation could encourage the commencement of additional litigation. Damages claimed in some tobacco-related or other litigation are or can be significant.

Although Liggett has been able to obtain required bonds or relief from bonding requirements in order to prevent plaintiffs from seeking to collect judgments while adverse verdicts are on appeal, there remains a risk that such relief may not be obtainable in all cases. This risk has been reduced given that a majority of states now limit the dollar amount of bonds or require no bond at all. Liggett has secured approximately $5,055 in bonds as of December 31, 2010.

In June 2009, Florida amended its existing bond cap statute by adding a $200,000 bond cap that applies to all Engle progeny cases (defined below) in the aggregate and establishes individual bond caps for individual Engle progeny cases in amounts that vary depending on the number of judgments in effect at a given time. The legislation applies to judgments entered after the effective date and remains in effect until December 31, 2012. Certain plaintiffs have challenged the constitutionality of the bond cap statute. In one of these cases, the court recently upheld the constitutionality of the statute. Although the Company cannot predict the outcome of such challenges, it is possible that the Company’s financial position, results of operations, or cash flows could be materially affected by an unfavorable outcome of such challenges.

The Company and its subsidiaries record provisions in their consolidated financial statements for pending litigation when they determine that an unfavorable outcome is probable and the amount of loss can be reasonably estimated. At the present time, while it is reasonably possible that an unfavorable outcome in a case may occur, except as disclosed in this Note 12: (i) management has concluded that it is not probable that a loss has been incurred in any of the pending tobacco-related cases; or (ii) management is unable to estimate the possible loss or range of loss that could result from an unfavorable outcome of any of the pending tobacco-related cases and, therefore, management has not provided any amounts in the consolidated financial statements for unfavorable outcomes, if any. Liggett believes, and has been so advised by counsel, that it has valid defenses to the litigation pending against it, as well as valid bases for appeal of adverse verdicts. All such cases are, and will continue to be vigorously defended. However, Liggett may enter into settlement discussions in particular cases if it believes it is in its best interest to do so.

Individual Actions

As of December 31, 2010, there were 36 individual cases pending against Liggett and/or the Company, where one or more individual plaintiffs allege injury resulting from cigarette smoking, addiction to cigarette smoking or exposure to secondary smoke and seek compensatory and, in some cases, punitive damages. These cases do not include Engle progeny cases (described below) or the approximately 100 individual cases pending in West Virginia state court as part of a consolidated action. The following table lists the number of individual cases by state that are pending against Liggett or its affiliates as of December 31, 2010 (excluding Engle progeny cases in Florida and the consolidated cases in West Virginia):


	Number
State	of Cases

Florida		15
New York		9
Louisiana		5
Maryland		3
West Virginia		2
Missouri		1
Ohio		1

Liggett Only Cases. There are currently seven cases pending where Liggett is the only tobacco company defendant. Cases where Liggett is the only defendant could increase substantially as a result of the Engle progeny cases. In February 2009, in Ferlanti v. Liggett Group, a Florida state court jury awarded compensatory damages of $1,200 as well as $96 in expenses, but found that the plaintiff was 40% at fault. Therefore, plaintiff’s award was reduced to $720 in compensatory damages. Punitive damages were not awarded. In February 2011, the award was affirmed on appeal. In September 2010, the court awarded plaintiff’s attorneys’ fees of $996. Liggett appealed the attorneys’ fee award. Liggett has accrued $2,000 for this matter for the year ended December 31, 2010. In Blitch v. R.J. Reynolds, an Engle progeny case, trial is scheduled for March 7, 2011. In O’Dwyer-Harkins v. R.J. Reynolds, an Engle progeny case, trial is scheduled for August 8, 2011. There has been no recent activity in Hausrath v. Philip Morris, a case pending in New York state court, where two individuals are suing. The other three individual actions, in which Liggett is the only tobacco company defendant, are dormant. In Davis v. Liggett Group, another Liggett only case, judgment was entered against Liggett in the amount of $540 plus attorneys’ fees. The judgment was paid by Liggett and this matter is concluded.

The plaintiffs’ allegations of liability in cases in which individuals seek recovery for injuries allegedly caused by cigarette smoking are based on various theories of recovery, including negligence, gross negligence, breach of special duty, strict liability, fraud, concealment, misrepresentation, design defect, failure to warn, breach of express and implied warranties, conspiracy, aiding and abetting, concert of action, unjust enrichment, common law public nuisance, property damage, invasion of privacy, mental anguish, emotional distress, disability, shock, indemnity and violations of deceptive trade practice laws, the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”), state RICO statutes and antitrust statutes. In many of these cases, in addition to compensatory damages, plaintiffs also seek other forms of relief including treble/multiple damages, medical monitoring, disgorgement of profits and punitive damages. Although alleged damages often are not determinable from a complaint, and the law governing the pleading and calculation of damages varies from state to state and jurisdiction to jurisdiction, compensatory and punitive damages have been specifically pleaded in a number of cases, sometimes in amounts ranging into the hundreds of millions and even billions of dollars.

Defenses raised in individual cases include lack of proximate cause, assumption of the risk, comparative fault and/or contributory negligence, lack of design defect, statute of limitations, equitable defenses such as “unclean hands” and lack of benefit, failure to state a claim and federal preemption.

In addition to several adverse verdicts against Liggett, jury awards in individual cases have also been returned against other cigarette manufacturers in recent years. The awards in these individual actions, often in excess of millions of dollars, may be for both compensatory and punitive damages. There are several significant jury awards against other cigarette manufacturers which are currently on appeal and several final awards, have been paid.

Engle Progeny Cases. In 2000, a jury in Engle v. R.J. Reynolds Tobacco Co. rendered a $145,000,000 punitive damages verdict in favor of a “Florida Class” against certain cigarette manufacturers, including Liggett. Pursuant to the Florida Supreme Court’s July 2006 ruling in Engle, which decertified the class on a prospective basis, and affirmed the appellate court’s reversal of the punitive damages award, former class members had one year from January 11, 2007 in which to file individual lawsuits. In addition, some individuals who filed suit prior to January 11, 2007, and who claim they meet the conditions in Engle, are attempting to avail themselves of the Engle ruling. Lawsuits by individuals requesting the benefit of the Engle ruling, whether filed before or after the January 11, 2007 deadline, are referred to as the “Engle progeny cases.” Liggett and the Company have been named in 6,827 Engle progeny cases in both federal (3,735 cases) and state (3,092 cases) courts in Florida. Other cigarette manufacturers have also been named as defendants in these cases, although as a case proceeds, one or more defendants may ultimately be dismissed from the action. These cases include approximately 9,100 plaintiffs, 671 of which represent consortium claims. The number of state court Engle progeny cases may increase as multi-plaintiff cases continue to be severed into individual cases. The total number of plaintiffs may also increase as a result of attempts by existing plaintiffs to add additional parties.

As of December 31, 2010, in addition to the Lukacs case (described below), the following Engle progeny cases have resulted in judgments against Liggett:

Compensatory

Date

Case Name

County

Damages

Punitive Damages

August 2009

Campbell v. R.J. Reynolds

Escambia

$156

None

March 2010

Douglas v. R.J. Reynolds

Hillsborough

$1,350

None

April 2010

Clay v. R.J. Reynolds

Escambia

$349

1,000

April 2010

Putney v. R.J. Reynolds

Broward

$3,008

None

Through December 31, 2010, there were 20 plaintiffs’ verdicts against the industry in Engle progeny cases, including the four referenced above, and 11 defense verdicts. The plaintiffs’ verdicts are currently on appeal. Several defense verdicts have also been appealed. For further information on the Engle case and on Engle progeny cases, see “Class Actions — Engle Case,” below.

Lukacs Case. In June 2002, the jury in a Florida state court action entitled Lukacs v. R.J. Reynolds Tobacco Co., awarded $37,500 in compensatory damages, jointly and severally, in a case involving Liggett and two other cigarette manufacturers, which amount was subsequently reduced by the court. The jury found Liggett 50% responsible for the damages incurred by the plaintiff. The Lukacs case was the first case to be tried as an individual Engle progeny case, but was tried almost five years prior to the Florida Supreme Court’s final decision in Engle. In November 2008, the court entered final judgment in the amount of $24,835, plus interest from June 2002. Plaintiff filed a motion seeking an award of attorneys’ fees from Liggett based on plaintiff’s prior proposal for settlement. In March 2010, the Third District Court of Appeal affirmed the decision, per curiam. In June 2010, Liggett paid its share of the judgment and settled claims for attorneys’ fees and accrued interest for a total payment of $14,361.

Class Actions

As of December 31, 2010, there were six actions pending for which either a class had been certified or plaintiffs were seeking class certification, where Liggett is a named defendant, including one alleged price fixing case. Other cigarette manufacturers are also named in these actions.

Plaintiffs’ allegations of liability in class action cases are based on various theories of recovery, including negligence, gross negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, nuisance, breach of express and implied warranties, breach of special duty, conspiracy, concert of action, violation of deceptive trade practice laws and consumer protection statutes and claims under the federal and state anti-racketeering statutes. Plaintiffs in the class actions seek various forms of relief, including compensatory and punitive damages, treble/multiple damages and other statutory damages and penalties, creation of medical monitoring and smoking cessation funds, disgorgement of profits, and injunctive and equitable relief.

Defenses raised in these cases include, among others, lack of proximate cause, individual issues predominate, assumption of the risk, comparative fault and/or contributory negligence, statute of limitations and federal preemption.

Engle Case. In May 1994, Engle was filed against Liggett and others in Miami-Dade County, Florida. The class consisted of all Florida residents who, by November 21, 1996, “have suffered, presently suffer or have died from diseases and medical conditions caused by their addiction to cigarette smoking.” In July 1999, after the conclusion of Phase I of the trial, the jury returned a verdict against Liggett and other cigarette manufacturers on certain issues determined by the trial court to be “common” to the causes of action of the plaintiff class. The jury made several findings adverse to the defendants including that defendants’ conduct “rose to a level that would permit a potential award or entitlement to punitive damages.” Phase II of the trial was a causation and damages trial for three of the class plaintiffs and a punitive damages trial on a class-wide basis before the same jury that returned the verdict in Phase I. In April 2000, the jury awarded compensatory damages of $12,704 to the three class plaintiffs, to be reduced in proportion to the respective plaintiff’s fault. In July 2000, the jury awarded approximately $145,000,000 in punitive damages, including $790,000 against Liggett.

In May 2003, Florida’s Third District Court of Appeal reversed the trial court and remanded the case with instructions to decertify the class. The judgment in favor of one of the three class plaintiffs, in the amount of $5,831, was overturned as time barred and the court found that Liggett was not liable to the other two class plaintiffs.

In July 2006, the Florida Supreme Court affirmed the decision vacating the punitive damages award and held that the class should be decertified prospectively, but determined that the following Phase I findings are entitled to res judicata effect in Engle progeny cases: (i) that smoking causes lung cancer, among other diseases; (ii) that nicotine in cigarettes is addictive; (iii) that defendants placed cigarettes on the market that were defective and unreasonably dangerous; (iv) that defendants concealed material information knowing that the information was false or misleading or failed to disclose a material fact concerning the health effects or addictive nature of smoking; (v) that defendants agreed to conceal or omit information regarding the health effects of cigarettes or their addictive nature with the intention that smokers would rely on the information to their detriment; (vi) that defendants sold or supplied cigarettes that were defective; and (vii) that defendants were negligent. The Florida Supreme Court decision also allowed former class members to proceed to trial on individual liability issues (using the above findings) and compensatory and punitive damage issues, provided they filed their individual lawsuits by January 2008. In December 2006, the Florida Supreme Court added the finding that defendants sold or supplied cigarettes that, at the time of sale or supply, did not conform to the representations made by defendants. In October 2007, the United States Supreme Court denied defendants’ petition for writ of certiorari. As a result of the Engle decision, approximately 9,100 plaintiffs have claims pending against the Company and Liggett and other cigarette manufacturers.

Three federal district courts (in the Merlob, Brown and Burr cases) ruled that the findings in Phase I of the Engle proceedings could not be used to satisfy elements of plaintiffs’ claims, and two of those rulings (Brown and Burr) were certified by the trial court for interlocutory review. The certification was granted by the United States Court of Appeals for the Eleventh Circuit and the appeals were consolidated (in February 2009, the appeal in Burr was dismissed for lack of prosecution). In July 2010, the Eleventh Circuit ruled that plaintiffs do not have an unlimited right to use the findings from the original Engle trial to meet their burden of establishing the elements of their claims at trial. Rather, plaintiffs may only use the findings to establish specific facts that they demonstrate with a reasonable degree of certainty were actually decided by the original Engle jury. The Eleventh Circuit remanded the case to the district court to determine what specific factual findings the Engle jury actually made. All federal cases were stayed pending review by the Eleventh Circuit. On December 22, 2010, stays were lifted in 12 cases selected by plaintiffs.

In December 2010, in the Martin case, a case against R.J. Reynolds, the Florida District Court of Appeals issued the first ruling by a Florida intermediate appellate court to address the Brown decision discussed above. The panel held that the trial court correctly construed the Florida Supreme Court’s 2006 decision in Engle in instructing the jury on the preclusive effect of the Phase I Engle proceedings, expressly disagreeing with certain aspects of the Brown decision.

Other Class Actions. In Smith v. Philip Morris, a Kansas state court case filed in February 2000, plaintiffs allege that cigarette manufacturers conspired to fix cigarette prices in violation of antitrust laws. Plaintiffs seek to recover an unspecified amount in actual and punitive damages. Class certification was granted in November 2001. Discovery is ongoing.

Class action suits have been filed in a number of states against cigarette manufacturers, alleging, among other things, that use of the terms “light” and “ultra light” constitutes unfair and deceptive trade practices, among other things. In December 2008, the United States Supreme Court, in Altria Group v. Good, ruled that the Federal Cigarette Labeling and Advertising Act did not preempt the state law claims asserted by the plaintiffs and that they could proceed with their claims under the Maine Unfair Trade Practices Act. This ruling has resulted in the filing of additional “lights” class action cases in other states against other cigarette manufacturers. Although Liggett was not a defendant in the Good case, and is not a defendant in most of the other “lights” class actions, an adverse ruling or commencement of additional “lights” related class actions could have a material adverse effect on the Company.

In November 1997, in Young v. American Tobacco Co., a purported personal injury class action was commenced on behalf of plaintiff and all similarly situated residents in Louisiana who, though not themselves cigarette smokers, are alleged to have been exposed to secondhand smoke from cigarettes which were manufactured by the defendants, and who suffered injury as a result of that exposure. The plaintiffs seek to recover an unspecified amount of compensatory and punitive damages. In October 2004, the trial court stayed this case pending the outcome of an appeal in another matter.

In June 1998, in Cleary v. Philip Morris, a putative class action was brought in Illinois state court on behalf of persons who were allegedly injured by: (i) defendants’ purported conspiracy to conceal material facts regarding the addictive nature of nicotine; (ii) defendants’ alleged acts of targeting their advertising and marketing to minors; and (iii) defendants’ claimed breach of the public’s right to defendants’ compliance with laws prohibiting the distribution of cigarettes to minors. Plaintiffs sought disgorgement of all profits unjustly received through defendants’ sale of cigarettes to plaintiffs and the class. In March 2009, plaintiffs filed a third amended complaint adding, among other things, allegations regarding defendants’ sale of “lights” cigarettes. The case was then removed to federal court on the basis of this new claim. In November 2009, plaintiffs filed a revised motion for class certification as to the three proposed classes, which motion was denied by the court. In February 2010, the court granted summary judgment in favor of defendants as to all claims, other than a “lights” claim involving another cigarette manufacturer. The court granted leave to the plaintiffs to reinstate the motion as to the addiction claims. Plaintiffs filed a Fourth Amended Complaint in an attempt to resurrect their addiction claims. In June 2010, the court granted defendants’ motion to dismiss the Fourth Amended Complaint and in July 2010, the court denied plaintiffs’ motion for reconsideration. In August 2010, plaintiffs appealed to the United States Court of Appeals for the Seventh Circuit.

In April 2001, in Brown v. Philip Morris USA, a California state court granted in part plaintiffs’ motion for class certification and certified a class comprised of adult residents of California who smoked at least one of defendants’ cigarettes “during the applicable time period” and who were exposed to defendants’ marketing and advertising activities in California. In March 2005, the court granted defendants’ motion to decertify the class based on a recent change in California law. In June 2009, the California Supreme Court reversed and remanded the case to the trial court for further proceedings regarding whether the class representatives have, or can, demonstrate standing. In August 2009, the California Supreme Court denied defendants’ rehearing petition and issued its mandate. In September 2009, plaintiffs sought reconsideration of the court’s September 2004 order finding that plaintiffs’ allegations regarding “lights” cigarettes are preempted by federal law, in light of the United States Supreme Court decision in Good. In March 2010, the trial court granted reconsideration of its September 2004 order granting partial summary judgment to defendants with respect to plaintiffs’ “lights” claims on the basis of judicial decisions issued since its order was issued, including Good, thereby reinstating plaintiffs’ “lights” claims. Since the trial court’s prior ruling decertifying the class was reversed on appeal by the California Supreme Court, the parties and the court are treating all claims currently being asserted by the plaintiffs as certified, subject, however, to defendants’ challenge to the class representatives standing to assert their claims. Trial is scheduled to start on May 6, 2011.

Although not technically a class action, in In Re: Tobacco Litigation (Personal Injury Cases), a West Virginia state court consolidated approximately 750 individual smoker actions that were pending prior to 2001 for trial of certain common issues. In January 2002, the court severed Liggett from the trial of the consolidated action, which commenced in June 2010 and ended in a mistrial. A new trial is scheduled for October 17, 2011. If the case were to proceed against Liggett, it is estimated that Liggett could be a defendant in approximately 100 of the individual cases.

In addition to the cases described above, numerous class actions remain certified against other cigarette manufacturers. Adverse decisions in these cases could have a material adverse affect on Liggett’s sales volume, operating income and cash flows.

Health Care Cost Recovery Actions

As of December 31, 2010, there were four Health Care Cost Recovery Actions pending against Liggett. Other cigarette manufacturers are also named in these cases. The claims asserted in health care cost recovery actions vary. Although, typically, no specific damage amounts are pled, it is possible that requested damages might be in the billions of dollars. In these cases, plaintiffs typically assert equitable claims that the tobacco industry was “unjustly enriched” by their payment of health care costs allegedly attributable to smoking and seek reimbursement of those costs. Relief sought by some, but not all, plaintiffs include punitive damages, multiple damages and other statutory damages and penalties, injunctions prohibiting alleged marketing and sales to minors, disclosure of research, disgorgement of profits, funding of anti-smoking programs, additional disclosure of nicotine yields, and payment of attorney and expert witness fees.

Other claims asserted include the equitable claim of indemnity, common law claims of negligence, strict liability, breach of express and implied warranty, breach of special duty, fraud, negligent misrepresentation, conspiracy, public nuisance, claims under state and federal statutes governing consumer fraud, antitrust, deceptive trade practices and false advertising, and claims under RICO.

DOJ Lawsuit. In September 1999, the United States government commenced litigation against Liggett and other cigarette manufacturers in the United States District Court for the District of Columbia. The action sought to recover an unspecified amount of health care costs paid and to be paid by the federal government for lung cancer, heart disease, emphysema and other smoking-related illnesses allegedly caused by the fraudulent and tortious conduct of defendants, to restrain defendants and co-conspirators from engaging in alleged fraud and other allegedly unlawful conduct in the future, and to compel defendants to disgorge the proceeds of their unlawful conduct. Claims were asserted under RICO.

In August 2006, the trial court entered a Final Judgment against each of the cigarette manufacturing defendants, except Liggett. In May 2009, the United States Court of Appeals for the District of Columbia affirmed most of the district court’s decision. In February 2010, the government and all defendants, other than Liggett, filed petitions for writ of certiorari to the United States Supreme Court. In June 2010, the United States Supreme Court, without comment, denied review. As a result, the cigarette manufacturing defendants, other than Liggett, are now subject to the trial court’s Final Judgment which ordered the following relief: (i) an injunction against “committing any act of racketeering” relating to the manufacturing, marketing, promotion, health consequences or sale of cigarettes in the United States; (ii) an injunction against participating directly or indirectly in the management or control of the Council for Tobacco Research, the Tobacco Institute, or the Center for Indoor Air Research, or any successor or affiliated entities of each (iii) an injunction against “making, or causing to be made in any way, any material false, misleading, or deceptive statement or representation or engaging in any public relations or marketing endeavor that is disseminated to the United States public and that misrepresents or suppresses information concerning cigarettes”; (iv) an injunction against conveying any express or implied health message though use of descriptors on cigarette packaging or in cigarette advertising or promotional material, including “lights,” “ultra lights,” and “low tar,” which the court found could cause consumers to believe one cigarette brand is less hazardous than another brand; (v) the issuance of “corrective statements” in various media regarding the adverse health effects of smoking, the addictiveness of smoking and nicotine, the lack of any significant health benefit from smoking “low tar” or “light” cigarettes, defendants’ manipulation of cigarette design to ensure optimum nicotine delivery and the adverse health effects of exposure to environmental tobacco smoke; (vi) the disclosure of defendants’ public document websites and the production of all documents produced to the government or produced in any future court or administrative action concerning smoking and health; (vii) the disclosure of disaggregated marketing data to the government in the same form and on the same schedules as defendants now follow in disclosing such data to the Federal Trade Commission for a period of ten years; (viii) certain restrictions on the sale or transfer by defendants of any cigarette brands, brand names, formulas or cigarette business within the United States; and (ix) payment of the government’s costs in bringing the action.

It is unclear what impact, if any, the Final Judgment will have on the cigarette industry as a whole. To the extent that the Final Judgment leads to a decline in industry-wide shipments of cigarettes in the United States or otherwise results in restrictions that adversely affect the industry, Liggett’s sales volume, operating income and cash flows could be materially adversely affected.

In City of St. Louis v. American Tobacco Company, a case pending in Missouri state court since December 1998, the City of St. Louis and approximately 38 hospitals and former hospitals seek recovery of costs expended by the hospitals on behalf of patients who suffer, or have suffered, from illnesses allegedly resulting from the use of cigarettes. In June 2005, the court granted defendants’ motion for summary judgment as to claims for damages which accrued prior to November 16, 1993. In April 2010, the court further determined that each plaintiff is barred from seeking damages which accrued more than five years prior to the time that that plaintiff joined the suit. In that same order, the court granted partial summary judgment for defendants barring plaintiffs’ claims for future damages. In July 2010, the court dismissed certain other claims brought by plaintiffs, on the grounds they were preempted. In October 2010, the trial court granted defendants summary judgment with respect to plaintiffs’ fraud and negligent misrepresentation claims. Trial commenced on January 31, 2011.

In June 2005, the Jerusalem District Court in Israel added Liggett as a defendant in an action commenced in 1998 by the largest private insurer in that country, General Health Services, against the major United States cigarette manufacturers. The plaintiff seeks to recover the past and future value of the total expenditures for health care services provided to residents of Israel resulting from tobacco related diseases, court ordered interest for past expenditures from the date of filing the statement of claim, increased and/or punitive and/or exemplary damages and costs. The court ruled that, although Liggett had not sold product in Israel since at least 1978, it might still have liability for cigarettes sold prior to that time. Motions filed by defendants are pending.

In May 2008, in National Committee to Preserve Social Security and Medicare v. Philip Morris USA, a case pending in the United States District Court for the Eastern District of New York, plaintiffs commenced an action to recover damages equal to twice the amount paid by Medicare for the smoking-related health care services provided from May 21, 2002 to the present, for which treatment defendants’ allegedly were required to make payment under the Medicare Secondary Payer provisions of the Social Security Act. In July 2008, defendants’ filed a motion to dismiss plaintiffs’ claims and plaintiffs filed a motion for partial summary judgment. In March 2009, the court granted defendants’ motion and dismissed the case. In May 2009, plaintiffs noticed an appeal to the United States Court of Appeals for the Second Circuit and in September 2010, the court vacated the District Court’s decision, and remanded the case with instructions for the District Court to dismiss the complaint on other grounds. Plaintiffs’ motion for rehearing was denied by the court and on December 20, 2010, the court remanded the case to the district court with instructions to dismiss the complaint.

Upcoming Trials

In addition to the January 2011 trial in the City of St. Louis case and the May 2011 trial in the Brown case, both discussed above, as of December 31, 2010, there were 43 Engle progeny cases scheduled for trial in 2011. Additionally, a Florida individual case is scheduled for trial on September 12, 2011. The Company and/or Liggett and other cigarette manufacturers are currently named as defendants in each of these cases, although as a case proceeds, one or more defendants may ultimately be dismissed from the action. Cases against other cigarette manufacturers are also currently scheduled for trial in 2011. Trial dates are subject to change.

MSA and Other State Settlement Agreements

In March 1996, March 1997 and March 1998, Liggett entered into settlements of smoking-related litigation with 45 states and territories. The settlements released Liggett from all smoking-related claims made by those states and territories, including claims for health care cost reimbursement and claims concerning sales of cigarettes to minors.

In November 1998, Philip Morris, Brown & Williamson, R.J. Reynolds and Lorillard (the “Original Participating Manufacturers” or “OPMs”) and Liggett (together with any other tobacco product manufacturer that becomes a signatory, the “Subsequent Participating Manufacturers” or “SPMs”) (the OPMs and SPMs are hereinafter referred to jointly as the “Participating Manufacturers”) entered into the Master Settlement Agreement (the “MSA”) with 46 states, the District of Columbia, Puerto Rico, Guam, the United States Virgin Islands, American Samoa and the Northern Mariana Islands (collectively, the “Settling States”) to settle the asserted and unasserted health care cost recovery and certain other claims of the Settling States. The MSA received final judicial approval in each Settling State.

As a result of the MSA, the Settling States released Liggett from:


	•	all claims of the Settling States and their respective political subdivisions and other recipients of state health care funds, relating to: (i) past conduct arising out of the use, sale, distribution, manufacture, development, advertising and marketing of tobacco products; (ii) the health effects of, the exposure to, or research, statements or warnings about, tobacco products; and

	•	all monetary claims of the Settling States and their respective subdivisions and other recipients of state health care funds relating to future conduct arising out of the use of, or exposure to, tobacco products that have been manufactured in the ordinary course of business.

The MSA restricts tobacco product advertising and marketing within the Settling States and otherwise restricts the activities of Participating Manufacturers. Among other things, the MSA prohibits the targeting of youth in the advertising, promotion or marketing of tobacco products; bans the use of cartoon characters in all tobacco advertising and promotion; limits each Participating Manufacturer to one tobacco brand name sponsorship during any 12-month period; bans all outdoor advertising, with certain limited exceptions; prohibits payments for tobacco product placement in various media; bans gift offers based on the purchase of tobacco products without sufficient proof that the intended recipient is an adult; prohibits Participating Manufacturers from licensing third parties to advertise tobacco brand names in any manner prohibited under the MSA; and prohibits Participating Manufacturers from using as a tobacco product brand name any nationally recognized non-tobacco brand or trade name or the names of sports teams, entertainment groups or individual celebrities.

The MSA also requires Participating Manufacturers to affirm corporate principles to comply with the MSA and to reduce underage use of tobacco products and imposes restrictions on lobbying activities conducted on behalf of Participating Manufacturers. In addition, the MSA provides for the appointment of an independent auditor to calculate and determine the amounts of payments owed pursuant to the MSA.

Under the payment provisions of the MSA, the Participating Manufacturers are required to make annual payments of $9,000,000 (subject to applicable adjustments, offsets and reductions). These annual payments are allocated based on unit volume of domestic cigarette shipments. The payment obligations under the MSA are the several, and not joint, obligation of each Participating Manufacturer and are not the responsibility of any parent or affiliate of a Participating Manufacturer.

Liggett has no payment obligations under the MSA except to the extent its market share exceeds a market share exemption of approximately 1.65% of total cigarettes sold in the United States. Vector Tobacco has no payment obligations under the MSA except to the extent its market share exceeds a market share exemption of approximately 0.28% of total cigarettes sold in the United States. For years ended December 31, 2010, 2009 and 2008, Liggett and Vector Tobacco’s domestic shipments accounted for approximately 3.5%, 2.7% and 2.5%, respectively, of the total cigarettes sold in the United States. If Liggett’s or Vector Tobacco’s market share exceeds their respective market share exemption in a given year, then on April 15 of the following year, Liggett and/or Vector Tobacco, as the case may be, must pay on each excess unit an amount equal (on a per-unit basis) to that due from the OPMs for that year. On December 31, 2010, Liggett and Vector Tobacco paid $96,500 of their approximately $140,400 2010 MSA payment obligations.

Certain MSA Disputes

NPM Adjustment. In March 2006, an economic consulting firm selected pursuant to the MSA determined that the MSA was a “significant factor contributing to” the loss of market share of Participating Manufacturers, to non-participating manufacturers, for 2003. This is known as the “NPM Adjustment.” The economic consulting firm subsequently rendered the same decision with respect to 2004 and 2005. In March 2009, a different economic consulting firm made the same determination for 2006. As a result, the manufacturers are entitled to potential NPM Adjustments to their 2003, 2004, 2005 and 2006 MSA payments. The Participating Manufacturers may also be entitled to potential NPM Adjustments to their 2007, 2008 and 2009 payments pursuant to an agreement entered into in June 2009 between the OPMs and the Settling States under which the OPMs agreed to make certain payments for the benefit of the Settling States, in exchange for which the Settling States stipulated that the MSA was a “significant factor contributing to” the loss of market share of Participating Manufacturers in 2007, 2008 and 2009. A Settling State that has diligently enforced its qualifying escrow statute in the year in question may be able to avoid application of the NPM Adjustment to the payments made by the manufacturers for the benefit of that Settling State.

For 2003 – 2010, Liggett and Vector Tobacco, as applicable, disputed that they owed the Settling States the NPM Adjustments as calculated by the Independent Auditor. As permitted by the MSA, Liggett and Vector Tobacco withheld payment associated with these NPM Adjustment amounts. The total amount withheld or paid into a disputed payment account by Liggett and Vector Tobacco for 2003 – 2010 was $29,236. For 2003, Liggett and Vector Tobacco paid the NPM adjustment amount of $9,345 to the Settling States although both companies continue to dispute this amount is owed. At December 31, 2010, included in “Other assets” on the Company’s condensed consolidated balance sheet was a noncurrent receivable of $6,542 relating to such payment.

The following amounts have not been expensed by the Company as they relate to Liggett and Vector Tobacco’s NPM Adjustment claims for 2003 – 2005: $6,542 for 2003, $3,789 for 2004 and $800 for 2005. Liggett and Vector Tobacco have expensed all disputed amounts related to the NPM Adjustment since 2005.

Since April 2006, notwithstanding provisions in the MSA requiring arbitration, litigation was filed in 49 Settling States over the issue of whether the application of the NPM Adjustment for 2003 is to be determined through litigation or arbitration. These actions relate to the potential NPM Adjustment for 2003, which the independent auditor under the MSA previously determined to be as much as $1,200,000 for all Participating Manufacturers. All but one of the 48 courts that have decided the issue have ruled that the 2003 NPM Adjustment dispute is arbitrable. All 47 of those decisions are final. One court, the Montana Supreme Court, ruled that Montana’s claim of diligent enforcement must be litigated. The United States Supreme Court denied certiorari with respect to that opinion. In response to a proposal from the OPMs and many of the SPMs, 45 of the Settling States, representing approximately 90% of the allocable share of the Settling States, entered into an agreement providing for a nationwide arbitration of the dispute with respect to the NPM Adjustment for 2003. In June 2010, the three person arbitration panel was selected and procedural hearings, discovery and briefing on legal issues of general application have commenced. Because states representing more than 80% of the allocable share signed the agreement, signing states will receive a 20% reduction of any potential 2003 NPM adjustment. There can be no assurance that Liggett or Vector Tobacco will receive any adjustment as a result of these proceedings.

Gross v. Net Calculations. In October 2004, the independent auditor notified Liggett and all other Participating Manufacturers that their payment obligations under the MSA, dating from the agreement’s execution in late 1998, had been recalculated using “net” unit amounts, rather than “gross” unit amounts (which had been used since 1999).

Liggett objected to this retroactive change and disputed the change in methodology. Liggett contends that the retroactive change from “gross” to “net” unit amounts is impermissible for several reasons, including:


	•	use of “net” unit amounts is not required by the MSA (as reflected by, among other things, the use of “gross” unit amounts through 2005);

	•	such a change is not authorized without the consent of affected parties to the MSA;

	•	the MSA provides for four-year time limitation periods for revisiting calculations and determinations, which precludes recalculating Liggett’s 1997 Market Share (and thus, Liggett’s market share exemption); and

	•	Liggett and others have relied upon the calculations based on “gross” unit amounts since 1998.

The change in the method of calculation could result in Liggett owing, at a minimum, approximately $9,300, plus interest, of additional MSA payments for prior years, because the proposed change from “gross” to “net” units would serve to lower Liggett’s market share exemption under the MSA. The Company estimates that Liggett’s future MSA payments would be at least approximately $2,300 higher if the method of calculation is changed. No amounts have been expensed or accrued in the accompanying condensed consolidated financial statements for any potential liability relating to the “gross” versus “net” dispute. There can be no assurance that Liggett will not be required to make additional payments, which payments could adversely affect the Company’s consolidated financial position, results of operations or cash flows.

Litigation Challenging the MSA. In Freedom Holdings Inc. v. Cuomo, litigation pending in federal court in New York, certain importers of cigarettes allege that the MSA and certain related New York statutes violate federal antitrust and constitutional law. The district court granted New York’s motion to dismiss the complaint for failure to state a claim. On appeal, the United States Court of Appeals for the Second Circuit held that if all of the allegations of the complaint were assumed to be true, plaintiffs had stated a claim for relief on antitrust grounds. In January 2009, the district court granted New York’s motion for summary judgment, dismissing all claims brought by the plaintiffs, and dissolving the preliminary injunction. Plaintiffs appealed the decision. In October 2010, the Second Circuit affirmed the district court’s decision.

In Grand River Enterprises Six Nations, Ltd. v. King, another proceeding pending in federal court in New York, plaintiffs seek to enjoin the statutes enacted by New York and other states in connection with the MSA on the grounds that the statutes violate the Commerce Clause of the United States Constitution and federal antitrust laws. In September 2005, the United States Court of Appeals for the Second Circuit held that if all of the allegations of the complaint were assumed to be true, plaintiffs had stated a claim for relief and that the New York federal court had jurisdiction over the other defendant states. On remand, the trial court held that plaintiffs are unlikely to succeed on the merits. After discovery, the parties cross-moved for summary judgment; briefing concluded in December 2009 and oral argument took place in April 2010.

Similar challenges to the MSA and MSA-related state statutes are pending in several other states. Liggett and the other cigarette manufacturers are not defendants in these cases. Litigation challenging the validity of the MSA, including claims that the MSA violates antitrust laws, has not been successful to date.

In October 2008, Vibo Corporation, Inc., d/b/a General Tobacco (“Vibo”) commenced litigation in the United States District Court for the Western District of Kentucky against each of the Settling States and certain Participating Manufacturers, including Liggett and Vector Tobacco. Vibo sought damages from Participating Manufacturers under antitrust laws. Vibo alleged, among other things, that the market share exemptions (i.e., grandfathered shares) provided to certain SPMs under the MSA, including Liggett and Vector Tobacco, violate federal antitrust and constitutional law. In January 2009, the district court dismissed the complaint. In January 2010, the court entered final judgment in favor of the defendants. Vibo appealed to the United States Court of Appeals for the Sixth Circuit. A decision is pending.

Other State Settlements. The MSA replaces Liggett’s prior settlements with all states and territories except for Florida, Mississippi, Texas and Minnesota. Each of these four states, prior to the effective date of the MSA, negotiated and executed settlement agreements with each of the other major tobacco companies, separate from those settlements reached previously with Liggett. Liggett’s agreements with these states remain in full force and effect, subject to the changes with Minnesota and Florida discussed below. These states’ settlement agreements with Liggett contained most favored nation provisions which could reduce Liggett’s payment obligations based on subsequent settlements or resolutions by those states with certain other tobacco companies. Beginning in 1999, Liggett determined that, based on each of these four states’ settlements with United States Tobacco Company, Liggett’s payment obligations to those states had been eliminated. With respect to all non-economic obligations under the previous settlements, Liggett believes it is entitled to the most favorable provisions as between the MSA and each state’s respective settlement with the other major tobacco companies. Therefore, Liggett’s non-economic obligations to all states and territories are now defined by the MSA.

In 2003, in order to resolve any issues with Minnesota as to Liggett’s ongoing economic settlement obligations, Liggett agreed to pay $100 a year to Minnesota, to be paid any year cigarettes manufactured by Liggett are sold in that state. In 2003 and 2004, the Attorneys General for Florida, Mississippi and Texas advised Liggett that they believed that Liggett had failed to make certain required payments under the respective settlement agreements with these states. Liggett believes it is not obligated to make any further payments to these states, based, among other things, on the language of the most favored nation provisions of the respective settlement agreements. In December 2010, Liggett settled with Florida and agreed to pay Florida $1,200 and to make further payments of $250 per year for a period of 21 years. The payments in years 12 – 21 will be subject to an inflation adjustment. These payments are in lieu of any other payments allegedly due to Florida under the settlement agreement. The Company accrued approximately $3,200 for this matter. There can be no assurance that Liggett will be able to resolve the matters with Texas and Mississippi or that Liggett will not be required to make additional payments which could adversely affect the Company’s consolidated financial position, results of operations or cash flows.

Cautionary Statement. Management is not able to predict the outcome of the litigation pending or threatened against Liggett. Litigation is subject to many uncertainties. For example, the jury in the Lukacs case, an Engle progeny case tried in 2002, awarded $24,835 in compensatory damages plus interest against Liggett and two other defendants and found Liggett 50% responsible for the damages. The verdict was affirmed on appeal and Liggett paid $14,361 in June 2010. To date, Liggett has been found liable in four other Engle progeny cases, which are currently on appeal. As a result of the Engle decision, over 9,100 plaintiffs have claims pending against the Company and Liggett and other cigarette manufacturers. It is possible that other cases could be decided unfavorably against Liggett and that Liggett will be unsuccessful on appeal. Liggett may enter into discussions in an attempt to settle particular cases if it believes it is in its best interest to do so.

Management cannot predict the cash requirements related to any future defense costs, settlements or judgments, including cash required to bond any appeals, and there is a risk that those requirements will not be able to be met. An unfavorable outcome of a pending smoking and health case could encourage the commencement of additional similar litigation, or could lead to multiple adverse decisions in the Engle progeny cases. Management is unable to make a reasonable estimate with respect to the amount or range of loss that could result from an unfavorable outcome of the cases pending against Liggett or the costs of defending such cases and as a result has not provided any amounts in its condensed consolidated financial statements for unfavorable outcomes. The complaints filed in these cases rarely detail alleged damages. Typically, the claims set forth in an individual’s complaint against the tobacco industry seek money damages in an amount to be determined by a jury, plus punitive damages, costs and legal fees.

The tobacco industry is subject to a wide range of laws and regulations regarding the marketing, sale, taxation and use of tobacco products imposed by local, state and federal governments. There have been a number of restrictive regulatory actions, adverse legislative and political decisions and other unfavorable developments concerning cigarette smoking and the tobacco industry. These developments may negatively affect the perception of potential triers of fact with respect to the tobacco industry, possibly to the detriment of certain pending litigation, and may prompt the commencement of additional litigation or legislation.

It is possible that the Company’s consolidated financial position, results of operations or cash flows could be materially adversely affected by an unfavorable outcome in any of the smoking-related litigation.

Liggett’s and Vector Tobacco’s management are unaware of any material environmental conditions affecting their existing facilities. Liggett’s and Vector Tobacco’s management believe that current operations are conducted in material compliance with all environmental laws and regulations and other laws and regulations governing cigarette manufacturers. Compliance with federal, state and local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material effect on the capital expenditures, results of operations or competitive position of Liggett or Vector Tobacco.

Other Matters:

In February 2004, Liggett Vector Brands and another cigarette manufacturer entered into a five year agreement with a subsidiary of the American Wholesale Marketers Association to support a program to permit certain tobacco distributors to secure, on reasonable terms, tax stamp bonds required by state and local governments for the distribution of cigarettes. This agreement has been extended through February 2014. Under the agreement, Liggett Vector Brands has agreed to pay a portion of losses, if any, incurred by the surety under the bond program, with a maximum loss exposure of $500 for Liggett Vector Brands. To secure its potential obligations under the agreement, Liggett Vector Brands has delivered to the subsidiary of the association a $100 letter of credit and agreed to fund up to an additional $400. Liggett Vector Brands has incurred no losses to date under this agreement, and the Company believes the fair value of Liggett Vector Brands’ obligation under the agreement was immaterial at December 31, 2010.

In December 2009, a complaint was filed against Liggett in Alabama state court by the estate of a woman who died, in 2007, in a house fire allegedly caused by the ignition of contents of the house by a Liggett cigarette. The plaintiff sued under the Alabama Extended Manufacturers Liability Doctrine and for breach of warranty and negligence. The plaintiff sought both compensatory and punitive damages. In January 2010, Liggett removed the case to federal court. In February 2010, Liggett filed a motion to dismiss the case and plaintiff filed a motion to remand. In September 2010, the court granted plaintiff’s motion to remand, but the order was stayed pending non-binding mediation of the dispute, which occurred in January 2011. The matter was settled for $30.

There may be several other proceedings, lawsuits and claims pending against the Company and certain of its consolidated subsidiaries unrelated to tobacco or tobacco product liability. Management is of the opinion that the liabilities, if any, ultimately resulting from such other proceedings, lawsuits and claims should not materially affect the Company’s financial position, results of operations or cash flows.

New Valley LLC

12 Months Ended

Dec. 31, 2010

New Valley LLC [Abstract]

NEW VALLEY LLC


16.	NEW VALLEY LLC

Investments in non-consolidated real estate businesses. New Valley accounts for its 50% interest in Douglas Elliman Realty LLC and its 40% interest in New Valley Oaktree Chelsea Eleven LLC on the equity method. (See Note 1(k).) Douglas Elliman Realty operates a residential real estate brokerage company in the New York metropolitan area. 16^th and K Holdings acquired the St. Regis Hotel, a 193 room luxury hotel in Washington, D.C. in August 2005, of which 90% was sold in March 2008.

The components of “Investments in non-consolidated real estate businesses” were as follows:


	December 31,		December 31,
	2010		2009

Douglas Elliman Realty LLC	$	46,421	$	36,086
Aberdeen Townhomes LLC		—		1,248
New Valley Oaktree Chelsea Eleven LLC		10,958		12,232
Fifty Third-Five Building LLC		18,000		—
Sesto Holdings S.r.l.		5,037		—

Investments in non-consolidated real estate businesses	$	80,416	$	49,566

Residential Brokerage Business. New Valley recorded income of $22,303, $11,429 and $11,833 for the years ended December 31, 2010, 2009 and 2008, respectively, associated with Douglas Elliman Realty. Summarized financial information as of December 31, 2010 and 2009 and for the three years ended December 31, 2010 for Douglas Elliman Realty is presented below. New Valley’s equity income from Douglas Elliman Realty includes $158, $966 and $1,465, respectively, of interest income earned by New Valley on a subordinated loan to Douglas Elliman Realty, as well as increases to income resulting from amortization of negative goodwill which resulted from purchase accounting of $182, $145 and $193 and management fees of $1,300, $1,100 and $800 earned from Douglas Elliman for the years ended December 31, 2010, 2009 and 2008, respectively. New Valley received cash distributions from Douglas Elliman Realty LLC of $11,968, $8,517 and $10,550 for the years ended December 31, 2010, 2009 and 2008, respectively.


	December 31, 2010		December 31, 2009

Cash	$	45,032	$	26,920
Other current assets		5,989		6,664
Property, plant and equipment, net		15,556		13,498
Trademarks		21,663		21,663
Goodwill		38,424		38,601
Other intangible assets, net		1,337		742
Other non-current assets		3,416		2,871
Notes payable — current		1,067		776
Current portion of notes payable to member — Prudential Real Estate Financial Services of America, Inc.		—		2,487
Current portion of notes payable to member — New Valley		—		2,487
Other current liabilities		21,765		20,724
Notes payable — long term		1,129		2,136
Other long-term liabilities		10,500		7,747
Members’ equity		96,956		74,602


	Year Ended December 31,
	2010		2009		2008

Revenues	$	348,136	$	283,851	$	352,680
Costs and expenses		303,358		259,867		324,641
Depreciation expense		3,682		4,448		5,448
Amortization expense		329		255		298
Other income		2,440		2,090		—
Interest expense, net		552		2,413		3,290
Income tax expense		1,329		223		253

Net income	$	41,326	$	18,735	$	18,750

Douglas Elliman Realty was negatively impacted in recent years by the downturn in the residential real estate market. The residential real estate market is cyclical and is affected by changes in the general economic conditions that are beyond Douglas Elliman Realty’s control. The U.S. residential real estate market, including the market in the New York metropolitan area where Douglas Elliman operates has experienced a significant downturn due to various factors including downward pressure on housing prices, the impact of the recent contraction in the subprime and mortgage markets generally and an exceptionally large inventory of unsold homes at the same time that sales volumes are decreasing. The depth and length of the current downturn in the real estate industry has proved exceedingly difficult to predict. The Company cannot predict whether the downturn will worsen or when the market and related economic forces will return the U.S. residential real estate industry to a growth period.

All of Douglas Elliman Realty’s current operations are located in the New York metropolitan area. Local and regional economic and general business conditions in this market could differ materially from prevailing conditions in other parts of the country. Among other things, the New York metropolitan residential real estate market has been impacted by the significant decline in the financial services industry. A continued downturn in the residential real estate market or economic conditions in that region could have a material adverse effect on Douglas Elliman Realty.

St. Regis Hotel, Washington, D.C. In December 2009, the Company received $2,084 in connection with the sale of the tax credits associated with its former interest in the St. Regis Hotel in Washington D.C., which was recorded as equity income for the year ended December 31, 2009. The Company anticipates receiving an additional $2,700 in various installments between 2011 and 2012.

Aberdeen Townhomes LLC. In June 2008, a subsidiary of New Valley purchased a preferred equity interest in Aberdeen Townhomes LLC (“Aberdeen”) for $10,000. Aberdeen acquired five townhome residences located in Manhattan, New York, which it was in the process of rehabilitating and selling.

The Company had recorded an impairment loss of $3,500 related to Aberdeen for each of the years ended December 31, 2009 and 2008.

In September 2009, one of the five townhomes was sold and the mortgage of approximately $8,700 was retired. The Company received a preferred return distribution of approximately $1,752. The Company did not record a gain or loss on the sale.

In January 2010 and August 2010, Aberdeen sold two of its four townhomes and the two respective mortgages of approximately $14,350 were retired. The Company received a preferred return distribution of approximately $971 in connection with the sales. In addition, Aberdeen received $375 in August 2010 from escrow on the January 2010 sale.

In August 2010, the Company acquired the mortgage loans from Wachovia Bank, N.A. on the two remaining townhomes for approximately $13,500. In accordance with the accounting guidance as to variable interest entities, the Company reassessed the primary beneficiary status of the Aberdeen variable interest entity (“VIE”) and determined that, in August 2010, the Company became the primary beneficiary of this VIE because the Company obtained the power to direct activities which significantly impact the economic performance of the VIE; and since it now owns the mortgages, the Company will absorb losses and returns of the VIE.

The Company is the primary beneficiary of the VIE, and as a result, the consolidated financial statements of the Company now include the account balances of Aberdeen Townhomes LLC as of December 31, 2010. These balances include:


	December 31, 2010

Cash	$	4
Restricted cash		351
Investment in townhomes		16,275
Accounts payable		1,401

The $16,275 investment in townhomes is based on September 2010 third-party appraisals, net of estimated selling expenses. The Company recognized a gain of $760 primarily resulting from the acquisition of mortgage loans and operating income of $352.

In February 2011, Aberdeen sold one of the two remaining townhomes for approximately $12,500. The property was carried at $8,463 as of December 31, 2010.

New Valley Oaktree Chelsea Eleven, LLC. In September 2008, a subsidiary of New Valley (“New Valley Chelsea”) purchased for $12,000 a 40% interest in New Valley Oaktree Chelsea Eleven, LLC, which lent $29,000 and contributed $1,000 for 29% of the capital in Chelsea Eleven LLC (“Chelsea”). Chelsea is developing a condominium project in Manhattan, New York, which consists of 54 luxury residential units and one commercial unit. New Valley Chelsea is operating as an investment vehicle for the Chelsea real estate development project. As of February 23, 2011, sales of 34 of 54 units have closed.

Chelsea Eleven LLC retired its construction loan during the second quarter of 2010 from the proceeds of the sales of units. In addition, on July 1, 2010, Chelsea Eleven LLC borrowed $47,100 (approximately $18,200 as of December 31, 2010), which is due in July 1, 2012, bearing interest at 14% per annum. The proceeds were used to retire Chelsea Eleven LLC’s then outstanding mezzanine debt (approximately $37,200) and for other working capital purposes.

The loan from New Valley Oaktree is subordinate to the new loan. The New Valley Oaktree loan bears interest at 60.25% per annum, compounded monthly, with $3,750 being held in an interest reserve, from which $1,500 was paid to New Valley.

As of December 31, 2010, Chelsea Eleven LLC had approximately $54,053 of total assets and $24,142 of total liabilities, excluding amounts owed to New Valley Oaktree Chelsea Eleven LLC (approximately $103,757 at December 31, 2010).

New Valley Chelsea is a variable interest entity; however, the Company is not the primary beneficiary. The Company’s maximum exposure to loss as a result of its investment in Chelsea is $10,958. This investment is being accounted for under the equity method.

The Company has received net distributions of $1,042 and $594 from New Valley Oaktree Chelsea Eleven LLC for the years ended December 31, 2010 and 2009, respectively. New Valley recorded equity income of $900 and $1,500 for the years ended December 31, 2010 and 2009, respectively, related to New Valley Chelsea.

Other investments:

Fifty Third-Five Building LLC. In September 2010, New Valley, through its NV 955 LLC subsidiary, contributed $2,500 to a joint venture, Fifty Third-Five Building LLC (“JV”), of which it owns 50%. The JV was formed for the purposes of acquiring a defaulted real estate loan, collateralized by real estate located in New York City. In October 2010, New Valley contributed an additional $15,500 to the JV and the JV acquired the defaulted loan for approximately $35,500. The JV is a variable interest entity; however, the Company is not the primary beneficiary. The Company’s maximum exposure to loss as a result of its investment in the JV is $18,000. This investment is being accounted for under the equity method.

Sesto Holdings S.r.l. In October 2010, New Valley, through its NV Milan LLC subsidiary, acquired a 7.2% interest in Sesto Holdings S.r.l. for $5,000. Sesto holds a 42% interest in an entity that has purchased a land plot of approximately 322 acres in Milan, Italy. Sesto intends to develop the land plot as a multi-parcel, multi-building mixed use urban regeneration project. Sesto is a variable interest entity; however, the Company is not the primary beneficiary. The Company’s maximum exposure to loss as a result of its investment in Sesto is $5,037.

Investment in Real Estate:

Escena. In March 2008, a subsidiary of New Valley purchased a loan collateralized by a substantial portion of a 450-acre approved master planned community in Palm Springs, California known as “Escena.” The loan, which was in foreclosure, was purchased for its $20,000 face value plus accrued interest and other costs of $1,445. The collateral consists of 867 residential lots with site and public infrastructure, an 18-hole golf course, a substantially completed clubhouse, and a seven-acre site approved for a 450-room hotel.

In April 2009 New Valley completed the foreclosure process and took title to the collateral. New Valley’s subsidiary also entered into a settlement agreement with Lennar Corporation, a guarantor of the loan, which required the guarantor to satisfy its obligations under a completion guaranty by completing improvements to the project in settlement, among other things, of its payment guarantees. The construction of these improvements to the project is substantially complete. In June 2009, the Company received $500 from the guarantor pursuant to the settlement agreement.

As a result of this settlement and changes in the values of real estate, the Company recorded impairment charges of $5,000 and $4,000 for the years ended December 31, 2009 and 2008, respectively.

The assets have been classified as an “Investment in Escena, net” on the Company’s consolidated balance sheet and the components are as follows:


	December 31,			December 31,
	2010			2009

Land and land improvements	$	11,112		$	11,126
Building and building improvements		1,471			1,154
Other		1,144			1,038

		13,727			13,318
Less accumulated depreciation		(373	)		(74	)

	$	13,354		$	13,244

The Company recorded an operating loss of $631 and $886 for the years ended December 31, 2010 and 2009, respectively, from Escena.

Real Estate Market Conditions. Because of the risks and uncertainties of the real estate markets, the Company will continue to perform additional assessments to determine the impact of the markets, if any, on the Company’s consolidated financial statements. Thus, future impairment charges may occur.

Condensed Consolidating Financial Information

12 Months Ended

Dec. 31, 2010

Condensed Consolidating Financial Information [Abstract]

CONDENSED CONSOLIDATING FINANCIAL INFORMATION


19.	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 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 has outstanding $415,000 principal amount of its 11% Senior Secured Notes due 2015 that are fully and unconditionally guaranteed on a joint and several basis by all of the 100% owned domestic subsidiaries of the Company that are engaged in the conduct of its cigarette businesses. (See Note 7.) The notes are not guaranteed by any of the Company’s subsidiaries engaged in the real estate businesses conducted through its subsidiary New Valley LLC. Presented herein are Condensed Consolidating Balance Sheets as of December 31, 2010 and 2009 and the related Condensed Consolidating Statements of Operations and Cash Flows for the years ended December 31, 2010, 2009 and 2008 of Vector Group Ltd. (Parent/Issuer), the guarantor subsidiaries (Subsidiary Guarantors) and the subsidiaries that are not guarantors (Subsidiary Non-Guarantors). The Company does not believe that the separate financial statements and related footnote disclosures concerning the Guarantors would provide any additional information that would be material to investors making an investment decision.

The indenture contains covenants that restrict the payment of dividends by the Company if the Company’s consolidated earnings before interest, taxes, depreciation and amortization (“Consolidated EBITDA”), as defined in the indenture, for the most recently ended four full quarters is less than $50,000. 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. The Company’s Leverage Ratio is defined in the indenture as the ratio of the Company’s and the guaranteeing subsidiaries’ total debt less the fair market value of the Company’s cash, investments in marketable securities and long-term investments to Consolidated EBITDA, as defined in the indenture. The Company’s Secured Leverage Ratio is defined in the indenture in the same manner as the Leverage Ratio, except that secured indebtedness is substituted for indebtedness.

CONDENSED CONSOLIDATING BALANCE SHEETS


	December 31, 2010
						Subsidiary					Consolidated
	Parent/			Subsidiary		Non-		Consolidating			Vector Group
	Issuer			Guarantors		Guarantors		Adjustments			Ltd.

ASSETS:
Current assets:
Cash and cash equivalents	$	283,409		$	16,214	$	202	$	—		$	299,825
Investment securities available for sale		78,754			—		—		—			78,754
Accounts receivable — trade		—			1,846		3		—			1,849
Intercompany receivables		62			—		—		(62	)		—
Inventories		—			107,079		—		—			107,079
Deferred income taxes		27,470			4,316		—		—			31,786
Income taxes receivable		51,260			—		—		(51,260	)		—
Restricted assets		—			2,310		351		—			2,661
Other current assets		1,329			3,335		145		—			4,809

Total current assets		442,284			135,100		701		(51,322	)		526,763
Property, plant and equipment, net		609			54,803		—		—			55,412
Investment in Escena, net		—			—		13,354		—			13,354
Long-term investments accounted for at cost		45,134			—		899		—			46,033
Long-term investments accounted for under the equity method		10,954			—		—		—			10,954
Investments in non- consolidated real estate businesses		—			—		80,416		—			80,416
Investment in townhomes		—			—		16,275		—			16,275
Investments in consolidated subsidiaries		259,594			—		—		(259,594	)		—
Restricted assets		2,673			6,021		—		—			8,694
Deferred income taxes		22,742			106,321		12,011		(103,246	)		37,828
Intangible asset		—			107,511		—		—			107,511
Prepaid pension costs		—			13,935		—		—			13,935
Other assets		17,710			14,710		—		—			32,420

Total assets	$	801,700		$	438,401	$	123,656	$	(414,162	)	$	949,595


LIABILITIES AND STOCKHOLDERS’ DEFICIENCY:
Current liabilities:
Current portion of notes payable and long-term debt	$	11,000		$	40,222	$	123	$	—		$	51,345
Fair value of derivatives embedded within convertible debt		480			—		—		—			480
Current portion of employee benefits		—			1,014		—		—			1,014
Accounts payable		1,098			6,405		1,524		—			9,027
Intercompany payables		—			62		—		(62	)		—
Accrued promotional expenses		—			14,327		—		—			14,327
Income taxes payable, net		—			20,719		42,158		(51,260	)		11,617
Accrued excise and payroll taxes payable, net		—			18,523		—		—			18,523
Settlement accruals		—			48,071		—		—			48,071
Deferred income taxes		34,622			2,341		—		—			36,963
Accrued interest		20,824			—		—		—			20,824
Other current liabilities		6,530			7,670		481		—			14,681

Total current liabilities		74,554			159,354		44,286		(51,322	)		226,872
Notes payable, long-term debt and other obligations, less current portion		484,675			21,020		357		—			506,052
Fair value of derivatives embedded within convertible debt		141,012			—		—		—			141,012
Non-current employee benefits		21,047			17,695		—		—			38,742
Deferred income taxes		126,508			28,118		435		(103,246	)		51,815
Other liabilities		138			30,520		678		—			31,336

Total liabilities		847,934			256,707		45,756		(154,568	)		995,829
Commitments and contingencies		—			—		—		—			—
Stockholders’ deficiency		(46,234	)		181,694		77,900		(259,594	)		(46,234	)

Total liabilities and stockholders’ deficiency	$	801,700		$	438,401	$	123,656	$	(414,162	)	$	949,595

CONDENSED CONSOLIDATING BALANCE SHEETS


	December 31, 2009
						Subsidiary					Consolidated
	Parent/			Subsidiary		Non-		Consolidating			Vector Group
	Issuer			Guarantors		Guarantors		Adjustments			Ltd.

ASSETS:
Current assets:
Cash and cash equivalents	$	204,133		$	5,004	$	317	$	—		$	209,454
Investment securities available for sale		51,743			—		—		—			51,743
Accounts receivable — trade		—			8,089		9		—			8,098
Intercompany receivables		—			43		—		(43	)		—
Inventories		—			98,485		1		—			98,486
Deferred income taxes		11,240			2,914		—		—			14,154
Income taxes receivable		—			26,086		—		(26,086	)		—
Restricted assets		—			3,138		—		—			3,138
Other current assets		497			3,512		126		—			4,135

Total current assets		267,613			147,271		453		(26,129	)		389,208
Property, plant and equipment, net		623			42,363		—		—			42,986
Investment in Escena, net		—			—		13,244		—			13,244
Long-term investments accounted for at cost		49,486			—		837		—			50,323
Investments in non- consolidated real estate businesses		—			—		49,566		—			49,566
Investments in consolidated subsidiaries		282,010			—		—		(282,010	)		—
Restricted assets		2,685			2,150		—		—			4,835
Deferred income taxes		28,729			94,088		9,667		(92,646	)		39,838
Intangible asset		—			107,511		—		—			107,511
Prepaid pension costs		—			8,994		—		—			8,994
Other assets		14,942			14,095		—		—			29,037

Total assets	$	646,088		$	416,472	$	73,767	$	(400,785	)	$	735,542


LIABILITIES AND STOCKHOLDERS’ DEFICIENCY:
Current liabilities:
Current portion of notes payable and long-term debt	$	—		$	21,773	$	116	$	—		$	21,889
Current portion of employee benefits		—			1,029		—		—			1,029
Accounts payable		1,490			2,763		102		—			4,355
Intercompany payables		43			—		—		(43	)		—
Accrued promotional expenses		—			12,745		—		—			12,745
Income taxes payable, net		14,472			547		30,991		(26,086	)		19,924
Accrued excise and payroll taxes payable, net		—			24,088		5		—			24,093
Settlement accruals		—			18,803		—		—			18,803
Deferred income taxes		14,992			2,262		—		—			17,254
Accrued interest		13,840			—		—		—			13,840
Other current liabilities		6,039			8,427		610		—			15,076

Total current liabilities		50,876			92,437		31,824		(26,129	)		149,008
Notes payable, long-term debt and other obligations, less current portion		319,588			14,853		479		—			334,920
Fair value of derivatives embedded within convertible debt		153,016			—		—		—			153,016
Non-current employee benefits		13,301			20,946		—		—			34,247
Deferred income taxes		113,667			24,040		59		(92,646	)		45,120
Other liabilities		322			22,763		828		—			23,913

Total liabilities		650,770			175,039		33,190		(118,775	)		740,224
Commitments and contingencies		—			—		—		—			—
Stockholders’ deficiency		(4,682	)		241,433		40,577		(282,010	)		(4,682	)

Total liabilities and stockholders’ deficiency	$	646,088		$	416,472	$	73,767	$	(400,785	)	$	735,542

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS


	Year Ended December 31, 2010
							Subsidiary						Consolidated
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.

Revenues	$	—		$	1,063,289		$	—		$	—		$	1,063,289
Expenses:
Cost of goods sold		—			845,106			—			—			845,106
Operating, selling, administrative and general expenses		21,842			67,939			928			—			90,709
Litigation judgment expense		—			16,161									16,161
Management fee expense		—			8,521			—			(8,521	)		—

Operating (loss) income		(21,842	)		125,562			(928	)		8,521			111,313
Other income (expenses):
Interest expense		(82,828	)		(1,227	)		(41	)		—			(84,096	)
Changes in fair value of derivatives embedded within convertible debt		11,524			—			—			—			11,524
Equity income on non-consolidated real estate businesses		—			—			23,963			—			23,963
Gain on investment securities available for sale		19,869			—			—			—			19,869
Equity income in consolidated subsidiaries		103,697			—			—			(103,697	)		—
Management fee income		8,521			—			—			(8,521	)		—
Other, net		2,958			39			—			—			2,997

Income before provision for income taxes		41,899			124,374			22,994			(103,697	)		85,570
Income tax (expense) benefit		29,721			(34,474	)		(9,197	)		(17,536	)		(31,486	)

Net income	$	71,620		$	89,900		$	13,797		$	(121,233	)	$	54,084

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS


	Year Ended December 31, 2009
							Subsidiary						Consolidated
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.

Revenues	$	—		$	801,494		$	—		$	—		$	801,494
Expenses:
Cost of goods sold		—			577,386			—			—			577,386
Operating, selling, administrative and general expenses		20,679			63,277			1,085			—			85,041
Gain on brand transaction		—			(5,000	)		—			—			(5,000	)
Restructuring charges		—			900			—			—			900
Management fee expense		—			8,223			—			(8,223	)		—

Operating income (loss)		(20,679	)		156,708			(1,085	)		8,223			143,167
Other income (expenses):
Interest and dividend income		387			105			—			—			492
Interest expense		(67,420	)		(1,048	)		(22	)		—			(68,490	)
Loss on extinguishment of debt		(18,573	)		—			—			—			(18,573	)
Changes in fair value of derivatives embedded within convertible debt		(35,925	)		—			—			—			(35,925	)
Provision for loss on investments		—			—			(8,500	)		—			(8,500	)
Equity income from non-consolidated real estate businesses		—			—			15,213			—			15,213
Equity income in consolidated subsidiaries		196,356			—			—			(196,356	)		—
Management fee income		8,223			—			—			(8,223	)		—
Other, net		1,153			—			—			—			1,153

Income (loss) before provision for income taxes		63,522			155,765			5,606			(196,356	)		28,537
Income tax benefit (expense)		(38,716	)		37,261			(2,276	)		—			(3,731	)

Net income	$	24,806		$	193,026		$	3,330		$	(196,356	)	$	24,806

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS


	Year Ended December 31, 2008
							Subsidiary						Consolidated
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.

Revenues	$	—		$	565,186		$	—		$	—		$	565,186
Expenses:
Cost of goods sold		—			335,299			—			—			335,299
Operating, selling, administrative and general expenses		29,577			65,135			(129	)		—			94,583
Management fee expense		—			7,940			—			(7,940	)		—

Operating income (loss)		(29,577	)		156,812			129			7,940			135,304
Other income (expenses):
Interest and dividend income		4,911			953			—			—			5,864
Interest expense		(60,172	)		(2,163	)		—			—			(62,335	)
Changes in fair value of derivatives embedded within convertible debt		24,337			—			—			—			24,337
Provision for loss on investments		(24,900	)		—			(7,500	)		—			(32,400	)
Equity income from non-consolidated real estate businesses		—			—			24,399			—			24,399
Equity income in consolidated subsidiaries		108,539			—			—			(108,539	)		—
Management fee income		7,940			—			—			(7,940	)		—
Other, net		(593	)		—			(4	)		—			(597	)

Income before provision for income taxes		30,485			155,602			17,024			(108,539	)		94,572
Income tax benefit (expense)		30,019			(57,056	)		(7,031	)		—			(34,068	)

Net income	$	60,504		$	98,546		$	9,993		$	(108,539	)	$	60,504

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS


	Year Ended December 31, 2010
							Subsidiary						Consolidated
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.

Net cash provided by (used in) operating activities	$	45,172		$	166,018		$	(2,164	)	$	(142,022	)	$	67,004

Cash flows from investing activities:
Sale or maturity of investment securities		28,587			—			—			—			28,587
Purchase of investment securities		(9,394	)		—			—			—			(9,394	)
Proceeds from sale of or liquidation of long-term investments		1,002			—			—			—			1,002
Purchase of long-term investment		(5,000	)		—			(62	)		—			(5,062	)
Investment in non- consolidated real estate businesses		—			—			(24,645	)		—			(24,645	)
Purchase of Aberdeen mortgages		(13,462	)		—			—			—			(13,462	)
Distributions from non-consolidated real estate businesses		—			—			3,539			—			3,539
Increase in cash surrender value of life insurance policies		(513	)		(423	)		—			—			(936	)
Decrease (increase) in non-current restricted assets		363			(1,112	)		(351	)		—			(1,100	)
Issuance of notes receivable		(930	)		—			—			—			(930	)
Cash acquired in Aberdeen consolidation		—			—			473			—			473
Proceeds from sale of fixed assets		—			187			—			—			187
Investments in subsidiaries		(10,547	)		—			—			10,547			—
Capital expenditures		—			(23,073	)		(318	)		—			(23,391	)

Net cash (used in) provided by investing activities		(9,894	)		(24,421	)		(21,364	)		10,547			(45,132	)

Cash flows from financing activities:
Proceeds from debt issuance		165,000			20,714			—			—			185,714
Deferred financing costs		(5,077	)		—			—			—			(5,077	)
Repayments of debt		—			(14,424	)		(115	)		—			(14,539	)
Borrowings under revolver		—			1,034,924			—			—			1,034,924
Repayments on revolver		—			(1,016,598	)		—			—			(1,016,598	)
Capital contributions received		—			10,547			—			(10,547	)		—
Intercompany dividends paid		—			(165,550	)		23,528			142,022			—
Dividends and distributions on common stock		(117,459	)		—			—			—			(117,459	)
Proceeds from exercise of Vector options		1,265			—			—			—			1,265
Tax benefits from exercise of Vector options and warrants		269			—			—			—			269

Net cash (used in) provided by financing activities		(43,998	)		(130,387	)		23,413			131,475			68,499

Net increase (decrease) in cash and cash equivalents		79,276			11,210			(115	)		—			90,371
Cash and cash equivalents, beginning of period		204,133			5,004			317			—			209,454

Cash and cash equivalents, end of period	$	283,409		$	16,214		$	202		$	—		$	299,825

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS


	Year Ended December 31, 2009
							Subsidiary						Consolidated
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.

Net cash provided by operating activities	$	10,517		$	80,572		$	5,547		$	(90,969	)	$	5,667

Cash flows from investing activities:
Proceeds from sale of businesses and assets		—			41			—			—			41
Proceeds from sale or maturity of investment securities		—			—			78			—			78
Purchase of investment securities		(12,427	)		—			—			—			(12,427	)
Proceeds from sale or liquidation of long-term investments		2,254			—			—			—			2,254
Purchase of long-term investments		—			—			(51	)		—			(51	)
Investment in non-consolidated real estate businesses		—			—			(474	)		—			(474	)
Distributions from non-consolidated real estate businesses		—			—			6,730			—			6,730
Increase in cash surrender value of life insurance policies		(413	)		(426	)		—			—			(839	)
Decrease in non-current restricted assets		1,160			560			—			—			1,720
Investments in subsidiaries		(3,800	)		—			—			3,800			—
Capital expenditures		—			(2,734	)		(1,114	)		—			(3,848	)

Net cash used in investing activities		(13,226	)		(2,559	)		5,169			3,800			(6,816	)

Cash flows from financing activities:
Proceeds from debt issuance		118,125			35			645			—			118,805
Repayments of debt		(360	)		(5,769	)		(50	)		—			(6,179	)
Deferred financing charges		(5,567	)		(6	)		—			—			(5,573	)
Borrowings under revolver		—			749,474			—			—			749,474
Repayments on revolver		—			(751,607	)		—			—			(751,607	)
Capital contributions received		—			3,800			—			(3,800	)		—
Intercompany dividends paid		—			(79,975	)		(10,994	)		90,969			—
Dividends and distributions on common stock		(115,778	)		—			—			—			(115,778	)
Proceeds from exercise of Vector options		1,194			—			—			—			1,194
Excess tax benefit of options exercised		9,162			—			—			—			9,162

Net cash (used in) provided by financing activities		6,776			(84,048	)		(10,399	)		87,169			(502	)

Net decrease in cash and cash equivalents		4,067			(6,035	)		317			—			(1,651	)
Cash and cash equivalents, beginning of period		200,066			11,039			—			—			211,105

Cash and cash equivalents, end of period	$	204,133		$	5,004		$	317		$	—		$	209,454

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS


	Year Ended December 31, 2008
							Subsidiary						Consolidated
	Parent/			Subsidiary			Non-			Consolidating			Vector Group
	Issuer			Guarantors			Guarantors			Adjustments			Ltd.

Net cash provided by operating activities	$	82,821		$	125,279		$	7,415		$	(124,250	)	$	91,265

Cash flows from investing activities:
Proceeds from sale of businesses and assets		—			452			—			—			452
Purchase of investment securities		(6,411	)		—			—			—			(6,411	)
Proceeds from sale or liquidation of long-term investments		8,334			—			—			—			8,334
Purchase of long-term investments		—			—			(51	)		—			(51	)
Purchase of mortgage receivable		—			—			(21,704	)		—			(21,704	)
Purchase of Castle Brands equity		(4,250	)		—			—			—			(4,250	)
Investment in non-consolidated real estate businesses		—			—			(22,000	)		—			(22,000	)
Distributions from non-consolidated real estate businesses		—			—			19,393			—			19,393
Increase in cash surrender value of life insurance policies		(500	)		(438	)		—			—			(938	)
Decrease in non-current restricted assets		(1,465	)		1,054			—			—			(411	)
Investments in subsidiaries		(21,747	)		—			—			21,747			—
Capital expenditures		—			(6,309	)		—			—			(6,309	)

Net cash used in investing activities		(26,039	)		(5,241	)		(24,362	)		21,747			(33,895	)

Cash flows from financing activities:
Proceeds from debt		—			2,831			—			—			2,831
Repayments of debt		—			(6,329	)		—			—			(6,329	)
Deferred financing charges		(137	)		—			—			—			(137	)
Borrowings under revolver		—			531,251			—			—			531,251
Repayments on revolver		—			(526,518	)		—			—			(526,518	)
Capital contributions received		—			4,800			16,947			(21,747	)		—
Intercompany dividends paid		—			(124,250	)		—			124,250			—
Dividends and distributions on common stock		(103,870	)		—			—			—			(103,870	)
Proceeds from exercise of Vector options		86			—			—			—			86
Excess tax benefit of options exercised		18,304			—			—			—			18,304

Net cash (used in) provided by financing activities		(85,617	)		(118,215	)		16,947			102,503			(84,382	)

Net decrease in cash and cash equivalents		(28,835	)		1,823			—			—			(27,012	)
Cash and cash equivalents, beginning of period		228,901			9,216			—			—			238,117

Cash and cash equivalents, end of period	$	200,066		$	11,039		$	—		$	—		$	211,105

Consolidated Statements of Operations (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2008
Consolidated Statements of Operations [Abstract]
Tax portion of revenues and cost of goods sold	$ 538,328	$ 377,771	$ 168,170

Consolidated Statement of Stockholders' Equity (Deficiency) (Parenthetical) - shares	12 Months Ended
	Dec. 31, 2009	Dec. 31, 2008
Statement [Line Items]
Number of shares delivered to pay exercise price	2,814,866	1,375,895
Common Stock
Statement [Line Items]
Number of shares delivered to pay exercise price	2,814,866	1,375,895
Additional Paid-In Capital
Statement [Line Items]
Number of shares delivered to pay exercise price	2,814,866	1,375,895

Consolidated Balance Sheets (Parenthetical) - USD ($)	Dec. 31, 2010	Dec. 31, 2009
Stockholders' deficiency:
Preferred stock, par value	$ 1.00	$ 1.00
Preferred stock, shares authorized	10,000,000	10,000,000
Common stock, par value	$ 0.10	$ 0.10
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	78,349,590	74,510,595
Common stock, shares outstanding	74,939,284	71,262,684
Common stock in treasury, shares	3,410,306	3,247,911