SEC Mail Processing Section 12028435 NOV Washing0 DC 402 VECTOR GROUP LTD 2011 STOCKHOLDERS REPORT VCTDR GROUP LTD HOWARD LORBER PRESIDENT CHIEF EXECUTIVE OFFICER April 2012 Dear Fellow Stockholder Vector well in Group performed 2011 as result of strong execution of our business plan During the year we profitably grew our Liggett tobacco business and our 50%-owned Douglas Elliman real estate business performed steadily We achieved our primary goals for 2011 to continue to increase market share by focusing on our brand Pyramid cigarette and to increase profits Our tobacco business grew its market share during the year and is the Pyramid now nations sixth-largest brand We also implemented initiatives to support margin growth which resulted in increased operating income We are pleased with Vector Groups recent performance and believe we are well positioned to capitalize on this momentum in 2012 Overall Financial Results Vector 2011 increased from Groups revenues by approximately 6.6% the prior year to $1.13 billion We recorded operating income of $143.3 million in 2011 compared to $111.3 million in 2010 Adjusted operating for income 2010 excluding litigation judgments and settlement charges was $130.5 million Thus adjusted operating income increased 10% in 2011 Additionally our liquidity remains strong as cash and cash equivalents were approximately $240.9 million and we held investment securities and partnership interests with fair market value of approximately $100.5 million at December 31 2011 Further the Company continued its long-standing track record of cash well paying dividend of $0.40 per share per quarter or $1.60 per year as as an annual stock dividend of 5% for the 13th consecutive year Cigarette Business Our cigarette business had 2011 revenues of $1.13 billion compared to $1.06 billion in the prior year driven by increased unit sales of approximately 2.7% and increased prices Adjusted operating income at our cigarette business increased 10% for the year to $164.6 million We continued to balance our pursuit of volume growth and margin opportunities during the year executing on the focused growth strategy we launched in conjunction with the April 2009 federal excise tax increase Since then we have steadily increased our market share and we are now the fourth-largest manufacturer in the U.S In 2011 Liggett grew retail shipments by 2.3% while industry shipments declined by almost 2.9% The strong performance of Pyramid which has seen very good consumer acceptance was the driver of Liggett volume growth in 2011 We have made excellent progress in building Pyramid nationwide with significant increases in distribution through all channels and all geographies Pyramid is now sold in more than 86000 outlets across the country including Wal-Mart and 7-Eleven stores and is the second-largest discount brand in the United States as of December 31 2011 We also implemented strategic price increases for Pyramid in 2011 as part of our efforts to increase profitability at our cigarette business These price increases drove Pyramids improved profit margins and we Grand Prix and Eve also improved profit margins on our other core brands Liggett Select major challenge facing cigarette manufacturers continues to be the growth of companies that we believe are evading federal excise taxes by knowingly mislabeling Roll Your Own tobacco as Pipe Tobacco The sale of pipe tobacco has increased by more than 400% in the three years since the federal excise tax increase and it continues to grow Recently number of states have taken action in an attempt to address this problem and we remain hopeful that the federal government will also act with tobacco the in Florida Additionally respect to litigation Engle progeny cases remain our primary litigation focus While we continue to assert our rights we remain subject to the on-going process and periodic negative judgments We remain prepared to meet these and other challenges we may face Douglas Elliman Realty LLC Our New Valley subsidiary owns 50% interest in Douglas Elliman Realty LLC which operates the largest residential brokerage business in the New York City metropolitan area through its Prudential Douglas Elliman Real Estate subsidiaries Elliman continued to Despite industry headwinds Douglas Realty capitalize on its strong market presence and achieved combined sales of approximately $11.1 billion of real estate in 2011 and EB1TDA of $33.0 million in 2011 Vector Group reported pre-tax income of $16.6 million in 2011 from its 50% interest in Douglas Elliman Outlook We are pleased with Vector Groups 2011 performance in both tobacco and real estate We are continuing address that in to monitor legislative and market developments closely and are prepared to changes may occur addition to exploring opportunities to build on our platform We remain optimistic about our long-term prospects and look forward to continuing to deliver value to our stockholders As always we thank our stockholders employees and customers for their continued support and dedication Sincerely Howard Lorber President and Chief Executive Officer SECURITIES AND EXCHANGE COMMISSION Washington D.C 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15d OF THE SECURITIES EXCHANGE ACT OF 1934 For The Fiscal Year Ended December 31 2011 VECTOR GROUP LTD Exact name of registrant as specified in its charter Delaware 1-5759 65-0949535 State or other jurisdiction of Commission File Number I.R.S Employer incorporation or organization Identification No 100 S.E Second Street Miami Florida 33131 Address of principal executive offices Zip Code 305 579-8000 Registrants telephone number including area code Securities registered pursuant to Section 12b of the Act Title of each class Name of each exchange on which registered Common Stock par value 10 per share New York Stock Exchange Securities registered pursuant to Section 12g of the Act None Indicate by check mark if the Registrant is well-known seasoned issuer as defined in Rule 405 of the Securities Act YesNofl Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15d of the Exchange Act Yes No Indicate by check mark whether the Registrant has filed all reports required to be filed by Section 13 or 15d of the 12 such Securities Exchange Act of 1934 as amended the Exchange Act during the preceding months or for shorter period that the Registrant was required to file such reports and has been subject to such filing requirements for the past 90 days Yes No Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site if any every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-I 232.405 of this chapter during the 12 for shorter that the submit such preceding months or such period registrant was required to and post files Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 Regulation S-K is not contained herein and will not be contained to the best of the Registrants knowledge in definitive proxy or information statement incorporated by reference in Part HI of this Form 10-K or any amendment to this Form 10-K fl Indicate by check mark whether the Registrant is large accelerated filer an accelerated filer or non-accelerated filer See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company LI Do not check if smaller reporting company Indicate by check mark whether the Registrant is shell company as defined in Rule 12b-2 of the Exchange Act Yes fl No The aggregate market value of the common stock held by non-affiliates of Vector Group Ltd as of June 30 2011 was approximately $734 million At February 24 2012 Vector Group Ltd had 79445087 shares of common stock outstanding DOCUMENTS INCORPORATED BY REFERENCE Part ifi Items 10 11 12 13 and 14 from the definitive Proxy Statement for the 2012 Annual Meeting of Stockholders to be the of fiscal covered filed with the Securities and Exchange Commission no later than 120 days after end the Registrants year by this report VECTOR GROUP LTD FORM 10-K TABLE OF CONTENTS Page PART Item Business Item 1A Risk Factors 15 Item lB Unresolved Staff Comments 28 Item Properties 28 Item Legal Proceedings 28 Item Mine Safety Disclosures 28 PART II Item Market for Registrants Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities Executive Officers of the Registrant 29 Item Selected Financial Data 32 Item Managements Discussion and Analysis of Financial Condition and Results of Operations 33 Item 7A Quantitative and Qualitative Disclosures About Market Risk 58 Item Financial Statements and Supplementary Data 58 Item Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 58 Item 9A Controls and Procedures 58 Item 9B Other Information 58 PART III Item 10 Directors Executive Officers and Corporate Governance 59 Item 11 Executive Compensation 59 Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 59 Item 13 Certain Relationships and Related Transactions and Director Independence 59 Item 14 Principal Accounting Fees and Services 59 PART IV Item 15 Exhibits and Financial Statement Schedules 60 SIGNATURES 65 EX-3 1.1 EX-31.2 EX-32.1 EX-32.2 EX-lOl INSTANCE DOCUMENT Page EX-lOl SCHEMA DOCUMENT EX-lOl CALCULATION LINKBASE DOCUMENT EX-lOl LABELS LINKBASE DOCUMENT EX-lOl