<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended June 30, 1994
-----------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ______________
Commission File Number 0-17506
-------
UST Inc.
-------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1193986
- - --------------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 West Putnam Avenue, Greenwich, Conn. 06830
- - ---------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 661-1100
--------------
NONE
- - -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report).
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-------- --------
Number of Common shares ($.50 par value) outstanding at
June 30, 1994. 202,901,636
-----------
<PAGE> 2
UST Inc.
(Registrant)
INDEX
<TABLE>
<CAPTION>
Page No.
---------
<S> <C> <C>
Part I. Financial Information:
Condensed Consolidated Statement of Financial Position -
June 30, 1994 and December 31, 1993 2
Condensed Consolidated Statement of Earnings -
Three and six months ended June 30, 1994 and 1993 3
Condensed Consolidated Statement of Cash Flows -
Six months ended June 30, 1994 and 1993 4
Notes to Condensed Consolidated Financial Statements 5
Management's Discussion and Analysis of Operations and
Financial Condition 6
Part II. Other Information:
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
</TABLE>
(1)
<PAGE> 3
UST Inc.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
----- -----
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 29,542 $ 25,327
Accounts receivable 68,565 64,376
Inventories:
Leaf tobacco 114,646 90,742
Products in process and finished goods 102,273 108,117
Other materials and supplies 18,256 16,776
-------- --------
235,175 215,635
Prepaid expenses and other current assets 35,070 29,658
-------- --------
Total current assets 368,352 334,996
Property, plant and equipment, net 305,324 309,611
Other assets 58,978 61,588
-------- --------
$732,654 $706,195
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 70,126 $ 62,445
Income taxes 42,347 44,197
-------- --------
Total current liabilities 112,473 106,642
Long-term debt 50,000 40,000
Deferred income taxes 5,879 7,955
Postretirement benefits other than pensions 58,953 56,782
Other liabilities 34,291 31,844
-------- --------
Total liabilities 261,596 243,223
Stockholders' equity
Preferred stock - par value $.10 per share:
Authorized - 10 million shares; issued - none
Common stock - par value $.50 per share:
Authorized - 600 million shares;
issued 214,358,636 shares in 1994,
and 213,223,636 shares in 1993. 107,179 106,612
Additional paid-in capital 353,425 337,842
Retained earnings 329,372 255,222
-------- --------
789,976 699,676
Less cost of shares in treasury - 11,457,000
shares in 1994 and 8,467,000 shares in 1993 318,918 236,704
-------- --------
Total stockholders' equity 471,058 462,972
-------- --------
$732,654 $706,195
======== ========
</TABLE>
Note: The statement of financial position at December 31, 1993 has been
derived from the audited financial statements at that date.
See Notes to Condensed Consolidated Financial Statements.
(2)
<PAGE> 4
UST Inc.
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------- ----------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $310,203 $279,707 $590,582 $544,726
Costs and expenses
Cost of products sold 63,400 60,477 117,801 123,630
Selling, advertising and administrative 82,270 74,322 161,617 146,245
------- ------- ------- -------
Total costs and expenses 145,670 134,799 279,418 269,875
------- ------- ------- -------
Operating income 164,533 144,908 311,164 274,851
Other (expense) income
Interest (expense) income, net (41) 519 (28) 674
Gain on disposal of product line - - - 35,029
------- ------- ------- -------
Earnings before income taxes and
cumulative effect of accounting changes 164,492 145,427 311,136 310,554
Income taxes 65,006 55,591 122,892 117,163
------- ------- ------- -------
Earnings before cumulative
effect of accounting changes 99,486 89,836 188,244 193,391
Cumulative effect of accounting changes:
Postretirement benefits other than pensions
(net of income tax benefit of $18,115) - - - (32,690)
Income taxes - - - 12,844
------- ------- ------- -------
Net earnings $ 99,486 $ 89,836 $188,244 $173,545
======= ======= ======= =======
Earnings per share:
Primary earnings before cumulative
effect of accounting changes $.48 $.41 $.90 $.89
Cumulative effect of accounting changes - - - (.09)
Net earnings per share:
Primary $.48 $.41 $.90 $.80
Fully diluted $.48 $.41 $.90 $.80
Cash dividends per common share $.28 $.24 $.56 $.48
Average number of common and common
equivalent shares outstanding:
Primary 208,511 216,691 209,432 217,377
Fully diluted 208,727 216,833 209,540 217,448
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
(3)
<PAGE> 5
UST Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------
1994 1993
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
- - --------------------
Net cash provided by operating activities $183,110 $192,095
INVESTING ACTIVITIES
- - --------------------
Purchases of property, plant and equipment, net (9,953) (29,837)
Net proceeds received from sales of businesses 1,043 37,164
-------- --------
Net cash (used in) provided by
investing activities (8,910) 7,327
-------- --------
FINANCING ACTIVITIES
- - --------------------
Proceeds from long-term debt 10,000 -
Proceeds from the issuance of common stock 16,150 18,680
Dividends paid (113,921) (100,379)
Common stock repurchased (82,214) ( 87,318)
-------- --------
Net cash used in financing activities (169,985) (169,017)
-------- --------
Increase in cash and cash equivalents 4,215 30,405
Cash and cash equivalents at beginning of year 25,327 36,370
-------- --------
Cash and cash equivalents at end of period $ 29,542 $ 66,775
======== ========
- - ----------------------------------------------------------------------------
Supplemental disclosure of cash flow information
Cash paid during the period for:
Income taxes $121,212 $87,491
Interest 1,669 487
- - ----------------------------------------------------------------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
(4)
<PAGE> 6
UST Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1994
(Unaudited)
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the three and
six month periods ended June 30, 1994 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1994. For further
information, refer to the consolidated financial statements and footnotes
thereto included in Registrant's annual report on Form 10-K for the year ended
December 31, 1993.
REPURCHASE OF COMMON STOCK
In June 1994, the Board of Directors approved a new stock repurchase program,
authorizing Registrant to repurchase up to 20 million shares of its common
stock from time to time in open market or in negotiated transactions for use in
connection with benefits and compensation plans and other corporate purposes.
The new program will commence upon the completion of Registrant's current
program, which provides for the repurchase of up to 40 million shares of
Registrant's common stock and has been in effect since January 1, 1990. As of
December 31, 1993, 6.4 million shares remained to be repurchased under the
current program. Through June 30, 1994, an additional 3 million shares costing
$82.2 million were repurchased.
CONTINGENCIES
Registrant is named in certain litigation against the major cigarette companies
and others seeking damages relating to the usage of cigarettes. Registrant has
had only limited involvement with cigarettes. Prior to 1985, Registrant
manufactured some cigarette products which had a de minimis market share. From
May 1, 1982, to August 1, 1994, Registrant distributed a small volume of
imported cigarettes and is indemnified against claims relating to those
products. Registrant no longer manufactures, markets, or distributes any
cigarette products. Registrant believes that these actions are without merit,
intends to defend them vigorously and does not believe they will result in any
material liability to Registrant.
(5)
<PAGE> 7
UST Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF OPERATIONS AND FINANCIAL CONDITION
(UNAUDITED)
Results of Operations
Second quarter and six months of 1994 compared
with the same periods of 1993
Net sales for the second quarter and six months increased 11 percent and 8
percent, respectively, as compared with the corresponding periods in the prior
year. The Tobacco and Wine segments posted sales gains for both the second
quarter and six-month period while sales for the Other segment were higher in
the second quarter but were lower for the six-month period. Higher selling
prices and unit volume gains for moist smokeless tobacco were the primary
reasons for the increase in consolidated net sales. Domestic unit volume for
moist smokeless tobacco increased 1.3 percent for the second quarter and 3.4
percent for the six-month period. Registrant believes that the comparisons of
domestic moist unit volume for both periods were unfavorably affected by the
national roll-out of two new Skoal Long Cut flavors in the second quarter of
1993. Wine segment sales were higher due to an increase in overall case
volume, primarily in the premium wine category. Other segment sales increased
in the second quarter primarily due to volume gains for Registrant's
entertainment business, while the decrease for the six-month period was due to
the absence of Zig-Zag cigarette papers and related products resulting from the
sale of its distribution rights on March 31, 1993.
Cost of products sold increased for the second quarter and decreased in the
six-month period. Both periods included increased costs due to volume gains
and higher unit costs for domestic moist smokeless tobacco, along with volume
gains for the entertainment and wine businesses. Favorably affecting both
periods were lower unit costs for wine and volume declines for other tobacco
products which, along with the absence of Zig-Zag and related products in the
six-month period, more than offset the increases noted. The overall gross
margin percentage increased in both periods mainly due to higher selling prices
and increased unit volume for domestic moist smokeless tobacco.
Selling, advertising and administrative expenses increased for the Tobacco and
Other segments and remained stable for the Wine segment for both the second
quarter and six-month periods. Selling and advertising expenses for the
Tobacco segment were directed at the promotion and support of our moist
smokeless tobacco products and higher salaries and related costs for the sales
force and support personnel. Increased selling and advertising costs for the
Other segment were expended to support new products and markets.
Administrative and other expenses increased in both periods due to higher
salary and related costs, increased spending in other areas and the absence of
the gains recorded on the sale of corporate investments in 1993.
Registrant recorded net interest expense in both periods as interest expense on
short-term borrowings and long-term debt exceeded interest income from cash
equivalent investments.
Net earnings for the second quarter and six-month period increased 11 percent
and 8 percent, respectively, over the corresponding periods in the prior year.
Primary earnings per share increased 17 percent for the second quarter and 13
percent for the six-month period.
(6)
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION (Continued)
The comparison of earnings per share for the first six months of 1994 to the
similar period in 1993 was adversely affected by 5 cents per share due to
several events which occurred during 1993. On March 31, 1993 Registrant sold
its distribution rights for Zig-Zag cigarette papers and related products which
resulted in an after-tax gain of $22 million, or 10 cents per share. This gain
was offset by the adoption of Statement of Financial Accounting Standards
(SFAS) No. 106 and SFAS No. 109, which reduced primary earnings per share by 9
cents for the six months of 1993.
In addition, operating results for the first six months of 1994 do not include
Zig-Zag and related products and includes the effect of the July 1993 increase
in the corporate federal income tax rate. Together, these two events adversely
affected the comparison of primary earnings per share by 4 cents for the first
six months of 1994 to the similar 1993 period.
The Clinton Administration's Health Security Act proposed an increase in the
federal excise tax on moist snuff from 36 cents per pound to $12.86 per pound.
The debate continues over this health care proposal, as well as other
alternatives. Registrant is not able to predict the amount, if any, by which
the federal excise tax rate may increase, or assess the future effect that any
such increase may have on the sale of its tobacco products.
Liquidity and Sources of Capital
Changes in Financial Condition Since December 31, 1993
Net cash provided by operating activities represents net income adjusted for
the non-cash items included in the determination of net income as well as
changes in operating assets and liabilities. A primary use of cash in
operations was for purchases of leaf tobacco of $50.7 million, which was
slightly higher than amounts expended in the corresponding period of the prior
year. Registrant anticipates that additional purchases of leaf tobacco will
not be significant for the remainder of 1994.
Net cash used in investing activities for the second quarter of 1994 was for
the purchase of property, plant and equipment. Registrant expects the 1994
capital program to approximate $38 million.
Net cash used in financing activities were amounts expended for dividends and
the stock repurchase program. Amounts expended for the stock repurchase
program were slightly lower than in the corresponding period of the prior year.
Registrant expects that total funds allocated to the stock repurchase program
in 1994 from operations and increased borrowing will be higher than amounts
expended in 1993.
(7)
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION (Continued)
Registrant has $50 million outstanding on its revolving credit and term loan
agreement with a bank at June 30, 1994. Registrant is currently negotiating to
replace this loan agreement with a new $200 million agreement with several
banks, the terms of which are expected to be finalized in the third quarter.
Registrant expects to use the funds to repurchase additional shares of its
common stock in 1994 and 1995. The availability and price of Registrant's
common stock, market conditions at the time of purchase and other factors will
determine the number of shares actually repurchased.
Registrant will continue to have significant cash requirements for the
remainder of 1994, primarily for the increased stock repurchase program and
dividends. Registrant expects to meet these requirements with internally
generated funds augmented by the proceeds from the new revolving credit and
term loan agreement and short-term borrowings when necessary.
(8)
<PAGE> 10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
With respect to the action entitled Diane Castano, et al. v. The
American Tobacco Company, Inc., et al which was previously reported
in Registrant's Form 10-Q for the quarter ended March 31, 1994,
Registrant received on May 13, 1994, a first amended complaint which
alleges that the defendants have manipulated the amount of nicotine
in their cigarettes for the purpose and with the intent of creating
and sustaining so-called addictions to those products. Defendants'
filed a motion to dismiss the complaint on June 24, 1994.
Registrant has had only limited involvement with cigarettes. Prior
to 1985, Registrant manufactured some cigarette products which had a
de minimis market share. From May 1, 1982, to August 1, 1994,
Registrant distributed a small volume of imported cigarettes and is
indemnified against claims relating to those products. Registrant
no longer manufactures, markets, or distributes any cigarette
products.
Registrant believes that this action is without merit, intends to
defend it vigorously and does not believe it will result in any
material liability to Registrant.
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
There were no reports on Form 8-K for the three months ended
June 30, 1994.
(9)
<PAGE> 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
UST Inc.
-----------------
(Registrant)
Date August 12, 1994 /s/ John J. Bucchignano
---------------- ----------------------------------------
John J. Bucchignano
Executive Vice President and Chief
Financial Officer (Principal
Financial Officer)
/s/ Robert T. D'Alessandro
----------------------------------------
Robert T. D'Alessandro
Controller (Principal Accounting Officer)
(10)
