<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 March 31, 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
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UST INC.
- - ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1193986
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 West Putnam Avenue, Greenwich, Conn. 06830
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(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 March 31, 1994. 203,518,936
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<PAGE> 2
UST Inc.
(Registrant)
INDEX
<TABLE>
<CAPTION>
Page No.
---------
<S> <C> <C>
Part I. Financial Information:
Condensed Consolidated Statement of Financial Position -
March 31, 1994 and December 31, 1993 2
Condensed Consolidated Statement of Earnings -
Three months ended March 31, 1994 and 1993 3
Condensed Consolidated Statement of Cash Flows -
Three months ended March 31, 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 8
Item 4. Submission of Matters to a Vote of Security Holders 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>
March 31, December 31,
1994 1993
----------- ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 42,787 $ 25,327
Accounts receivable 59,548 64,376
Inventories:
Leaf tobacco 126,168 90,742
Products in process and finished goods 104,111 108,117
Other materials and supplies 17,453 16,776
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247,732 215,635
Prepaid expenses and other current assets 31,313 29,658
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Total current assets 381,380 334,996
Property, plant and equipment, net 308,011 309,611
Other assets 60,683 61,588
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$750,074 $706,195
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 64,367 $ 62,445
Income taxes 93,719 44,197
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Total current liabilities 158,086 106,642
Long-term debt 40,000 40,000
Deferred income taxes 6,389 7,955
Postretirement benefits other than pensions 58,186 56,782
Other liabilities 33,436 31,844
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Total liabilities 296,097 243,223
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 213,675,936 shares in 1994,
and 213,223,636 shares in 1993. 106,838 106,612
Additional paid-in capital 344,489 337,842
Retained earnings 286,709 255,222
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738,036 699,676
Less cost of shares in treasury - 10,157,000
shares in 1994 and 8,467,000 shares in 1993 284,059 236,704
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Total stockholders' equity 453,977 462,972
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$750,074 $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 March 31,
----------------------------
1994 1993
---- ----
<S> <C> <C>
Net sales $280,379 $265,019
Costs and expenses
Cost of products sold 54,401 63,153
Selling, advertising and administrative 79,347 71,923
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Total costs and expenses 133,748 135,076
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Operating income 146,631 129,943
Other income
Interest income, net 13 155
Gain on disposal of product line - 35,029
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Earnings before income taxes and
cumulative effect of accounting changes 146,644 165,127
Income taxes 57,886 61,572
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Earnings before cumulative
effect of accounting changes 88,758 103,555
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 $ 88,758 $ 83,709
======= =======
Earnings per share:
Primary earnings before cumulative
effect of accounting changes $.42 $ .47
Cumulative effect of accounting changes - (.09)
Net earnings per share:
Primary $.42 $.38
Fully diluted $.42 $.38
Cash dividends per common share $.28 $.24
Average number of common and common
equivalent shares outstanding:
Primary 210,360 218,067
Fully diluted 210,360 218,067
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
(3)
<PAGE> 5
UST Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1994 1993
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
- - --------------------
Net cash provided by operating activities $120,601 $105,562
INVESTING ACTIVITIES
- - --------------------
Purchases of property, plant and equipment, net (5,561) (21,173)
Net proceeds received from sales of businesses - 37,137
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Net cash (used in) provided by investing activities (5,561) 15,964
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FINANCING ACTIVITIES
- - --------------------
Proceeds from the issuance of common stock 6,873 5,294
Dividends paid (57,098) (50,152)
Common stock repurchased (47,355) (69,377)
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Net cash used in financing activities (97,580) (114,235)
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Increase in cash and cash equivalents 17,460 7,291
Cash and cash equivalents at beginning of year 25,327 36,370
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Cash and cash equivalents at end of period $ 42,787 $ 43,661
======== =========
Supplemental disclosure of cash flow information
Cash paid during the period for:
Income taxes $8,197 $342
Interest 635 218
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
(4)
<PAGE> 6
UST Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 month
period ended March 31, 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
During 1994, Registrant continued its program to repurchase a portion of its
outstanding common stock, up to a maximum of forty million shares. As of
December 31, 1993, 6.4 million shares remained to be repurchased under the
current program. Through March 31, 1994 an additional 1.7 million shares
costing $47.4 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, and
is indemnified for the small volume of imported cigarettes which it currently
distributes. 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.
In addition, on May 12, 1994, Registrant was advised by its Delaware agent for
service of process that Registrant and others had been named in an amended
complaint. This action, originally filed against the major cigarette
companies, is purportedly brought on behalf of a class composed of all persons
in the United States who have used defendants' tobacco products and claim that
the defendants allegedly manipulated the levels of nicotine in their tobacco
products for the purposes of addicting consumers. The complaint seeks
unspecified damages, attorneys fees and other equitable relief. Registrant has
not had an adequate opportunity to evaluate this action prior to the filing of
this quarterly report on Form 10-Q.
(5)
<PAGE> 7
UST Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF OPERATIONS AND FINANCIAL CONDITION
(UNAUDITED)
Results of Operations
First quarter 1994 compared
with the first quarter of 1993
Net sales for the first quarter were $280.4 million, a 6 percent increase over
the corresponding period in the prior year. The Tobacco segment posted sales
gains for the first quarter while sales for the Wine segment were stable and
Other segment sales were lower. 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 5.9 percent for the first quarter as compared with the similar 1993
period. Registrant believes that the domestic moist unit volume comparison was
favorably affected by a change in Registrant's shipping procedures in January
1993 which had an adverse effect on unit volume in the first quarter of 1993.
Unit volume for premium wine increased slightly in the first quarter, while
overall case volume for the Wine segment remained stable. Other segment sales
were significantly lower 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 decreased for the first quarter due to volume declines
for other tobacco products and the absence of cigarette papers and related
products. Unit costs for wine also decreased slightly for the first quarter.
These lower costs were partially offset by volume gains and higher unit costs
for domestic moist smokeless tobacco. The overall gross margin percentage
increased in the first quarter mainly due to higher selling prices and
increased unit volume for domestic moist smokeless tobacco and volume declines
for lower margin products.
Selling, advertising and administrative expenses increased for the Tobacco and
Other segments and remained stable for the Wine segment. 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. Administrative and other
expenses increased for the first quarter due to higher salary and related costs
and increased spending in other areas.
Net interest income decreased due to interest expense on long-term debt which
offset income from cash equivalent investments.
Net earnings and primary earnings per share increased 6 percent and 11 percent,
respectively, over the corresponding period in the prior year.
The comparison of earnings per share for the first quarter of 1994 to the
similar period in 1993, was adversely affected by 4 cents per share due to
several events which occurred during 1993. On March 31, 1993, Registrant
completed the sale of its distribution rights for Zig-Zag cigarette papers and
related products. This resulted in an after-tax gain of $22 million, amounting
to 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
first quarter 1993 primary earnings per share by 9 cents.
(6)
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION (Continued)
In addition, operating results for the first quarter of 1994 do not include
Zig-Zag and related products as compared to the similar period in 1993. Also,
the first quarter of 1994 includes the effects of the 1993 "Omnibus Budget
Reconciliation Act", which increased the effective corporate federal income tax
rate, whereas in 1993, this effect was not recorded until the third quarter.
Together, these events adversely affected the comparison of primary earnings
per share by 3 cents for the first quarter of 1994 as compared 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.
Congress continues the debate over this health care proposal, as well as other
alternatives, which do not include excise tax increases. 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 $48.7 million, which were
higher as compared to the corresponding period in 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 first 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 significantly lower than the corresponding period in the prior
year. Registrant expects to repurchase the remaining 4.7 million shares under
the current share repurchase program during the remainder of the year. During
the second quarter, Registrant borrowed an additional $10 million on the
revolving credit and term loan facility, which was used to repurchase
additional shares. Availability of funds and market prices will determine the
number of shares actually repurchased.
Registrant will continue to have significant cash requirements for the
remainder of 1994, primarily for dividends and the stock repurchase program.
Registrant expects to meet these requirements with internally generated funds
augmented by short-term borrowings when necessary.
(7)
<PAGE> 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
With respect to the action entitled Norma R. Broin, et al. v.
Philip Morris Companies, Inc., et al which was previously
reported in Registrant's 1993 Form 10-K, a panel of the
District Court of Appeal, Third District, on March 15, 1994,
reversed the order of dismissal with instructions to reinstate
the class action allegations in the amended complaint. On
April 18, 1994, the defendants filed a motion for rehearing en
banc, for certification and rehearing of the panel's decision
and that motion has not been decided.
Registrant was named in a consolidated amended complaint filed
on or about April 29, 1994, against the major cigarette
companies and others entitled John G. Allman, et al. v. Philip
Morris., et al. (Case No.: 94-0504-IEG (CM), U.S. District
Court, Southern District of California) seeking unspecified
damages, which Plaintiffs have estimated in subsequent filings
to be "in the hundreds of millions of dollars". The action is
purportedly brought on behalf of a class composed of all
persons in the United States who have smoked defendants'
cigarette products and have been prescribed and paid for
"nicotine patches" or will be so treated in the future. The
complaint alleges violations of the Racketeer Influenced and
Corrupt Organizations Act, 18 U.S.C. S1961, et seq ("RICO")
and includes allegations of a conspiracy among defendants to
withhold information about the claimed effects of cigarette
smoking. Under RICO, damage awards are trebled and prevailing
plaintiffs are entitled to attorneys' fees.
Registrant has had only limited involvement with cigarettes.
Prior to 1985, Registrant manufactured some cigarette products
which had a de minimis market share, and Registrant is
indemnified for the small volume of imported cigarettes which
it currently distributes.
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.
In addition, on May 12, 1994, Registrant was advised by its
Delaware agent for service of process that Registrant and
others had been named in an amended complaint entitled Diane
Castano, et al. v. The American Tobacco Company, Inc., et al.,
(Case No. 94-1044 "B"(3), U.S. District Court, Eastern
District of Louisiana). This action, originally filed against
the major cigarette companies, is purportedly brought on
behalf of a class composed of all persons in the United States
who have used defendants' tobacco products and claim that the
defendants allegedly manipulated the levels of nicotine in
their tobacco products for the purposes of addicting consumers.
The complaint seeks unspecified damages, attorneys fees and
other equitable relief. Registrant has not had an adequate
opportunity to evaluate this action prior to the filing of
this quarterly report on Form 10-Q.
(8)
<PAGE> 10
PART II - OTHER INFORMATION (continued)
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 1994 Annual Meeting of Stockholders was held on
May 3, 1994.
(c) Matters voted upon at the meeting:
<TABLE>
<CAPTION>
Affirmative Negative Broker
Votes Votes Abstentions Non-Votes
------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Ratification 186,120,859 376,923 494,536 N/A
and Approval
of Independent
Auditors
(Proposal No. 2)
Stockholder 6,650,257 154,482,104 7,711,103 18,148,854
Proposal
(Proposal No. 3)
Stockholder 8,310,480 154,154,751 6,378,234 18,148,853
Proposal
(Proposal No. 4)
</TABLE>
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
March 31, 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 May 13, 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)
