<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, 1995
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 March 31, 1995.
195,660,936
<PAGE> 2
UST Inc.
(Registrant)
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information:
Condensed Consolidated Statement of Financial Position -
March 31, 1995 and December 31, 1994 2
Condensed Consolidated Statement of Earnings -
Three months ended March 31, 1995 and 1994 3
Condensed Consolidated Statement of Cash Flows -
Three months ended March 31, 1995 and 1994 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 8
Item 6. Exhibits and Reports on Form 8-K 8
27. Financial Data Schedule
Signatures 9
</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,
1995 1994
----------- ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 50,167 $ 50,718
Accounts receivable 63,119 65,883
Inventories:
Leaf tobacco 145,723 104,313
Products in process and finished goods 112,375 115,261
Other materials and supplies 17,813 18,146
-------- --------
275,911 237,720
Prepaid expenses and other current assets 34,312 27,616
-------- --------
Total current assets 423,509 381,937
Property, plant and equipment, net 302,886 305,885
Other assets 52,055 53,414
-------- --------
$778,450 $741,236
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 78,381 $104,558
Income taxes 105,370 56,197
-------- --------
Total current liabilities 183,751 160,755
Long-term debt 125,000 125,000
Deferred income taxes 3,880 5,065
Postretirement benefits other than pensions 62,655 61,286
Other liabilities 27,663 27,461
-------- --------
Total liabilities 402,949 379,567
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 200,959,136 shares in 1995,
and 200,343,636 shares in 1994. 100,480 100,172
Additional paid-in capital 353,590 343,390
Retained earnings 69,266 33,713
-------- --------
523,336 477,275
Less cost of shares in treasury - 5,298,200
shares in 1995 and 4,233,200 shares in 1994 147,835 115,606
-------- --------
Total stockholders' equity 375,501 361,669
-------- --------
$778,450 $741,236
======== ========
</TABLE>
Note: The statement of financial position at December 31, 1994 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,
-----------------------------
1995 1994
---- ----
<S> <C> <C>
Net sales $306,097 $280,379
Costs and expenses
Cost of products sold 56,606 54,401
Selling, advertising and administrative 85,865 79,347
Interest expense (income), net 940 (13)
-------- --------
Total costs and expenses 143,411 133,735
-------- --------
Earnings before income taxes 162,686 146,644
Income taxes 63,453 57,886
-------- --------
Net earnings $ 99,233 $ 88,758
======== ========
Net earnings per share:
Primary $.49 $.42
Fully diluted $.49 $.42
Cash dividends per common share $.32 1/2 $.28
Average number of common and common
equivalent shares outstanding:
Primary 201,219 210,360
Fully diluted 201,774 210,360
</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,
----------------------------
1995 1994
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
- --------------------
Net cash provided by operating activities $ 90,029 $120,601
INVESTING ACTIVITIES
- --------------------
Purchases of property, plant and equipment, net (5,179) (5,561)
-------- --------
Net cash used in investing activities (5,179) (5,561)
-------- --------
FINANCING ACTIVITIES
- --------------------
Proceeds from the issuance of common stock 10,508 6,873
Dividends paid (63,680) (57,098)
Common stock repurchased (32,229) (47,355)
-------- --------
Net cash used in financing activities (85,401) (97,580)
-------- --------
(Decrease) increase in cash and cash equivalents (551) 17,460
Cash and cash equivalents at beginning of year 50,718 25,327
-------- --------
Cash and cash equivalents at end of period $ 50,167 $ 42,787
======== ========
- -----------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information
Cash paid during the period for:
Income taxes $12,095 $8,197
Interest 1,758 635
- -----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
(4)
<PAGE> 6
UST Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1995
(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, 1995 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1995. 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,
1994.
REPURCHASE OF COMMON STOCK
During 1995, Registrant continued its program to repurchase a portion of its
outstanding common stock, up to a maximum of twenty million shares. As of
December 31, 1994, 4.2 million shares were repurchased under the current
program. Through March 31, 1995 an additional 1.1 million shares costing $32.2
million were repurchased.
CONTINGENCIES
Registrant has been named in certain litigation against the major cigarette
companies and others seeking damages relating to the usage of cigarettes and,
in certain of the complaints, "tobacco products," one of which contains several
allegations relating to smokeless tobacco products. Registrant believes that
these pending litigation matters will not result in any material liability for
a number of reasons, including the fact that Registrant has had only limited
involvement with cigarettes and Registrant's current percentage of total
tobacco industry sales is relatively small. Prior to 1986, 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 also believes that these actions are without merit and
intends to defend them vigorously.
(5)
<PAGE> 7
UST Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF OPERATIONS AND FINANCIAL CONDITION
(UNAUDITED)
Results of Operations
First quarter 1995 compared
with the first quarter of 1994
Net sales for the first quarter were $306.1 million, a 9 percent increase over
the corresponding period in the prior year. The Tobacco, Wine and Other
segments posted sales gains for the first quarter. Higher selling prices for
moist smokeless tobacco was the primary reason for the increase in consolidated
net sales. Domestic unit volume for moist smokeless tobacco decreased 0.3
percent for the first quarter as compared with the similar 1994 period.
Registrant believes that the domestic moist unit volume comparison for the
first quarter of 1995 to the similar period in the prior year was unfavorably
affected by distributor inventory build-up in December, 1994. Wine segment
sales were higher due to an increase in case volume for premium wine while
Other segment sales increased due to volume gains for the entertainment
business.
Cost of products sold increased for the first quarter due to volume gains for
the entertainment business and wine 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 for domestic moist smokeless
tobacco.
Selling, advertising and administrative expenses increased for the Tobacco and
Other segments and remained stable for the Wine segment. Increased selling and
advertising expenses in the Tobacco segment were for the promotion and support
of moist smokeless tobacco products, while costs in the Other segment were
expended to support new products and markets. Administrative and other
expenses increased for the first quarter due to higher salary and related costs
and increased spending in other areas.
Registrant incurred net interest expense as interest expense on borrowings
exceeded income from cash equivalent investments.
Net earnings and primary earnings per share increased 12 percent and 17
percent, respectively, over the corresponding period in the prior year.
The Clinton Administration introduced the Health Security Act during the 103rd
Congress, which among other things proposed a significant federal excise tax
increase on all tobacco products, including moist snuff. This proposal failed
in 1994. Registrant expects some form of Health Care debate during the 104th
Congress and will vigorously oppose any proposed increase in the federal excise
tax on its tobacco products. 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 its tobacco business.
(6)
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
OPERATIONS AND FINANCIAL CONDITION (Continued)
Liquidity and Sources of Capital
Changes in Financial Condition Since December 31, 1994
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. The decrease in net cash provided
by operating activities as compared to the similar period in the prior year was
primarily due to a reduction in accounts payable and accrued expenses. A
primary use of cash in operations was for purchases of leaf tobacco of $55.2
million, which were higher than amounts expended in the corresponding period in
the prior year. Registrant anticipates total leaf tobacco purchases for 1995
will exceed amounts purchased in 1994 which reflects Registrant's plan to
maintain a higher level of leaf tobacco inventory.
Net cash used in investing activities for the first quarter of 1995 was for the
purchase of property, plant and equipment. Registrant expects the 1995 capital
program to approximate $52 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 that total funds allocated to the stock repurchase
program in 1995 will be significantly lower than amounts expended in 1994.
Availability of funds and market prices will determine the number of shares
actually repurchased, as well as whether additional long-term borrowings will
be utilized for the repurchase program.
Registrant will continue to have significant cash requirements for the
remainder of 1995, 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
In McGraw v. The American Tobacco Company, et al. (Civil Action No.
94-1707), Circuit Court of Kanawha County, West Virginia, on May 3, 1995,
following a hearing, Judge Berger granted defendants' motion to dismiss counts
one through six and nine and ten, and denied plaintiff's motion to add state
agencies as plaintiffs. Defendants have filed motions to dismiss counts seven
and eight of the Complaint that allege, respectively, antitrust and consumer
protection law violations. The court has not yet ruled on these motions.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 1995 Annual Meeting of Stockholders was held on May 2, 1995.
(c) Matters voted upon at the meeting:
<TABLE>
<CAPTION>
Affirmative Negative Broker
Votes Votes Abstentions Non-Votes
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Approval of 167,998,345 9,317,601 1,901,891 N/A
the Nonemployee
Directors' Stock
Option Plan
(Proposal No.2)
Ratification 178,317,072 530,586 370,179 N/A
and Approval
of Independent
Auditors
(Proposal No. 3)
Stockholder 11,247,095 142,477,046 8,372,108 17,121,588
Proposal
(Proposal No. 4)
</TABLE>
Proposal No. 5, a stockholder proposal which was included in
Registrant's Proxy Statement, was not presented at the meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
There were no reports on Form 8-K for the three months ended March 31,
1995.
(8)
<PAGE> 10
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 11, 1995 /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)
(9)
<PAGE> 11
EXHIBIT INDEX
Exhibit 27 - Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Registrant's
condensed consolidated statement of financial position and condensed
consolidated statement of earnings and is qualified in its entirety by reference
to such financial statements. (In thousands except per share amounts).
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 50,167
<SECURITIES> 0
<RECEIVABLES> 63,119
<ALLOWANCES> 0
<INVENTORY> 275,911
<CURRENT-ASSETS> 423,509
<PP&E> 492,876
<DEPRECIATION> 189,990
<TOTAL-ASSETS> 778,450
<CURRENT-LIABILITIES> 183,751
<BONDS> 125,000
<COMMON> 100,480
0
0
<OTHER-SE> 275,021
<TOTAL-LIABILITY-AND-EQUITY> 778,450
<SALES> 306,097
<TOTAL-REVENUES> 306,097
<CGS> 56,606
<TOTAL-COSTS> 56,606
<OTHER-EXPENSES> 85,865
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 940
<INCOME-PRETAX> 162,686
<INCOME-TAX> 63,453
<INCOME-CONTINUING> 99,233
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 99,233
<EPS-PRIMARY> $.49
<EPS-DILUTED> $.49
</TABLE>
